The BBC’s Business Matters podcast covers a range of topics, including the positive economic signs in the US, the Russian tech brain drain, and the potential for a new plug to be the secret to a green transition.
Guests Emily Eng, NPR’s Beijing correspondent, and Tony Nash, founder and CEO of the financial forecasting platform Complete Intelligence in Houston, provide their insights on these topics.
They discuss the impact of economic sanctions on Russia and how the country is responding to them, including increasing exports to China and reducing its crude oil supplies by 500,000 barrels per day to push up prices.
The conversation also touches on a controversial proposal by the European Commission to seize Russian assets to help rebuild Ukraine.
Additionally, the podcast covers the announcement by the US federal government that all new garages and four courts built in the country will have to include charging points for electric vehicles and its potential impact on accelerating EV adoption.
Hi there. Welcome to Business Matters. My name is Ed Butler, and today, despite all the political rows we’ve been hearing about a potential debt default, there are more positive economic signs from the United States. This week, we read the tea leaves with a former presidential economic adviser and hear about the new incumbent in that job. Also, we consider the Russian tech brain drain, and why a new plug could be the secret to a green transition.
This will definitely help accelerate EV adoption. Charging is one of the things that really does stand in the way of someone’s decision about going electric.
All the latest on electric vehicles in the States coming up in the show, and I’m going to be joined throughout the program by two guests on opposite sides of the world. Emily eng is NPR’s Beijing correspondent, although she is based in Taiwan at the moment. Hi, Emily, can you hear us?
Yes, I can. Good morning.
Great to have you on the show. Tony Nash. He’s the founder and CEO of the financial forecasting platform Complete Intelligence in Houston, Texas. Hi, Tony.
Hi, Ed. Thank you.
Great to have you both with us. Tony Nash this is obviously a function of, to some extent of the economic sanctions that we’ve been talking about, those applied against Russia. I mean, the funny thing about this is to some extent Russia hasn’t done that badly in the last twelve months, at least initially. I mean, that’s what the headline data is telling us. You look further into the future, I mean, are you seeing a kind of more serious decline potentially with Russia now because of what’s been applied against it?
Sure, there are a couple of things to look at. First, in the four weeks in January, Russia exported more crude oil than during any four-week period in 2021. So they are recovering their export capacity to places like India, China, parts of Africa, and other places. So, you know, it really hasn’t necessarily hurt their crude exports. When you look at imports, they’ve really substituted, say, the west for China. Their imports from China have grown by, I think, $8 billion a month. It’s got to be more than that, but I saw some numbers recently, but they’ve substituted imports from China. So in terms of trade, they’ve really turned eastward and southward instead of westward, which is just a natural response to sanctions. So where they’ve hurt is domestically in terms of things like industrial production of, say, machinery and domestic goods outside of, say, coal and oil and gas.
What the west, of course, has tried to do most recently is apply these caps on Russian crude exports. Now you’re saying that they’re getting around those or are they simply selling a larger amount of crude but at a lower price?
They’re getting around them. They haven’t hit the price cap yet. The crude is trading, or what has been trading at, I think, a $20 discount to the price cap. So they’re not even hitting the price cap. There’s a $20 discount to Euros crude. What Russia on its own, announced last week is that they’ll reduce their supplies by 500,000 barrels per day. So Russia is, on its own, taking barrels off the market as a way to push up crude prices. So the volume and the price caps really aren’t having an impact necessarily on crude itself. Of course, the Russian economy is being hit. Of course the isolation, of course other things are impacting Russia. I’m not trying to say that there are no impacts at all, but in terms of that natural resources, trade, and some of the import substitution, they’re actually doing okay.
Yeah, import substitution. This is the thing, and it’s a fascinating subject, actually. I was suddenly trying to dig into this, and it’s really complicated. But Tony, one last tantalizing thought on this. An element we understand, what Bloomberg is reporting that may be part of these new sanctions from the EU is to force banks to report more information on what Russian central bank assets they are actually holding. Because of course, the EU and other countries want to know how much has been frozen in Western bank accounts that used to belong to the Russian state budget. Now, this is seen possibly as a first step towards a controversial move touted by the European Commission, not just to freeze Russian assets, but to actually seize them, to use them to start rebuilding Ukraine or to at least pay Ukraine back for the damage that’s been caused. I mean, gosh. Do you think that that could be something we’ll be looking at in the next few weeks?
I think as a threat, I guess useful as a threat, but as an actual policy, I think it would be very difficult to execute and justify. Usually, these things are seized for years or decades. Sorry, frozen for years or decades, not necessarily seized. So I think that could be a very problematic policy to carry out.
Because it would set precedents.
Yes, that’s right.
For western countries, I suppose. Okay.
And the banking system that supports Russian assets or sovereign assets, would be dangerous for people like Russia going forward.
Tony Nash, thank you for now but stay tuned to this because this is big news. If you’re a car owner who wants to buy an electric vehicle, maybe you’ve got an electric vehicle already, especially if you’re in the US. The Us federal government has said that from now on, all charges that are used in the garages and the four courts around the states must be American made and have to be usable for all-electric vehicles. That means that Tesla, which has had most of the existing charging points, they have to carry, adapters, allowing other cars to use them. I spoke earlier about this with Alexis and John of Business Insider in Detroit. Well, Tony Nash, there you are in the big oil state, famously, there Texas. How is EV adoption going in the States?
It’s great. I’m sorry. It’s great. A lot of my neighbors have EVs, and I think it’s probably not as dense as, say, San Francisco or something. But we do have a lot of EVs here in Texas.
You’ve got a lot of territories to cover, though, don’t you? I mean, if you’re a driver. We do, and I have an electric vehicle. Every time I’ve gone 100 miles down the road, of course, I’m starting to sweat at the thought that, you know, at some point I’m going to have to refuel, otherwise I’m going to stop on the highway. Tony Nash are you confident that the move to electric vehicles is going to move as fast as some politicians, I suppose particularly politicians in Europe, are saying that we can sort of phase out the internal combustion engine in the next few years and rely entirely on electric vehicles? It’s going to require an awful lot of infrastructure. An awful lot of rare earth. Exactly, that’s right.
A lot of infrastructure. I mean, I understand the aggressive plans, but I just don’t think it can happen on that time scale. So it seems to me that maybe add ten years to it and sure, that makes sense. And to be honest, ten years in terms of adoption, in terms of building this stuff is really just the blink of an eye. So sure, I think it’ll happen, but I think it’s going to take a bit longer than people right now believe.
Right, it’s going to take longer, but that’s going to leave, I guess, a lot of politicians with egg on their faces, isn’t it?
That won’t be the first time. Quite true. Especially American politicians. Won’t be the first time.
Quite true. evelyn professor Jason Furman. Tony Nash, obviously he’s speaking in an upbeat way. He’s a supporter of the Democratic cause. Are you sensing a slightly kind of warmer, more positive mood in the US right now over its economic performance?
I think the mood is tentative because inflation is affecting everything. So if we look at that retail sales number, if you look at it in inflation-adjusted terms, we actually saw a decline of retail sales by 2.3%, and it was the fifth consecutive year-on-year decline. So five months in a row we’ve seen negative retail sales if we adjust for inflation. So I think inflation really covers everything. One of the things that the professor said that I’m not really sure is right is he says the White House can’t do anything about inflation. So we have Janet Yellen, who is a Treasury Secretary reporting to the White House, who is spending $140,000,000,000 a month from the treasury general account, and it’s offsetting all of the work that the Fed is doing. So the treasury is actually putting $140,000,000,000 into markets every month to keep markets booming. When the Fed is raising interest rates and selling off its balance sheet. So the US Treasury is actually and literally offsetting all of the good that the Fed is trying to do.
It’s interesting because we got Lyle Brainer coming from the Fed right this week to the White House as an economic advisor. You’re seeing that the political executive and the Fed are basically in conflict.
Absolutely. And Lail Brainerd is very smart. She’s fantastic. But she is very much a dove. She’s very much a loose monetary policy believer. And so what Janet Yellen is doing at the Fed in terms of pumping money in through the treasury general account, Lail Brainerd would be an absolute supporter of. And so we have to be very, very careful of inflation. All of these stimulatory activities really hurt your average worker. So there’s a concept called core inflation which really takes out everything energy, food, and so on and so forth. And really all it’s reflective of is service industry wages. Okay? So what we like to see is a headline number which will say 6% or something and what we’ll talk about is a core number which may be 1.2%. All that really means is that your hourly workers are being squeezed by inflation. So when the headline exceeds the super core inflation rate it just means that your hourly workers are being squeezed. And so it’s a really tough environment for wage workers.
Okay? It’s a tough environment. The bigger issue perhaps. Meanwhile, Tony, we still have this debt default issue, don’t we? We’ve been hearing about it in the headlines. Yet another cliff edge approaching in the United States. The wearyingly inevitable to some people kind of confrontation between Republicans and Democrats in Congress.
Yeah, I think what’s happened is the US has not actually had a budget for years and my understanding is what is trying to be negotiated is for the US to actually start doing an annual budget again that gets approved by Congress which is their constitutional role. One of the other items that I know are under discussion is this Treasury general account issue. Kind of profligate spending from the treasury to support markets. So there are some issues. It’s not just about the full faith and credit of the US. Of course, nobody wants the US to default but we’ve had some pretty ugly spending patterns for the past well as far as I can remember and I think some of that is just being discussed to come under control. So the US won’t default but it’s going to take some time to come to an agreement.
Yeah, indeed it will. We’re probably just going to be talking about it for weeks and weeks and weeks.
Well, I don’t think people realize there are thousands of protests in China every year. It’s not rare to have protests in China. Some of them are local workplace protests. Some of them are bigger. There was a protest east of Wuhan a few years ago about the location of I think a plastics factory or something like that. And there was one in Guangdong about, I think, an incineration plant or something, probably four or five years ago. But there are thousands of protests in China. It’s good that this is happening, and it’s a good discussion to have, and it’s good that Western media are able to view it. So every society has protested and every society has disagreements, and China is no different. Yeah, but there are older people, and even during the COVID lockdowns, the aunties in the buildings were yelling at the people, bringing food to them, and yelling at the police. So there is a difference in the age population in China. So I just don’t find any of this surprising, whether it’s a protest or a deference to old people.
What are they yelling down at the government? I mean, is this an escalation in the sense of the language, perhaps the boldness of some of the protesting and the way it’s being put?
They’re not saying, down with the CCP. Right? So if Beijing will let local governments take the flak for local issues, that’s not all that abnormal. It’s not a daily occurrence, but it’s not all that abnormal. If they were shouting down at the CCP, of course, that protest would have been squashed, but local governments and local government officials always take the hit for these types of issues. That’s normal in China.
Okay, Tony and Emily and Tony Nash, I suppose workers, you know, if they did kick up a fuss, for example, at a handful of Starbucks stores, they are still, particularly they’re still potentially vulnerable to just being fired, aren’t they? I mean, how protected are they from that kind of retaliatory action if they were to try and organize just on a shop-by-shop basis?
Yeah, I honestly don’t know. I think that would have to do with the contracts they negotiate. As your guest said, unionizing is one thing, but getting a contract is a whole different level. So I think her interview is very interesting. And what’s really interesting to me is what is leading to this desire to unionize. People obviously don’t feel like they’re getting fair pay and fair benefits, and that’s something that really needs to be looked at across companies.
Yes. And that is what seems to be a legacy of the pandemic, partly, wasn’t it? People went home, they were kind of laid off or furloughed for often long periods, they reflected, and there is a kind of militancy that seems to have left as a legacy.
What’s interesting to me is Starbucks is supportive of this, but they’re also the company that people want to unionize under. Right? And so they have the orientation toward doing that, but they’re not providing on their own the benefits and the pay that would keep people from unionizing. So I just think it’s an interesting circular discussion. Tesla is a different story. They’re an auto company in different parts of the country, automakers are highly unionized. So I don’t think it should be any surprise to Musk that that’s happening in Taiwan.
Thank you so much for all your thoughts, your words, and your wisdom. And to Tony nash there at Complete Intelligence in Houston, Texas. My name is Ed Butler.
Fed Chairman Powell was out this week all but assuring a 50bp hike in May, also implying we may see a burst of quick hikes. Then everyone who said “it’s all priced in” two weeks ago panicked on Thursday and Friday. Mike Green shares what’s new here and why are we seeing the reactions now?
We’ve spoken before about Q2 earnings, expecting them to generally be weaker, partly on inflation, which every company is blaming for shortfalls.
– Snapchat missed earnings but it reported 64% revenue growth, with daily active users up 20%.
– Netflix lost subscribers. They’re now the tech cautionary tale.
– FB is falling in anticipation of an earnings shortfall next week.
– Tesla reported a 42% earnings surprise and they’re about even on week
We keep hearing about commodities getting smoked this week. What happened this week and what should we be thinking about right now? We’ve got a bunch of housing metrics out on Tuesday (Case-Shiller, etc). Do the guys expect to see an impact on house prices already or will it take a couple of months/another rate rise to have a noticeable impact?
Key themes from last week:
1. Powell’s Wrecking Ball (Dollar Wrecking Ball)
2. Tech Earnings
3. Commodities getting smoked?
Key themes for the Week Ahead
2. France election
3. Geopolitical lightning round
This is the 15th episode of The Week Ahead in collaboration of Complete Intelligence with Intelligence Quarterly, where experts talk about the week that just happened and what will most likely happen in the coming week.
TN: Hi and welcome to The Week Ahead. My name is Tony Nash. Today we’re with Albert Marko and Mike Green. Before we get started, I’d like to ask you to like and subscribe to our YouTube channel. Thanks for doing that. I also want to let you know our CI Futures promo ends on April 30th. This is CI Futures, about 3000 assets forecast every month for $50 a month. That promo will end on April 30th. So if you’re interested, please go to completeintel.com/promo and check it out.
So this week we’ve got some key things from the past week. First of all, Powell’s wrecking ball and rate rises and the dollar wrecking ball that comes with that very important item. Tech earnings. We’ve seen a collapse in tech equities over the past couple of days. Not a collapse, but some really interesting activity. We’re going to talk through that. And then commodities. We’ve seen commodities, heard some people say commodities are getting smoked late this week. So let’s talk through that.
So Mike, first let’s look at Fed Chair Powell is out this week, all but assuring a 50 basis point hike in May. And a lot of people think it may be stronger for a longer period of time, maybe June and July even. I hear a lot of people saying a few weeks ago, it’s all been priced in yet we’ve seen kind of some panicking markets on Thursday and Friday. So we’ve got the 10-year on screen right now. So what is new here from your perspective and why are we seeing the reactions now?
MG: So the point that I would argue on this is that we’re in a feedback loop effectively where the market tries to price the Fed’s indications the Fed is in turn responding to the market. And so it’s leading to a dynamic where the Fed is saying, well, look how interest rates are rising, particularly at the back end. Clearly, we’re behind the curve. Therefore, we need to hike more and we need to convey to the market that we’re going to hike more. The market mechanically has to respond to that because you just can’t ignore it. Right.
You have to effectively think of it in a binomial tree type framework. The Fed has told you they’re going to hike more aggressively. Therefore, you need to shift the whole system up. Right. And that feedback loop, I would argue, is what we’re kind of captured in right now. And it’s part of the reason why the market is forced to respond to it in a risk off fashion, et cetera. We just don’t know if the Fed really actually knows what the underlying signal is and how much of it is us and how much of it is their insights onto the economy.
The second thing that I would just highlight is that the Fed has put themselves into the very uncomfortable position of last year, arguing that inflation was transitory. And this has been one of these really frustrating things for those of us that actually agreed with them that it is largely transitory in inflation rate. Right. So the rate of inflation is transitory, but the price level, I don’t expect oil to go back to negative $37 a barrel. That would be absurd. Right, right. So when you talk about the transitory dynamic, it’s typically thought of as the rate. But I think the perception had broadly been the prices themselves were going to somehow come back down and not adjust to the realities of accommodating the difference.
So I think that is sitting at kind of the core of the issue is that the Fed is now in the same way they were trapped in that transitory framework that people began to increasingly malign and make fun of. Now they feel this overwhelming need to come out and tighten and show that they’re actually serious about inflation and reestablish credibility, even as it’s very clear that the economy is starting to slow. And they’re then forced into the mantra of now saying, well, we see no signs of the economy slowing. And so they’re going to have to maintain that for a period of time or they sound like fickle policymakers.
MG: I think the market is understandably concerned and scared at how far they’re going to have to go to prove to us that they’re really serious.
TN: Right. And Yellen was out saying there will be no recession this year, which I mean, I hope she’s right.
MG: There’s a recession. Yeah.
TN: Exactly. So I was roasting coffee yesterday, and my coffee guy was telling me that coffee prices will stay elevated because of the buying cycle from the farms and so up and down the commodity supply chain, across, it seems, across metals, across crude, across ags. That timing has a real impact on the change in levels. The rate may not change much from here, but it seems like the level will remain elevated, as you’re saying.
MG: I think that’s right. And again, that’s why the transitory, I think, was so toxic and confusing to people because they were thinking, oh, we’re going back to $1.75 gasoline as compared to the $6 in chains that we’re currently paying in California. Right?
MG: That’s very hard to accomplish under the current framework. And the coffee example is a really good one. It’s not so much the level. The adjustment to the level is painful. Once that level has been reached, all sorts of changes in relative purchasing activity can occur. Right. You can decide you’re going to roast your own beans because it’s cheaper than somebody else’s beans. You can decide that you’re not going to go to Starbucks, you’re going to do your coffee at home and put it into a travel mug to save money.
Whereas the Wall Street Journal highlighted you can reduce your consumption of beef and chicken and increase your consumption of lentils. And yet another example that just pisses people off because it feels completely disconnected from the reality that they’re in. But those are all true statements, right. Those are adjustments that people make once the level settles down. Where the real problem occurs is the uncertainty about the level.
Is it going to be 20% higher next year? Is going to be 20% lower next year? That makes it very hard for me to plan. And that’s really what we’ve experienced. And now what your feedback, what your contacts are telling you is no, prices are going to stabilize at a higher level because that’s what’s required to induce the supply response.
MG: Okay. It sucks. Coffee is more expensive now, but at least it will be in the stores.
TN: Right. So going down the path of, say, your Wall Street Journal saying you need to eat lentils instead of beef. With interest rates rising, it seems like consumers would utilize more credit during that adjustment period. With rates rising, it seems like it would make things much more difficult. So there’s a double whammy on consumers. Are we seeing that impact right now?
MG: I don’t think we’re yet at the point that the higher interest rates are feeding through in a way that matters. Right. So the vast majority, something like 95% of outstanding mortgages are no longer adjustable rate. They’re fixed rate. And so that is going to be very slow to adjust. We’ll see that the marginal purchasing behavior. And we are absolutely seeing that. We’ve seen a dramatic reduction in refinancing and purchase applications. We’re starting to see traffic deteriorate. We’re starting to see new orders roll over. We’re starting to see consumer spending intentions begin to plummet.
And there’s two reasons why people can use credit cards. Right. You can use credit cards to smooth over effectively saying, hey, guess what? I’m getting paid my bonus next week. Therefore, I’m going to make the purchase now and I’m going to repay it. Or you can see people start to tap credit because they are so strained that they can’t do anything else.
And unfortunately, the evidence that I’m seeing suggests it’s the latter, that it’s the lower income households who are now taking advantage of high cost financing choices in order to sustain a level of consumption that they’re having difficulty retreating from.
If your rent goes up and you don’t want to be homeless and their coffee prices have gone up, at some point, you need to expand your purchasing capacity. And that means using credit.
TN: In basic terms, what we’ve been talking about on this show is demand destruction. The Fed is aimed at demand destruction. And that means that demand curve actually moves in, right?
TN: So people are going to have to rein in their behaviors because we’re likely at new pricing levels for many things. And so that consumption is going to have to decline a bit to adjust to the new environment. Albert, you had a comment?
AM: Yeah, two comments, actually. The thing about the demand destruction and the supply, from the Fed’s point of view, they think that getting rid of demand involves eliminating supply. Right. So that a little bit has to do with the rates, but also what Mike said about doom loop. I mean, that’s very interesting because that’s exactly what we were talking about in multiple areas, not just for bonds, but Yellen herself, she’s had her minions go out in the bond market and just straight up lie to bondholders, saying, oh, they’ll recover, they’ll recover while everyone keeps buying, and they just keep butchering the long bond.
The 30 years just been 3.1 today or 3.5. It’s crazy. She did this in 2013 where she had this little ploy where she has preventing capital flight, leaving the United States in order to prop up the US equity markets. And that’s what we’re seeing today. And this doom loop between the Fed and the treasury, because they’re not on the same page. They’ve got different policies, different ideas of how to keep the market, and it’s causing problems.
MG: I would actually add to that and just highlight that this is, of course, the downside to not having people who actually have ever traded or negotiated a swap or done anything else along those lines in positions of decision making. You don’t want to put a fox in charge of the hen house. But the reality is it is somewhat useful in terms of understanding what’s actually transpiring. It doesn’t surprise me at all that Janet Yellen says something along the lines of, well, there’s no sign of a recession because they’re working very first order, first derivative type dynamics. It’s that second and even potentially third derivative that ultimately conveys the dynamics of what’s really happening.
And the second part is that the Fed operates under a model in which negative real interest rates, which is basically a function of inflation expectations and the current level of yield. Some people roughly approximate it with trailing inflation and current yield, which is completely insane. But at least if you’re doing it in a structural fashion, they tend to presume that the only reason why markets move is due to information.
The market has some insight, and this has been one of the huge policy innovations. And I use “innovations” over the last 20 years has been this dynamic of, okay, well, if we’re trying to figure out market expectations, let’s use market inputs. But those market inputs in turn respond to the policy makers. Right?
MG: And there’s all sorts of structural features to markets. If I happen to short a pay or swap shop, for example, and my risk manager is forcing me to cover that risk, it has no economic signal to it. It’s simply a market feature that they are then trying to interpret as indicative of underlying demand. That’s just wrong.
AM: On top of that, you have a political component where Yellen tied to a certain party or not just Yellen but others tied to a certain party are going to do things beneficial to that party.
I know economists and financial guys don’t like to hear that, but that’s just the reality of it.
TN: That’s the reality of national accounts. We also mentioned the dollar wrecking ball. We’ve seen over the past week, Yen devaluation or Yen depreciation. We’ve seen CNY devaluation. CNY has gone from, I think, 6.34 to 6.49, which is a dramatic deval of CNY. How much of an impact does the dollar have on those markets, particularly because we’ve heard about the dollar losing influence for the past, I don’t know, 50 years. But talk to us, Albert, what’s going on there?
AM: Like I said, Yellen wants to restrict capital flight, and a strong dollar does that. It’s killing the emerging markets. They gave Japan the go ahead to devalue the yen in order to offset anything that China does asymmetrically against the United States, because they have been. They’ve been in a little bit of a tit for tat for quite some time now.
So the dollar at 110 just absolutely annihilates emerging markets, except for the markets that are commodity based, like Canada. I’ve been in Canada. I love the Canadian economy right now. It’s strong oil based, gold based. So that’s where I’m coming from on the dollar right now.
TN: Great. Okay.
MG: I would just broadly highlight but by the way, I don’t know if you saw the CNY today, but it moved huge again today. So it’s actually now 6.50. Well, fantastic in the same way that like a root canal is fantastic. Right. But yes, it’s a wonderful technology. Nobody wants to experience it.
But just to put this in context, this is a move now that is equivalent in terms of devaluation of what we saw in August of 2015, in terms of the much-heralded… Right. And I would just highlight that I think this is an important move. I think it’s telling you that there’s all sorts of stuff that’s going on. I tend to fall into the category of terms of trade dynamics, more so than interest rates or even anything, those dynamics.
Japan allowing its currency depreciate, leading to depreciation for the Chinese currency or contributing to depreciation for the Chinese currency. They want a competitive in global export markets. Right. So there’s an element of China needing to respond and maintaining competitiveness versus a significant devaluation that’s occurred in the Japanese yen, which is basically, if you think about it from an American perspective, means I can buy 30% more of what a Japanese worker produces today than I could a year ago. Not quite exactly. Right. But somewhere in that range.
The second part of it, though, is that the terms of trade have just turned so ugly for these countries where the things that they need to import, they have incredible food insecurity, they have incredible energy insecurity, and those are the things that are rising in price. And we’re seeing no signs that those are going to retreat, whether it’s LNG that Japan now has to compete with China in Europe or from the United States and elsewhere or whether it’s wheat or rice or corn.
I believe, Albert you may know this better than I do but I believe Malaysia just announced export restrictions on palm oil, worried about their own food security. This is the way the system breaks down. And the irony of course is the US, are we going to get unlimited palm oil imports? Of course not. But can we use soybean oil or canola oil in lieu of palm oil for frying our Twinkies and our food? Of course. Right. We can do that. The US can survive almost anything from a food or energy shortage standpoint. It’s the rest of the world.
Albert referenced the emerging markets. I mean man, if you are a cash crop producing emerging market that is now struggling with issues around food and energy security, this is going to get bad. It’s really bad.
AM: It’s really bad. It’s causing political uncertainty in many regions of the world. And again use the phrase doom loop because politicians over Covid policies have created a doom loop in trade.
TN: But let me ask you and we need to wrap up this topic but I want to take this full circle because it’s fascinating. With the currency devaluation depreciation in China, Japan and the food issues could that potentially push, say, North Asia to put more pressure on Russia to wrap up the conflict so that the commodities out of Russia and Ukraine can alleviate some of this price pressure on emerging markets. Is that a possibility?
AM: It’s a possibility, but I think it’s a small possibility. Things have changed because of the Ukrainians sinking that battleship. They got bears at that point.
But Interestingly though, now that you mentioned, I just thought of it. Japan and China have always competed for the fishing rights and then sea Japan. So you could see a future. Want to say naval skirmish but a couple of boats taking some live firearounds.
TN: Sure. Yeah. Or a mistake. Right. You could have a mistake that results in something like that. Okay, let’s move on to tech. I think we can talk about this issue for hours.
TN: Let’s move on to tech. Robert, we’ve spoken about key to earnings for a while, expecting them generally weaker, partly on inflation and other pressures. But this week we saw Snapchat miss earnings, but they reported 64% revenue growth and their active users were up 20%. So their business seems to be going well. Netflix lost subscribers and we saw them kind of as the tech cautionary tale. Facebook is falling in anticipation of their earnings for next week. On the bright side, Tesla saw a 42% earnings surprise, but their stock, after moving up a bit, really hasn’t moved much.
So on screen, we’ve got Facebook and Snapchat kind of showing their downward trajectory over the past month. So can you talk us through kind of what’s happening with tech earnings? Is that a rotation? Is tech really out of gas? What’s going on there?
AM: I believe tech is out of gas. A lot of it has to do with inflation and rates and whatnot. But I think tech earnings had gone into the stratosphere when Covid was just blazing because of the lockdown. People stayed at home, got on Snapchat, got on Facebook, got on Google and whatnot. Right.
The Tesla earnings. Those are a joke. It sounded like Tesla is the most efficient automaker in the world, which is absolutely a joke when they’re making cars intense. And it took the market up like 70 points. And then as soon as some of the better analysts started digging through the information, immediately sold off again. And then that actually triggered, I think that triggered the market to sell-off a little bit because people are worried about tech earning. I think Google’s going to miss big because their brick and mortar advertising scheme is hurting. Last month and this month it doesn’t look pretty.
But I want to take some caution here because everyone’s going to get beared up on these tech earnings as everyone’s seen the Huawei, big puts coming out there and whatnot. But we’ve seen time and again these tech earnings missed on revenue. And then the guidance is fantastic and the market rips 200 points in a week. I don’t want to be short tech at this level right now.
TN: Right. Mike, what are your thoughts?
MG: The obvious component is that we’ve got extraordinarily difficult compares for most of the tech companies. Right. So you go into a pandemic and every kid needs a computer, every kid needs a cell phone, every kid needs that. And I’m speaking to you over a microphone that was purchased during the pandemic and a computer that was purchased during the pandemic and a video camera that was purchased during the pandemic. Right. And I upgraded my software and my kids got new phones and all this sort of stuff that all occurred. Well, guess what? It’s not happening now. That’s harder.
And when I think about the reinvestment that needs to occur as we talk about going back into the office and into work, et cetera, it’s much less on the soft side. It’s much more on the simple dynamics of how do we restock a pantry at a company cafeteria. Right. Which hasn’t had to happen for a while.
MG: So I am generally skeptical of it. I’m particularly concerned about the consumer side of it. One of my friends many years ago had highlighted that the emergence of cell phones as a consumer good had by and large, replace lots of other types of spending. So it reduced clothes, reduced spending on everything else. People are now tapped out on buying those phones. Right? They’re out of money and they’re using their credit in one form or another. So I’m skeptical on particularly Apple.
I agree with Albert, by the way, on Google. I think people are underestimating the importance of the bricks and mortar, and they’re also underestimating. I think this is one of the challenges for the Netflix. I’ll be 100% straight with you in terms of my household’s reaction to it. I mentioned it to my wife. She’s like, well, we’re obviously switching to the advertising supported model as soon as that becomes available because, candidly, I don’t even like watching Netflix to begin with. I could care less. If I have to watch ads and get it for $10 as compared to $20, then I would argue that this is happening broadly.
As we move back to an advertising supported model, the inventory of advertising space is about to explode at the exact same time that demand is relatively weak. So who thinks we’re going to get premium prices for advertising anymore? These models are screwy in terms of how badly they could deteriorate. If you simultaneously have a boom in advertising space at the exact same time that demand is relatively short.
TN: But lucky us, we get more campaign ads until November.
Okay, great, guys. Moving on to commodities. We saw commodities pretty much get smoked in the last half of this week. We’ve got one month history of WTI and copper up on the screen. So what happened this week, and what should we be thinking about right now with respect to commodities?
AM: I think that in terms of commodities, I think the biggest component right now is to see what happens in the Ukraine war, whether Russia stops because the Europeans and the Biden administration is using that as like the Putin price hike and whatever. But that’s what they’re blaming it all on. And a lot of people are worried about this being an extended war. I don’t think it’s going to last more than another month or two.
But for commodities, especially wheat and fertilizer, the moment that Ukraine comes back online, those things are just nosedived. And the Fed wants that to nose dive because they’re trying to kill supply in order to tackle inflation. So that’s from my perspective, there.
TN: So a lot of this at this point, you think depends on Russia, Ukraine.
AM: Yeah. That and the dollar. That and the dollar. So the dollar goes up, prices will come down.
TN: Okay. So appreciated dollar, did that hurt commodity prices this week?
AM: I think so. Go ahead, Michael.
MG: Yeah. So they’re not quite inverse. But remember, when we see prices, we’re seeing our prices, we’re not seeing the rest of the world’s prices. And exactly to the point that we were raising before with Japan and everything else on a year to day basis, as much as you may think, oil prices are up in the United States, they’re up maybe 50% in the United States. They’re up 100% if you’re in Japan. Oil prices 100% on a year to day basis.
AM: Wow. Right.
MG: I mean, that’s just an extraordinary outcome. You’re looking at these kind of underlying characteristics, and you have to say to yourself, the rest of the world is going to start to experience significant declines in aggregate demand.
Forget the supply component that Albert is highlighting. Focus much more on the demand. And when we think about commodities, developed world demand is extraordinarily efficient. We don’t throw copper on the ground. We don’t discard it into landfills. We recycle copper. Right. We recycle aluminum. We clean up the sludge off of our factory floors. That doesn’t happen in most places around the world. Right. Scrap found out in the open is still a significant fraction of aggregate supply. So we just use it more efficiently.
As things shift back here, we’re going to become more efficient at it. And I got a lot of heat earlier this week for posting a chart that said, look, I’m not seeing this commodity super cycle. I’ll say I’m not seeing this commodity super cycle. I don’t see the underlying outward shift in aggregate demand in almost any commodity that says we’re going to have truly sustained high levels of inflation and need for significant additional production other than effectively the disaggregating of supply chains. And you’ll hear things like huge copper demand because of electric vehicles. Right. That is selling human innovation so short, it’s just ridiculous.
If copper prices go higher, we’ll figure out how to use less copper wiring. That’s the history of the world.
AM: That’s absolutely correct. That’s when they started using, like, gold flakes and sprays and different types of adhesive made out of whatever.
TN: But it generally takes a big demographic change to enter a commodity super-cycle or some sort of supply cut-off, right?
AM: Yeah. I can see a super-cycle within one or two commodities peaking and then coming back down and another one peaking and coming back down. But this insane super cycle that people were expecting, I don’t think it can happen. I agree with Mike.
TN: Okay, great. Let’s switch gears and look at the week ahead. Guys, we talked a little bit about housing, but we’ve got a bunch of housing metrics coming out next week with Case Shiller and a few other things. Because of rate rises, do you guys expect to see a near term impact on house prices? Are we kind of in a wait and see mode? What do you think is happening there.
AM: Politically? The Democrats want housing to come down. Right. And I think some of this bond action is meant to do that to be honest with you. I think they want houses down in the 30 year up. These prices, these housing prices are insane. It just stuns me to see some of these homes going for 150% of what they were two years ago.
And at some point the buyers are going to dry up. I mean, these cash buyers are going to dry up. And the credit now, I think in Tampa, it’s like over 6% for a 30-year mortgage. It’s going to make it even more unaffordable.
TN: But how much does that have to do with housing supply? Are we seeing more supplies coming on the market?
MG: Well, we are seeing more supply of new homes because the delays in completion means that homes that were ordered 18 months ago are finally starting to show up on the market. And that’s been one of the challenges. Unlike what we saw in 2005, 2006. This is not a function of massive amounts of new housing being built in areas that previously did not have housing.
So the character of 2004, 5, 6 was effectively converting farms and semi rural environments into subdivisions of endless numbers of homes that look identical so that people could have a home and then drive an hour to their work or an hour and a half. I mean, that was just crazy.And that was killed by the spike in oil prices that occurred with Hurricane Katrina and Ivan.
This time around, you just have a shortage of supply in terms of people willing to move. And unfortunately, the increase in interest rates, paradoxically, can exacerbate that. Right. Because I don’t want to leave my house and buy a new house because I have to enter into a new mortgage. Right. Of the mortgage. So, perversely, this could end up preventing supply from coming onto the market because when I go to look to replace my home, I can’t do it. And so it’s not clear to me that prices are going to take the hit that people are looking for.
I think at the low end, you’ll see certainly some pressure on new homes. You’ll see some pressure. But perversely, that just exacerbates the problem. Right. If new homes get hit more than existing homes, guess what? We’ll get less new homes.
TN: Okay, great. So far, it’s a very positive show, which is fantastic. End of a rough week into a rough show.
Let’s talk a minute about the French election, guys. It’s next week, what do you expect to happen in markets, say, with the Euro and French equities.
AM: Yeah, actually, we ended up buying the Euro today, looking for Macron to win reelection. Everyone that sees my Twitter feed knows I’m a conservative. Le Pen is a disaster for France, for Europe, transatlantic relations with the United States. She just can’t win and she won’t win. But the thing is, a lot of people think that she’s going to win.
So I think the Euro is going to probably pop half percent, maybe even percent, come Sunday into Monday. And then the dollar might actually come down and the market might actually rally a little bit crazy.
MG: I’m certainly sympathetic to that. I mean, the degree of sell off that we have seen, everything ranging from the yen to the Euro, et cetera, it’s hard to sustain this type of momentum. Ultimately, I’m exceptionally bearish on Europe. I’m exceptionally bearish on Japan for reasons that are largely unrelated to the immediacy of it.
I agree with Albert, and I actually would highlight something that he said that is really important for people to understand. When you describe yourself as a conservative, most people would say, okay, Marine Le Pen is a conservative. Right. Because she represents anti immigration and she represents behave more like French people. Right. But the reality is conservatism is all about let’s not break the system and try to replace it with some utopian vision. Right. Let’s try to work within the existing system to make it better.
When you enter into periods of uncertainty like what we’re experiencing, there’s a reason why the incumbent almost always wins, because people don’t want radical change in their lives. It makes it far more difficult. And so I just am not seeing any evidence that Le Pen has the chance that she’s claimed to and not that I want to join Albert on the potential tinfoil hat conspiracy standpoint, but I agree with them. I don’t think she’d be allowed to win.
TN: Okay, interesting. So a little bit of stability in Europe, which is great.
Guys, let’s have a quick geopolitical lightning round. I know there’s a lot going on in Russia, China, Ukraine, elsewhere. What’s on your mind, Albert, when you talk to your politics, what are you talking about the most?
AM: Honestly, China. The civil unrest in Shanghai, that’s actually looking like it’s spreading is kind of really concerning. For years, Xi’s been holed up in bunkers and can’t go.
You know, China, Tony. I mean, you have 1.3 billion people mad at you. You just don’t go out. Xi has this problem at the moment. So for me, it’s the civil unrest in Shanghai spreading to Guangdong and even outwards.
MG: Wait a second. So XI has 1.3 billion people mad at him? Did he say something against Bitcoin? Sorry.
AM: That would be 2.3 billion people because all of India is there too.
MG: 1.4 billion people. But yeah, exactly. You get really mad about that, as I’ve discovered.
Now, listen, I completely agree with Albert that, and this is again, part of the great irony of everything that’s been going on and I’m somewhat guilty of this myself looking at the dynamics of Russia and the moves that they were making and I think both Albert and I would still come to the conclusion says they’re going to take Ukraine and they’re going to take it in a much more violent fashion because now they’re really pissed.
MG: But the simple reality is that I think most people had described a degree of competence to Putin and Russia that has now become very clear that the authoritarian and central planning tendencies associated with that style of governance has its flaws. People are slowly waking up to this.
They’re now beginning to see this in China where it’s like well, wait a second. Maybe Xi’s not planning for the next 100 years. Maybe XI’s planning for the next two days to figure out where… without getting killed.
TN: That’s exactly it, Mike and I’ve been saying that to people for years. China does not think in centuries these guys are making it up as they go along. I’ve been inside the bureaucracy. I know it. They’re making it up as they go along.
So you hit it right on the head. They’re planning for the next two days or two months. They’re not planning for the next 200 years.
AM: Yeah. And the Chinese, they’re quite practical but it’s just too big of a country. I mean, there’s so many different regions and dialect. How do you keep something that big cohesive manner? You don’t.
TN: It’s hard. It’s a collection. It’s like the EU or four of the EU. But it’s very complex for one guy to manage. So guys, thanks very much for that. I really appreciate it and have a great weekend. Thank you very much.
Tony Nash joins the BBC Business Matters podcast for a discussion around what’s happening in the world right now: Malaysia’s working class, Tesla’s new branch in Germany, Biden’s recent visit to Europe, lifting of tariffs imposed by the Trump administration, energy crises in Europe, and so much more.
ST: Tony Nash, economist in Texas, CEO of Complete Intelligence and host of The Week Ahead, a weekly YouTube show on markets and geopolitics. Hello. Good evening, Tony.
TN: Hi. Good evening. Good morning.
ST: Tony, let me bring you in here on this one as well. I mean, you may be living in Austin, Texas, at the moment, but is there anything you want to pick up on because you grew up in this area?
TN: Sure. Yeah. I think what Jessica says about the migrant labor is a key issue because it prices a lot of Malaysians out of working class jobs. So if those minimum wages apply also to migrant workers, then it presents a fairer playing field for Malaysians. Without that, it’s a labor arbitrage and it’s a domestic labor arbitrage. So I think the Minister has a tough job ahead of him in that respect. I do think, though, as you mentioned in your interview, it’s a good time for energy. And I think if Malaysia can swing the current energy prices into investment and technology, I think they could look at some seriously interesting opportunities.
ST: Yeah, indeed. As he said, he was being helped by the price of oil at the moment. All right, Tony and Jessica, for the moment. Thank you both very much. Tony, let me come to you on this one. You’re based there in Austin, in Texas. So is Tesla. Now, when are they opening their big factory there?
TN: First, I want to say I love the statement that Germany is not known for risk affinity. I thought that was a highlight, but the Tesla factory in Austin started production in December of 21, and they have a grand opening on April 6 of this year. So they’ll start rolling cars off the factory line. It should be in April.
TN: So it’s a hugely optimistic statement by Tesla to do all of these openings. It’s fantastic.
ST: Yeah. We have to wait and see where the plans are for the next one then. Tony Nash in Austin, Texas, what do you make of this? How is this going to go down with American producers?
TN: I think when these restrictions were put in by the Trump administration, the sense that I always got was that the UK got caught up within some of its Brexit and immediately post Brexit issues. My understanding of that time, that era was that the tariffs were really focused on countering subsidies and nontariff barriers. And the UK steel industry is not as reliant on subsidies and nontariff barriers as the European steel industry is. Of course, there are some, but my understanding was that that wasn’t as big of an issue for UK steel. So I was always confused why the UK got caught up in this. So since it’s out, I don’t think specifically UK steel is the issue. I think Chinese steel is the bigger issue by American producers, and the dumping of Chinese steel on global markets is really the main focus.
ST: Just as a quick aside, the other items that got caught up in this. I don’t know whether they’re sort of like a little footnote and almost like an aside to this, the jeans, the whiskey and the Harley Davidsons.
TN: Look, the UK is suffering on that side of the deal, right? I mean, if you can’t get American. I’m sorry. I’m just kidding. So anyway, once it’s done, all that stuff will go through, which is great. So a little bit of bourbon next time I visit London would be great.
ST: Oh, no, we need to take you to enjoy some Scottish whisky, I’m sure. But that is the other question that’s always in the background now of this one now coming through to the forefront is now this is out the way. Could there be talks again, restarted again on that sort of full scale free trade deal with the US? Do you see that as happening anytime soon?
TN: I think Americans would welcome it. Absolutely. I think there is a warm spot in many Americans heart for the UK, and I think Americans would absolutely welcome it. There would be almost zero opposition to it.
ST: All right, Tony, for the moment. Thank you. Tony. Let me bring you in. Now, President Biden is traveling to Europe in the next few hours. He’s starting with a NATO meeting, also meeting with EU, European Union and G7 leaders. They’re now to Poland for discussions about the humanitarian response. What do you expect from this felt that this is more of a signal that he’s actually there. He’s made the trip or something more significant?
TN: Well, I think he has an opportunity to do something very significant when he speaks to the European Council. The EU right now is developing a defense plan and putting together plans for hundreds of billions of euros worth of spending on defense. And if Biden were to endorse that at the European Council, it would send the message that the US is very supportive. Unfortunately, within US government, within State and Department of Defense, there are career bureaucrats who are opposed to Europe defending itself. So if Biden were to make a very clear statement at the European Council that he supports Europe putting this debt package together to put its own very strong defense together, it could be a significant trip.
ST: How is this playing back at home for him? I was looking at his approval ratings earlier. He’s a new low of 40% as according to a poll conducted or in the last couple of days. Is that as a result of what he is saying or what he is doing at the moment or anything else?
TN: The biggest thing that’s dragging him down right now is inflation. And the White House has really tried to say that inflation started when Russia invaded Ukraine, and Americans know that it started much earlier. And so Americans have been very skeptical since the White House has tried to say that inflation lays at the feet of Russia. They’re very skeptical. His polling has really declined over the past, say, two months, partly because Americans feel like they’re being misled on that, and it hits people’s petrol tanks and it hits their pocketbooks and everything else. That’s the biggest issue that can make him unpopular.
ST: But I mean, just staying, though, with his stance on Russia and Ukraine, how is that particularly playing out at home? Would people like him to get more involved or less involved? And is it purely just domestic matters that they have on their minds at the moment?
TN: I think people see the news and hear the news on it and kind of the headline, Putin is a bad guy. It’s hard to disagree with that. But I think many Americans that I speak it to and many who I see say in social media and other forums, they just don’t want to get directly involved. Americans are happy for Europe and happy to support Europe to solve this problem. But Americans generally, from what I can tell, just don’t want to get involved. So we’re happy to send aid, we’re happy to send materials and so on and so forth. But most of the Americans, at least that I talk to, maybe I’m only talking to a minority of people, but they really don’t want to see American personnel on the ground there.
ST: Yeah. There are suggestions that he will announce measures to end European reliance on Russian energy, or at least some sort of plan or ideas or opinions on that. What could he possibly suggest? What could he put on the table, throw on the table for that?
TN: Texas where I’m living, we have a lot of gas in Texas, a lot. We flare a lot of it, which means we burn it at the well, that will require many more vessels to transport liquefied natural gas, sure. But we’re very happy in Texas to support the energy to Europe. So I would think that part of a plan has to include US energy going to Europe. It may not be all of it, but it surely should be part of it.
ST: Not just the tankers, but obviously the ports that are able to take that on board and then the infrastructure that would be needed there. Tony, it’s cost of living that’s dominating the headlines for you, isn’t it?
TN: It is, yeah. I’m really curious to see what Jessica is going to say after that. So we live in Texas for the energy capital of at least the Western Hemisphere, if not the world. So seeing, say, WTI and Brent at the prices they are is really helpful to my neighbors. It’s really helpful to the state government here and the taxes that we raise. Unfortunately, there has also been a massive influx of people into Texas over the past year or two years. So I have a friend who’s selling a house right now in Houston, and the price has risen by 30% in the past six months or something like that. So real estate inflation here. It’s not just petrol or gasoline, it’s not just energy, it’s real estate. It’s everything. As I said, we’re seeing an influx of people from outside California, New York, other places coming into Texas and they’re used to paying a lot more for things. So people moving here will find a house online without seeing it and buy it. And the prices are relatively cheap to what they’re paying in wherever they’re from. So Texans are facing what people in Idaho and Oregon and some of these other States where Californians have moved in the past.
We’re starting to face some of those issues and the cost of living is becoming a real issue here.
ST: Totally cutting out people who now can no longer afford to buy them where they’ve been born and grown up. Tony Nash. Joining us from Austin, Texas and you, wherever you are in the world, listening to us today on Business Matters. Thank you very much for your company. This is Business Matters here on the BBC. See World Service. Until next time, thanks for listening. Bye.
The Fed just announced that hyperinflation is not happening in the US. Is this a transitory inflation and how long will this last? Where is the market headed now, then? What sectors and industries will be greatly impacted and how will they react to the vulnerabilities? Also, where is oil headed now that it reached $75 per barrel. Lastly, China’s clamp down on Bitcoin — how much impact does it have to crypto’s volatility? All these and more in this quick podcast with our CEO and founder, Tony Nash.
❗️ Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.
WSN: So to give us an idea of where global markets are headed, we have on the line with us Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now, the big question, where do you think markets are heading? Which direction are they going to take after Powell’s House testimony that the specter of hyper inflation in the US is unlikely?
TN: First, I think hyper inflation in the US isn’t really possible because the US is a global reserve currency. It’s really, really hard to have hyperinflation in the US. Powell knows this. Everyone in the Fed knows that. But I think in terms of the importance of his speech with the House, it wasn’t really all that significant, partly because he came across as unnecessarily hawkish.
People have been trying to back off of that ever since his speech. Janet Yellen coming out today bringing things back to a middle ground on Friday. So we think we’ll see upside from here. We’re not going to see major upside. We do expect things to get a bit rocky later in the third quarter. But short of dump trucks of cash out on every corner or a major new breakout of Covid, I think we are on a gentle glide path for the next couple of months.
PS: So, Tony, can you help us distinguish the difference between temporary transitionary inflation and what is permanent inflation? Because Janet Yellen is in that transitionary stage. But at what point does it become permanent, in your view? Are the triggers there?
TN: Well, what’s misleading a lot of people today is we have what economists call these base effects. Last year, you saw really prices falling, right? You saw economic decline. So when you’re looking at prices today, people are giving you a price in year on year percentage terms. So things are up 30% year on year. Things are up 50% year on year. Actually, when you compare them to 2019 prices, depending on the asset, of course, plywood is different, these sorts of things.
But things are not really all that inflated given where they were in 2019, which was the last normal year that we had. And then when you look at the supply chain issues we’ve had, you do have some uptick in that. But some of this perceived inflation really is mostly a base effect more than anything else. And then when you layer the supply chain issues on top of that, then it’s really created a mess.
SM: All right. I hear you, Tony. That’s fair enough. However, rising prices in the US seem to be feeding into pockets of the real economy. Which sectors or areas do you see as most vulnerable to this?
TN: Housing, we’ve started to see people put off housing decisions as a result of this. It’s hitting food prices in a big way, especially protein. So pork, beef, chicken, these sorts of things. But we’re seeing corn, soybean and other crop prices rise pretty dramatically as well. Wheat prices are up pretty huge over the past week or so. And then automobiles, when you drive by a car lot, an automobile lot here, they’re really only half full because automakers have had to slow down for a number of reasons, whether it’s the metals prices or whether it’s the chip shortages, the auto manufacturers have had to slow down. So it’s really hit those three sectors very hard.
SM: These companies who are in these sectors, have they been able to actually pass on the rising cost to consumers?
TN: Some they have. But we’ve seen, some food companies or other folks pass them on in housing. Definitely, it’s been passed on directly and in automobiles, yes, but I think it’s a bigger supply chain issue than it is actually inflation issues. So they’ll pass on those costs in one certain form. But I don’t know that they’ll be able to get 100% or recuperate 100% of those costs.
SM: So are we potentially seeing some margin squeeze from these companies who are impacted in the coming quarters when we look at the earnings?
TN: Oh, yeah, absolutely. I think for companies who are complaining about the costs, but if they don’t see their margins squeezed, then we’ll know this is definitely temporary. But talking to almost any manufacturer here from polypropylene or polypropylene to ordering, industrial metals to wheat or something, everyone is feeling the pinch. But again, it’s as much access to supply as it is the cost of supply.
PS: So, Tony, you go upstream from propylene to actually Brent crude, and I think that’s hit $75 highest in 2 years. OPEC is meeting next week to decide whether they’re going to increase production. What’s your take?
TN: The U.S. crude prices are up a bit based on the drawdowns from storage in the U.S. and that’s on economic activity. States are finally kind of the states that had been holding back or finally opening up fully, which is good news for consumption. But with this Delta variant, there’s a real risk. It’s possible that Europe starts to lock down again as possibly parts of Asia start to lock down. Of course, we’ll have certain states in the U.S. that will probably move toward lock down again as well if it starts to impact.
So that’s a real risk on the consumption side. But for the OPEC+ group, they’re sitting on about 5.8 or 6 million barrels a day of production that they had before Covid. So they decided to cut this production so that prices wouldn’t go too negative or too far down. So they have that capacity that they can bring back online any time. If they discuss that next week, I don’t think OPEC wants to see oil prices because of the resentment it creates and the damage it does to consumers.
So I think there’ll be a lot of pressure on OPEC members to open up supply and bring prices down just a little bit. It’s not as if we need to see prices down in the 40s again, of course. But I think there’s a lot of fear that we’re going to see $80, $90, $100 oil and it is giving people a lot of reason for concern.
SM: All right. Well, we’ll be watching that meeting next week, Tony. And in a little bit of time that we have, one last quick question. What are you making about the volatility in Bitcoin that’s been happening this week? How much of it can be attributed to China’s crypto clampdown?
TN: Oh, sure. A lot of it can. About 70% of crypto mining globally happens in China. So as China clamps down, it really brings down the demand for Bitcoin and it brings down a lot of the pressure on the market. So it’s a little bit of regulatory and tax threat in the West, but it’s mostly the supply in China. And so a lot of that’s on the back of electrical grid pressures. So once the summer passes, the enforcement of that will likely lighten up and we’ll likely see more pressure on bitcoin, upward pressure on crypto markets.
SM: All right. Thank you for your time. That was Tony Nash, CEO of Complete Intelligence, giving us his views on markets. And I think what was interesting is that we can potentially see some companies being impacted by a margin squeeze because prices of certain goods, like you mentioned, meat in particular, lumber, corn or even, you know, all these downstream materials or byproducts of oil have gone up incredibly. And not all this price increase can be passed on to consumers because face it, the economy is just beginning to recover.
PS: Yeah, you know, because the these shubha transition. Right. Is it an issue of demand and demand is very high. Right. So maybe that when you can pass the price, but if it’s things like supply chain logistics as a result of, you know, breakages and, you know, it’s just all screwed up because of covid. Yeah, I think that’s very hard to pass on to the consumer. And that’s where the margin squeeze is going to take place.
SM: That’s right. And Tony mentioned automobiles as one of the areas where you’re going to see price rises. And I listen to this really fascinating podcast not too long ago on Planet Money, where they were talking about the used car sector. And the fact is that the they don’t have enough used cars to fill up the lots right now. So it really has that trickle down effect when you can’t, you know, produce more cars. Yeah, the second hand market will also suffer.
WSN: Apparently, Malaysia, our second hand market has also seen an uptick because of covid-19. There’s a reluctance for people to take public transport. So in the past, maybe you were you know, you hadn’t decided whether you want to buy a car, but now you’re kind of in that zone where you’re like, I need I need it because, you know, public transport, I’m not comfortable. Maybe this, you know, you think at the end of the day, why don’t I just get it rather sooner rather than later?
Plus, actually, interest rates are rather low. It’s only whether the question of whether you still have a job or whether how you feel in terms of sentiment.
PS: It’s fascinating because we talk about rising car prices and it’s also a lift to many things, lithium, SEMICON chips and all that. But on the flip side, we also talk about high oil prices coming through at the pump.
WSN: So we’re not so much for us because we are still subsidizing you run 95 Batla.
PS: Yeah, some of it’s going to be some of us. Pomerol 97.
SM: OK, I’m not one of those there.
PS: Well I do admit I do because my Volvo requires it. OK, in any case that is a challenge. I think in the long term it will hit the paycheck. Yeah. And the pocket later.
WSN: Well up next, we’ll be taking a look at the papers and the pottle. Stay tuned for that BFM eighty nine point nine.
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.
🎯 Discover how Complete Intelligence can help your company be more profitable with AI and ML technologies. Book a demo here.
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.
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?
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.
Tony Nash joins Rahul Tandon at the BBC Business Matters podcast and they discussed worries about the Covid vaccine AstraZeneca in Texas. Also discussed during the show are prevalence of electric cars in the street of America — is it now a more common scenario? And with Volkswagen and other car manufacturers jumping on the electric car making, what will be Tesla’s future now? Lastly, Oscars this year and next.
The WHO’s conclusion came after several European countries have suspended the use of the Oxford-AstraZeneca vaccine, including France and Germany. But as the numbers of Covid-19 cases rise in Europe, what will this mean for the vaccine rollout? We speak to epidemiologist Dr Maria Sundaram.
Volkswagen has announced plans to increase its car battery production and charging network across Europe, the US and China. Nikki Gordon-Bloomfield is a tech journalist who specialises in electric vehicles, and was watching VW’s announcement.
Also in the programme, with obesity believed to be a major factor in which countries have the worst Covid-19 death rates, the BBC’s Manuela Saragosa reports on whether it could mark a moment of reckoning for food and beverage businesses, in terms of making their products more healthy.
Plus, the shortlist for this year’s Oscars has been released. KJ Matthews is an entertainment reporter in Los Angeles, and tells us what this year’s selection says about the impact of the pandemic on filmmaking, and progress made towards diversity in the industry.
Rahul Tandon is joined throughout the programme by Karen Lema, Reuters bureau chief for the Philippines – who’s in Manila, and Tony Nash, chief economist at Complete Intelligence in Houston, Texas.
RT: Tony, when you when you hear that from Karen, the U.S. is moving on with great speed when it comes to vaccination. Incredible numbers there. Are you seeing that in Texas as well, or is there a bit of vaccine hesitancy in Texas?
TN: I think there’s there’s a bit of both. So we in Texas, we’ve given about eight point three million doses of the vaccine. We have something like three million people who have been fully vaccinated. People are prioritized if they want to get vaccinated. Vaccines are available. We’ve had about almost 10 million doses shipped to Texas. People who want it are signing up and getting it.
RT: When you look at what’s happening in Europe at the moment, AstraZeneca is vaccine hasn’t been cleared yet in the U.S., even though I think you have 100 million doses that you’ve bought, what do you make of them? What do you think Americans make of what’s happening with AstraZeneca in this part of the world?
TN: I think most people honestly look at the Covid vaccine and believe it’s kind of all the same thing. And but I also think that communications around what it actually does could have been clear and could have been better. And also the fact that this is such an early vaccine, I’m not sure that the risks have been highlighted. The person you interviewed talked about the risk communications. I’m not sure that was really done very well. I think it’s been positioned as only the benefits. But it’s really hard knowing that it’s such a young drug. And so I don’t blame the people who are worried about it because these are really innovative drugs. That’s great. It’s amazing, but they’re pretty untested. And so it makes sense that people are worried.
RT: Tony, you’re in Texas, a part of the world that, of course, we associate with oil very much the emergence of the electric car. It’s something that we’re going to see a lot more of on the road. Does that cause concern in Texas?
TN: No, Tesla just moved a big facility here. So Tesla now has its largest facility in Austin, Texas. So we have oil and gas firms and electric car firms here. So like it or not, Texas is the future.
RT: You always like to tell us that here on on Business Matters, but some of the things that Volkswagen is talking about are going to be a challenge to Tesla because they do have huge pockets which could see them challenge Tesla as the leader in this particular facility.
TN: Tesla had a head start among the big guys, but the big guys have distribution networks, they have maintenance networks, they have a lot of things that Tesla doesn’t really have. I think that as you have the Volkswagen’s, the Toyotas and other guys really come in a big, big way, along with these national charging networks and and other stations, I think we’ll start to see a lot of competition with Tesla. Not that I’m rooting for this, but it’s possible that Tesla is brought down to earth in terms of expectations. So it’s seen as a normal, as other car companies become electric car companies.
RT: Can I come back to you quickly here, because we’ve talked to you about it. How many you had that cold snap in Texas recently, heavily covid, where there was a lot of homes that were allowed without electricity for a long period of time. I was just reading an article which said that electric cars could have helped in that situation because people could have used some of the battery power. Do you think that is something that people will look at in the future?
TN: It’s an electric car. It’s just a big battery with four wheels and a couple of computers. So, you could have pulled your car into your home and potentially used that as a generator as needed. In fact, some people use old Tesla batteries as backup power for their homes, though, use solar panels, power up their Tesla battery and use it to power their homes. So they could have been helpful. But whether it’s an electric car or just a backup battery or a generator, it would all kind of achieve the same thing.
RT: And just paint a picture for us when you’re out there on the open roads. What do you see around you at the moment? Is it a lot of four by fours? Are we seeing more electric cars?
TN: Well, we’re definitely seeing more electric cars. I wouldn’t say they’re uncommon at all. They are more in affluent areas and you’re still seeing a lot of trucks and that sort of thing. So it’s a mixed. But, yes, electric cars are becoming a larger portion of the overall mix.
RT: And, Tony, if I can come to you here first, the U.S., one of the countries that’s really suffering from obesity levels at over 40 percent of the population at the moment post the pandemic, even during the pandemic. Are we seeing a much bigger debate about obesity taking place?
TN: I don’t really see people here talking about it. I think you’ll be shunned if you bring up obesity as a potential causal or coincidental factor. So I’m glad that the discussion is happening in Europe and I think it’s a healthy one to have.
RT: Do you see I mean, one does want to stereotype, but when you think of Texas, you probably don’t think the most healthy food. Is that a fair comment?
TN: I’ll be careful here. You could say that we’ve got all kinds of food here. People were farmers, right. And they burned a lot of calories during the day. So they ate hardier food. And, yeah, the traditional southern food is pretty rich.
RT: Yeah. I must say, listening to that report, I now come to regret the two pieces of cheesecake I had prior to the program. I am probably in the overweight. What about things like sugar taxes? Because this obesity is having a huge impact on health care health systems, isn’t it, on health care services as well? Would sugar tax work? What can we do to persuade people to try and eat more healthily?
TN: It is. But I think it would be a punitive tax disproportionately affecting people who can’t afford to eat healthier food. I think it’s really problematic whether people either can’t afford to eat better food or choose not to. And so I think things like a sugar tax, people need to eat what they want to eat. They suffer the consequences. And that sounds maybe dismissive. But I think, people need to take care of their own bodies and they need to choose what they eat.
RT: But sometimes we have to step in. I mean, in the same ways as government stepped in with smoking, if obesity is going to have a huge impact on people’s health, a huge impact on our health care services.
TN: But part of the reason people stop smoking is because insurance rates, health insurance rates went up dramatically if you’re a smoker. So if you’re obese, if your health insurance goes up dramatically, then that would be a huge disincentive to be obese. There are taxes on cigarettes. So kind of tobacco consumption plays both sides of that coin.
RT: K.J. Matthews is looking forward to this year’s Oscars. I’ve seen the trial of the Chicago some very good. I don’t see many of the others on that list to have you, Tony.
TN: No, I haven’t I don’t know how I missed them all, but I missed a lot of them.
RT: Never mind. We’ll make sure that, you know, before your next appearance and you can review them for the fact that we’re seeing a more diverse list of nominations there, Tony. That just reflects the changing nature of the industry, doesn’t it, that we see a lot more black as we see a lot more women directing films, and that’s a good thing?
TN: My youngest son is ethnically Indian and he’s also an actor. And so when I see stuff like this, I think of him and I think, great, he’s got a shot at awards and roles just like anyone else.
RT: Do you worry that when he entered the profession that he wouldn’t get so many roles?
TN: And I always find that. So yeah.
RT: But because of his background, because of that side of his background, did you worry more?
TN: Well, yeah, absolutely. So even right now, he’s in a play and he was cast in a role that wouldn’t necessarily have an Indian in that role. And he was so good they cast him, which warms my heart. So, I expect him to be as good or better than anybody. I don’t care what color they are. And if he’s not as good or better than them, then he shouldn’t get the role. It’s just it’s a tough business, right?
RT: I was saying this is clearly a chip off the old block. If he’s quite good at that. I think every part of the world loves movies, then they very quickly turn into and on good for the streaming services this year because of the pandemic. Do you think we could see the studios hitting back next year when when we have the Oscars, if things do get better?
TN: They could. It really all depends on how things go and how cinemas and all this works, but yeah, I can see him heading back. Absolutely.
RT: Well, let’s see what happens with the Oscars next year. Let’s see who wins this year at the Oscars.
Tony Nash joins Jamie Robertson at the BBC Business Matters podcast and they discussed mostly the US Election as the electoral college confirms Biden win. Or is it too early to tell? They also talked about the recent Google meltdown and why it shouldn’t be a surprise. Also, do Chinatowns around the world suffer because of the anti-China movement? What about the vaccine — will it help us get back to normal at last? And, what’s wrong with California and why do businesses and people move out of the state and to Texas?
Joe Biden has been formally certified as the next president of the United States, with results from electoral colleges in all but one US state giving him 302 votes. This takes him over the 270 threshold required to win the presidency. The electors in each state are appointed to reflect the popular vote, which was won by Mr Biden in November. We get reaction from Washington DC and examine the US democratic process.
Two major cyber-incidents on Monday. The first you may well have noticed, the second will have almost certainly passed you by but may be in the long term far more significant. Google applications including YouTube, Gmail and Docs suffered a massive service outage, with users unable to access many of the company’s services. The second was a sweeping hacking campaign that may have attacked the US Department of Homeland Security, the Treasury and Commerce departments and thousands of businesses. We take a look at how working from home may be leaving businesses and government more vulnerable.
And we’re in the Philippines where the country has been showing an interest in the very English game of cricket. Throughout the programme, Jamie Robertson is joined by analyst Tony Nash in the United States and social welfare expert Rachel Cartland in Hong Kong.
JR: Joe Biden has been formally certified as the next president of the United States, but results from Electoral College is in all but one US state, giving him 302 votes. That takes him over the crucial 270 threshold, which is required to win the presidency. The electors in each state are appointed to reflect the popular vote which has won by Mr. Biden in November. OK, so, Tony, it’s all over. Pretty much, you reckon?
TN: I don’t know. I sat with you guys the day after the election and I said, everyone is pretty convinced that it was the end of the line then. And I said at that point, it’d be weeks, if not months before this was settled. And we still have a lot happening here. So honestly, I have no idea what’s going to happen on January 6th, but it’ll be interesting.
Look, Donald Trump is always interesting. You can never accuse the guy of being boring. So I wouldn’t be surprised. Actually, your commentator was not right about the president of the Senate, which is Mike Pence, actually has to accept the electors.
JR: It’s not just a question of counting. It’s a question of accepting that count as a right.
TN: So the speaker of the House and the president, the Senate have to accept the electors. So if they don’t, then it goes to the House. But there’s one vote per state and there are more Republican delegate delegations to the House of Representatives than there are Democrat delegations. If you look purely a state, no. So I actually have no idea how it’s going to end. I have no idea what’s happening on January 6th. But it’s not as simple as this was done because there are, I think, six or seven states where the Republican electors actually protested and actually sent their electors as well. So you have states divided and protesting, it can be problematic, so I have no idea what’s going to happen.
JR: I certainly haven’t heard the fat lady sing in us. Tony who feels like we might be losing a battle somewhere here, or do you think it’s not as easy to say as that?
TN: First of all, there is more hacking and there’s more information lost than most people are aware of. This is terrible, but I don’t think we should be naive and believe that this is rare.
JR: Why would it become public, though? It’s quite interesting that I mean, why tell people this has happened?
TN: Because so many companies have been exposed. It’s 18,000, I think. But I think publicly traded companies never disclose that happens to them, even though they’re obligated to disclose, they don’t govern institutions. You know, it happens all the time. And it’s a daily occurrence.
My company is on Google infrastructure for part of our work. And what worries me is we’ll never know what information was exposed, especially with the Google hack. And I think there should be a requirement that companies let people know what has been exposed, but we’ll never know and we’ll never know what was lost and what was exposed. Companies have their their corporate secrets, their trade secrets on their cloud drives. And we never really know if things were exposed. And we never you know.
JR: Tony, there’s a Chinatown in Houston. And there’s research to back this up. Chinatowns have suffered worse than many other communities in the U.S. Is it connected to an anti China feeling, do you think? Or is there something else going on here that I haven’t seen?
TN: I don’t think there is. I lived in Asia for 15 years and my entire social community for much of that time was Chinese. I understand it at a different level. I do think there is a sensitivity among the Chinese community that they may be targeted for this. So I don’t necessarily believe that is the case. At least it’s not in Houston. Maybe it is in New York. But in Houston, I don’t feel that’s the case at all.
JR: I just want to continue our conversation she had earlier, which is about China or at least Chinese Institute of Chinese Chinatowns in the United States, which may have been losing more business than most other communities, possibly because they’re Chinese. And Tony gave a very nuanced view saying, but perhaps there’s a perception this is happening, but it may not be actually true in reality. Right, Tony? A vaccine, is it a shot in the arm for the economy as well? I mean, my impression I got from that interview with Constance Hunter from KPMG was that he thinks it’s going to take a bit of time, but it may be just the light at the end of a tunnel, which everybody needs.
TN: Just put the vaccine into context. So fatality rates for Covid, at least in Texas, are a third today of what they were just in September. So it’s more the government halting business that.
JR: Can I just challenge you on that? You say it’s a third time. It is a third of the total. But on the other hand, you’re having many more many more cases identified than you were in September. I mean, that may be in absolute terms. I’m not quite sure whether if you’re getting more cases actually reported, if it’s a third of the ones being being reported.
TN: More deaths in August.
TN: August 5th and 6th, we had 229 deaths in Texas now were around 139, 146, 121, 128, OK. So right now, the thing that we need to caution both on absolute and percentage numbers, we’re a third as a percent. We’re a third better. We’re a third of what they were in September even.
It’s great that we have a vaccine. I’m not trying to pull back on that.
But the problem here is that the government pulled the plug on people’s livelihoods. Hundreds of thousands of companies in America are out of business because state and local governments shut economies. That is a fact.
JR: You don’t think people would have been frightened to go out, frightened to go to restaurants, frightened to go to cinemas?
TN: I believe that people are responsible and they would have washed their hands and done all this stuff, worn masks, all that stuff.
Government officials killed local economies. What’s happening right now is federal government officials have not put the stimulus out that they should have put out in August. The package that came out in May was only supposed to last three months. They were supposed to put another package out in August, September. They didn’t. So we’re in on one hand, it’s state and local governments that killed economies and killed hundreds of thousands of companies and millions of jobs. On the other hand, it’s the federal officials who wanted to negotiate small details while people starve. It is government on both ends of this that are harming individuals, killing companies, harming families. It’s terrible.
JR: What is wrong with California? What’s so great about Texas?
TN: I have an artificial intelligence company in Texas. So we are in a technology ecosystem here in Texas. And Oracle, as you noted, just announced on Friday, they’re coming. Tesla’s moved.
I lived in California during the first Internet bubble of the late 90s, early 2000s. And what I find about California now is especially around the talent. They’re good. There’s nothing wrong with the talent there. It’s good. But it’s not the world class that it once was. It’s really expensive and it’s very arrogant. Silicon Valley is, kind of, to use an Asian analogy, it’s the Singapore of the U.S. It’s entitled, expensive, and kind of OK, good, but not great.
I’m in Texas and I moved my company from Singapore to Texas because I can find a very experienced technical person who will roll up their sleeves and actually do hard work. People are pretty affordable. The quality of skills here are great and it’s a fantastic business environment.
JR: This may sound a little bit like an Englishman talking, but it’s not to do with the weather, is it? And there is more to that question to mention immediate, bearing in mind for the rather high temperatures and wildfires.
TN: California’s got the Pacific Ocean and beautiful weather. People are coming here initially because they have to. But then they want to because they realized there are a lot of really nice people here. And I loved it. I lived in California for a long time and I voluntarily moved to Texas because of the business environment. I’ve been here four years now.
JR: And Tony, I mean, cricket may be played in far flung things, but in Texas, I don’t think so.
TN: You would be surprised, Jamie, 20 miles from my house is the largest cricket complex in America. That’s amazing. So Texas has a very large Indian community and we have the largest cricket complex in America.
Tony Nash joins Rahul Tandon at the BBC for Business Matters podcast where they discussed the opioid sales and crisis in the United States as the maker of OxyContin painkiller, Purdue Pharma, agreed on a plea bargain and an $8 billion settlement. They also discussed Tesla’s rise in the market, the different protests in the world like in Hong Kong, Thailand, and the US, social gatherings in the COVID era with hockey, football, the Indian festival called Durga Puja, and dogs VS cats.
The maker of OxyContin painkillers has reached an $8.3bn settlement and agreed to plead guilty to criminal charges to resolve a probe of its role in fuelling America’s opioid crisis. Purdue Pharma will admit to enabling the supply of drugs “without legitimate medical purpose”. The deal with US Department of Justice resolves some of the most serious claims against the firm. But it still faces thousands of cases brought by states and families. We hear from Pete Jackson, who got involved in advocacy after losing his daughter in 2006. He thinks that only jail time for those responsible can bring any sense of justice to bereaved families.
Also in the programme, Kolkata in India is celebrating the Hindu festival of Durga Puja. Millions of people normally go to temporary temples or pandals that are set up as the city shuts down for four days, and it’s an important part of the city’s economy. But as the BBC’s Rahul Tandon reports, it’s now at the centre of a court battle over striking a balance between saving the economy and saving lives.
Plus – we discuss Tesla’s tremendous results as well as football finance. Premier League football club Manchester United registered a $30m loss in the pandemic. Kieran Maguire wrote The Price of Football and is a lecturer in sports finance at Liverpool University, and tells us what’s behind the loss. Meanwhile, there is talk of Manchester United being one of the clubs in a proposed new European Super League. Tom Greatrex of the English Football Supporters Association is a member of the FA Council, which oversees the game in England, and gives us his reaction to the idea.
With guests Jodi Schneider in Hong Kong and Tony Nash in Houston
RT: Tony, this is an important settlement, isn’t it? Because the scale of the opioid crisis in the United States is huge.
TN: Yeah, it’s terrible because Purdue was pushing doctors to prescribe this medicine to people knowing that it was addictive. So there is culpability through the company and into the shareholders. They need to do what’s called piercing the corporate veil. They need to go to the investors behind it, which is the Sackler family. And they are culpable because, as your guest said, they were pulling the strings. So there has to be accountability. Otherwise, why have a legal system? Why have any consumer protections?
RT: You say that the fact that they are culpable, obviously, they would deny that. But as we heard from the father there who lost his daughter, he wants to see further justice. Do you think that’s going to happen? And if that is the timing of this settlement significant coming before the elections? Because we know President Trump had said that he wanted to deal with the opioid crisis. Are you surprised that when this judgment has been now reached, this settlement has been reached?
TN: I really don’t know. It may be meaningful. I really haven’t thought about that. But you’re right. President Trump really has focused on the opioid epidemic and partly because a lot of his voters are people who’ve been affected by it. For them to see some sort of accountability is critically important. But do I think there will be? I think almost everybody is skeptical that there will actually be accountability for anybody who’s a billionaire. Like nobody who’s a billionaire pays for anything. So in America, it doesn’t happen. So until the Sangar family is bankrupt, I don’t think most Americans will be happy.
RT: Do you think the opioid crisis has been overshadowed, obviously, this year because of the coronavirus that to some extent people have forgotten about it?
TN: It hasn’t necessarily played high within media, but I think those families who are affected, they’re affected by it every day of the week. So I don’t think on a personal level it’s disappeared. But certainly in terms of kind of column space and air time, it’s disappeared.
RT: As Jodi said, it’s not just Hong Kong. It’s not just Thailand. We’ve seen these huge protests in the US. Black Lives Matter protests taking place there as well. Some thought the year of the protests was over. Clearly not.
TN: Thailand is a different case because this is a continuation of probably 20 years of protests in Thailand, going back to Thaksin, coming to power. And when you think about Thailand presently, General Pride has been in power for years. He wasn’t elected. He was installed by the monarchy and by the military to rule over Thailand. So you have a Thai population that’s become accustomed to democracy, who is outspoken enough to say we actually want democracy back. And it’s different. Hong Kong is similar, but it hasn’t quite gone as far as Thailand. The CCP hasn’t necessarily installed generals overseeing Hong Kong yet, but Thais want their democracy back.
RT: Elon Musk is somebody of really out of the news. But it is one of the business stories of this year that the rise and rise of Tesla.
TN: Tesla now trades at about 1,100 times earnings, which is incredible. Maybe a 30 times earnings, but not one thousand one at a time. What’s really interesting to note is Tesla’s chief accounting officer just filed an insider sales record to sell thousands of shares. I think it’s 50 some thousand shares. It’s interesting that their chief accounting officer is actually selling. It’s a sign that the price is very high. It’s great that they’re reporting earnings. That really hasn’t been enough time to look at their books to understand what’s been done. But I’m glad Tesla is making money. It’s just hard for them to do it in a consistent way.
RT: Tony, I think you are you’re a fan of the Navratri festival, are you not?
TN: Absolutely, yes. We celebrate every year, and I’m not Hindu, but my youngest son is Indian. And so we always try to make a point of the cultural festivals and we just love it. It’s fantastic.
RT: Social gatherings have become part of the presidential election campaign, haven’t they? We’re seeing two very contrasting strategies here from Donald Trump, who has larger gatherings, and Joe Biden who doesn’t.
TN: It’s interesting to see the turnout, it’s interesting to see the response and I think in most places, getting crowds together is really important with elections. In the US, elections have become somewhat sanitary. We saw this really start with Obama and we saw it accelerate with Trump, where people get together in big crowds in a way that they haven’t for quite some time. So it’s become important to the US election cycle.
RT: As we come out of the pandemic, many things are going to change. We’re probably going to do a lot more online shopping than go to shops. Is that something that we’re going to see with sports? It’s something that clubs are going to get going to have to get used to, which is maybe less fans in the stadium. And it is going to become more of a televised experience, even if that’s difficult for some of the smaller clubs.
TN: I’m not an ice hockey fan, so I don’t know what Manchester United is so tired.
RT: They’re a football club. But I’m glad that you confirmed what I’ve always thought that they played.
TN: I’m an American football fan, college football fan, very avid. I’ve been to the stadium to see college football games. And and it’s great. I think to take measures, you wash your hands and nobody got sick and nobody died. It was great. As people socialize, this can happen. And if people need to increase the state attendance at stadiums from 25 percent and then ramp it up, that’s fine.But we’ve got to re-socialize. We have to redo this stuff. And I’ve done it. I’m going to do it again in a couple of weeks. There is such a thing as normal and we can get back there.
RT: Dogs and cats, huh?
TN: Dogs, definitely dogs. I actually got a new dog just before Covid hit. He’s a beautiful pound puppy and his name is Buddy. It was the perfect timing. I understand all these people getting dogs during Covid and other pets, although not cats, but definitely dogs during Covid. And it‘s just a great companion to be around.
RT: Has that helped you during this period a lot?
TN: I lived in Singapore for 15 years and we got a dog there that was a smaller dog back here. Our new dog is bigger and he makes me walk him twice a day. So it’s good. I haven’t been able to lounge around from sunrise to sunset. And he’s very needy, which is necessary. I’ve got three kids and they’re needy, but the dog is needy in a different way. So I’m more determined and more selfish about behavior, actually. So it’s been really good to have him because he doesn’t stop.
Tony Nash joins BFM 89.9 The Business Station for another look at the global markets particularly discussing the “Japanese equity market”. Is it the time to rotate into value or maybe it is a sign that the broader economy is recovering?
With technology stocks hitting all time highs, there has been some inflow into the finance and utilities sectors. We ask Tony Nash, CEO of Complete Intelligence if it is time to rotate into these names. We also ask his views on the Japanese equity market and if there is still money to be made with the change in leadership.
Produced by: Mike Gong
Presented by: Khoo Hsu Chuang, Wong Shou Ning
WSN: So far, deeper dive in global markets today. Joining us is Tony Nash, CEO of Complete Intelligence. Good morning, Tony. Now, last night, U.S. tech stocks will slump relatively while laggards like finance and utilities saw some inflows. So do you think this is the time to rotate into value and maybe a sign that the broader economy is recovering?
TN: I think it’s certainly a time to to that that that rotation is starting. I don’t necessarily think it’s in full swing yet, but but we’ve received signals for the past week or so that that rotation would start sort of seeing some of the techs off.
Today is not really all that surprising, given especially some of the Fed and Treasury statements over the past couple of weeks.
KHC: Yeah. So in terms of cyclical stocks, Tony, what is your point of view in terms of which sectors might benefit?
TN: Well, I think, you know, we’ve seen tech with companies like Nvidia, Tesla, and these guys have just had amazing gains over the past, say, four months. I think, you know, the rotation into some of the finance stocks, into some other more mainstream, broader market equities is likely. I think the indices are assuming that tech stays at elevated values. That rotation will only help the indices if tech comes off. Given the concentration of waiting within those stocks, it could really hurt some of the overall indices.
WSN: And, Tony, let’s focus on one of these, you know, super winners in the last few months. And it’s Tesla, right? They have a decision to sell five billion worth of shares. Is that smart or overly ambitious? Move now. And what more what kind of growth can we expect from this company?
TN: Well, the I think the the growth in the stock price is very different from the growth of the company, so Tesla’s trading at a PE ratio of almost 1200.
OK, the stock’s more than doubled since March. So, you know, the company itself isn’t doubling. You know, I think it has. I think what the management is doing is making a very smart decision to sell equity while they know the price is very high. So from a management perspective, I think that was a very smart decision. In terms of a buyers perspective, I’m not so sure it’s possible that Tesla stays at these elevated level. People have been trying to short Tesla for years and it just hasn’t worked.
So it’s possible there’s growth there and it’s possible they stay at these elevated levels.
WSN: So, Tony, are you a big fan of Tesla? This level…
TN: It’s hard not to be whether I’m a buyer, personally or not, I would hesitate here. But, gosh, you know, I think there are other places to look that are better value.
But it really, you know, part of it really all depends where the stimulus is going. So since the Treasury and Fed are intervening in markets, if they’re targeting specific equities or specific sectors, then you kind of have to follow that money.
And so it’s it all depends on how much further these things are going to run and where that stimulus is targeted.
KHC: OK, based on PMI data, most of Asia remains contractionary. But for China, of course. You know, Tony, in your opinion, why is recovery not yet forthcoming? And is there a main catalyst needed for manufacturing to take off?
TN: Yeah, I mean, look, in terms of manufacturing PMI, as you have Indonesia, Thailand, South Korea, Taiwan, you know, they’re all growing, which is great. Myanmar is actually growing faster than China.
But what we don’t have really is the demand pull. And that’s been a real problem. And, you know, we’ve been talking about that since February and we’ve been really worried about deflation. And, you know, what we see even in Southeast Asia is government intervention in markets is really what, propping up a lot of the activity. And I think, you know, the big question I have is, will we see steam come out of recovery in Asia in the same way we’ve started to see steam come out of recovery in the U.S.?
I think the answer is unfortunately, probably yes. And I think until the demand from both consumers and companies comes back and the fear of covid wanes, I think we’ve got some some volatility ahead.
We’re expecting some real trouble in September. I think it’s great that markets are doing well today, but we’re starting to see the the momentum really slow this month.
And without additional help from the Fed or PEOC or other folks, it really slows down. The problem is the efficacy of that support really deteriorates the more you add to the system.
WSN: And Tony, look at Japan, right?
I mean, are trading the equities. They are trading at a steep discount to their historical premiums. Do you see any value in yen based assets? After all, Warren Buffett himself just dipped his toes into it by six billion dollars worth of trading companies did. What do you think?
TN: Well, that’s the answer. I mean, it’s hard to it’s hard to bet against Buffett. He’s obviously seeing real value there. And I think the Japanese trading companies are really, really interesting because they’re you know, they’re a very good play right now. So is there a value? Sure. I think there’s value there. I think with Japan, a lot of the story is around productivity and automation. If if Japan can continue to raise its productivity through automation, I think it will be a very good play.
If that productivity and if the level of automation slows down, then it becomes questionable because everyone knows about the demographic story in Japan, but the economy continues to grow, which is really amazing.
WSN: So it seems like you’re quite a believer in that this can overcome some of the structural issues. But what about the fact that Abe has resigned for health reasons? Does it change at all the economic and monetary policies in Japan that might change your decision?
TN: Yeah, I think when someone like Abe steps down, there’s always momentum. So it last for several months. The real question is, how long should the next leadership last? And is there enough structural stability to continue the momentum in Japan, meaning it’s not growing leaps and bounds, but it’s stable growth and it’s healthy growth. So I like Japan a lot. We have had reform under Abe. We have had structural reform under Abe. I think it’s much more healthy today than it was in 2011 or 2010. A lot’s been done.
Japan has the capability to continue to improve, but it all really depends. There are regional dynamics and there are domestic dynamics. But again, I think if demand regionally and globally doesn’t return, which is likely COVID induced, then I think Japan, like everywhere else, will have issues.
WSN: All right. Thank you for your time. That was Tony Nash of Complete Intelligence, speaking to us from Houston, Texas.