Bloomberg Markets Full Show (11/12/2021)

Bloomberg Markets Full Show (11/12/2021)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. Friday the 12th of November 3 p.m. in London 10:00 a.m. in a soggy New York 30 minutes into a soggy trading session in the United States as well. I'm Guy Johnson in London. Alix Steel is over in New York. Welcome everybody to Bloomberg Markets. Alex

we're about to get something of a data deluge that could be quite informative. I think I'm really looking forward to the inflation components of all of these numbers. Yep. And jolts. And you Michel break that in just a second. See unlike guy I'm not going to talk about the weather but I am going to talk about the markets. S&P pretty much flat. But you do have materials are doing pretty well. Tech doing pretty well within the S&P. But it does feel soggy if we look at it that way. I do want to point

out though the dollar because that along with yields has been quite interesting throughout this move. You're looking at Bloomberg Dollar Index the highest since November 20 20. And many analysts are looking at 114 as the kind of line in the sand for euro dollar. That really sets up whatever central bank divergence that we're actually seeing which leads us to the bond market and those inflation expectations 30 year yield up by about 2 basis points underperformer at the long end of the curve. The belly was getting hit earlier in the session but now it feels like the selling is moving to the back end. Crude also down by 1 percent. But I wanted to highlight that because apparently there's a really big options bet right now on the market. Guy oil equivalent of 5 million barrels of Brent call spreads of 250 to 300 hour call spreads. They traded yesterday.

It's a that's a that's a really big bullish bet potentially on where the prices could go. Well that would take us back to the 1970s and that would take us kind of beyond the 1970s the 1970s. Obviously the huge oil shock that would certainly be an oil shock. That would be an inflationary story for us to get our teeth into. Talking of inflationary stories for us to get our teeth into. Let us delve into the data and dig in to the University of Michigan consumer sentiment survey that is hitting the screens right now. Headline number sixty six point eight. That dips a bit but the breakdown is important here. That's down from seventy one point seven and below the seventy two expect. But it's current conditions that

are that that are coming off seventy three point two down from seventy seven point seven. Expectations also dipped to sixty two point eight. And then we get to the kicker basically one year inflation expectations up from four point eight to four point nine. The longer term five to 10 story stays a two point nine but nevertheless.

One year inflation. This is what's going to be worrying the president. Alex the consumer is expecting much more still to come. And for it to continue. And that is probably going to be what is hitting a current and expectations lines in this data. Yep. Hundred percent. In the meantime that's kind of look on sentiment. Let's get the look on the jobs market. So the jolts jobs openings came in higher than expected but sequentially did fall in September. Now this is two months old. But it does give

a good indication here. Coming in at ten point four million job openings Rattray had August revised up ten point six million job openings. The openings falling just a little bit. But if you look within it retail and those kind of industries or service industries lots of lots of jobs openings there. So we'll bring you any more details as they cross. So what do you do with all of this as we're headed into the end of this year and then in 2020. Well luckily JP Morgan releases twenty twenty two Long-Term Capital Market Assumptions pairing a gloomy picture for the global economy. Now one excerpt reads that the reality of weak demographics will continue to weigh on economic growth across both developed and emerging economies. Joining us now are

two of the people behind that report David Kelly J.P. Morgan Asset Management chief global strategist and Gabriel Santos J.P. Morgan Asset Management global market strategist. Going to start here because Gabriel's on set which is very exciting. So the bigger takeaway I think here when we're going into a world of higher inflation higher rates and a higher dollar and record high stock markets. What was the biggest takeaway or surprise when you went through the report. So it's great to be here Alex. I think actually I would lead with a different headline in terms of our takeaway for the economy. It is weaker growth than we had let's say 20 years ago because of weaker demographics. But it's actually much better than it could have been. We see very

limited scarring from the pandemic and we're actually optimistic about upside going forward given all of the productivity gains that we've seen during this time period. There's also been so much monetary and fiscal support that's likely to continue to provide a boost overall nominal growth. I think what's the most surprising thing to us is if you compare the beginning of this cycle versus 2008 we're starting already with much higher valuations for both equities and bonds. So it's really the return figure that's very gloomy. It's only four point three percent for a 60 40. So we have to do better than that. Look at different asset classes look at different markets. Think about Alpha. That's the way to get the returns that clients actually

want and need during the next cycle. David let me bring you into the conversation so we're gonna get 4 percent of a 60 40 circa 4 percent off a 60 40. What kind of inflation rates am I going to be dealing with. How much is inflation going to eat into that return over the period you're talking about. A little bit higher in the US we've pushed our inflation forecast up from 2.0

percent to two point three percent over the next 10 to 15 years. But I do want to emphasize that this this does essentially mean that we're saying we think most of this is transitory. It's obviously an inflation scare right now. We've got a lot of supply chain disruptions. We've got a lot of fiscal and monetary policy pumping through the system. But a lot of the things that have kept inflation low over the years the decline in the trade union movement increased global trade increased inequality. We think those will probably stay in place. So we're looking for a small upgrade to long term inflation expectations even though we're seeing a very big upgrade obviously in the current numbers. So David hey it's Alex. It's good to see you. So let's

get to that 60 40 portfolio than that guy was just talking about. So you guys see high volatility but still a return of about four point three percent. You do say that you could could see you get to seven if you kind of allocate correctly. Can you walk me through your allocation David. Well yes I think I think the key here is to recognize that the things that people are overweight in right now are really the areas that we expect to see a pretty slow growth. So U.S. equities giving you only about four point three percent or sorry actually four point one percent over this 10 to 15 year period. Corporate bonds giving

you less cash giving you less. Treasuries giving you less. But once you go outside the United States for a US investor we think there are better returns overseas. And those are going to be amplified by what we think will be a falling dollar over the next 10 to 15 years. So now you're talking about numbers in these 6 7 8 percent range particularly when you look to emerging markets. And then also if you look at some alternatives there are there are plenty of alternatives real estate infrastructure global transportation some private equity private debt. These can all give you better returns than a plain vanilla 60 40 portfolio. So it's really you know we we've been in the sort of in the world of beta for the

last few years. Momentum has really carried you. You didn't need to do much thinking. We think this is really the dawning of the age of Alpha. This is a time when you've got to look outside the box and think about where the mis valuations are because this pandemic has left a lot of things really weirdly valued relative to each other. And that's true in terms of asset classes which I just mentioned. But even within within portfolios I mean the top 10 stocks in the S&P 500 are trading at over 30 times earnings. The rest of the whole market and the S&P 500 is trading at about 20 times. So I think this is a time for active management within

portfolios and also read thoughtful asset allocation. OK. So you got to look at you we got some weird valuations you got to look more outside the United States. Emerging markets are going to be an increasing feature of a successful portfolio. Gabriella is China in the books or is China outside the box. Can I ignore China or do I have to include China in terms of my asset allocation takes. A lot of people are scratching their heads trying to figure out the answer to that one right now. Guy we absolutely have to include China. And here we're talking about onshore Chinese equities and Chinese bonds. One of the big

theme papers we wrote in this year's Long-Term Capital Market Assumptions was about the growth and the potential of Chinese onshore markets. They have superior returns. They have diversification benefits. So they really help the risk adjusted portfolio. And we did a study. If you just have a 50 50 portfolio let's call it four point eight percent return expected. You add Chinese onshore onshore assets and you can boost that to five point eight percent without sacrificing on the volatility. So we want to take this opportunity in a tricky year for China to underwrite the view that more and more China is going to be a key structural growth part of asset portfolios. So it's still even though we're getting he mentioned tough year property restrictions crackdown on tech. It's still going to provide that boost. Yes. And we are very much in the midst of a

new reform cycle here in China but we've been here before. The volatility we've seen this year is business as usual. Investors go through existential crises then they adjust to the new reforms and we move forward and they don't all net out to positives for Chinese onshore assets. But you can still pick up significant returns over what you can get in other equity and bond markets. And it's all about really the growth of the markets and their tilt towards new economy sectors. They're

growing institutionalization and their continued open openness to foreign investors. David you haven't mentioned Europe yet. I looked at the earnings season it was really solid. In fact I think it surprised people by how solid it was. The Eurozone doesn't seem like it's got an inflation issue. It doesn't have

the growth of the United States. But how much do I want to allocate to Europe. How much do I want to allocate to the U.K.. Well I think there's there's certainly is a good opportunity in terms of valuations right now where we're seeing a situation where broadly equity markets outside the United States are about two standard deviations cheaper else in the U.S. and they have been over the last 25 years. So international equities in general are cheaper. The thing about Europe but this is also a little bit true Japan is they're actually quite cyclical. If you look at the structure of the market the cyclical sectors are much more dominant in Europe and Japan than they are in the United States. So we think we get a tactic. We sort of see a

cyclical rebound. It is true that the long term growth story for Europe and the long term growth story for developed countries outside the United States is also pretty slow in terms of economic growth. We think that's right. We will. We're also looking for a little bit of a productivity boost though really across the developed world as we grapple

with labor shortages. And I think that's that's another theme in the in the term capital market assumptions we looked at. How can you implement labor saving technology with rates low with profits high. This should be a very good period for capital spending and enhancing productivity. But certainly there's a short term opportunity for cyclical reasons and there's a valuation opportunity. And finally we think that both the yen and the euro will appreciate relative to the US dollar over the next 10 to 15 years and that will amplify the return from those sectors. So they're very unloved the very unhealthy. But I think

this is a really important opportunity. If you want to get out of that sort of 60 40 trap of mediocre returns in the long run 10 to 15 years. That's a pretty solid outlook. I don't even know what's going to happen tomorrow. I wonder though when the short term central bank divergence is going to really take front and center. We've seen that play out in the bond market the affects market just in this last week. David and I wonder how you see that evolving and how that kind of leaves certain central banks behind in some ways. Oh I think it's

I don't think that it's going to last for that long. Again it is actually very refreshing when we sit back and think about 10 to 15 years because then you can just get through some of these cyclicals issues some of these political issues. Right now the U.S. is looking like it's going to tighten and or more aggressively. And Europe and Japan are certainly lagging behind. But we do expect to see some more inflation there also. And we think you know that there's no reason why U.S. monetary policy should be tighter in the long run than European and Japanese monetary policy. So we think they'll catch up. And certainly over the course of 10 to 15 years our massive trade deficit will tend to push the dollar down. Also I think Gabrielle I know

you've written on the fact that the emerging markets are a lot of countries who are being forced to actually be much more aggressive on monetary policy overseas than we are here in the United States. That's true. And China is not necessarily one of them actually. And I think that really emphasizes how Chinese bonds really beat to the to their music of their own drums as opposed to following the US or other central banks. And that adds to the diversification benefit actually of holding Chinese onshore bonds which have some of the best sharp ratios around. All right guys we leave it there but we really appreciate all of your time. David Cowling Emily Santos of J.P. Morgan Investment Management Asset Management and say thank you very much.

Appreciate it. Guy. Yep. Really appreciate it as well. From over here Alex it's been breakup week hasn't it. We've had a. Now we need to talk about Jane J. Johnson and Johnson breaking up band aids and pharmaceuticals. We are going to be speaking or David Westin. More importantly it's going to be speaking to Alex Gorski. He is

the company's chairman and CEO. That conversation next. This is Bloomberg. For blooper reel hackers in New York where TV and radio audiences I'm David Westin and we want to now welcome a very special guest today. He is Johnson and Johnson's chairman and CEO Alex Gorski. So Alex thank you so much for being with us. You had a very big announcement this morning. You are breaking this iconic company into two pieces. Johnson Johnson was known

for it forever as being very proud of having both a consumer side. A little less return but a little less risk. And the farmers who will side more return but also more risk. You wanted it together. What made you change your mind. This is a really big change. It's a bigger one than some other companies might have. Well David first of all thank you very much for the opportunity to have a conversation today and you're absolutely right. This is a historic day for Johnson and Johnson but this is something that we've been looking at for years that we'd been we've given a lot of reflection and careful consideration to look. We've long said that our diversified portfolio strategy was one that was founded based on where the markets were going where we saw innovation going. And as we've seen things switch in a pretty

significant way over the last few years. We think that it was important to make this announcement today that in fact we're going to separate our consumer division to form an independent publicly traded company. And look there's a lot of factors that playing into it. And some of it has to do with the way innovation and technology has evolved the way that can sumer channels particularly E e-commerce has changed Covid-19. We think also brought about a fundamental change in the way that

the people that families think about personal care. And when we compare and contrast that to our pharmaceutical and medical device portfolio we just felt that this was the appropriate time so that both these new companies can really accelerate their growth can reach even more patients and consumers can be more targeted and their strategies and execution and capital allocation and ultimately create more value for all stakeholders. So as you say Alex both of those businesses have really changed a lot. Both the pharmaceuticals and also the consumer facing one. Before we talk about the market so tell me about the finances of Johnson. Johnson's always been very proud of the triple A rating. Do you think you're going to keep that rating and maybe just as important. Is it not as important to have that today because of low interest rates projected out in

the future. Well we do think it will be maintained but look we've also always said the triple A rating was not in and of itself a goal of ours to maintain. Rather it was a reflection of the way that we run our businesses at Johnson and Johnson. And I think what's really important at this particular moment David is that we're

doing this from a position of strength. In fact if you reflect back just in our last quarter all three of our businesses are operating at very strong competitive positions growing at a market rate faster than the markets in which they compete. We've been growing share. The pipelines are stronger than they've ever been. And so we think this is again a way to unleash additional growth across both companies as we go forward. Alex talk about that. What I described as high return but high risk part of that debt is that the patent covered medical of treatments both devices as well as prescription drugs. Does this free up cash to invest more cash than otherwise would have to invest because those are very expensive.

Well you know David the way that we try to manage our business for the long term is is one where you know we're always looking for that next level of innovation because we understand that whether it's patent expertise launches of biosimilars or new products just introduced by different competition. That is part of our daily business. And so when we do our planning we're always trying to think 3 5 10 years ahead. And if you look at the track record that we've had in our pharmaceutical business for example whether it's been over the last 10 years five years or three years in spite of literally billions billions of dollars of losses due to those other types of patent expertise or our competitive launches we've been able to maintain an above market growth rate based upon the innovation the new product launches that we've been introducing throughout that period. We take the same approach with our medical device. And again we think both of these businesses have the potential to be growing at least mid single digits and above going forward. And we think this is going to better position our consumer business in this evolving environment that I mentioned earlier to be even more agile more flexible and even more innovative to reach more consumers around the world. I won't come back to consumers but just to stay for just one moment on what I'll call the

pharmaceuticals and the medical devices. Do you anticipate it will be a faster rate of growth because it will not be held back by consumer. Well look all of a part of all of our objectives here is to accelerate growth. And so absolutely that's part of our goal here. And look we see that possible by just being again more focused on being able to even better allocate capital to have a better balance perhaps in some cases between the corporate and the organizational structures. And we think that by allowing each of these businesses to take that path forward that they'll be more successful both on the top but they'll also be able to be more effective and efficient on the bottom as well. IBEX I wonder on the consumer side as you said the markets have changed. One of the things I think I've seen at least is how

much social media tick tock influencers. Things like that are driving consumer products in Internet. Some of the areas that you're in that didn't happen before. Is that part of decision here. That that's sort of an odd thing for the traditional Johnson and Johnson. Well look we are seeing the way that consumer products are being introduced and developed has evolved. We've always tried to take a very science based approach that's professional endorsed by for example physicians

and other thought leading experts. And we think having that fundamental underpinnings in science and technology is really important. But absolutely we think by being an independent unit it's going to give the consumer group an even greater level of flexibility and agility to make sure that they stay competitive. You know as that environment continues to evolve. And you're also correct that the whole e-commerce world is changed. It makes up a significantly higher percentage of our business. We've grown at a very solid rate in those areas but we expect that to continue

to accelerate going into the future as well. Alex one of the issues you've had on your agenda has been the telco liability the potential liability out there. You've got various structures legal structures you're trying to deal with but it could be rather substantial. Does that stay with the consumer part of the business and will it be capitalized enough to handle that. No. Look this is really about the future. We've been very clear in all of our filings and all of our public announcements about the legal strategies that we have in place. But this is about again really unleashing our consumer business as an independent

publicly traded company going forward. And we think it's an exciting time for them. And we'll you know as I mentioned earlier improve our pace of innovation our ability to execute as well as prospects for the future. Alex just to make sure I understand. I think what you're saying is that your strategy with respect to telco liability will not be affected by this

division of the two companies. Is that correct. That's correct. Okay Alex fine. I want to ask you a rather more personal question. You talked a lot about the credo of Johnson and Johnson. How important that is to you how important it's been to the company. Who gets the credo between these two countries. Look David I hope everybody would take that credo. You think about it. It's very consistent with really in today's environment the purpose of a corporation should be by placing

patients by placing consumers who use your products first by taking a very inclusive look about what are we doing for our employees at the same time. And by the way I'd like to get a shout out to all of our employees across Johnson and Johnson particularly those in our consumer group because without their hard work and their commitment this would not be possible to think about our communities as we're making these decisions and the impact that it can have and and ultimately to our shareholders. So we think taking your credo based approach is in every company's best interests. So I think you've talked about your shareholders. We haven't talked about those much. How much of the decision to do this has been an ability for shareholders to make more informed targeted decisions on which of the businesses they want to invest in consumer or the higher profile pharmaceuticals. Well David that's one of many factors. But again I think it has

to do with how do we make sure that you know our strategy is evolving that that while it's tied to what our strategy has been in the past it's not anchored there that we're constantly evolving and that this is a big bold move. And we think it's consistent with the way that we're seeing the market adjust going forward. And as a result we think these both these companies are going to be more competitive better position to to really help more people around the world. It's a big bold move. How long will it take. And in the meantime how does the Johnson Johnson management make sure that your employees stay focused. Because you and I have been through situations where it's easy to get distracted. It consumes a lot of management leadership

bandwidth. Well look I I've been very proud of the way that our our teams in all of our sectors have responded and stepped up through this Covid period. I mean it's really interesting David if you look at our financial performance if you look at our competitive shares if you look at our R and D pipelines our innovation index if you look at our internal engagement scores all of those have actually improved during an incredibly challenging time for our industry let alone the company. And so again we think that we are better positioned today than we were

even 24 months ago. And and look we see actually the way that we're considering the financial implications is really an outcome of the way we're fundamentally running the business. You know if we innovate if we execute if we're taking a stakeholder approach the results are going to drive themselves and we think our shareholders will ultimately recognize that. Alex thank you so much for taking a few minutes out of a very busy day. That's Alex Gorski. He's Justin Justin chairman and CEO. Back to you.

Thanks so much David really appreciate it. David Westin bringing us of a Jay and Jay. I interviewed Jane Jay. Stock is up by about one point four percent. It's just so interesting that it comes on the heels of G.E. splitting into three businesses obviously totally different sectors but it does feel like the era of the big big big big business in traditional potentially maybe over at least here in the US now account. Look at tech for that. All right. Well coming up let's go to tech. Could the worst actually be over for the global chip shortage. We're going to get some answers from Kurds a sever Sievers and XP

semiconductors a c E oh they had a long term growth outlook report yesterday. We'll talk about what we learned and what their view is of 2020. This is Bloomberg. Top of the hour. Live from London. I'm Guy Johnson Alix Steel over in New York. This folks is Bloomberg Markets Alex and XP

Semi is depending on the auto industry for its future and things. Well things are looking pretty good despite the current chip shortage. Let's deal with the details of where this sector and this company are going. Abigail. Over to you. Well guy things are looking very good for an ex piece on my conductor. Big big quarter big big beats on both the top and the bottom

line. Adjusted earnings beat by 36 percent putting up a little bit more than three dollars per share. So not a small number on about three billion dollars in revenue. That was a 20 percent beat. Not so shabby in fact pretty great. Now if we take a look at revenue because this is even the bigger story on top of a great quarter the forecast and you can see 2018 2019 and 2020 a little bit of a dip to eight point six billion dollars. But up up and away the 20 21 right now estimated to be eleven billion dollars. But if we go forward a couple of years and that's what you generally want to do be looking forward 15 billion dollars that's 36 percent growth. Really pretty incredible. Now what makes us so interesting especially relative to the last quarter.

Automobiles where we're hearing about all these chip shortages largely in line about one point five billion dollars worth of revenues more than 50 percent of the overall sector pie there. Interesting though Alex if we take a look at the lead time between the order and when it actually comes through the chip we are going to see that there's a really pretty decent lag there up up here in 2021 to greater than five months. So that's one of the challenges of course that has to be managed at this point. But right now and expect them I conductor really seems to be doing a great job of that Alex. All right. Have a good things. Really appreciate that setup. It's a nice thing to get that set up there. Also they had their Investor Day yesterday. Curt Sievers and XP Semiconductors President CEO is here with me on set. This is your first trip outside right. Yes absolutely

devastating. Just getting on the road again. So you have an Investor Day yesterday and you were quite bullish and you're looking at sales that could reach 15 billion in 2024. You're looking at a compound annual growth rate of as high as 14 percent over the next three years. So there's lot to unpack just in terms of say the automakers and ships there. When does the shortage end. I guess it's going to get better through next year but I don't

think everything is gonna be in balance from a supply demand perspective through the end of next year. So there is still some quarters to go until it's it's coming back. But I really I have to remind all of us. I mean we are shipping like crazy. You just showed a few numbers. Let me put it in perspective for automotive. It's even more extreme. We will grow this year. Our

automotive revenues by 45 percent over last year. Now you might want to say last year is it is a difficult compare because everything was down but it's still going to be 30 percent above our revenues in automotive in 2019. So if you compare it to the pre pandemic period this is a 30 percent growth from a year over year perspective. So supply is going up every quarter. And as

part of the forecast which featured just seen automotive is actually going to grow 9 to 14 percent compound annual over the next three years which is a massive growth. So I think we do a lot for the auto industry. But I have to admit there are still shortages in places. Kurt this is an industry that is well known though for peaks and troughs for booms and busts. You're pointing to a very positive picture. Are we are we at peak growth now. Do we stay at peak growth is this cycle going to be is the shape of this cycle going to be different. I. Can you sustain peak growth for a long period. I really think we are just at the beginning of a longer term

cycle at least for the businesses we are exposed to and we are focusing on. We really look after a secular growth drivers especially in the automotive and industrial markets which is like three quarters of an expense revenue. And in the end it's really about this etch computing theme. I mean in our Analyst Day the other day we talked about this. I think the next 10

years of semiconductor market growth will be characterized by what we called the rise of the etch which is applications which are all about us connected to the cloud and to compute performance to connectivity. Performance does allow these applications actually to boom these days. So guy. No I don't think we are at peak here. We are actually starting a longer term pretty sustainable growth cycle. So to that point is it that there is just going to be more stuff that has chips in it

or is it going to be that the stuff that we have with chips has more chips in them. The latter. It is really that that things you are used to operate with will have heavier silicon content because what they do is they have face recognition. They have voice recognition. They are connected to the cloud. They have better activation algorithms. Think about a car. I mean the car in my in my view is the ultimate astronaut that the kind of convenience safety but also CO2 savings a car is allowing today is just bar none. And think about electric cars. And electric car has twice the semiconductor content of a combustion engine

car. Now you see the fast pace in the acceleration going to electric cars. This year I think the world is going to see 20 percent of the global production already being electric. We forecast 60 percent by 2030. And again each car which is converted from a combustion engine car to a truly electric car is doubling the semiconductor content. So it's really about

content. It's not more devices but it's more content per device. How do you. Where are the gaps now that are open. As we make this transition from ISE to Eevee what are these need that are different to the ISE cars. And where do you need to invest to fill those gaps. Well the biggest difference clearly is the electric drive train. I mean you you get rid of the of the conventional power train which was more about metal and stuff and it's replaced by electric drive train. And an XP has a sharp focus here on the motor control and the battery management solutions. In the end to keep it symbol this is all about solutions which are extending the range of the electric car. In my view and I say this also from a consumer perspective I think

the biggest the biggest mileage electric cars still have to go is range extension. I just want to feel independent driving an electric car and that is all about semiconductors. I mean it's nothing but semiconductors achieving that. So we are investing heavily in this field gonna grow 30 percent. We've just seen the overall semiconductor growth of an XP over the next three years. If you zoom in to our electrification systems for electric cars

we gonna grow 30 percent over the next three years. What's your CapEx for that. Well I couldn't say it specifically for this because we could use technologies into different into different segments. I mean you're good about the CapEx. The CapEx for the company is actually moving to 10 percent next year on a sharply growing revenue which is about twice the rate which we've had the past year. And that's also a big commitment Alex to the to the chip crisis if you will because that CapEx all goes into the capability to ship more in the coming years. Do you think you're going to have problems with getting the kit you need to manufacture the chips that you're looking at. If I if I listen to the big lithography companies they're certainly struggling to keep up with demand at the moment. There obviously are key areas in which which they're focusing as

well. Where are the supply bottlenecks other issues that you're going to face in the kit that you need to do what you want to do going forward. I would say the entire semiconductor supply chain is under pretty heavy stress these days. Now I feel very confident with the numbers which we gave out earlier because we have supply assured for those numbers. The reality is of course I want to do better. And in the short and mid-term it is supply constrained and it's various things. It's about wafers. It is about metals like copper it's about lead frames it's about substrates. But again I feel pretty confident. I mean we said in our Analyst Day yesterday we're going to grow at the high end of

our long term guidance next year. So that speaks about like twelve percent growth next year and supply for that is is done. I mean we have that and we work on the upside to get even higher. Tell me where do you think the industry is going to start making all these chips. So I'm shoring became something they're very popular over the last year with the supply chain issues particularly on the port issues in China. Their zero tolerance policy Europe really wants to create and build out

their semi space. Is that realistic. Does that happen. Well the semi industry has been building in the past on globalization. I mean everything was about scale. So you had one factory in one place which was serving the world. But I completely agree with you. There is a strong trend too I would say technology sovereignity currently in the US in Europe and we very much overcome that actually. Also the chip sector here in the US the fifty two billion dollars which are under discussion. I think it is needed and I think it's great that the government is proactive in addressing this. Well we really love having you.

We love talking through all this stuff with you. Kurt thanks very much. It was great to see you in person as two people in one hour in person. It feels weird. All right. Chris Sievers an XP Semiconductors CEO. I don't think I've had that in like a year and a half guy. Weird but awfully fantastic. Also wow what a difference it makes. And and I think I'm just really beginning to appreciate the fact that face to face conversations are so much better than down the line conversations. Seems great but it's nothing like standing next to something much more. You can make fun of me if we were face to face. I mean so much more. That's exactly what I was going. So many more opportunities.

Maybe it will happen but hopefully soon we'll be able to do that. I look forward to that with a great deal of anticipation Alex. Well we got coming up next we're going to change gears a little bit. The U.S. is warning Europe that Russia may be planning a Ukrainian invasion. We'll have the latest on that story next. This is Bloomberg. Let's check in on the big bad press what knees average could get day in Japan. The government reportedly is coming up with an

economic stimulus package of more than 300 billion dollars according to the NIKKEI newspaper. The package will include benefits for those 18 and younger. Japan's economy is forecast to stick back into contraction in the quarter that ended in September. In Germany the fourth coronavirus wave is hitting with full force and there's no sign of record infections easing soon. New the cases have surged past 50 thousand this week for the first time. Some hospitals already are overwhelmed with patients. Officials say Germany needs to ramp up its vaccination campaign. And a warning from the U.S. on Russia. Lindbergh's land that Washington has told the European Union that Russia may be considering an invasion of Ukraine. The U.S. has been

monitoring a buildup of Russian forces on the Ukrainian border. All this is occurring as tensions flared between Russia and the EU over energy supplies and migrants. Russia says talks of an invasion is unfounded. Globally is 24 hours a day on air and on Bloomberg Quicktake powered by more than twenty seven hundred journalists and analysts in more than 120 countries embers could get 10. This is Bloomberg Alex. All right. Thanks so much. More to go. Let's stay with that story. U.S. Secretary of State Anthony Blinken speaking earlier this hour saying it would be a serious mistake for Russia to attack Ukraine. I get the latest now from Annmarie Horden and the Mercs Washington correspondent Emery where's the risk here for a political mistake. A

geopolitical mistake. Well there's a few at the moment and things are really brewing in the eastern part of Europe. So first you have this Russian troop buildup which actually we saw in the spring about a hundred thousand worth of troops warplanes building up on the border. And then that was really tempered when President Biden called President Putin and led to that Geneva summit potentially deja vu because Russian papers actually this week are reporting that there could be a virtual talk between the two for the end of the year and maybe again in person sort of next year. Then you compile this with the fact that there's also this border control issue right now between Belarus and Poland. And because of that the EU and allies are thinking of putting shank sanctions on Belarus. And President Lukashenko is saying if you do that I am cutting off gasoline 20 percent of Russian gas actually goes through Belarus.

Chancellor Merkel has called Putin twice this week. He is she's gotten nowhere with him. Remember Putin also doesn't really want to do any favors for the Europeans as he's waiting for that. Go ahead on Nord Stream too. But I think there's one calculation of potential risk in the future. Merkel is about to leave. She. They speak the same language literally. She speaks fluent Russian. She was brought up in eastern Germany. And Putin's German is excellent. She is the interlocutor really for the West and Putin. And she's not going to be round anymore. So I think this is a place in the

world we're going to want to watch more closely. Anne-Marie do we know what Putin wants. Do we know what he's looking for here. Is this about Nord Stream too. Is this about something else. As you say last time he wanted a meeting and we got that. Was it in Geneva. And as a result of which he calm down. What is the objective here right now. He tries to play a long game tactically strategically. What are we looking at. Two things President Putin wants. First is a little bit more overreaching. This is an individual who said the breakup of the Soviet Union was the worst thing that could happen of 20th century. He wants Crimea. He has it. He wants to maintain that

control. And you can bet he wants to move that influence well into Ukraine as well. The Kremlin is also talking about the provocation from the United States. They're saying your warships are in the in the Black Sea. Why are you doing that. If you're going to do that we're going to have our troop build up. And the second thing Putin wants his pipeline. He wants Nord Stream too.

He doesn't want any more sanctions on any of these Russian companies. It's ready to go. They've done the test. It's just going through the regulatory proceedings and he wants that sped up. So there's no reason why President Putin is going to try to help the Europeans with Belarus and his ally Lukashenko when he's not getting what he wants. Yeah maybe a fear as well that Ukraine is slipping away a little bit. Amara. Thank you very much indeed. Nice to see you in New York. Bloomberg's. Oh done

on what is happening between the West and Russia. It's going to be interesting how this one works its way out. We'll talk to the Danish energy minister a little bit later on in the conversation. And that's what we're going to do. Now investors looking for clues on the FOMC leadership paths to winding down Bloomberg's international economic policy correspondent Mike NIKKEI. Joining us now on set. Mike where are we. I feel like we've been going round and round the wheel on this one waiting for some news as to what exactly is going to happen. There are lots of empty seats. The key one I see at the top. What happens next. Well we've got to wait until the by the

administration a settles on who it's going to nominate and B finds a window of opportunity to make the nomination. They've been very busy with the build back better. They had to get through the infrastructure plan through Congress. So a lot going on for the White House. But it is about time now. Let's leave aside for a second the question of the Fed leadership the chair because we've talked a lot about Jay Powell and Lael Brainard. Let's talk about the

other seats that have to be filled down if Powell is reappointed. You end up with three seats to fill the vice chair the vice chair for supervision which is what they're talking about Brainerd for. And there is an open governor's seat the qualifications. Well usually if you have a chairman who's not a macro economists like Jay Powell you get somebody like Richard Clarett now who's got deep macro economics background. You also want some diversity. Now the vice chair for supervision often a

regulatory regulator a former bank supervisor or a lawyer. And you're looking for some diversity now as a governor. You're looking for some diversity now and some diverse experience. One of the problems for the Fed. They've had only three black governors in history and there's only been one black Fed bank president Rafael Bostic who makes many people's lists for one of these jobs. So if you're looking for people who might be on the list you could look for minority candidates. And here are four very highly thought of people. The chair of the Council of Economic Advisors Cecilia Rouse Metal Springs. He's AFL chief

economist Lisa Cooke. She's from the University of Michigan State University. I get that right. Or the football fans will be met. And Seth Carpenter who is Morgan Stanley chief global economist couple of women being mentioned for these posts as well. Sarah Bloom Raskin was the mayor of Maryland banking supervisor before she was appointed to the Fed. And she went on

to be deputy treasury secretary. Karen Diamond who was the Treasury's chief economist now at Harvard. Also possible candidate for the Boston Fed. So Mike it feels like the conversation is at least on Wall Street is who President Biden picks will be more dovish. So maybe the opportunity to install three more dovish individuals on the Fed. Is that the right conversation to be having because of me. So worry about inflation. Why would he do something that is perceived as dovish. And also can we assume that they would be Covid. Well there's a political answer and there's an economic answer. The political answer is that the Fed is right now dealing with

high inflation. And so yeah politically it's difficult to appoint somebody who is seen as significantly dovish. But that forecast from all economists are that inflation is going to go back down and then someday when it goes back up again. Do you clamp down more quickly. Do you stick with the framework

that you have now and wait it out. And that's where the new policymakers will come into effect. Also they have the framework that says they want a diverse labor market expansion which includes bringing down the black Hispanic Asian unemployment rates. And if you put people in who have lived through those unemployment rates then you get more sensitivity to that. So there is an argument for going in that direction. That's really interesting. Take my thanks. I really appreciate it. Let me read some Michael McKee and guy. What I think is really

interesting is that the two stories just shows how much President Biden has to deal with right now. And then the third story is what's happened with the energy crisis here in the U.S. and record high gas not record high but very high gas prices. There is a lot of things he has to figure out. He's saying the hard infrastructure bill on Monday the human infrastructure bill still has large question marks on in particular when it comes to the Senate. How does he make all this work.

Well I think he's got to have a guiding principle in all of this and that is going to be the American people. And at the moment the American people judging by the data we've just seen on our screen in front of us are worried about inflation. He has to figure out a way of dealing with that now in some ways. The the the tea plants he's put in place may go some way to hopefully resolving some of these issues. They may hopefully raise long term productivity for America. That will be certainly something that would help with the inflation narrative. But in the short term I think his problems are absolutely enormous. He has to

figure out how to get inflation down and get inflation down relatively quickly. And three trillion dollars worth of spending. I don't know about that one. All right. Well we're going to break down something that sort of relates to this. On Friday we wind up doing the favorite charts of the week. Mind definitely has to do with the inflation scenario. We're going to bring that to you next. This is Bloomberg.

So every Friday the guy and I are here we're going to highlight our favorite chart of the week. I'm gonna go first. And it's not commodity related haha. OK. So I found that you mesh sentiment very interesting. It fell to a 10 year low. That's that white line here. But the blue line is the NFIB small business optimism. It's held up relatively well. It is rolling over. And

you have to wonder is it wind up meaning that you miss sentiment. And what does that then do to hiring for example and growth. It's small businesses and how they feel world over. What I also thought was really interesting here guy is that you had 24 percent of households expect themselves be worse off in 2020 to the highest since 2008. You really then go buy stuff if you feel like that. I think so. What I think as well as you can roll into that you put the jobs

number from today on top of that. Jobs are plentiful in America which is interesting that we are seeing this decline in consumer sentiment. Clearly the inflation factor we were talking before the break huge element in all of this. I'm going to turn my attention to what's happening with the European earning season. And I'll make it relatively brief. Everybody was worried going into this European earning season that things were not going to work out. They did work out. They worked out huge. We've had

some really amazing numbers coming through. So what we've seen is as we come through August into September we go into that Q3 earnings season we see the number of upgrades really starting to fade and fade really quite dramatically. Now we've got through the earnings season we're starting to see a pickup. In fact European earnings upgrades are now exceeding global earnings upgrades which is really interesting as people are starting like Sebastian Rattler over a Bank of America to turn a little bit more cautious on Europe. So we're starting to turn things around a little bit. The earnings season absolutely pivotal. Talking of which European Close is coming up next. This is Bloomberg.

2021-11-17 08:50

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