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Paul Hodges

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2024-01-13

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2024-01-13

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1. “Exactly. They've caught up and surpassed the states. I mean, this is appalling news for you. But so every mark in Germany, it's a vast amount of rented accommodation, relatively high quality relative people don't buy. They don't need to and so on. So each market is different, but the fact is different doesn't mean that there isn't an underlying trend here, which is things are going well. There's lots of demand. It's all affordable. Or actually, it's not that much demand and it's very unaffordable. And people are running short of cash. And those are the things that the chemical industry is telling you.”

   2024-01-13 · Forward Guidance · Paul Hodges: Overcapacity In Chemical Industry Suggests Demand Is Weakening · IDENTIFIED FROM THE TRANSCRIPT

2. “Dive down into construction, for example, I entirely agree with you. Thirty year mortgages distort the market in the States for housing versus Europe or whatever. But every market is different. China, for example, there were no private ownership of houses until nineteen ninety eight.”

   2024-01-13 · Forward Guidance · Paul Hodges: Overcapacity In Chemical Industry Suggests Demand Is Weakening · IDENTIFIED FROM THE TRANSCRIPT

3. “What we're doing all the time is to say, look, the chemical industry is the third largest industry in the world after agriculture and energy. It has to look over its shoulder everywhere because you've got to look at energy, obviously, because it's the feedstock. You've got to look at autos, you've got to look at construction, you've got to look at electronics and so on, because these are all key industries. And you've got to look at every country. And it's been around a long time. So it's been around 100 years or more. Petrochemicals has been around 50 or 60 years and so on. So you've got an awful lot of experience in data to assess against this. And it is really truly the best leading indicator. And all we're really trying to do is to understand what is this data trying to tell us. We don't go into it with a view that says, oh, it's got to look good, it's got to look bad. We go, that's interesting. I wonder what that means. So we're, as I say, if you don't.”

   2024-01-13 · Forward Guidance · Paul Hodges: Overcapacity In Chemical Industry Suggests Demand Is Weakening · IDENTIFIED FROM THE TRANSCRIPT

4. “I say we're not downbeat normally. So we've been in markets where we've actually been more optimistic. I mean, 2009, 2010, we were more optimistic than everybody else because we could see from the chemical industry that all of us were picking up.”

   2024-01-13 · Forward Guidance · Paul Hodges: Overcapacity In Chemical Industry Suggests Demand Is Weakening · IDENTIFIED FROM THE TRANSCRIPT

5. “You know, and you know, because zero COVID is going to talk about the issues rather than the hype, we were right, you know, like everybody who rushed into China lost a lot of money.”

   2024-01-13 · Forward Guidance · Paul Hodges: Overcapacity In Chemical Industry Suggests Demand Is Weakening · IDENTIFIED FROM THE TRANSCRIPT

6. “Kind of issues that we tend to focus on. What is it if you sort of lift up the stone and look under it? Is there anything moving there? And if so we're really seeing now a major problem in China. We're seeing major problems in Europe and we're seeing potentially now major problems in the States. I'm not talking about the end of civilization as it stands in long term, but I would be amazed if we end This year, with the optimism with which we passed this started, I mean, you remember we talked a year ago about China. That was the moment where everybody was bullish on China. And you were asking me, well, come on, Paul, how can we know?”

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7. “Time we'd be talking about the debt issue and government default and so on. And there is a major political issue which is set to impact financial markets. Are we going to be able in an election year to be able to get a debt roll over? I've seen, for example, comments from leading house Republicans saying we're not going to do anything on the border or anything on Ukraine because we're not giving that so-and-so Biden any benefits. And you've got a new house speaker who's got to prove himself. So I doubt that he'll be proving himself by saying, oh yes, go ahead. Let's do the sensible thing. So we've got, you know, what I'm talking about is we've got there a... pretty major risk developing that nobody is talking about Talking about”

   2024-01-13 · Forward Guidance · Paul Hodges: Overcapacity In Chemical Industry Suggests Demand Is Weakening · IDENTIFIED FROM THE TRANSCRIPT

8. “Yeah. I mean, the key thing, and I've been an oil trader in Houston. So, you know, it's all very well having a theory, you can say, but if you can't tell me when, Paul, I'm really not interested. And so, you know, I'm used to that debate. For a lot of, for a lot of Corporat, for a lot of big investors, actually, it is important to know what's going to happen or think about what's happening three or four years away because you don't have, you know, you can't move overnight if you like. There is a moment when the rubber hits the road on these things and you talk about why the four or five great questions of life. Why could things go wrong? What would you be seeing if things went wrong? When do you think they would be going wrong? How would they be going wrong? Those are the kind of questions that we're looking at now very closely. And what we see, I mean, we haven't talked yet, but I'm sure if we were on in a couple of weeks.”

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9. “Yeah, yeah. And I was a beat, you know, huge global chemical giant, but I think it's based in Europe. Maybe that's a distinction between Europe and the US is that in Europe, it does play out in the way of, oh, higher interest rates quite quickly cause a ratcheting up of interest expense that can catch up with companies very quickly. I mean, in America, maybe we are in La La Land, but there are a lot of people who took out a 30-year mortgage and corporations, Apple, Amazon, they paid 3% on their debt. And they're actually making money. And the companies with issues in America are actually the banks, the companies that all the investing experts said would make money when rising rates rose just because the term structure of the duration was so long. Thank you for outlying, okay, so two forces. Peace dividend no longer with us, demographics, unfavorable in the West to growth. But in terms, can we zoom in a little bit more to the shorter?”

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10. “Yeah, I mean, we know people who've been able to refinance. I mean, obviously, if you're a CEO, you want to make sure you've got enough cash in the bank before going bust. But we know people who've raised considerable sums of money, but they're having to pay 13, 14 per smell. At some point, the lenders are going to go, wait a minute, how much they normally make? What's their normal? And that doesn't work either. But at least you've got the money. And that's the lender's problem now.”

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11. “They're getting into a trading mode and they say, Oh, yeah, we'll bet on the employment numbers or whatever. And they're forgetting that what's going to happen here is people are going to be unable to refinance. And that's going to be very awkward.”

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12. “Their interest bills out of earnings. I mean, if you think about that for a moment, you can't pay your interest bills out of earnings. What are you doing here? You're just refinancing. Doesn't matter. Hey, come on, Jack, you know, I need another five billion, let me refinance. But now you can't refinance. We wrote in the reporter, as you saw. I mean, BASF, the world's largest chemical company. You know, very, you know, I don't want to make any mistake that I'm not suggesting they're in trouble or anything like that, but just to say for the world's largest chemical company, very well established, very well respected, their interest rates on their refinancing, but they did. They're rolling over debt and so on went up from below one percent to over four percent. Now that's a lot of extra money. A lot of extra money on billions of euros and billions of dollars. And that's happening across the piece. So this is why I'm worried that people.”

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13. “To be spent on healthcare, on education, on tax cuts or whatever you wanted to do. And so those two great dividends of our lifetimes are no longer there. And so the other things that are going all around us, short-term stuff, there's no surprise that interest rates are going up. We've been forecasting that quite happily and we wouldn't be surprised if they go up further. Why? Because one of the things the central banks did was to encourage companies and individuals to borrow on the basis that always forward guidance, not your forward guidance, but very unreliable forward guidance, Jack. Forward guidance were zero interest rates will be here forever. Well, that hasn't worked out terribly well, has it? And so you've got now twenty percent of S&P five hundred companies who can't pay their”

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14. “has become a demographic deficit. Nothing you can do about and what's even more alarming, if you like, is over the last couple of years, the peace dividend that we got from the end of the Cold War in 1989 has reversed. We're now at war. We've got two major wars. We've got the war in Europe over Ukraine, and we've got the war in the Middle East. If you go back, I was looking back at this, and Bill Clinton in his State of the Union debate speech, I think it was 98 or 99, boasted about the fact that, and he didn't say it was because of the peace dividend, but it obviously was that the US now had a balanced budget for the first time in thirty years. This was trillions of dollars that wasn't being spent on defense, that was now available.”

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15. “They're all pretty much there as well. So you've now got this what was the largest and wealthiest generation in history has moved comfortably into the perennials fifty-five plus, but they are a replacement economy. And what the central banks have done over the last fifteen or twenty years is essentially to try and print babies. Now, if it was right that they could do that, then obviously growth would have picked up, but it hasn't been. Instead, we have all this debt. You know, the Federal Reserve debt, government debt, I mean, you know, US government debt now going up by a billion a quarter or something horrendous. Like that 34 billion, I think I saw last number. China even greater debt and so on. Europe, debt, and so on. So in other words, they haven't been able to print babies. So the great AB boomer demographic dividend.”

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16. “These boomers, of which I am one, aren't dying now at the age of sixty five, a pension age or whatever, their limit they've got another fifteen years of life expectancy. And in the States, if you look at the Bureau of Labour Studies data, which comes out every year is pretty reliable, it shows that after the age of fifty five, spending begins to drop off. And by seventy five, it's down around forty percent four zero percent. Well, if you do the math, as our friends on the west coast used to say in the dot comer, do the maths, you see that add fifty five to forty six, all of those are in the perennials area.”

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17. “Created quite a bit of inflation to start with because there were lots of babies, 52% rise in the number of babies in the US, for example, between 1946 and 1964. Well, obviously you had inflation. Nothing to do with Friedman and money supply or anything like that. It was a symptom not a cause. But then they all went through education, they all went through apprenticeships, and they went and they started to produce and they settled down and they had their own kids. And so you had more or less constant growth. This was the baby boom, the demographic dividend.”

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18. “Well, I think that if you, yeah, we obviously look very closely at the idea of a soft landing, we would love a soft landing. Soft landings are better for consultants. Companies are doing better. They've got more money to spend. They can throw a bit of it in our direction. Thank you very much, Madam. We're not by nature happy with this. But if you look at, well, come back for a moment to your point, Jack, about demographics, because demographics is a long-term issue, but we wrote the book about it in 2011, which is 12 years ago. And what we were talking about then has now played out. And essentially, there have been two, in my life, my working life, there have been two massive dividends that have really supported everything. The first was the demographic dividend, the baby boomers.”

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19. “Three or four years ago, we were almost not quite told to shut up, you know, but it was very much demographics, age of populations, that's just higher healthcare and more pension spending. No, no, guys, it's about spending patterns. It's about demand. No, no, it isn't. We can always create demand as a central bank. I think particularly in Europe, the central banks are not so sure they can create demand anymore. And so that's a big shift going on. And I think we'll see more of that this year.”

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20. “We spent about 18 months in the Financial Times and other areas from 2006 to 2008 saying, look, guys, there's going to be this massive subprime crisis. And everybody told us, everybody, more or less central banks and so on, oh, you don't know what you're talking about. We really, really, really do. Turned out we were right. So I've got used over the years to people telling me I don't know what I'm talking about. And you obviously listen to people and if they come up with a reasonable argument and you think, oh, wait a minute, I haven't thought about that. We change our view. As Cade said, you know, if the facts change, I changed my view. But I haven't seen anything. And what's been interesting for us over the last six or nine months has been the growing interest in what we're talking about from central banks. We've never seen this before. You know, when we talk about demographics and so on.”

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21. “They are at risk, and that's worrying, because they will realize sometime this year we're pretty clear about that, and it may be too late for them.”

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22. “States is doing a bit better. So I wouldn't, you know, I must say, having gone back and looked at what we were writing in the first half of last year, I wouldn't, in the light of what we know today, want to change that. I think we got it about right. When we're writing the report, we think very carefully about what's the precise position that we're in today. We don't go for a flat headline. Oh, God, you know, it's all disaster or something. We try and say, well, look, this is where we're. And because what we're trying to do is to help investors and companies to understand what's the direction of travel here. And the thing that we're looking at most at the moment is around the concept of winners and losers. And the one point I think I come back to you on, Jack, is our real concern is that a lot of potential losers don't realize.”

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23. “Well, we have a different view. We weren't particularly bearish at the beginning of last year. In our headline in January 23, the report was 2023 seems set to see the arrival of winners and losers as recession starts to bite. And I think I'd hold to that in terms of what's happened in Europe. I mean, Europe is definitely in a major downturn for all the reasons we understand. I mean, you've got the shock of the invasion, you've got the loss of cheap natural gas, and of course you've got the major downturn going on in China. China is also, you know, I mean, the GDP figures in China are targets. They're not outputs. So if the government decides it's going to have 5%, it gets 5%. But I don't think anybody in their right mind believes that China is doing very well at the moment. And yes, as you would expect.”

    2024-01-13 · Forward Guidance · Paul Hodges: Overcapacity In Chemical Industry Suggests Demand Is Weakening · IDENTIFIED FROM THE TRANSCRIPT