WEBVTT - Ex-SEC Chair Levitt: It’s A Bad Idea to Reduce EPS Reporting 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm Pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Bramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.760 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. Well, 0:00:32.800 --> 0:00:36.479 we are getting more information about President Trump's proposal to 0:00:36.680 --> 0:00:41.360 potentially allow companies to report earnings every six months rather 0:00:41.400 --> 0:00:45.320 than quarterly. On a quarterly basis, President Trump says the 0:00:45.360 --> 0:00:50.279 idea comes from outgoing PepsiCo chief executive Indra Nuye, who 0:00:50.320 --> 0:00:54.240 attended last week's at Bedminster business dinner, So that is 0:00:54.440 --> 0:00:57.760 where the idea came from. Joining me now, I'm very 0:00:57.800 --> 0:01:00.280 pleased to say, is Arthur Lovitt. He is the former 0:01:00.360 --> 0:01:03.760 chairman of the U S Securities and Exchange Commission and 0:01:03.960 --> 0:01:07.759 I believe the longest serving ever SEC chair. He also 0:01:07.880 --> 0:01:10.280 is a current member of the board at Bloomberg LP. 0:01:10.520 --> 0:01:13.240 He also is an advisor to the Promontory Financial Group. Arthur, 0:01:13.520 --> 0:01:16.319 thank you so much for being with me today. What 0:01:16.520 --> 0:01:19.960 was your reaction to President Trump's tweet this morning? About 0:01:20.280 --> 0:01:24.920 allowing companies to report every six months. I don't like it. 0:01:25.200 --> 0:01:29.760 I think that investors have much better results when they're 0:01:29.800 --> 0:01:34.560 better informed, not less than the US capital markets with 0:01:34.720 --> 0:01:40.440 their quarterly reporting have generated higher returns centers as a result, 0:01:40.959 --> 0:01:46.720 attracted a lot more capital than those international capital markets 0:01:46.720 --> 0:01:51.800 with semiannual reporting. Yeah. In the instance of Enron, they 0:01:51.840 --> 0:01:56.360 reported serious problems in the third quarter of two thousand 0:01:56.400 --> 0:02:00.960 and one in that earning call and Q and they 0:02:01.000 --> 0:02:05.600 filed for bankruptcy the first Greek of December in two 0:02:05.640 --> 0:02:10.440 thousand and two. With semi annual reporting, investors wouldn't have 0:02:10.480 --> 0:02:14.880 received the bad news from October until two thousand and two, 0:02:15.280 --> 0:02:20.119 by which time the company was broke. Otherwise you could say, 0:02:20.360 --> 0:02:26.560 you know, it just doesn't doesn't make sense. So, coming 0:02:27.240 --> 0:02:30.720 coming from your background at the end, oh go ahead, Arthur, 0:02:31.840 --> 0:02:35.000 coming from your background at the SEC, I'm wondering what 0:02:35.120 --> 0:02:38.320 the process would be like that it could potentially undergo 0:02:38.560 --> 0:02:42.240 in order to make this happen. I mean, how long 0:02:42.240 --> 0:02:44.320 would a study like this take and could they just 0:02:44.400 --> 0:02:49.480 sort of implement this in the near term. I think 0:02:49.520 --> 0:02:53.400 the study is likely to take at least six months, 0:02:54.400 --> 0:02:58.200 and I don't believe they could do this virtually overnight. 0:02:59.480 --> 0:03:03.320 I think this is a very hot button issue, and 0:03:04.200 --> 0:03:07.640 I think it will raise a lot of attention, not 0:03:07.880 --> 0:03:12.399 just in corporate America, but in academia, which is very 0:03:12.520 --> 0:03:17.560 concerned about how information gets to the public and when 0:03:17.600 --> 0:03:21.360 they can act on it. Do you think that if 0:03:21.440 --> 0:03:25.840 we did move to a six month reporting period that 0:03:26.040 --> 0:03:32.320 US markets have become less liquid. Yes, I think that 0:03:33.320 --> 0:03:37.360 they would become less liquid, But more important than that, 0:03:39.040 --> 0:03:43.560 we would have less information on which to base decisions. 0:03:43.680 --> 0:03:48.520 And I think a market without information is not as 0:03:48.520 --> 0:03:51.480 not as nearly as liquid, or as good as a 0:03:51.560 --> 0:03:56.200 market where information is readily available on a regular basis. 0:03:57.400 --> 0:04:00.680 I have to think that some people believe that this 0:04:00.760 --> 0:04:03.760 was a good thing, that this would reduce short termism 0:04:04.000 --> 0:04:08.600 among the C suite executives and that people would be 0:04:08.720 --> 0:04:12.440 looking more longer term for business strategies. That makes sense. 0:04:12.840 --> 0:04:15.160 What do you say to that, because there are even 0:04:15.200 --> 0:04:17.159 some investors who think that this would be better for 0:04:17.200 --> 0:04:21.560 them over the long term. I think from the perspective 0:04:21.839 --> 0:04:28.479 of business, it would be less costly to relax these standards. 0:04:28.520 --> 0:04:33.600 But I honestly believe that the best capital markets are 0:04:33.640 --> 0:04:38.440 the ones which are the most often, report the most frequently, 0:04:39.120 --> 0:04:44.760 and the argument for more information for individual investors trumps 0:04:44.839 --> 0:04:51.400 the argument that providing this information is costly to American business. 0:04:52.160 --> 0:04:54.839 When you were the SEC chair, did a lot of 0:04:54.839 --> 0:05:00.160 executives petition you to make this change? No, h uh, 0:05:00.600 --> 0:05:05.279 they did not. I think there is always a certain 0:05:05.320 --> 0:05:12.279 amount of tension between business and regulation, and that's certainly existed, 0:05:12.880 --> 0:05:18.400 but I was not pressured extensively in connection with this change. 0:05:19.000 --> 0:05:21.720 I'm curious to know whether you think that the pendulum 0:05:21.760 --> 0:05:25.880 has swung too far toward deregulating things, or how much 0:05:25.920 --> 0:05:28.320 further it would have to swing before you get concerned 0:05:29.360 --> 0:05:35.039 that we're sowing the seeds for another problem. I don't 0:05:35.080 --> 0:05:37.880 think there's a specific moment that you can point to, 0:05:38.680 --> 0:05:43.240 but clearly deregulation is in the air, and that's not bad. 0:05:44.080 --> 0:05:47.479 I think the pendulum does shift, as you say, but 0:05:47.880 --> 0:05:51.760 I think we've rolled back a number of things. We've 0:05:51.920 --> 0:05:56.080 made it easier for business in a number of ways 0:05:56.160 --> 0:06:01.640 in terms of regulatory context. But I think going much 0:06:01.680 --> 0:06:04.800 further than we are now, we would do that at 0:06:04.839 --> 0:06:09.760 the expense of investor interest and the greatest danger to 0:06:09.800 --> 0:06:14.320 our capital markets. His lack of transparency, and so far 0:06:14.360 --> 0:06:18.640 as investors are concerned, that's why I think we can 0:06:18.680 --> 0:06:23.279 go so far and really not go any further. Just 0:06:23.400 --> 0:06:25.559 a real quick here. I'm curious, are you worried about 0:06:25.560 --> 0:06:30.840 as you see independence here? I haven't thought of that. 0:06:31.000 --> 0:06:37.240 I think that agencies are independent, have been independent, and 0:06:37.279 --> 0:06:40.679 I think any effort to change that would be terrible 0:06:41.360 --> 0:06:45.040 for our markets. I don't regard this as an urgent 0:06:45.120 --> 0:06:47.520 threat at this point in time, and a lot of 0:06:47.560 --> 0:06:51.480 it depends on who's running the Commission, and the president 0:06:51.600 --> 0:06:55.840 SEC chair is mindful of those risks, and I think 0:06:55.920 --> 0:06:59.240 it's unlikely to move in that direction. Arthur Lovett, thank 0:06:59.240 --> 0:07:01.520 you so much for taking of time. Always wonderful hearing 0:07:01.560 --> 0:07:05.120 your insights, especially on an issue so close to your experiences. 0:07:05.200 --> 0:07:08.000 Arthur Lovitt is former chairman of the U S Securities 0:07:08.000 --> 0:07:11.240 and Exchange Commission, current member of the board of Bloomberg LP, 0:07:11.360 --> 0:07:14.800 as well as an advisor to the Promontory Financial Group. 0:07:29.000 --> 0:07:33.800 Dominating this otherwise relatively quiet Friday has been the President's 0:07:33.880 --> 0:07:39.560 tweet respecting the SEC and how it requires companies to 0:07:39.600 --> 0:07:43.440 report their earnings. Should we be moving to a six 0:07:43.560 --> 0:07:46.000 months schedule rather than a quarterly one. I should just 0:07:46.120 --> 0:07:48.600 note the White House just released a statement saying the 0:07:48.640 --> 0:07:50.960 President is interested in examining this issue on whether short 0:07:51.040 --> 0:07:55.040 term earnings reporting requirements for public companies reduce incentives for 0:07:55.080 --> 0:07:58.160 them to engage in long term investing in the United States. 0:07:58.360 --> 0:08:01.400 This is part of the administrations on going regulatory reform 0:08:01.440 --> 0:08:03.880 efforts that aim to ensure that the U. S economy 0:08:04.200 --> 0:08:08.040 remains the most productive in the world. Joining me now 0:08:08.080 --> 0:08:11.840 Hans Olsen, chief investment officer at Fiduciary Trust, which overseas 0:08:11.880 --> 0:08:14.640 about seventy eight billion dollars. It is based in Boston. 0:08:14.680 --> 0:08:18.560 Hans joins me today in a very sweaty and warm 0:08:18.720 --> 0:08:21.040 New York City in our eleven three oh studios. Hans, 0:08:21.160 --> 0:08:23.360 thank you so much for being here. What do you 0:08:23.360 --> 0:08:26.760 think of this idea of six months reporting six month reporting, Well, 0:08:26.800 --> 0:08:28.840 you know, it's it's kind of moving, at least in 0:08:28.880 --> 0:08:32.439 the same direction that the Europeans have moved in. They 0:08:32.440 --> 0:08:35.720 were on a six month um schedule and I think 0:08:35.760 --> 0:08:37.400 they went to three and then back to six. In 0:08:37.440 --> 0:08:40.800 the UK, I think it's similarly the same thing. You know, 0:08:41.160 --> 0:08:44.480 at the end of the day, it's probably less meaningful 0:08:44.520 --> 0:08:48.280 for equity investors. Than it is for bond investors. Um um. 0:08:48.360 --> 0:08:50.160 That said, if we went to six months, wouldn't be 0:08:50.200 --> 0:08:52.040 the end of the world. But I do think that 0:08:52.160 --> 0:08:57.000 in the interest of transparency, right um, more information is 0:08:57.040 --> 0:09:00.560 better than less information. And I think this this whole 0:09:00.600 --> 0:09:05.640 notion of quarterly capitalism, as the CEO of Unilever put it, um, 0:09:05.840 --> 0:09:09.760 is of CEO's own making. We get into the earning 0:09:09.800 --> 0:09:13.360 season they've released, they have analyst conference calls, we go 0:09:13.400 --> 0:09:16.320 through the kabuki theater of of analysts calling in and 0:09:16.360 --> 0:09:19.400 congratulating the CEO is in a good quarter and and 0:09:19.520 --> 0:09:22.320 basically they're reading from the press release, right um. I 0:09:22.360 --> 0:09:25.200 think a better way, right to relieve some of the 0:09:25.200 --> 0:09:28.560 the emphasis around quarterly capitalism is to release the numbers 0:09:28.559 --> 0:09:31.520 on a quarterly quarterly basis, but only do a semi 0:09:31.559 --> 0:09:34.280 annual deep dive on the operations of the company. So 0:09:34.400 --> 0:09:38.240 you keep the transparency and um uh, and you perhaps 0:09:38.679 --> 0:09:41.199 less than this emphasis on quarter to quarter data. I 0:09:41.240 --> 0:09:44.200 think it's really interesting what you just said about this 0:09:44.320 --> 0:09:47.800 mattering more for bond investors than stock investors. And I 0:09:47.800 --> 0:09:49.319 think that this really goes to the heart of the 0:09:49.360 --> 0:09:53.120 short terms short termism is um versus long termism debate 0:09:53.600 --> 0:09:56.880 that this really highlights, which is perhaps companies would be 0:09:56.920 --> 0:10:00.360 incentivized to make better longer term decision as if they 0:10:00.360 --> 0:10:03.160 didn't have to meet these sort of quarterly hurdles. But 0:10:03.240 --> 0:10:06.080 for a bond investor, the key is, are you guys 0:10:06.120 --> 0:10:08.079 losing money? Are you getting off track to the point 0:10:08.080 --> 0:10:09.520 where you're not gonna be able to pay me back? 0:10:10.240 --> 0:10:13.760 And so do you think that for equity investors six 0:10:13.840 --> 0:10:19.160 month reporting would actually increase longer termism thought among corporate 0:10:19.160 --> 0:10:20.800 executives or do you think it would just be less 0:10:20.840 --> 0:10:23.440 transparency full stop? I don't. I don't think so. I mean, 0:10:23.480 --> 0:10:24.920 at the end of the day, CEO is going to 0:10:24.960 --> 0:10:28.320 be compensated on his or her UM stock price, right 0:10:28.920 --> 0:10:31.360 and so UM you know from and that's on a 0:10:31.400 --> 0:10:34.199 year to year basis. So if you are really talking 0:10:34.200 --> 0:10:38.679 about long term, you're talking three to five years or more, 0:10:38.920 --> 0:10:42.200 you know, a business cycle that's just too long for 0:10:42.200 --> 0:10:45.600 for most investors UM to for you to be able 0:10:45.600 --> 0:10:49.720 to evaluate a company standing or not. So I think 0:10:49.800 --> 0:10:53.200 this is much to do about nothing really. All right, well, 0:10:53.280 --> 0:10:56.840 let's move on to some things that are ado about something. 0:10:57.400 --> 0:10:59.319 I do want to just let people know that there 0:10:59.440 --> 0:11:02.559 is a headline crossing the Business Insider is now reporting 0:11:02.800 --> 0:11:06.400 that Turkey is preparing to release the imprisoned US Pastor. 0:11:06.480 --> 0:11:08.880 This of course at the heart of the dispute between 0:11:09.040 --> 0:11:12.280 the US and Turkey, with the US threatening additional sanctions 0:11:12.640 --> 0:11:16.880 on Turkey and unless they release this Pastor, so this 0:11:17.040 --> 0:11:20.640 might be a softening of that issue. Hans, come on 0:11:20.679 --> 0:11:24.360 in here, because you noted that you are underweight emerging markets. 0:11:24.480 --> 0:11:26.640 And I'm wondering how much you see Turkey is an 0:11:26.679 --> 0:11:28.920 iducent cradit case and how much you see it as 0:11:29.000 --> 0:11:31.880 emblematic of broader weakness that is going to be felt 0:11:31.920 --> 0:11:34.599 increasingly across the developing markets. So I think Turkey is 0:11:34.600 --> 0:11:37.439 a unique case. And and this the issue of the 0:11:37.520 --> 0:11:42.559 Pastor aside Turkey's problems is an old problem, UH that 0:11:43.200 --> 0:11:45.440 is very familiar to emerging markets. Where you get a 0:11:45.440 --> 0:11:49.160 country that's running a large current account deficit, UH that 0:11:49.160 --> 0:11:53.040 that is financing it's spending from foreign sources and depending 0:11:53.080 --> 0:11:58.240 upon exchange rates, and they're engaging in policies that are 0:11:58.280 --> 0:12:01.040 are not prudent over time, and and finally you start 0:12:01.080 --> 0:12:03.679 messing around with the country central bank, and you have 0:12:03.880 --> 0:12:07.040 the cocktail for disaster, and that's essentially what's played out 0:12:07.320 --> 0:12:10.200 in Turkey. The the issue with the pastor was a 0:12:10.320 --> 0:12:14.560 secondary but perhaps exacerbating case, but it perhaps is moving 0:12:14.559 --> 0:12:17.880 in the right direction. But Turkeys problems isn't going to 0:12:17.920 --> 0:12:20.679 be cured by the release of this of this pastor. 0:12:21.240 --> 0:12:23.840 It's really about maintaining the independence of the central bank 0:12:23.960 --> 0:12:26.520 getting handled on their current account deficits and and the like. 0:12:27.280 --> 0:12:30.920 Within a broader perspective, though, Lisa, the the emerging market 0:12:31.040 --> 0:12:36.000 issue is we're underweight, and we're underweight because the notion 0:12:36.080 --> 0:12:37.880 that when you start to have a price of money 0:12:37.920 --> 0:12:40.959 here in the United States, uh, and people have a choice. 0:12:41.040 --> 0:12:44.360 Where where when we had negative real rates and really 0:12:44.880 --> 0:12:49.040 quite negative real rates on on on cash, money got 0:12:49.080 --> 0:12:51.720 pushed into motion. It was looking for a return and 0:12:51.800 --> 0:12:54.160 it had to go increasingly to places that it normally 0:12:54.200 --> 0:12:57.280 wouldn't go emerging market debt, emerging market equities and the 0:12:57.360 --> 0:13:00.440 like for a return. Now that we're getting a return 0:13:00.520 --> 0:13:04.280 on cash, they're starting to be a choice. And and 0:13:04.360 --> 0:13:07.000 as the dollar goes up and as interest rates go up, 0:13:07.000 --> 0:13:11.160 which reinforces the currency, you know, uh, the attractiveness of 0:13:11.200 --> 0:13:14.120 emerging markets become somewhat suspect right. I do want to 0:13:14.120 --> 0:13:16.880 also talk about the attractiveness of risk assets in the US, 0:13:17.040 --> 0:13:20.160 and you noted that you've been reducing high yield exposure 0:13:20.200 --> 0:13:22.040 and some of your portfolios. I would love to get 0:13:22.080 --> 0:13:26.959 your perspective on where. How why? Yeah, Yeah, So we've 0:13:27.000 --> 0:13:30.920 been we've been essentially moving to eliminate our high yield 0:13:30.960 --> 0:13:37.320 exposure was about three or four percent of portfolio three 0:13:37.440 --> 0:13:40.160 or four pers three or four, so taking that out, 0:13:40.200 --> 0:13:42.400 and the reason that we're doing is that we've seen 0:13:42.480 --> 0:13:47.720 a progressively deteriorating UM backdrop for UM, the underwriting standards 0:13:47.760 --> 0:13:49.880 for high yield, whether it be bonds or loans. So 0:13:50.000 --> 0:13:51.959 when you look at the number of covenant light launs, 0:13:52.000 --> 0:13:55.920 you look at the valuations spreads that have come to market, UM, 0:13:55.960 --> 0:13:59.600 the protections that are normally afforded investor has been have 0:13:59.720 --> 0:14:03.560 been systematically eroded UM as as people have sought for 0:14:03.640 --> 0:14:07.440 yield and try to protect against rising interest rates. What 0:14:07.600 --> 0:14:10.480 that doesn't do is protect against the next part of 0:14:10.520 --> 0:14:13.000 the business cycle, when you know, you go into recession 0:14:13.520 --> 0:14:15.520 and the fault rate start rise. You know, it was 0:14:15.559 --> 0:14:19.200 interesting you noted before the segment that you've reduced all 0:14:19.280 --> 0:14:21.720 you're gotten rid of all of your leverage loan exposure. 0:14:21.720 --> 0:14:25.119 And part this has to do with the weakening underwriting standards. 0:14:25.240 --> 0:14:27.880 And we were talking about this moody Is report showing 0:14:27.920 --> 0:14:30.440 that recoveries the next downturn for leverage loans will be 0:14:30.440 --> 0:14:35.920 sixty from pent historically, And I'm just wondering, you know, 0:14:36.000 --> 0:14:38.680 why do you find it important to get rid of 0:14:38.720 --> 0:14:41.920 things now before the cycle is turning? And just I'll 0:14:41.920 --> 0:14:44.720 give you about sure, that's a good question, uh, position 0:14:44.760 --> 0:14:47.880 of strength. You do it when the prices are good. 0:14:47.880 --> 0:14:50.400 You do it ahead of the curve, when you're when 0:14:50.400 --> 0:14:52.680 you do it when the information is out there, when 0:14:52.720 --> 0:14:55.160 you're starting to suffer the adversity. It's too late because 0:14:55.160 --> 0:14:57.480 the prices moved too quickly, as we you know, and 0:14:57.800 --> 0:15:00.640 when you go looking forbids in this market, it'll be 0:15:00.720 --> 0:15:02.720 hard to find them. So we're doing it ahead of 0:15:02.720 --> 0:15:05.360 the curve. Interesting, So even if we're I don't know, 0:15:05.480 --> 0:15:07.920 eighteen months out, now is the time in your view. 0:15:08.360 --> 0:15:10.640 Hans Olsen, a pleasure speaking with you. Thank you so 0:15:10.720 --> 0:15:13.320 much for coming in. Hans Olsen chief investment officer at 0:15:13.320 --> 0:15:16.240 Fiduciary Trust based in Boston, but he joins us here 0:15:16.360 --> 0:15:19.520 in our eleven three oh studios. I do want to 0:15:19.520 --> 0:15:23.520 know that President Trump is talking to reporters and we 0:15:23.560 --> 0:15:27.280 will take those uh comments to you when we get them. 0:15:27.440 --> 0:15:31.760 He's talking about everything from Paul man Afford to John Brennan. 0:15:45.800 --> 0:15:49.920 Housing market in the US has seen some signs of 0:15:49.960 --> 0:15:52.400 stress this year. I'm looking at an index of home 0:15:52.440 --> 0:15:55.920 builder shares in the SMP five hundred, down nearly eighteen 0:15:56.040 --> 0:15:59.800 percent so far this year. The question is here, does 0:16:00.160 --> 0:16:04.240 mark a prolonged takedown of the US housing market or 0:16:04.280 --> 0:16:06.440 is this a blip to kind of create a more 0:16:06.480 --> 0:16:09.560 even ground for people who to afford properties. Joining us 0:16:09.560 --> 0:16:12.800 now to talk about this is Aaron Rozis, Economic research 0:16:12.840 --> 0:16:16.240 director for Zillo. Aaron, I'm really glad that you're joining 0:16:16.320 --> 0:16:18.840 us today because this has been sort of an underlying 0:16:18.960 --> 0:16:21.320 theme for a lot of people, especially if they're barished 0:16:21.320 --> 0:16:23.200 in the economy. They say, look at the home builders, 0:16:23.480 --> 0:16:25.000 So what's going on? I mean, do you see that 0:16:25.040 --> 0:16:28.280 the weakness that has been observed recently is a symptom 0:16:28.280 --> 0:16:30.960 of some kind of deeper woe that will be expressed 0:16:31.160 --> 0:16:33.960 throughout the rest of the year. You're you're something right 0:16:34.000 --> 0:16:35.880 to point out that housing data have been coming in 0:16:35.880 --> 0:16:38.480 a little bit weaker than expected. You look at home sales, 0:16:38.800 --> 0:16:42.000 housing starts, home val appreciation. Although it's been very strong, 0:16:42.040 --> 0:16:45.120 it's starting to slow down. We recently produce some data 0:16:45.160 --> 0:16:47.080 showing that listings for the price cuts, you're seeing a 0:16:47.080 --> 0:16:49.640 lot more price cuts out there on the market. That said, 0:16:49.760 --> 0:16:52.200 it's important to put this in context. The housing market 0:16:52.280 --> 0:16:55.800 has been first of all, leading the economic recovery, was 0:16:56.000 --> 0:16:58.920 the first sectors to kind of start showing strength. And second, well, 0:16:58.960 --> 0:17:01.280 it's been very strong the past few years. Um, I'm 0:17:01.320 --> 0:17:03.920 normally strong. We saw a rebound and young adult home 0:17:03.960 --> 0:17:07.399 ownership millennials in particular have been out in force buying homes, 0:17:07.560 --> 0:17:09.680 and so I think in somewhat some recycle, we're starting 0:17:09.680 --> 0:17:11.760 to see more of a normalization. Things are kind of 0:17:11.960 --> 0:17:15.240 coming back to a more normal pace, not the fre netic, 0:17:15.280 --> 0:17:17.760 hectic pace of the past two years. UM. But still 0:17:17.800 --> 0:17:20.320 it's it's still very much of a solar's market. So 0:17:20.880 --> 0:17:23.879 you noted in your recent reports that about four of 0:17:23.920 --> 0:17:26.560 all listings across the US had a price cut in June. 0:17:26.880 --> 0:17:29.880 That's up from a recent low of less than twelve 0:17:29.920 --> 0:17:33.280 percent near the end of twenty sixteen. So you are 0:17:33.359 --> 0:17:35.800 seeing people have to realize, Wow, if I really want 0:17:35.800 --> 0:17:38.639 to sell this home, I have to ask for less. 0:17:38.800 --> 0:17:42.399 I'm just wondering where you're seeing the biggest price cuts. 0:17:42.240 --> 0:17:44.119 That's that's a great point because so much of this 0:17:44.160 --> 0:17:47.840 story is where it's happening. First of all, it's happening 0:17:47.880 --> 0:17:50.040 primarily at the top of the market. If you look 0:17:50.080 --> 0:17:53.360 at that expensive third of the housing market, that's where 0:17:53.359 --> 0:17:56.399 you see the biggest jump in price cuts and already 0:17:56.440 --> 0:17:59.520 kind of more price cuts. We know that a subset 0:17:59.560 --> 0:18:02.560 of the market that buyers are already being tested at 0:18:02.560 --> 0:18:06.040 their limits. Um Also, I think the important important thing 0:18:06.080 --> 0:18:07.439 to keep in mind here is when you look at 0:18:07.440 --> 0:18:10.199 the size of the price cut, it's actually been pretty stable, 0:18:10.520 --> 0:18:13.000 you know, the typical price cuts around two to What 0:18:13.119 --> 0:18:15.560 that tells me is that some of these price cuts 0:18:15.600 --> 0:18:19.000 that we're seeing has actually been sellers being rather aggressive 0:18:19.000 --> 0:18:21.680 in their in their listing strategy and then just testing 0:18:21.720 --> 0:18:24.200 what the market can tolerate. So, you know, they say, 0:18:24.400 --> 0:18:26.680 the market is so hot, so fast moving, you know, 0:18:26.760 --> 0:18:30.160 might as well list aggressively see if I get that 0:18:30.320 --> 0:18:33.880 dream price. One thing I'm wondering, especially as you talk 0:18:33.920 --> 0:18:36.639 about the high end homes, seeing the biggest price to clients. 0:18:36.960 --> 0:18:39.840 How much is this tied to the tax policies and 0:18:40.040 --> 0:18:44.240 places like New York, New Jersey, Connecticut that are typically 0:18:44.560 --> 0:18:48.640 high tax states seeing price reductions in the homes due 0:18:48.680 --> 0:18:53.120 to some of the changes that don't allow some deductions. 0:18:52.960 --> 0:18:55.280 That's a great point, you know, I think kind of 0:18:55.320 --> 0:18:59.119 there's two forces that have been squeezing that high end 0:18:59.720 --> 0:19:01.800 on the demand side. You talked about the changes in 0:19:01.840 --> 0:19:05.160 the tax structure, particularly changes in that state and local 0:19:05.560 --> 0:19:08.520 tax deduction there. You know, we kepted that deduction at 0:19:08.560 --> 0:19:12.040 ten tho dollars starting this year for most of these 0:19:12.280 --> 0:19:15.520 very high end communities. Um, that's not even going to 0:19:15.600 --> 0:19:18.520 cover local property taxes. And you know, it's something we've 0:19:18.560 --> 0:19:20.800 been watching in the past few years, past few months, 0:19:20.840 --> 0:19:22.560 and we are starting to see a little bit of 0:19:22.600 --> 0:19:26.040 a significant effect of a larger slowdown in places that 0:19:26.080 --> 0:19:29.080 rely more on that state and local tax deduction. Obviously, 0:19:29.080 --> 0:19:31.919 the second factor is interest rates. Interest rates are creeping up. 0:19:31.960 --> 0:19:35.080 Word that matters more at that high price point. One 0:19:35.080 --> 0:19:37.280 thing that I found interesting in a recent report about 0:19:37.280 --> 0:19:41.120 household debt by the government, it looked like people were 0:19:41.160 --> 0:19:46.200 actually incurring a significant increase in mortgage debt recently, which 0:19:46.240 --> 0:19:48.760 kind of flies against the theory that rising interest rates 0:19:48.760 --> 0:19:51.800 would dampen the demand for mortgages. What do you make 0:19:51.840 --> 0:19:54.600 of that, especially since it is toward higher quality borrowers. 0:19:54.600 --> 0:19:57.920 This is not necessarily another subprime mortgage boom. Just to 0:19:57.960 --> 0:20:01.240 be very clear that the that definitely right. You know, 0:20:01.280 --> 0:20:03.520 the people who have been um borrowing tend to be 0:20:03.720 --> 0:20:07.359 high credit borrowers, people with stable incomes, documentable income. I 0:20:07.359 --> 0:20:11.400 think two factors are driving that increase in in debt outstanding. One, 0:20:11.520 --> 0:20:14.600 as I've talked about a moment ago, young adults, first 0:20:14.600 --> 0:20:16.440 time home buyers, have been out and forced the past 0:20:16.480 --> 0:20:19.879 two years. They're acquiring more eage debts for the first time, 0:20:20.359 --> 0:20:24.600 often mortgage debt in pricing markets where we know that 0:20:24.840 --> 0:20:28.479 there has been a booming jobs uh you know, employment situation. UM, 0:20:28.520 --> 0:20:30.840 so they're able to kind of buy homes, but very 0:20:30.880 --> 0:20:33.280 pricing homes at that. I think the second part of 0:20:33.320 --> 0:20:37.399 that rising debt is borrowing, people borrowing against their homes. 0:20:37.440 --> 0:20:40.680 Home values have recovered very strongly from the bottom of 0:20:40.720 --> 0:20:42.600 the market in twelve and so people are starting to 0:20:42.640 --> 0:20:45.040 feel comfortable enough to borrow a little bit against their home, 0:20:45.080 --> 0:20:47.960 perhaps to do renovations. Um perhaps you know to fund 0:20:48.000 --> 0:20:51.879 any other um you know education, so so return of 0:20:51.920 --> 0:20:53.880 the reverse more. It's just real quick here, Aaron, I'm 0:20:53.920 --> 0:20:56.400 curious to know a year from now, your best guest, 0:20:56.440 --> 0:20:58.399 do you think the prices on US homes will have 0:20:58.440 --> 0:21:01.919 gone up? I think, uh, prices will certainly have gone up, 0:21:01.960 --> 0:21:03.640 they will have gone up at a slower pace than 0:21:03.920 --> 0:21:05.479 than they went up the past year. Do you think 0:21:05.480 --> 0:21:07.880 about nationwide? Over the past year, we've seen home value 0:21:07.880 --> 0:21:11.040 appreciation up about eight percent. I think we'll go down 0:21:11.040 --> 0:21:14.400 to about six so slower than it's been, but still positive. 0:21:14.600 --> 0:21:16.560 Aaron to rozz Is, thank you so much for joining us. 0:21:16.560 --> 0:21:20.719 Really interesting. Aaron to ROZs is economic research director for Zillo. 0:21:20.920 --> 0:21:23.359 And uh, yeah, those homebuilders have been really beaten up 0:21:23.400 --> 0:21:26.840 this year, uh down nearly eighteen per cent. Of course, 0:21:26.880 --> 0:21:30.280 the home builders have also been hit by higher lumber 0:21:30.359 --> 0:21:34.959 prices and other higher costs tied to labor, so there 0:21:35.000 --> 0:21:37.680 could be some other issues there, but certainly a big 0:21:37.680 --> 0:21:39.639 wild card here. A lot of people looking at the 0:21:39.880 --> 0:21:43.160 housing market is a possible leading indicator, though, as Aaron 0:21:43.240 --> 0:21:46.480 just said, it has actually let the market up, so 0:21:46.560 --> 0:21:50.560 perhaps it's just softening to keep up pace with everything else. 0:22:05.200 --> 0:22:09.040 Corporate divorce court can be a bitter place. Joining us 0:22:09.040 --> 0:22:13.639 now is Matthew Shettenham's media litigation analyst for Bloomberg Intelligence. 0:22:14.040 --> 0:22:16.240 He has had his hands full recently with a number 0:22:16.240 --> 0:22:20.960 of different issues, but in particular the Tribune versus Sinclair battle. 0:22:21.080 --> 0:22:25.360 They obviously we're going to get married. Not so. This 0:22:25.480 --> 0:22:29.120 was because the Federal Communications Commission chair, a g pie 0:22:29.240 --> 0:22:32.640 for all intents and purposes, put the kabash on this 0:22:32.720 --> 0:22:35.000 tie up. Matthew, thank you so much for being with me. 0:22:35.440 --> 0:22:39.040 I'm curious from your perspective, you know, what's its stake 0:22:39.119 --> 0:22:41.920 going forward between these two companies, how much money is 0:22:41.960 --> 0:22:43.800 on the line, and what needs to happen now to 0:22:43.840 --> 0:22:48.399 sort of finish out this chapter of would be Love, Yes, Lisa. 0:22:48.480 --> 0:22:51.720 So it has been kind of an unfortunate saga for 0:22:51.720 --> 0:22:53.920 for both of these companies over over the past year. 0:22:54.000 --> 0:22:57.240 This was a deal that was announced in UH May 0:22:57.359 --> 0:23:02.080 of seventeen. The companies had hoped to approved when approval 0:23:02.080 --> 0:23:06.359 of their merger you know, early uh this year, and 0:23:06.440 --> 0:23:09.159 that just never happened, and it all culminated, as you 0:23:09.200 --> 0:23:14.240 said last week, UH, with Tribune saying enough is enough, 0:23:14.320 --> 0:23:16.720 we're going to walk away from this deal. And at 0:23:16.720 --> 0:23:20.640 the same time we're going to commence a lawsuit in 0:23:20.640 --> 0:23:25.080 in the Delaware Court of Chancery against Sinclair for our 0:23:25.200 --> 0:23:27.600 damages and in what you put us through for the 0:23:27.600 --> 0:23:30.680 past year. And and as part of that they said, hey, 0:23:30.760 --> 0:23:33.120 we we would also like to get one billion dollars 0:23:33.200 --> 0:23:36.280 in in premium that have that's been lost to our 0:23:36.320 --> 0:23:38.919 shareholders as as a result of this. So it's the 0:23:39.440 --> 0:23:42.440 it's not the end of the story yet between these two. 0:23:42.600 --> 0:23:47.159 How did Sinclair wrong Tribune Media Company? So it's perspective. 0:23:47.280 --> 0:23:50.159 So yeah, so the you know, it's certainly not a 0:23:51.880 --> 0:23:54.280 a breach of contract just to have a deal go bad. 0:23:54.760 --> 0:24:01.480 Tribune says that Sinclair acted beyond the bounds of reasonableness 0:24:01.600 --> 0:24:04.240 here and it had a duty in its contract it 0:24:04.359 --> 0:24:08.840