1 00:00:02,640 --> 00:00:05,320 Speaker 1: Welcome to the Bloomberg PENL podcast. I'm Paul swing you. 2 00:00:05,360 --> 00:00:07,760 Speaker 1: Along with my co host Lisa Brahmas. Each day we 3 00:00:07,880 --> 00:00:10,440 Speaker 1: bring you the most noteworthy and useful interviews for you 4 00:00:10,520 --> 00:00:12,640 Speaker 1: and your money. Whether at the grocery store or the 5 00:00:12,640 --> 00:00:15,960 Speaker 1: trading floor, find a Bloomberg Penl podcast on Apple podcast 6 00:00:16,120 --> 00:00:18,040 Speaker 1: or wherever you listen to podcasts, as well as at 7 00:00:18,079 --> 00:00:24,560 Speaker 1: Bloomberg dot com. Yields around the world have plunged to 8 00:00:24,880 --> 00:00:27,920 Speaker 1: near or record lows in the past few weeks. The 9 00:00:28,000 --> 00:00:30,680 Speaker 1: question is how low will they go? What is this 10 00:00:30,800 --> 00:00:34,159 Speaker 1: a response to? Is it monetary policy alone or is 11 00:00:34,159 --> 00:00:37,199 Speaker 1: it the idea that we're headed for a global downturn. 12 00:00:37,320 --> 00:00:39,839 Speaker 1: Joining us now is Eric Stein, portfolio manager and co 13 00:00:39,920 --> 00:00:42,479 Speaker 1: director of Global fixed income at Eaton Vance, which oversees 14 00:00:42,479 --> 00:00:46,040 Speaker 1: four hundred and sixty billion dollars in Boston. Eric, thank 15 00:00:46,080 --> 00:00:47,960 Speaker 1: you so much for being with us. I want to 16 00:00:48,000 --> 00:00:51,519 Speaker 1: start with your prediction going forward. Have we seen the 17 00:00:51,600 --> 00:00:56,040 Speaker 1: lows of US treasury yields in particular? Um? Well, first off, 18 00:00:56,040 --> 00:00:58,760 Speaker 1: thanks for having me on you great great question. Uh, 19 00:00:58,800 --> 00:01:01,040 Speaker 1: you know, I still think we probably will head lower 20 00:01:01,080 --> 00:01:04,040 Speaker 1: at some point. Um. You know, both given just pressure 21 00:01:04,160 --> 00:01:07,720 Speaker 1: from global monetary policy where we're one central bank cuts 22 00:01:07,760 --> 00:01:10,160 Speaker 1: and then more need to cut, as well as the 23 00:01:10,240 --> 00:01:12,760 Speaker 1: US China trade war. And you know what's interesting to 24 00:01:12,800 --> 00:01:14,880 Speaker 1: me is that everyone's focused on the FED meeting last 25 00:01:14,920 --> 00:01:17,560 Speaker 1: week with the you know, slightly more more hawkish than expected, 26 00:01:17,600 --> 00:01:20,560 Speaker 1: but cut uh. And then when the trade war ramped up, 27 00:01:20,560 --> 00:01:23,720 Speaker 1: you just saw massive, massive amounts more and more an 28 00:01:23,720 --> 00:01:26,639 Speaker 1: interest rate volatility from the trade war and the tariff 29 00:01:26,680 --> 00:01:28,920 Speaker 1: tweet from Trump then you actually did from the FED meeting. 30 00:01:29,440 --> 00:01:32,360 Speaker 1: So Eric, wonder kind of what the house call is 31 00:01:32,440 --> 00:01:36,280 Speaker 1: on the economy as you guys with your vast holdings. 32 00:01:36,319 --> 00:01:39,959 Speaker 1: I mean, I seem to have growing concern about the 33 00:01:39,959 --> 00:01:43,480 Speaker 1: global slowdown and might create a global recession. How are 34 00:01:43,480 --> 00:01:45,640 Speaker 1: you guys viewing it? Yeah, so I'd say, you know, 35 00:01:45,680 --> 00:01:47,320 Speaker 1: first of the great thing at being in a place 36 00:01:47,400 --> 00:01:49,400 Speaker 1: like Eating Vance, we don't have a house call. We 37 00:01:49,440 --> 00:01:52,160 Speaker 1: have you know, lots of different portfolio managers running running 38 00:01:52,160 --> 00:01:54,280 Speaker 1: different funds around the firm. We all have our own 39 00:01:54,720 --> 00:01:56,640 Speaker 1: different views on the economy, so that there is no 40 00:01:56,720 --> 00:02:00,120 Speaker 1: house view per se at Eating Vance management. But you know, 41 00:02:00,160 --> 00:02:02,360 Speaker 1: I will say my own particular view is that you know, 42 00:02:02,400 --> 00:02:04,880 Speaker 1: the economy is still okay, that pretty good. You know, 43 00:02:04,960 --> 00:02:09,840 Speaker 1: globally you see strong consumers, strong labor markets, yet weak investment. 44 00:02:10,520 --> 00:02:12,640 Speaker 1: What you know, what would concern me is just that, 45 00:02:12,800 --> 00:02:15,560 Speaker 1: you know, uncertainty and lack of investment that we've really 46 00:02:15,600 --> 00:02:18,200 Speaker 1: seen for for some period of time has ramped up. 47 00:02:18,639 --> 00:02:21,480 Speaker 1: And if the trade war rhetoric and tariffs are ramp up, 48 00:02:22,040 --> 00:02:24,080 Speaker 1: you know, that could lead to the further concerns. So 49 00:02:24,200 --> 00:02:26,560 Speaker 1: right now, the US economy consumers in very good shape, 50 00:02:26,800 --> 00:02:29,320 Speaker 1: labor markets in very good shape. It's just the delta 51 00:02:29,919 --> 00:02:33,280 Speaker 1: based on investment is what's concerning people and concerning me 52 00:02:33,320 --> 00:02:35,640 Speaker 1: as well. Eric. It's interesting you say that people have 53 00:02:35,720 --> 00:02:38,399 Speaker 1: different views within eating vans and are able to execute 54 00:02:38,440 --> 00:02:42,880 Speaker 1: on them. What's the biggest debate among Yeah, so, you know, 55 00:02:42,919 --> 00:02:44,959 Speaker 1: i'd I'd say one debate I have with some of 56 00:02:45,040 --> 00:02:47,600 Speaker 1: my colleagues on you know, is does the does these 57 00:02:47,680 --> 00:02:51,040 Speaker 1: yield curve matter? Does the shape of the yield curve, uh, 58 00:02:51,080 --> 00:02:53,679 Speaker 1: you know, actually meet anything? And you know, I have been, 59 00:02:53,800 --> 00:02:56,320 Speaker 1: you know, personally of the view that the yield curve 60 00:02:56,320 --> 00:03:00,520 Speaker 1: connotes information and investors should not ignore information. And I 61 00:03:00,560 --> 00:03:02,680 Speaker 1: think I wrote a blog post that or et vance website, 62 00:03:02,720 --> 00:03:05,040 Speaker 1: you know, ignore it, ignore it at your peril. You're 63 00:03:05,040 --> 00:03:07,520 Speaker 1: talking about the three months tenure or the two year 64 00:03:07,560 --> 00:03:09,959 Speaker 1: tenure or all of them, all of the above. You know, 65 00:03:10,000 --> 00:03:12,280 Speaker 1: I don't get so precise and you know, which a 66 00:03:12,400 --> 00:03:14,360 Speaker 1: part of the curve because they think, you know, focusing 67 00:03:14,360 --> 00:03:16,560 Speaker 1: on a couple of basis points in version here there, 68 00:03:16,600 --> 00:03:19,239 Speaker 1: I think is missing the bigger point. Uh. And certainly 69 00:03:19,280 --> 00:03:21,680 Speaker 1: their arguments and sometimes my colleagues make them that look 70 00:03:21,760 --> 00:03:24,079 Speaker 1: certain parts of the curve or uh, you know, or 71 00:03:24,960 --> 00:03:28,079 Speaker 1: are misleading because of you know, FED purchases and other 72 00:03:28,080 --> 00:03:30,359 Speaker 1: foreign central bank purchases and treasuries. And I think all 73 00:03:30,400 --> 00:03:33,000 Speaker 1: that's true. Um. But to me, when you see you know, 74 00:03:33,080 --> 00:03:35,800 Speaker 1: significant moves in the curve, it's telling your information. So 75 00:03:35,840 --> 00:03:37,640 Speaker 1: if you go back to the FED meeting last week, 76 00:03:37,680 --> 00:03:40,920 Speaker 1: that hawk ish cut um, Fed cut rates, and the 77 00:03:41,000 --> 00:03:44,800 Speaker 1: yield curve flattened pretty dramatically, which is not typically what 78 00:03:44,840 --> 00:03:47,800 Speaker 1: a central bank would want to see when they're cutting 79 00:03:47,920 --> 00:03:51,000 Speaker 1: rates and trying to ease monetary policy. So, Eric, we 80 00:03:51,040 --> 00:03:54,080 Speaker 1: have over fifteen billion or trillion dollars of negative yielding 81 00:03:54,160 --> 00:03:56,560 Speaker 1: debt out there in the marketplace. What do you think 82 00:03:56,560 --> 00:04:00,200 Speaker 1: that's telling us? I think it's it's telling you know, well, 83 00:04:00,440 --> 00:04:02,480 Speaker 1: a few things. One is, there's uh, you know, a 84 00:04:02,520 --> 00:04:05,560 Speaker 1: lot of countries that have negative interest rates at the 85 00:04:05,560 --> 00:04:09,680 Speaker 1: front end, whether that be Europe, Japan, UH, Switzerland, countries 86 00:04:09,720 --> 00:04:12,200 Speaker 1: like that. Uh. In addition, it's just saying, you know, 87 00:04:12,240 --> 00:04:14,520 Speaker 1: some of those places, I say, particularly in Europe and 88 00:04:14,520 --> 00:04:17,200 Speaker 1: I think of Germany, you know, there's just too much 89 00:04:17,400 --> 00:04:21,400 Speaker 1: demand for that debt relative to supply. And you know, 90 00:04:21,480 --> 00:04:24,479 Speaker 1: typically my own view isn't then I'm usually not a big, 91 00:04:24,480 --> 00:04:28,200 Speaker 1: big believer of fiscal stimulus per se, because I sometimes 92 00:04:28,200 --> 00:04:30,919 Speaker 1: think it's misguided. But I think in the current environment, 93 00:04:31,000 --> 00:04:34,640 Speaker 1: and particularly in Europe and particularly in Germany, the market 94 00:04:34,680 --> 00:04:37,560 Speaker 1: is effectively demanding more debt, and I think, you know, 95 00:04:38,120 --> 00:04:40,240 Speaker 1: in Europe and Germany, I think we will see more 96 00:04:40,240 --> 00:04:42,960 Speaker 1: fiscal stimulus down the road, and I think that's very 97 00:04:43,000 --> 00:04:46,720 Speaker 1: much needed. So you previously worked on the market's desk 98 00:04:46,839 --> 00:04:49,080 Speaker 1: of the New York Federal Reserve, which makes me want 99 00:04:49,120 --> 00:04:51,159 Speaker 1: to ask so many questions to you about what we've 100 00:04:51,200 --> 00:04:53,800 Speaker 1: recently seen in terms of the turmoil there and some 101 00:04:53,880 --> 00:04:58,000 Speaker 1: of the people who have departed. Are you concerned that 102 00:04:58,160 --> 00:05:01,560 Speaker 1: the Federal Reserve doesn't necessary really have the market insight 103 00:05:01,839 --> 00:05:06,280 Speaker 1: to be able to telegraph their intentions effectively, as I 104 00:05:06,320 --> 00:05:08,680 Speaker 1: would say, no, that's not a particular concern of mind. 105 00:05:08,720 --> 00:05:10,520 Speaker 1: You know, as a as a veteran who worked in 106 00:05:10,560 --> 00:05:12,520 Speaker 1: the New York Fed Open Markets desk in oh seven 107 00:05:12,640 --> 00:05:14,480 Speaker 1: o eight in the really the beginning of the crisis, 108 00:05:14,880 --> 00:05:16,520 Speaker 1: you know, and I still keep in touch with people there. 109 00:05:16,520 --> 00:05:18,760 Speaker 1: There are lots of you know, very talented professionals that 110 00:05:18,839 --> 00:05:21,560 Speaker 1: whose job it is to um, you know, talk to 111 00:05:21,640 --> 00:05:24,640 Speaker 1: financial market participants and kind of gauge market reaction of 112 00:05:25,000 --> 00:05:28,520 Speaker 1: various um, you know, Paul, of various monetary policy actions 113 00:05:28,560 --> 00:05:31,799 Speaker 1: where whether that be FED cutting rates, or or operations 114 00:05:31,800 --> 00:05:34,600 Speaker 1: with the balance sheet or even sometimes you know, FED speeches. 115 00:05:34,600 --> 00:05:37,640 Speaker 1: Where I think it becomes challenging is when there are 116 00:05:38,040 --> 00:05:40,720 Speaker 1: FED speeches that are sometimes designed to kind of give 117 00:05:40,720 --> 00:05:45,320 Speaker 1: a a Fed Reserve officials kind of medium term view, UM, 118 00:05:45,400 --> 00:05:48,120 Speaker 1: but market participants a kind of are looking at it 119 00:05:48,160 --> 00:05:51,280 Speaker 1: word by word, and I think that's where the FEDS communication, 120 00:05:51,440 --> 00:05:53,520 Speaker 1: you know, gets really really challenging. Well, and then there's 121 00:05:53,520 --> 00:05:56,160 Speaker 1: also the expectation currently baked into markets that there will 122 00:05:56,160 --> 00:05:58,320 Speaker 1: be four rate cuts by the end of next year. 123 00:05:58,400 --> 00:06:01,520 Speaker 1: Do you think that the Federal Reserve will deliver on that. 124 00:06:02,640 --> 00:06:05,400 Speaker 1: So look, honestly, to me, it's it's it's it's about 125 00:06:05,440 --> 00:06:07,919 Speaker 1: the trade war, and it's about you know, what you 126 00:06:07,920 --> 00:06:10,400 Speaker 1: see with inflation expectations. I think we will get you know, 127 00:06:10,440 --> 00:06:14,160 Speaker 1: significantly more rate cuts from here, uh, and then it's 128 00:06:14,200 --> 00:06:16,800 Speaker 1: really what happens from that, um, you know. And I 129 00:06:16,839 --> 00:06:18,719 Speaker 1: think that the Fed, you know, if anything, would like 130 00:06:18,760 --> 00:06:21,599 Speaker 1: to be forward looking, uh and do more rate cuts 131 00:06:21,680 --> 00:06:24,400 Speaker 1: earlier than not to have to get to the zero 132 00:06:24,920 --> 00:06:27,040 Speaker 1: lower bound issue. And I think, you know, to some extent, 133 00:06:27,080 --> 00:06:29,279 Speaker 1: it was tough on the communication again last week. It 134 00:06:29,320 --> 00:06:33,320 Speaker 1: was all before the trade war tweets heat up again. Um. 135 00:06:33,360 --> 00:06:35,919 Speaker 1: But but by cutting rates but doing so in a 136 00:06:35,960 --> 00:06:39,400 Speaker 1: hawkish manner, you know, they didn't really get inflation expectations up. 137 00:06:39,440 --> 00:06:42,600 Speaker 1: So to me, yes, the trade war matters, um, but 138 00:06:42,640 --> 00:06:45,279 Speaker 1: it's also about inflation expectations. And if I were the FED, 139 00:06:45,279 --> 00:06:48,479 Speaker 1: I'd be concerned that the inflation expectations are now lower 140 00:06:49,040 --> 00:06:53,120 Speaker 1: than they were before before they cut rates. So, Eric, 141 00:06:53,160 --> 00:06:55,720 Speaker 1: given your sense that that rates are likely to go down, 142 00:06:55,920 --> 00:06:58,680 Speaker 1: what does how does that kind of position your view 143 00:06:58,720 --> 00:07:02,159 Speaker 1: on emerging markets? Yes, well, you know, it's a great question. 144 00:07:02,279 --> 00:07:05,280 Speaker 1: I think that's to me one of the real beneficiaries 145 00:07:05,320 --> 00:07:08,320 Speaker 1: of this race to the bottom in developed market yields 146 00:07:08,400 --> 00:07:11,840 Speaker 1: is emerging markets. Um. You know, obviously you know we've 147 00:07:11,840 --> 00:07:13,880 Speaker 1: eat advanced management. We we take a very much a 148 00:07:13,880 --> 00:07:18,080 Speaker 1: country focused approach to investing in emerging markets and trying 149 00:07:18,080 --> 00:07:20,160 Speaker 1: to find countries that are that are going in the 150 00:07:20,240 --> 00:07:22,480 Speaker 1: right direction or avoid or short countries that are going 151 00:07:22,520 --> 00:07:24,880 Speaker 1: in the wrong direction. But just from a broad asset 152 00:07:24,920 --> 00:07:28,920 Speaker 1: class perspective, certainly having a lower base rate UH in 153 00:07:29,000 --> 00:07:32,880 Speaker 1: developed market yields, whether that be US, Europe or or Japan, 154 00:07:33,480 --> 00:07:36,240 Speaker 1: that you know, that makes the broad asset class, you know, 155 00:07:36,280 --> 00:07:39,160 Speaker 1: all that much more attractive. So you're buying e M. 156 00:07:39,160 --> 00:07:42,280 Speaker 1: Just real quick, thirty seconds, what else you're buying? So 157 00:07:42,440 --> 00:07:45,440 Speaker 1: like emerging markets in treasuries, if I had their own treasuries, 158 00:07:45,440 --> 00:07:47,200 Speaker 1: I said, I think rates may go down, but obviously 159 00:07:47,200 --> 00:07:49,000 Speaker 1: there's not a huge amount of value. I like TIPS. 160 00:07:49,240 --> 00:07:51,320 Speaker 1: I think I think the FED will ease to get 161 00:07:51,360 --> 00:07:55,160 Speaker 1: inflation expectations higher. So so I like I like TIPS. 162 00:07:55,400 --> 00:07:58,320 Speaker 1: Also certain parts of the mortgage markets and credit markets 163 00:07:58,320 --> 00:08:00,600 Speaker 1: as well. But you know, I think we're central banks 164 00:08:00,600 --> 00:08:02,360 Speaker 1: around the world, They're going to try to get inflation 165 00:08:02,440 --> 00:08:05,000 Speaker 1: expectations up. So in addition to us tips, we like 166 00:08:05,600 --> 00:08:08,800 Speaker 1: New Zealand inflation link bonds. We like tie inflation link bonds, 167 00:08:08,800 --> 00:08:11,320 Speaker 1: so other inflation link bonds around the world as well. 168 00:08:11,840 --> 00:08:13,760 Speaker 1: Eric Snyinan, thanks so much for joining us. We appreciate 169 00:08:13,800 --> 00:08:16,440 Speaker 1: your time. Eric's a portfolio manager and co director of 170 00:08:16,480 --> 00:08:33,920 Speaker 1: Global Fixed Income out of eating Vance based in Boston. Well, 171 00:08:33,960 --> 00:08:37,040 Speaker 1: as interest rates grind lower, homebuyers are finding it more 172 00:08:37,120 --> 00:08:39,880 Speaker 1: affordable to buy, So let's get the latest on the 173 00:08:40,000 --> 00:08:42,960 Speaker 1: housing market. Return to our good friend Logan motor Shami. 174 00:08:43,040 --> 00:08:45,720 Speaker 1: He's a senior loan officer for a mc lenning group 175 00:08:45,880 --> 00:08:48,520 Speaker 1: based in Irvine, California. Logan, thanks so much for joining 176 00:08:48,600 --> 00:08:51,360 Speaker 1: us again. Um again, interest rates for you've had, you know, 177 00:08:51,440 --> 00:08:55,080 Speaker 1: kind of touch or get near some very long term lows. Here, 178 00:08:55,360 --> 00:08:56,800 Speaker 1: give us a sense of what's going on in the 179 00:08:56,840 --> 00:09:00,520 Speaker 1: housing market in this interest rate environment. Well a ten 180 00:09:00,600 --> 00:09:04,040 Speaker 1: your yield finally got to my forecast on one point 181 00:09:04,040 --> 00:09:06,800 Speaker 1: six percent. We've had a big reversal since the loads 182 00:09:06,840 --> 00:09:10,040 Speaker 1: of yesterday. But in regards to the mortgage market, right 183 00:09:10,080 --> 00:09:12,920 Speaker 1: now we're seeing an uptick in refinances. But we have 184 00:09:13,000 --> 00:09:15,160 Speaker 1: to be mindful that we were working for twenty one 185 00:09:15,320 --> 00:09:20,040 Speaker 1: century lows in refinance refinances. So it's not like we're 186 00:09:20,040 --> 00:09:23,160 Speaker 1: having another refinancing boom. I don't think we'll surpassed twenty 187 00:09:23,240 --> 00:09:29,000 Speaker 1: six never surpassed the refinance booms. So until more the 188 00:09:29,040 --> 00:09:33,040 Speaker 1: tenure yield can actually break under one percent, um, well, 189 00:09:33,120 --> 00:09:35,680 Speaker 1: we'll have an uptick and refinances. But a lot of 190 00:09:35,679 --> 00:09:40,520 Speaker 1: that are the buyers of homes from eighteen where mortgage 191 00:09:40,559 --> 00:09:43,920 Speaker 1: rates are higher. Those people can do radar term refinances. 192 00:09:44,240 --> 00:09:47,080 Speaker 1: You're left looking at roughly nine million home buyers at 193 00:09:47,120 --> 00:09:50,400 Speaker 1: that where those two years combined that helped them get 194 00:09:50,440 --> 00:09:53,160 Speaker 1: a little bit more disposable income. In terms of existing 195 00:09:53,160 --> 00:09:55,480 Speaker 1: home sales, even though mortgage rates are lower, sales are 196 00:09:55,480 --> 00:09:58,520 Speaker 1: down slightly a year over year, inventories up, but new 197 00:09:58,559 --> 00:10:02,000 Speaker 1: home sales. That's where low mortgage rates has really helped 198 00:10:02,040 --> 00:10:04,840 Speaker 1: the housing market is the recovery and new home sales 199 00:10:05,200 --> 00:10:09,520 Speaker 1: and the monthly supply draw down UH in that data line. Okay, 200 00:10:09,559 --> 00:10:11,200 Speaker 1: so let's dig in a little bit there, because we 201 00:10:11,240 --> 00:10:13,120 Speaker 1: do have the thirty year mortgage rate, at least is 202 00:10:13,120 --> 00:10:16,920 Speaker 1: measured by Freddie Mac at the lowest since seen and 203 00:10:16,960 --> 00:10:20,160 Speaker 1: continuing to fall in tandem with yields. I'm trying to 204 00:10:20,200 --> 00:10:22,640 Speaker 1: figure out how much of a boost is that to 205 00:10:22,720 --> 00:10:26,840 Speaker 1: the US housing market and where I mean really the 206 00:10:26,840 --> 00:10:28,800 Speaker 1: best place to look as the new home sales data, 207 00:10:28,960 --> 00:10:32,320 Speaker 1: I mean new home sales were trending recessionary towards the 208 00:10:32,440 --> 00:10:37,840 Speaker 1: end of the monthly supply spiked up to about seven months, 209 00:10:37,880 --> 00:10:41,920 Speaker 1: and when rates got lower because that's mortgage market, that's 210 00:10:41,960 --> 00:10:45,600 Speaker 1: where the demand recovery came so and because of mortgage 211 00:10:45,679 --> 00:10:47,640 Speaker 1: rates are low, what's going to happen is that the 212 00:10:47,800 --> 00:10:50,880 Speaker 1: year over year data for all housing data is going 213 00:10:50,880 --> 00:10:54,160 Speaker 1: to be positive now because the comps are a lot better, 214 00:10:54,280 --> 00:10:56,320 Speaker 1: and that's where we're gonna start to see year over 215 00:10:56,440 --> 00:11:00,520 Speaker 1: year games and existing home sales, depending home sales, housing starts, 216 00:11:00,600 --> 00:11:04,760 Speaker 1: and new home sales, and that's where it's stabilized the 217 00:11:04,800 --> 00:11:08,040 Speaker 1: market enough to where we're not going lower anymore. So 218 00:11:08,120 --> 00:11:09,719 Speaker 1: that's kind of how you should look at it. It's 219 00:11:09,760 --> 00:11:13,560 Speaker 1: not really boosting total home sales as much as people 220 00:11:13,559 --> 00:11:15,920 Speaker 1: would like. So look and give us a sense, maybe 221 00:11:16,400 --> 00:11:19,360 Speaker 1: are there any geographic areas that are sticking out to 222 00:11:19,400 --> 00:11:23,480 Speaker 1: you that are particularly strong or weak. Pretty much everywhere 223 00:11:23,520 --> 00:11:27,360 Speaker 1: outside of the coastal areas are doing fine. The areas 224 00:11:27,440 --> 00:11:30,960 Speaker 1: that you know like, for example, California, inventories up, sales 225 00:11:31,000 --> 00:11:33,400 Speaker 1: are down, things are taking longer, so that's that's a 226 00:11:33,440 --> 00:11:37,319 Speaker 1: weakness of demand. Now lower mortgage rates have stabilized, I 227 00:11:37,360 --> 00:11:40,760 Speaker 1: would say the California market is stabilized, maybe in the 228 00:11:41,000 --> 00:11:45,120 Speaker 1: Seattle markets as well, but they're not really boosting demand 229 00:11:45,440 --> 00:11:48,760 Speaker 1: on a year or your basis, even with the inventory increases. 230 00:11:48,840 --> 00:11:52,080 Speaker 1: So those places are just pricey and there's just the 231 00:11:52,200 --> 00:11:53,800 Speaker 1: level of buyers are just not there. But if you 232 00:11:53,840 --> 00:11:56,000 Speaker 1: look at California home sales for ten years, it really 233 00:11:56,000 --> 00:11:58,400 Speaker 1: hasn't done much. So we're just working off of these 234 00:11:58,679 --> 00:12:01,600 Speaker 1: you know, some up years, some down years out here well, 235 00:12:01,600 --> 00:12:04,320 Speaker 1: and we have seen a slowdown in luxury home sales, 236 00:12:04,400 --> 00:12:07,760 Speaker 1: certainly in those areas as well as on the on 237 00:12:07,800 --> 00:12:09,920 Speaker 1: the East Coast to New York City, And I'm wondering 238 00:12:10,240 --> 00:12:15,320 Speaker 1: where are we in that sort of downturn cycle, you know, 239 00:12:15,440 --> 00:12:18,520 Speaker 1: the luxury market. You know, mortgage rates, you know, sometimes 240 00:12:18,520 --> 00:12:21,760 Speaker 1: it doesn't really impact that kind of market. It's it's 241 00:12:21,840 --> 00:12:24,720 Speaker 1: it's it's money. You know. Obviously, we we see the 242 00:12:24,840 --> 00:12:27,480 Speaker 1: you know, foreign buyers are down, you know from China, 243 00:12:27,559 --> 00:12:29,640 Speaker 1: so that impacts just a little bit out here. But 244 00:12:29,760 --> 00:12:33,719 Speaker 1: again Uh, we're getting to areas where when you adjusted 245 00:12:33,760 --> 00:12:36,880 Speaker 1: to inflation, now home prices are starting to get to 246 00:12:37,040 --> 00:12:39,880 Speaker 1: levels to where during the housing bubble years you needed 247 00:12:40,000 --> 00:12:44,080 Speaker 1: exotic loans to really boost the luxury market out here. 248 00:12:44,120 --> 00:12:46,240 Speaker 1: So you can need to keep an eye on that 249 00:12:46,360 --> 00:12:49,440 Speaker 1: because you know, there's no more exotic debt anymore. So 250 00:12:49,520 --> 00:12:51,199 Speaker 1: pretty much everyone who owns the house can own a 251 00:12:51,240 --> 00:12:54,679 Speaker 1: house in real terms right now. But back doing a 252 00:12:54,720 --> 00:12:57,000 Speaker 1: housing bubble years, you know, this is where you needed, 253 00:12:57,200 --> 00:12:59,800 Speaker 1: you know, exotic products to boost the upper end of 254 00:12:59,840 --> 00:13:01,839 Speaker 1: the market. We don't have that anymore. So that's that's 255 00:13:01,840 --> 00:13:04,840 Speaker 1: an area to always keep an eye on considering where 256 00:13:04,880 --> 00:13:08,560 Speaker 1: we are in the home price days. So logan where 257 00:13:08,559 --> 00:13:10,719 Speaker 1: we in terms of kind of the credit quality of 258 00:13:10,800 --> 00:13:13,679 Speaker 1: the mortgage market right now. That was obviously, uh, you know, 259 00:13:13,760 --> 00:13:16,360 Speaker 1: a big big issue in the financial crisis. Kind of 260 00:13:16,400 --> 00:13:19,560 Speaker 1: where we now in terms of credit quality. Credit quality 261 00:13:19,640 --> 00:13:24,160 Speaker 1: is excellent, and we've never really had tight lending in America, 262 00:13:24,280 --> 00:13:26,640 Speaker 1: even from two thousand and on. We've just lend to 263 00:13:26,679 --> 00:13:28,920 Speaker 1: the people that can own a house, and I think 264 00:13:28,960 --> 00:13:32,040 Speaker 1: that's the difference. Uh, this is the best loan profile 265 00:13:32,120 --> 00:13:34,320 Speaker 1: I've seen in my twenty three years there's no exotic 266 00:13:34,360 --> 00:13:37,720 Speaker 1: debts out there. The FCO scores, which means these homeowners 267 00:13:37,720 --> 00:13:40,280 Speaker 1: have really good cash flow, are very high. They're very 268 00:13:40,280 --> 00:13:43,000 Speaker 1: good out here. And the best part is that the 269 00:13:43,080 --> 00:13:46,079 Speaker 1: nested equity, the equity position from buyers from two thousand 270 00:13:46,160 --> 00:13:48,640 Speaker 1: ten or two thousand sixteen looks really solid. There's no 271 00:13:48,760 --> 00:13:51,520 Speaker 1: cash out boom. This is as good as it gets 272 00:13:51,880 --> 00:13:54,360 Speaker 1: in terms of credit quality in the history of America 273 00:13:54,480 --> 00:13:56,439 Speaker 1: right now. And I hope we don't ruin it. You know. 274 00:13:56,480 --> 00:13:57,679 Speaker 1: I know there's a lot of people out there that 275 00:13:57,720 --> 00:14:00,319 Speaker 1: says lending is tight. I totally disagree with them. This 276 00:14:00,400 --> 00:14:03,400 Speaker 1: is how it should be. And uh, you'll see that's 277 00:14:03,400 --> 00:14:05,959 Speaker 1: when the next recession finally hits. We're not going to 278 00:14:06,040 --> 00:14:08,240 Speaker 1: have a mega wave of defaults like we had in 279 00:14:08,240 --> 00:14:10,520 Speaker 1: the previous cycle. Who really uptick supply would be more 280 00:14:10,840 --> 00:14:13,880 Speaker 1: late cycle lending, you know, low down payment, low cycle 281 00:14:13,960 --> 00:14:17,080 Speaker 1: score of homebuyers running into the recession because they have 282 00:14:17,160 --> 00:14:21,120 Speaker 1: no selling equity. But the credit quality, I cannot stress 283 00:14:21,200 --> 00:14:24,960 Speaker 1: how wonderful it looks in this cycle. So Logan, you 284 00:14:25,080 --> 00:14:28,400 Speaker 1: nailed it when you had your call for ten year 285 00:14:28,560 --> 00:14:32,920 Speaker 1: treasury yields. They did hit your target price for the year, 286 00:14:33,000 --> 00:14:36,200 Speaker 1: and they have bounced from there, currently trading at one 287 00:14:36,200 --> 00:14:39,160 Speaker 1: point seven five. Where do you see them going through 288 00:14:39,200 --> 00:14:41,720 Speaker 1: the end of the year. Boy? That really you know, 289 00:14:41,760 --> 00:14:43,720 Speaker 1: I think that tweet you and I had about you know, 290 00:14:43,760 --> 00:14:46,000 Speaker 1: fifteen days ago, we said, yeah, I could get to 291 00:14:46,080 --> 00:14:48,240 Speaker 1: one sixty with one selloff in the stock market. But 292 00:14:48,680 --> 00:14:52,120 Speaker 1: you know what panic buying. That's what I saw the 293 00:14:52,200 --> 00:14:55,520 Speaker 1: last few days. Uh, it was. It was just panic buying, 294 00:14:55,720 --> 00:14:58,640 Speaker 1: similar to what we saw in twenty sixty. Now I'd 295 00:14:58,680 --> 00:15:01,400 Speaker 1: like to say, hey, we got to the one sixty level, 296 00:15:01,440 --> 00:15:03,520 Speaker 1: and that's it. We should we should hold the whole 297 00:15:03,600 --> 00:15:06,280 Speaker 1: hold that level and yield should rise. And I've always 298 00:15:06,320 --> 00:15:08,960 Speaker 1: held at this one six level because I've always had 299 00:15:08,960 --> 00:15:11,720 Speaker 1: that in my prediction articles for his last five years. 300 00:15:11,720 --> 00:15:13,400 Speaker 1: But right now we have a lot of things in 301 00:15:13,480 --> 00:15:16,680 Speaker 1: play that I just can't you know, I can't model out. 302 00:15:16,760 --> 00:15:19,320 Speaker 1: You know, who knows what Trump's gonna do with China? 303 00:15:19,320 --> 00:15:22,840 Speaker 1: Who knows what China is gonna do? Bret exit two 304 00:15:22,840 --> 00:15:25,240 Speaker 1: point Oh it's gonna come at Halloween. Imagine adding that 305 00:15:25,280 --> 00:15:28,880 Speaker 1: to this dance. Right now, there's this so many headline risks, 306 00:15:29,200 --> 00:15:31,600 Speaker 1: but in terms of the economics, because p M. I 307 00:15:31,720 --> 00:15:35,000 Speaker 1: data has the ability to even go lower. That can 308 00:15:35,120 --> 00:15:39,800 Speaker 1: drive UH yields lower globally and here, but we're not 309 00:15:39,840 --> 00:15:42,720 Speaker 1: gonna have a double dip manufacturing recession that had the 310 00:15:42,800 --> 00:15:46,280 Speaker 1: same kind of impact this. So I will hold the 311 00:15:46,360 --> 00:15:48,600 Speaker 1: line here at one sixty and say that this is 312 00:15:48,640 --> 00:15:51,520 Speaker 1: the low for the year. But if you get p 313 00:15:51,720 --> 00:15:53,480 Speaker 1: m I data to get worse, if you get to 314 00:15:53,600 --> 00:15:56,280 Speaker 1: China and Trump trade wars to start, you know, going 315 00:15:56,320 --> 00:15:58,800 Speaker 1: at each other left and right, if Bret exit two 316 00:15:58,880 --> 00:16:02,280 Speaker 1: becomes really messy. But absolutely not only could the tenure 317 00:16:02,360 --> 00:16:05,480 Speaker 1: deel go below one, we could take the tenure heel below, 318 00:16:06,840 --> 00:16:11,640 Speaker 1: but those are things that we can't control. Loogan Modashami, 319 00:16:11,680 --> 00:16:13,560 Speaker 1: thank you so much for being with us and sharing 320 00:16:13,560 --> 00:16:16,760 Speaker 1: your insights with us today. Logan Modashami, a senior loan 321 00:16:16,800 --> 00:16:20,640 Speaker 1: officer at MC Lending Group, joining us on the housing 322 00:16:20,680 --> 00:16:24,040 Speaker 1: market and yields him saying that one point six on 323 00:16:24,120 --> 00:16:44,880 Speaker 1: the tenure probably is the year's low. Well, I would 324 00:16:44,920 --> 00:16:47,080 Speaker 1: like to give a narrative to today, Paul. I think 325 00:16:47,120 --> 00:16:49,600 Speaker 1: that there is a narrative picking up, which is people 326 00:16:49,640 --> 00:16:53,239 Speaker 1: have exhausted themselves, having some of themselves having a tantrum 327 00:16:53,280 --> 00:16:58,120 Speaker 1: over the prospect of a global trade debacle and are 328 00:16:58,280 --> 00:17:02,480 Speaker 1: basically now going back and looking at specific companies and 329 00:17:02,640 --> 00:17:06,239 Speaker 1: actual economic data. Dave Wilson, Bloebergs Socks Editor, joining us 330 00:17:06,280 --> 00:17:09,280 Speaker 1: here in the Bloomberg Interactive Broker Studios. Do you think 331 00:17:09,280 --> 00:17:11,560 Speaker 1: that that's fair? I mean, it's sort of like a child, 332 00:17:11,600 --> 00:17:13,719 Speaker 1: a toddler that has a tantrum and then only can 333 00:17:13,760 --> 00:17:15,679 Speaker 1: go on for so long before they just get tired. 334 00:17:17,520 --> 00:17:21,200 Speaker 1: If that's how you want to characterize characterizing, go for it, 335 00:17:22,080 --> 00:17:26,920 Speaker 1: because there's certainly a number of examples where you're seeing 336 00:17:27,040 --> 00:17:31,240 Speaker 1: some positives here that are being well received. Think about 337 00:17:31,240 --> 00:17:34,800 Speaker 1: a company like Advanced micro Devices, right, I mean I'm 338 00:17:34,800 --> 00:17:38,960 Speaker 1: thinking about it. Okay, big name in the chip business. Well, 339 00:17:39,000 --> 00:17:44,280 Speaker 1: they come out with this new processor for server computers 340 00:17:44,359 --> 00:17:49,000 Speaker 1: called EPIC, and they tell you that Google is already 341 00:17:49,119 --> 00:17:54,560 Speaker 1: using this chip in their data center equipment. And so 342 00:17:54,720 --> 00:17:56,639 Speaker 1: what do you get out of that? A gain of 343 00:17:56,720 --> 00:18:00,760 Speaker 1: almost twelve percent, biggest in the S and P five hundred, 344 00:18:01,240 --> 00:18:03,200 Speaker 1: you know, And you can go from there. I mean, 345 00:18:03,200 --> 00:18:07,240 Speaker 1: you had numbers out from Booking Holdings and trip advisors, 346 00:18:07,240 --> 00:18:11,280 Speaker 1: so we're talking you know, online travel there. Trip advisors 347 00:18:11,359 --> 00:18:14,480 Speaker 1: numbers didn't look that great. At all. But they're reaffirming 348 00:18:14,520 --> 00:18:17,240 Speaker 1: their full year projections, and the stocks up ten and 349 00:18:17,240 --> 00:18:21,640 Speaker 1: a half percent. In booking, whose numbers look better for 350 00:18:21,680 --> 00:18:24,359 Speaker 1: the second quarter after coming up short of antaly assessments 351 00:18:24,400 --> 00:18:27,400 Speaker 1: in the first quarter, up about six and a half percent. 352 00:18:27,600 --> 00:18:30,680 Speaker 1: So you know, you can find enough of those stories 353 00:18:30,720 --> 00:18:33,480 Speaker 1: to give people some comfort at a time, you know, 354 00:18:33,560 --> 00:18:36,480 Speaker 1: when the bigger picture, when you think about trade and 355 00:18:36,600 --> 00:18:40,919 Speaker 1: interest rates and currencies and you name it, is looking 356 00:18:40,960 --> 00:18:43,520 Speaker 1: a bit unsettled. You know what I'm thinking about today, 357 00:18:43,560 --> 00:18:46,320 Speaker 1: not trade or currencies. I'm thinking about ketchup. So are 358 00:18:46,359 --> 00:18:51,560 Speaker 1: good friends at Kraft Hein's head and exactly ketchup on 359 00:18:51,560 --> 00:18:54,159 Speaker 1: a Thursday morning? Are good friends at Kraft Heins? Uh? 360 00:18:54,400 --> 00:18:57,080 Speaker 1: Kind of a rough quarter they just reported, and it's 361 00:18:57,119 --> 00:18:59,360 Speaker 1: so rough that they don't even give guidance. So investors 362 00:18:59,359 --> 00:19:03,399 Speaker 1: are spooked. Style down. Let's break it down with our 363 00:19:03,480 --> 00:19:07,600 Speaker 1: good Fred Craig Giammona covers all things consumer for Bloomberg News. 364 00:19:07,600 --> 00:19:09,800 Speaker 1: He joins us here in our Bloomberg eleven three studios. 365 00:19:10,040 --> 00:19:12,640 Speaker 1: Craig give us kind of the highlights or low lights 366 00:19:12,640 --> 00:19:15,120 Speaker 1: of what we're seeing here. So they haven't reported earning 367 00:19:15,160 --> 00:19:18,359 Speaker 1: since February February was when they put out the release 368 00:19:18,400 --> 00:19:21,320 Speaker 1: basically saying that they had an sec investigation, fifteen billion 369 00:19:21,320 --> 00:19:24,760 Speaker 1: dollar write down, weak profit numbers. They did an internal investigation, 370 00:19:24,800 --> 00:19:27,680 Speaker 1: found some accounting problems. They haven't filed earnings for two 371 00:19:27,680 --> 00:19:30,080 Speaker 1: straight quarters, so this was the first six months of 372 00:19:30,080 --> 00:19:32,000 Speaker 1: twenty nineteen that they put out and the numbers are bad, 373 00:19:32,440 --> 00:19:35,600 Speaker 1: profit and sales are down. And you know the new CEO, 374 00:19:35,680 --> 00:19:39,119 Speaker 1: Miguel Patricio, he's a longtime Annheuser Bush guy. He's been 375 00:19:39,119 --> 00:19:41,800 Speaker 1: in there for a month. Took over July one, and basically, 376 00:19:41,800 --> 00:19:43,639 Speaker 1: I think what we're seeing here is the extent of 377 00:19:43,640 --> 00:19:45,440 Speaker 1: the challenge that he faces as he tries some amount 378 00:19:45,480 --> 00:19:47,840 Speaker 1: to come back at a company that really was never 379 00:19:47,880 --> 00:19:50,119 Speaker 1: supposed to be about growing sales. It was supposed to 380 00:19:50,160 --> 00:19:52,760 Speaker 1: be about buying something else. And this thing has been 381 00:19:52,840 --> 00:19:54,919 Speaker 1: kind of off the rails since they got rebuffed by 382 00:19:54,960 --> 00:19:57,879 Speaker 1: Unilever all the way back in Okay. So Warren buffin 383 00:19:57,920 --> 00:20:01,080 Speaker 1: It has admitted that he just overpaid for this acquescence, right, 384 00:20:01,160 --> 00:20:03,280 Speaker 1: So he's come out and he said, uh, you know, 385 00:20:03,520 --> 00:20:05,399 Speaker 1: not that it was a mistake, but it was a mistake. 386 00:20:05,600 --> 00:20:10,480 Speaker 1: My question is, what are the main problems here, bad brands, nobody, 387 00:20:10,680 --> 00:20:13,000 Speaker 1: I mean, so you know, and it's I'm not I'm 388 00:20:13,040 --> 00:20:14,800 Speaker 1: not making a joke. Like the problem here is that 389 00:20:14,840 --> 00:20:17,719 Speaker 1: they put this company together to build a gigantic food company. 390 00:20:17,760 --> 00:20:20,160 Speaker 1: Allah and Heuser Busch. Right. So what they did was 391 00:20:20,440 --> 00:20:23,600 Speaker 1: they took Hines private, they slashed all the costs, they 392 00:20:23,600 --> 00:20:26,159 Speaker 1: produced industry leading margins. Year and a half later, they 393 00:20:26,200 --> 00:20:29,480 Speaker 1: bought Kraft, slashed all the costs, fired thousands of people, 394 00:20:29,720 --> 00:20:33,640 Speaker 1: got the margins way up. February rolls around, right on schedule. 395 00:20:33,680 --> 00:20:36,240 Speaker 1: We're buying Unilever for a hundred forty three billion. Hold 396 00:20:36,240 --> 00:20:39,240 Speaker 1: on a second, Paul Pullman, you know, basically robuffs them. 397 00:20:39,480 --> 00:20:42,480 Speaker 1: The deal doesn't happen. Since then, the market cap has 398 00:20:42,520 --> 00:20:45,399 Speaker 1: just gotten absolutely destroyed because this isn't about building brands. 399 00:20:45,520 --> 00:20:48,480 Speaker 1: So here's my question, Dave Wilson, question of the day. 400 00:20:48,920 --> 00:20:52,200 Speaker 1: Does this just go to show that big conglomerates are 401 00:20:52,240 --> 00:20:54,040 Speaker 1: a thing of the past, because we've seen the big 402 00:20:54,119 --> 00:20:58,280 Speaker 1: conglomerates and industrial space in spaces certainly be in a 403 00:20:58,400 --> 00:21:03,080 Speaker 1: breaking up cycle. Now, is this evidence it just doesn't 404 00:21:03,080 --> 00:21:06,520 Speaker 1: work in today's environment. Well, when you think about conglomerates, 405 00:21:06,640 --> 00:21:10,040 Speaker 1: you know that word implies. You're talking about a company 406 00:21:10,080 --> 00:21:13,200 Speaker 1: that cuts across a whole bunch of industries and craft 407 00:21:13,240 --> 00:21:17,399 Speaker 1: hen's you know, as much as even buying Unilever, if 408 00:21:17,400 --> 00:21:19,399 Speaker 1: they've been able to do that, they still would have 409 00:21:19,400 --> 00:21:23,600 Speaker 1: had to focus on food maybe household products of some extent, 410 00:21:23,880 --> 00:21:26,720 Speaker 1: so you know, a bit more focused. It's the challenge 411 00:21:26,760 --> 00:21:30,280 Speaker 1: of size basically at a time when you have all 412 00:21:30,320 --> 00:21:33,800 Speaker 1: this competition. I mean, you bag you know, you know 413 00:21:33,880 --> 00:21:36,359 Speaker 1: that the folks who are in charge of craft hnes 414 00:21:36,400 --> 00:21:38,840 Speaker 1: are also in charge and analyze a push in bed 415 00:21:38,920 --> 00:21:42,800 Speaker 1: and they're dealing with competition left right and center and 416 00:21:43,080 --> 00:21:46,119 Speaker 1: having challenges come out of that. And you know, you 417 00:21:46,200 --> 00:21:48,960 Speaker 1: think about the food business, who's sort of in a 418 00:21:49,160 --> 00:21:52,080 Speaker 1: similar position. I mean a lot of stuff happening on 419 00:21:52,240 --> 00:21:57,080 Speaker 1: local level. So you know, that's really the the issue 420 00:21:57,080 --> 00:22:00,159 Speaker 1: for this company. It's not necessarily you know, conglomer or 421 00:22:00,200 --> 00:22:03,480 Speaker 1: it isn't exactly the right word, you know, just behave 422 00:22:03,720 --> 00:22:05,720 Speaker 1: there's more like it. So, Craig, I'm looking at the 423 00:22:05,720 --> 00:22:08,680 Speaker 1: stock here. It's down over the past twelve months of 424 00:22:08,760 --> 00:22:11,639 Speaker 1: fifty two week low today. Is there a solution for 425 00:22:11,640 --> 00:22:14,359 Speaker 1: this company? What are what's so here's the real problem. 426 00:22:14,440 --> 00:22:16,199 Speaker 1: I mean, the thing with them was they were always 427 00:22:16,240 --> 00:22:18,400 Speaker 1: had the idea was that they had Buffett behind them. 428 00:22:18,400 --> 00:22:20,120 Speaker 1: The Bank of Buffett could come along and they could 429 00:22:20,160 --> 00:22:22,399 Speaker 1: basically do another deal to get back to what they 430 00:22:22,440 --> 00:22:24,920 Speaker 1: do best, which is cutting costs. The problem now is 431 00:22:24,960 --> 00:22:27,280 Speaker 1: that with the debt they have, with the stock where 432 00:22:27,280 --> 00:22:29,440 Speaker 1: it is, they can't do a deal. And especially since 433 00:22:29,480 --> 00:22:32,480 Speaker 1: Buffett is saying, you know, basically I made a mistake, 434 00:22:32,680 --> 00:22:35,560 Speaker 1: and you know, or Paulo Laman, the chairman of Three 435 00:22:35,560 --> 00:22:37,640 Speaker 1: G also is kind of admitted that this didn't really 436 00:22:37,640 --> 00:22:39,560 Speaker 1: work out the way we thought. So the question is 437 00:22:39,760 --> 00:22:41,520 Speaker 1: what's the way out. They have to boost growth, they 438 00:22:41,520 --> 00:22:43,359 Speaker 1: have to sell more food, and when you look at 439 00:22:43,400 --> 00:22:44,960 Speaker 1: their brands, it's like, how is that going to happen? 440 00:22:45,000 --> 00:22:47,560 Speaker 1: I mean things like Maxwell House and or Ida, you know, 441 00:22:47,680 --> 00:22:50,280 Speaker 1: and and Capri Son and Oscar Meyer. These are not 442 00:22:50,359 --> 00:22:52,400 Speaker 1: brands that are on trend with what people want these days. 443 00:22:52,880 --> 00:22:55,439 Speaker 1: So I'm gonna have a moment of truth here. We're 444 00:22:55,480 --> 00:22:57,840 Speaker 1: gonna go around, We're gonna go around the room, and 445 00:22:57,880 --> 00:23:02,360 Speaker 1: we're gonna say what our favorite condiment is mustard cat 446 00:23:04,160 --> 00:23:06,720 Speaker 1: like soura crown on my hot dogs any but without 447 00:23:06,760 --> 00:23:10,439 Speaker 1: anything else. I have a little mustard too, But mustard 448 00:23:10,520 --> 00:23:13,159 Speaker 1: interesting because I'm also mustard. I'm not catchup and I 449 00:23:13,200 --> 00:23:15,560 Speaker 1: actually my kids are not into catch up. I mean, look, Hines, 450 00:23:15,600 --> 00:23:17,439 Speaker 1: catch up is probably their strongest brand. It's in like 451 00:23:18,240 --> 00:23:20,440 Speaker 1: of American households. Catch up is not the problem for them, 452 00:23:20,480 --> 00:23:22,960 Speaker 1: you know that. I mean it's not it's not, no, seriously. 453 00:23:22,960 --> 00:23:24,560 Speaker 1: I mean, Hines is like one brand that has not 454 00:23:24,600 --> 00:23:27,720 Speaker 1: been disrupted. You know, people still want Hines. You know, Hunts, 455 00:23:27,720 --> 00:23:30,439 Speaker 1: the second brand is way far behind. That's an example of, 456 00:23:30,680 --> 00:23:32,800 Speaker 1: you know, one brand that is sort of impenetrable as 457 00:23:32,840 --> 00:23:35,560 Speaker 1: far as you don't have enough boxes of macaroni and 458 00:23:35,640 --> 00:23:38,480 Speaker 1: cheese get around in their pantries. Oh I I do though. 459 00:23:38,840 --> 00:23:42,680 Speaker 1: Dave was in Socks editor and Craig Giamona covering all 460 00:23:42,800 --> 00:23:45,960 Speaker 1: things that consumer related for us here at Bloomberg News. 461 00:24:01,400 --> 00:24:05,080 Speaker 1: A number of countries have come out and issued warnings 462 00:24:05,119 --> 00:24:07,919 Speaker 1: to residents who might be thinking of traveling to the 463 00:24:07,960 --> 00:24:11,159 Speaker 1: United States in the wake of some of the mass shootings. 464 00:24:11,200 --> 00:24:14,080 Speaker 1: The latest to do so is Japan. The question is, 465 00:24:14,200 --> 00:24:16,800 Speaker 1: how is this among other things, I mean, aside from 466 00:24:16,840 --> 00:24:20,679 Speaker 1: the human tragedy that we have seen with respect to 467 00:24:20,680 --> 00:24:23,400 Speaker 1: these mass shootings. How will this affect the tourism industry 468 00:24:23,520 --> 00:24:25,960 Speaker 1: and the international appetite to go to the United States? 469 00:24:26,040 --> 00:24:29,239 Speaker 1: Joining US as Dan Wislek, he's senior equity analyst with 470 00:24:29,359 --> 00:24:32,480 Speaker 1: Morning Star in Chicago. Dan, so let's just get sorted there. 471 00:24:32,520 --> 00:24:34,879 Speaker 1: Do you think that these types of warnings, the latest 472 00:24:34,880 --> 00:24:38,280 Speaker 1: being out of Japan will impact the tourism to the 473 00:24:38,359 --> 00:24:41,639 Speaker 1: United States? Well, I think what we've seen, uh in 474 00:24:41,920 --> 00:24:45,159 Speaker 1: you know, past terrorist attacks for example in France, is 475 00:24:45,240 --> 00:24:47,960 Speaker 1: that yes. I mean when when these human tragedies do 476 00:24:48,000 --> 00:24:51,280 Speaker 1: occur for a period of time, that can subdue travel 477 00:24:51,359 --> 00:24:55,159 Speaker 1: to that country. Um. You know that being said, uh, 478 00:24:55,200 --> 00:24:58,240 Speaker 1: you know, international travel as a percent of overall travel 479 00:24:58,320 --> 00:25:01,439 Speaker 1: within the US represents about four maybe five percent of 480 00:25:01,440 --> 00:25:04,240 Speaker 1: total room nights. So um, just to give a little 481 00:25:04,240 --> 00:25:07,399 Speaker 1: bit of context there. So Dan, it's interesting, what have 482 00:25:08,359 --> 00:25:11,760 Speaker 1: you seen any impact I guess just historically from geopolitical 483 00:25:12,040 --> 00:25:14,600 Speaker 1: issues just generally speaking. I know it's a you mentioned 484 00:25:14,640 --> 00:25:17,359 Speaker 1: international is kind of a smaller a small piece of 485 00:25:17,359 --> 00:25:19,840 Speaker 1: the pipe, but historically hasn't been an issue that the 486 00:25:19,840 --> 00:25:22,720 Speaker 1: companies have called out. Yeah. Well, you know some of 487 00:25:22,720 --> 00:25:25,880 Speaker 1: the data that we see is that actually us their 488 00:25:25,920 --> 00:25:28,800 Speaker 1: global share or our global share of international travel. It's 489 00:25:28,800 --> 00:25:31,239 Speaker 1: been declining for the last three or four years. So 490 00:25:31,280 --> 00:25:34,720 Speaker 1: in two thousand fifteen, our share of international travel was 491 00:25:34,760 --> 00:25:38,399 Speaker 1: around thirteen point seven percent. Last year it ended eleven 492 00:25:38,440 --> 00:25:42,119 Speaker 1: point seven percent. And it's probably reasonable to assume that 493 00:25:42,200 --> 00:25:44,639 Speaker 1: some of that has to do with, you know, trade 494 00:25:44,640 --> 00:25:49,320 Speaker 1: tensions more recently, immigrant rhetoric. Um. You know, the recent 495 00:25:49,320 --> 00:25:54,119 Speaker 1: warnings around the mass shootings, UH and hate crimes, and 496 00:25:54,160 --> 00:25:56,359 Speaker 1: perhaps other things like a strong dollar. But you know 497 00:25:56,440 --> 00:25:59,760 Speaker 1: this is something you know, uh, you know, that's all 498 00:25:59,760 --> 00:26:02,080 Speaker 1: these add up to kind of a picture where the 499 00:26:02,160 --> 00:26:06,200 Speaker 1: US is slowly been losing some share here where are 500 00:26:06,200 --> 00:26:08,240 Speaker 1: where are we losing share in the United States? And 501 00:26:08,280 --> 00:26:12,080 Speaker 1: other words, where tourists sort of coming less from What 502 00:26:12,280 --> 00:26:15,000 Speaker 1: parts of the world are people avoiding the US uh 503 00:26:15,320 --> 00:26:18,720 Speaker 1: in a way that they hadn't been in the past. Yeah, 504 00:26:18,760 --> 00:26:21,600 Speaker 1: you know, I'm not sure you know what countries are 505 00:26:21,720 --> 00:26:24,120 Speaker 1: you know, maybe shining away more from the US. I know, well, 506 00:26:24,160 --> 00:26:27,480 Speaker 1: actually China is one where you know, last year represented 507 00:26:27,560 --> 00:26:29,960 Speaker 1: the first year where Chinese travel to the U s 508 00:26:30,080 --> 00:26:35,840 Speaker 1: was actually negative growth. Um, So that's that's one region. Um. 509 00:26:35,880 --> 00:26:38,240 Speaker 1: You know, Marriott had their call this week and there 510 00:26:38,280 --> 00:26:40,479 Speaker 1: was a little bit of discussion in the US at 511 00:26:40,520 --> 00:26:44,400 Speaker 1: the top twenty five largest markets that there has been 512 00:26:44,400 --> 00:26:46,159 Speaker 1: a little bit of a slow down in some of 513 00:26:46,200 --> 00:26:48,760 Speaker 1: the demand that they've been seeing there too, which maybe 514 00:26:48,800 --> 00:26:52,760 Speaker 1: kind of supports the overall point of the US for 515 00:26:52,960 --> 00:26:55,919 Speaker 1: you know, various reasons losing some share to uh, you know, 516 00:26:56,000 --> 00:26:59,359 Speaker 1: the international travel coming to this country. So, Dan, I'm 517 00:26:59,359 --> 00:27:01,399 Speaker 1: looking at the hotel stocks right here. It looked like 518 00:27:01,440 --> 00:27:03,920 Speaker 1: some good solid double digit gains for the stocks year 519 00:27:04,000 --> 00:27:07,399 Speaker 1: to date, led by Hilton up over over what's the 520 00:27:07,800 --> 00:27:10,560 Speaker 1: investor call out there in the market on hotel stocks 521 00:27:10,640 --> 00:27:13,680 Speaker 1: right now? Yeah, you know, these are good business models. 522 00:27:14,080 --> 00:27:17,520 Speaker 1: They they the growth is really driven by having hotelers 523 00:27:17,680 --> 00:27:20,560 Speaker 1: joined these brands. Uh. And you know that type of 524 00:27:20,560 --> 00:27:22,720 Speaker 1: growth for some of the larger companies like Marianne and 525 00:27:22,800 --> 00:27:26,600 Speaker 1: Hilton is around mid single digit UM. You know, I 526 00:27:26,640 --> 00:27:30,159 Speaker 1: guess the one potential or two potential warning signs I 527 00:27:30,160 --> 00:27:32,040 Speaker 1: would say is, well, you know, some of the travels 528 00:27:32,080 --> 00:27:34,679 Speaker 1: slow down that we've seen recently, uh, you know, some 529 00:27:34,800 --> 00:27:37,600 Speaker 1: driven by geopolitical events and others just by you know, 530 00:27:37,640 --> 00:27:41,040 Speaker 1: ctality slowing down would be one thing. And this year 531 00:27:41,080 --> 00:27:43,800 Speaker 1: represents the tenth year that we're going to have positive 532 00:27:43,840 --> 00:27:48,520 Speaker 1: demand growth. Uh. And that's a pretty long time. Uh. 533 00:27:48,760 --> 00:27:51,760 Speaker 1: Typically the cycle's last maybe seven the nine years, So 534 00:27:51,800 --> 00:27:54,240 Speaker 1: we might be getting a little bit long in the 535 00:27:54,320 --> 00:27:56,680 Speaker 1: tooth as far as this cycle. But you know, otherwise, 536 00:27:56,720 --> 00:27:59,520 Speaker 1: good business models give you pretty good growth. Uh. And 537 00:27:59,600 --> 00:28:02,439 Speaker 1: I think you know that's being rewarded in the marketplace today. Dan, 538 00:28:02,560 --> 00:28:05,520 Speaker 1: I'm I'm struggling to sort of put these two things together. 539 00:28:05,560 --> 00:28:08,040 Speaker 1: The idea that the US is losing share when it 540 00:28:08,040 --> 00:28:12,280 Speaker 1: comes to international tourists, and yet you're seeing solid growth 541 00:28:12,320 --> 00:28:15,880 Speaker 1: as some of these tourist focus chains like Marriott. Where 542 00:28:15,960 --> 00:28:19,080 Speaker 1: is the growth coming from? Yeah, So it really it's 543 00:28:19,160 --> 00:28:23,359 Speaker 1: it's less about um, you know, room night growth. Rooms 544 00:28:23,400 --> 00:28:26,520 Speaker 1: being filled is certainly one driver of growth, but even 545 00:28:26,560 --> 00:28:29,080 Speaker 1: a bigger driver for these guys is getting you know, 546 00:28:29,160 --> 00:28:32,959 Speaker 1: boutiques that convert into say a Merriott flag or brand 547 00:28:33,440 --> 00:28:36,520 Speaker 1: or have a third party hotel owners decide to build 548 00:28:36,520 --> 00:28:40,080 Speaker 1: a new hotel using the license of a Merriott brand 549 00:28:40,120 --> 00:28:42,760 Speaker 1: or a Hilton brand, And it's that unit growth that 550 00:28:43,520 --> 00:28:46,560 Speaker 1: you know is driving again mid single digit growth for 551 00:28:46,600 --> 00:28:50,520 Speaker 1: these companies. So even if the revenue per available room 552 00:28:50,600 --> 00:28:52,600 Speaker 1: or the amount of people that are going into rooms 553 00:28:52,840 --> 00:28:55,080 Speaker 1: even if that's slowing, and it has, it's slowed for 554 00:28:55,200 --> 00:28:58,680 Speaker 1: probably like two three percent growth uh last year to 555 00:28:58,920 --> 00:29:01,160 Speaker 1: one to two percent growth today. You know, that's a 556 00:29:01,200 --> 00:29:05,800 Speaker 1: smaller growth driver factor relative to the units that these 557 00:29:05,840 --> 00:29:08,360 Speaker 1: guys are are seeing. The unit growth that these guys 558 00:29:08,360 --> 00:29:11,080 Speaker 1: are seeing. Dan Wazelec, thanks so much for joining us. 559 00:29:11,120 --> 00:29:13,400 Speaker 1: Dan as a senior equity analyst at morning Star based 560 00:29:13,400 --> 00:29:15,880 Speaker 1: in Chicago. Thanks for listening to the Bloomberg P and 561 00:29:16,000 --> 00:29:18,560 Speaker 1: L podcast. 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