WEBVTT - Bond Traders Await US Inflation Data Behind Half of 2024’s Rout 0:00:00.600 --> 0:00:10.719 Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business 0:00:10.720 --> 0:00:13.960 Wait inside from the reporters and editors who bring you 0:00:14.000 --> 0:00:18.360 America's most trusted business magazine, plus global business, finance and 0:00:18.400 --> 0:00:22.880 tech news. The Bloomberg Business Week podcast with Carol Messer 0:00:23.040 --> 0:00:26.160 and Tim Stenebeck from Bloomberg Radio. 0:00:27.560 --> 0:00:30.080 Trade wars tariffs may be not top of mind for 0:00:30.160 --> 0:00:32.879 US voters. What is, though, no doubt about it, is inflation. 0:00:33.280 --> 0:00:35.600 It does continue to weigh on a lot of folks 0:00:35.640 --> 0:00:39.440 minds as a November presidential election looms. Consumer confidence last 0:00:39.520 --> 0:00:42.040 month hitting the lowest level since mid twenty twenty two, 0:00:42.080 --> 0:00:44.960 way down by concerns about elevated food and gas costs. 0:00:45.120 --> 0:00:47.040 And that's where we want to go. Is the inflation 0:00:47.080 --> 0:00:49.080 print that we are getting this week. Let's see what 0:00:49.080 --> 0:00:50.760 our team has to say about that. Back with us 0:00:50.760 --> 0:00:54.600 is Bloomberg News International Economics and Policy Correspondent Michael McKee, 0:00:54.640 --> 0:00:57.840 along with Bloomberg News Chief correspondent for Global macro Markets 0:00:58.240 --> 0:01:01.000 Liz McCormick, both here in our study. All right, guys, 0:01:01.000 --> 0:01:03.440 So Johnny Yella, kind of setting the stage there. First 0:01:03.440 --> 0:01:05.440 of all, Mike, I want to ask you the possibility 0:01:05.520 --> 0:01:10.040 of us tariffs on Chinese goods. How does that historically? Tariffs? 0:01:10.040 --> 0:01:12.200 How does that impact kind of our economy and really 0:01:12.240 --> 0:01:13.119 the inflation picture. 0:01:14.000 --> 0:01:17.080 It's not good for the economy and it's not good 0:01:17.120 --> 0:01:19.840 for inflation, and that's been shown over and over and 0:01:19.880 --> 0:01:26.440 over again. Basically, US companies importing things from China pay 0:01:26.520 --> 0:01:29.800 the tariffs, not the Chinese, and so then they raised 0:01:29.840 --> 0:01:34.000 prices to recoup those costs from Americans. So Americans have 0:01:34.040 --> 0:01:37.080 to pay more money, and of course prices go up, 0:01:37.120 --> 0:01:43.080 so that hits inflation. The latest CBO numbers studying the 0:01:43.160 --> 0:01:46.640 Donald Trump tariffs show that they cost jobs, and they 0:01:46.720 --> 0:01:52.280 cost the economy. It helps certain sectors, very narrow sectors 0:01:52.360 --> 0:01:55.960 at times, but not always. The steel tariffs that Trump 0:01:56.000 --> 0:02:01.600 put on US steel companies simply raised rices but didn't 0:02:01.640 --> 0:02:04.840 do any more business, and several of their mills ended 0:02:04.920 --> 0:02:08.920 up closing down. So tariff's economists generally agree are a 0:02:09.040 --> 0:02:12.639 terrible idea. And then Marie did ask if this would 0:02:12.680 --> 0:02:15.760 contribute to inflation. Unfortunately, the Treasury Secretary sort of had to. 0:02:16.600 --> 0:02:18.560 I think it was her job to dodge that question. 0:02:18.800 --> 0:02:20.639 Yeah, I bet so. Let's come on in on this. 0:02:20.760 --> 0:02:23.639 You watch a lot of different things that impact certainly 0:02:24.240 --> 0:02:26.600 the market's the reaction in the treasury trade. I mean 0:02:27.000 --> 0:02:28.959 roll that in and just roll into what we really 0:02:28.960 --> 0:02:30.799 care about is the inflation print this week. 0:02:30.840 --> 0:02:34.400 Right exactly. I mean, all this the tariffs looming in 0:02:34.400 --> 0:02:36.480 the background doesn't help, like we're trying to get over 0:02:36.520 --> 0:02:38.520 the hurdle like you're saying of this week with the 0:02:38.560 --> 0:02:41.919 PPI and CPI, But the whole theme of like reshoring 0:02:42.040 --> 0:02:44.840 in general has been a background inflationary. Then if you 0:02:44.840 --> 0:02:47.160 add a new kind of let's not say tariff war, 0:02:47.480 --> 0:02:50.360 that won't help. But yeah, everyone is almost getting like 0:02:50.400 --> 0:02:53.000 someone said to me, everyone is all I hear is 0:02:53.520 --> 0:02:56.320 wait till Wednesday, right, Wait till Wednesday when we have 0:02:56.400 --> 0:02:59.600 this CPI print. And you know there's the backdrop to 0:02:59.639 --> 0:03:01.440 this is as we know, the labor data was a 0:03:01.480 --> 0:03:04.400 little softer, we're seeing cracks, the jolts was a little better. 0:03:04.880 --> 0:03:08.040 So people are thinking, if we can get this trend 0:03:08.080 --> 0:03:11.519 of hot inflation to end, maybe it's a lower print. 0:03:11.840 --> 0:03:13.920 The bond market may be off to the races, but 0:03:13.960 --> 0:03:16.720 we'll see, right, we've been waiting for a good number 0:03:16.760 --> 0:03:18.919 before and it hasn't panned out. So there's a lot 0:03:18.919 --> 0:03:20.840 of focus and of course smart. We have PPI, which 0:03:20.919 --> 0:03:24.960 used to be something with a worm. Now we have 0:03:25.040 --> 0:03:26.200 to talk about PPI. 0:03:26.360 --> 0:03:27.640 I know, Mike, you always like. 0:03:29.960 --> 0:03:32.400 Somebody put it this morning. It's the undercard for the main. 0:03:32.280 --> 0:03:35.240 Event, right, Well, what else are you looking at? 0:03:35.280 --> 0:03:35.440 Though? 0:03:35.480 --> 0:03:38.440 Are we see PPI? We see CPI. It feels like 0:03:38.960 --> 0:03:42.320 we're back to good economic data being good for the market. 0:03:42.360 --> 0:03:44.720 Are we back and does it flip flop covering stocks? 0:03:44.760 --> 0:03:47.400 Depends and it depends on what the data turned out 0:03:47.440 --> 0:03:49.960 to be. Are they good? And then who defines good? 0:03:50.440 --> 0:03:55.800 Because if the if you're looking for higher market rates 0:03:55.880 --> 0:03:59.360 and you get inflation staying where it is, that's what 0:03:59.400 --> 0:04:03.119 you're going to get. It looked like, I mean, from 0:04:03.120 --> 0:04:05.560 what I've seen in terms of the corporate bond markets, 0:04:05.600 --> 0:04:07.400 it looks like a lot of companies came to market 0:04:07.480 --> 0:04:10.480 because they don't they think the possibilities. We get a 0:04:10.560 --> 0:04:13.760 higher print and therefore rates go up. So go to market. Now, 0:04:14.560 --> 0:04:17.120 if you are looking for some progress, it would be 0:04:17.160 --> 0:04:22.000 good to have the CPI numbers go down, even just 0:04:22.080 --> 0:04:24.279 a little bit to suggest that we're back on the 0:04:24.360 --> 0:04:27.120 road to lower inflation, and the FED can once the 0:04:27.360 --> 0:04:29.400 well fed isn't going to start thinking about cutting rates 0:04:29.440 --> 0:04:30.799 right away, but the markets will. 0:04:30.880 --> 0:04:33.520 Well, Gods, I was going to say, like a few 0:04:33.560 --> 0:04:35.720 fun facts here, I was looking at stuff. 0:04:35.839 --> 0:04:37.960 Is that now Mike knows this, I'm sure. 0:04:38.000 --> 0:04:41.479 But so this CPI print people are saying is really 0:04:41.520 --> 0:04:44.280 going to inform in June. You know, the officials when 0:04:44.320 --> 0:04:46.800 they have that June meeting will change their dot plot. 0:04:46.880 --> 0:04:49.560 Right now, there is another CPI, but it comes on 0:04:49.640 --> 0:04:50.280 the last. 0:04:50.120 --> 0:04:51.679 Day of the two day meeting in June. 0:04:51.680 --> 0:04:54.400 So this, this CPI matters a lot. I see a 0:04:54.400 --> 0:04:56.839 lot of people focusing on that that it may inform 0:04:56.960 --> 0:04:59.719 the dot plot even more than although I think Cherva 0:04:59.760 --> 0:05:01.839 Pala has said people can change their mind the day 0:05:01.839 --> 0:05:05.400 of the meeting, so the June one release won't not matter. 0:05:05.560 --> 0:05:08.039 But there's a lot riding on this, so I think. 0:05:08.200 --> 0:05:10.600 And you know, when you start seeing people give you 0:05:10.640 --> 0:05:13.799 three decimal places on CPI, it's really important. 0:05:14.000 --> 0:05:17.160 And the last no rounding up here, guys, it really matters. 0:05:18.400 --> 0:05:20.680 Yeah, but I mean the last two core rounded two 0:05:20.680 --> 0:05:22.719 point four. But people will show you each one to 0:05:22.800 --> 0:05:23.600 three decimals. 0:05:23.640 --> 0:05:26.160 So if it could just round down enough. 0:05:25.960 --> 0:05:28.680 To be lower, it'll be good for the bond market. 0:05:28.880 --> 0:05:30.800 You guys constantly remind us, and I know we have 0:05:30.800 --> 0:05:32.520 a lot of conversations around this table. It's not just 0:05:32.560 --> 0:05:34.760 one month, right, we need to see several months when 0:05:34.800 --> 0:05:38.160 it comes to inflation kind of starting to really significantly 0:05:38.240 --> 0:05:40.719 or at least trend down and stick down and you know, 0:05:40.800 --> 0:05:41.760 kind of keep that pattern. 0:05:42.080 --> 0:05:42.240 Right. 0:05:42.320 --> 0:05:43.400 That's what Mickey. 0:05:43.120 --> 0:05:45.640 Bowman, Fed governor said last week. She didn't think we 0:05:45.640 --> 0:05:48.240 were going to get any rate cuts this year, and 0:05:48.440 --> 0:05:50.560 she said she needs to see three or more months 0:05:50.760 --> 0:05:53.680 of inflation getting closer to two percent before she's going 0:05:53.760 --> 0:05:56.680 to believe it's real. Now she's the most hawkish, but 0:05:56.680 --> 0:05:59.520 we're in a situation where we're talking about one cut 0:05:59.600 --> 0:06:02.920 to no cuts is the definition of does. 0:06:02.880 --> 0:06:05.200 We're looking at CPI the way with three point six 0:06:05.279 --> 0:06:07.359 percent ex food and energy, that's not two percent, not 0:06:07.400 --> 0:06:07.880 even close. 0:06:08.000 --> 0:06:10.800 No, no, But at least if it's trending down, like 0:06:10.800 --> 0:06:12.520 I said, the month over rough, if you can get 0:06:12.520 --> 0:06:14.599 a little better. But on the flip side, let's just 0:06:14.680 --> 0:06:17.640 say which is you know, obviously the consensus is a 0:06:17.640 --> 0:06:20.080 little lower, but if it's hotter like at the last 0:06:20.080 --> 0:06:22.640 FED meeting, people feel like Chairman Powell, really let's call 0:06:22.680 --> 0:06:24.960 it in the wonky land caught off the tail risk 0:06:25.040 --> 0:06:28.920 of hikes. But if it reaccelerates, you wonder if even 0:06:28.960 --> 0:06:31.679 the options traders price in a little bit that maybe 0:06:31.720 --> 0:06:33.719 we get a hike. I mean, that's gone now, so 0:06:34.279 --> 0:06:37.320 I think that would be more of a surprise if 0:06:37.360 --> 0:06:40.720 it's you know, reaccelerates, you know, so let's. 0:06:40.480 --> 0:06:41.080 Hope that doesn't. 0:06:41.080 --> 0:06:45.239 Remember the FED doesn't look at CPI as well, that's engage. 0:06:45.279 --> 0:06:47.200 It looks at PCE. 0:06:47.480 --> 0:06:51.600 Headline is two point seven percent, So that's a significant difference, 0:06:51.760 --> 0:06:54.000 and it's largely due to housing. And there's gonna be 0:06:54.040 --> 0:06:56.840 a lot of focus on the housing numbers in the 0:06:56.839 --> 0:07:00.599 CPI report. Do they finally start to show the decline 0:07:00.600 --> 0:07:03.240 that everybody has been waiting for or are they still 0:07:03.279 --> 0:07:07.120 hanging in there? But the interesting thing is you take 0:07:07.160 --> 0:07:10.920 out housing from CPI and you get an index that 0:07:10.960 --> 0:07:13.120 looks a lot like what they have in Europe because 0:07:13.160 --> 0:07:15.800 they don't put housing into their CPI, and it would 0:07:15.800 --> 0:07:19.120 put bullfit about two point four percent, So you know, 0:07:19.600 --> 0:07:22.720 it's it's an interesting position for the FIT to be in. 0:07:23.280 --> 0:07:25.320 Yeah, that's why they kind of focused in on the 0:07:25.480 --> 0:07:28.280 super core, right ex. Housing and all this there's a 0:07:28.280 --> 0:07:30.440 lot of you know, in the weeds that they're looking at. 0:07:30.680 --> 0:07:32.960 I will say, at Milkin, like a bunch of investors 0:07:32.960 --> 0:07:35.400 we talked about talked to said, we have such a 0:07:35.440 --> 0:07:38.160 shortage supply of housing and like none of these inflationary 0:07:38.160 --> 0:07:40.520 pressures are going to go away anytime soon. And that 0:07:40.600 --> 0:07:42.280 is not something like you can just build a ton 0:07:42.320 --> 0:07:45.640 of homes or rental properties or whatever overnight. And so 0:07:45.920 --> 0:07:47.720 you feel like builders are very, very cautious. 0:07:47.840 --> 0:07:50.080 It's a very difficult problem to solve. I saw a 0:07:50.120 --> 0:07:53.240 commentator on Friday saying, you know, the administration should move 0:07:53.720 --> 0:07:58.840 to start making more housing, you know, getting more housing built. 0:07:59.080 --> 0:08:01.800 But the problem is not so much a national policy 0:08:01.800 --> 0:08:04.760 on housing. It's local policies in each city about zoning 0:08:05.200 --> 0:08:09.280 and density, and it's going to take a lot of 0:08:09.320 --> 0:08:11.400 work to really change all that. 0:08:11.680 --> 0:08:13.760 Plus the backdrop is you have all these people who 0:08:13.880 --> 0:08:16.480 have two and a quarter mortgages saying I'd kind of 0:08:16.560 --> 0:08:18.640 like to sell, but no I'm not. You know, I 0:08:18.640 --> 0:08:20.960 don't want a six percent mortgage. So that is adding 0:08:21.000 --> 0:08:22.960 to the lack of availability of houses. 0:08:23.040 --> 0:08:25.200 Right Well, I'm looking at the economic calendar we have PPI. 0:08:25.240 --> 0:08:29.560 As you mentioned, Mike, the undercard, CPI, jobless claims, housing starts. 0:08:30.000 --> 0:08:32.760 How do we try to filter through each of these 0:08:32.840 --> 0:08:34.679 data points as they come in, because when I look 0:08:34.720 --> 0:08:36.720 at the terminal, look at WARP or different ways to 0:08:36.760 --> 0:08:40.079 track what rates investors are betting on, it's very whiplashy 0:08:40.120 --> 0:08:40.600 at times. 0:08:40.720 --> 0:08:41.600 Well yeah, to. 0:08:41.600 --> 0:08:44.240 Say the least, right, yeah, no, And I think, you know, 0:08:44.280 --> 0:08:47.400 I think for the economy, like the inflation, PPI, CPI, 0:08:47.559 --> 0:08:49.600 but then retail sales, there's a lot of focus on 0:08:49.600 --> 0:08:52.240 that because the consumer has somehow seemed to flow along, 0:08:52.320 --> 0:08:54.080 although I guess it's somewhat bifurcated. 0:08:54.520 --> 0:08:56.599 So given up buying food because it's so expensive, so 0:08:56.640 --> 0:08:58.160 they're just going to buy stuff and travel. 0:08:58.240 --> 0:09:00.120 And in fact, I'm like glad when I'm alone and 0:09:00.120 --> 0:09:04.400 I'm like I could eat peanut butter and jellie, no joke, right, Like. 0:09:04.480 --> 0:09:06.480 You look at it, like you think about it, it comes up, 0:09:07.040 --> 0:09:07.640 you know. Argument. 0:09:07.760 --> 0:09:11.600 The interesting thing is that you say that because food 0:09:11.600 --> 0:09:13.800 prices have been flat for a couple of months, they 0:09:13.840 --> 0:09:16.520 have not been going up, and yet this is what's 0:09:16.559 --> 0:09:20.560 in everybody going down to everybody's mind, well, yes, some 0:09:20.600 --> 0:09:25.040 go down, most just stay where they are. But in 0:09:25.200 --> 0:09:28.520 food there is a lot of basic commodity prices at work, 0:09:28.559 --> 0:09:32.520 because your meats, your vegetables, your fruits are all going 0:09:32.600 --> 0:09:35.640 to be dependent on the commodity markets and whether things 0:09:35.640 --> 0:09:36.120 are going up. 0:09:36.480 --> 0:09:39.640 Chocolate expensive, Yeah, I heard that the other day. 0:09:40.120 --> 0:09:43.520 People are upset about chocolate, but that you got to 0:09:43.520 --> 0:09:45.240 blame the weather and god. 0:09:45.320 --> 0:09:48.120 I think, well, so what's the net net? So, Liz, 0:09:48.520 --> 0:09:51.040 So it's interesting. So it'll be one month's report. So 0:09:51.280 --> 0:09:52.920 I don't know what's top of mind as we get 0:09:52.920 --> 0:09:56.880 ready for obviously PPI first, then CPI, because your story 0:09:56.960 --> 0:09:58.800 is like, okay, the only thing that matters. 0:10:00.320 --> 0:10:03.079 Well, it's not just us saying that. The data, you know, 0:10:03.080 --> 0:10:05.240 if you look at the trading days for CPI, it 0:10:05.280 --> 0:10:08.640 has really mattered. And I really think the backdrop of 0:10:09.040 --> 0:10:12.000 some signs of labor cooling a little bit means, like 0:10:12.040 --> 0:10:14.680 someone said, if CPI is soft, the market's off to 0:10:14.720 --> 0:10:17.559 the races. I meaning people just feel like that's last 0:10:17.559 --> 0:10:21.160 shit of we need to see some sign of disinflation 0:10:21.280 --> 0:10:23.720 picking up again, you know, going the right direction down, 0:10:23.800 --> 0:10:26.839 you know. So I think if it came in point 0:10:26.840 --> 0:10:29.480 two or something, you're gonna see the bond market run, 0:10:29.559 --> 0:10:32.240 you know, a point three, you know, maybe is good 0:10:32.360 --> 0:10:32.720 enough for a. 0:10:32.679 --> 0:10:35.320 Little bit about core headline. I'm talking about corey. 0:10:35.679 --> 0:10:39.160 Yeah, because I think the bond market just feels like, hey, 0:10:39.200 --> 0:10:41.679 Fed cut off the idea of hikes, at least they 0:10:41.720 --> 0:10:45.560 put off for now. Labor markets sewing some signs of 0:10:45.640 --> 0:10:48.560 some easing if we can get inflation to start going 0:10:48.559 --> 0:10:50.679 in the right direction. And you know, you've had a 0:10:50.720 --> 0:10:53.559 lot of investors on saying they're buying bonds anyway because 0:10:53.559 --> 0:10:55.840 they think yields are good and we might not get 0:10:55.840 --> 0:10:59.319 these yields again. So I think something's got to really 0:10:59.600 --> 0:11:03.720 mess up that apple krt, like really hot inflation. Otherwise, 0:11:03.920 --> 0:11:05.920 I think the market wants to rally. 0:11:07.000 --> 0:11:07.440 Anything that you. 0:11:07.440 --> 0:11:09.760 Think market does want to rally, well, I think interesting 0:11:09.800 --> 0:11:12.760 note Jay Powell is speaking tomorrow and he'll be talking 0:11:12.760 --> 0:11:15.480 about the economy and he's not gotting anything new to 0:11:15.480 --> 0:11:18.640 say because he won't have seen the CPI numbers. He'll 0:11:18.679 --> 0:11:21.560 be over in Europe and so he you know, it's 0:11:21.679 --> 0:11:24.920 kind of a non event for the Fed chairman, which 0:11:24.960 --> 0:11:28.160 is unusual. But I think what we may see if 0:11:28.160 --> 0:11:31.840 we get a lower print on CPI is we start 0:11:31.840 --> 0:11:34.400 to get the overreaction in markets of oh, we're going 0:11:34.400 --> 0:11:37.600 into recession now because and especially if retail sales come 0:11:37.600 --> 0:11:39.839 in as soft as expected, and now they got to 0:11:39.880 --> 0:11:42.280 cut rates. Because it just goes back and forth. 0:11:42.360 --> 0:11:45.480 It's a ping pong pretty madic, right, Like I just feel. 0:11:46.160 --> 0:11:49.000 I'll make this very quick. Philip Jefferson, who was who's 0:11:49.000 --> 0:11:51.000 the vice chair of the FED said, gave a speech 0:11:51.040 --> 0:11:53.760 on FED communication today. He said, overall, it's good to 0:11:53.760 --> 0:11:56.000 tell the markets what's going on, but there's a lot 0:11:56.000 --> 0:11:58.400 of confusion when so many people are speaking. 0:11:58.520 --> 0:12:01.319 I agree, I think true. Everybody just stop talking for 0:12:01.360 --> 0:12:03.920 a while, but not you guys. Listen Cormick, Mike McKee, 0:12:04.120 --> 0:12:04.920 this is Bloomberg. 0:12:07.200 --> 0:12:10.720 You're listening to the Bloomberg Business Week podcast. Catch us 0:12:10.760 --> 0:12:14.000 live weekday afternoons from two to five pm Eastern Listen 0:12:14.040 --> 0:12:16.199 on Apple car Play and then brought auto with a 0:12:16.240 --> 0:12:20.480 Bloomberg Business app or wants us live on YouTube. 0:12:21.840 --> 0:12:24.280 We want to talk about reads. Real estate investment trusts 0:12:24.520 --> 0:12:28.160 not doing so well this year, but not surprising considering Billy, 0:12:28.240 --> 0:12:29.760 the higher US interest rate environment. 0:12:29.880 --> 0:12:32.160 We're seeing reads under pressure. We've seen analysts pounding the 0:12:32.160 --> 0:12:34.119 table saying now's the time to buy. 0:12:34.360 --> 0:12:36.840 But well, you do wonder right in terms of valuations, 0:12:36.880 --> 0:12:38.280 maybe it makes sense. I just got to throw some 0:12:38.360 --> 0:12:41.200 data at everybody. According to Bloomberg Data, US reads as 0:12:41.200 --> 0:12:43.920 a whole down nearly seven percent year to date. Office 0:12:43.960 --> 0:12:47.000 reads down about five percent so far this year. Industrial 0:12:47.040 --> 0:12:49.720 and warehouse reads down seventeen percent year to date. And 0:12:49.720 --> 0:12:52.920 this is again according to Bloomberg Data. Our next guest 0:12:53.040 --> 0:12:55.240 invests in the space with us as Steve Brown. He's 0:12:55.240 --> 0:12:58.240 senior portfolio manager at American Century Investments. They've got two 0:12:58.320 --> 0:13:00.960 hundred and forty three billion in assets under management total. 0:13:01.240 --> 0:13:03.360 He's joining us here in our studio. Nice to have 0:13:03.400 --> 0:13:05.120 you here with us. How are you, thank you, I'm good, 0:13:05.160 --> 0:13:07.080 Thanks for having me. Well, it's great to have you here. 0:13:07.120 --> 0:13:08.920 You know, we were just talking with Liz McCormick and 0:13:08.960 --> 0:13:12.160 Michael McKee of Bloomberg about the inflation print this week. 0:13:12.200 --> 0:13:14.880 It's top of mind for us because obviously it's top 0:13:14.880 --> 0:13:16.880 of mind for the Federal Reserve and what they might 0:13:16.920 --> 0:13:19.480 do in terms of monetary policy. What are the metrics 0:13:19.600 --> 0:13:21.800 you most keep a watch on for your world. 0:13:21.960 --> 0:13:25.160 Sure, in our world we really focused on real estate fundamentals, 0:13:25.200 --> 0:13:27.640 but in terms of the broader economy, we see cpis 0:13:27.679 --> 0:13:30.120 lower today than it was twelve months ago, so that's 0:13:30.120 --> 0:13:30.800 a positive. 0:13:31.280 --> 0:13:32.079 We also see that. 0:13:32.040 --> 0:13:34.719 The FED hasn't cut rates or hasn't raised rates since 0:13:34.800 --> 0:13:37.800 July twenty three, so they haven't cut rates, but they've 0:13:37.840 --> 0:13:41.360 maintained short term rates at a flat level since July 0:13:41.600 --> 0:13:43.680 last year. And then finally, the tenure, which we do 0:13:43.720 --> 0:13:46.760 spend monitoring. You know, it's bumped around this year. It's 0:13:46.800 --> 0:13:48.240 around four and a half percent, but it got as 0:13:48.320 --> 0:13:50.640 high as five percent in October of twenty three, so 0:13:50.960 --> 0:13:52.640 it is a little lower than it was five or 0:13:52.640 --> 0:13:53.360 six months ago. 0:13:53.640 --> 0:13:55.560 Are you putting money to work right now? Like what's 0:13:55.600 --> 0:13:57.839 going on in terms of Again, Carol mentioned all the 0:13:57.880 --> 0:14:00.360 stats about the underperformance in twenty twenty four, we've seen 0:14:00.400 --> 0:14:02.480 people saying now is the time to put some cash 0:14:02.480 --> 0:14:02.800 to work. 0:14:02.960 --> 0:14:05.319 Sure, we are putting money to work, and what we're 0:14:05.360 --> 0:14:08.880 focusing on is properties, property sectors that have pricing power, 0:14:09.160 --> 0:14:12.160 meaning the ability to raise rents higher than inflation. And 0:14:12.200 --> 0:14:14.080 there's a number of sectors like that to invest in, 0:14:14.120 --> 0:14:18.600 whether it's senior housing, data centers, single family rental, Class 0:14:18.640 --> 0:14:21.120 A malls, open air shopping centers, but there are a 0:14:21.200 --> 0:14:23.520 number of property sectors that do have pricing power in 0:14:23.520 --> 0:14:25.440 twenty twenty four, well. 0:14:25.280 --> 0:14:28.160 It's interesting. So of those, it's interesting data centers something 0:14:28.200 --> 0:14:30.160 again coming out of milk, and when we talked to 0:14:30.240 --> 0:14:34.080 artificial intelligence, it felt like the investment landscape was like, okay, 0:14:34.400 --> 0:14:38.000 data centers and energy, renewable energy to power all of 0:14:38.040 --> 0:14:40.960 those data centers. What specifically tell us little bit about 0:14:40.960 --> 0:14:42.800 the activity that you're seeing there and where you're going. 0:14:42.920 --> 0:14:45.760 Sure, within our investment universe, we have a couple of 0:14:45.960 --> 0:14:48.800 data center reachs. They're quite large though, and obviously they're 0:14:48.800 --> 0:14:51.800 benefiting from the demand created by AI capital spending. There's 0:14:51.800 --> 0:14:55.320 more demand from the AI tenants to expand or take 0:14:55.360 --> 0:14:58.680 more space and data centers. The companies we have large 0:14:58.720 --> 0:15:02.560 positions in data centers are expanding their data centers and 0:15:02.600 --> 0:15:05.440 are building new ones, and their existing data centers do 0:15:05.560 --> 0:15:08.720 have access to power to handle the higher demand from 0:15:08.760 --> 0:15:12.200 their tenants, the higher power demand. So it's a good setup. 0:15:12.240 --> 0:15:15.760 So in terms of an earnings outlook, you know, five six, seven, eight, nine, 0:15:15.840 --> 0:15:18.680 ten percent within the red space, it's pretty attractive in 0:15:18.680 --> 0:15:22.160 twenty twenty four, in twenty twenty five, driven by AI 0:15:22.280 --> 0:15:25.240 driven capital spend, they don't necessarily have in Vidia as 0:15:25.240 --> 0:15:27.800 a tenant, but they have in Vidia's clients as tenants 0:15:28.040 --> 0:15:28.960 in the data centers. 0:15:29.040 --> 0:15:31.680 Right, I'm looking at Digital Realty. They sold one and 0:15:31.720 --> 0:15:35.040 a half billion dollars in shares last Week's right with 0:15:35.200 --> 0:15:37.040 raising this cash and the ability to put money to 0:15:37.040 --> 0:15:40.000 work within data centers, which to me is fascinating. Is 0:15:40.040 --> 0:15:42.360 that an area where you're looking at individual companies? Are 0:15:42.400 --> 0:15:44.080 you guys buying it through a basket portfolio? 0:15:44.080 --> 0:15:47.280 Like we focused on a couple names that were very 0:15:47.320 --> 0:15:50.640 excited about. Digital Realty is certainly one. Equinex is another 0:15:51.040 --> 0:15:53.160 Digital Really Yes, they did a billion and a half 0:15:53.160 --> 0:15:57.040 equity raised last week. It's the fund development projects in 0:15:57.200 --> 0:16:00.320 twenty twenty four to twenty five and beyond. They have 0:16:00.640 --> 0:16:03.600 access to capital, both debt and equity, has proven by 0:16:03.640 --> 0:16:05.720 last week, the stock's trading at a nice premium, so 0:16:05.720 --> 0:16:08.160 it's a premium to net asset value, so it's a 0:16:08.200 --> 0:16:10.920 good time to raise equity. But they have a good 0:16:11.040 --> 0:16:14.120 use of the proceeds in terms of expansions and ground 0:16:14.200 --> 0:16:17.200 up development within their global data center footprint, so they'll 0:16:17.200 --> 0:16:19.440 get a good return on that money. And I think 0:16:19.680 --> 0:16:22.760 the stock has bounced back nicely from that large capital. 0:16:22.480 --> 0:16:24.520 Race, and when you're looking at some of these sub 0:16:24.600 --> 0:16:28.320 sectors within reachs just because of the different exposure, do 0:16:29.200 --> 0:16:31.520 rate cuts kind of predicate how you guys put money 0:16:31.520 --> 0:16:33.400 to work and how you think about which areas are 0:16:33.640 --> 0:16:35.600 better set up than others, and how does that kind 0:16:35.600 --> 0:16:36.080 of play out. 0:16:36.200 --> 0:16:38.520 If we do move into environment with the FEDS cutting 0:16:38.520 --> 0:16:40.720 short term registrates, you know, the question is why is 0:16:40.720 --> 0:16:44.440 the Fed cutting rates? Is it because inflation is moderated, 0:16:44.680 --> 0:16:47.480 That'd be one scenario. If they're cutting rates because we're 0:16:47.480 --> 0:16:50.280 falling into a recession, that'd be another scenario. I think 0:16:50.320 --> 0:16:53.160 if they're just cutting rates because the because CPI is 0:16:53.200 --> 0:16:55.120 coming down from say three point eight to three or 0:16:55.160 --> 0:16:57.840 something like that, then there's certain property sectors that have 0:16:57.920 --> 0:17:02.320 sort of been out of favor would probably rally pretty aggressively, 0:17:02.480 --> 0:17:04.639 like we saw in the fall of last year. The 0:17:04.760 --> 0:17:07.800 Reeds had a very aggressive rally when the ten year 0:17:07.960 --> 0:17:10.560 finally peaked and started to roll over, and there were 0:17:10.560 --> 0:17:13.120 certain sectors like the office sector and some other sectors 0:17:13.119 --> 0:17:16.040 that have been that have more highly levered balance sheets 0:17:16.040 --> 0:17:18.240 that went up the most in price. They benefited the 0:17:18.280 --> 0:17:20.480 most from the advent of lower rates that happened in 0:17:20.840 --> 0:17:22.960 November and December of last year, and if we go 0:17:23.000 --> 0:17:25.080 into that type of environment this year, that would probably 0:17:25.080 --> 0:17:25.879 happen again to. 0:17:26.880 --> 0:17:32.280 Office anything opportunistic. I mean some would say okay, actually 0:17:32.280 --> 0:17:34.080 coming off of milk and folks are saying, this might 0:17:34.119 --> 0:17:36.960 be the buying time of a lifetime in a bunch 0:17:37.000 --> 0:17:39.200 of office properties because they've been so beaten down. 0:17:39.240 --> 0:17:41.480 How do you see it, Well, last year we did 0:17:41.560 --> 0:17:44.399 generate some alpha in the strategy through our office investments, 0:17:44.440 --> 0:17:46.720 not really owning in the first half, coming into them 0:17:47.080 --> 0:17:49.040 in the spring of twenty twenty three when they were 0:17:49.040 --> 0:17:51.840 training at thirty to forty percent discounts to nav and 0:17:51.880 --> 0:17:55.480 then they rallied quite strongly when the ten year peaked 0:17:55.480 --> 0:17:57.480 at the end of October, and then the rates dropped 0:17:57.480 --> 0:18:00.440 from five to say four percent in last year. They 0:18:00.480 --> 0:18:02.240 have hung in there so far. This year, as you 0:18:02.280 --> 0:18:04.639 mentioned at the top of the show, is really driven 0:18:04.680 --> 0:18:07.200 by one big New York name, SL Green that's done 0:18:07.200 --> 0:18:10.119 a lot of interesting transactions. The rest of the names 0:18:10.119 --> 0:18:15.120 have sort of lagged the inly. SL Green. I would 0:18:15.119 --> 0:18:19.000 say that you know we're paying attention. We are underwaid 0:18:19.040 --> 0:18:21.800 office today because we're concerned about demand. They don't have 0:18:21.880 --> 0:18:24.720 pricing power, meaning that supply is greater than demand on 0:18:24.760 --> 0:18:27.000 the office sector because of really the embrace of work 0:18:27.000 --> 0:18:29.639 from home. But we do think that there is demand 0:18:29.640 --> 0:18:33.440 for class A office and we do think that if 0:18:33.440 --> 0:18:35.360 we have a soft landing, you know, job growth will 0:18:35.359 --> 0:18:38.359 continue and that will point to a better outlook for 0:18:38.400 --> 0:18:40.560