WEBVTT - Bloomberg Wall Street Week: Desai, Blau, Summers 0:00:00.240 --> 0:00:05.000 This is Bloomberg Wall Street Week. Market shruggle, higher consumer prizes. 0:00:05.040 --> 0:00:07.400 The economy is in the process of rebounding. Will the 0:00:07.480 --> 0:00:10.479 utter reserve have its own digital currency? The financial stories 0:00:10.520 --> 0:00:12.879 that cheap hard work. Many people think the eels are 0:00:12.880 --> 0:00:15.080 just going to keep marching up. We have more spending 0:00:15.120 --> 0:00:17.200 coming out of Congress. One of the big questions I 0:00:17.200 --> 0:00:19.880 think on investor's mind inflation through the eyes of the 0:00:19.920 --> 0:00:23.560 most influential voices. Larry Summer is the former Treasury Secretary, 0:00:23.640 --> 0:00:27.240 Bryan wynhand back of America, Will smar Ceo, Charlie Sharp, 0:00:27.360 --> 0:00:31.560 Bloomberg wool Street Week with David Weston from Bloomberg Radio, 0:00:32.000 --> 0:00:35.680 searching for direction in corporate earnings in Ukraine and in 0:00:35.760 --> 0:00:39.040 the economy. This is Bloomberg Wall Street Week. I'm David Weston. 0:00:40.200 --> 0:00:43.200 Markets turned to earnings this week to find some relief 0:00:43.280 --> 0:00:46.360 from that bad January start, and it looked like tech 0:00:46.479 --> 0:00:49.280 might help us. When Alphabet shot the lights out in 0:00:49.320 --> 0:00:53.080 growing ad search revenue at Google, something CFO Ruth Porrett 0:00:53.120 --> 0:00:56.360 said was because of the strength of the overall economy 0:00:56.720 --> 0:01:00.360 and the shift to e commerce. But then then Meta 0:01:00.400 --> 0:01:03.480 came out with its earnings, sending its stock and sharply 0:01:03.520 --> 0:01:08.040 downward over on news of solid Facebook and user growth, 0:01:08.120 --> 0:01:12.959 which Mark Zuckerbert blamed on stiffer competition. People have a 0:01:13.040 --> 0:01:15.640 lot of choices for how they want to spend their time, 0:01:16.200 --> 0:01:20.320 and apps like TikTok are growing very quickly, and this 0:01:20.400 --> 0:01:23.479 is why our focus on real is so important over 0:01:23.480 --> 0:01:25.920 the long term. And at the end of the week, 0:01:26.160 --> 0:01:30.560 Amazon completed the tech whipsaw by posting strong cloud earnings 0:01:30.560 --> 0:01:33.560 and raising the price for Amazon Prime, which sent its 0:01:33.560 --> 0:01:37.400 stock sharply higher. And we didn't get any real break 0:01:37.440 --> 0:01:41.360 and geopolitics either, as President Biden and President Putin continued 0:01:41.400 --> 0:01:44.720 to talk past one another over the crisis in Ukraine, 0:01:45.959 --> 0:01:49.640 but with Russia's continued his build up if its forces 0:01:50.600 --> 0:01:55.320 around Ukraine, we are ready no matter what happens when 0:01:55.320 --> 0:02:01.040 you might we are analyzing written response is that US 0:02:01.160 --> 0:02:05.600 and NATO received on January six, but it's already clear. 0:02:06.160 --> 0:02:09.760 I inform Mr. Prime Minister about it that principal Russian 0:02:09.760 --> 0:02:13.800 concerns were ignored and if earnings and geopolitics weren't enough 0:02:13.840 --> 0:02:17.240 to confuse this. Along came those US jobs numbers on Friday, 0:02:17.520 --> 0:02:20.360 stunning the markets and economists alike with four and sixty 0:02:20.440 --> 0:02:23.160 seven thousand new jobs in January, we expect only one 0:02:23.960 --> 0:02:26.600 thousand and adding another three in a thousand or visions 0:02:26.639 --> 0:02:30.120 for December. Well, how do markets respond to so much confusion? 0:02:30.360 --> 0:02:33.360 They get volatile, with the SMP five moving up in 0:02:33.360 --> 0:02:35.800 the beginning of the week, dropping on Thursday into Friday, 0:02:35.840 --> 0:02:38.079 and then coming back to end the week up one 0:02:38.080 --> 0:02:41.440 point five and the NASDAC followed a similar pattern, but 0:02:41.520 --> 0:02:44.280 a bit more dramatically, shooting up only to plunge on 0:02:44.320 --> 0:02:47.040 Thursday and rising again on Friday to add two point 0:02:47.040 --> 0:02:49.240 four percent of the week. While in bonds, the ten 0:02:49.320 --> 0:02:52.600 uere yields seemed relatively tame, hovering around one point eight 0:02:52.600 --> 0:02:54.800 percent for most of the week, but then shooting up 0:02:54.800 --> 0:02:57.440 to over one point nine when those jobs numbers came 0:02:57.480 --> 0:02:59.280 in at the end of the week. Tell Us makes 0:02:59.280 --> 0:03:02.480 sense about lo called weekend the markets welcome now Sonal 0:03:02.600 --> 0:03:06.360 DCAI Franklin Templeton Fixed Income chief investment Officer, and Charmine 0:03:06.360 --> 0:03:09.160 most of our Rochmanny. She's chief investment officer for Goldman 0:03:09.200 --> 0:03:12.240 Sex Consumer Wealth Management. So let me start with you. Charmine. 0:03:12.440 --> 0:03:15.920 You have your outlook for two out I've pictured right 0:03:15.960 --> 0:03:19.240 now the cover you have an icebreaker going through some 0:03:19.320 --> 0:03:21.919 really perilous waters here with a lot of icebergs. Tell 0:03:22.000 --> 0:03:24.120 us what you're concerned about for US equities going into 0:03:25.000 --> 0:03:27.560 the key messages an icebreaker, it's a U S Coast 0:03:27.560 --> 0:03:31.560 Guard icebreaker that we've called USS equities, and it's going 0:03:31.880 --> 0:03:36.560 through all these icebergs. Hence the term piloting through. And 0:03:36.600 --> 0:03:39.480 our view is that US equities are best positioned to 0:03:39.640 --> 0:03:42.920 pilot through all the risks, and the icebergs are labeled 0:03:42.960 --> 0:03:45.720 according to the risks we know are inevitable in the 0:03:45.840 --> 0:03:49.240 year like this. So the biggest iceberg out there is 0:03:49.320 --> 0:03:53.360 first inflation, then the next iceberg is interest rate hikes, 0:03:53.440 --> 0:03:57.080 and much further out we have the prospect that maybe 0:03:57.080 --> 0:03:59.960 we're going to have a recession. But there's some icebergs 0:04:00.040 --> 0:04:04.000 we've passed through, like Omicron and big energy prices. And 0:04:04.080 --> 0:04:07.120 so the recommendation to our clients is that stay invested. 0:04:07.800 --> 0:04:11.960 And we're calling it USS equities because we're emphasizing US equities. 0:04:12.320 --> 0:04:15.880 But let's recognize all the risks out there that we 0:04:16.000 --> 0:04:19.479 think will introduce a lot of volatility, as you said, 0:04:19.920 --> 0:04:24.560 but will not derail the economy or derail modestly positive 0:04:24.560 --> 0:04:27.719 returns and equities, we still recommend staying invested because we 0:04:27.760 --> 0:04:31.000 have about a six percent total return as our base case. 0:04:31.360 --> 0:04:34.640 So certainly a lot of volatility, certainly risks that we 0:04:34.720 --> 0:04:37.880 have to navigate, but something that we think is manageable 0:04:38.040 --> 0:04:41.880 for two. So sent out to continue the analogy here 0:04:41.920 --> 0:04:43.640 for a moment. It did feel this week sometimes in 0:04:43.680 --> 0:04:47.080 the markets like it was an icebreaker, zig zagging around 0:04:47.160 --> 0:04:49.200 some of these icebergs, and two of them, as we 0:04:49.279 --> 0:04:52.479 heard from Charmine, were rate hikes and inflation. Tell us 0:04:52.520 --> 0:04:54.880 about those jobs numbers that came out stunned a lot 0:04:54.960 --> 0:04:57.400 of people on Friday. Does that send a signal to 0:04:57.440 --> 0:05:00.400 the Fed? You got to raise your rates even faster 0:05:00.520 --> 0:05:03.719 and even more so? You know, those jobs numbers, we 0:05:03.800 --> 0:05:08.520 have to recognize that we have seasonal adjustment factors playing 0:05:08.680 --> 0:05:12.480 into these jobs numbers. So the jobs numbers, the participation 0:05:12.600 --> 0:05:15.920 rate numbers, actually it's not very clear what they're telling you. 0:05:15.920 --> 0:05:17.640 You know, you talked a little bit about the revision 0:05:17.720 --> 0:05:21.120 data December's numbers. There was also a revision to November's numbers, 0:05:21.240 --> 0:05:24.120 largest revisions on record. However, if you look at the 0:05:24.200 --> 0:05:27.080 year as a whole, some numbers were revised down. It's 0:05:27.120 --> 0:05:30.719 seasonal adjustments. So you know, what you actually take away 0:05:30.720 --> 0:05:33.240 from that is a little hard to see. What I'm 0:05:33.279 --> 0:05:35.800 taking away from the entire report really is that five 0:05:35.839 --> 0:05:40.159 point seven wage increased number. And then if you look 0:05:40.320 --> 0:05:44.680 at non managerial you're looking at six point five, so 0:05:44.720 --> 0:05:47.960 you're looking at really strong wage growth. That's the number 0:05:47.960 --> 0:05:50.960 which I am focused on. And if I look further 0:05:51.240 --> 0:05:55.760 and think about inflation next week, I think that I 0:05:55.800 --> 0:05:59.080 would start getting worried if you've got that upside surprise 0:05:59.240 --> 0:06:03.040 to what is rudely expected to be a zero point 0:06:03.440 --> 0:06:07.240 fourish style increase, which will give you a headline of 0:06:07.240 --> 0:06:10.839 all the seven cent But I'd say that's where my 0:06:11.680 --> 0:06:15.360 concerns would be about the FED speeding up, but it 0:06:15.400 --> 0:06:18.560 would have to be in conjunction with that inflation number. Sherman, 0:06:18.600 --> 0:06:20.680 I don't know about you, but when I hear wage increases, 0:06:20.720 --> 0:06:22.520 I think two things. Number, When it's nice for the 0:06:22.520 --> 0:06:25.160 people getting paid more money, that's really good. On the 0:06:25.160 --> 0:06:27.920 other hand, it can do something to margins for corporations. 0:06:28.080 --> 0:06:30.720 Did it give you any pause at this point? Going two? 0:06:30.760 --> 0:06:34.800 About earnings. When we think about earnings, we believe that 0:06:34.839 --> 0:06:38.000 they have been the strongest driver of the returns since 0:06:38.040 --> 0:06:41.320 the global financial crisis, and they will also be the 0:06:41.400 --> 0:06:45.440 primary driver of returns in twenty two. So our base 0:06:45.520 --> 0:06:48.760 case is about twelve percent growth and earnings, but we 0:06:48.839 --> 0:06:52.800 are assuming that we will see some reduction in margins. 0:06:52.839 --> 0:06:55.440 Last thank thank you so much, Sonaleci, and and most 0:06:55.480 --> 0:06:57.440 of our recommendy will be staying with us as we 0:06:57.480 --> 0:07:01.479 turn to geography and how the United States maybe diverging 0:07:01.520 --> 0:07:03.320 from much of the rest of the world. That's next 0:07:03.320 --> 0:07:08.520 on Wall Street Week on Bloomberg. This is Bloomberg Wall 0:07:08.560 --> 0:07:12.640 Street Week with David Weston from Bloomberg Radio. It wasn't 0:07:12.640 --> 0:07:15.000 just the US markets that got some surprises this week. 0:07:15.040 --> 0:07:18.280 The European Central Bank didn't move, but Manamin Guarde sure 0:07:18.320 --> 0:07:21.360 made a turn in the direction of tightening, and the 0:07:21.400 --> 0:07:23.679 Bank of England moved up a full fifty basis points. 0:07:23.760 --> 0:07:26.520 Show mean, most of our Rochmani of Golden Saxon, Sonaldsai 0:07:26.720 --> 0:07:29.120 of Franklin Templeton remained with us to talk about what 0:07:29.120 --> 0:07:30.960 geography has to do with it, at least when it 0:07:30.960 --> 0:07:32.720 comes to investing these days. So so so now let's talk 0:07:32.720 --> 0:07:34.680 to start with you, because as I say, we saw 0:07:34.720 --> 0:07:37.040 more action on the central back front in Bank of 0:07:37.080 --> 0:07:39.960 England and also ECB. This way, it's surprised, I think 0:07:40.040 --> 0:07:41.760 some people at least what did it do to the 0:07:41.800 --> 0:07:45.400 bond market. Well, we finally saw Blunden School positive cross 0:07:45.400 --> 0:07:48.520 samon three years right, so we it definitely had an impact. 0:07:49.000 --> 0:07:51.560 I would say that the Bank of England is the 0:07:51.640 --> 0:07:55.840 one which I find fascinating. Definitely. The ECB moves large 0:07:55.840 --> 0:07:58.880 ship pools of money. When you see the see a 0:07:59.000 --> 0:08:02.720 major central bank shift on a dime between December and 0:08:02.760 --> 0:08:06.120 now December, probably no rate increases this year and now 0:08:06.400 --> 0:08:09.240 pretty clear that we'll have a couple of rate increases 0:08:09.240 --> 0:08:11.720 i'd say later on this year. It's it's a big 0:08:11.800 --> 0:08:14.040 change if you look at the Bank of England. And 0:08:14.080 --> 0:08:16.840 that was a truly hawkish term because not only are 0:08:16.840 --> 0:08:20.320 we talk in the US, there's still open questions and 0:08:20.360 --> 0:08:23.120 the market fully believes that when the FED reduces the 0:08:23.160 --> 0:08:26.400 size of its balance sheet, it won't actively be selling 0:08:26.480 --> 0:08:29.000 down the balance sheet, which would be big, big news 0:08:29.040 --> 0:08:32.959 for the US the UK. The Bank of England has 0:08:33.000 --> 0:08:36.240 made actually said that they might do that. That's very 0:08:36.320 --> 0:08:40.240 hawkish and very unexpected. And I always look at the 0:08:40.240 --> 0:08:43.439 Bank of England because it's so interesting. They have the 0:08:43.520 --> 0:08:47.319 liberty to move because it's a smaller country own currency, 0:08:47.880 --> 0:08:50.040 and I often look at them as a leading indicator 0:08:50.080 --> 0:08:52.680 of the potentially other major central banks would go. So 0:08:53.520 --> 0:08:57.400 something to keep keep an eye on. Markets potentially have 0:08:57.640 --> 0:09:01.800 room to be majorly surprised and loads of voluntility. I mean, 0:09:02.120 --> 0:09:05.560 talk about the equity side, US versus Europe. US, yes, first, 0:09:05.640 --> 0:09:06.960 the rest of the world. How did you look in 0:09:07.760 --> 0:09:11.959 is it gonna look like that? We have been much 0:09:12.000 --> 0:09:15.480 more bullish on US equities and have recommended that our 0:09:15.520 --> 0:09:20.120 clients actually overweight US equities and their portfolios relative to 0:09:20.160 --> 0:09:22.600 market cap. And just to give you a sense of 0:09:22.640 --> 0:09:25.200 the magnitude of the difference in terms of US and 0:09:25.240 --> 0:09:27.880 other parts of the world, since the trough of the 0:09:27.880 --> 0:09:32.040 global financial crisis, US equities have returned about seven hundred 0:09:32.120 --> 0:09:35.840 sixty And we'd like to use culative numbers because we 0:09:35.920 --> 0:09:38.679 think it is just such a huge number. It has 0:09:38.720 --> 0:09:43.599 more impact when people hear the culative numbers. Developed equities 0:09:43.640 --> 0:09:48.000 outside the US returned around let's say two hundred and sixty, 0:09:48.520 --> 0:09:53.679 so roughly five hundred percent lower returns. Emerging markets a 0:09:53.720 --> 0:09:56.360 little bit less than that. In China just two d 0:09:57.800 --> 0:10:01.760 so US has far out earned an outpaced in terms 0:10:01.800 --> 0:10:04.400 of returns the rest of the world, and last year 0:10:04.840 --> 0:10:07.480 just was an incredible example of that. So last year 0:10:07.559 --> 0:10:11.240 US equities up just under thirty percent, let's say twenty nine, 0:10:12.480 --> 0:10:16.800 non US developed equities around twenty, emerging markets flat and 0:10:16.960 --> 0:10:21.560 China down. While that kind of a difference can't persist forever, 0:10:21.640 --> 0:10:24.680 as they say, trees do not grow to the skies, however, 0:10:24.800 --> 0:10:28.360 we do think US will continue to out earn other 0:10:28.440 --> 0:10:31.600 parts of the world, other regions, and so even though 0:10:31.640 --> 0:10:34.680 they appear cheaper, we think some of that cheapness is 0:10:34.720 --> 0:10:37.240 just because of the sector exposure. US has a lot 0:10:37.320 --> 0:10:41.280 more earnings, for example, from technology and faster growing sectors. 0:10:41.640 --> 0:10:45.000 They have less market cap weight in areas like energy 0:10:45.000 --> 0:10:48.960 and financials that are cheaper, while emerging markets and non 0:10:49.080 --> 0:10:51.559 US developed economies have more of that. And so, now, 0:10:51.640 --> 0:10:54.240 what about on the bond side, given what's going right now, 0:10:54.320 --> 0:10:56.280 does it make any sense, for example, to be owning 0:10:56.679 --> 0:11:00.800 European bonds, particularly sovereign bonds right now? Again, you've got 0:11:00.800 --> 0:11:02.839 to pick and choose. You The one thing about Europe 0:11:02.840 --> 0:11:05.200 which is true is there are different countries in Europe 0:11:05.200 --> 0:11:08.320 different underlying fundamentals, and there's always going to there will 0:11:08.400 --> 0:11:11.880 always be parks of Europe which look attractive at different 0:11:11.920 --> 0:11:14.600 points in time, and I think that as you start 0:11:14.679 --> 0:11:18.880 seeing you wills go up in your roope. Conversely, one 0:11:18.920 --> 0:11:22.800 of the anchors which kept which people expected would keep 0:11:23.040 --> 0:11:26.200 US ten years from going up too high, which is 0:11:26.280 --> 0:11:30.559 that as the differential with Europe, with the Europe Eurozone 0:11:30.679 --> 0:11:35.400 kept increasing, you would see influence into into the US, 0:11:35.440 --> 0:11:37.800 and thus the long end would stay anchored. That starts 0:11:37.920 --> 0:11:40.720 that that argument starts becoming a bit a bit weaker 0:11:41.160 --> 0:11:43.680 as you get some kind of normalization, and it's gonna 0:11:43.720 --> 0:11:46.719 be much lower Sherman. When you describe the really substantial 0:11:46.720 --> 0:11:51.120 difference between for example, US and Europe with equities, I 0:11:51.160 --> 0:11:53.320 tend to think over the long term, you can't have 0:11:53.360 --> 0:11:55.080 those kind of differentials are to serve a law of 0:11:55.120 --> 0:11:58.559 osmosis in financial markets? Does that suggest maybe it is 0:11:58.600 --> 0:12:00.880 time to actually go into so the markets such as 0:12:00.920 --> 0:12:04.160 Europe because they are undervalued. That is actually one of 0:12:04.240 --> 0:12:06.480 the questions or clients ask us. So when you look 0:12:06.520 --> 0:12:11.480 at valuations across a series of metrics, US is trading 0:12:11.520 --> 0:12:15.760 at a much higher premium relative to again emerging markets 0:12:15.880 --> 0:12:18.800 and non US developed and clients are asking, isn't this 0:12:18.880 --> 0:12:21.760 time to go, given that it's much cheaper than even 0:12:21.800 --> 0:12:24.960 average levels, But first of all, we do adjust for 0:12:25.080 --> 0:12:28.360 sector weights and it doesn't look as cheap. And as 0:12:28.360 --> 0:12:32.439 we project forward, US trend growth is actually higher than 0:12:32.480 --> 0:12:35.400 that of let's say, the Eurozone or Japan, so you'd 0:12:35.440 --> 0:12:39.120 expect better earnings growth. The other two really interesting facts 0:12:39.120 --> 0:12:42.199 are US labor is a much more productive labor force 0:12:42.640 --> 0:12:46.720 and US corporate management has much better UH management scores, 0:12:47.080 --> 0:12:50.360 so actually they get better earnings out of similar levels 0:12:50.440 --> 0:12:53.160 of growth. And so our view is that the earnings 0:12:53.160 --> 0:12:57.520 gap will continue, but the outperformance will not be as significant. 0:12:57.920 --> 0:13:00.000 So now we've had this whole discussion without once mentioned 0:13:00.120 --> 0:13:02.480 supply chains, which has been talked about an awful lot. 0:13:02.679 --> 0:13:04.880 Talk about supply chains, and do you see a differential 0:13:04.880 --> 0:13:07.320 potential between the United States and Europe, or United States 0:13:07.400 --> 0:13:10.080 and Asia with respective relief of some of the clogging 0:13:10.559 --> 0:13:13.240 of the supply chains. I'm not so sure we're going 0:13:13.280 --> 0:13:16.200 to see differences on supply chains. I would actually say 0:13:16.280 --> 0:13:20.520 that one thing which has really kept me a little 0:13:20.559 --> 0:13:23.240 bit amused is that when I look at the inflation 0:13:24.000 --> 0:13:26.280 expectations for most of this year. The second half of 0:13:26.320 --> 0:13:29.320 the year, you typically see a very sharp decline in 0:13:29.440 --> 0:13:32.400 expectations of where inflation will go, partly related to the 0:13:32.440 --> 0:13:35.120 idea that you know, you've got these effects which fallout, 0:13:35.360 --> 0:13:39.120 but then also with this idea that supply chains are 0:13:39.160 --> 0:13:41.280 going to clear up, and I don't. I really don't 0:13:41.280 --> 0:13:44.000 think supply chains follow the years, so I don't I 0:13:44.000 --> 0:13:46.560 don't put much faith in that. The other thing I'd 0:13:46.600 --> 0:13:50.960 say is, we haven't talked about this much, but fortunately 0:13:51.120 --> 0:13:54.280 it is only China, but China is committed to a 0:13:54.400 --> 0:13:59.480 zero COVID policy. Now, zero COVID is interesting because you 0:13:59.520 --> 0:14:05.080 can have completely, very difficult to predict stocks and stocks 0:14:05.120 --> 0:14:08.880 to supply chains, and therefore I remain a little bit 0:14:08.920 --> 0:14:14.240 skeptical about an easy, smooth unclogging of all the supply chains. 0:14:14.360 --> 0:14:17.120 That's one thing. That's another point I would say, which 0:14:17.160 --> 0:14:20.360 is different to me between the US and certainly Europe, 0:14:20.400 --> 0:14:23.960 would be that UH would be that in the U 0:14:24.040 --> 0:14:26.720 S you've got very very strong demand, no question, We've 0:14:26.720 --> 0:14:28.760 got no trouble with demand in the United States and 0:14:28.880 --> 0:14:31.880 to supply holding it back many thanks. Now that's anat 0:14:32.520 --> 0:14:35.480 of Franklin Temple and Charmine. Most of our rakimany of 0:14:35.600 --> 0:14:40.880 Golden Sachs coming up. If inflation is the question, can 0:14:41.000 --> 0:14:44.080 real estate be at least part of the answer. We 0:14:44.120 --> 0:14:46.040 had to read on the state of the market from 0:14:46.120 --> 0:14:50.520 Jeff blah CEO of Related companies in our buildings were 0:14:50.640 --> 0:14:54.440 essentially full and rents, you know, even higher than pre COVID. 0:14:56.040 --> 0:15:02.120 This is Wall Street Week on Bloomberg. This is Bloomberg 0:15:02.200 --> 0:15:08.520 Wall Street Week with David Weston from Bloomberg Radio. FED 0:15:08.600 --> 0:15:11.560 chair j Pal made it official last week. Dealing with 0:15:11.600 --> 0:15:15.880 inflation has become job one. Inflation remains well above our 0:15:16.280 --> 0:15:20.480 longer run goal of two. Supply and demand and balance 0:15:20.520 --> 0:15:22.520 is related to the pandemic and the reopening of the 0:15:22.560 --> 0:15:26.560 economy have continued to contribute to elevated levels of inflation. 0:15:26.760 --> 0:15:29.200 But as the FED tries to get inflation under control, 0:15:29.480 --> 0:15:32.640 real estate maybe pushing the other way. All of us, 0:15:32.680 --> 0:15:35.360 from New York City mayor Adams on down want to 0:15:35.400 --> 0:15:39.000 get people back into the office. I need my companies 0:15:39.040 --> 0:15:41.760 back open and operated. You can't run a city like 0:15:41.800 --> 0:15:47.120 New York even as the prices are going up for tenants. 0:15:47.120 --> 0:15:51.200 Our data has a rent increase of almost eighteen percent 0:15:51.360 --> 0:15:54.000 over the course of one But what may not be 0:15:54.080 --> 0:15:57.840 good for inflation or renters may work just fine for investors. 0:15:58.120 --> 0:16:01.800 Investors like John Gray of Backstone the real estate market, 0:16:01.840 --> 0:16:05.440 for instance, because the fundamentals are very strong, particularly the 0:16:05.520 --> 0:16:09.600 sectors were focused on. We're seeing pretty robust SAMs. And 0:16:09.680 --> 0:16:12.960 of course, if it's inflation you're worried about. Mark Kissel 0:16:13.040 --> 0:16:16.160 of PIMCO reminds us that real estate is the tried 0:16:16.320 --> 0:16:19.560 and true hedge. We like apartment rates for a lot 0:16:19.600 --> 0:16:22.560 of reasons. It's not just the fact that they're real assets. 0:16:22.600 --> 0:16:26.000 The fact that they are an implicit inflation hedge for 0:16:26.080 --> 0:16:32.360 higher rents UH and higher wages as another reason. And 0:16:32.360 --> 0:16:34.720 when it comes to real estate, particularly real estate in 0:16:34.760 --> 0:16:37.080 the New York area, there is no one who knows 0:16:37.080 --> 0:16:40.920 it better than Jeff Blau Here's the CEO of Related Companies. So, Jeff, 0:16:40.960 --> 0:16:43.000 thanks so much for joining us. Let's start with New York. 0:16:43.000 --> 0:16:45.800 Tell us what's going on with residential, what's going on 0:16:46.000 --> 0:16:48.640 with officers. We hear a lot of stories about dramatically 0:16:48.680 --> 0:16:51.880 increased prices. New York is really, i would say, on 0:16:51.880 --> 0:16:55.680 a tremendous rebound post COVID. You know, I would say 0:16:55.840 --> 0:16:58.520 everyone really thought we'd be fully back to the office, 0:16:58.640 --> 0:17:01.480 back to everything's fighting in New York right after New 0:17:01.560 --> 0:17:04.639 Year's within with the variant. I think that got delayed 0:17:04.640 --> 0:17:06.320 a little bit, but it seems to be blowing its 0:17:06.320 --> 0:17:09.399 way through the city. And certainly I can tell you 0:17:09.440 --> 0:17:12.000 on the office side, our tenants are all planning for 0:17:12.600 --> 0:17:15.919 real return back to work UM whatever that new definition 0:17:16.080 --> 0:17:18.880 is UM, you know, sometime in the month of February. 0:17:18.880 --> 0:17:21.800 And I think that's very very positive. We've got double 0:17:21.840 --> 0:17:26.399 digit increases of occupancy UM, people actually showing up to 0:17:26.440 --> 0:17:29.320 the office UM week over week, and so I think 0:17:29.320 --> 0:17:33.920 that's a very positive trend in terms of the city overall. UM. 0:17:33.960 --> 0:17:37.480 You've definitely seen people who had left during COVID come back. 0:17:38.280 --> 0:17:41.760 Apartment buildings that went down in terms of occupancy to 0:17:44.560 --> 0:17:48.840 roughly are now back to UM. In our buildings were 0:17:48.960 --> 0:17:52.240 essentially full UM at rents, you know, even higher than 0:17:52.280 --> 0:17:55.560 pre COVID. So that's been a tremendous bounce back because 0:17:55.920 --> 0:18:00.280 we were down to that roughly number and concessions and 0:18:00.440 --> 0:18:04.240 so on, and so that's been a tremendous rebound on 0:18:04.359 --> 0:18:08.680 the for sale condominium side, New York City had its 0:18:08.680 --> 0:18:12.800 best for sale year since two thousand seven. UM, So 0:18:12.880 --> 0:18:15.280 I think again showing that resilience of the market. And 0:18:15.640 --> 0:18:19.280 back to the city. UM, there's something like seventeen thousand 0:18:19.280 --> 0:18:22.359 apartments that traded hands last year, as they said, the 0:18:22.359 --> 0:18:26.000 biggest increase since UM, the biggest sales volume since two 0:18:26.080 --> 0:18:28.680 thousand seven. So I think the city is feeling pretty 0:18:28.720 --> 0:18:32.159 vibrant almost all parts of the city. Uh. If you 0:18:32.240 --> 0:18:35.000 try to go out to a restaurant. UM. While again 0:18:35.040 --> 0:18:37.320 there was a dip in January, it seems to me 0:18:37.400 --> 0:18:41.840 now things are busy again. The streets are busy, traffics back. UM, 0:18:41.880 --> 0:18:44.080 it feels good. I'd say. The only areas that feel 0:18:44.359 --> 0:18:47.480 kind of quiet to me are are really true commercial 0:18:47.520 --> 0:18:50.800 districts in Midtown a little bit UM here at Hudson Yards, 0:18:50.840 --> 0:18:54.160 it's it's very vibrant if you're outside. UM feels great. 0:18:54.480 --> 0:18:56.119 And so all the things that we love about New 0:18:56.200 --> 0:18:58.840 York seemed to be kind of back in place. And 0:18:58.920 --> 0:19:01.399 I'm feeling good. On the commercial front. You say that 0:19:01.440 --> 0:19:04.440 you are getting back into full occupancy. Are you repurposing 0:19:04.520 --> 0:19:06.840 some of that because we certainly read stories about, particularly 0:19:06.880 --> 0:19:09.560 in the retail area that there's not the same demand 0:19:09.560 --> 0:19:11.879 for space. Are you having to repurpose some of your 0:19:11.880 --> 0:19:16.720 commercial space? We actually we're repurposing. As you said, UM 0:19:16.920 --> 0:19:19.200 retail has probably suffered the most of all the asset 0:19:19.280 --> 0:19:22.080 classes UM at Hudson Yards, I think, you know, we 0:19:22.200 --> 0:19:25.639 built a seven level retail center that was anchored by 0:19:25.680 --> 0:19:30.480 Neiman Marcus, and when Nieman's filed bankruptcy, instead of trying 0:19:30.480 --> 0:19:33.280 to retenant that for retail, we decided to repurpose that 0:19:33.359 --> 0:19:36.520 to office. And so we now we we are in 0:19:36.560 --> 0:19:40.000 the process of converting UM and creating about four hundred 0:19:40.040 --> 0:19:42.399 thousand feet of new office space at Hudson Yards to 0:19:42.440 --> 0:19:45.959 deal with the increased demand that we're seeing from actually 0:19:46.000 --> 0:19:47.639 mostly a lot of it from tenants that are in 0:19:47.640 --> 0:19:51.400 place today that are growing and expanding. And so while uh, 0:19:51.440 --> 0:19:54.600 the office occupancy might be kind of in the mid 0:19:54.640 --> 0:19:58.199 thirties or we I think we had UM day in 0:19:58.240 --> 0:20:01.680 and day out, today companies are a thinking forward beyond 0:20:02.160 --> 0:20:04.200 kind of that full return to the office and making 0:20:04.240 --> 0:20:07.000 the decision to take even more space. And so we're 0:20:07.000 --> 0:20:10.080 feeling pretty optimistic about the office side. And like you said, 0:20:10.080 --> 0:20:13.160 I think there will be some conversions UM where possible 0:20:13.280 --> 0:20:16.960 away from uses that are not quite as valuable anymore, 0:20:17.000 --> 0:20:19.359 retail being the top one. There's been a lot of 0:20:19.400 --> 0:20:24.719 talk about, uh converting hotels into residential or offices into 0:20:25.240 --> 0:20:29.320 different uses. I think it's pretty hard to do those conversions. 0:20:29.600 --> 0:20:31.520 I don't think there'll be too many of them. Um. 0:20:31.560 --> 0:20:34.040 I think I think it's it's hard if you've got 0:20:34.040 --> 0:20:37.560 a building that's got tenants to vacate. UM. So I 0:20:38.040 --> 0:20:40.520 think what we did at Hudson Yards was pretty unusual, 0:20:40.560 --> 0:20:43.280 and you know, we took the opportunity to make that change, 0:20:43.280 --> 0:20:46.800 and uh, that space is mostly least already, so we 0:20:46.920 --> 0:20:49.480 we we're pretty positive about the office sector here. Thank 0:20:49.520 --> 0:20:52.000 you so much to Jeff Blow He is the CEO 0:20:52.400 --> 0:20:57.080 of Related Companies. Coming up, we wrap up the week 0:20:57.119 --> 0:21:02.920 with special contributor Larry Summers of Harvard. This is Wall 0:21:02.960 --> 0:21:07.960 Street Week on Bloomberg. This is Bloomberg Wall Street Week 0:21:08.160 --> 0:21:11.840 with David Weston from Bloomberg Radio. This is Walter Week. 0:21:11.960 --> 0:21:13.960 I'm David west Today we're gonna wrap up this week 0:21:14.000 --> 0:21:17.600 once again with our very special contributing Larry Summers of Harvard. So, Larry, 0:21:17.800 --> 0:21:20.479 one of the big surprises this week were those jobs numbers. 0:21:20.520 --> 0:21:24.800 The estimates were one came out of four sixty seven. Also, 0:21:24.840 --> 0:21:27.560 there were over three hundred thousand jobs added for last 0:21:27.600 --> 0:21:30.000 month in a revision. So what does that tell us? 0:21:30.359 --> 0:21:33.000 Why are we so surprised by this? A lot of 0:21:33.000 --> 0:21:36.400 its special factors? They do a special year end revision 0:21:36.840 --> 0:21:40.320 of the seasonal factors, UH, David, I think the right 0:21:40.359 --> 0:21:44.080 takeaway from these numbers is that the economy is going 0:21:44.720 --> 0:21:48.080 UH strong, and I think the most significant number in 0:21:48.160 --> 0:21:51.000 it may have been the seven tenths of a percent 0:21:51.560 --> 0:21:57.439 almost nine annual rate UH increase in wages UH in 0:21:57.560 --> 0:22:00.359 the last month. It's hard to know exactly really what 0:22:00.520 --> 0:22:04.520 to UH make of make of that, but it sure 0:22:04.640 --> 0:22:08.600 looks like we've now got wage inflation in the United 0:22:08.680 --> 0:22:14.120 States at really a rate that is very strong. And unfortunately, 0:22:14.760 --> 0:22:20.000 since labor is sev of all costs, that suggests that, 0:22:20.480 --> 0:22:24.000 apart from all the special factors used, cars, housing, and 0:22:24.080 --> 0:22:30.480 so forth, we're moving towards entrenching UH inflation at well 0:22:30.520 --> 0:22:34.280 above the target two percent rate. Does this surprise upside 0:22:34.440 --> 0:22:37.439 and the jobs yield? This one more piece of evidence 0:22:37.480 --> 0:22:40.760 that the Fed is behind with the special monetary policy, 0:22:40.880 --> 0:22:42.800 and if so, is the message of Fed from this 0:22:42.880 --> 0:22:45.399 quite possibly, you've got to move faster and bigger than 0:22:45.400 --> 0:22:48.800