Speaker 1: This is Bloomberg Business Wait inside from the reporters and
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Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
Speaker 2: Apple earnings just crossing the let's go through them.
Speaker 3: Yeah, fourth quarter EPs, Carol coming in above estimates at
Speaker 3: a dollar forty six, estimates for forty dollar thirty nine.
Speaker 3: So investors certainly happy to see that fourth quarter revenue
Speaker 3: eighty nine point five billion. That also beat estimates of
Speaker 3: eighty nine point three to five billion.
Speaker 2: All right, I'm looking at the stock already up about
Speaker 2: two percent here in the aftermarket. What's great about Apple
Speaker 2: is you've got to go through the different categories. Fourth
Speaker 2: quarter service revenue, that's about twenty two point thirty one billion.
Speaker 2: The estimate was for twenty one point thirty seven Wearables,
Speaker 2: home and Accessories, a little bit light, nine point thirty
Speaker 2: two billion, nine point forty one Greater China revenue. We
Speaker 2: were focused on this. It is coming in light fifteen
Speaker 2: point zero zero eight billion, and the forecast was for
Speaker 2: seventeen point zero one billion. That pop in the stock
Speaker 2: in the aftermarket not as enthusiastic. In fact, we've seen
Speaker 2: the stock go a little bit negative. It's just up
Speaker 2: about zero point six percent. iPhone revenue forty three point
Speaker 2: eight billion, that is slightly better than the street forecast
Speaker 2: of forty three point seventy three billion, But again, China
Speaker 2: revenue coming in light. iPhone revenue, it's a slight beat,
Speaker 2: called it almost inline, and fourth quarter revenue overall, it
Speaker 2: is a slight beat. Stock is now though, down about
Speaker 2: zero point five percent in the aftermarket.
Speaker 3: Services revenue reaches a new all time high. Also, Carol,
Speaker 3: we should note Apple has declared a quarterly dividend of
Speaker 3: twenty four cents per share.
Speaker 2: Well, what's interesting, though, is we were all wondering about
Speaker 2: China revenue, such an important market to this company. But
Speaker 2: keep in mind, you know, I was looking kind of
Speaker 2: going into this the comps were considered to be somewhat
Speaker 2: easy for the iPhone generally because of the production lines
Speaker 2: that were off in China. So we did see iPhone
Speaker 2: revenue generally come in strong. But we've been talking increasingly
Speaker 2: about the competition that is happening in China when it
Speaker 2: comes to smartphones generally, and that China revenue. The domestic
Speaker 2: consumer has been coming back. We certainly saw it in
Speaker 2: the Golden week, right people were traveling. But nonetheless, the
Speaker 2: China revenue fifteen point zero eight billion versus an estimate
Speaker 2: of seventeen point zero one to almost two billion dollars.
Speaker 4: Leight.
Speaker 3: Hey, somebody who's watching this just as closely as we
Speaker 3: are is Angelo Zino. He's senior equity analyst at CFRA Research.
Speaker 3: He joins us on Zoom from New York City. Angela,
Speaker 3: good to have you join us, as you always do
Speaker 3: on Apple earnings such as these. Give us an idea
Speaker 3: of the numbers that you're focused on and why you
Speaker 3: think that we're seeing the stock move like this in
Speaker 3: the after hours.
Speaker 5: Yeah, I mean, listen, I think initially kind of and
Speaker 5: we still have to look deeper into the numbers, but initially,
Speaker 5: you know, it looked good in terms of the earnings
Speaker 5: as far as well as the top line is concerned,
Speaker 5: fairly coming in line, slightly above our expectations out there.
Speaker 5: And you know, also on the services side of things,
Speaker 5: you know, reacceleration towards double digit growth, all kind of positives,
Speaker 5: and I think kind of, you know, some keys out there.
Speaker 5: Of course, you guys have highlighted the disappointment on the
Speaker 5: China side of things, so we definitely want to hear
Speaker 5: a little bit more priority and more importantly what they
Speaker 5: see for the December quarter as far as China is concerned.
Speaker 5: You know, it could just be you know, more of
Speaker 5: a comps thing as far as you know the September
Speaker 5: quarter is concerned versus a year ago, relative to when
Speaker 5: the iPhone fourteen was launched versus fifteen. But you know,
Speaker 5: we want to see what they have to say about
Speaker 5: the full quarter in terms of the December quarter as
Speaker 5: far as the holiday selling season is concerned, and of course,
Speaker 5: you know some of the headwinds that are that are
Speaker 5: notably out there, specifically some of the competitive pressures that are
Speaker 5: definitely arising, So we definitely want to hear all of
Speaker 5: that in China. Looks like it's going to be the
Speaker 5: key here on the call.
Speaker 2: Yeah, it's just interesting. Stock down two percent, and you
Speaker 2: make a really good point on the iPhone number, even
Speaker 2: though it came in I think to slightly higher our
Speaker 2: own mark German and we were talking about this earlier
Speaker 2: that it's a slight beat, but it's not impressive given
Speaker 2: that the iPhone fourteen Pro couldn't be so last well
Speaker 2: for several weeks because of the Fox cons shutdown due
Speaker 2: to COVID. So you expected that it was an easy
Speaker 2: comp that maybe it should have been an even big
Speaker 2: bigger beat. So our Mark German doing that on our
Speaker 2: live blog. We do have the stock down about one
Speaker 2: point eight percent. The outlook, as you say, is going
Speaker 2: to be very very important here specifically, what do you
Speaker 2: want to know about China? Is it just a case
Speaker 2: of the increasing competition that Apple is seeing in that
Speaker 2: massive market?
Speaker 5: Well, listen, I think we want to know specifically, we
Speaker 5: want to kind of know what was going on both
Speaker 5: on the hardware side as well as the services side
Speaker 5: of things out in China. Specifically on the hardware side
Speaker 5: of things, it is, you know, on the competitive side
Speaker 5: of things, what does that look like to them, what
Speaker 5: does the demand picture look like as far as the
Speaker 5: iPhone fifteen is concerned. And then also you know, on
Speaker 5: the other side of things, you know, they are launching
Speaker 5: kind of the new max out there that should help
Speaker 5: them here in the December quarter as well. We do
Speaker 5: think that they're going to they are going to return
Speaker 5: to growth on the max side of things in the
Speaker 5: December quarter, that should help a little bit. And then
Speaker 5: as far as services, I think it'll be important for
Speaker 5: them to continue to say that, you know, the landscape
Speaker 5: looks fairly healthy in China as far as services is concerned.
Speaker 5: But you know, at the end of the day, it
Speaker 5: really it's you know, you don't want to extrapolate too
Speaker 5: much from this one number as far as China is concerned. Right, So,
Speaker 5: and also when you think about the December quarter as
Speaker 5: well versus the December quarter a year ago, the numbers
Speaker 5: again are the comps are super easy. Our view is
Speaker 5: they are going to point towards an acceleration in terms
Speaker 5: of iPhone revenue in the December quarter versus September quarter
Speaker 5: because of those easy comps. So again, let's see what
Speaker 5: the trajectory looks like over the next kind of couple
Speaker 5: of months.
Speaker 2: I'm just going to say, go to the press release,
Speaker 2: pretty basic, pretty forward. I'm not saying anything about outlook yet.
Speaker 3: We should remind everyone that Apple's fiscal year ends at
Speaker 3: the end of September. In the December quarter that we're
Speaker 3: currently in right now, as Angela keeps referencing, is Apple's
Speaker 3: first quarter of its fiscal year. Our own Mark German
Speaker 3: pointing out on our live blog which I highly recommend,
Speaker 3: reminding us that it's a huge miss on the Mac
Speaker 3: coming in at least a billion dollars below expectations. It's
Speaker 3: no wonder. Mark writes that Apple pulled every lever it
Speaker 3: could to get the M three, MacBook Pro and iMac
Speaker 3: out the door during the holiday quarter. Angelo, what do
Speaker 3: you make of the billion dollar below expectations when it
Speaker 3: comes to the Mac and how important is that category
Speaker 3: to Apple?
Speaker 5: Yeah, I mean, we'll see if they're kind of looking
Speaker 5: at this on wine inventory, and you know, maybe they
Speaker 5: just weren't kind of pushing, pushing kind of sales through
Speaker 5: any more ahead of these new product launches. But you know, again,
Speaker 5: it was an extremely difficult comp as far as the
Speaker 5: Mac has been concerned, not only here in the September quarter,
Speaker 5: but over the last year. So you know, now that
Speaker 5: they've kind of gone through that was last four tough quarters. Again,
Speaker 5: you're now going to enter the December quarter where you're laughing,
Speaker 5: essentially at twenty nine percent or so declined from a
Speaker 5: year ago, right with those new product launches. So you know,
Speaker 5: it's weak because of those tough comps we think, as
Speaker 5: well as the fact that, hey, listen, it's not the
Speaker 5: most favorable landscape out there for piecs, even though the
Speaker 5: broader PC landscape appears to have found some sort of
Speaker 5: footing for the time being. But at the end of
Speaker 5: the day, the consumer landscape is still very challenging. In nature,
Speaker 5: but again, we want to know more clarity. They're not
Speaker 5: going to give exact numbers as far as the guidance
Speaker 5: is current concerned. It's only going to be more directional
Speaker 5: in nature. But our view it is going to be
Speaker 5: decent at least for the mask.
Speaker 2: It's funny Tim and I were just going back and
Speaker 2: forth because I'm like, wait, they're going to give an
Speaker 2: out look, and they don't do that, right, They don't,
Speaker 2: you know. But you're looking for some commentary. Stocks now
Speaker 2: down about zero point nine percent here in the aftermarket
Speaker 2: if you're just joining us, we're talking with Angelo Zeno,
Speaker 2: who covers Apple. Apple sales decline for a fourth straight quarter,
Speaker 2: marking the longest slowdown since two thousand and one, as
Speaker 2: the company struggles with sluggish demand and a shaky smartphone
Speaker 2: market in China, specifically, revenue falling to eighty nine point
Speaker 2: five billion in the fiscal fourth quarter that ended, of course,
Speaker 2: September thirtieth, compared with the average Wall Street estimate of
Speaker 2: eighty nine point four billion. Apple did not provide formal
Speaker 2: guidance for the quarter, sticking with a policy it adopted
Speaker 2: during the pandemic. It's still a law of I feel
Speaker 2: like whenever there you look at Apple, they still angelo
Speaker 2: sell so much stuff. But remind us, I mean everybody
Speaker 2: has always for decades been going after the Chinese market.
Speaker 2: You know, our Mark German says China also needs Apple.
Speaker 2: Apple employs a lot of workers still in China. So
Speaker 2: that relationship is this just maybe a slight dip, a
Speaker 2: one quarter dip or who knows? And I guess that's
Speaker 2: what we want commentary on. But how do you think
Speaker 2: about that relationship with Apple? Is it at some point
Speaker 2: it's just it's going to wind down to some extent
Speaker 2: or no?
Speaker 5: I mean we don't think it's going to wind down.
Speaker 5: I mean, when we kind of forecast Apple and China
Speaker 5: at least looking ahead, we're kind of looking for the
Speaker 5: company they essentially kind of grow in line with the
Speaker 5: smartphone market in that region. So we're no longer looking
Speaker 5: for share gain, which is something that they saw, you know,
Speaker 5: as a significant tail wind over the.
Speaker 6: Last two years.
Speaker 5: Right, Huawei exits essentially kind of exits the high end
Speaker 5: of the market because they can't get their hands on
Speaker 5: these you know, these great chips. As far as five
Speaker 5: G is concerned, Apple takes a significant amount of share.
Speaker 5: Now that you know, those tailwinds are now gone in
Speaker 5: our view, So now it's more along the lines of
Speaker 5: kind of them growing in line with the market probably
Speaker 5: at best, to be honest with you, in China. The
Speaker 5: fact of the matter, though, is the growth story isn't
Speaker 5: necessarily dead for Apple because they've got such low share
Speaker 5: in a ton of emerging regions out there.
Speaker 6: Right.
Speaker 5: India is of course a key market out there and
Speaker 5: growth op.
Speaker 3: How many people are Apple? How many people in India
Speaker 3: can afford an iPhone?
Speaker 5: Well not many, but I mean you start, well, well,
Speaker 5: there is going to be a wealth effect over the
Speaker 5: next decade in terms of India, right, I mean, similar
Speaker 5: to what we've seen in China over the last you know,
Speaker 5: two decades or so. So there is going to be
Speaker 5: a kind of Apple will grow with that that region
Speaker 5: over time. And now our view is they can probably
Speaker 5: take you know, they can probably see unit growth of
Speaker 5: about one to three percentage points on an annual basis
Speaker 5: from India alone over the next decade. So we're not
Speaker 5: necessarily looking for significant kind of growth in any given
Speaker 5: year out of India, but I think it will be
Speaker 5: an increasing contributor to Apple's business over time, and I
Speaker 5: think that is important, right, I mean, what what happens
Speaker 5: with Apple here is they're just so darn big is
Speaker 5: there's not any single kind of item that's really going
Speaker 5: to move them noteworthy.
Speaker 6: At this point in time.
Speaker 5: You can't expect to kind of you're an investor out there,
Speaker 5: don't expect to get you know, fifty to sixty percent
Speaker 5: gains on a name like this, you know, every single year.
Speaker 6: That's just not going to happen anymore.
Speaker 5: You kind of say, in this name because it's a
Speaker 5: great free cash flow generator, they can continue to see
Speaker 5: solid earnings growth of let's say, high single digit, low
Speaker 5: double digit, you know annually here over the next kind
Speaker 5: of five to seven years. And that's why you're invested
Speaker 5: in this name, not you know, necessarily because of the
Speaker 5: significant growth opportunities that are attached to them.
Speaker 6: Maybe any specific region.
Speaker 2: It's funny that you said about India. It made me
Speaker 2: look back because I'd just come across a story this
Speaker 2: past week, the Hamptons of India rises as nation's wealth
Speaker 2: boom eclipses China's. But it just talks about a new
Speaker 2: class of wealthy entrepreneurs, deal makers, you know, and the
Speaker 2: luxury market just taking off in a big way in India.
Speaker 2: So yeah, it's not the market. We've always focused on
Speaker 2: the emerging market, but it is increasingly that case. And
Speaker 2: they talk about the suspending, whether it's watches or what
Speaker 2: have you, it's taking off. Having said that, what's the
Speaker 2: thing that worries you about Apple?
Speaker 5: I mean, listen, I think at this point in time,
Speaker 5: I think China would be the biggest concern out there.
Speaker 5: What does a competitive landscape look out there? It still
Speaker 5: is twenty percent of their revenue, So I think that
Speaker 5: is kind of the key, at least here in the
Speaker 5: near term over the next kind of nine to twelve months,
Speaker 5: as far as this iPhone and fifteen cycle is concerned.
Speaker 5: So if it was us, it's on the China side
Speaker 5: of things. And then of course you've always got to
Speaker 5: worry about the regulatory landscape out there, right, you've got
Speaker 5: the digital market deck that's going to go full into
Speaker 5: effect here in Europe here in calendar twenty twenty four.
Speaker 5: No one's kind of really warned about that at this
Speaker 5: point in time. As far as kind of the big
Speaker 5: tech companies are concerned, whether or not it disrupts their
Speaker 5: business or kind of slows down the revenue trajectory on
Speaker 5: any of these individual companies remains to be seen. But
Speaker 5: regulatory pressures out there are always something you've got to
Speaker 5: keep your mind on, whether you're Apple or another company
Speaker 5: out there. But this is specifically for Apple as far
Speaker 5: as that service is business, and we know if that
Speaker 5: service business gets dented in terms of the growth that
Speaker 5: look at any point in time, that's going to result
Speaker 5: in some sort of multiple compression. And Apple shit is
Speaker 5: because it is a significantly higher margin business. It is
Speaker 5: driving a lot of the earnings trajectory here looking ahead.
Speaker 3: Angela, what's the question you'd ask Tim Cook and executives
Speaker 3: on the earnings call later?
Speaker 5: You know, I think at this point in time, you've
Speaker 5: got to ask him about the competitive outlook in terms
Speaker 5: of China, whether it's legit, whether you know he thinks
Speaker 5: that they can continue to grow in China despite kind
Speaker 5: of increasing pressures from Huawei, because if you recall before
Speaker 5: the pandemic, Huawei was probably Apple's biggest threat out there
Speaker 5: from a competitive landscape. So now they are re emerging
Speaker 5: here and we need to know whether or not Huawei
Speaker 5: is going to be a legitimate, legitimate threat here over
Speaker 5: the next couple of years.
Speaker 2: Hey, you mentioned, Okay, the stocks now down about one
Speaker 2: point three percent, it's not falling off a cliffs.
Speaker 3: Especially fair we saw today with Apple.
Speaker 2: Exactly it rallied in today's session. I'm looking at your note.
Speaker 2: You've got a twelve month price target of two twenty.
Speaker 2: You mentioned that multiple compression that needs to happen. Would
Speaker 2: you adjust your price target on the stock as a
Speaker 2: result of some of the news today. It's right now
Speaker 2: when it closed about one hundred and seventy seven, just
Speaker 2: below one seventy eight to share, Yeah.
Speaker 5: I mean we we'd kind of want to get a
Speaker 5: better idea of what the outlook here, what they have
Speaker 5: to say in terms of the December quarter is concerned,
Speaker 5: what their views are as far as the iPhone fifteen
Speaker 5: cycle is concerned, and you know, specifically what they see
Speaker 5: ahead for the services side of things. But you know
Speaker 5: that being said, you know, this is continues to be
Speaker 5: a stable ship.
Speaker 6: And as far as that as long as.
Speaker 5: That pre cash flow trajectory over the next kind of
Speaker 5: five to seven years remain intact and there's nothing from
Speaker 5: at least these initial numbers that would tell us otherwise,
Speaker 5: then I think, you know, this is a company that
Speaker 5: still is worth buying here and should speak you know,
Speaker 5: capital appreciation here over the next twelve to eighteen months.
Speaker 2: Well, and you know, I'm looking at your note. You
Speaker 2: like their pipeline, you like their spatial computing, their Apple car,
Speaker 2: their healthcare, their shift towards hardware as a service.
Speaker 3: I mean, it's a long pipeline.
Speaker 7: They have been.
Speaker 2: Expanding out right, so that the other side of the story,
Speaker 2: I mean, is this potentially a little bit of an
Speaker 2: entry point if it's down one percent or so, maybe
Speaker 2: in tomorrow's trade or in the aftermarket here.
Speaker 5: Yep, And we do see you know, some significant secular opportunities,
Speaker 5: and you kind of alluded to some of them, but
Speaker 5: the pricing, you know that they're brand and the pricing
Speaker 5: power they have, not to mention, you know, all across
Speaker 5: the globe specifically in the US, but you know, eventually,
Speaker 5: we do think they come out with foldable phones right,
Speaker 5: foldable devices across their ecosystem. That's going to help support
Speaker 5: higher asps, higher revenue trajectory for this company. So in
Speaker 5: any given cycle there, you're going to have those soft patches,
Speaker 5: especially with an iPhone fourteen and fifteen cycles as you're
Speaker 5: lapping the twelve and thirteen, which were absolutely stellar cycles
Speaker 5: and have had the five G momentum right and some
Speaker 5: of the market share gains on that side of things,
Speaker 5: So they're going to be soft cycles here and there.
Speaker 5: The iPhone fifteen will probably be one of those cycles.
Speaker 6: If you're an investor out.
Speaker 5: There that you know can't be patient with the name,
Speaker 5: then you're probably you know, you potentially get out of
Speaker 5: the name and looking for, you know, certain opportunities to
Speaker 5: get back in. But it's extremely difficult to time Apple overtime,
Speaker 5: and it's probably the most forward looking name that we cover.
Speaker 5: You're probably looking at an iPhone sixteen and seventeen cycle
Speaker 5: for many investors out there at this point in time,
Speaker 5: and what the potential for the company as far as
Speaker 5: those cycles are concerned. Where we do see higher average
Speaker 5: selling prices over time because of you know, opportunities like
Speaker 5: buldable devices.
Speaker 2: This two point seven trillion dollars stock is up almost
Speaker 2: thirty seven percent year to date, and we are looking
Speaker 2: at a little bit of selling in the after hours.
Speaker 2: But now it's just down about eight tens of percent, so.
Speaker 3: More than two percent today, Carol Session exactly.
Speaker 2: So it's like hard yours. You know, the perspective on
Speaker 2: this name is just kind of fascinating. Really appreciate. Angela Zino,
Speaker 2: Senior equity Analysts at CFI Research. On zoom in New York.
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Speaker 2: What a man he is? Michael McKee man nobody covers
Speaker 2: the economy, international economy.
Speaker 3: I'm so glad you went there. I thought you cold
Speaker 3: said what a man?
Speaker 7: J Powell is?
Speaker 3: I agree?
Speaker 2: Sorry Michael McKee, Sorry, Jay, Let's just get right to it.
Speaker 2: Michael McKee is out there in our Atlanta bureau. He's
Speaker 2: International Economics and Policy correspondent. Joining us there getting ready
Speaker 2: for a big interview, which we'll get to you in
Speaker 2: just a moment. What's with that?
Speaker 8: Go Dogs, University of Georgia. We are here in Atlanta,
Speaker 8: and of course the big game this weekend in Tennessee.
Speaker 8: Everybody's going to be focused on that here. You think
Speaker 8: jobs is important, but I mean this is as my
Speaker 8: daughter who went to UGA says, this is football, football,
Speaker 8: This is football.
Speaker 3: I love it.
Speaker 7: I love it.
Speaker 2: Well, if you had assessed the game that is monetary policy,
Speaker 2: how would you do it? In terms of what we
Speaker 2: got from Jay Powell and Company yesterday? Mike Well, I.
Speaker 8: Think the bottom line for people on Wall Street is
Speaker 8: basically that you can't at this point think the FED
Speaker 8: is done, and you can't think they're not done. You
Speaker 8: sort of have to throw as my question to Jay
Speaker 8: Boble was, you have to throw the dot plot out
Speaker 8: the window and the forecasts out the window and just
Speaker 8: basically go meeting by many and think that each meeting
Speaker 8: is live. They don't have an objective measure of data
Speaker 8: that they're using now to decide on whether they should
Speaker 8: raise rates or not. It's subjective. What does everything look
Speaker 8: like when you put it all together what does it
Speaker 8: appear to them to be telling them, And so it's
Speaker 8: going to be hard for people to really invest ahead
Speaker 8: of the FED.
Speaker 7: At this point.
Speaker 8: We'll see the markets gyrate a lot based on economic data,
Speaker 8: but really, what you think the FED is going to do,
Speaker 8: you're not going to know till you're pretty close.
Speaker 7: To the meetings.
Speaker 3: It seems like traders today are pretty convinced they know
Speaker 3: the FED is going to do, and they certainly think
Speaker 3: that the FED is not going to raise rates another time.
Speaker 3: I'm pretty surprised to see this market reaction, Mike. I
Speaker 3: know you're a macro guy, but you certainly pay attention
Speaker 3: to what's happening in all of the markets. Does this
Speaker 3: surprise you, the moves that we're seeing today in the
Speaker 3: bond market and the equity market.
Speaker 8: Yeah, it doesn't surprise me, because I think the markets
Speaker 8: were leaning in this direction and they go where they
Speaker 8: want to go where they think they want to go. Now,
Speaker 8: I've been telling people all day on Bloomberg, talk to
Speaker 8: me at eight thirty one tomorrow. If we get another
Speaker 8: blowout number like we did last week last month, rout
Speaker 8: there three hundred and thirty six thousand, then you're going
Speaker 8: to see yields go right back up again, So it
Speaker 8: really doesn't matter at this point. We focus a lot
Speaker 8: on the movement and J. Powell said this, and look
Speaker 8: what happened, But it's really going to depend on what
Speaker 8: happens between now and then and what they set us
Speaker 8: up for when they get close to the meeting.
Speaker 2: What's J. Powell more worried about at this point, you think,
Speaker 2: or is it even in terms of doing too much
Speaker 2: or too little.
Speaker 7: He's still worried about doing too little.
Speaker 8: The FED gets in trouble when they do too little,
Speaker 8: and the memory of Arthur Burns is seared into every
Speaker 8: FED official's brain. So they're still going to be worried
Speaker 8: about doing too little. But at this point they think
Speaker 8: they've done enough. They just need to get confirmation of that,
Speaker 8: and it doesn't come in a neat, tidy package. So
Speaker 8: they're going to sit and wait and watch and eventually decide, well,
Speaker 8: it looks good enough and we don't have to raise anymore,
Speaker 8: or if inflation comes back, we'll see them raise.
Speaker 7: They won't be cutting anytime soon.
Speaker 2: Well, Mike, it sounds like that's what you were trying
Speaker 2: to get to at your question to J. Palate, Abigail
Speaker 2: Doolittle and I were like just kind of parsing over
Speaker 2: words that you said and when you were asking, kind
Speaker 2: of just remind everybody what you asked, what you wanted
Speaker 2: to get, and did you feel like you got a
Speaker 2: good answer.
Speaker 8: Well, I wanted to get a sense that the FED
Speaker 8: is that the market can't guess really at what the
Speaker 8: FED is going to do successfully because they don't have
Speaker 8: an objective way of measuring it at this point. And
Speaker 8: while Powell was saying we're on hold, we could raise
Speaker 8: rates again. That's what they've been saying for a long time.
Speaker 8: They had another rate increase penciled in in the dot
Speaker 8: plot before the end of the year, but now the
Speaker 8: end of the year doesn't mean anything. Every meeting is
Speaker 8: going to have that potential for a higher rate if
Speaker 8: the inflation numbers start to go back up again.
Speaker 3: Mike, I was talking with Carol earlier about this because
Speaker 3: I think one of the takeaways that people had yesterday
Speaker 3: after hearing from Jay Powell was something they've been saying
Speaker 3: for weeks, which is, Okay, the bond market could be
Speaker 3: doing some of the work of the FED. And we've
Speaker 3: heard that from FED speakers over the last few weeks
Speaker 3: or so. What happens if yields fall because of that
Speaker 3: relief that people think the Fed is done raising rates
Speaker 3: and those higher yields stop doing the work that the
Speaker 3: Fed wanted them to do.
Speaker 8: Well, a little bit of that has been what's happened
Speaker 8: over the last twenty four hours. It's going to have
Speaker 8: to be sustained. The way monetary policy works is they
Speaker 8: raised the cost of money. You go in for a loan,
Speaker 8: you more, maybe you don't borrow as much, or maybe
Speaker 8: you don't borrow at all. But that takes place over
Speaker 8: a long period of time, the long and variable lags.
Speaker 8: Not everybody lines up to get a loan at the
Speaker 8: same time. So they're anticipating that the longer this goes on,
Speaker 8: the lower the economic activity will be because people aren't
Speaker 8: going to be taking out these loans to expand their
Speaker 8: business or buy houses or whatever, and that'll slow down
Speaker 8: the economy enough to bring inflation down.
Speaker 7: The question is does that happen.
Speaker 8: They've been surprised all along by how strong the labor
Speaker 8: market is and how strong growth has been, so they
Speaker 8: want to keep that possibility of raising rates again in
Speaker 8: reserve in case they continue to get surprised, and if
Speaker 8: the market doesn't back off, then it is.
Speaker 7: Always possible that growth stays strong.
Speaker 8: But if growth stays strong and we get strong numbers,
Speaker 8: the market's going to come back up again. Yields are
Speaker 8: going to come back up again as bond investors try
Speaker 8: to force the.
Speaker 2: Issue mike as economic cycles go, once they start to
Speaker 2: come undone, whether it's you know, we fall into a
Speaker 2: recession or not, but once they start to come undone,
Speaker 2: do they start to come undone rather quickly?
Speaker 7: Historically that's been the case.
Speaker 8: There is a saying in economics that recessions are non
Speaker 8: linear events. They just sort of spring upon you. Now,
Speaker 8: we haven't had this kind of downturn recovery really ever,
Speaker 8: or at least in the age of data. Nineteen eighteen
Speaker 8: flu we didn't have the data that we have today,
Speaker 8: so we don't know exactly how things are going to
Speaker 8: work out. The last couple of recessions before the pandemic,
Speaker 8: the pandemic brought on this recession, and the last two
Speaker 8: we're brought on by financial market excesses. In this case,
Speaker 8: it's hard to say what the excess is and why
Speaker 8: we would necessarily have a recession.
Speaker 7: So it's hard to see where the recession comes.
Speaker 8: From except putting it in the lens of previous, previous downturns.
Speaker 8: And that's kind of what the Fed's been doing and
Speaker 8: a lot of economists on Wall Street have been doing,
Speaker 8: and it hasn't worked, and nobody quite knows why. So
Speaker 8: we could have a nonlinear event, we could go into recession,
Speaker 8: but it's hard to say, here's the thing that could
Speaker 8: make it happen.
Speaker 3: Can we go into recession if the US is still
Speaker 3: adding roughly two hundred thousand jobs a month.
Speaker 8: Nobody thinks that's really possible because all those people are
Speaker 8: going to be spending all that money that they are
Speaker 8: now making, and that just adds to the overall spending
Speaker 8: in the US and the overall wealth in the US.
Speaker 8: So as long as that's why the FED thinks they
Speaker 8: need to have a higher unemployment rate and lower job growth,
Speaker 8: is at this point we are adding to the economy's
Speaker 8: capabilities for growing rather than being neutral or cutting back.
Speaker 2: But if we're spending perhaps more on student loan paybacks
Speaker 2: or more on our mortgage rates, could it possibly just
Speaker 2: kind of feel like a recession mic or will we
Speaker 2: maybe start to see some areas of the economy kind
Speaker 2: of get hurt just because we're spending more money elsewhere.
Speaker 8: Well, there are a number of theories about that. If
Speaker 8: we're spending more money elsewhere, then yes, there would be
Speaker 8: cut back somewhere. The general feeling of academics who've studied
Speaker 8: the student loan thing is it's not going to have
Speaker 8: a major impact on spending overall. Most of the people
Speaker 8: with large student loans are the people who have the
Speaker 8: more lucrative professions, and so they can continue to pay
Speaker 8: their bills. Housing is an issue because if we don't
Speaker 8: buy houses, then we're not going to be buying the
Speaker 8: furniture and carpeting and etc.
Speaker 7: That goes with it.
Speaker 8: So you could see a bit of a downturn there.
Speaker 8: But as long as people get jobs, they're still going
Speaker 8: to be spending money, and they've shown they want to
Speaker 8: spend money, they're going to be spending money on stuff,
Speaker 8: and that's going to keep it going even if some
Speaker 8: of these particular areas do fall off.
Speaker 7: Now, the question kind of is who would fall off
Speaker 7: at this point.
Speaker 8: If it's lower income people, yes, they're going to be
Speaker 8: buying less stuff like groceries and gas, and things because
Speaker 8: they live paycheck to paycheck. But we see the upper
Speaker 8: income stratus still spending like crazy, and they can power
Speaker 8: the economy for quite a while.
Speaker 3: Mike, I took the day off on Tuesday to go
Speaker 3: trick or treating, and I will say that it was
Speaker 3: pretty subdued in my neighborhood. And I heard it was
Speaker 3: subdued in my old neighborhood as well, and I saw
Speaker 3: people tweeting about people, you know, one candy limits. Is
Speaker 3: there any sort of anecdotal data that we can look
Speaker 3: at here for a Halloween candy indicator.
Speaker 8: I don't know that there's solid data. There are trade
Speaker 8: associations that anticipated a good Halloween, but I can tell
Speaker 8: you anecdotally talking to a lot of people in the
Speaker 8: Washington DC office after Tuesday night, there were a lot
Speaker 8: of complaints about the cost of candy bugs to give out,
Speaker 8: and so maybe people were a little less generous.
Speaker 7: I don't know.
Speaker 8: You remember Robert Griffin third, the former quarterback for the
Speaker 8: Washington Redskins who is now an ESPN broadcaster. He tweeted
Speaker 8: that he took his kids out and they got to
Speaker 8: a house and the people wanted to charge the kids.
Speaker 7: For ken no, I don't know that's true. But wait
Speaker 7: what but there's an economic indicator for you.
Speaker 2: All right, Mike, you're the best. And Mike, by the way,
Speaker 2: sits down with Atlanta Fed President Rafael Bostak for an
Speaker 2: exclusive interview tomorrow at three thirty pm AL Street time
Speaker 2: on Bloomberg Radio. Do not miss it. Mike McKee. Of course,
Speaker 2: at Atlanta Bureau covers all things international economics and policy.
Speaker 2: So we're looking forward to that tomorrow. Tomorrow. Yeah, So
Speaker 2: don't go anywhere, everybody. We're just getting started on this Friday.
Speaker 2: This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week Podcast. Catch us
Speaker 1: live weekday afternoons from three to six Eastern on Bloomberg Radio,
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Speaker 1: live on Amazon Alexa from our flagship New York station
Speaker 1: Just Say Alexa playing Bloomberg eleven thirty.
Speaker 2: All of the news. Speaking of the news, the flow
Speaker 2: of it has made the environment very heavy and very
Speaker 2: stressful again safe to say.
Speaker 6: Yeah.
Speaker 3: When I was preparing for this segment, Carol, I did
Speaker 3: some research about you know, mental health at the workplace,
Speaker 3: and you know the meditation ap Colm, they did a
Speaker 3: survey of two thousand employees earlier this year. They get
Speaker 3: some insight into mental health in the workplace. It turns
Speaker 3: out that employees who work in education, retail, hospitality, and yes,
Speaker 3: healthcare yep, they report above average feelings of stress and anxiety. Yeah.
Speaker 2: Absolutely, it makes a lot of sense. So there's a
Speaker 2: lot to be anxious about the economy. Kids are sick,
Speaker 2: stuff going on at home. We know a lot of
Speaker 2: people understandably are upset and concerned about the Israel Gaza war,
Speaker 2: and even conversations that are spilling into the workplace. All
Speaker 2: of this is spilling over. So we have a great
Speaker 2: voice for us. Ron Getzel is a senior scientist at
Speaker 2: the Bloomberg School of Public Health. He's also the director
Speaker 2: of the Johns Hopkins Institute for Health and Productivity Studies,
Speaker 2: where he studies the relationships specifically between health and well being,
Speaker 2: medical costs, and work related productivity. Speaking of productivity, which
Speaker 2: we are more productive as we heard this morning in
Speaker 2: government data. He joins us though on zoom from Baltimore. Hi,
Speaker 2: ay Ron, nice to have you here with Tim and myself,
Speaker 2: of course, the Johns Hopkins Bloomberg School of Public Health
Speaker 2: supported by Michael R. Bloomberg, founder of Bloomberg Help and
Speaker 2: Bloomberg Philanthropies. Yeah, we're all feeling pretty heavy and pretty
Speaker 2: stressed out. Again, make the connection for us, because I
Speaker 2: think people are like, well, let's just stress. We have
Speaker 2: to deal with it. But there is a cost, a
Speaker 2: significant cost.
Speaker 9: There is, and thank you very much for inviting me.
Speaker 9: We've done quite a bit of research looking at the
Speaker 9: relationship between mental health and well being and the costs
Speaker 9: and employers bear not my dep with communities and society
Speaker 9: as a whole. So we find that there is certainly
Speaker 9: an impact on ind digital workers.
Speaker 6: Mental health and well being.
Speaker 9: So they may feel stressed out, they may be depressed,
Speaker 9: they may not have opportunities to have a work life balance,
Speaker 9: they're not getting enough sleep and eating wealth and all
Speaker 9: of those costs money, not just in terms of direct
Speaker 9: medical costs, but also in productivity losses.
Speaker 3: How is it, Yeah, how is that manifested in productivity
Speaker 3: loss This is something that you study very closely, So
Speaker 3: give us some numbers here.
Speaker 9: Right, So we looked at direct medical costs, certainly a
Speaker 9: prescription drug and medical care. On the productivity side, it's
Speaker 9: things like absenteeism, and disability, and also this issue called presenteeism,
Speaker 9: and what that means is that you're actually at work,
Speaker 9: but your mind may not be there because you're worried
Speaker 9: about your own health and well being or some family
Speaker 9: members health and well being. And there are ways to
Speaker 9: actually monetize it.
Speaker 2: Well, talk to us to you a little bit about
Speaker 2: the monetization aspect of it, because I do think about
Speaker 2: that sometimes resonates unfortunately but maybe rightfully so I don't
Speaker 2: know with individuals and people who are listening.
Speaker 9: All right, So imagine that you know you're stressed and depressed.
Speaker 9: Now there may be things in the workplace that are
Speaker 9: causing that to happen, and there are many things that
Speaker 9: employers can do to improve the workplace. But let's say
Speaker 9: in general, so your mind is drifting, you're not focused,
Speaker 9: you're not engaged, You kind of you have trouble getting
Speaker 9: out of better in the morning. That is a cost
Speaker 9: to you. It's a cost to the business because instead
Speaker 9: of you being focused, engaged, directed at the goals of
Speaker 9: the business, you're actually distracted and worried about other things. Now,
Speaker 9: the business can have tremendous impact on improving that for
Speaker 9: many people. You know, going to work is actually a
Speaker 9: good thing.
Speaker 4: You know.
Speaker 9: It gives us an opportunity to be with our coworkers,
Speaker 9: to do things that are important and meaningful to us
Speaker 9: in life, and almost a respite from all the bad
Speaker 9: news that's around us. So employers can do quite a
Speaker 9: bit to improve mental health, well being, and productivity of
Speaker 9: the workforce.
Speaker 3: I'm glad you said that. I mean I certainly feel
Speaker 3: that way. I don't know if you feel that way, Carol,
Speaker 3: Like work is like especially. I mean, anyone with young
Speaker 3: kids can can relate to this, but it's like you
Speaker 3: kind of get to work and you know your kids
Speaker 3: are at school or in daycare, and like everyone's in
Speaker 3: the right place and you kind of like breathe the
Speaker 3: sigh of relief. But I completely agree with that. I
Speaker 3: think that's why it's important to work in a place
Speaker 3: that you enjoy working.
Speaker 2: I completely agree. I mean I've gone through parents who
Speaker 2: were ill and coming to work was like this incredible
Speaker 2: constant with a very warm environment, and I kind of
Speaker 2: knew what was going on. There were things that could control, yeah,
Speaker 2: but it was just something that was so important to me.
Speaker 2: Having said that, so what's your advice to folks in
Speaker 2: this environment, or leaders at institutions or organizations about thinking
Speaker 2: about this, because I think there are times like we
Speaker 2: keep talking about meditation so important, so important, but it's
Speaker 2: not always so easy to do at an office environment
Speaker 2: or a workplace environment.
Speaker 9: Well, let me just say that you can't yoga math
Speaker 9: yourself out of a stressful and toxic work environment. Meditation
Speaker 9: apps and yoga are very, very helpful, absolutely, But the
Speaker 9: approach that we've adopted at Johns Hopkins and our Total
Speaker 9: Worker Health Center of Excellence says there are three basic
Speaker 9: buckets of stressors and solutions. The first is and we
Speaker 9: call it the Post Center Poe someone named after ad
Speaker 9: gow Ed ground Poe, who have a house in the
Speaker 9: museum in Baltimore. But peace stance for psychosocial factors, O,
Speaker 9: organizational and E environmental factors. So, imagine being in a
Speaker 9: work situation where the work demands are high, deadlines are imposed,
Speaker 9: you don't have the resources to do your job, your
Speaker 9: boss is yelling at you, You're exposed to toxic fumes,
Speaker 9: your pay is ridiculously low, benefits are limited, you're not
Speaker 9: sleeping well, no opportunity to exercise, diet is past, food
Speaker 9: blood pressure to control so no yoga class is not
Speaker 9: going to fix all those problems. But there are things
Speaker 9: that employers can do within those broad categories of POE.
Speaker 2: Well, just give us just got about fifteen seconds. What
Speaker 2: would be one or two things, just quickly, well.
Speaker 9: Flex time breaks, predictable schedules, access to healthcare that's not
Speaker 9: too expensive, an EAP program, greater autonomy, shared decision making,
Speaker 9: living wages, paid medical leave, career path opportunity. So I
Speaker 9: can go on and on.
Speaker 3: All right, you're hired some now, Ron for president.
Speaker 2: It's a very very productive list. I really appreciate you
Speaker 2: going there. Ron Getzel, Senior scientist at the Bloomberg School
Speaker 2: of Public Health, Director at the Johns Hopkins Institute for
Speaker 2: Health and Productivity Studies. As we said, of course, the
Speaker 2: Bloomberg School of Public Health, supported by Michael our Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from three to six Easter on Bloomberg Radio,
Speaker 1: the Bloomberg Business app band YouTube. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just Say Alexa, play Bloomberg eleven thirty Big Way.
Speaker 2: Yeah, well a long way home may mean you get
Speaker 2: there and then you've got a really expensive mortgage to
Speaker 2: pay for because of higher rates. We're going to talk
Speaker 2: about the so called lock in effect homeowners who are
Speaker 2: unwilling to let go of cheap mortgages they got when
Speaker 2: rates were scraping bottom. They're the lucky ones, which has
Speaker 2: resulted in the least affordable housing market since the nineteen eighties,
Speaker 2: with sales approaching record lows.
Speaker 3: This story is the domestic cover story this week of
Speaker 3: Bloomberg Business Week. It's also today Carol among the most
Speaker 3: read on the Bloomberg terminal with more on the US
Speaker 3: housing market that has become an impossible mess for so
Speaker 3: many people. With us is the team of the Bloomberg
Speaker 3: News real estate reporter. We got Prashan Gopaal, who wrote
Speaker 3: the story along with Pat Clark shot on Zoom from Massachusetts.
Speaker 3: We also got the editor of Business Week here, Joel Weber,
Speaker 3: with us in our Bloomberg Interactive Brokers studio. Jiel, this
Speaker 3: is a story or a movie I should say that
Speaker 3: we've seen before.
Speaker 10: Yeah, I've seen it before, but not maybe recently. And look, ultimately,
Speaker 10: if you want to feel like there's an existential crisis
Speaker 10: in the US, I think the housing industry. Housing market
Speaker 10: is maybe a pretty good one good place to look
Speaker 10: right now if you have one of those low rate mortgages.
Speaker 3: And a lot of people do that.
Speaker 10: A lot of people got fortunate enough to get in
Speaker 10: when when the market uh allowed that, you know, you're
Speaker 10: you don't want to give it up, so there's very
Speaker 10: little incentive to sell and then have to take out
Speaker 10: a high mortgage. Now that also means that for those
Speaker 10: people who never had a chance to get in, you're
Speaker 10: not able to get in because nobody's selling, there's very
Speaker 10: low inventory, and if you could get in, you have
Speaker 10: to pay that eight percent mortgage that is potentially, you know,
Speaker 10: dramatically higher than what the housing market even looked like
Speaker 10: two years ago. And boy, that is just a rotten
Speaker 10: place to be. And especially for people who are starting out,
Speaker 10: it really feels like you're just iced out and that
Speaker 10: has I think some long term economic implications for the US.
Speaker 10: And there I think we're done talking about the story
Speaker 10: because that's basically how rotten this is.
Speaker 7: But there's a whole lot more there.
Speaker 10: And Prashant and Pat Clark did a great job of
Speaker 10: not only setting that table and and this is to
Speaker 10: me one of these stories that when I first started
Speaker 10: engaging with them about it, it feels like one of
Speaker 10: the most important stories of the year. We've talked about
Speaker 10: what happened. What's happened in the commercial real estate world,
Speaker 10: this is equally scary because it affects meeple so directly,
Speaker 10: I think. So, Prashan, you've got to speak to some people,
Speaker 10: tell us about what you and Pat learned along the way.
Speaker 11: Well, really, this is like two different worlds, right, So
Speaker 11: people who own houses are really the haves here, and
Speaker 11: in some ways they're sitting pretty because they locked in
Speaker 11: some of the lowest rates in history, and they're unaffected
Speaker 11: for the most part by the rising mortgage rates because
Speaker 11: you know, most people have fixed rate mortgages for you know,
Speaker 11: thirty years, so they might be in those homes for
Speaker 11: a long time because they have very little incentives to
Speaker 11: sell and take on sort of a much higher rate.
Speaker 11: On the other hand, people who haven't gotten a chance
Speaker 11: to buy yet, maybe they were you know, they couldn't
Speaker 11: buy during the peak of the COVID buying frenzy because
Speaker 11: they lost out in bidding wars. But now they can't
Speaker 11: buy because they can't afford to. You combine these very
Speaker 11: high prices and these extraordinarily high rates, and you know
Speaker 11: they're they're just locked out.
Speaker 2: What I think is interesting for me, and I kind
Speaker 2: of had to remember, you remind us of an economist
Speaker 2: back in the nineteen eighties who actually identified this so
Speaker 2: called lock in effect, take us back there, because we've
Speaker 2: kind of been in these disposition before.
Speaker 11: Pat actually read that study, so that go for it.
Speaker 4: Oh yeah, So it was very much like what we're
Speaker 4: seeing now, which is that interest rates shot up quickly,
Speaker 4: and people who you know, I think between nineteen seventy
Speaker 4: eight nineteen eighty one, interest rates doubled. They were much
Speaker 4: higher in those days. I think they shut up all
Speaker 4: the way I think to eighteen percent or so. But
Speaker 4: interest rates went up very quickly, and it became clear
Speaker 4: that the old mortgage had a value attached to it, right.
Speaker 4: It wasn't just the bill you had to pay every month,
Speaker 4: but it was worth you know, thousands of dollars, and
Speaker 4: because if you were to trade it into a new mortgage,
Speaker 4: that's how much more you would pay over the life
Speaker 4: of alone. And you know, at the time, there was
Speaker 4: a an economist at the University of California who who
Speaker 4: you know who sort of showed that this was correlated
Speaker 4: or or he associated this with a strong dist incentive
Speaker 4: to move, which is logical. You know. You fast forward
Speaker 4: now to today and there there are two researchers, one
Speaker 4: at University of Illinois and one at the University of Pennsylvania.
Speaker 4: But actually, you know, have a you know, a way
Speaker 4: to do a sort of back of the envelope calculation
Speaker 4: to show that there's a real causal effect between this,
Speaker 4: you know, luck and effect and deuce residential mobility. People
Speaker 4: are going to move last and and in fact, people
Speaker 4: have been moving less than America, you know, for we
Speaker 4: were finally moving.
Speaker 2: We were finally moving again right with the pandemic because
Speaker 2: you could work Jill anywhere, Like finally people were starting
Speaker 2: to move around again a little bit.
Speaker 10: And boy did that end with the pandemic, right and
Speaker 10: and now suddenly maybe you did move somewhere, and now
Speaker 10: you know, even being able to offload that thing that
Speaker 10: you got yourself into, maybe you won't be so lucky now.
Speaker 6: Now.
Speaker 10: Most important question amount I asked today Pat Pashant, which
Speaker 10: have you got to speak to Eugene Quackenbush.
Speaker 12: I always.
Speaker 10: Okay, so tell us about.
Speaker 3: Also, can we say the name of Eugene Quackenbush.
Speaker 10: Quackenbush, exactly what he's doing Phoenix broke Like I know
Speaker 10: Pat has a deep understanding of Phoenix. But tell us
Speaker 10: about what what mister Quackenbush.
Speaker 3: Revealed his name.
Speaker 4: Okay, but but but he's a you know, he's a
Speaker 4: pretty savvy real estate guy in uh in Phoenix who
Speaker 4: has a real estate company called Get Your Nest. That
Speaker 4: will that that that that acts as a brokerage and
Speaker 4: the types of you know, effectively, he has to get
Speaker 4: creative for his clients. And and and the simplest thing
Speaker 4: is you go and look for a new home, right
Speaker 4: because the homebuilders are often buying down interest rates and
Speaker 4: and and we can tell you more about that. I
Speaker 4: can tell you more about that. But he's doing things
Speaker 4: as well, like well, can we go out and find
Speaker 4: people who have assumable mortgages which is usually an f
Speaker 4: h A or a v A loan that someone else
Speaker 4: can take on, so you know, it was a there's
Speaker 4: a three percent mortgage and you sell the mortgage along
Speaker 4: with the house. You know, the package today, the package not.
Speaker 2: Just it's not just not the garden.
Speaker 10: You know, throw it, throw in the three percent mortgage.
Speaker 10: I mean it sounds like a great deal.
Speaker 4: Yeah, totally, and it's you know, and it's probably better
Speaker 4: than the alternatives because the alternatives are you either look
Speaker 4: for something smaller. I mean, one thing we've heard about
Speaker 4: a lot is you look for something or what you
Speaker 4: find is a house that's not in great condition and
Speaker 4: so not only is it expensive, it's going to need
Speaker 4: more work. Or another thing that that Eugene told me
Speaker 4: he was doing with clients or you know, clients were
Speaker 4: considering as you know, you just drive farther. It's it's
Speaker 4: no longer you know, the close in suburb that you
Speaker 4: pictured yourself in in twenty twenty one when all your
Speaker 4: friends were rushing to buy homes. You are now you know,
Speaker 4: you're now in the next or the one after, and
Speaker 4: you're having to drive farther every day.
Speaker 10: Supershan, Let's talk about the home builder dynamic, because the
Speaker 10: other thing here is that there just hasn't been that
Speaker 10: much inventory.
Speaker 7: Right.
Speaker 10: But like so we're the homebuilders in all of this.
Speaker 11: Right, So the home builders in some ways are in
Speaker 11: much better shape because they produce inventory. So you've had
Speaker 11: the existing market just completely lock up, and that's left
Speaker 11: a little bit of an opening, especially for the larger
Speaker 11: builders that have their own mortgage arms, so they're able
Speaker 11: to kind of offer subsidized mortgage rates which are really
Speaker 11: enticing buyers to buy new so there can more aggressively
Speaker 11: cut prices and you know, offer you know, a five
Speaker 11: percent mortgage or something like that, at least for a
Speaker 11: period of time. It can you know, it might increase later,
Speaker 11: but for the first few years five percent, and that's
Speaker 11: that's actually working for them, so they're able to sort
Speaker 11: of increase production and get more buyers in.
Speaker 10: Okay, so young people can't get in, people with low
Speaker 10: rate mortgages don't.
Speaker 1: Want to sell.
Speaker 10: What's the way out of this impossible mess? Mortgage impossible
Speaker 10: as we called it on the cover, Well.
Speaker 11: We had we had like we spoke with UH, you know,
Speaker 11: Ralph McLaughlin. He's a he's an economist. So there's been
Speaker 11: some efforts to sort of attack this from uh, from
Speaker 11: the perspective of demand, trying to get make it easier
Speaker 11: for people to purchase, right, so lowering fees for mortgages,
Speaker 11: things like that down payment assistance. But all that does
Speaker 11: is sort of adds to the competition, right, which is
Speaker 11: the problem we have. So his idea is, let's try
Speaker 11: to get convinced sellers to sell. So he's suggesting that
Speaker 11: you could do things like, you know, uh, a window
Speaker 11: of time where you know, capital gains where you where
Speaker 11: maybe investors wouldn't have to pay that, or or or
Speaker 11: you you increase taxes on rental landlords. Either way, the
Speaker 11: idea would be to get some of these airbnb landlords
Speaker 11: and other landlords to sell to first time buyers.
Speaker 10: Hey, there was a different answer that I was like,
Speaker 10: which was like, you know, inspired by mortgage impossible. It's
Speaker 10: tim descending from the ceiling down to you know, jove,
Speaker 10: there's a knife that lends on the.
Speaker 3: Desks, just me at the bond market. Yeah, cutting rates.
Speaker 10: That was there was an alternative answer that was a
Speaker 10: very academic and effective one.
Speaker 2: I mean, isn't that go ahead?
Speaker 6: Go ahead?
Speaker 4: No please, no, no, no, My joke was not that good.
Speaker 4: We do have to do that. It's just like it
Speaker 4: was just like in the Federal Reserve interest rates if
Speaker 4: and this is really what the problem is, is like
Speaker 4: we don't see a way, you know, this is higher
Speaker 4: for longer for housing like we don't see a way
Speaker 4: for mortgage rates to come down quickly. They will come down,
Speaker 4: it's just you know, they're not going back to where
Speaker 4: they were. And if they were to go back to
Speaker 4: where they were quickly, it would be because we had
Speaker 4: really big problems in the world.
Speaker 11: Yeah, and if they came down, you know, you prices
Speaker 11: might go up because.
Speaker 10: Well that's the other thing though, right, because like the
Speaker 10: thing that has not budged is the prices, and so
Speaker 10: prices could come down here because that's the dynamic that
Speaker 10: we have yet to really start to see.
Speaker 11: Right, Yeah, rate rate. I mean, no one thought that
Speaker 11: we'd be, you know, flirting with eight percent mortgage rates,
Speaker 11: so that that really has been a downer for the market.
Speaker 11: Which you know, prices had been rising a bit because
Speaker 11: of this lack of supply, but the higher rates could
Speaker 11: actually hurt start to hurt demand more, and that would
Speaker 11: there's a potential here that you know, prices could come
Speaker 11: down a bit going forward, but you know if rates fell,
Speaker 11: that actually could drive prices up again, so because you know,
Speaker 11: more people would be able to buy. So there's there
Speaker 11: are very few solutions other than time, right, because if
Speaker 11: you've given enough time builders might be able to create
Speaker 11: some more inventory, but you know that's it's not gonna
Speaker 11: happen very.
Speaker 3: Fast, Joel. One thing I want to make sure to
Speaker 3: touch on was the demographic implications of something like this,
Speaker 3: which I didn't even consider until I read this cover story.
Speaker 3: If people cannot move to a bigger place, then maybe
Speaker 3: they don't have kids, or maybe they only have one
Speaker 3: kid when they want to have two. And we all
Speaker 3: know what happens to a society that stops having children.
Speaker 10: Yeah, you just hate the boomers even more for everything
Speaker 10: that they have than the rest of us didn't get
Speaker 10: right now and I just a little bit.
Speaker 3: But or you're never able to retire because nobody can
Speaker 3: fund social Security.
Speaker 7: Yeah, exactly.
Speaker 10: These are these long term economic implications that I think
Speaker 10: are are going to be a significant challenge. And like,
Speaker 10: if it's like this now and we think about how
Speaker 10: quick this happened, I'm not so sure that this isn't
Speaker 10: a very slow unwind out of this then and again,
Speaker 10: maybe there's no end in sight.
Speaker 2: Remember that earlier segment we did about being depressed.
Speaker 10: A little bit in the meantime tim coming down from
Speaker 10: the ceiling in the Federal Reserve. But it's a movie
Speaker 10: I might want to watch.
Speaker 3: All right, December FED meeting, I'll be there.
Speaker 2: Oh my god. All right. Bloomberg News real estate reporters
Speaker 2: pack Law Ark and Personcobal. They wrote the story. It's
Speaker 2: the domestic cover story of Bloomberg BusinessWeek. It's a most
Speaker 2: read two on the Bloomberg Or thanks to them as
Speaker 2: well as the editor of BusinessWeek, Jill Webber.
Speaker 8: Umbrella Marc.
Speaker 4: A journal. How about you let me drive? O?
Speaker 7: No, no, no, no, who's going to drive?
Speaker 3: Honey?
Speaker 7: Please the gravel?
Speaker 4: Let's wat I want to try it.
Speaker 12: It's a good question.
Speaker 1: This is the drive to the Globes dot com.
Speaker 6: I think well.
Speaker 1: Byn on Bloomberg Radio.
Speaker 2: All right, everybody, TikTok. It's just under eighteen minutes left
Speaker 2: in today's trading session. Carol Master along with Tim Stanovic
Speaker 2: life here in our Bloomberg Interactive Broker Studio. We've got
Speaker 2: the talks pretty much staying at their best levels of
Speaker 2: the day. Charlie just breaking down the numbers. Uh, as
Speaker 2: we said, everything seems awesome. Awesome again.
Speaker 3: Bill Maloney, who you just heard? Yeah, he used a
Speaker 3: very technical term that I think was one he developed
Speaker 3: as a trader. He said, this is a rip your
Speaker 3: face off rally.
Speaker 2: Bill, Are you listening?
Speaker 3: He's walking away right now. I see him for your
Speaker 3: face rally.
Speaker 2: Yeah, pretty interesting. I think he said the S and
Speaker 2: P right back above. It's two hundred days, so it's
Speaker 2: bullish significant. Yeah, certainly technicians would say so. All right,
Speaker 2: So let's get to it with Len's Canon, portfolio manager
Speaker 2: at hood River Capital Management, joining us on zoom from
Speaker 2: Palm Beach Cord in Florida. He manages the hood River
Speaker 2: International Opportunity Fund. It's up nine percent year to date,
Speaker 2: Timmitt's and an eighty ninth percentile for funds in this category.
Speaker 2: That's according to our own data here at Bloomberg.
Speaker 3: Hey, Len's good to have you with us this afternoon.
Speaker 3: Let's talk about the day and then zoom out a
Speaker 3: little bit. I mean, the S and P five hundred
Speaker 3: is up four point three percent over the last five days.
Speaker 3: Our investors getting ahead of himself right now.
Speaker 12: Tim Girl's great to be here. You know, that's a
Speaker 12: good question. I'm it would be great to have more
Speaker 12: of these days coming ahead. But I think it's hard
Speaker 12: to ignore that was is happening from a macro standpoint
Speaker 12: out there. As well, and the fact that there are
Speaker 12: some signals that would suggest that maybe this isn't self
Speaker 12: sustaining as long as we'd like. But you know, we've
Speaker 12: been wrong before and we'd all love to see more
Speaker 12: of these days going forward. So here's a hope that
Speaker 12: this is sustainable at this juncture.
Speaker 2: Well, so you've got to manage a fun or you
Speaker 2: are managing a fund, and I don't know how much
Speaker 2: you kind of kind of move around the portfolio. But
Speaker 2: in this environment, I mean, what is it that makes
Speaker 2: you sell buy? Is it just case by case company?
Speaker 2: Is there macro factors that impact the portfolio strategy?
Speaker 12: That's a good question. So here at hood River, we're
Speaker 12: a bottoms up fundamental long only shop, so we tend
Speaker 12: to look for quality management teams we can invest with
Speaker 12: over time, have good quality products, and so for us,
Speaker 12: it's all about the fundamentals. Funamals drive both the buy
Speaker 12: and sell process. So we're looking for companies and opportunities
Speaker 12: that present a company in a situation where it's undervalued
Speaker 12: relative to maybe some of us peers, or even what
Speaker 12: we think it should be valued. I think a great
Speaker 12: example of one of those type of names would be
Speaker 12: on Holdings, which is the company that owns on cloud shoes.
Speaker 12: It's a company that we own their international fund. It's
Speaker 12: based out of Switzerland that it's listened here in the US.
Speaker 6: They've done a really good job with in terms of
Speaker 6: growing in Europe.
Speaker 12: They've got a really great management team that's continued to
Speaker 12: work here and growing the company in the North America
Speaker 12: region as well as an Asia Pacific, which we think
Speaker 12: has a lot of leg Well.
Speaker 2: North America right is their big, big market right now
Speaker 2: if you look at a pie chart right in terms
Speaker 2: of revenues, and I know the ADRs that trade here
Speaker 2: in the United States are up about sixty percent. I'm
Speaker 2: not being a show off, but our team just did
Speaker 2: a show one of our chief Future officers on Holding
Speaker 2: and they talked with there's two co CEOs, but one
Speaker 2: of the co CEOs is actually the CFO as well,
Speaker 2: So we just did a whole half hour on it.
Speaker 2: So it's certainly been a company that's on our radar.
Speaker 2: But you're right, China, there's a lot of room for
Speaker 2: growth there if they can make it work.
Speaker 12: Yeah, I agree on hundred percent with that, and I
Speaker 12: think that will have been if they can be successful
Speaker 12: over there. I think it's one of the things that
Speaker 12: can help them continue to drive the margin expansion. And
Speaker 12: one of the reasons why we're excited about the name
Speaker 12: is that we think there's opportunity for them to continue
Speaker 12: to expand margins, drive higher earnings growth, and develop more
Speaker 12: cash flow so then could be distributed back to us
Speaker 12: as investors down the road.
Speaker 3: Okay, what about Baltic Classified. It's part of Baltic Classified,
Speaker 3: the group of trades over in London.
Speaker 6: Yeah.
Speaker 3: You know, you hear online classifieds and you think to yourself,
Speaker 3: Wait a second, I thought Facebook and Google completely disrupted, Yeah,
Speaker 3: this space, what's going on?
Speaker 12: Yeah, so these guys are not necessarily in those jurisdictions
Speaker 12: that where you would think about Facebook and some of
Speaker 12: the other guys, whether this is like a Lithuania or
Speaker 12: some of the Eastern European countries where maybe it's not
Speaker 12: quite as developed. From that standpoint, they've been able to
Speaker 12: go out and find the right platforms and built the
Speaker 12: right platforms in those jurisdictions or in those geographies, and
Speaker 12: it allows them to be a number one or number
Speaker 12: two market shared holder from that standpoint, and their average
Speaker 12: revenue per customer or per ad is significantly lower relative
Speaker 12: like your Facebook or eBay or some of these other
Speaker 12: online platforms that are doing and selling products online from
Speaker 12: the individuals, and so we really like the opportunity they've created.
Speaker 12: They can drive top line growth through both price and
Speaker 12: the pricing part that they have, as well as through
Speaker 12: expanding into other geographies that are adjacent to the ones
Speaker 12: that are already in where they're already starting to see
Speaker 12: some traction from you know, cross border opportunities, and from
Speaker 12: there successful in doing this, we believe that EBITDA will
Speaker 12: continue to grow, They'll continue to see margins expand as
Speaker 12: they've got a really hot, really low level of fixed
Speaker 12: costs that have already been covered and then some and
Speaker 12: well it currently trades at eighteen times and this thing's
Speaker 12: growing it you know, call it mid teens. We think
Speaker 12: this is a longer term play that can really kind
Speaker 12: of choose your portfolio going forward.
Speaker 2: Small cap when you look at the small cap universe,
Speaker 2: lots of names out there, you think right now for
Speaker 2: you to be looking at, a lot of them have
Speaker 2: been been beaten up. I know, certainly here in the
Speaker 2: United States.
Speaker 12: Oh yeah, yeah, no, it's we're definitely constructive on international
Speaker 12: small cap or a small cap in general as a whole.
Speaker 12: You know, if you look at like the msci XUS
Speaker 12: small Cap Index relative to the fsci XUS Large Cap Index,
Speaker 12: historically the small cap index is traded at a premium
Speaker 12: relative to large cap. Right now, large cap is trading
Speaker 12: at a premium relative to small cap, which to your point,
Speaker 12: I think illustrates that these small cap neans have just
Speaker 12: really been beaten up. But that's also why we're so
Speaker 12: positive and excited about the opportunities that we're seeing out there.
Speaker 12: We're seeing a lot of companies where there's opportunities to
Speaker 12: own names that will have positive earnings revisions over the
Speaker 12: next twelve to eighteen months, and that's really where we're
Speaker 12: focused right now, is identifying those names that are going
Speaker 12: to have those positive earnings revisions and then allow us
Speaker 12: to generate alpha for our clients going forward.
Speaker 3: Is there a geography a region in the world that
Speaker 3: you're most bullish on.
Speaker 12: There's a hamp I mean, India is very interesting to
Speaker 12: us right now. We're excited about various parts. Obviously we've
Speaker 12: talked about a name there in the UK slash Europe area,
Speaker 12: there's opportunities almost everywhere we look. To say that there's
Speaker 12: one particular that I'm excited about more than others is
Speaker 12: not true because I find that as opportunities to pretymache.
Speaker 2: Everywhere, squeeze in one more basic fit.
Speaker 9: Uh.
Speaker 2: They're based over in the Netherlands, I believe. Yes, another
Speaker 2: one point six billion market cap. I'm looking at actually
Speaker 2: one point six billion in terms of euros. So tell
Speaker 2: us about this. This is what health clubs fitness just what.
Speaker 3: It sounds like, basically be fit.
Speaker 12: Yeah, it's exactly basic fit.
Speaker 6: I would tell you.
Speaker 2: It's a bit of roughly be kind.
Speaker 3: Just talking to me. Don't worry, We've got.
Speaker 6: It's all good.
Speaker 2: Thirty seconds go ahead.
Speaker 12: Yeah, so I guess real quickly. And this is like
Speaker 12: the Planet Fitness of Europe.
Speaker 4: Yeah.
Speaker 12: So it's a low cost provider. They're opening in more countries.
Speaker 12: They're in Spain and the Netherlands and Belgium and France.
Speaker 12: Another expanded in Germany and the UK and Italy. It's
Speaker 12: a lot of opportunity to expand there's not really a
Speaker 12: whole lot of competition for them. You're going to grow
Speaker 12: top line both by driving more memberships into the current
Speaker 12: clubs that are open those various countries, as well as
Speaker 12: expanding to other countries adjacent to them. Even demarts to
Speaker 12: continue to expand as they were able to lovers six costs.
Speaker 12: All right, all the fun stuff, thank you.
Speaker 3: The question is, you know, if it's the Planet Fitness
Speaker 3: of Europe, do they still have pizza mondays like Planet Fitness's.
Speaker 2: Let's Only Hope? Lance Cannon, portfolio manager at hood River
Speaker 2: Capital Management, joining us there from Florida.
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