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Speaker 3: It is a Fed Wednesday, not a decision, but we're
Speaker 3: getting the Fed minutes from that first meeting of twenty
Speaker 3: twenty six, happened on January twenty eighth. You know, that's
Speaker 3: the meeting when the Fed kept rate steady and you
Speaker 3: had two FED governors Chris Waller and Stephen Meyern, voting
Speaker 3: against the decision in favor of lowing rates by a
Speaker 3: quarter of a point. So we are waiting for them
Speaker 3: to cross. They will cross any moment from now.
Speaker 4: Beetcher Powell also back then talked up a quote clear
Speaker 4: improvement in the US outlook, and so the job market
Speaker 4: shows sign of steadying, studying signaling a cautious optimism.
Speaker 3: All right, let's head to DC, and outside the Federal
Speaker 3: Reserve is our own Michael McKee Mike.
Speaker 5: Okay, here's the headline. In a very newsy set of minutes,
Speaker 5: Several participants indicated that they would have supported a two
Speaker 5: sided description of the committee's future interest rate decisions, reflecting
Speaker 5: the possibility that upward adjustments could be appropriate. The focus
Speaker 5: of the January meeting on inflation largely rather than jobs,
Speaker 5: and concern that bringing it down had stalled. Officials anticipated
Speaker 5: inflation would move down this year, but the pace and
Speaker 5: timing remained uncertain. The continuing rise in prices driven by tariffs,
Speaker 5: the minute say the effects would likely start to diminish
Speaker 5: this year, and ongoing moderation and housing prices would also help.
Speaker 5: High productivity growth from technology might also put downward pressure
Speaker 5: on inflation, and a few participants mentioned that companies were
Speaker 5: telling them they are on mading more operations to try
Speaker 5: to offset some price increased needs. Most participants, however, cautioned
Speaker 5: that progress toward the two percent objective might be slower
Speaker 5: and more uneven than generally expected, and judged that the
Speaker 5: risk of inflation running persistently above the committee's objective was meaningful.
Speaker 5: Some cited reports from business contacts expecting to raise prices
Speaker 5: this year. The labor market the committee's big concern last
Speaker 5: year was less of a concern this year. The vast
Speaker 5: majority of participants judged the minutes say that labor market
Speaker 5: conditions had been showing some signs of stabilization and that
Speaker 5: downside risks to the labor market had diminished. Still, most
Speaker 5: agreed downside risks to the labor market remained in place,
Speaker 5: particularly as the labor supply diminished. Overall, the economy appeared
Speaker 5: to be expanding at a solid pace, with resilient consumer
Speaker 5: spending and robust business investment, particularly in technology, although suggested
Speaker 5: a lot of that was due to spending by higher
Speaker 5: income consumers. Lower income spending was soft. There was a
Speaker 5: long discussion of markets, with several commenting on high asset
Speaker 5: valuations and historically low credit spreads. Some saw vulnerabilities in AI,
Speaker 5: including elevated equity valuations and gains concentrated in a small
Speaker 5: number of companies. Several highlighting concern about the private credit sector,
Speaker 5: and others commented on risks associated with hedge funds and
Speaker 5: rising leverage. Finally, the January meeting is when the Open
Speaker 5: Market Committee elects its officers for the year. J Powell
Speaker 5: again named chair of the Committee, but the minute, say,
Speaker 5: until the selection of their successors at the first meeting
Speaker 5: of twenty twenty seven.
Speaker 3: Gotta say, Mike, it sounds like they all had their
Speaker 3: readings that morning because the meeting, right, it sounds like
Speaker 3: they covered a lot of stuff. Hang on for a second,
Speaker 3: because I want to see what you think is of
Speaker 3: most important importance. Thank you the Bloomberg audience. Having said that,
Speaker 3: just taking a look at equity markets firming up a
Speaker 3: little bit on the S and P and the Dow,
Speaker 3: but pretty much NAZEQ one hundred, staying where it was
Speaker 3: prior to the Fed Meat Fed minutes coming out. If
Speaker 3: I look at the Treasury curve, you are looking at
Speaker 3: pretty much the ten and five where they were prior
Speaker 3: to the release of the minutes. Looking at the shorter
Speaker 3: end of the Yeald curve, slide uptick, the two year
Speaker 3: yield moving from like three forty five to three forty six,
Speaker 3: kind of back there. So I would say, not much
Speaker 3: market reaction, which is kind of interesting, Mike. What is
Speaker 3: most notable because investors seem to be taking this in stride.
Speaker 5: Well, this is the first commentary from anybody at the
Speaker 5: FAD about the possibility of rate increases several is referred
Speaker 5: to only two or three members, and we kind of
Speaker 5: know who those members might be. But the idea that
Speaker 5: they did put the idea out there is something that
Speaker 5: we haven't seen in years, and so it does become
Speaker 5: a significant talking point as we go forward ward and
Speaker 5: watch to see what inflation does. The emphasis clearly shifting
Speaker 5: to inflation at this meeting from last year's focus on jobs.
Speaker 4: Hey Mike, A couple the headlines that are worth repeating.
Speaker 4: Several more cuts of inflation declinents as expected, yet most
Speaker 4: caution disinflation could be slower than expected. What could lead
Speaker 4: to slower disinflation.
Speaker 5: Well, they're concerned about tariff price increases and maybe they
Speaker 5: don't fade out as fast. And then additional demand in
Speaker 5: the economy because we're going to get some stimulus from
Speaker 5: tax refunds and because of all the spending on AI
Speaker 5: might also push prices higher. So there's concerns that inflation,
Speaker 5: while it may not rise significantly, could stabilize at a
Speaker 5: higher than desired level and that might lead the FED
Speaker 5: to have to do something about it.
Speaker 3: Hey Mike, A lot going on. Obviously, there's Fed minutes.
Speaker 3: We had some economic news today as well, we also
Speaker 3: had Kevin Hassett out there on a New York Fed
Speaker 3: tariff study, and I got to about that. He is,
Speaker 3: of course President Trump's NEC director, and he says that
Speaker 3: a New York Fed study showed that the US companies
Speaker 3: bearing most of the tariff burden is an embarrassment and
Speaker 3: the people associated with it should be disciplined. He spoke
Speaker 3: about this earlier on CNBC. Here's exactly what he had
Speaker 3: to say. He said, what they've done is they put
Speaker 3: out a conclusion which has created a lot of news
Speaker 3: that's highly partisan, based on an analysis that wouldn't be
Speaker 3: accepted any first semester ECON class. I've been in that
Speaker 3: first semester ECON class. So, Mike, FED researchers found nearly
Speaker 3: ninety percent of the economic burden from tariffs last year
Speaker 3: were born by US companies and consumers. Let's say, you,
Speaker 3: Mike McKee and the folks that you talked to the
Speaker 3: economic community, who really bears the cost of those tariffs.
Speaker 5: Companies and consumers in the United States. Mister Hassett's comments
Speaker 5: seem to have adopted the attack dog language of the
Speaker 5: Trump administration much more than even Kevin had done before.
Speaker 5: Maybe because he's not a candidate for a FED chair
Speaker 5: at this point. But you got to point out that
Speaker 5: the New York Fed, by saying ninety percent is picked
Speaker 5: up by Americans, is the outlier here because of study
Speaker 5: by the University of Chicago found ninety nine percent, study
Speaker 5: by the CBO found ninety five percent, the Kiel Institute
Speaker 5: in Germany found ninety four percent. So all of these
Speaker 5: people found that Americans are buying ninety percent or more
Speaker 5: or paying ninety percent or more of the tariffs. So
Speaker 5: I think mister Hassett is look at it the wrong way.
Speaker 5: And obviously the Trump administration doesn't like criticism.
Speaker 4: Okay, good to have that on the program, Mike. Just
Speaker 4: before we let you go, that the jobless boom a
Speaker 4: most read story on the Bloomberg terminal about the unprecedented
Speaker 4: jobless boom in the US. How economists are warning that
Speaker 4: the US economy is vulnerable to shocks because the labor
Speaker 4: market is not growing. Some are predicting that economic growth
Speaker 4: will slow due to stagnant labor markets. Camp productivity increase
Speaker 4: as the result well productivity of technology. Excuse me, as
Speaker 4: a result of.
Speaker 5: Technology, Well, that can happen. The question is how fast
Speaker 5: does the technology get adopted and how quickly and how
Speaker 5: deeply does it get adopted to drive productivity significantly higher.
Speaker 5: The concern about the labor market and the jobless recovery
Speaker 5: is reflected in these minutes, and members of the Open
Speaker 5: Market Committee did talk about that as a possibility, a
Speaker 5: possible risk to the economy, although as I said, inflation
Speaker 5: was sort of their number one concern this time.
Speaker 3: All right, so appreciate it as always our own Michael
Speaker 3: McKee down there outside the Federal Reserve. Were actually inside
Speaker 3: the Federal Reserve because it's kind of still cold outside,
Speaker 3: I think, Mike, Thank you so much. Safe travels back,
Speaker 3: stay with us.
Speaker 4: More from Bloomberg Business Week Daily coming up after this.
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Speaker 3: Hey listen. Investor is definitely keeping a watch on economic
Speaker 3: data fed expectations for what else is a top of
Speaker 3: mind is someone who's been looking at the recent volatility
Speaker 3: in the markets. He says it's typical of a major
Speaker 3: investment cycle, and that's some dynamics around the fear of
Speaker 3: AI disruption or contradictory. It is the view of our
Speaker 3: next guest. He is Mike Wilson of Morgan Stanley. He
Speaker 3: was among the rare forecasters who held on to a
Speaker 3: bullish few last April, even as stock sank in the
Speaker 3: aftermath of sweeping US tariff's. His conviction proved correct, with
Speaker 3: the S and P, as you know, rebounding to a
Speaker 3: record as President Trump dialed down his trade war. He
Speaker 3: does see the S and P rally I think about
Speaker 3: sixteen percent this year, but that was his call him
Speaker 3: in November. We'll see if he has an update. We
Speaker 3: welcome Mike Wilson. He's chief US equity strategist, chief investment
Speaker 3: officer for Morgan Stanley. He's in New York City. Might
Speaker 3: good to have you here. And someone who has followed
Speaker 3: Mike's call and writes calls, I should say, and writes
Speaker 3: about him a lot is our own Alex Sevenover. She's
Speaker 3: Bloomberg News equities reporter. She's here in studio. We want
Speaker 3: to talk about the markets, Mike. Are we in the
Speaker 3: midst of a new bull market and earning cycle? Especially
Speaker 3: from any of the lagging areas of the index. That
Speaker 3: was your call in mid November. Is that a call
Speaker 3: you still stick to.
Speaker 6: Yeah, well, good afternoon. First of all, I would say yes.
Speaker 6: I mean, you know, the story we actually started writing
Speaker 6: about in May of last year, which is a midyear update,
Speaker 6: was exactly that. I think our view still remains out
Speaker 6: of consensus around this idea that Liberation Day marked the
Speaker 6: end of what we call a rolling recession. So we're
Speaker 6: actually not only in a new earning cycle, we're in
Speaker 6: a new economic cycle. And that's why we're seeing the
Speaker 6: broadening out now, because there have been many parts of
Speaker 6: the economy that have been sort of mired in a
Speaker 6: recession for the last three years or so and they're
Speaker 6: just now starting to emerge. Areas like consumer goods, it's
Speaker 6: some of the financial sector, industrials obviously we're just getting
Speaker 6: a boost from AI campex, but also getting a boost
Speaker 6: from you know, basically underspending for the last several years.
Speaker 6: Parts of technology are still doing quite well, and so
Speaker 6: that broadening out is that is the real story. And
Speaker 6: we doubled down on that in November because the evidence
Speaker 6: was coming through, and you know, in May we didn't know,
Speaker 6: but now we know. I mean that the earnings growth
Speaker 6: for the media and stock and the Russell three thousand
Speaker 6: is now running double digit growth year every year. That's
Speaker 6: the first time we've seen that in four years. So
Speaker 6: it's happening. The question, you know, the question now is
Speaker 6: how long can it last? You know, what could derail that?
Speaker 6: And you know, what do you pay for? I mean,
Speaker 6: those are always the questions. But but the but the
Speaker 6: first part of your question is resounding. Yes, we are
Speaker 6: in a new earnings and economic cycle and the market
Speaker 6: has figured it out.
Speaker 7: Man, it's been pretty remarkable to see that you've got
Speaker 7: this stock volatility at the single stock level, also at
Speaker 7: the sector level, but when you look at the S
Speaker 7: and P five hundred, it actually hasn't really done much
Speaker 7: this year. What is it going to take to break
Speaker 7: us out of this range? And what could be the
Speaker 7: catalyst to get us past that elusive seven thousand level
Speaker 7: that everyone's waiting for.
Speaker 6: Yeah, that seems to be the question. I mean, obviously,
Speaker 6: stock investors don't mean if you can make money in
Speaker 6: other areas, that's fine. I think that's the real main
Speaker 6: message is that the market is not going anywhere at
Speaker 6: d SMP level, But there are many sectors that are
Speaker 6: doing well and that's the name of the game. Now
Speaker 6: to your question, I think what's going to break us
Speaker 6: out ultimately are two things. Number One, there is some
Speaker 6: uncertainty around the AI capex cycle and the disruption that
Speaker 6: perhaps it could cause in the labor market and other areas.
Speaker 6: So I think we're in one of those testing periods.
Speaker 3: Now.
Speaker 6: We worked about that this week. We think that ultimately
Speaker 6: it's a little bit premature to kind of throw a
Speaker 6: cold blanket on the AI cycle. It's just getting going
Speaker 6: from our standpoint. And then secondarily, I think we have
Speaker 6: a new FED chair nominee with Kevin worsh and the
Speaker 6: market always tests the new FED chair, whoever it is,
Speaker 6: when they come into into power office. And so first
Speaker 6: we have to go through the you know, the nominate,
Speaker 6: the confirmation hearings, and then we've got to learn a
Speaker 6: little bit more about what he really intends to do
Speaker 6: so that you know, that could lead to this, you know,
Speaker 6: the market kind of struggling for another month or two.
Speaker 6: And then ultimately we think once he takes office, we
Speaker 6: think that'll that'll be another catalyst for why the market
Speaker 6: can have a really good second half, and we stand
Speaker 6: by our seventeen hundred dollars price target for the SMP
Speaker 6: by the end of this year.
Speaker 4: Okay, so those are all the reasons and more that
Speaker 4: that you think we could see a sixteen percent increase
Speaker 4: in the S and P five hundred this year. What
Speaker 4: changes your mind, Mike? What could happen between now and
Speaker 4: the end of the year that could cause you to
Speaker 4: go back and sharpen the pencils, break out the excel
Speaker 4: and say, wait a second, we've got to recalculate this.
Speaker 6: Yeah, well, we do that every week anyways because we
Speaker 6: have to. But but I would say, you know, what
Speaker 6: would change our view is probably the things that are
Speaker 6: going right now. So for example, if we would see
Speaker 6: the earning cycle start to deteriorate, and then that could
Speaker 6: happen cent O four cast, but if the earnings revisions
Speaker 6: would just start to narrow again or start to really
Speaker 6: break down, that would be clearly something that would change
Speaker 6: our view. The second would be that, you know, the
Speaker 6: fear around Kevin worsh being kind of a balance sheet hawk,
Speaker 6: where you know he's going to maybe shrink the balance
Speaker 6: sheet and we're going to have a little bit of
Speaker 6: an liquidity problem potentially that would cause multiples to come down.
Speaker 6: We don't think that's going to be the case this year.
Speaker 6: That might be a story for twenty twenty seven. Well,
Speaker 6: we'll think about it then, but maybe we're wrong on that.
Speaker 6: The other one, of course, is you get another exogenous
Speaker 6: shock of some kind, and I think, you know, the
Speaker 6: one I mentioned earlier is starting to weigh on stocks
Speaker 6: here in the short term, which is this concern that
Speaker 6: you know, AI is happening so fast and it's you know,
Speaker 6: it's migrating now into the corporate world, that we're going
Speaker 6: to see a big labor cycle. That's not our view,
Speaker 6: but it could happen. And so there are those would
Speaker 6: be the top three. I would say that could derail
Speaker 6: our positive view for this year.
Speaker 7: We've heard time and time again that big text profits
Speaker 7: are going to slow, that it's time to rotate, and
Speaker 7: anyone who said that for the last few years has
Speaker 7: been wrong on that. Do you think that this year
Speaker 7: is different? And when you think about the end of
Speaker 7: twenty twenty six, when we close out, who are going
Speaker 7: to be the new winners?
Speaker 3: And I love that you went there, because Mike, it
Speaker 3: feels like the last three years, people have said, get
Speaker 3: away from big tech, diversify, and yet that's where we've
Speaker 3: seen so much of the games. It's great, it's a
Speaker 3: great yes.
Speaker 6: Well, I mean, I think a lot of people also
Speaker 6: made the other side of the call, which is to
Speaker 6: kind of upgrade small caps or the equal weighted s
Speaker 6: and p We didn't do that. You know, we don't
Speaker 6: get everything right, but we waited until November to make
Speaker 6: that call because our view is not that tech earnings
Speaker 6: are going to collapse. It's that the rest of the
Speaker 6: market's earnings are going to improve, and that's what usually
Speaker 6: drives relative performance. So it's really the spread between sort
Speaker 6: of the mag seven or large cap growth stacked earnings
Speaker 6: growth and the other four hundred and ninety three stocks
Speaker 6: or the other equal weighted index, whatever you want to
Speaker 6: call it. And that spread is narrowing now. And so
Speaker 6: the areas that we have been you know, recommending, is
Speaker 6: based on where that earnings growth is accelerating the most.
Speaker 6: That would be things like consumer goods or financials, some
Speaker 6: of the industrial segments, some of the small MidCap areas,
Speaker 6: and we stand by that that that that's what we're seeing,
Speaker 6: and that that's what we think is going to continue
Speaker 6: for the rest of this year.
Speaker 8: And that's really the story.
Speaker 6: It's not a it's not an anti tech or anti
Speaker 6: large cap growth call. It's more of a just a
Speaker 6: bullish call on all these parts of the economy and
Speaker 6: the market that have been under earning because of this
Speaker 6: rolling recession.
Speaker 7: So is it fair mic to say that you like
Speaker 7: the equal weighted version of the S and P five
Speaker 7: hundred more than the main index.
Speaker 6: Absolutely that that was our one of our lead calls
Speaker 6: in the November outlook, and and that has worked so far,
Speaker 6: so not on avoid hopefully that continues. And based on
Speaker 6: what we've seen so far this year in the earnings
Speaker 6: and what we see kind of in this you know
Speaker 6: that the economy itself, which which I think quite frankly
Speaker 6: is booming at the moment because you have capital spending
Speaker 6: increasing and consumer spending holding up, that that's a much
Speaker 6: better environment for the app.
Speaker 3: Hey, Mike, two things I just real quickly. I'm curious
Speaker 3: about do you think that White House is still a
Speaker 3: risk to financial markets? Are with midterms looming, do you
Speaker 3: think that the President and his team are going to
Speaker 3: be very careful about unsettling things in the financial markets.
Speaker 3: Many have said he certainly keeps an eye on it.
Speaker 3: Maybe that's the checks and balances on the White House.
Speaker 3: And secondly, Kevin warsh if indeed he does become fed cheer,
Speaker 3: will he be an independent fed.
Speaker 7: Yeah?
Speaker 6: No, I think I mean, look, I think that this
Speaker 6: administration and the president you know, specifically has shown that
Speaker 6: you know, they're going to he's going to kind of
Speaker 6: operate in his speed, and so I don't anticipate that
Speaker 6: we're going to see, for example, you know, this administration
Speaker 6: and trying to lose momentum in what they're trying to achieve,
Speaker 6: which which means more of the same. Quite frankly, it's
Speaker 6: going to be you know, it's going to be active,
Speaker 6: and that creates you know, periods of volatility, uncertainty.
Speaker 8: Whatever you want to call it.
Speaker 6: But I mean, I think the mission that what they're
Speaker 6: trying to accomplish is now crystal clear, trying to rebalance
Speaker 6: the economy on three different planes at the same time,
Speaker 6: and I think you're having some success with that. That's
Speaker 6: why we're seeing productivity increase already, we're seeing GDP increase,
Speaker 6: We're seeing earnings you know, broaden out, and so as
Speaker 6: long as they're seeing results like that, I think they're
Speaker 6: going to stay the course. With respect to the FED independence.
Speaker 6: I mean I've probably had a bit different view here.
Speaker 6: I mean, as far as I can tell. I mean,
Speaker 6: the FED independence has been sort of fading for the
Speaker 6: better part of twenty years really since the financial crisis,
Speaker 6: and we're not staying independent. I don't mean they're under
Speaker 6: the thumb of the White House. I mean is that
Speaker 6: they have to play ball in terms of their role
Speaker 6: to help the government fund itself, Okay, And we saw
Speaker 6: that after the financial crisis. We saw that in twenty twelve,
Speaker 6: We saw that, you know when you know, we had
Speaker 6: a regional banking stress in twenty twenty three. So the
Speaker 6: FED is obligated to, you know, help financial markets operate.
Speaker 6: I mean like it's their third mandate. They even call
Speaker 6: it that. So so that to me is where the
Speaker 6: FED independence has been challenged for better part of two decades.
Speaker 8: And I think that's going to continue.
Speaker 6: I think the FED and treasur are going to work
Speaker 6: closer together, okay, climber to the two thousand World War
Speaker 6: two period. And that's a good thing because that means
Speaker 6: they're going to figure it out.
Speaker 3: All right, well, we all want you back here, so
Speaker 3: feel free to stop Buyer Studio anytime. Mike Wilson, chief
Speaker 3: US equity strategist, chief investment Officer over at Morgan Stanley,
Speaker 3: and of course are Alex Evanova.
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Speaker 3: So US Treasury yields. We did see you move up today.
Speaker 3: Earlier on some strong economic date including reports on housing.
Speaker 3: New residential construction in the US rose to a five
Speaker 3: month high in the month of December that as home
Speaker 3: builders boosted production to take advantage of lower barring costs
Speaker 3: that work out there. The advance, we should point out
Speaker 3: was broad based, both single family home starts and apartment
Speaker 3: projects rising at years end, the number of one family
Speaker 3: homes started was tim the highest since the month of February.
Speaker 4: The stronger construction numbers suggest that builders were growing more
Speaker 4: confident at year's end, even as they continue to sell
Speaker 4: off a bloated inventory of new houses for the full year,
Speaker 4: though starts notched a fourth straight annual decline. For more
Speaker 4: on the US housing market, we're joined by Comedy Lane,
Speaker 4: President and CEO of Coldwell Banker Realty. It's got nearly
Speaker 4: forty nine thousand affiliated real estate agents doing business in
Speaker 4: more than fifty five markets across the United States. She
Speaker 4: joins us from Los Angeles. It's good to have you
Speaker 4: on the program. The spring buying season is about to
Speaker 4: get underway. You have agents all over the country who
Speaker 4: are giving you real time feedback about what things are looking.
Speaker 4: This is not a monolithic market. I hear that location, location,
Speaker 4: location is everything. What can you tell us about the
Speaker 4: state of the real estate industry in the US.
Speaker 1: Yeah, you know, we have seen some really good indicators
Speaker 1: at the end of last year, both in terms of
Speaker 1: housing starts and in terms of new construction. And you know,
Speaker 1: inventory really is sort of the issue to tackle in
Speaker 1: the housing market right now. We know that, you know,
Speaker 1: more than eighty five percent of people believe that home
Speaker 1: ownership is central to the American dreams, so that aspiration has.
Speaker 8: Not gone away.
Speaker 1: However, we need inventory. We need inventory to get people
Speaker 1: into those homes. So you know, it is location, location, location,
Speaker 1: but it really is inventory, inventory, inventory, and we see
Speaker 1: sort of mixed inventory across the country. You know, if
Speaker 1: you look at sort of the Midwest and the Northeast,
Speaker 1: we still have really tight inventory, whereas in other markets
Speaker 1: we do see loosening of inventory, which is causing more
Speaker 1: price stability.
Speaker 4: Is there anything that gets inventory to increase without actually
Speaker 4: just building more homes would lower mortgage rates increase inventory?
Speaker 1: Absolutely?
Speaker 3: I think.
Speaker 1: You know, we've talked a lot about that lock in
Speaker 1: effect that started occurring because of the historic low interest rates,
Speaker 1: you know around post COVID era, where we saw sellers
Speaker 1: that were really locked into their homes because they didn't
Speaker 1: want to give up that three.
Speaker 8: Or four percent interest rates.
Speaker 1: So with a loosening of that lock in effect, we're
Speaker 1: going to see sellers who are more willing to put
Speaker 1: their homes on the market, who are a little bit
Speaker 1: more realistic about prices, right because we're not seeing the
Speaker 1: double digit year rear price increases that we saw kind of,
Speaker 1: you know, four or five years ago. And so when
Speaker 1: we get more sellers to release that lock in effect,
Speaker 1: when we get sellers to get realistic about pricing, that's
Speaker 1: really going to be the other factor, in addition obviously
Speaker 1: to new building that gets more inventory on the market.
Speaker 3: Company that lock in effect, where people you know, have
Speaker 3: a low rate, they don't want to move. Is it
Speaker 3: is it everybody or is it largely an older population
Speaker 3: who ether maybe retired around COVID or made some decisions
Speaker 3: and you know, it's just more to do with demographics
Speaker 3: than people who locked in lower rates or is it
Speaker 3: a little bit of both.
Speaker 1: It's you know, it's everybody. I mean, who doesn't love,
Speaker 1: you know, three percent interest rate? Right? But I think
Speaker 1: that what folks are starting to realize is that those
Speaker 1: were historical lows for a reason, and now we are
Speaker 1: you know, mortgage rates are about six percent one hundred
Speaker 1: basis points lower than last year and very much in
Speaker 1: line with US historical averages. So I think this idea
Speaker 1: of just holding on to an interest rate is starting
Speaker 1: to loosen across all demographics, and people are realizing that
Speaker 1: there are other reasons to move. Now you couple that
Speaker 1: with the increase in home equity and the increase in
Speaker 1: wage earning over the last couple of years, and folks
Speaker 1: are really loosening. The fact loosening to the idea that
Speaker 1: that low interest rate is the only thing holding them
Speaker 1: in their home. They're starting to realize that if they
Speaker 1: do put their home on the market, they can take
Speaker 1: advantage of some of those equity gains from price increases,
Speaker 1: you know, and just being more realistic about what rates
Speaker 1: are in line with historical averages.
Speaker 3: You mentioned earlier that I think there's tighter inventory in
Speaker 3: the northeast. Other areas are looser us around the country
Speaker 3: and what you're seeing and be more specific in terms
Speaker 3: of markets.
Speaker 1: Yeah, sure, So you know Texas is one market, Austin
Speaker 1: in particular, where we are seeing year over your price
Speaker 1: decreases because we've got a lot of inventory there. Florida
Speaker 1: actually has more inventory this this time this year than
Speaker 1: it did last year, which is sort of an interesting
Speaker 1: and unexpected dynamic. And you know, one market that I
Speaker 1: think is fascinating right now is the city of San Francisco.
Speaker 1: We saw eurover your price declines around the covid Era
Speaker 1: in the city of San Francisco, and now because of
Speaker 1: the AI boom, we're seeing a really strong price increases
Speaker 1: in the city of San Francisco, both in terms of
Speaker 1: rent and in terms of single family homes, and I
Speaker 1: think that that's going to continue to increase. So price
Speaker 1: increases in that city, you know, but not a lot,
Speaker 1: not a lot of inventory. I live in Los Angeles,
Speaker 1: and we're actually seeing sort of a studying of the
Speaker 1: market in Los Angeles. We had historical highs in terms
Speaker 1: of year over your price increases a few years ago,
Speaker 1: and now we see prices are really studying out in
Speaker 1: Los Angeles and supply and demand are starting to even
Speaker 1: out a little bit.
Speaker 4: In Los Angeles. Did the devastating fires last year affect
Speaker 4: the way that people think about living in an environment
Speaker 4: such as that.
Speaker 1: You know, Los Angeles is always going to be a
Speaker 1: really attractive city, just the combination of the weather, the
Speaker 1: proximity to the beach, the ocean, you know, mountains, the
Speaker 1: entertainment industry. The fires certainly had a devastating effect on
Speaker 1: specific communities, but we actually saw, particularly in the high end,
Speaker 1: that that demand that was in the Palisades and Malibu
Speaker 1: communities that were devastated by the fires transferred almost one
Speaker 1: to one into neighboring communities like Beverly Hills, bel Air,
Speaker 1: Santa Monica, Brentwood. And so I don't think that the
Speaker 1: demand to live in Los Angeles has changed at all
Speaker 1: because of the because of the fires. We're just seeing
Speaker 1: a sort of a rebalancing in where folks have moved.
Speaker 3: You know, I'm curious to what sellers are having to do.
Speaker 3: So is it more of a seller's market or buyer's
Speaker 3: market or again depends on the on the market. And
Speaker 3: I am curious about when it's new versus previously owned homes,
Speaker 3: what you're seeing. And I bring that up because Toll
Speaker 3: Brothers reported after the close yesterday our own in house
Speaker 3: intelligence team, writing the post first quarter earnings outlook, first
Speaker 3: quarter orders are flat five percent below consensus. It did
Speaker 3: keep its full year guidance when it comes to deliveries, management,
Speaker 3: saying January's gotten off to a promising start, with most
Speaker 3: customer metrics modestly higher than last year, though caution that
Speaker 3: it's still early in the spring season. I mean, the
Speaker 3: spring season is an important one, and I am curious
Speaker 3: if sellers, particularly new homes, are having to incent buyers
Speaker 3: throwing in different things to get sales going or is
Speaker 3: that not the case?
Speaker 1: You know, so, you know, for new constructions, for new construction,
Speaker 1: incentives have not actually changed, and so we're not seeing,
Speaker 1: you know, shift in the sort of buyer's market or
Speaker 1: seller's market dynamic with regards to new construction. But to
Speaker 1: your point, you know, whether it's a buyer's market or
Speaker 1: seller's market really does differ around the country, and it
Speaker 1: really is just dictated by inventory because the macroeconomic factors
Speaker 1: around the country are steady right in terms of wage increases,
Speaker 1: in terms of mortgage rates, and so it really is
Speaker 1: dependent on inventory. So when you look at a market
Speaker 1: like New England, for example, where we still have very
Speaker 1: very tight inventory, you know that's going to dictate that
Speaker 1: sellers have a little bit more power than buyers do. However,
Speaker 1: in a market like Texas, and you know Texas is
Speaker 1: very broad, but I'll talk to Austin in particular. We've
Speaker 1: got a lot of inventory in Austin and so prices
Speaker 1: are down year over here about six percent, So that
Speaker 1: indicates that it's more of a buyer's market where buyers
Speaker 1: have a little bit more power at that negotiating table.
Speaker 1: So you know, again, inventory really is the thing that's
Speaker 1: dictating market dynamics across the country, and it very much
Speaker 1: is region specific.
Speaker 4: You know, I'm wondering about compensation for the agents that
Speaker 4: you have that you oversee. And you know, if we
Speaker 4: think about the industry, this is one where they're essentially
Speaker 4: private contractors, right, They're not employed by you, They work
Speaker 4: for themselves. They eat what they kill. The commissions have
Speaker 4: been under scrutiny for quite a bit of time. There
Speaker 4: was the big settlement in recent years. What are commissions
Speaker 4: looking like in different markets and is their pressure on
Speaker 4: commissions as a result of that?
Speaker 8: Yeah, great question.
Speaker 1: So at Coltal Banker Realty, we have about forty nine
Speaker 1: thousand affiliated agents, all independent contractors, and you know, what
Speaker 1: we're actually seeing is that on the cell on the
Speaker 1: list side, commissions have gone up a little bit. And
Speaker 1: I think that is because after the massive conversation and
Speaker 1: the news cycle around commissions, our agents got better at
Speaker 1: talking about the value that they provide. So at that
Speaker 1: kitchen table, when you're negotiating with an agent to decide
Speaker 1: who is going to list your home, which you know,
Speaker 1: by the way, the vast majority of Americans have the
Speaker 1: vast majority of their wealth tied up in the equity
Speaker 1: of their home, So that is an incredibly important decision.
Speaker 1: Who is going to help you with the most important
Speaker 1: financial transaction of your life. Those agents are better able
Speaker 1: to articulate their value, and consumers are recognizing that and
Speaker 1: they're willing to pay for it. And that is what
Speaker 1: the commission is. It's compensation for the incredible value that
Speaker 1: the real estate professional is providing. So contrary to what
Speaker 1: a lot of people assume, we actually have not seen
Speaker 1: commissions decline in the last year or so. They're actually
Speaker 1: going up. And I think it really is because of
Speaker 1: that value that the real estate professional is providing, particularly
Speaker 1: at a firm like Coldelbinker Realty Comedy.
Speaker 3: One thing we have to ask about is AI. The
Speaker 3: Impact of Fortune has a story out from Zillo citing
Speaker 3: Zillo CTO chief Technology officer, and he is saying that
Speaker 3: AI is reinventing every step of the home buying process,
Speaker 3: making it easier for shoppers to search for a home
Speaker 3: and lead a transaction. We've recently seen the AI scare
Speaker 3: trade impact some of the residential or not residential, but
Speaker 3: real estate servicing companies. AI in your world just got
Speaker 3: about forty seconds left here. How is it impacting it
Speaker 3: so far and how might it I think?
Speaker 1: I think artificial intelligence is an amazing tool to help
Speaker 1: our real estate professionals use their time more effectively and efficiently.
Speaker 1: At the end of the day, real estate really is
Speaker 1: about relationships. It's the most personal transaction that most people
Speaker 1: are ever going to encounter in their lives, and so
Speaker 1: that really does require.
Speaker 8: A human at the center.
Speaker 1: However, AI can make that human more powerful, use their
Speaker 1: time more efficiently, use data more efficiently, and be more
Speaker 1: effective in that transaction.
Speaker 3: So real quickly. It's an aid. It's not going to
Speaker 3: wipe out what you guys do or your agent's doing.
Speaker 4: You know.
Speaker 8: It is an aid.
Speaker 1: It is an empowerment tool, but real estate is fundamentally human.
Speaker 3: All right, good leave it there, Company Lane, thank you
Speaker 3: so much. Presidency of cold Well Banker Realty joining us.
Speaker 4: Stay with us. More from Bloomberg Business Week Daily coming
Speaker 4: up after this.
Speaker 2: If you're listening to the Bloomberg Business Weekdaily podcast, catch
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Speaker 3: There's another thing we've been keeping track of. It happened
Speaker 3: out on the West Coast. It involved one of the
Speaker 3: largest market cap companies out there and a major player
Speaker 3: in social media. Are you talking about meta?
Speaker 4: Yeah, Mark Zuckerberg, testifying that it's quote very difficult to
Speaker 4: enforce Instagram's age limits. He sought to defend the platform
Speaker 4: during a landmark trial over social media addiction. He was
Speaker 4: sharply questioned on the witness stand today about whether he
Speaker 4: and other leaders are aware of the volume of children
Speaker 4: under age thirteen who use the photo sharing app. Ker
Speaker 4: Wagner is senior technology reporter. He covers social media. He's
Speaker 4: also the author of Battle for the Bird, Jack doors
Speaker 4: Elon Musk in the forty four billion dollar Fight for Twitter.
Speaker 4: So he joins us from Denver. Kurt, There's so many
Speaker 4: directions we want to go here. I mean, there are
Speaker 4: some out there who are comparing this to what happened
Speaker 4: with tobacco company executives on the stand, you know, when
Speaker 4: when we were kids, and and the way that that
Speaker 4: changed the public health view of cigarettes, and the way
Speaker 4: that that has looked back on historically. What's at stake here?
Speaker 9: Yeah, I mean, this is to your point, sort of
Speaker 9: in the same general vain as those those cigarette tobacco
Speaker 9: industry trials, opioid industry trials, Like this is a question
Speaker 9: of whether these social networks specifically are built, you know,
Speaker 9: with the intention of addicting users, especially particularly addicting young
Speaker 9: people teenagers to their products. And so this is a real, uh,
Speaker 9: you know, signature moment, I would say, for this industry
Speaker 9: to kind of be challenged with these allegations, and you know,
Speaker 9: in Mark Zuckerberg's case, to defend himself in his company
Speaker 9: against the accusations. And so it's been highly watched, highly anticipated,
Speaker 9: and this is just really the first of more than
Speaker 9: a thousand potential trials that we could see. There's thousands
Speaker 9: of lawsuits in this same vein, and so we're paying
Speaker 9: particularly close attention to this one because the outcome of
Speaker 9: this could sort of signal what we might see from
Speaker 9: a lot of these other lawsuits that have yet to
Speaker 9: be tried.
Speaker 4: How do you differentiate or how does a judge or
Speaker 4: how do lawyers differentiate on whether something is addictive, meant
Speaker 4: to be addictive to kids, or just it's addictive in nature,
Speaker 4: so it doesn't matter if the person who's using it
Speaker 4: is twelve years old or twenty five years old.
Speaker 9: Yeah, I mean, this is why it's such a challenging question.
Speaker 9: I don't know, is the short answer to the answer
Speaker 9: to this, But I can tell you that what plaintiff's
Speaker 9: lawyers were doing this morning with Mark Zuckerberg on the
Speaker 9: stand was they were trying to show two things. The
Speaker 9: first was they were challenging him over Meta's enforcement of
Speaker 9: its age restricts, basically saying, you know, are you actually
Speaker 9: enforcing this idea that those under thirteen should not be
Speaker 9: on the platform, and if so, are you doing everything
Speaker 9: possible to actually do that? And I feel like that's
Speaker 9: really been maybe the main argument that's been happening is
Speaker 9: that they haven't really enforced their own policies on that.
Speaker 9: Mark Zuckerberg has admitted, Hey, this is a difficult thing
Speaker 9: for us to do, and you may recall like this
Speaker 9: actually ties into a broader tech industry discussion we've had
Speaker 9: over the last couple of years where Meta has said, hey,
Speaker 9: this should be the job of the app stores, This
Speaker 9: should be.
Speaker 8: An Apple and Google thing.
Speaker 9: An Apple and Google are saying no, no, no, no, this
Speaker 9: is your responsibility.
Speaker 8: Meta.
Speaker 9: You know, you have to determine who how old the
Speaker 9: users are on your platform. And so this sort of
Speaker 9: plays into a discussion we've really heard more broadly accross
Speaker 9: the industry for the last couple of years.
Speaker 3: What's so fascinating, Kurt, It's happening on a day when
Speaker 3: we've talked about CBS and what's happened on Stephen Colbert's
Speaker 3: show in terms of one specific Texas politician who is
Speaker 3: running for now a federal state federal Senate seat. But
Speaker 3: I mean just the rules and oversight, and it's just
Speaker 3: fascinating that when you know, traditional airwaves came out, there
Speaker 3: was oversight, right, there was you know, rules about what
Speaker 3: could be on air, And now most of us are
Speaker 3: getting information from social media. Right, it's not your linear
Speaker 3: broadcast and so on. So you do wonder like when
Speaker 3: does the oversight come from all of this? And as
Speaker 3: you write in your story, I mean, this is one case.
Speaker 3: You have three thousand cases brought by children, adolescents and
Speaker 3: young adults through their parents. You've got school districts, You've
Speaker 3: got I mean, so much going on. It's not so
Speaker 3: how important is this first case, because it sounds like
Speaker 3: there's a lot more legal overhang from Meta and others.
Speaker 8: I think it's really important.
Speaker 9: I mean, we had some time with Meta's lawyers a
Speaker 9: few weeks ago, their legal team and what they told
Speaker 9: us was, you know, each case is different, each trials different,
Speaker 9: each jury is different. So getting a verdict in their
Speaker 9: favor one way or the other on this first case,
Speaker 9: you know, isn't a huge deal. But I think for
Speaker 9: those watching on the outside, I mean, this is going
Speaker 9: to signal do these cases have merit?
Speaker 8: Do these cases have legs?
Speaker 9: Certainly it's going to be hard for lawyers in the
Speaker 9: other cases not to look here and say, Okay, what
Speaker 9: worked and what didn't work in terms of arguments and
Speaker 9: lines of questioning.
Speaker 8: So I think it's very important. It could also be
Speaker 8: the kind of.
Speaker 9: Thing, you know, if Meta loses a case early on,
Speaker 9: you know, do they choose to start to settle some
Speaker 9: of these cases down the line to avoid having to
Speaker 9: go through the actual jury process every time?
Speaker 8: And so I think this is important.
Speaker 9: It certainly will signal or set sort of the expectation
Speaker 9: for things to come. Even though it is true I
Speaker 9: think that each each case will have its own nuances
Speaker 9: and details to flush out. So this will kind of
Speaker 9: serve as a belt weather.
Speaker 3: Listen, this is not a US issue, as you well known, Kurt,
Speaker 3: It's a global issue. And I'm looking at a story
Speaker 3: that was on the Bloomberg yesterday India discuss India discussing
Speaker 3: age based social media curbs. According to one of its ministers,
Speaker 3: You've got countries right tim around the world that are
Speaker 3: taking steps to crack down on use. Australia the first
Speaker 3: country to implement a legal ban, which included Meta Meta's
Speaker 3: Instagram and Facebook, snap Elon, Musk's ex TikTok and Google's
Speaker 3: you Tube Ireland. Like you know, it is going across Europe.
Speaker 3: So like we are seeing so many different things go on.
Speaker 4: Yeah, kurb, what do public health officials, not just in
Speaker 4: the US, but in public health observers say about these
Speaker 4: platforms in general and kids?
Speaker 9: Well, I mean there's been research for years that these
Speaker 9: platforms can be very divisive. You know, it's easy to
Speaker 9: for misinformation, for example, to run rampant on these platforms.
Speaker 9: We've all certainly witnessed that. I think it was the
Speaker 9: in the US where they wanted to apply sort of
Speaker 9: similar warnings that you would get on cigarettes, right like
Speaker 9: smoking labels essentially, but for social media. And so there's
Speaker 9: been a lot of talk about this. I think what's
Speaker 9: interesting about these bands or these restrictions for teens is
Speaker 9: that they are you know, everyone's watching Australia. You mentioned India,
Speaker 9: there's other several other countries in Europe that are considering
Speaker 9: similar restrictions.
Speaker 8: But there's also states in the US that.
Speaker 9: Are trying to get this done as well, to try
Speaker 9: and sort of limit social media use for teens. And
Speaker 9: it'll be interesting to see if, like there's a snowball
Speaker 9: effect at some point, right because right now it's limited.
Speaker 8: It's a lot of chatter.
Speaker 9: But you know, a year from now, two years from
Speaker 9: how are we going to look up and say, hey,
Speaker 9: this is now the norm right that those under sixteen
Speaker 9: just can't use social media?
Speaker 8: And I think that's it's certainly possible.
Speaker 3: I mean it's wild. I mean Ireland, right home to
Speaker 3: kind of the EU tech hub, it's considering plans to
Speaker 3: introduce age restrictions on social media platforms as part of
Speaker 3: a broader AI strategy, and they've talked about this. Do
Speaker 3: you feel, like, Kurt, you follow this world, that we
Speaker 3: are getting to a moment of reckoning when it comes
Speaker 3: to social media. There's a great story by Max Chafkin
Speaker 3: about dumb phones. Dumb phones, you know, rather.
Speaker 4: Than every parent in the newsroom, we were talking about
Speaker 4: this today, we're all like, yeah, like, what is the
Speaker 4: solution for our kids?
Speaker 3: Like parents are stepping in because they just don't want this.
Speaker 3: So are we at a at maybe a turning point
Speaker 3: or I don't know, Like what do you what do
Speaker 3: you think? We've just got about thirty seconds here.
Speaker 8: Yeah, I can see.
Speaker 9: I can tell you that it's a massive theme that
Speaker 9: we're following on our sort of social media pod here
Speaker 9: at Bloomberg. Yeah, because it's not just this trial in
Speaker 9: LA We mentioned the thousands of others. There's state ags
Speaker 9: that are suing, school districts that are suing, Like, this
Speaker 9: is not a storyline.
Speaker 8: That's going to go away.
Speaker 9: And I think the ban or the restrictions excuse me
Speaker 9: in Australia and potentially in your or just adding to that.
Speaker 9: So certainly can't remember a time when it's been talked
Speaker 9: about this much before.
Speaker 3: Great stuff, as always, Kurt Wagner, thank you so much,
Speaker 3: senior technology reporter cover social media. Check out his book
Speaker 3: Battle for the Bird.
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