Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast and looking at big
Speaker 1: point up twelve and a half percent here seventeen thousand,
Speaker 1: seven hundred hours per token. But let's face in, folks,
Speaker 1: the crypto spaces facing existential crisis. I would say, Um,
Speaker 1: Samuel Bankman Freed SPF to the kids is the FDx
Speaker 1: cryptocurrency to Rivers Exchange CEO and co founder. They've got
Speaker 1: some real problems there, as does some related businesses there.
Speaker 1: We need to roundtable this discussion with people that actually
Speaker 1: report this on a daily basis, cover from a research perspective.
Speaker 1: Mike mcglogan, senior commodity strategist with Bloomberg Intelligence. He's really
Speaker 1: been our crypto crypto go to from b I and
Speaker 1: Katie Greifeld, cross asset reporter with Bloomberg News, joins us, Hey, Mike,
Speaker 1: you know you've seen booms and bus across a wide
Speaker 1: range of securities and commodities. Is this a Lehman moment
Speaker 1: for the crypto space in your learning opinion? Oh yes,
Speaker 1: I do think so. Was quite the shock they have.
Speaker 1: This happened with Sam Bank and Free and ft X.
Speaker 1: I mean they were He was the stud of the
Speaker 1: play industry. Everybody loved him. He was great, He had
Speaker 1: some great conferences everything. This is a big shocker. Um.
Speaker 1: The question is now where do we go from here?
Speaker 1: And I think what we're going to do is, yes,
Speaker 1: we're going to get through this. The the technology is
Speaker 1: still very valid, but it's going to come when we
Speaker 1: do finally break out to back to the enduring trends
Speaker 1: can probably come from a lower plateau. So I'm looking
Speaker 1: at bitcoin now, is now we know pretty significant resistance
Speaker 1: is twenty thou good supports ten thousand. But the key
Speaker 1: thing to point out is a Serriums holding a thousand
Speaker 1: dollars support. Just put that in context. At the end
Speaker 1: of two thousand, it was I think, you know, discussion
Speaker 1: about bitcoin or ethereum as an asset class. That's not
Speaker 1: what this is really a about. Right after Lehman Brothers,
Speaker 1: you wouldn't have said the dollar is a horrible fiat currency.
Speaker 1: It wasn't about that. It was about what Dick Fold
Speaker 1: did and the decisions made at the bank. This is
Speaker 1: about what Sam Bankman, Sam Bankman, Freed did and the
Speaker 1: decisions he made f t X and al Mada a
Speaker 1: kind of lack of transparency there. What do you think happened, Mike?
Speaker 1: What did SPF do that left a four to eight
Speaker 1: billion dollar hole that he can't pay back? Got overshoes,
Speaker 1: that's a very young person. But how did he take
Speaker 1: customer money from f t X and then gamble it
Speaker 1: on at Almeida. Well, there's a lot of acculation accusations
Speaker 1: that that happened. Exactly what happened within that company, I
Speaker 1: don't really know, I mean, but that's what I hear.
Speaker 1: He came out today on Twitter and he's apologized, so
Speaker 1: he's kind of been meeting errors here at least finally,
Speaker 1: so we can kind of, you know, move forward from that.
Speaker 1: But if I was exactly what he did a similar things,
Speaker 1: I think we've had a lot of space. It's just
Speaker 1: that classic human nature of greed. When you cry, I
Speaker 1: it reminds me of what happened with Japan when they
Speaker 1: collapsed Native was that cross acid. But those are real equities.
Speaker 1: They are across the holding of tokens, which only have
Speaker 1: value if someone's willing to buy them. Where do you
Speaker 1: think Where do you think this story goes next? Katie?
Speaker 1: I mean it was Sam Bankman Freed with the space
Speaker 1: kind of what what do you guys on the reporting
Speaker 1: side thinking about, Oh my gosh, well, I'll sell you
Speaker 1: on the reporting side. It's a little bit busy right now,
Speaker 1: but I think I will bring it back to the
Speaker 1: conversation we had with Nick Carter of Cowtil Adventures yesterday.
Speaker 1: The immediate news, of course, is what's happening with f
Speaker 1: t X? Are they hurtling towards bankruptcy? What is going
Speaker 1: to happen with Sam BigMan Freed? But you've got to
Speaker 1: look for the fallout because no matter doesn't f t
Speaker 1: X bankruptcy a foregone conclusion? Well, V don't. We haven't
Speaker 1: gotten the headline, we haven't gotten the filowing, so we
Speaker 1: can't say that yet, right, But is there anyone? So
Speaker 1: c Z and Byance have said they're not going to
Speaker 1: rescue him. Sequoia wrote down there um investments, so they're
Speaker 1: clear not going to do it. Soft Bank has made
Speaker 1: some pretty horrible investment decisions, so maybe soft Bank will
Speaker 1: go in there and throw good money after bad. You know,
Speaker 1: we know that Sam BigMan Fried is trying. He said
Speaker 1: that he's going to quote give anything for capital, So
Speaker 1: maybe someone comes out of the woodwork who were not expecting,
Speaker 1: maybe someone from the trad five space. But to your point,
Speaker 1: with four billion dollars, four billion dollars, I know that's
Speaker 1: those are some big bucks there. But beyond what is
Speaker 1: happening with ft X, the chaos that's happening that, I
Speaker 1: think you need to look at the lenders like Nick
Speaker 1: Carter totalist. If Alameda Research, like Sam Bankman Fried said today,
Speaker 1: is really winding down trading, Alameda was, you know, really
Speaker 1: involved with a lot of the lenders that are still
Speaker 1: left in the space. So that's where I would look.
Speaker 1: If you look at the coin level, I know that
Speaker 1: every single coin is rallying today, but you look at
Speaker 1: something like Salana, it's up thirty seven percent right now,
Speaker 1: that seems a little bit hairy when you think about
Speaker 1: what big backing that that blockchain got from Alameda, that
Speaker 1: it got from Sam Bankman Freed. I know there was
Speaker 1: a CPI per but I don't know. And you think
Speaker 1: the rally and and Mike, by the way, what do
Speaker 1: you think, because Katie thinks the big rally and crypto
Speaker 1: really is about the CPI print and the huge rally
Speaker 1: in stocks. Okay, but it's kind of ironic. Finally we
Speaker 1: got a CPI number we can expect, which my colleague
Speaker 1: will have been nailed expected. But the key thing is
Speaker 1: why is it weaker and expected? I published on this
Speaker 1: deflation numbers coming out of China because we're heading towards recession.
Speaker 1: The market just hasn't figured out yet. You look at
Speaker 1: the forward curve FED funds a year from now, they
Speaker 1: dropped twenty five basis points obviously two or no. Two.
Speaker 1: But to me, this is what the part of we
Speaker 1: should expect CPI inflation dums will start being weaker and
Speaker 1: expect because my colleague on along and b I it's
Speaker 1: predicting a hundred percent chance or models recession next year
Speaker 1: and then we start tilting over. But this is the
Speaker 1: whole tie. Now, this is chance that seems like a
Speaker 1: dangerous call. Same person called a five percent you know
Speaker 1: fed funds, right, you know? Okay, it was clearly going.
Speaker 1: I mean we all kind of knew that we did
Speaker 1: and that was way out of I would say, six,
Speaker 1: but calling for a chance of something happening next year
Speaker 1: other than the sun coming up. All right, this is
Speaker 1: this is Mike, We're gonna have to leave it. Then
Speaker 1: we're gonna come back. We'll do that later. Mike mcglowan,
Speaker 1: Senior Commodity Strategies from Bloomberg Intelligence. Katie Greifeld Cross Asset Reporter,
Speaker 1: and Matt You've got a show on this stuff, right,
Speaker 1: It's a special, an hour long special today at one
Speaker 1: pm Thursday afternoon, six pm in London, will tell you
Speaker 1: all about what's going on with f t X and
Speaker 1: al Maida markets. Definitely moving on this a CPI print.
Speaker 1: We want to check in with Christian Chan. He's the
Speaker 1: chief investment officer at Asset Mark. Uh. Christian, you see
Speaker 1: the collect that you see the moves in equity markets
Speaker 1: and the fixed income markets today, what does that tell
Speaker 1: you about kind of where this market is in terms
Speaker 1: of you know, expectations pent up, the meaning for a pivot,
Speaker 1: waiting for a pivot? I mean, how do you interpret
Speaker 1: today's data? Egg Good morning a body, Uh yeah, really
Speaker 1: great inflation number. I think all around, if you can
Speaker 1: consider seven point seven percent year on year growth in
Speaker 1: prices as as a good print. UM. But I think
Speaker 1: what everybody is cheering for is that it looks like
Speaker 1: we're finally on the downside of this slope here. Um.
Speaker 1: The core number even fell a bit, so I think
Speaker 1: better than certainly expectations. And when we look across the
Speaker 1: breadth of prices, UM pretty good in terms of UM
Speaker 1: all of the components of CPI that fell, um, and
Speaker 1: it's really just shelter that was you know, still contributing
Speaker 1: to a you know, the pretty good price increase. But
Speaker 1: I think that, as we all know, takes a while
Speaker 1: to percolate through the you know, through the CPI numbers.
Speaker 1: So from the market's perspective, yeah, I think you know.
Speaker 1: The way I think about this is, yes, it's good news, um,
Speaker 1: particularly with I think what was feared, and I kind
Speaker 1: of think of the CPI number as the same way
Speaker 1: we thought about earnings really over the last couple of quarters,
Speaker 1: which is better than fear. Let let me just run
Speaker 1: through the numbers quickly for our listeners so they know
Speaker 1: what we got at eight thirty this morning, so about
Speaker 1: two hours ago, we got the headline number at seven
Speaker 1: point seven percent. It's still as shockingly high inflation as
Speaker 1: I was saying before. It's still um a very big number,
Speaker 1: but it's the lowest that we've gotten this year. And
Speaker 1: we were looking for seven point nine percent, and the
Speaker 1: previous print was eight point two percent, So seven point
Speaker 1: seven makes us feel good. The core was up, or
Speaker 1: at least cp I excluding food and energy was up
Speaker 1: month over month zero point three percent. Um we were
Speaker 1: we were looking for zero point five percent, though, so
Speaker 1: it's much better than that, and we're down from zero
Speaker 1: point six percent, so we're still looking at serious inflation. Christian,
Speaker 1: you mentioned the rent component, and this is something that
Speaker 1: a lot of people have been talking about. Obviously, people
Speaker 1: don't sign new rental contracts every month, so you know
Speaker 1: those effects take a year to play out. Is this
Speaker 1: why you know the market is optimistic about a seven
Speaker 1: point seven percent number, because they don't really believe it's
Speaker 1: as bad as it as it looks. Yeah, I think
Speaker 1: that's exactly right. And when when I think about, you
Speaker 1: know that that rental piece in particularly as you mentioned it,
Speaker 1: it does take a while for for lower rents to
Speaker 1: to work through into the CBI numbers, same thing with
Speaker 1: the owner's equivalent rent um. But I think you're exactly right.
Speaker 1: I think that we're hopefully on this, you know, down
Speaker 1: slope of inflation UM. And I think about the other
Speaker 1: parts of the market and what's happened, so the inflation
Speaker 1: swaps UM. So I think yesterday they're trading at three
Speaker 1: point four percent, so implying at three point four percent
Speaker 1: inflation rate one year from today down to about two
Speaker 1: point nine percent. So I think people are pricing in
Speaker 1: a different not just a different level inflation, but a
Speaker 1: different path in terms of the progression back down to
Speaker 1: something closer to two or three percent UM in a
Speaker 1: year or so. You University of Michigan expectations tomorrow morning. Um,
Speaker 1: Right now, it looks like the economists that we've talked
Speaker 1: to expect the one year inflation outlook to be five
Speaker 1: point one percent. That's still very high. That's higher than
Speaker 1: it previously was. But you know, maybe that number is
Speaker 1: a beat. Um. University Michigan such a strong football team
Speaker 1: this year they are. That's really worries me. A huge
Speaker 1: game as high state. I'm concerned about that. But in
Speaker 1: terms of the markets, Christian what do you what are
Speaker 1: you expecting? Because we've really rallied up to over on
Speaker 1: the SNP. You know, two weeks ago, three weeks ago,
Speaker 1: we were at thirty six hundred. Are we going to
Speaker 1: finish the year at these levels or even higher? I
Speaker 1: think that's a that's a really distinct possibility. I think, um,
Speaker 1: you know, certainly, earnings have been better than I think
Speaker 1: we had feared, better than a lot of folks have
Speaker 1: have expected. Um. And if we continue to get good
Speaker 1: prints on CPI I think we could see you know,
Speaker 1: these levels hold or even trade higher. I don't think
Speaker 1: we'll rip, you know, well above four thousand, but um
Speaker 1: and and stay there for that long. But um, I
Speaker 1: think that the big macro driver today is clearly inflation.
Speaker 1: And if we start to get a sensor that's under
Speaker 1: control and we're pricing that properly in the marketplace, UM yeah,
Speaker 1: I think we could finally see inflation prints being a
Speaker 1: bit of a tail wind for both equity and bond
Speaker 1: markets as opposed to, um, you know, the big headwind
Speaker 1: that they've been over the last six months or so.
Speaker 1: All Right, Christie, you're based in Concord, California, right, yes, alright,
Speaker 1: just east of San Francisco. Are you guys gonna get
Speaker 1: snow up at Tahoe this this this winter, that's what
Speaker 1: we're hoping for. I don't know that we have much yet,
Speaker 1: but uh yeah, we're all hoping for a good skies
Speaker 1: and that's for sure. I love tom It's a great
Speaker 1: place to ski up there. Squaw Valley, you know that's
Speaker 1: my favor I love well. I love the movie Hot Dog.
Speaker 1: You've got to be a certain age to even remember
Speaker 1: that movie, but that was based at Squaw Valley. That's
Speaker 1: some good stuff up there. We're all basically we're hoping
Speaker 1: for a mild winter for continental Europe, but we want
Speaker 1: as much snow as possible in the Alba Stand in
Speaker 1: the Rockies, exactly out of the Sierra Nevada. Christian Chan,
Speaker 1: CEO of a st Market, joins us, we've got the
Speaker 1: infestrates pulling back today, but we think about the mortgage
Speaker 1: rates out there, they've searched the north of seven percent.
Speaker 1: I think Matt might have locked in something like three
Speaker 1: and a quarter percent when he bought his house recently.
Speaker 1: So a big, big move up in reinfest rates really
Speaker 1: impacting the real estate business. So the Federal Reserve is
Speaker 1: certainly haven't an impact there. We want to talk about
Speaker 1: the commercial real estate business and for that we checked
Speaker 1: on the Hassam Naji, President and CEO of Marcus and Millichap,
Speaker 1: which is a New York Soaker change traded company. M
Speaker 1: m I is the symboliscott of market capitalization about one
Speaker 1: point four billion dollars. Hassan, thanks so much for joining
Speaker 1: us here, so talk to us about the state of
Speaker 1: the commercial real estate business. We've seen the residential business
Speaker 1: are to roll over here with the higher rates. What
Speaker 1: are we seeing in your commercial space? Good morning, Thanks
Speaker 1: for having me on the program. Very similar to the
Speaker 1: trans you mentioned on the residential side of the marketplace.
Speaker 1: We're seeing essentially a reaction to a shock delivered by
Speaker 1: the rapid and steep interest or increases. Therefore, pricing is challenged,
Speaker 1: maturing loans that now need to be refinanced are challenged,
Speaker 1: and the market is just recalibrating to try and figure
Speaker 1: out what the actual valuations on each asset should be
Speaker 1: because of the cost of debt. Debt is a very
Speaker 1: big component of commercial real estate transactions, especially among private investors,
Speaker 1: which make up the vast majority of transactions and ownership
Speaker 1: throughout the US. So when rates go up two d
Speaker 1: and fifty basis points, it does make a very big
Speaker 1: difference on the valuation component. The second part of we're
Speaker 1: seeing this especially if um, a lot of businesses feel
Speaker 1: like they can just act half of their office space, right,
Speaker 1: I mean, if you have so many employees working from
Speaker 1: home and it looks like that's no longer just a
Speaker 1: pandemic thing for at least a significant portion of your workforce,
Speaker 1: it's going to stay that way. You just don't need
Speaker 1: as much room, do you. On the office side of
Speaker 1: the equation, You're absolutely right. There is a reduction of
Speaker 1: footprint that is created by the hybrid workplace that is
Speaker 1: here to stay. We really do believe that, most of
Speaker 1: our clients believe that. But it's also to some extent
Speaker 1: overstated in that even I mean here right here in
Speaker 1: New York today and you're seeing people come back into
Speaker 1: the city office occupancies probably half of what it was
Speaker 1: pre pandemic, and it will probably take two or three
Speaker 1: more years for it to become more normal, if you will.
Speaker 1: But you're bringing up a great point. Valuations for office
Speaker 1: under are under the most pressure. Valuations for apartments and
Speaker 1: uh Indu streel which were the lowest yields because there
Speaker 1: were the darling of the industry, are very challenged because
Speaker 1: the higher interest rates are challenging those yields a lot
Speaker 1: more than say shopping centers, which were trading already trading
Speaker 1: at a higher yield. Therefore they had some room to
Speaker 1: absorb the interest rate shock. But the good news all
Speaker 1: around commercial real state, with the exception of office, is
Speaker 1: that supply and demand or in grade shape vacancies were
Speaker 1: at all time low. There's not been an overbuilding cycle,
Speaker 1: and there hasn't been an over leveraging cycle like we
Speaker 1: had an eight o nine where the basically the credit
Speaker 1: markets collapsed. We don't see any of that happening, but
Speaker 1: I can tell you live from mine interactions, there's a
Speaker 1: there's a shock factor on the interest rate side. What
Speaker 1: about the stores we used to have on this block.
Speaker 1: I don't know where you are in New York right now,
Speaker 1: but you should come over on this block. We used
Speaker 1: to have a container store. There was an H and M.
Speaker 1: There was Jay Crew Ah, there was a Victorious secret Um.
Speaker 1: You know, all of those places are not only gone,
Speaker 1: but nothing has filled them in yet. They're still just
Speaker 1: sitting here empty in one of Dare I say, the
Speaker 1: nicest buildings in midtown Manhattan on a block that used
Speaker 1: to be you know, I mean we're across street from
Speaker 1: blooming Tail's right, Matt to your point, Urban retail and
Speaker 1: older shopping centers in the suburbs that don't really have
Speaker 1: a sustainable anchor tenant anymore, or the hardest hit among
Speaker 1: retail that will take a long time to come back.
Speaker 1: If they come back. Some of those older shopping centers
Speaker 1: are being reimagined and really acquired for reuse, which is
Speaker 1: the reinvention of retail. But I'll tell you our core
Speaker 1: neighborhood shopping center clients and even the strip centers that
Speaker 1: are more in the path of traffic outside of core
Speaker 1: urban areas, are they come back? It? Uh. Those shopping centers,
Speaker 1: because they're tied to restaurants, fitness and entertainment, which is
Speaker 1: back in full force, are doing very well. Um. In fact,
Speaker 1: they're they're leading in terms of the sales trans for
Speaker 1: a third quarter versus all the property types. So the
Speaker 1: real estate is always changing. That's the one thing to remember.
Speaker 1: So if if I'm a commercial real estate investor, is
Speaker 1: it as simple as going along the Nashville's, the Austin's,
Speaker 1: the Miami's, the world and you know, maybe not so
Speaker 1: much some of the northern cities, the higher tax cities.
Speaker 1: Is as simple as that. You know, they follow the demographics.
Speaker 1: And the sun Belt is a winner Florida, Texas, some
Speaker 1: of the markets you mentioned, uh in the Northwest. I
Speaker 1: think Seattle is an incredibly strong market with great demographics.
Speaker 1: So you're absolutely right. Those are the growth markets, follow
Speaker 1: the growth. But I also have to say that some
Speaker 1: of the urbier markets San Francisco, Bay Area in southern California,
Speaker 1: New York, not so much Chicago. Yet those core markets
Speaker 1: where pricing is adjusted and is adjusting further, all of
Speaker 1: a sudden become the diamond in the rough. You have
Speaker 1: to think five years out, where will the recovery have
Speaker 1: not just gone with the demographics, but what are some
Speaker 1: of the metro's you know, left for big bruises and damage.
Speaker 1: That can be the diamond and the rough investment. I'm
Speaker 1: a big believer in the fact that urban America will
Speaker 1: come back. It will take time, but it will come back.
Speaker 1: I love it. I'm still hung up on the strip
Speaker 1: mall success that's pretty awesome. I mean e commerce, I
Speaker 1: mean some e commerce searched during the pandemic. But what
Speaker 1: we're hearing for some retailers is foot traffic is coming back.
Speaker 1: It is people really want that experiential retail. Every one
Speaker 1: of our clients that owns the shopping center that has
Speaker 1: a nice mix of restaurants, bars, in other forms of
Speaker 1: entertainment and fitness, uh, you know, personal care, beauty, all
Speaker 1: of those things are attracting consumers back, especially in the
Speaker 1: birds rights on because people those people who are working
Speaker 1: from home. You know, my wife, Um, she doesn't ever
Speaker 1: have to go into the office anymore. So now instead
Speaker 1: of doing pilates downtown in Manhattan, she does pilates on
Speaker 1: Central Park Avenue and Scarsdale exactly. I mean, you're you're
Speaker 1: you're nailing the trend right there. But I do think
Speaker 1: in the next two or three quarters there will be
Speaker 1: some very unique buying opportunities because values of commercial real
Speaker 1: estate in general have to adjust to the higher interest rates.
Speaker 1: I think the FED was behind the curve. Now they're
Speaker 1: hitting the economy with the head sledge hammer. As soon
Speaker 1: as we get a little relief on you know, the
Speaker 1: worst of the interest rates being interested, increases being over
Speaker 1: and the inflation curve starting to go the other way
Speaker 1: like we saw this morning. And look at the market reaction,
Speaker 1: you're gonna see some you know, relief rally and commercial
Speaker 1: real estate too. But I do think there will be
Speaker 1: some buying opportunities. Alright, good stuff, as always saw Nay,
Speaker 1: president and CEO of Marcus and MILLICHEP, publicly traded real
Speaker 1: estate company m m I is the ticket to put
Speaker 1: into your Bloomberg terminal. They're commercial real estate. Yeah, and Matt,
Speaker 1: there is actually a store going in at fifty nine
Speaker 1: and Lex here in our building, so they are putting something.
Speaker 1: What is it? I don't know. Oh, I think it's
Speaker 1: gonna be a bank, like a bank slash lounge market.
Speaker 1: Since Charlie was just reporting a moving seriously higher to
Speaker 1: yes booming. You know what This kind of rally is
Speaker 1: called face ripping. Face ripping rally. That's a little hard,
Speaker 1: I think, but it is just ripping. It's the most
Speaker 1: smps up, the most since twenty twenty. I used that
Speaker 1: sense function that Lisa Brahmwoods like, we're not allowed to
Speaker 1: tell listeners because you know that's an internal function. Other
Speaker 1: clients don't have access to that function. Is that right?
Speaker 1: Why it doesn't do anything? I don't know why, but
Speaker 1: all right, yeah, alright, I use it and I'm proud
Speaker 1: to use it. Right. Amanda Rebella joins us here in
Speaker 1: our Bloomberg her active broker studio. She's ahead of passive
Speaker 1: sales US on shore d w S group. We've determined
Speaker 1: that as a Deutsche Bank group there what is chassive sales?
Speaker 1: What does that mean? We we go over this but
Speaker 1: I forget now, which that's okay. It's basically anything which
Speaker 1: is tracking an index, so um E t S would
Speaker 1: be the main thing. But also we have scope for
Speaker 1: offering clients as opposed to active because there are obviously
Speaker 1: e t f s with active managers. But you're just
Speaker 1: looking at the passive side of But working with our
Speaker 1: Steam colleagues on the active side as well, there's no
Speaker 1: passive or active. You know, they make sense in the
Speaker 1: portfolio together. All right, every time we talk to your man,
Speaker 1: you've got new E T S force. What do you
Speaker 1: get today? So today we're delighted to announce that yesterday
Speaker 1: we listed on see both three new tickets smp D,
Speaker 1: SMPG and smp V. These are providing exposure to E
Speaker 1: s G dividend aristocrats, UM growth and also value as well.
Speaker 1: And delighted to be partnering with SMP again there So, UM,
Speaker 1: I love E t F s. As you may remember,
Speaker 1: I have an E t F show UM that I
Speaker 1: host with Katie Greifeld and Eric Balcunus, the ladder of
Speaker 1: whom is a legend in the E t F space. Um,
Speaker 1: what what makes you want to track these specific indexes?
Speaker 1: Why do you pick um? You know, value makes sense
Speaker 1: to me, dividend aristocrats, That's that's an interesting one. Why
Speaker 1: why do you choose these right now? Yeah? Sure so? Um, Well,
Speaker 1: first of all, Matt, you were talking about how you
Speaker 1: want to pay rise. Maybe you need to think about
Speaker 1: passive income in your portfolio. And so dividend strategies generally
Speaker 1: have been really interesting. This year. We've seen about forty
Speaker 1: five billion dollars worth of flow go into dividend strategies
Speaker 1: here to date across different ETFs, and so we feel
Speaker 1: that there's something that we can add value in for
Speaker 1: our investors and new investors. How does that get back
Speaker 1: to an E t F if I on a stock
Speaker 1: that has a dividend page of dividend. Obviously I'm getting
Speaker 1: they nail it to me, you know, or my broker
Speaker 1: gets it. Um, how does that work with an e
Speaker 1: t F because you have a whole basket of stocks,
Speaker 1: and you know, I don't even own really the basket,
Speaker 1: I just own a ticket for the basket, right, So UM,
Speaker 1: what we do is the portfolio managers, they'll accrue all
Speaker 1: of the dividend cash that they're receiving, and then we'll
Speaker 1: pay it out typically on the quarterly, will SENDI annual basis. Um,
Speaker 1: you end up getting a check through your broker that
Speaker 1: you're holding them holding the E t F with and UM.
Speaker 1: With dividend strategies, what we're looking to do is we're
Speaker 1: thinking about within in this case the smp fift universe, UM,
Speaker 1: which are the names that are strong dividend paers. When
Speaker 1: we mean when we say strong dividend pairs, we want
Speaker 1: to be thinking about sustainable dividends. So forgive the pun,
Speaker 1: but it's about over the last twenty five years, which
Speaker 1: names have paid good qualitary dividends and haven't yet. And
Speaker 1: you don't want to get into a BP situation. Remember that.
Speaker 1: Actually exactly they hadn't cut their dividend for like thirty
Speaker 1: years maybe longer, and then all of a sudden, uh,
Speaker 1: you know, they junked it really, which was Spad news,
Speaker 1: and the CEO is out right exactly talk to us
Speaker 1: about E s G. I continue waiver here, what's what
Speaker 1: are the good folks adws think about the E T
Speaker 1: F S and E s G as A I don't
Speaker 1: set a factor? Is it style? Is it? I don't
Speaker 1: know what it is. Yeah, this is a question that
Speaker 1: we get a lot so UM for us. E s
Speaker 1: G is just another lens to look through when you're
Speaker 1: thinking about investment portfolio management, and so we think about
Speaker 1: it a lot. In terms of data. There's like clues
Speaker 1: in the data that can help us UM. We see
Speaker 1: more and more that E s G um has, like
Speaker 1: in these tough markets, provided some outperformance. And it's not
Speaker 1: always going to provide out performance necessarily, it's not meant to.
Speaker 1: It doesn't promise too But the reason why it has
Speaker 1: done more recently is that E s G data can
Speaker 1: provide us with some insights into things like reprose, for example,
Speaker 1: So there is some scope for dampening. On the downside,
Speaker 1: we think it's just you know, another a set of
Speaker 1: data points that some can use in terms of like
Speaker 1: stop picking or bond picking to think about, um, you know,
Speaker 1: names are maybe more resilient. And also at the end
Speaker 1: of the day, we've had COP twenty seven this week, Um,
Speaker 1: we need to be thinking about which companies are oh yeah,
Speaker 1: you know, more resilient and like to regulatory change as
Speaker 1: well to helping us with this one and a half
Speaker 1: degree um target us all aiming towards and net zero economy.
Speaker 1: These are the companies that should be doing better at
Speaker 1: the end. I just came back from Indonesia. I was
Speaker 1: there for two weeks, exploring the oceans around Indonesia, and
Speaker 1: you know what, one of the things that really bothers me.
Speaker 1: Rich countries around the world send all their trash to Indonesia,
Speaker 1: ostensibly to recycle, but of course they don't recycle at
Speaker 1: the businesses that get paid to take the trash there
Speaker 1: just turn around and dump it in the street or
Speaker 1: in the ocean. Even worse. So I would like to
Speaker 1: vote with my money, you know, and buy an e
Speaker 1: t F that fights against that kind of thing. All right,
Speaker 1: I'm sure you can. I mean, you know, there's there's
Speaker 1: an et F for everything after. That's kind of what
Speaker 1: I've been learning over the last several years. Amenda Rebella,
Speaker 1: thank you so much for joining us. Amanda is the
Speaker 1: head of passive sales. We now know what that is
Speaker 1: for the US on shore business at DWS Group. We
Speaker 1: now know what dw S stands for. We've learned so
Speaker 1: much in this segment. Market's still moving, holding onto the games.
Speaker 1: Question for a lot of investors here is recession. Are
Speaker 1: we going to go into recession? If so, how long?
Speaker 1: How deep? That's kind of the question that a lot
Speaker 1: of folks have, a lot of economists are figuring out
Speaker 1: right now. And along chief US economists for Bloomberk Economics Joints.
Speaker 1: And I gotta call this out because I do it
Speaker 1: every time because it's just so ridiculous. She gets a
Speaker 1: b A and economics and statistics from Berkeley, I mean,
Speaker 1: who does that? And then she turns around and gets
Speaker 1: a PhD in economics from the University of Chicago. I
Speaker 1: mean that is serious math there. So she's a real
Speaker 1: economics geek, and we're glad that she's on our team.
Speaker 1: I'm pretty sure she also had a couple other like
Speaker 1: scholarships and rams and stuff that we don't know but
Speaker 1: I don't know about. I'm sure Cambridge and Oxford are
Speaker 1: in there somewhere, But I gotta ask Anna, did they
Speaker 1: never tell you any of these schools don't forecast something
Speaker 1: that's a hundred percent chance to happen, that's very high? Well,
Speaker 1: you know, I have to tell you that that is
Speaker 1: what the models telling you. And but it's your model. Well,
Speaker 1: the model does have forecast errors, right, and so in
Speaker 1: terms of the confidence level, there's still a slither possibility
Speaker 1: that there's you know that the model prediction of I'm going,
Speaker 1: I'm going with your call and because you were absolutely
Speaker 1: spot on the way ahead of the market on where
Speaker 1: rates were going and uh um, but for this recession,
Speaker 1: um that you were other economics are economists are forecasting?
Speaker 1: Do you have any sense of how deep it maybe,
Speaker 1: how long it may be, like how much of a
Speaker 1: problem is this going to be? You know, usually a
Speaker 1: deep recession is triggered by some kind of underlying financial vulnerability.
Speaker 1: So if you recall, the two thousand and eight recession
Speaker 1: was deep because it started off where where credit market
Speaker 1: completely freeze, um, you know, due to um mortgages go
Speaker 1: blowing up, right, So we don't see a similar kind
Speaker 1: of vulnerabilities on the balance sheet of household and corporates
Speaker 1: right now. So um, as of the information that we have,
Speaker 1: we we don't see that trigger for that kind of
Speaker 1: uh landing free freeze up in the lending and credit market. Um.
Speaker 1: So that's sad. Um. We think that the recession might
Speaker 1: be a shallow one. Um and I think that that's
Speaker 1: the consensus on Well Street as well. One thing I'm
Speaker 1: interested in, Anna, is the is the housing market. Because
Speaker 1: you know, we see these rates continue to go higher
Speaker 1: and higher. People are now saying six percent could be
Speaker 1: even higher than that for the FEDS terminal rate, which
Speaker 1: means mortgage rates are going to be what eight nine
Speaker 1: ten per cent? That makes it harder to buy houses.
Speaker 1: And if unemployment rises and people are forced to sell
Speaker 1: houses they can no longer make their monthly not those
Speaker 1: prices are going to have to come down pretty steep. Well. So,
Speaker 1: for first of all, mortgage rate price is most related
Speaker 1: to ten year and thirty year treasury yields, and those
Speaker 1: those prices react to expectations of where the fat will go. So, um,
Speaker 1: if if today people are priced in a five percent
Speaker 1: terminal rate, then it's already you know, reflected in the
Speaker 1: mortgage rate. So so so as the fat actually hikes
Speaker 1: to five, the mortgage rate would not increase further. So
Speaker 1: that's what they're going to five? Right, are they going
Speaker 1: to six? Well, our baseline is still five percent. Um
Speaker 1: And because we precisely for the reasons that you saw
Speaker 1: in the CPI really least today there's strong disinflationary forces
Speaker 1: in in the economy, and um, it could there's a
Speaker 1: possibility that inflation could fall rather sharply after March of
Speaker 1: next year, which will would which would still put the
Speaker 1: terminal rate at about five percent from my point of view,
Speaker 1: at four in May. That's right and um. But regarding
Speaker 1: the housing market though, um um, So you know, the
Speaker 1: US market has underbuilt houses for almost a decade now,
Speaker 1: and we estimate that there's been a three to four
Speaker 1: million shortfall and houses that have been human accumulated over
Speaker 1: the past ten years, which means that you know, there's
Speaker 1: still a lot of latent demand for housing and houses
Speaker 1: housing place do fall by the that we are forecasting
Speaker 1: over the next few years, there would be just uh,
Speaker 1: it would become more portable for maybe half of the
Speaker 1: population of the US. And so I think that half,
Speaker 1: at least half of the population would be cheering for
Speaker 1: housing price corrections because these are the people who really
Speaker 1: wanted to buy but don't have how you know, you
Speaker 1: cannot afford to right now. And the second thing is
Speaker 1: that this housing uh bubble that we are in right now,
Speaker 1: the rise in prices happened really quickly, and the fall
Speaker 1: of the happened really quickly. So the number of people
Speaker 1: who actually bought the houses, well, at the peak of
Speaker 1: those prices, it's not there are not as many of
Speaker 1: those people as back in the two thousands of four
Speaker 1: to two thousand and six housing market bubble. And a
Speaker 1: lot of the house owners now have much more equities
Speaker 1: in their houses them back in the two thousand and
Speaker 1: four two own six cycles. So so yeah, so that
Speaker 1: that aspect alone could limit downside risk and so over
Speaker 1: the housing market corrections to the broader economy. All right,
Speaker 1: and we got to get you in the office, which
Speaker 1: in London right now. You're in London right now. When
Speaker 1: you come to New York, please stop by and and
Speaker 1: come on the show with me and Paul. We'd love
Speaker 1: to have you here. Thank you so much for joining us.
Speaker 1: Anna Wong, I'm gonna say chief Economists for Bloomberg in
Speaker 1: chief you as economist um for Bloomberg. But she's dot
Speaker 1: a ton of addition to the crazy education. Former chief
Speaker 1: in the National Economists on the White House Council of
Speaker 1: Economic Acrisors. That sounds big. Former Deputy Director in the
Speaker 1: Office of International Economic Analysis at the U. S. Treasury.
Speaker 1: I don't know. That sounds kind of important, massive, massive,
Speaker 1: And here we are talking to her about inflation and
Speaker 1: and she's given us some of her best work and
Speaker 1: her model says chance of a recession next year. We're
Speaker 1: gonna go with that. I want to talk activist investoring. Uh.
Speaker 1: That is a very interesting part of the market, and
Speaker 1: there are some people that are pretty good at it,
Speaker 1: and you have to have patience and you have to
Speaker 1: really do your bottoms of homework. One of those folks
Speaker 1: that does that is James Arrest, a founding partner in
Speaker 1: c i O of co Capital LLLC. He's been doing
Speaker 1: this for a long time. One of the things that
Speaker 1: popped up at me former managing director head of International
Speaker 1: Investing in Janet partners Um. That popped out to me, James,
Speaker 1: thanks so much for joining us here in our Bloomberg
Speaker 1: Interactive Broker studio. You're one of the You're one of
Speaker 1: the many that relocated from New York to Miami. Give
Speaker 1: us thirty seconds on that. I'm not sure I should
Speaker 1: be telling that story to anyone. I'm certainly not on
Speaker 1: live there. But we have an office at Rock Center, um,
Speaker 1: and I have to tell you trying to get a
Speaker 1: round Rock Center at Christmas, Yes, with that demonic fifteen
Speaker 1: second Christmas song played by by Sacks, with thousands of
Speaker 1: people squished next to each other at some point to
Speaker 1: see a tree being lit up like we've never witnessed
Speaker 1: a miracle of electricity. The last year that I was here,
Speaker 1: I started telling people, go to a Starbucks, lock yourself
Speaker 1: in the bathroom, turn off the light, turn it back on.
Speaker 1: It's a much more dramatic way to experience electricity. People
Speaker 1: thought I was crazy, so I bought a person's cane
Speaker 1: to make my way around without being you know, accosted.
Speaker 1: And people that I know saw me do this, and
Speaker 1: I thought it's time to take a bit of a
Speaker 1: break from you. I have to expect their tax implications
Speaker 1: as well, but talk to us about you know, your um,
Speaker 1: your flavor of activists investing. Tell us a story about
Speaker 1: what what drives you when you get up in the morning,
Speaker 1: A deal that you've done that you really are proud of.
Speaker 1: You know. I get to work every day with people
Speaker 1: who are inspired and inspiring and who are the best
Speaker 1: operators in the industries that we invest in, and the
Speaker 1: the things that I learned from them, and the engagement
Speaker 1: and the intellectually stimulating dialogue is what really gets me
Speaker 1: out of bed. The other thing is, you know I
Speaker 1: have I think as a bona fide New Yorker, you
Speaker 1: need to have several neurological conditions, you know, to lasting
Speaker 1: the city as long as as one does. One of
Speaker 1: them is I seem to really want to address problems
Speaker 1: that I see in the world, and I seem to
Speaker 1: be really convinced that I can do something about these things.
Speaker 1: And and it doesn't just extend to my investing. It
Speaker 1: extends to to to a whole lot of different arenas
Speaker 1: of life. I want to be helpful, I want to
Speaker 1: fix things. Um and you're a board member of Human
Speaker 1: Rights Watch, for example, I am, and that's some of
Speaker 1: the most important work that I think I get to do.
Speaker 1: I just got involved with an organization called Young Audiences,
Speaker 1: which exposes kids to the arts, which you know, arts
Speaker 1: funding is dying in this country. It's down seventy percent
Speaker 1: since the beginning of this century. We're behind that too.
Speaker 1: But we want to hear about making money. Making money
Speaker 1: is what makes all of these other endeavors possible. But
Speaker 1: it's fun. Um. Look, there's a lot that we've done
Speaker 1: that we're really uh grateful to have gone to do.
Speaker 1: I think that it all. I'll tell you where it
Speaker 1: all kind of started. A number of years ago. We
Speaker 1: bought into a company, or I bought into a company
Speaker 1: called Compass Group, which at the time was the biggest
Speaker 1: contract catering company in the world. Right, and the Compass
Speaker 1: Group is a company that I had grown up with
Speaker 1: and I had always wanted to buy, but it was
Speaker 1: always too expensive. I am, I think, first and foremost,
Speaker 1: a deep value investor, and my partners share that incentivity
Speaker 1: as well. But it was always like thirty five times
Speaker 1: earnings and generated ten percent margins and grew double digits
Speaker 1: because of consolidation, because everybody was going from having their
Speaker 1: in house canteens to outsourcing. So this company fast forward
Speaker 1: five to six years is valued at ten times earnings
Speaker 1: and the margins have gone from ten to three percent.
Speaker 1: But meanwhile, as the biggest operator in the sector, it
Speaker 1: should have had the highest margins. Thinker as CpG Space Ellen.
Speaker 1: This is many years ago, twice as big as the Dexel.
Speaker 1: I mean, this is you know who used to love
Speaker 1: this company, John Marie Eveyard, you know famous. Yes, I
Speaker 1: know him very well and I you know, but he's
Speaker 1: he's I would consider him a friend. He's you know.
Speaker 1: So he had a colleague named Chel Duvaux and child
Speaker 1: at the man who you know, we met with and
Speaker 1: presented our work to. This ended up being a very
Speaker 1: very good investment, went up ten folding period in which
Speaker 1: the market went down. This story is a pretty lengthy one,
Speaker 1: but it's an interesting one, so I go into some
Speaker 1: detail without taking too much off your time. Um, it's
Speaker 1: nobody knew what the album was. Everybody knew this is cheap.
Speaker 1: This is a world class company, should be doing a
Speaker 1: lot better than it's doing. It's cheap on the pressed earnings,
Speaker 1: But nobody knew what the problem was, and certainly management
Speaker 1: didn't either. So we looked high and low for someone
Speaker 1: who could help us turn the company around, figure out
Speaker 1: how what the problems were, how to solve them. Found
Speaker 1: a guy called Jerry Robinson, who got rest his souldiers
Speaker 1: passed away last year, almost exactly ye year ago. Jerry
Speaker 1: Surgery was the founder of the company, bought it out
Speaker 1: of Grand Met in the eighties, brought it public in
Speaker 1: what was the biggest I p O at the time,
Speaker 1: and basically took this from a two hundred million dollar
Speaker 1: company to a multibillion dollar entity. Cashed out when we
Speaker 1: reached out to him. He had gone on to turn
Speaker 1: around five different multi billion dollar companies in the UK
Speaker 1: with dramatic success. He said, look, James, I happened to
Speaker 1: still be an investor in the company. I am heartbroken
Speaker 1: and how poorly managed it is. I have a plan
Speaker 1: for you. I will come and meet you. He flew
Speaker 1: to New York on his own time, met with me,
Speaker 1: presented me with the most compelling operational turnaround plan I
Speaker 1: think I've ever seen and will probably ever see in
Speaker 1: my life. Here's what was happening in compass to have
Speaker 1: you back to talk about it, because and now, I
Speaker 1: mean it's a thirty three billion dollar company, right and
Speaker 1: huge success story. James, so grateful that you came into
Speaker 1: the office. I hope we get to talk to you again.
Speaker 1: I think there's a hurricane in Miami right now, so
Speaker 1: you're gonna stick around. I'm assuming in New York for
Speaker 1: a little while. I'm actually had it to to to
Speaker 1: California to visit some good stuff. James Rasta, thank you
Speaker 1: very much for joining us, founding partner in c i
Speaker 1: O at Coast Capital, joining us in our Bloomberg Interactive
Speaker 1: Broker studio. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller three. Put on Ball Sweeney
Speaker 1: I'm on Twitter at pt Sweeney Before the podcast. You
Speaker 1: can always catch us worldwide at Bloomberg Radio.