1 00:00:00,520 --> 00:00:03,680 Speaker 1: This is Bloomberg Wall Street Week. We turn our attention 2 00:00:03,840 --> 00:00:08,320 Speaker 1: to the markets this week. USCPI nevers reinforcing concerns about inflation, 3 00:00:08,440 --> 00:00:11,559 Speaker 1: the financial stories that chief our world, a really different 4 00:00:11,600 --> 00:00:14,520 Speaker 1: reaction to mark its more indications of just how hot 5 00:00:14,560 --> 00:00:16,959 Speaker 1: the US economy really is. Through the eyes of the 6 00:00:17,000 --> 00:00:21,440 Speaker 1: most influential voices Larry Summers, the former Treater Secretary, Katherine Keating, 7 00:00:21,560 --> 00:00:24,759 Speaker 1: CEO of BNY, Mellen Sam's l Sherman N, founder of 8 00:00:24,760 --> 00:00:28,440 Speaker 1: Equatic Group Investment in Bloomberg wool Street Week with David 9 00:00:28,480 --> 00:00:32,760 Speaker 1: Weston from Bloomberg Radio. A whole lot of drama from 10 00:00:32,800 --> 00:00:35,400 Speaker 1: a former US president indicted to a one hundred and 11 00:00:35,440 --> 00:00:39,000 Speaker 1: sixty six year old Swiss bank, saying goodbye to professional 12 00:00:39,000 --> 00:00:43,000 Speaker 1: wrestling officially becoming part of Lala Land. This is Bloomberg 13 00:00:43,000 --> 00:00:47,040 Speaker 1: Wall Street Week. I'm David Weston. This week's special contributor 14 00:00:47,120 --> 00:00:50,480 Speaker 1: Larry Summers on picking up the pieces of banking regulation. 15 00:00:51,159 --> 00:00:55,440 Speaker 1: Owen Thomas of BXP on whether commercial real estate could 16 00:00:55,440 --> 00:00:58,840 Speaker 1: be the next shoe to drop. Challenges in real estate 17 00:00:58,880 --> 00:01:02,000 Speaker 1: are going to be tied to the economy and kept 18 00:01:02,040 --> 00:01:04,600 Speaker 1: the beer of Ari's management on what all of this 19 00:01:04,720 --> 00:01:09,040 Speaker 1: means for the credit world. The immediate effect is it's 20 00:01:09,080 --> 00:01:12,039 Speaker 1: actually taken the banks out of our businesses in a 21 00:01:12,040 --> 00:01:27,200 Speaker 1: lot of ways. There was a lot for Global Wall 22 00:01:27,200 --> 00:01:29,600 Speaker 1: Street to watch this week, not all of it was 23 00:01:29,640 --> 00:01:32,160 Speaker 1: in the markets. We saw a former president of the 24 00:01:32,200 --> 00:01:34,399 Speaker 1: United States or reigned on criminal charges, so the first 25 00:01:34,440 --> 00:01:38,080 Speaker 1: time ever, and as usual, the former president, mister Trump 26 00:01:38,120 --> 00:01:41,559 Speaker 1: did not let it pass without comment. This fake case 27 00:01:41,720 --> 00:01:44,720 Speaker 1: was brought only to interfere with the upcoming twenty twenty 28 00:01:44,760 --> 00:01:47,559 Speaker 1: four election. The same day that mister Trump was facing 29 00:01:47,560 --> 00:01:50,160 Speaker 1: the music in court, the leadership of Credit Suite was 30 00:01:50,200 --> 00:01:53,160 Speaker 1: facing its own music had what was likely the last 31 00:01:53,160 --> 00:01:57,320 Speaker 1: shareholders meeting ever for Credit Suie. It's a bits of 32 00:01:57,440 --> 00:02:03,040 Speaker 1: reality to see the she didn't have time to bear fruit. 33 00:02:03,760 --> 00:02:06,800 Speaker 1: And if all that weren't enough drama, Global Wall Street 34 00:02:06,840 --> 00:02:11,240 Speaker 1: witnessed the combination of Hollywood powerhouse Endeavor with World Wrestling 35 00:02:11,400 --> 00:02:16,600 Speaker 1: Entertainment will combine with Endeva's Ultimate Fighting Championship to form 36 00:02:16,600 --> 00:02:18,239 Speaker 1: a new company that's going to be listed on the 37 00:02:18,240 --> 00:02:21,239 Speaker 1: New York Stock Exchange. When we weren't distracted by the 38 00:02:21,240 --> 00:02:23,560 Speaker 1: theater of it all, we had plenty to keep us 39 00:02:23,600 --> 00:02:26,440 Speaker 1: busy in the real economy and in the market as 40 00:02:26,440 --> 00:02:29,760 Speaker 1: OPEC plus caught everyone out by cutting oil production by 41 00:02:29,800 --> 00:02:32,680 Speaker 1: a million barrels a day. It's either going to be 42 00:02:32,720 --> 00:02:37,919 Speaker 1: seen as a precautionary master stroke or it's going to 43 00:02:38,000 --> 00:02:42,040 Speaker 1: be seen as an unintentional Bober tightness. JP Morgan CEO 44 00:02:42,120 --> 00:02:45,320 Speaker 1: Jamie Diamond issue his annual letters shareholders and to the 45 00:02:45,320 --> 00:02:48,560 Speaker 1: world warning that the crisis of the bank's quote is 46 00:02:48,600 --> 00:02:51,560 Speaker 1: not yet over and even when it is behind this, 47 00:02:51,800 --> 00:02:55,120 Speaker 1: there will be repercussions from it for years to come. 48 00:02:57,680 --> 00:03:00,520 Speaker 1: And then we ended the week with those US jobs numbers, 49 00:03:00,560 --> 00:03:03,040 Speaker 1: adding another two hundred and thirty six thousand in March. 50 00:03:03,160 --> 00:03:05,560 Speaker 1: That's down from three hundred thousand plus in February, but 51 00:03:05,680 --> 00:03:08,359 Speaker 1: still enough to take the unemployment rate down to three 52 00:03:08,360 --> 00:03:10,919 Speaker 1: point five percent. The equity markets didn't get a chance 53 00:03:10,919 --> 00:03:13,880 Speaker 1: to react and given the good Friday holiday, but before 54 00:03:13,919 --> 00:03:16,160 Speaker 1: that we had the SMP five hundred down just a 55 00:03:16,240 --> 00:03:18,760 Speaker 1: tenth of a percent, while the NAZAC was off just 56 00:03:18,840 --> 00:03:21,880 Speaker 1: over one percent. The bond market was open half of 57 00:03:21,919 --> 00:03:24,160 Speaker 1: the day on Friday, and the initial action was the 58 00:03:24,200 --> 00:03:26,960 Speaker 1: anticipation of higher rates, with a yield on both the 59 00:03:27,040 --> 00:03:29,840 Speaker 1: ten year and the two year spiking up take US 60 00:03:29,840 --> 00:03:33,080 Speaker 1: through all this shortened trading week. Were welcome now Chris Alman, 61 00:03:33,440 --> 00:03:36,880 Speaker 1: chief investment officer at Calcer's and Julian Tet Financial Times, 62 00:03:36,920 --> 00:03:39,120 Speaker 1: Chair of the editorial board and editor at Large for 63 00:03:39,160 --> 00:03:41,360 Speaker 1: the US, So welcome back to Walster to both of you. 64 00:03:41,600 --> 00:03:44,000 Speaker 1: Thank you for being here. Crystally, start with you. We 65 00:03:44,120 --> 00:03:47,320 Speaker 1: had a series of economic data this week that seemed tommunicated, 66 00:03:47,360 --> 00:03:50,200 Speaker 1: We're really getting softer, maybe we're winning the war against inflation, 67 00:03:50,320 --> 00:03:52,720 Speaker 1: and then the jobs numbers came in and said, maybe 68 00:03:52,720 --> 00:03:55,360 Speaker 1: not so fast. What did you make of it. It's 69 00:03:55,400 --> 00:03:58,400 Speaker 1: a conundrum, you know, David, and has continued to be 70 00:03:58,440 --> 00:04:00,920 Speaker 1: a conundrum the FEDS data dress, so we know they're 71 00:04:00,920 --> 00:04:03,040 Speaker 1: going to pay attention to these numbers. They're going to 72 00:04:03,080 --> 00:04:05,680 Speaker 1: look at the CPI next week is a real key indicator. 73 00:04:06,160 --> 00:04:08,520 Speaker 1: The bond market, the stock market have been telling us 74 00:04:08,560 --> 00:04:11,280 Speaker 1: that the Fed is going to pull off a soft landing. 75 00:04:11,320 --> 00:04:14,600 Speaker 1: I mean, it's amazing to say. It's hard to believe though, 76 00:04:14,840 --> 00:04:17,599 Speaker 1: so we'll see. I think the next week and two 77 00:04:17,600 --> 00:04:20,920 Speaker 1: weeks are going to be really challenging CPI and then 78 00:04:21,000 --> 00:04:23,800 Speaker 1: earnings reports, and that really is going to weigh on 79 00:04:23,800 --> 00:04:28,359 Speaker 1: the market. Because I'm expecting negative comments from CEOs, so 80 00:04:28,480 --> 00:04:30,320 Speaker 1: Jennie as I said, the initial reaction to the bond 81 00:04:30,360 --> 00:04:33,120 Speaker 1: market was maybe higher rates, somewhat higher rates, rather than 82 00:04:33,120 --> 00:04:35,280 Speaker 1: the lower rates. What does this tell the feed about 83 00:04:35,279 --> 00:04:37,719 Speaker 1: that may meeting in these jobs numbers? Is this a 84 00:04:37,760 --> 00:04:41,320 Speaker 1: further indication maybe it's too soon to start pausing. Well, 85 00:04:41,360 --> 00:04:43,600 Speaker 1: I think one way to summarize what's happened in the 86 00:04:43,680 --> 00:04:46,680 Speaker 1: last twenty four hours is a bond markets to remembered 87 00:04:46,680 --> 00:04:50,679 Speaker 1: the message don't fight the Fed, because after the March 88 00:04:50,839 --> 00:04:54,279 Speaker 1: madness of collapsing banks, there was a tremendous amount of 89 00:04:54,320 --> 00:04:57,680 Speaker 1: wishful thinking months investors that the Federal Reserve would then 90 00:04:57,680 --> 00:05:01,480 Speaker 1: go for wooden stock cutting rates said itself in terms 91 00:05:01,480 --> 00:05:05,000 Speaker 1: of official statements, has been really clear over and over 92 00:05:05,040 --> 00:05:08,600 Speaker 1: again that they are not looking for rate cuts. If anything, 93 00:05:08,640 --> 00:05:11,800 Speaker 1: they are expecting to continue to hike. And it's worth 94 00:05:11,800 --> 00:05:14,680 Speaker 1: stepping back for a second and saying that any other situation, 95 00:05:15,040 --> 00:05:17,760 Speaker 1: if you had a three point five percent unemployment rate 96 00:05:18,080 --> 00:05:21,120 Speaker 1: and a four point two percent annual wage growth rate, 97 00:05:21,440 --> 00:05:25,479 Speaker 1: there's no way you'd be talking about cutting rates. So 98 00:05:25,520 --> 00:05:27,400 Speaker 1: I think what's going on right now as a market 99 00:05:27,480 --> 00:05:30,120 Speaker 1: of playing catch up and actually listening to what the 100 00:05:30,160 --> 00:05:33,839 Speaker 1: Federal Reserve is saying instead of just hoping or dreaming 101 00:05:34,160 --> 00:05:36,960 Speaker 1: that it might be something different. And Chris, I'm curious 102 00:05:37,000 --> 00:05:39,400 Speaker 1: you're along term investor. Obviously with calsters you have to 103 00:05:39,400 --> 00:05:41,400 Speaker 1: worry about all those pensions you have to pay off. 104 00:05:41,440 --> 00:05:44,000 Speaker 1: One from your point of view, are we better off 105 00:05:44,080 --> 00:05:46,080 Speaker 1: getting this behind us more quickly than we are right now? 106 00:05:46,120 --> 00:05:48,360 Speaker 1: Because this is a slow process here of getting inflation 107 00:05:48,440 --> 00:05:51,839 Speaker 1: ut of control. It has been a very painful process, 108 00:05:51,880 --> 00:05:54,719 Speaker 1: but that's the nature of inflation. The Fed's only tool 109 00:05:54,800 --> 00:05:57,680 Speaker 1: is to raise rates, and that's an ineffective tool to 110 00:05:58,320 --> 00:06:03,000 Speaker 1: compete against wage and what was starting commodity inflation. So 111 00:06:03,640 --> 00:06:05,359 Speaker 1: I would like it to get over fast, but I 112 00:06:05,360 --> 00:06:08,120 Speaker 1: don't think it will, David, because as Julian said, the 113 00:06:08,480 --> 00:06:13,080 Speaker 1: markets are expecting a soft landing. But it's just really 114 00:06:13,080 --> 00:06:15,159 Speaker 1: hard to believe that Powell can pull that off. I 115 00:06:15,200 --> 00:06:18,720 Speaker 1: hope he can. But the numbers tell us that unemployment 116 00:06:18,800 --> 00:06:22,200 Speaker 1: should start to increase pretty sizably. And if you talk 117 00:06:22,279 --> 00:06:25,320 Speaker 1: to CEOs, they're worried about a heavy recession coming up 118 00:06:25,320 --> 00:06:27,600 Speaker 1: in the future. Well, Chris, what about that? Because the 119 00:06:27,680 --> 00:06:31,320 Speaker 1: more we keep anticipating possibly a breakage if I can 120 00:06:31,360 --> 00:06:32,920 Speaker 1: put it that way in the labor market, and yet 121 00:06:32,920 --> 00:06:36,880 Speaker 1: it doesn't happen. Does j Powell need to be a 122 00:06:36,960 --> 00:06:39,560 Speaker 1: spike up an unemployment in order to get where he 123 00:06:39,600 --> 00:06:42,560 Speaker 1: wants to go? I don't know that he needs it. 124 00:06:42,760 --> 00:06:46,840 Speaker 1: You know, the wages were only up four percent. That's 125 00:06:46,839 --> 00:06:50,320 Speaker 1: still higher than he wants, but that's not bad. These 126 00:06:50,400 --> 00:06:53,440 Speaker 1: numbers just are quite a conundrum, and I think that 127 00:06:53,800 --> 00:06:57,440 Speaker 1: Powell's only tools to raise rates. He will continue at 128 00:06:57,480 --> 00:07:00,720 Speaker 1: some point pause and as Julian pointed, the markets are 129 00:07:00,720 --> 00:07:04,040 Speaker 1: expecting a pivot as early as the third Quarder. I 130 00:07:04,120 --> 00:07:07,240 Speaker 1: just don't see that. But we're going to find out 131 00:07:07,279 --> 00:07:10,440 Speaker 1: which is right, the FED or the markets. Jillian, Does 132 00:07:10,440 --> 00:07:12,400 Speaker 1: the FED have a problem right now? They got the 133 00:07:12,400 --> 00:07:15,160 Speaker 1: inflation issue wrong? I think everyone, including the Fed even 134 00:07:15,200 --> 00:07:17,800 Speaker 1: admits that they got it wrong, the so called transitory inflation, 135 00:07:18,040 --> 00:07:20,760 Speaker 1: and then we had that banking problem that developed starting 136 00:07:20,760 --> 00:07:22,600 Speaker 1: with Silicon Valley Bank. Will come back and talk about 137 00:07:22,600 --> 00:07:25,040 Speaker 1: that more detail. But is the FED got a problem 138 00:07:25,080 --> 00:07:27,360 Speaker 1: here of credibility? They've made a couple of big mistakes, 139 00:07:27,360 --> 00:07:30,320 Speaker 1: have they not? Jillian? Well, I think they certainly have 140 00:07:30,440 --> 00:07:32,360 Speaker 1: made a couple of big mistakes. I mean, I've been 141 00:07:32,400 --> 00:07:35,840 Speaker 1: one of those who've been really critical about the superlis 142 00:07:35,920 --> 00:07:38,520 Speaker 1: monetary policy going on for far too long in the past. 143 00:07:38,960 --> 00:07:41,040 Speaker 1: You know what they're trying to do right now, and 144 00:07:41,080 --> 00:07:43,920 Speaker 1: I think the market has forgotten this is they are scrambling. 145 00:07:43,960 --> 00:07:48,120 Speaker 1: They're racing to re establish their credibility because frankly, for 146 00:07:48,160 --> 00:07:53,360 Speaker 1: a central banker, there's nothing worse than thinking they've lost credibility. So, 147 00:07:53,560 --> 00:07:56,200 Speaker 1: you know, they have made it really clear that they 148 00:07:56,240 --> 00:07:58,560 Speaker 1: are not going to be bullied by the markets into 149 00:07:58,600 --> 00:08:02,280 Speaker 1: cutting prematurely. They're also, though this is really important point, 150 00:08:02,360 --> 00:08:05,120 Speaker 1: they're trying very hard to signal to the markets, but 151 00:08:05,200 --> 00:08:08,400 Speaker 1: they are separating out monetary policy measures that are helped 152 00:08:08,400 --> 00:08:13,520 Speaker 1: to the design to target the economy from financial stability measures. 153 00:08:13,560 --> 00:08:16,120 Speaker 1: They're trying to deal with the financial stability issue through 154 00:08:16,160 --> 00:08:19,720 Speaker 1: all kinds of macropredential tools, and they're trying to indicate 155 00:08:19,760 --> 00:08:21,680 Speaker 1: that they're not going to lose some policy just for 156 00:08:21,720 --> 00:08:25,320 Speaker 1: the financial stability reasons. Now, I think in many ways 157 00:08:25,360 --> 00:08:27,760 Speaker 1: that is the right decision. I think there's very clear 158 00:08:27,800 --> 00:08:30,720 Speaker 1: to signal for their credibility that they are committed to 159 00:08:30,840 --> 00:08:34,760 Speaker 1: trying to tackle inflation. And it's also very very important 160 00:08:34,800 --> 00:08:37,679 Speaker 1: for the FED to signal that they have the credibility 161 00:08:37,800 --> 00:08:40,920 Speaker 1: given that we have this little thing called a potential 162 00:08:41,000 --> 00:08:44,400 Speaker 1: death ceiling crisis coming down the tracks. You know, there's 163 00:08:44,440 --> 00:08:46,360 Speaker 1: never a good time for the FED. To lose credibility. 164 00:08:46,800 --> 00:08:49,520 Speaker 1: Right now would be dreadful. So I think there's a 165 00:08:49,520 --> 00:08:52,000 Speaker 1: lot to play for. As chrisss in terms of the 166 00:08:52,080 --> 00:08:54,839 Speaker 1: market catching up to where the FED is from your 167 00:08:54,880 --> 00:08:56,640 Speaker 1: mouth to Guard's ears that that's a little problem with 168 00:08:56,720 --> 00:08:58,760 Speaker 1: death ceiling. I hope that that's true. I think all 169 00:08:58,800 --> 00:09:02,920 Speaker 1: wallstry hopes that that's true. So Julian Ted and Chris Elmont, 170 00:09:03,720 --> 00:09:05,600 Speaker 1: Julian Ted and Chris Elmer will be staying with us 171 00:09:05,640 --> 00:09:07,240 Speaker 1: as we turned from what we saw this week to 172 00:09:07,280 --> 00:09:09,839 Speaker 1: the aftermath of the banking disruption that's gonna have next 173 00:09:09,840 --> 00:09:21,880 Speaker 1: on Walter Week on Bloomberg, Frank Cappiello, let's pursue that 174 00:09:22,400 --> 00:09:24,880 Speaker 1: if we can, does the stock market really have to 175 00:09:24,880 --> 00:09:29,120 Speaker 1: be affected in the long run by Watergate? It could 176 00:09:29,160 --> 00:09:32,080 Speaker 1: be over the next couple of years if all of 177 00:09:32,080 --> 00:09:37,479 Speaker 1: the energies of the administration are spent in these investigations 178 00:09:37,559 --> 00:09:40,080 Speaker 1: or warding off investigations, depending on your point of view, 179 00:09:40,320 --> 00:09:42,640 Speaker 1: And if he loses the confidence of Congress and the 180 00:09:42,679 --> 00:09:45,600 Speaker 1: confidence of a large part of the electorate. The loss 181 00:09:45,640 --> 00:09:49,400 Speaker 1: of confidence could freeze the administration from moving forward. And 182 00:09:49,520 --> 00:09:52,320 Speaker 1: I think what you had this week was can be 183 00:09:52,360 --> 00:09:56,200 Speaker 1: summed up in one, well two words, really Watergate and Oil. 184 00:09:56,400 --> 00:09:59,720 Speaker 1: That was Lewis Register back in May nineteen seventy three 185 00:09:59,679 --> 00:10:02,280 Speaker 1: went in another US president was having some difficulties with 186 00:10:02,400 --> 00:10:05,800 Speaker 1: the law, and as they did this week, the new 187 00:10:05,840 --> 00:10:08,079 Speaker 1: Oil was very much in the news. The number one 188 00:10:08,120 --> 00:10:11,600 Speaker 1: movie back then was The Poseidon Adventure and the number 189 00:10:11,600 --> 00:10:14,320 Speaker 1: one song was Tie a Yellow Ribbon Around the Old 190 00:10:14,360 --> 00:10:17,840 Speaker 1: Oak Tree by Tony Orlando and Dawn Jillian ted As 191 00:10:17,840 --> 00:10:19,880 Speaker 1: the Financial Times and Chris Ailment of councilors are so 192 00:10:20,000 --> 00:10:21,640 Speaker 1: with us. So in the last one we were talking 193 00:10:21,640 --> 00:10:24,120 Speaker 1: about the aftermath or what we saw in the banking system, 194 00:10:24,160 --> 00:10:25,959 Speaker 1: both here in the United States and in Switzerland. Jelian 195 00:10:26,040 --> 00:10:27,800 Speaker 1: want to turn to you because, as you wrote in 196 00:10:27,840 --> 00:10:31,720 Speaker 1: the Financial Times this week, you covered two financial banking 197 00:10:31,760 --> 00:10:35,960 Speaker 1: crisis in the past. How was this different from those? Well, 198 00:10:36,000 --> 00:10:39,280 Speaker 1: it was very striking this current crisis because in some 199 00:10:39,320 --> 00:10:42,240 Speaker 1: ways it was similar. Bank crisis are always about a 200 00:10:42,280 --> 00:10:47,199 Speaker 1: collapse of credit, meaning trust in the banking system. Fractional 201 00:10:47,240 --> 00:10:51,480 Speaker 1: banking doesn't work without trust, and that's what Sparks Bank runs. 202 00:10:51,480 --> 00:10:53,640 Speaker 1: And that's true of the saucy bubble, it's true of 203 00:10:53,720 --> 00:10:57,000 Speaker 1: today everything in between. But what was really different this 204 00:10:57,120 --> 00:11:00,640 Speaker 1: time around was the speed of response and the virality 205 00:11:01,160 --> 00:11:03,880 Speaker 1: because so much of it was conducted on social media 206 00:11:04,400 --> 00:11:08,280 Speaker 1: and through mobile banking channels. And what we discovered is 207 00:11:08,559 --> 00:11:11,160 Speaker 1: that they've fed system for trying to cool a banking 208 00:11:11,240 --> 00:11:14,320 Speaker 1: crisis just are not in the twenty first century when 209 00:11:14,360 --> 00:11:18,240 Speaker 1: it comes to trying to contain a panic. We also 210 00:11:18,360 --> 00:11:21,839 Speaker 1: found out that the contagion risks associated with small to 211 00:11:21,960 --> 00:11:25,200 Speaker 1: medium sized banks are significant in their world of social 212 00:11:25,280 --> 00:11:28,800 Speaker 1: media and mobile banking. You go back to the savings 213 00:11:28,840 --> 00:11:31,600 Speaker 1: and loans crisis, and no one really cared if small 214 00:11:31,640 --> 00:11:33,959 Speaker 1: banks collapse because they didn't really create great such a 215 00:11:34,040 --> 00:11:38,640 Speaker 1: chain reaction. In the current hyper connected world of digital 216 00:11:38,800 --> 00:11:43,880 Speaker 1: finance and digital social media, it really matters if panic thrupt, 217 00:11:43,960 --> 00:11:47,200 Speaker 1: if trust is lost. The good news is, of course, 218 00:11:47,280 --> 00:11:51,120 Speaker 1: that we actually had fairly small overall losses from this crisis. 219 00:11:51,240 --> 00:11:53,120 Speaker 1: I mean, twenty two point five billion if you look 220 00:11:53,160 --> 00:11:56,400 Speaker 1: at what the FDUIC says, and that's pretty small compared 221 00:11:56,400 --> 00:11:59,880 Speaker 1: to the history of banking crisis. The bad news is though, 222 00:12:00,160 --> 00:12:03,959 Speaker 1: that what SVP was was very much a symptom, not 223 00:12:04,120 --> 00:12:07,240 Speaker 1: a cause. It was a symptom the fact that the 224 00:12:07,480 --> 00:12:11,280 Speaker 1: financial system has had way too much, too cheap money 225 00:12:11,360 --> 00:12:14,959 Speaker 1: for too long many financial institutions, that investors have been 226 00:12:15,000 --> 00:12:18,640 Speaker 1: taking really dumb bets with that cheap money, engaging in 227 00:12:18,679 --> 00:12:22,320 Speaker 1: a version of a carriage trade, and eventually those chickens 228 00:12:22,400 --> 00:12:24,400 Speaker 1: are going to come home to roost. So I think 229 00:12:24,400 --> 00:12:26,000 Speaker 1: the best way to see what happened in much is 230 00:12:26,000 --> 00:12:29,120 Speaker 1: a symptom, not a cause, of a financial system that 231 00:12:29,280 --> 00:12:31,760 Speaker 1: is seriously displicated. Chris. We've heard from Jamie Diamond, the 232 00:12:31,840 --> 00:12:34,199 Speaker 1: head of JP Morgan, this week saying he thinks we're 233 00:12:34,240 --> 00:12:35,960 Speaker 1: past the worst of it. There may be another failure 234 00:12:36,000 --> 00:12:38,240 Speaker 1: too long the way, but it's not really fundamentally going 235 00:12:38,320 --> 00:12:40,360 Speaker 1: to continue to be a banking crisis. From your point 236 00:12:40,360 --> 00:12:43,040 Speaker 1: of view as an investor, where might the next shoe drop? 237 00:12:43,080 --> 00:12:44,880 Speaker 1: Because one of the problems here, as I understand it 238 00:12:45,000 --> 00:12:47,800 Speaker 1: was unrealized losses on balance sheets. I'm not sure that's 239 00:12:47,840 --> 00:12:51,120 Speaker 1: only at the banks. No, I agree, David, and I 240 00:12:51,240 --> 00:12:55,160 Speaker 1: don't know. I don't disagree with Jamie Diamond. We may 241 00:12:55,200 --> 00:12:58,600 Speaker 1: be over the worst. I don't expect a lot of failures, 242 00:12:58,679 --> 00:13:01,319 Speaker 1: but there's going to be a lot of pain. First off, 243 00:13:01,360 --> 00:13:04,040 Speaker 1: when the FED raises rates from zero to five hundred 244 00:13:04,080 --> 00:13:09,000 Speaker 1: in nine months, commercial real estate, particularly office real estate, 245 00:13:09,280 --> 00:13:11,840 Speaker 1: is going to be hurt by that. Cap rates have risen, 246 00:13:11,920 --> 00:13:15,160 Speaker 1: and while they haven't reappraised, those properties are down probably 247 00:13:15,200 --> 00:13:17,880 Speaker 1: twenty percent in value, and the people that loan the 248 00:13:18,000 --> 00:13:21,400 Speaker 1: money on those buildings are usually the regional banks. So 249 00:13:21,800 --> 00:13:24,880 Speaker 1: we'll probably enter a period again this fall of extend 250 00:13:24,960 --> 00:13:28,679 Speaker 1: and pertend where building owners have wiped out their equity 251 00:13:28,720 --> 00:13:30,439 Speaker 1: and they throw the keys back at the bank, and 252 00:13:30,520 --> 00:13:33,160 Speaker 1: the bank doesn't want to pull back that loan. They 253 00:13:33,160 --> 00:13:35,800 Speaker 1: don't want the commercial real estate. So I think we're 254 00:13:35,800 --> 00:13:39,080 Speaker 1: gonna have a long hangover period of pain, just simply 255 00:13:39,160 --> 00:13:43,240 Speaker 1: because the FED raised rates so quickly. Julie, I also 256 00:13:43,240 --> 00:13:45,439 Speaker 1: wanted about in another area, and that's private equity, which 257 00:13:45,520 --> 00:13:47,640 Speaker 1: is just exploded. As you know, I'm not sure how 258 00:13:47,720 --> 00:13:50,280 Speaker 1: transparent some of the losses might be in private equity. 259 00:13:50,400 --> 00:13:52,360 Speaker 1: The valuations certainly must have come down on some of 260 00:13:52,400 --> 00:13:56,560 Speaker 1: those companies. Well, David, that sounds like a mostly British understatement, 261 00:13:56,880 --> 00:13:59,360 Speaker 1: because the reality is that private equity is private, and 262 00:13:59,440 --> 00:14:03,360 Speaker 1: we just don't know. And what is really striking about 263 00:14:03,440 --> 00:14:06,959 Speaker 1: the last few years the gigantic credit bubble, and I 264 00:14:07,000 --> 00:14:08,840 Speaker 1: do call it a bubble because of the cheap money, 265 00:14:09,880 --> 00:14:13,000 Speaker 1: was that more of it happened through private capital markets 266 00:14:13,320 --> 00:14:16,480 Speaker 1: than we've ever seen before in history. And the problem 267 00:14:16,520 --> 00:14:18,559 Speaker 1: with that, and the good news about that is when 268 00:14:18,600 --> 00:14:22,520 Speaker 1: it starts to implode, it doesn't necessarily immediately hit the 269 00:14:22,680 --> 00:14:25,120 Speaker 1: regulated banks, and of course the regulated banks are at 270 00:14:25,160 --> 00:14:28,520 Speaker 1: the core of credit transmission and the economy. But the 271 00:14:28,600 --> 00:14:31,960 Speaker 1: bad news is that private equity can't be seen quite 272 00:14:32,000 --> 00:14:34,840 Speaker 1: so easy. What's happening inside it is private, and the 273 00:14:34,960 --> 00:14:37,160 Speaker 1: marks tend to take a very long time to come down. 274 00:14:37,760 --> 00:14:41,560 Speaker 1: So you are going to see more of a hissing sound, 275 00:14:41,640 --> 00:14:44,000 Speaker 1: if you like, as the bubble the flates, not the 276 00:14:44,120 --> 00:14:47,920 Speaker 1: dramatic pop. And one of the downsides of that is 277 00:14:47,960 --> 00:14:50,240 Speaker 1: that there's going to be a lot of quite unpredictable 278 00:14:50,320 --> 00:14:54,080 Speaker 1: chain reactions because we just don't know the complications of 279 00:14:54,240 --> 00:14:57,520 Speaker 1: where these losses will end up being felt. One area 280 00:14:57,600 --> 00:15:00,880 Speaker 1: I'm very curious about right now is a universe endowments, 281 00:15:01,440 --> 00:15:04,880 Speaker 1: because endowments have to produce a certain amount of income 282 00:15:04,920 --> 00:15:08,120 Speaker 1: each year to pay the bills to qualify the charitable status. 283 00:15:08,160 --> 00:15:12,000 Speaker 1: In some areas of the world, they're not like sovereign 284 00:15:12,040 --> 00:15:14,600 Speaker 1: wealth funds that can just swallow losses for a few years. 285 00:15:15,200 --> 00:15:17,880 Speaker 1: And a lot of university endowments have dashed into the 286 00:15:17,920 --> 00:15:20,920 Speaker 1: private equity in VC markets in recent years, and they 287 00:15:21,000 --> 00:15:23,880 Speaker 1: could start to see the outlook looking pretty nasty in 288 00:15:23,920 --> 00:15:26,560 Speaker 1: the next few years. As I recall, Chris, in the past, 289 00:15:26,640 --> 00:15:28,920 Speaker 1: you have expressed some skeptics as a private equity. I 290 00:15:28,960 --> 00:15:31,040 Speaker 1: think you pulled back, didn't you, A counselers, What about 291 00:15:31,080 --> 00:15:36,080 Speaker 1: pension plants and their investments in private is there vulnerability there? Well, David, 292 00:15:36,160 --> 00:15:39,960 Speaker 1: We've actually been a steady state investor. I'm skeptical of evaluations, 293 00:15:40,040 --> 00:15:42,480 Speaker 1: just as Jillian said. But you know a lot of 294 00:15:42,560 --> 00:15:45,520 Speaker 1: private equity. You can read it from the employment numbers. 295 00:15:45,600 --> 00:15:47,960 Speaker 1: They're still kind of steady, so they're not writing it down. 296 00:15:48,280 --> 00:15:50,920 Speaker 1: But they are also a fundraising so they're not motivated 297 00:15:51,000 --> 00:15:53,880 Speaker 1: to write it down. And I think really that when 298 00:15:53,920 --> 00:15:57,120 Speaker 1: you look at private equity, particularly as Julian said, at 299 00:15:57,160 --> 00:16:00,880 Speaker 1: the endowment level, there's no distribution. We're not seeing any 300 00:16:00,960 --> 00:16:06,000 Speaker 1: transactions merger Monday has disappeared, so it is putting a strain. 301 00:16:06,120 --> 00:16:09,760 Speaker 1: I think there's a very serious liquidity crunch going on 302 00:16:10,040 --> 00:16:12,840 Speaker 1: around the world, not just in the USA. We can 303 00:16:12,960 --> 00:16:17,360 Speaker 1: survive it, but it's very tough. People with cash are 304 00:16:17,480 --> 00:16:20,200 Speaker 1: hoarding it and right now we're not getting any money 305 00:16:20,240 --> 00:16:23,400 Speaker 1: back from private equity or real estate, and that's putting 306 00:16:23,440 --> 00:16:26,800 Speaker 1: a pinch on everybody's balance sheet. So people with negative 307 00:16:26,880 --> 00:16:29,240 Speaker 1: cash flows are going to find it harder and harder 308 00:16:29,320 --> 00:16:33,000 Speaker 1: to keep looking at new opportunities. That just as a long, 309 00:16:33,200 --> 00:16:35,760 Speaker 1: slow grind. I don't think it's going to lead to 310 00:16:36,040 --> 00:16:40,240 Speaker 1: an immediate liquidation where somebody sells a good asset on 311 00:16:40,360 --> 00:16:43,760 Speaker 1: a fire sale, because there are other people, like she 312 00:16:43,880 --> 00:16:46,280 Speaker 1: mentioned sovereign wealth funds willing to buy that up. So 313 00:16:46,920 --> 00:16:50,360 Speaker 1: it's a tough, tough period. Many things to Chris Alement 314 00:16:50,400 --> 00:16:53,040 Speaker 1: of Calister's and Jillian Tett of The Financial Times. Coming up, 315 00:16:53,080 --> 00:16:55,480 Speaker 1: we're gonna turn from credit over the subject of commercial 316 00:16:55,600 --> 00:16:58,920 Speaker 1: real estate with Owen Thomas of The XP and this 317 00:16:59,160 --> 00:17:04,960 Speaker 1: is Wall Street Week on Bloomberg. This is Bloomberg Wall 318 00:17:05,040 --> 00:17:16,280 Speaker 1: Street Week with David Weston from Bloomberg Radio, looking for 319 00:17:16,480 --> 00:17:20,400 Speaker 1: cracks when Silicon Valley Bank went down. It sent tremors 320 00:17:20,560 --> 00:17:23,080 Speaker 1: through the banking sector. Yeah, it's amazing. I mean, we 321 00:17:23,359 --> 00:17:27,680 Speaker 1: continue to get new news on banking. Now we've got 322 00:17:27,760 --> 00:17:31,800 Speaker 1: the SVB takeover. We've also got news that First Republic 323 00:17:31,840 --> 00:17:34,360 Speaker 1: will continue to be supported by the government. With fear 324 00:17:34,440 --> 00:17:39,200 Speaker 1: of contagion triggering an immediate and massive government intervention, Treasury 325 00:17:39,280 --> 00:17:43,119 Speaker 1: worked with the fit nif BIC to protect depositors in 326 00:17:43,240 --> 00:17:48,720 Speaker 1: the resolution of SVB. Our intervention was necessary to mitigate 327 00:17:48,920 --> 00:17:53,719 Speaker 1: systemic risks and protect the broader US banking system. Now 328 00:17:53,800 --> 00:17:56,360 Speaker 1: that we may be past the worst of the bank failures, 329 00:17:56,440 --> 00:17:59,879 Speaker 1: investors are looking around for what comes next, with realist 330 00:18:00,080 --> 00:18:03,480 Speaker 1: day being a prime suspect. Some like Bruce Flatt of 331 00:18:03,560 --> 00:18:07,280 Speaker 1: Brookfield say there's a big difference between top line properties 332 00:18:07,440 --> 00:18:10,320 Speaker 1: and the others. There's a real talty. It's the best 333 00:18:10,400 --> 00:18:12,119 Speaker 1: of the best and the worst of the worst. The 334 00:18:12,240 --> 00:18:15,680 Speaker 1: best of the best today is really really good. High 335 00:18:15,960 --> 00:18:21,439 Speaker 1: quality space is very sought after by companies because they 336 00:18:21,480 --> 00:18:24,679 Speaker 1: want to bring them people back and have new, engaging space, 337 00:18:25,040 --> 00:18:28,720 Speaker 1: while others like Joshua Friedman of Kenyon Partners say even 338 00:18:28,760 --> 00:18:31,440 Speaker 1: the top of the food chain could get hit. In 339 00:18:31,560 --> 00:18:35,000 Speaker 1: real estate, we don't know whether the market clearing prices 340 00:18:35,080 --> 00:18:38,560 Speaker 1: or cap rate, leaving people like former FDIC chairman Bill 341 00:18:38,640 --> 00:18:43,080 Speaker 1: Isaac to think hard about where real estate investments are heading. 342 00:18:43,520 --> 00:18:45,879 Speaker 1: You always have to fear a commercial real estate. It's 343 00:18:45,920 --> 00:18:49,840 Speaker 1: one of the risky activities in which banks engage, and 344 00:18:50,160 --> 00:18:53,400 Speaker 1: every now and again it gets over built and out 345 00:18:53,440 --> 00:18:56,879 Speaker 1: of control and people take losses. So that's always an 346 00:18:56,920 --> 00:19:01,080 Speaker 1: area of a bank that you should have under type control. 347 00:19:04,560 --> 00:19:06,640 Speaker 1: And to give us his thoughts on where real estate 348 00:19:06,760 --> 00:19:08,840 Speaker 1: is headed, welcome now a true expert in the area. 349 00:19:08,960 --> 00:19:12,840 Speaker 1: He is Owen Thomas, the chairman and CEO of BXP 350 00:19:13,080 --> 00:19:16,040 Speaker 1: formerly known as Boston Properties. So welcome. Great to have 351 00:19:16,160 --> 00:19:18,200 Speaker 1: you back in Wall Street week. Great David, great to 352 00:19:18,240 --> 00:19:20,280 Speaker 1: be here. Thank you. So the twenty four thousand and 353 00:19:20,280 --> 00:19:22,720 Speaker 1: sixty four thousand and sixty four billion dollar question is 354 00:19:22,840 --> 00:19:25,440 Speaker 1: at real estate the next shooter drop and the aftermath 355 00:19:25,480 --> 00:19:27,560 Speaker 1: of what we saw with the banks. The challenges in 356 00:19:27,680 --> 00:19:30,200 Speaker 1: real estate are going to be tied to the economy. 357 00:19:30,600 --> 00:19:33,320 Speaker 1: So it all depends on do we have a recession, 358 00:19:33,440 --> 00:19:35,920 Speaker 1: how deep will the recession be, how long will interest 359 00:19:36,000 --> 00:19:39,960 Speaker 1: rates be high? And the answer to that question will 360 00:19:40,040 --> 00:19:42,959 Speaker 1: determine you know, the challenges that the real estate industry 361 00:19:43,000 --> 00:19:45,840 Speaker 1: will face in the quarters ahead. We had a Bluebird 362 00:19:45,840 --> 00:19:50,440 Speaker 1: report saying that vacancy rates for office properties in Manhattan 363 00:19:50,480 --> 00:19:52,480 Speaker 1: where a record high right now. I think something like 364 00:19:52,560 --> 00:19:55,080 Speaker 1: fifteen percent something like that. How much of that is 365 00:19:55,080 --> 00:19:57,160 Speaker 1: because the economic downturn and how much of it's because 366 00:19:57,160 --> 00:19:58,800 Speaker 1: people just aren't coming back to the office they're working 367 00:19:58,840 --> 00:20:02,280 Speaker 1: from home. Yes, I think that's a big misperception in 368 00:20:02,400 --> 00:20:06,960 Speaker 1: the market today. The office business faces two significant headwinds. 369 00:20:07,080 --> 00:20:10,000 Speaker 1: One is a slowdown in economic conditions and the other 370 00:20:10,160 --> 00:20:12,359 Speaker 1: is work from home. When you have a slowdown in 371 00:20:12,400 --> 00:20:16,560 Speaker 1: the economy, businesses are more challenged in terms of their 372 00:20:16,640 --> 00:20:19,199 Speaker 1: P and L and they do things to cut costs. 373 00:20:19,320 --> 00:20:23,359 Speaker 1: And you see layoffs going on almost every day right now. 374 00:20:23,520 --> 00:20:26,840 Speaker 1: And as you have layoffs, companies take less space or 375 00:20:26,880 --> 00:20:29,879 Speaker 1: they put subble space back on the market. And by 376 00:20:29,920 --> 00:20:32,399 Speaker 1: the way, this is no different than any other downturn 377 00:20:32,520 --> 00:20:35,159 Speaker 1: that we've ever experienced. Office in many forms of real 378 00:20:35,320 --> 00:20:38,720 Speaker 1: estate are economically sensitive. So I think in the premium 379 00:20:38,800 --> 00:20:43,280 Speaker 1: end of the market, what's impacting our leasing activity today 380 00:20:43,440 --> 00:20:46,160 Speaker 1: is much more the economic conditions than work from home. 381 00:20:46,520 --> 00:20:48,840 Speaker 1: And the evidence of that that I would give you 382 00:20:49,600 --> 00:20:52,920 Speaker 1: is in twenty twenty two, last year, our company leased 383 00:20:53,040 --> 00:20:56,879 Speaker 1: nearly six million square feet of space, which is basically 384 00:20:56,920 --> 00:21:00,119 Speaker 1: at ninety five percent of our long term averages if 385 00:21:00,160 --> 00:21:03,480 Speaker 1: you think about it. Last year interest rates that started 386 00:21:03,480 --> 00:21:05,840 Speaker 1: to go up, but the economy was much more solid 387 00:21:05,880 --> 00:21:08,439 Speaker 1: and there were a lot fewer people in the office. 388 00:21:08,640 --> 00:21:12,199 Speaker 1: Now you've moved to twenty three, office leasing is slowing 389 00:21:12,320 --> 00:21:14,720 Speaker 1: down the economies worse than there are actually more people 390 00:21:14,800 --> 00:21:17,280 Speaker 1: working in the office. So what is your experience of BIS, 391 00:21:17,520 --> 00:21:19,879 Speaker 1: particularly in the tech area, because we've heard about a 392 00:21:19,960 --> 00:21:22,440 Speaker 1: lot of layoffs in tech, downsizing in tech. Are you 393 00:21:22,640 --> 00:21:26,400 Speaker 1: seeing that in your office situation? Yes, well, that has 394 00:21:26,440 --> 00:21:30,040 Speaker 1: an impact. The technology firms, particularly the larger ones, were 395 00:21:30,119 --> 00:21:34,720 Speaker 1: important net absorbers of office space since the global financial crisis, 396 00:21:35,200 --> 00:21:37,320 Speaker 1: and as you know, over the last six months, many 397 00:21:37,359 --> 00:21:41,960 Speaker 1: of those companies their growth has slowed and they're focused 398 00:21:42,359 --> 00:21:45,159 Speaker 1: very much on their profitability and they many of them 399 00:21:45,240 --> 00:21:48,320 Speaker 1: have done layoffs and many of them have put subly 400 00:21:48,400 --> 00:21:50,720 Speaker 1: spaced on the market. And by the way, they've all 401 00:21:50,800 --> 00:21:53,520 Speaker 1: announced some form of return to the office as a 402 00:21:53,600 --> 00:21:58,040 Speaker 1: result of this as well. One hundreds of valuations because 403 00:21:58,080 --> 00:22:00,800 Speaker 1: we have I guess net cree F it's called which 404 00:22:00,880 --> 00:22:04,240 Speaker 1: gives us appraisal valuations, and saying we've got a Bloomberg 405 00:22:04,320 --> 00:22:08,640 Speaker 1: b Read index of office property index, which is which 406 00:22:08,680 --> 00:22:11,399 Speaker 1: is down a lot more than the appraisals. So how 407 00:22:11,480 --> 00:22:13,760 Speaker 1: can you get your arms around exactly what's happening with 408 00:22:13,880 --> 00:22:16,800 Speaker 1: valuations in real estate? Yeah, so let's divide it between 409 00:22:16,880 --> 00:22:20,480 Speaker 1: the private market and the public market. On the private market, 410 00:22:20,600 --> 00:22:23,320 Speaker 1: it's hard to determine value because there are very few 411 00:22:23,400 --> 00:22:27,119 Speaker 1: transactions going on right now. Interest rates have come up, 412 00:22:28,400 --> 00:22:32,080 Speaker 1: bids are lower, and sellers are so far unprepared to 413 00:22:32,160 --> 00:22:35,600 Speaker 1: accept those bids. So where is real estate trading. It's 414 00:22:35,640 --> 00:22:37,959 Speaker 1: trading in the public market the reats as you mentioned, 415 00:22:38,680 --> 00:22:42,000 Speaker 1: And if you compare these two areas, you know, office 416 00:22:42,080 --> 00:22:46,000 Speaker 1: rates today are off fifty plus or minus percent from 417 00:22:46,080 --> 00:22:49,760 Speaker 1: peaks in March of last year. But the NYCREEF index, 418 00:22:49,880 --> 00:22:54,280 Speaker 1: which is appraisal based that dictates where private market values are, 419 00:22:54,400 --> 00:22:57,400 Speaker 1: it's only down about five to six percent from peak. 420 00:22:57,800 --> 00:23:00,840 Speaker 1: Higher interest rates obviously affect the economy. Slow the economy down, 421 00:23:01,000 --> 00:23:07,080 Speaker 1: may affect vacancy levels. It also affects financing for these properties. 422 00:23:07,520 --> 00:23:09,879 Speaker 1: How is that playing out right now? For example, if 423 00:23:09,920 --> 00:23:12,600 Speaker 1: you're putting up a new building. I understand you have 424 00:23:12,640 --> 00:23:14,920 Speaker 1: construction financing that's short term. You got to turn it 425 00:23:14,960 --> 00:23:17,119 Speaker 1: into longer term at sometime. Are you in the process 426 00:23:17,200 --> 00:23:20,400 Speaker 1: right now of refinancing and how does how does that work? Yes? Well, 427 00:23:20,440 --> 00:23:24,359 Speaker 1: financing is harder to get today because of concerns about 428 00:23:24,440 --> 00:23:27,760 Speaker 1: real estate, and also buildings have to have strong cash 429 00:23:27,800 --> 00:23:31,320 Speaker 1: flows to support the higher interest rates that are associated 430 00:23:31,400 --> 00:23:34,920 Speaker 1: with financing. From our company standpoint, most of the financing 431 00:23:35,000 --> 00:23:37,800 Speaker 1: we do is in the bond market, so we're an 432 00:23:37,880 --> 00:23:43,280 Speaker 1: investment grade issuer of unsecured bonds and that market is 433 00:23:43,320 --> 00:23:46,280 Speaker 1: open to us, albeit at higher spreads. We do have 434 00:23:46,440 --> 00:23:49,840 Speaker 1: some mortgage financing, and I do think mortgages are available 435 00:23:50,240 --> 00:23:52,840 Speaker 1: to office real estate. But the building has to be 436 00:23:52,920 --> 00:23:55,080 Speaker 1: well leased, it's got to be of high quality, and 437 00:23:55,200 --> 00:23:57,639 Speaker 1: it has to be owned by a strong sponsor. What 438 00:23:57,720 --> 00:23:59,840 Speaker 1: about the high quality you just mentioned, because I've heard 439 00:24:00,000 --> 00:24:02,640 Speaker 1: inflicting things that there's a huge difference between a buildings 440 00:24:02,680 --> 00:24:05,760 Speaker 1: and bees and ces or some people say basically it 441 00:24:05,800 --> 00:24:08,440 Speaker 1: applies across the board. Yes, Now, this is very important 442 00:24:08,520 --> 00:24:11,719 Speaker 1: issue when you think about office real estate. Last year 443 00:24:11,800 --> 00:24:14,200 Speaker 1: I mentioned all the leasing success that we had yet 444 00:24:14,320 --> 00:24:17,080 Speaker 1: we saw all these reports showing many of our cities 445 00:24:17,119 --> 00:24:19,959 Speaker 1: being fifteen, twenty, twenty five percent vacant. And then an 446 00:24:20,000 --> 00:24:23,240 Speaker 1: important measure in office real estate is net absorption. This 447 00:24:23,480 --> 00:24:27,000 Speaker 1: is how much the occupied space goes up and down 448 00:24:27,080 --> 00:24:29,560 Speaker 1: in those segments. And if you look at the premiere 449 00:24:29,640 --> 00:24:33,720 Speaker 1: workplaces for the last two years ended the year in 450 00:24:33,800 --> 00:24:38,040 Speaker 1: twenty twenty two, the premier workplaces had a positive seven 451 00:24:38,119 --> 00:24:41,399 Speaker 1: million square feet of net absorption, where everything else was 452 00:24:41,520 --> 00:24:44,920 Speaker 1: down twenty five million square feet. So there's a very 453 00:24:45,840 --> 00:24:47,520 Speaker 1: all the years that I've been doing this, this is 454 00:24:47,720 --> 00:24:52,200 Speaker 1: one of the strongest moves towards quality office and real 455 00:24:52,320 --> 00:24:54,560 Speaker 1: estate that I've seen. What about prime cities, if I 456 00:24:54,600 --> 00:24:57,440 Speaker 1: can put it that way, Yeah, what's the geographic dispersion? 457 00:24:57,480 --> 00:25:00,439 Speaker 1: We hear reports for example, San Francisco really ugling, New 458 00:25:00,480 --> 00:25:02,440 Speaker 1: York maybe not doing so well, and there's a big 459 00:25:02,560 --> 00:25:05,760 Speaker 1: move into Austin to Miami, places like that. Yeah, Well, 460 00:25:05,800 --> 00:25:10,280 Speaker 1: there is some migration out of the coastal cities into 461 00:25:10,600 --> 00:25:14,960 Speaker 1: lower tax states and cities like in Florida and in Texas, 462 00:25:15,040 --> 00:25:19,240 Speaker 1: but there's also in migration from employees in New York 463 00:25:19,320 --> 00:25:23,040 Speaker 1: and San Francisco as well. So I do think I 464 00:25:23,320 --> 00:25:26,920 Speaker 1: believe in the long term vibrancy of cities like New 465 00:25:27,000 --> 00:25:30,080 Speaker 1: York and Boston and San Francisco, And what about the 466 00:25:30,160 --> 00:25:33,080 Speaker 1: ecosystem more broadly at this point, are places like b 467 00:25:33,320 --> 00:25:36,760 Speaker 1: XP and others pulling back on future development of properties, 468 00:25:36,800 --> 00:25:41,080 Speaker 1: which can affect things like construction construction workers employment. Yeah, well, 469 00:25:41,119 --> 00:25:44,000 Speaker 1: with the slowdown in demand, clearly there's going to be 470 00:25:44,040 --> 00:25:46,840 Speaker 1: a slowdown in development, and that's one thing that'll help 471 00:25:47,520 --> 00:25:49,960 Speaker 1: owners like ourselves because they're going to be less supply 472 00:25:50,040 --> 00:25:53,200 Speaker 1: in the future because constructions being pulled back. We do 473 00:25:53,359 --> 00:25:56,440 Speaker 1: have sites and we would consider future development, but it 474 00:25:56,520 --> 00:26:00,399 Speaker 1: has to be de risked and for us, that means released. 475 00:26:00,520 --> 00:26:02,600 Speaker 1: What's the biggest opportunity for b XP right now? And 476 00:26:02,800 --> 00:26:05,160 Speaker 1: is it, in fact part because of the valuation question. 477 00:26:05,320 --> 00:26:07,399 Speaker 1: Maybe some bargains out there at the moment. No, I 478 00:26:07,440 --> 00:26:09,320 Speaker 1: think that will come. I maybe a couple of things 479 00:26:09,320 --> 00:26:11,639 Speaker 1: I would mention. We have also been in addition to 480 00:26:11,800 --> 00:26:15,760 Speaker 1: our premier workplace business, we've also been developing life science assets. 481 00:26:16,240 --> 00:26:20,200 Speaker 1: We're building a large lab building for Astra's Anaca and Cambridge. 482 00:26:20,200 --> 00:26:24,200 Speaker 1: We're converting a large building in Cambridge for the Broad Institute. 483 00:26:24,280 --> 00:26:27,120 Speaker 1: So that's an area of growth for us. Another area 484 00:26:27,160 --> 00:26:30,000 Speaker 1: of growth for us is simply leasing our portfolio, increasing 485 00:26:30,040 --> 00:26:32,760 Speaker 1: the occupancy, because we're at about eighty eight or eighty 486 00:26:32,880 --> 00:26:36,639 Speaker 1: nine percent occupied today, and that will grow our income stream. 487 00:26:36,920 --> 00:26:38,600 Speaker 1: And then I agree with you. I think as this 488 00:26:39,640 --> 00:26:44,400 Speaker 1: downturn unfolds, I think additional investment opportunities will present themselves 489 00:26:44,480 --> 00:26:46,879 Speaker 1: to strong players like ourselves. Oh and thank you so 490 00:26:47,000 --> 00:26:49,200 Speaker 1: much for being his own Thomas. He is the chairman 491 00:26:49,240 --> 00:26:54,000 Speaker 1: and CEO of BXP. Coming up, we wrap up the 492 00:26:54,040 --> 00:26:58,600 Speaker 1: week with our special computer, Larry Summers of Harvard. That's 493 00:26:58,680 --> 00:27:08,160 Speaker 1: next on Wall Street week on Bloomberg. This is Wall Street. 494 00:27:08,359 --> 00:27:10,040 Speaker 1: I'm David West and we are joined once again by 495 00:27:10,080 --> 00:27:13,000 Speaker 1: our very special contributor, Larry Summers of Harvard. So, Larry, 496 00:27:13,000 --> 00:27:14,879 Speaker 1: at the very end of the week, on Good Friday, 497 00:27:14,960 --> 00:27:17,080 Speaker 1: we would say, was of that persuasion. We got the 498 00:27:17,200 --> 00:27:19,600 Speaker 1: jobs numbers two hundred and thirty six thousand, pretty much 499 00:27:19,680 --> 00:27:22,840 Speaker 1: right on expectations. Although the bottomark was a little disappointed. 500 00:27:22,880 --> 00:27:25,199 Speaker 1: They were hoping something softer. What do you make of them? 501 00:27:25,640 --> 00:27:28,399 Speaker 1: I think this was not a very newsworthy bit of news. 502 00:27:29,640 --> 00:27:35,360 Speaker 1: Things came in pretty much as people expected. The numbers 503 00:27:35,560 --> 00:27:39,520 Speaker 1: reflected the strength that we certainly saw in the early 504 00:27:39,600 --> 00:27:43,000 Speaker 1: part of the first quarter. I don't think this bears 505 00:27:43,200 --> 00:27:48,280 Speaker 1: on very much on interpreting the economy because the numbers 506 00:27:48,320 --> 00:27:51,320 Speaker 1: are a few weeks old when we get them, and 507 00:27:51,640 --> 00:27:57,280 Speaker 1: more importantly, because those numbers employment and unemployment are lagging 508 00:27:57,400 --> 00:28:03,040 Speaker 1: indicators of what's happening in the real economy. So the 509 00:28:03,240 --> 00:28:07,480 Speaker 1: real question is still how much of a credit crunch 510 00:28:08,040 --> 00:28:13,400 Speaker 1: is coming in the wake of all the banking problems, 511 00:28:13,480 --> 00:28:18,280 Speaker 1: in the wake of all the disturbances in the banking sector. 512 00:28:18,840 --> 00:28:21,440 Speaker 1: And that's a very hard thing to know. Well, that's 513 00:28:21,440 --> 00:28:24,200 Speaker 1: interally credit crunch. I mean, some people refer to that 514 00:28:24,240 --> 00:28:26,159 Speaker 1: as saying the credit is just not available as supposed, 515 00:28:26,160 --> 00:28:28,440 Speaker 1: that it's more expensive. Is that what you mean by it? 516 00:28:28,560 --> 00:28:30,600 Speaker 1: And again, when do you think we might have a 517 00:28:30,680 --> 00:28:32,960 Speaker 1: sense of whether that comes to pass. I think it's 518 00:28:33,000 --> 00:28:36,680 Speaker 1: a combination of you know, something's available at any price, 519 00:28:36,840 --> 00:28:39,040 Speaker 1: but if the price is too high, it doesn't really 520 00:28:39,120 --> 00:28:45,440 Speaker 1: matter that it is available. I think we're getting a 521 00:28:46,160 --> 00:28:54,240 Speaker 1: sense that there is some substantial amount of constriction in credit. 522 00:28:54,360 --> 00:28:58,160 Speaker 1: If you looked at the forward looking numbers this week 523 00:28:58,400 --> 00:29:04,080 Speaker 1: from the PMI survey, those numbers were really quite weak. 524 00:29:05,000 --> 00:29:08,600 Speaker 1: If you look at the UI claims with the new 525 00:29:08,720 --> 00:29:15,200 Speaker 1: seasonal adjustment, they're suggesting much less strength than they had 526 00:29:15,280 --> 00:29:21,000 Speaker 1: been earlier. When you looked at vacancies, they seem to 527 00:29:21,160 --> 00:29:27,120 Speaker 1: be coming down. So I think you have to say 528 00:29:27,280 --> 00:29:32,040 Speaker 1: that recession probabilities are going up at this point, and 529 00:29:32,240 --> 00:29:37,920 Speaker 1: I think the Fed's got very very difficult decisions ahead 530 00:29:37,960 --> 00:29:43,440 Speaker 1: of it with very much two sided risk. That's a 531 00:29:43,920 --> 00:29:49,160 Speaker 1: consequence of where we sort of found ourselves with an 532 00:29:49,280 --> 00:29:53,480 Speaker 1: overheated economy. And finally, Larry, you said the magic words 533 00:29:53,520 --> 00:29:55,640 Speaker 1: to borrow from growtual marks there if I may, it's 534 00:29:55,680 --> 00:29:59,240 Speaker 1: had GPT. You brought those words originally to Wall Street Week. 535 00:29:59,560 --> 00:30:01,680 Speaker 1: I know eve been following it closely. Now as you 536 00:30:01,800 --> 00:30:04,840 Speaker 1: talk to people about chat GPT and its potential, where 537 00:30:04,840 --> 00:30:07,720 Speaker 1: do you think we are headed. Here's the thing I'm 538 00:30:08,200 --> 00:30:13,160 Speaker 1: seeing more and more. I think it's coming for the 539 00:30:13,280 --> 00:30:18,720 Speaker 1: cognitive class. Chat EPT is going to replace what doctors 540 00:30:18,880 --> 00:30:25,560 Speaker 1: do hearing symptoms and making diagnoses. Before it changes what 541 00:30:26,160 --> 00:30:31,800 Speaker 1: nurses do helping patients get up and handle themselves in 542 00:30:31,960 --> 00:30:39,160 Speaker 1: the hospital. It's gonna change what traders do going in 543 00:30:39,280 --> 00:30:45,520 Speaker 1: and out of financial markets before it changes what salespeople do, 544 00:30:46,480 --> 00:30:57,080 Speaker 1: making relations making relationships with potential clients. It's gonna change 545 00:30:57,800 --> 00:31:07,360 Speaker 1: what authors and editors do before it changes what people 546 00:31:07,440 --> 00:31:14,680 Speaker 1: in bookstores do. And so I think this is going 547 00:31:14,880 --> 00:31:20,880 Speaker 1: to be an enormous change over time in our society. 548 00:31:21,080 --> 00:31:24,160 Speaker 1: It's fascinating coming through the cognitive class. Thank you so much, Larry, 549 00:31:24,200 --> 00:31:26,440 Speaker 1: really appreciate it. Once again, that's a special contributor on 550 00:31:26,560 --> 00:31:29,600 Speaker 1: Wall Street Week. He's Larry Summers of Harvard. That doesn't 551 00:31:29,600 --> 00:31:31,800 Speaker 1: for this episode of Wall Street Week. I'm David Weston. 552 00:31:31,880 --> 00:31:33,680 Speaker 1: This is Bloomberg. See you next week.