1 00:00:00,240 --> 00:00:02,440 Speaker 1: This is Bloomberg Wall Street Week. 2 00:00:02,480 --> 00:00:04,400 Speaker 2: I mean may not have an overall recession. We're having 3 00:00:04,400 --> 00:00:06,960 Speaker 2: a rolling recession. To KNYE, roll looks pretty strongly when 4 00:00:07,000 --> 00:00:07,680 Speaker 2: it comes to jobs. 5 00:00:07,720 --> 00:00:09,840 Speaker 1: The financial stories that shape our world. 6 00:00:09,960 --> 00:00:13,640 Speaker 2: Three major regional bank failures sent shockwaves through the banking system. 7 00:00:13,680 --> 00:00:15,440 Speaker 2: We're all trying to figure out what to make of 8 00:00:15,600 --> 00:00:17,320 Speaker 2: generative AI through. 9 00:00:17,160 --> 00:00:19,320 Speaker 1: The eyes of the most influential voices. 10 00:00:19,440 --> 00:00:22,400 Speaker 2: Welcome down, Doctor Paul Krugman, Ryan moynihan, a Bank of America, 11 00:00:22,560 --> 00:00:25,279 Speaker 2: deebro Lair of the Paulson Institute, well then Hubbard of 12 00:00:25,280 --> 00:00:26,280 Speaker 2: the Columbia Business School. 13 00:00:26,280 --> 00:00:30,160 Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 14 00:00:30,440 --> 00:00:35,360 Speaker 2: Inflation numbers, big mergers, IPOs, but they were all overshadowed 15 00:00:35,400 --> 00:00:38,120 Speaker 2: by war in the Middle East. This is Bloomberg Wall 16 00:00:38,120 --> 00:00:42,320 Speaker 2: Street Week. I'm David Weston. This week. Richard Hawes of 17 00:00:42,360 --> 00:00:47,320 Speaker 2: Centerview Partners on Israel's war against Hamas in Gaza. Special 18 00:00:47,400 --> 00:00:50,879 Speaker 2: contributor Larry Summers on the controversy over Harvard's position on 19 00:00:50,960 --> 00:00:51,360 Speaker 2: the war. 20 00:00:52,120 --> 00:00:57,600 Speaker 3: The statement by thirty student groups blaming all violent sewn 21 00:00:57,920 --> 00:01:02,480 Speaker 3: Israel was a absurdity. 22 00:01:02,680 --> 00:01:06,080 Speaker 2: And Greg Fleming of Rockefeller Capital Management on how investors 23 00:01:06,120 --> 00:01:08,400 Speaker 2: respond to geopolitical turmoil. 24 00:01:09,120 --> 00:01:39,000 Speaker 4: Investors David have a hard time measuring geopolitical risk. 25 00:01:27,800 --> 00:01:30,399 Speaker 2: Global Wall Street began the week trying to absorb the 26 00:01:30,560 --> 00:01:34,000 Speaker 2: awful news coming out of Israel and Amma's terrorist attack 27 00:01:34,319 --> 00:01:39,240 Speaker 2: on civilians and military. As word came of death and destruction. 28 00:01:39,480 --> 00:01:40,400 Speaker 1: It's simply. 29 00:01:41,720 --> 00:01:46,720 Speaker 2: Depravity in the worst measurable way. And the initial Israeli 30 00:01:46,760 --> 00:01:50,680 Speaker 2: responds with more on the way out of an understanding 31 00:01:51,120 --> 00:01:52,880 Speaker 2: that there are civilians. 32 00:01:52,280 --> 00:01:54,800 Speaker 5: Here whom are not our enemy and. 33 00:01:54,840 --> 00:01:56,600 Speaker 2: We do not want to target them. 34 00:01:56,840 --> 00:01:59,720 Speaker 1: We are asking them to evacuate so that we would 35 00:01:59,760 --> 00:02:01,520 Speaker 1: be able to continue to. 36 00:02:01,560 --> 00:02:06,200 Speaker 6: Strike military targets belonging to hamas in the Gazza stere. 37 00:02:06,600 --> 00:02:09,320 Speaker 2: Even as we kept one eye on Israel, the world 38 00:02:09,320 --> 00:02:12,280 Speaker 2: of finance and business went on with a major merger 39 00:02:12,320 --> 00:02:15,680 Speaker 2: in the oil industry between Exxon and Pioneer. You have 40 00:02:15,760 --> 00:02:18,160 Speaker 2: to become a diversified company with. 41 00:02:18,320 --> 00:02:21,560 Speaker 7: Slots right into our existing unconventional business. 42 00:02:22,200 --> 00:02:26,520 Speaker 2: Another initial public offering came to market, this one from Birkenstock. 43 00:02:27,440 --> 00:02:30,440 Speaker 2: The first trade was at forty one bucks. This deal 44 00:02:30,440 --> 00:02:33,200 Speaker 2: got priced at forty six, so you're talking about an 45 00:02:33,200 --> 00:02:37,720 Speaker 2: elebor percent decline for the open. The critical CPI numbers 46 00:02:37,760 --> 00:02:40,799 Speaker 2: came in on Thursday, the last read before the FEDS 47 00:02:40,880 --> 00:02:41,840 Speaker 2: meeting next month. 48 00:02:42,400 --> 00:02:45,240 Speaker 8: The numbers come in a little bit hotter than anticipated, 49 00:02:45,240 --> 00:02:48,960 Speaker 8: with CPI up four tenths. The forecast was for a 50 00:02:49,160 --> 00:02:51,959 Speaker 8: three tenths increase, but that's down from six tenths to 51 00:02:52,000 --> 00:02:55,200 Speaker 8: the months before. The core comes in up three tenths, 52 00:02:55,240 --> 00:02:56,080 Speaker 8: which is bang on. 53 00:02:58,720 --> 00:03:01,240 Speaker 2: In the end, the markets reacted to all the turmoil 54 00:03:01,320 --> 00:03:04,359 Speaker 2: this week with surprising calm. But before we go through 55 00:03:04,360 --> 00:03:06,720 Speaker 2: the markets, we begin with the big story of the week, 56 00:03:06,919 --> 00:03:09,239 Speaker 2: and for that we welcome Richard Hawes, now of Center 57 00:03:09,280 --> 00:03:11,959 Speaker 2: Few Partners and so recently ambassador has served as President 58 00:03:12,000 --> 00:03:15,160 Speaker 2: and Council of Foreign Relations for almost twenty years. So Richard, 59 00:03:15,160 --> 00:03:16,919 Speaker 2: thank you so much for being here. You have a 60 00:03:16,960 --> 00:03:19,440 Speaker 2: new newsletter out called Home and Away on substack. You 61 00:03:19,480 --> 00:03:22,399 Speaker 2: write today about this subject, and one of the things 62 00:03:22,400 --> 00:03:26,120 Speaker 2: you warn about is if Israel in fact goes into Gaza, 63 00:03:26,360 --> 00:03:29,320 Speaker 2: it could create more problems than it solves. Explain. 64 00:03:29,800 --> 00:03:31,800 Speaker 9: But don't get me wrong, David, I believe Israel should 65 00:03:31,800 --> 00:03:34,200 Speaker 9: get involved in Gaza. It should go after those who 66 00:03:35,000 --> 00:03:38,840 Speaker 9: undertook these heinous barbaric acts. It's important to say that 67 00:03:39,000 --> 00:03:42,800 Speaker 9: terrorists cannot act with impunity. Israel also needs to restore 68 00:03:42,880 --> 00:03:47,480 Speaker 9: the terrens, rebuild its defenses, which obviously failed. But to 69 00:03:47,520 --> 00:03:49,840 Speaker 9: go in really big, I do worry would cause at 70 00:03:49,920 --> 00:03:52,280 Speaker 9: least as many, if not more, problems than it would solve. 71 00:03:52,320 --> 00:03:55,200 Speaker 9: You'd create a lot of sympathy for the Palestinians and 72 00:03:55,240 --> 00:03:58,400 Speaker 9: for Hamas because there would inevitably be all sorts of 73 00:03:58,680 --> 00:04:02,880 Speaker 9: civilian casualties. Israel itself would take many more casualties it's military, 74 00:04:02,960 --> 00:04:05,480 Speaker 9: some of them would be abducted. I worry this could 75 00:04:05,480 --> 00:04:08,960 Speaker 9: become the grounds for war, widening that in Lebanon and 76 00:04:09,040 --> 00:04:12,800 Speaker 9: other places. Iran, using his bulla there, would take this 77 00:04:12,800 --> 00:04:15,720 Speaker 9: as something of an opportunity. I think the United States, 78 00:04:15,720 --> 00:04:18,800 Speaker 9: which has been rightfully so supportive of Israel up to now, 79 00:04:19,120 --> 00:04:22,160 Speaker 9: would be pressured to rethink its position, maybe call for 80 00:04:22,520 --> 00:04:25,320 Speaker 9: a ceasefire. So Israel really needs to think about what 81 00:04:25,440 --> 00:04:28,520 Speaker 9: it does. The good news Israel does have options, and 82 00:04:28,560 --> 00:04:30,160 Speaker 9: I would say what it ought to do is really 83 00:04:30,160 --> 00:04:32,640 Speaker 9: two things. It ought to go in but very discreetly, 84 00:04:32,880 --> 00:04:36,800 Speaker 9: where it has intelligence, go after those Hamas fighters could 85 00:04:36,839 --> 00:04:39,279 Speaker 9: be very targeted on them, could be from the air 86 00:04:39,360 --> 00:04:42,360 Speaker 9: could be from the ground with smaller units. Secondly, rebuild 87 00:04:42,360 --> 00:04:46,240 Speaker 9: your defenses they failed. Rebuild the walls, put troops there, 88 00:04:46,320 --> 00:04:50,200 Speaker 9: increase your readiness. Don't underestimate Hamas ever Again, but in 89 00:04:50,200 --> 00:04:54,000 Speaker 9: Western Israel, be prepared potentially for next time, if only 90 00:04:54,000 --> 00:04:55,760 Speaker 9: because you don't want there to be a next time. 91 00:04:56,200 --> 00:04:59,520 Speaker 2: Talk about the specific objective of any sort of invasion 92 00:04:59,560 --> 00:05:04,080 Speaker 2: of guys. It's understandable the Prime Minister Nya, who must 93 00:05:04,120 --> 00:05:06,840 Speaker 2: act as you say, what was done by Hamas is 94 00:05:06,920 --> 00:05:10,560 Speaker 2: beyond inexcusable, just inconceivable what happened. At the same time, 95 00:05:10,760 --> 00:05:12,960 Speaker 2: the Prime Minister is said he wants to eliminate Hamas? 96 00:05:13,080 --> 00:05:14,920 Speaker 2: Is that a realistic objective in Gaza? 97 00:05:15,240 --> 00:05:17,599 Speaker 9: Short answers know it's to be very hard to find 98 00:05:17,640 --> 00:05:19,400 Speaker 9: himas It's not like it's an army in an open 99 00:05:19,440 --> 00:05:21,479 Speaker 9: battlefield with tanks and planes and the rest. 100 00:05:21,600 --> 00:05:22,800 Speaker 2: Doesn't It doesn't work that way. 101 00:05:23,120 --> 00:05:26,640 Speaker 9: Also, Hamas is much a movement or network, it's even 102 00:05:26,680 --> 00:05:28,880 Speaker 9: an idea, David. So it's not just that you're going 103 00:05:28,880 --> 00:05:32,160 Speaker 9: to create all sorts of resistance. Remember Donald Rumsfeld's quote 104 00:05:32,680 --> 00:05:34,800 Speaker 9: when we were using drones to kill terrorists, How do 105 00:05:34,839 --> 00:05:37,080 Speaker 9: we know we're not creating more future terrorists than the 106 00:05:37,080 --> 00:05:40,320 Speaker 9: ones we're getting. I think that would come into play. 107 00:05:40,480 --> 00:05:44,480 Speaker 9: So Hamas or some organization like it, some movement like it, 108 00:05:44,520 --> 00:05:47,320 Speaker 9: will survive, might even be stronger afterwards. And as the 109 00:05:47,400 --> 00:05:50,680 Speaker 9: Israelis learned in many places in lebanonor and Gaza, historically 110 00:05:51,000 --> 00:05:53,280 Speaker 9: easier to get in than it is to get out. 111 00:05:53,520 --> 00:05:55,200 Speaker 9: And when you get out, how do you know you 112 00:05:55,240 --> 00:05:58,599 Speaker 9: could put something better than endoors in its place. So again, 113 00:05:58,760 --> 00:06:01,640 Speaker 9: Israel needs to act, but it needs to act smart. 114 00:06:01,720 --> 00:06:03,880 Speaker 9: It needs to act in a really careful way. 115 00:06:04,440 --> 00:06:06,359 Speaker 2: You know Gaza, You've been to Gaza City, you know 116 00:06:06,400 --> 00:06:08,800 Speaker 2: how difficult that terrain is. As it were, it's so 117 00:06:08,880 --> 00:06:11,360 Speaker 2: densely popular that it'd so many buildings. One of the 118 00:06:11,400 --> 00:06:14,040 Speaker 2: objectives here is to rescue the hostages, of which we 119 00:06:14,080 --> 00:06:15,599 Speaker 2: don't know how many there are, but upwards of one 120 00:06:15,640 --> 00:06:18,880 Speaker 2: hundred at least hostages. Is that realistic? Is it conceivable 121 00:06:18,880 --> 00:06:20,880 Speaker 2: that they could go in and actually rescue the hostages? 122 00:06:21,160 --> 00:06:21,640 Speaker 2: Really hard? 123 00:06:21,640 --> 00:06:25,039 Speaker 9: To rescue hostages, you need totally good intelligence, then you 124 00:06:25,120 --> 00:06:28,880 Speaker 9: need total surprise. That's loading assumption on assumption. I think 125 00:06:28,920 --> 00:06:31,159 Speaker 9: the more likely way the hostages get out is there's 126 00:06:31,160 --> 00:06:35,560 Speaker 9: a swap You've got hundreds of Hamas operatives in Israeli prisons, 127 00:06:35,680 --> 00:06:39,159 Speaker 9: thousands of Palestinians from the West Bank who have the 128 00:06:39,200 --> 00:06:41,640 Speaker 9: Israelis and charged with crimes. So I think if there's 129 00:06:41,680 --> 00:06:44,400 Speaker 9: an exchange here, that would be the way we work. Indeed, David, 130 00:06:44,680 --> 00:06:46,160 Speaker 9: one of the reasons I would argue, one of the 131 00:06:46,200 --> 00:06:49,960 Speaker 9: two reasons Hamas took so many hostages was one to 132 00:06:50,000 --> 00:06:53,400 Speaker 9: deter Israeli attacks, but secondly to set up this kind 133 00:06:53,400 --> 00:06:54,119 Speaker 9: of a swamp. 134 00:06:54,560 --> 00:06:57,760 Speaker 2: Richard, you mentioned the possibility of expanding this conflict beyond 135 00:06:58,440 --> 00:07:01,479 Speaker 2: Israel and Gaza. And obviously this is first and foremost 136 00:07:01,520 --> 00:07:05,000 Speaker 2: to a humanitarian issue, a tragedy and inconceivable tragedy. It 137 00:07:05,040 --> 00:07:09,520 Speaker 2: also has potential economic ramifications, particularly if there's expansion. What 138 00:07:09,680 --> 00:07:13,640 Speaker 2: about you mentioned Lebanon, You mentioned particularly Iran, because a 139 00:07:13,680 --> 00:07:15,640 Speaker 2: lot of people on Wall Street are very concerned if 140 00:07:15,640 --> 00:07:18,200 Speaker 2: this goes, for example, to involve Iran, then it could 141 00:07:18,200 --> 00:07:20,160 Speaker 2: really have substantial economic effects. 142 00:07:20,240 --> 00:07:21,760 Speaker 9: But they ought to be worried about that, and that's 143 00:07:21,760 --> 00:07:24,240 Speaker 9: why again it's so important it's not widened. I think 144 00:07:24,240 --> 00:07:26,440 Speaker 9: the United States or to let Iran know that it 145 00:07:26,440 --> 00:07:29,440 Speaker 9: will be held accountable for anything that Habola does. As 146 00:07:29,440 --> 00:07:31,960 Speaker 9: well as not an independent entity. I think we may 147 00:07:31,960 --> 00:07:34,200 Speaker 9: be able to get the Chinese involved. China's the principal 148 00:07:34,240 --> 00:07:37,040 Speaker 9: importer of Iranian oil. If the Chinese don't want to 149 00:07:37,040 --> 00:07:40,440 Speaker 9: see that oil flow interrupted by American arms, they may 150 00:07:40,480 --> 00:07:43,600 Speaker 9: want to lean on Iran terrain in Hbola. There's things 151 00:07:43,600 --> 00:07:46,320 Speaker 9: we can and should do here because this could grow, 152 00:07:46,560 --> 00:07:47,120 Speaker 9: could grow. 153 00:07:47,000 --> 00:07:47,760 Speaker 2: In other ways too day. 154 00:07:47,800 --> 00:07:51,160 Speaker 9: But you can imagine Arab regimes around the region threatened 155 00:07:51,160 --> 00:07:55,480 Speaker 9: potentially by public unrest if things get bad enough in Gaza, 156 00:07:55,600 --> 00:07:58,360 Speaker 9: so in the Middle East. One of the rules of history, 157 00:07:58,360 --> 00:08:00,720 Speaker 9: as bad as things get, they can all always get worse. 158 00:08:01,080 --> 00:08:02,840 Speaker 9: That ought to be one of our goals here. By 159 00:08:02,880 --> 00:08:05,360 Speaker 9: our I mean the United States and Israel to manage this. 160 00:08:05,680 --> 00:08:08,960 Speaker 2: Richard, you are a career diplomat, and from what I've 161 00:08:09,000 --> 00:08:12,440 Speaker 2: read of history, typically these things are resolved ultimately through 162 00:08:12,440 --> 00:08:15,120 Speaker 2: some sort of agreement, not throughout and out warren destruction 163 00:08:15,200 --> 00:08:18,360 Speaker 2: of the other side. It's too early to really move forward, 164 00:08:18,400 --> 00:08:20,440 Speaker 2: I'm sure on diplomacy, but it may not be too 165 00:08:20,440 --> 00:08:22,280 Speaker 2: early to think about what that might look like down 166 00:08:22,280 --> 00:08:23,720 Speaker 2: the road and position ourselves. 167 00:08:23,840 --> 00:08:25,720 Speaker 9: I think I have to think about tranches or phases 168 00:08:25,720 --> 00:08:27,440 Speaker 9: we talked about one which is a prisoner for a 169 00:08:27,520 --> 00:08:30,800 Speaker 9: hostage swap. I can imagine some kind of a ceasefire 170 00:08:30,880 --> 00:08:33,559 Speaker 9: or modus vivendi agreement. The big question, though, is how 171 00:08:33,559 --> 00:08:37,839 Speaker 9: do you make some progress on the Palestinian issue. Wildly optimistic, ambitious, 172 00:08:37,880 --> 00:08:39,760 Speaker 9: I get it, but I think what we've learned, David 173 00:08:40,120 --> 00:08:43,400 Speaker 9: is normalization between Israel and Arab governments can only go 174 00:08:43,520 --> 00:08:46,600 Speaker 9: so far. It can't survive if you will absent or 175 00:08:46,600 --> 00:08:49,560 Speaker 9: apart from the Palestinians totally. There's got to be a 176 00:08:49,559 --> 00:08:52,800 Speaker 9: Palomestinian dimension to this. It won't be with hamas they 177 00:08:52,840 --> 00:08:56,160 Speaker 9: have ruled themselves out for time immemorial. But Israel needs 178 00:08:56,160 --> 00:09:00,480 Speaker 9: a Palestinian partner. Israel needs a Palestinian state, not as 179 00:09:00,520 --> 00:09:03,560 Speaker 9: a favorite to the Palestinians, as a favor to itself. 180 00:09:03,840 --> 00:09:09,199 Speaker 9: If Israel is going to remain a democratic, Jewish, secure, 181 00:09:09,440 --> 00:09:12,760 Speaker 9: prosperous state, it needs a Palestinian state that's willing to 182 00:09:12,800 --> 00:09:15,680 Speaker 9: coexist with it peacefully. That has to be the long 183 00:09:15,800 --> 00:09:19,400 Speaker 9: term goal of Israeli and American foreign policy and diplomacy. 184 00:09:19,960 --> 00:09:21,160 Speaker 2: I know how difficult it is. 185 00:09:21,200 --> 00:09:23,280 Speaker 9: I spent decades working on it, but I think what 186 00:09:23,320 --> 00:09:25,199 Speaker 9: we've learned the hard way of the last few days. 187 00:09:25,559 --> 00:09:28,360 Speaker 9: In a vacuum where there is no hope, then if 188 00:09:28,400 --> 00:09:30,800 Speaker 9: the only game in town is terrorists, terrorists will do 189 00:09:30,840 --> 00:09:33,280 Speaker 9: with terrorists do, and we can't allow that to be 190 00:09:33,360 --> 00:09:34,360 Speaker 9: the only game in town. 191 00:09:34,440 --> 00:09:36,600 Speaker 2: There are those who specula that we can't know. Certainly, 192 00:09:36,679 --> 00:09:38,640 Speaker 2: I can't know what was really in Hamas's mind, but 193 00:09:38,679 --> 00:09:40,600 Speaker 2: there are those who speculating part of the triggering banked. 194 00:09:40,640 --> 00:09:44,520 Speaker 2: Here were reports about a possible arrangement with Saudi Arabia, Israel, 195 00:09:44,559 --> 00:09:46,559 Speaker 2: and the United States, even at this late date in 196 00:09:46,640 --> 00:09:48,920 Speaker 2: understanding Saudi Arabia right now said they're going to suspend 197 00:09:48,920 --> 00:09:51,880 Speaker 2: that talks about really reconciling with Israel. Is there a 198 00:09:51,880 --> 00:09:54,920 Speaker 2: potential constructive rule for Saudi Arabia in this sort of 199 00:09:54,920 --> 00:09:57,000 Speaker 2: solution you described so, I think you're right. 200 00:09:57,040 --> 00:10:00,960 Speaker 9: I think Hamas at Iran's Behess probably wanted to normalization. 201 00:10:01,240 --> 00:10:04,479 Speaker 9: Hamas also wanted to do its version of station identification. 202 00:10:04,880 --> 00:10:07,920 Speaker 9: They like to portray themselves. It's the only Palestinian entity 203 00:10:08,000 --> 00:10:10,840 Speaker 9: willing and able to take on Israel. Look Saudi Arabia, 204 00:10:10,840 --> 00:10:14,040 Speaker 9: the Crown prins MBS wants to normalize with Israel. He 205 00:10:14,120 --> 00:10:16,680 Speaker 9: can't in this setting right now. It's too volatile, the 206 00:10:16,720 --> 00:10:20,920 Speaker 9: Palestinian angles too uncertain, but it's important, but they still. 207 00:10:20,720 --> 00:10:21,240 Speaker 2: Want to do it. 208 00:10:21,400 --> 00:10:24,760 Speaker 9: Saudi Arabia wants the security pack with the United States. 209 00:10:24,800 --> 00:10:27,560 Speaker 9: They want a nuclear program that the United States supports. 210 00:10:27,720 --> 00:10:30,320 Speaker 9: So yes, I think we already get Saudi Arabia involved, 211 00:10:30,320 --> 00:10:32,000 Speaker 9: and that could be one of the ways again to 212 00:10:32,040 --> 00:10:35,679 Speaker 9: work with Israel, which wants normalization with Saudi Arabia. That's 213 00:10:35,720 --> 00:10:38,120 Speaker 9: one of the reasons Israel might need to think more 214 00:10:38,160 --> 00:10:41,360 Speaker 9: creatively about what they hold out as a possibility to 215 00:10:41,520 --> 00:10:44,400 Speaker 9: Palestinians who are willing to live with it in peace. 216 00:10:44,840 --> 00:10:46,920 Speaker 2: Richard, thank you so very much for spending time with us. 217 00:10:47,040 --> 00:10:52,200 Speaker 2: That is Richard has now Centerview Partners. Coming up, we 218 00:10:52,280 --> 00:10:54,839 Speaker 2: go through the market reaction to a very busy week 219 00:10:55,080 --> 00:10:58,600 Speaker 2: with Mona Mahajen of Edward Jones. That's next on Walfree 220 00:10:58,640 --> 00:10:59,679 Speaker 2: Week on Bloomberg. 221 00:11:01,280 --> 00:11:05,520 Speaker 1: This is Bloomberg Well Street Week with David Weston from 222 00:11:05,640 --> 00:11:10,720 Speaker 1: Bloomberg Radio. 223 00:11:12,640 --> 00:11:14,640 Speaker 2: This is Wall Street Week. I'm David Weston. There was 224 00:11:14,720 --> 00:11:17,320 Speaker 2: plenty for the markets that digests this week, including but 225 00:11:17,440 --> 00:11:19,920 Speaker 2: going beyond, events in the Middle East. In the end, 226 00:11:19,960 --> 00:11:22,000 Speaker 2: the S and P five hundred was up almost a 227 00:11:22,080 --> 00:11:24,840 Speaker 2: half a percent end at forty three twenty eight, while 228 00:11:24,840 --> 00:11:27,920 Speaker 2: the Anasdak lost almost two tens of percent. While the 229 00:11:27,960 --> 00:11:30,320 Speaker 2: real ups and downs really were once again over in 230 00:11:30,400 --> 00:11:33,160 Speaker 2: the bond market, with the yield on the tenure starting 231 00:11:33,200 --> 00:11:35,400 Speaker 2: the week up over four point eight to zero and 232 00:11:35,440 --> 00:11:38,200 Speaker 2: giving up over eighteen basis points in a shortened trading 233 00:11:38,200 --> 00:11:40,559 Speaker 2: week to end up at four point six y two. 234 00:11:41,040 --> 00:11:43,760 Speaker 2: Take us through what we saw. Welcome back now, Monhama Hodgen. 235 00:11:43,840 --> 00:11:46,839 Speaker 2: She is Edward Jones, Senior Investment Strategeres Mada. Great to 236 00:11:46,880 --> 00:11:49,280 Speaker 2: have you back with us. Let's start with that bond activity. 237 00:11:49,400 --> 00:11:51,240 Speaker 2: It has been pretty busy in the bond market in 238 00:11:51,240 --> 00:11:52,839 Speaker 2: the last couple of weeks. Last week was how the 239 00:11:52,880 --> 00:11:55,400 Speaker 2: yields go way up this week they came in. What 240 00:11:55,559 --> 00:11:56,800 Speaker 2: was the cause of it as far as you could say, 241 00:11:56,840 --> 00:11:58,440 Speaker 2: how much of that was safe haven because of the 242 00:11:58,480 --> 00:11:59,480 Speaker 2: geopolitical turmoil? 243 00:11:59,720 --> 00:12:02,280 Speaker 10: Yeah, thanks David. What a harrowing week in the headlines, 244 00:12:02,320 --> 00:12:04,640 Speaker 10: But to your point, markets held in there. There was 245 00:12:04,679 --> 00:12:06,480 Speaker 10: a lot of resilience coming out of the broader s 246 00:12:06,520 --> 00:12:09,280 Speaker 10: and P five hundred in particular, and we do think 247 00:12:09,400 --> 00:12:11,800 Speaker 10: part of that was driven by this flight to safety 248 00:12:11,840 --> 00:12:15,520 Speaker 10: or safe haven response. So typically when a geopolitical crisis hits, 249 00:12:15,920 --> 00:12:20,280 Speaker 10: you see investors flock towards areas like the dollar, like gold, 250 00:12:20,400 --> 00:12:22,880 Speaker 10: and like treasury bonds. So all three of those played 251 00:12:22,920 --> 00:12:26,320 Speaker 10: out this week, but most notable for markets was the 252 00:12:26,320 --> 00:12:29,480 Speaker 10: flight to treasury bonds, which pushed yields notably lower. So, 253 00:12:29,800 --> 00:12:32,199 Speaker 10: as you just showed in that chart, yields had been 254 00:12:32,280 --> 00:12:37,120 Speaker 10: climbing almost two highs of this cycle just as of 255 00:12:37,200 --> 00:12:39,600 Speaker 10: last week, and this week they reversed that course. So 256 00:12:39,640 --> 00:12:43,440 Speaker 10: that brought some much needed relief for broader equity markets. 257 00:12:43,440 --> 00:12:46,160 Speaker 10: And it's interesting, even though equity markets did end up higher, 258 00:12:46,600 --> 00:12:48,959 Speaker 10: where did people and where did investors hang out? Well, 259 00:12:48,960 --> 00:12:52,520 Speaker 10: we really saw outperformance come from the defensive parts of market, 260 00:12:52,559 --> 00:12:56,720 Speaker 10: areas like consumer staples, like utilities, some of those interest 261 00:12:56,800 --> 00:12:58,920 Speaker 10: rate sensitive parts of market like real estate. So it 262 00:12:58,960 --> 00:13:02,680 Speaker 10: wasn't necessarily a tech driven or AI rally that we've 263 00:13:02,720 --> 00:13:06,640 Speaker 10: seen really in recent weeks as well. So more broadly, 264 00:13:06,679 --> 00:13:10,040 Speaker 10: we'd say this move in treasury yields was partly a 265 00:13:10,040 --> 00:13:13,600 Speaker 10: flight to safety response, partly maybe last week was a 266 00:13:13,720 --> 00:13:16,800 Speaker 10: top in the near term for yields. We certainly heard 267 00:13:16,800 --> 00:13:19,760 Speaker 10: a couple of Fed officials this week talk about maybe 268 00:13:19,880 --> 00:13:22,440 Speaker 10: a pause in the rate hiking cycle. We do think 269 00:13:22,480 --> 00:13:25,160 Speaker 10: there may be some volatility ahead, especially as there's uncertainty 270 00:13:25,200 --> 00:13:27,920 Speaker 10: around these auctions that are coming up. But more broadly, 271 00:13:27,960 --> 00:13:30,440 Speaker 10: we think the trend over time could be stability and 272 00:13:30,480 --> 00:13:31,680 Speaker 10: hopefully a move lower. 273 00:13:31,760 --> 00:13:33,920 Speaker 2: So let's talk about that moment specifically. You talked about 274 00:13:34,000 --> 00:13:36,040 Speaker 2: highs of the cycle on a top what leads you 275 00:13:36,120 --> 00:13:37,880 Speaker 2: to believe that maybe that's what we've seen. We also 276 00:13:37,920 --> 00:13:40,199 Speaker 2: got some CPI numbers that were a little bit high 277 00:13:40,240 --> 00:13:42,440 Speaker 2: this week, a little hot. We had University of Michigan 278 00:13:42,480 --> 00:13:45,720 Speaker 2: sentiment coming in with increased expectations of inflation. So what 279 00:13:45,760 --> 00:13:47,720 Speaker 2: makes you think that maybe we've seen the high of 280 00:13:47,720 --> 00:13:49,920 Speaker 2: the cycle on the tenure, Yeah. 281 00:13:49,720 --> 00:13:52,200 Speaker 10: It was interesting. The inflation prints were certainly mixed. We 282 00:13:52,280 --> 00:13:54,440 Speaker 10: had again a little bit of a tick higher and 283 00:13:54,480 --> 00:13:57,679 Speaker 10: headline inflation and the gradual move lower and core inflation. 284 00:13:58,000 --> 00:14:01,480 Speaker 10: But even despite the mixed inflation numbers, which normally would 285 00:14:01,559 --> 00:14:04,600 Speaker 10: have spooked markets and driven treasure yields higher, we saw 286 00:14:04,640 --> 00:14:08,440 Speaker 10: a pretty muted response. So treasure yields were steady today. 287 00:14:08,480 --> 00:14:11,280 Speaker 10: We actually saw another move lower, and in our view, 288 00:14:11,320 --> 00:14:13,720 Speaker 10: you know, while we do think there's volatility always around 289 00:14:13,760 --> 00:14:16,200 Speaker 10: the bond market. We do think the FED and really 290 00:14:16,240 --> 00:14:19,120 Speaker 10: global central banks may be looking towards a pause. The 291 00:14:19,160 --> 00:14:22,880 Speaker 10: FED has already talked about rate cuts in twenty twenty four. Now, 292 00:14:22,920 --> 00:14:25,720 Speaker 10: what are some of the counters to this. Well, certainly 293 00:14:26,280 --> 00:14:29,000 Speaker 10: the US has incurred a lot of deficits over time, 294 00:14:29,120 --> 00:14:31,720 Speaker 10: and those deficits will have to be funded, and we've 295 00:14:31,720 --> 00:14:33,600 Speaker 10: seen that. You know, this week we had a thirty 296 00:14:33,680 --> 00:14:36,480 Speaker 10: year yield auction. There wasn't as much demand as we 297 00:14:36,520 --> 00:14:40,400 Speaker 10: had hoped. That did temporarily drive yields higher and we 298 00:14:40,400 --> 00:14:42,080 Speaker 10: saw sell off in the market. So we may get 299 00:14:42,120 --> 00:14:44,840 Speaker 10: bouts of volatility like that, but we think generally the 300 00:14:44,880 --> 00:14:47,920 Speaker 10: direction of travel, especially as a FED, you know, it's 301 00:14:48,040 --> 00:14:50,640 Speaker 10: very much doing the quantitative tightening. Now it's not a 302 00:14:50,680 --> 00:14:53,280 Speaker 10: big buyer in the bond space, but over time that 303 00:14:53,320 --> 00:14:56,080 Speaker 10: program may stabilize as well. So we do think over 304 00:14:56,120 --> 00:14:58,520 Speaker 10: time we'll see central banks kind of coordinate in a 305 00:14:58,560 --> 00:15:01,720 Speaker 10: pause and pivot lower, which will put some downward pressure 306 00:15:01,760 --> 00:15:03,040 Speaker 10: on the bond deal space. 307 00:15:03,240 --> 00:15:05,000 Speaker 2: That just was only asked, what is the volatility in 308 00:15:05,000 --> 00:15:07,160 Speaker 2: the bond market, and particularly on the long end in 309 00:15:07,240 --> 00:15:09,960 Speaker 2: the thirty year that we've seen. As you say, there 310 00:15:09,960 --> 00:15:11,760 Speaker 2: aren't as many buyers because the FED is out of 311 00:15:11,800 --> 00:15:13,600 Speaker 2: the game and there are questions about what's going with 312 00:15:13,680 --> 00:15:15,440 Speaker 2: China and Japan as well. At the same time, the 313 00:15:15,480 --> 00:15:19,160 Speaker 2: supply is really really large. Are you concerned at all 314 00:15:19,240 --> 00:15:21,600 Speaker 2: about increased volatility in the bond market or do you 315 00:15:21,600 --> 00:15:23,120 Speaker 2: think it's going to settle back down if why? 316 00:15:24,040 --> 00:15:26,840 Speaker 10: Yeah. You know, what we'd say broadly is the environment 317 00:15:26,880 --> 00:15:30,640 Speaker 10: we really had that propelled a lot of these growth 318 00:15:30,680 --> 00:15:33,960 Speaker 10: stocks and risk appetite over the last ten years. And 319 00:15:33,960 --> 00:15:36,520 Speaker 10: you know, post financial crisis was an environment where the 320 00:15:36,560 --> 00:15:39,120 Speaker 10: FED was closer to the zero bound and treasurreye olds 321 00:15:39,120 --> 00:15:41,040 Speaker 10: were in the one and a half to two percent range. 322 00:15:41,080 --> 00:15:43,800 Speaker 10: When we think about the next ten years, it could 323 00:15:43,880 --> 00:15:46,600 Speaker 10: look very different. So to your point, we don't expect 324 00:15:46,600 --> 00:15:48,600 Speaker 10: the FED to go back to the zero bound, and 325 00:15:48,640 --> 00:15:52,320 Speaker 10: we do think treasuries may remain elevated versus history, so 326 00:15:52,440 --> 00:15:55,080 Speaker 10: maybe somewhere in the three to four percent range. So 327 00:15:55,120 --> 00:15:57,120 Speaker 10: in that environment, you really do have to think about 328 00:15:57,120 --> 00:15:59,680 Speaker 10: acid allocation maybe a bit differently. You know, growth and 329 00:15:59,720 --> 00:16:02,600 Speaker 10: value you or maybe a combination of both makes more sense. 330 00:16:02,840 --> 00:16:06,960 Speaker 10: And certainly bonds have a better or more substantial role 331 00:16:07,000 --> 00:16:10,000 Speaker 10: in your portfolio. You can now get yields, you can 332 00:16:10,000 --> 00:16:13,280 Speaker 10: now get some potential for appreciation. If over time we 333 00:16:13,360 --> 00:16:16,760 Speaker 10: do get treasure fields moving lower, that does support investment 334 00:16:16,760 --> 00:16:19,280 Speaker 10: grade and longer duration bonds as well. So what we'd 335 00:16:19,280 --> 00:16:22,280 Speaker 10: say overall is, while we may not stay at these 336 00:16:22,360 --> 00:16:25,760 Speaker 10: elevated levels, we certainly don't expect to return to where 337 00:16:25,760 --> 00:16:27,240 Speaker 10: we saw in the last decade. As well. 338 00:16:27,280 --> 00:16:29,080 Speaker 2: You're also going to yield out of cash or cash 339 00:16:29,080 --> 00:16:31,600 Speaker 2: equivalents like CDs and things like that. Are your clients 340 00:16:31,600 --> 00:16:34,080 Speaker 2: going into CDs because it can be pretty attractive right now, 341 00:16:34,320 --> 00:16:37,720 Speaker 2: and goodness knows, it's pretty flexible, not much risk there. 342 00:16:38,360 --> 00:16:40,960 Speaker 10: Yeah, it's certainly interesting, especially when we get these headlines 343 00:16:40,960 --> 00:16:44,880 Speaker 10: and volatility, politics, geopolitics. There is this natural response, should 344 00:16:44,920 --> 00:16:47,240 Speaker 10: I just hide out in the CDs? They're offering five 345 00:16:47,240 --> 00:16:48,000 Speaker 10: percent plus? 346 00:16:48,200 --> 00:16:48,320 Speaker 9: You know? 347 00:16:48,360 --> 00:16:51,480 Speaker 10: Our response is always, look, they are attractive for now. 348 00:16:51,560 --> 00:16:54,640 Speaker 10: They have some interesting yields, really what we haven't seen 349 00:16:54,840 --> 00:16:57,920 Speaker 10: in any time in recent history. So we understand the appeal. 350 00:16:58,120 --> 00:17:01,120 Speaker 10: But for long term investors there's a few risks, one 351 00:17:01,400 --> 00:17:04,160 Speaker 10: reinvestment risks, So over time those yields may not be there, 352 00:17:04,240 --> 00:17:06,320 Speaker 10: they may start moving lower, so when you have to 353 00:17:06,320 --> 00:17:09,040 Speaker 10: reinvest those CDs, it may be a lower rate. Two, 354 00:17:09,080 --> 00:17:11,320 Speaker 10: there's an opportunity cost, and we've already seen the S 355 00:17:11,320 --> 00:17:13,880 Speaker 10: and P five hundred up about twelve percent this year, 356 00:17:13,920 --> 00:17:16,840 Speaker 10: even with the volatility, and so you know already it's 357 00:17:16,880 --> 00:17:20,359 Speaker 10: exceeded that five percent or so cash like yields. And 358 00:17:20,400 --> 00:17:23,760 Speaker 10: then thirdly, you know we've seen historically over time cash 359 00:17:23,880 --> 00:17:27,240 Speaker 10: relative to really any other asset class has underperformed. So 360 00:17:27,280 --> 00:17:31,480 Speaker 10: for long term investors, we would certainly recommend complementing slowly 361 00:17:31,800 --> 00:17:35,280 Speaker 10: some of that CD cash like money with longer duration 362 00:17:35,320 --> 00:17:37,760 Speaker 10: parts of the market, with strategic acid allocations, you know, 363 00:17:37,800 --> 00:17:40,920 Speaker 10: that are aligned to your goals longer term. So that's 364 00:17:40,920 --> 00:17:43,480 Speaker 10: what gets you to meet or exceed your financial quicker. 365 00:17:43,240 --> 00:17:44,960 Speaker 2: Resu And do you need to go into bonds and 366 00:17:45,280 --> 00:17:46,520 Speaker 2: for fear that maybe the fids are going. 367 00:17:46,480 --> 00:17:49,760 Speaker 10: To start cutting rates, You know, we do think that 368 00:17:49,840 --> 00:17:53,640 Speaker 10: there is an attractive opportunity and really it's compelling versus 369 00:17:53,680 --> 00:17:57,159 Speaker 10: anytime in recent history for that longer duration part of 370 00:17:57,160 --> 00:18:00,760 Speaker 10: the market in the investment grade space, and usually historically 371 00:18:00,880 --> 00:18:03,800 Speaker 10: that period between a FED pause and that first cut 372 00:18:03,840 --> 00:18:07,160 Speaker 10: is your opportunity. Markets start pricing it in very quickly 373 00:18:07,680 --> 00:18:10,159 Speaker 10: as the sped starts signaling rate cuts ahead. So we 374 00:18:10,200 --> 00:18:13,080 Speaker 10: think the months ahead could provide that window of opportunity 375 00:18:13,080 --> 00:18:17,840 Speaker 10: for bond investors really like we haven't seen in recent years. 376 00:18:17,840 --> 00:18:20,280 Speaker 10: And so we do think there's a compelling opportunity for 377 00:18:20,320 --> 00:18:21,280 Speaker 10: bond investors in the mind. 378 00:18:21,320 --> 00:18:23,720 Speaker 2: Why did we actually get to that pause? Thank you 379 00:18:23,720 --> 00:18:28,520 Speaker 2: so much to Monamahadjen of Edward Jones. Coming up, we 380 00:18:28,600 --> 00:18:30,560 Speaker 2: turn to the world of real estate in a time 381 00:18:30,600 --> 00:18:34,360 Speaker 2: of higher rates with Kathy Marcus co CEO of Pgium 382 00:18:34,520 --> 00:18:35,080 Speaker 2: real Estate. 383 00:18:35,920 --> 00:18:39,200 Speaker 5: I think sellers are having a very tough time coming 384 00:18:39,240 --> 00:18:40,920 Speaker 5: to term with the new prices. 385 00:18:41,280 --> 00:18:43,639 Speaker 2: That's next on Wall Street Week on Bloomberg. 386 00:18:44,880 --> 00:18:49,080 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 387 00:18:49,200 --> 00:18:50,480 Speaker 1: Bloomberg Radio. 388 00:18:57,200 --> 00:19:01,040 Speaker 2: Repricing the world. That's what sharply higher rates mean for 389 00:19:01,240 --> 00:19:02,879 Speaker 2: just about every asset. 390 00:19:02,520 --> 00:19:05,080 Speaker 11: Class starting in the mid sixties who had an inverse 391 00:19:05,359 --> 00:19:09,080 Speaker 11: correlation between bond yields and stock prices. Then you went 392 00:19:09,200 --> 00:19:11,280 Speaker 11: for about a twenty twenty five year period where for 393 00:19:11,400 --> 00:19:13,960 Speaker 11: most of the time you had a positive correlation. We're 394 00:19:14,000 --> 00:19:15,919 Speaker 11: back in negative correlation territory. 395 00:19:16,200 --> 00:19:17,639 Speaker 2: We're seeing it in stocks. 396 00:19:17,880 --> 00:19:20,080 Speaker 12: By observation over I don't know forty years or so 397 00:19:20,119 --> 00:19:22,880 Speaker 12: of watching equity markets is that they are keenly attuned 398 00:19:22,880 --> 00:19:26,000 Speaker 12: to interest rates as a more direct transmission mechanism to 399 00:19:26,000 --> 00:19:30,320 Speaker 12: equity prices, simply because interest rates are our discount, our 400 00:19:30,359 --> 00:19:32,520 Speaker 12: discount rate on future cash flows. 401 00:19:32,720 --> 00:19:34,520 Speaker 2: We're seeing it in the drop off in M and 402 00:19:34,560 --> 00:19:37,120 Speaker 2: A activity as sellers come to terms with the new 403 00:19:37,359 --> 00:19:39,879 Speaker 2: lower prices that buyers are willing to pay. 404 00:19:40,200 --> 00:19:46,440 Speaker 7: We're certainly beginning to see a significantly a greater amount 405 00:19:46,520 --> 00:19:51,440 Speaker 7: of activity. It hasn't manifested itself yet in announced transactions, 406 00:19:51,920 --> 00:19:54,800 Speaker 7: but announced M and A for the first six months 407 00:19:54,840 --> 00:19:56,200 Speaker 7: of the year was down. 408 00:19:56,160 --> 00:19:58,720 Speaker 2: And boy, are we seeing it in bonds. 409 00:19:58,960 --> 00:20:02,119 Speaker 4: We're more or less in the range for treasuries that 410 00:20:02,160 --> 00:20:03,520 Speaker 4: we're that we're going to see. 411 00:20:03,760 --> 00:20:06,400 Speaker 2: But perhaps no asset class has been hit harder by 412 00:20:06,440 --> 00:20:10,480 Speaker 2: the jumping rates than real estate, and in particular commercial real. 413 00:20:10,359 --> 00:20:14,440 Speaker 6: Estate financing is harder to get today because of concerns 414 00:20:14,520 --> 00:20:17,919 Speaker 6: about real estate, and also buildings have to have strong 415 00:20:17,960 --> 00:20:21,080 Speaker 6: cash flows to support the higher interest rates that are 416 00:20:21,119 --> 00:20:23,119 Speaker 6: associated with financing. 417 00:20:22,800 --> 00:20:25,119 Speaker 2: Leaving investors to wonder whether now is the time to 418 00:20:25,160 --> 00:20:27,679 Speaker 2: pick up some bargains or whether they'd be trying to 419 00:20:27,720 --> 00:20:29,280 Speaker 2: catch a falling knife. 420 00:20:29,440 --> 00:20:32,720 Speaker 13: I think the banks in the US will lose hundred 421 00:20:32,720 --> 00:20:36,320 Speaker 13: and fifty billion dollars in office over time here, and 422 00:20:36,359 --> 00:20:38,320 Speaker 13: they are about there's about two trillion of equity in 423 00:20:38,359 --> 00:20:40,879 Speaker 13: the bank, so it's like a ten percent hit to 424 00:20:40,960 --> 00:20:44,120 Speaker 13: US banking equity. But I really think the focus on 425 00:20:44,280 --> 00:20:46,359 Speaker 13: losses in US commercial real estate is going to be 426 00:20:46,359 --> 00:20:47,160 Speaker 13: in the office. 427 00:20:46,840 --> 00:20:53,320 Speaker 2: Sector and to sort through the bargains from the falling 428 00:20:53,359 --> 00:20:55,480 Speaker 2: knives in real estate. We welcome to somebody who knows 429 00:20:55,480 --> 00:20:58,400 Speaker 2: the area terribly well, Kathy Marcus. She is PGIM real 430 00:20:58,520 --> 00:21:02,160 Speaker 2: Estate co CEO and GLOE COO. Kathy, Welcome to Wall Street. 431 00:21:02,320 --> 00:21:03,000 Speaker 2: Great to have you here. 432 00:21:03,119 --> 00:21:03,439 Speaker 12: Thank you. 433 00:21:04,000 --> 00:21:07,400 Speaker 2: So lots going on with real estate, in part because 434 00:21:07,400 --> 00:21:10,280 Speaker 2: of what's gone on with rates. Start with the beginning question, 435 00:21:10,320 --> 00:21:13,720 Speaker 2: there's been sort of a repricing of real estate because 436 00:21:13,760 --> 00:21:16,200 Speaker 2: of those higher rates. Where are we in that process. 437 00:21:16,680 --> 00:21:19,240 Speaker 5: Well, there are really two parallel repricings that are going 438 00:21:19,240 --> 00:21:22,760 Speaker 5: on right now, one which has already happened and potentially 439 00:21:22,840 --> 00:21:25,239 Speaker 5: over corrected a little bit, which are the public real 440 00:21:25,320 --> 00:21:27,800 Speaker 5: estate markets, the re market, and then the private real 441 00:21:27,880 --> 00:21:31,479 Speaker 5: estate markets, which have taken much much more time and 442 00:21:31,560 --> 00:21:35,240 Speaker 5: where we might be you call it sixty to seventy 443 00:21:35,280 --> 00:21:39,159 Speaker 5: percent through and that is an average because the different 444 00:21:39,160 --> 00:21:42,840 Speaker 5: sectors are behaving very, very differently. The fundamentals are very 445 00:21:42,840 --> 00:21:46,280 Speaker 5: different among the different sectors, and the impact that rates 446 00:21:46,280 --> 00:21:49,480 Speaker 5: have had on the valuations and the private valuation process 447 00:21:49,480 --> 00:21:51,919 Speaker 5: in general is a little bit different and had the 448 00:21:52,000 --> 00:21:54,879 Speaker 5: experiences have been different for the different sectors on the 449 00:21:54,880 --> 00:21:55,560 Speaker 5: private side. 450 00:21:55,840 --> 00:21:57,840 Speaker 2: Are sellers having a tough time coming to terms of 451 00:21:57,880 --> 00:21:58,560 Speaker 2: the new prices? 452 00:21:59,240 --> 00:22:02,520 Speaker 5: I think sellers are having a very tough time coming 453 00:22:02,560 --> 00:22:06,520 Speaker 5: to term with the new prices and the gap between 454 00:22:06,640 --> 00:22:10,360 Speaker 5: where buyers and sellers think things should trade, and then 455 00:22:10,560 --> 00:22:12,800 Speaker 5: overlay that with where the lenders may or may not 456 00:22:12,880 --> 00:22:18,280 Speaker 5: be willing to lend. The transactions market is so muted 457 00:22:18,440 --> 00:22:21,680 Speaker 5: right now. I can't actually remember a time that it's 458 00:22:21,720 --> 00:22:26,160 Speaker 5: been dismuted before, and it's only gotten worse since rates 459 00:22:26,160 --> 00:22:28,000 Speaker 5: have spiked, you know, really just recently. 460 00:22:28,280 --> 00:22:30,480 Speaker 2: Well, if you have to refinance in this world is 461 00:22:30,520 --> 00:22:32,920 Speaker 2: a very different world from just two or three years ago, 462 00:22:34,440 --> 00:22:36,280 Speaker 2: at what point to do a lot of the sellers 463 00:22:36,359 --> 00:22:38,480 Speaker 2: have to refinance and it really has to change what's 464 00:22:38,520 --> 00:22:38,920 Speaker 2: going on. 465 00:22:40,040 --> 00:22:42,919 Speaker 5: Well, that will happen over time and there are, you know, 466 00:22:43,400 --> 00:22:45,639 Speaker 5: maturities that are coming up. There are maturities that have 467 00:22:45,680 --> 00:22:48,600 Speaker 5: already occurred where there's been a bit of a kicking 468 00:22:48,600 --> 00:22:51,760 Speaker 5: the can down the road, particularly in the office sector. 469 00:22:51,800 --> 00:22:54,440 Speaker 5: So if you think about it and office loan matures 470 00:22:54,880 --> 00:22:58,879 Speaker 5: and so what normally happens. You could refinance that office 471 00:22:58,920 --> 00:23:03,359 Speaker 5: asset generally at the same or higher loan balance, or 472 00:23:03,359 --> 00:23:05,680 Speaker 5: you could sell the asset. Neither one of those things 473 00:23:05,720 --> 00:23:08,720 Speaker 5: is really possible right now. The option that's available to 474 00:23:08,800 --> 00:23:13,199 Speaker 5: people right now is to potentially extend the loan, and 475 00:23:13,400 --> 00:23:17,080 Speaker 5: often that requires some sort of an equity paydown, which generally, 476 00:23:17,320 --> 00:23:20,880 Speaker 5: particularly office space, is not that appealing to borrowers because 477 00:23:20,920 --> 00:23:23,760 Speaker 5: in some cases they feel like they're throwing good money 478 00:23:23,760 --> 00:23:24,040 Speaker 5: after that. 479 00:23:24,520 --> 00:23:26,879 Speaker 2: So that's office space. As you suggest that, there are 480 00:23:26,920 --> 00:23:29,560 Speaker 2: a lot of different parts that come under real estate, 481 00:23:29,600 --> 00:23:32,680 Speaker 2: and there's a big variety. Where are there some opportunities 482 00:23:32,720 --> 00:23:35,240 Speaker 2: out there right now that you're interested, particularly within the 483 00:23:35,320 --> 00:23:36,720 Speaker 2: broader real estate market. 484 00:23:36,960 --> 00:23:39,840 Speaker 5: I'm really glad you mentioned that, because it is definitely 485 00:23:39,880 --> 00:23:44,200 Speaker 5: a common misconception that the office sector dominates the investable 486 00:23:44,280 --> 00:23:47,320 Speaker 5: universe in real estate, and that's not the case. It's 487 00:23:47,359 --> 00:23:50,320 Speaker 5: never been the case that it's dominated. It certainly has 488 00:23:50,400 --> 00:23:53,159 Speaker 5: been higher than it is right now. But in the 489 00:23:53,200 --> 00:23:57,160 Speaker 5: private markets, if allocations to office were in the high 490 00:23:57,200 --> 00:24:00,720 Speaker 5: forty percent range, they're now about twenty percent. And in 491 00:24:00,760 --> 00:24:03,639 Speaker 5: the public markets, the percentage of the read index that 492 00:24:03,960 --> 00:24:07,840 Speaker 5: is pure office is hovering somewhere around five percent. So 493 00:24:08,000 --> 00:24:11,320 Speaker 5: it is far less of a sort of eight hundred 494 00:24:11,320 --> 00:24:13,639 Speaker 5: pound gorilla than it was at one point. But I 495 00:24:13,680 --> 00:24:16,560 Speaker 5: do think that gets a little bit overblown in terms 496 00:24:16,560 --> 00:24:19,560 Speaker 5: of where we see opportunity right now, the operative term 497 00:24:19,640 --> 00:24:24,680 Speaker 5: is necessity things like housing, things like grocery, anchored retail, 498 00:24:24,920 --> 00:24:28,480 Speaker 5: things like infi logistics. So the basic necessities of life. 499 00:24:28,520 --> 00:24:32,920 Speaker 5: We call them sort of necessity retail necessity properties. It's food, 500 00:24:32,960 --> 00:24:35,560 Speaker 5: shelter and your Amazon deliveries, right, the things that nobody 501 00:24:35,600 --> 00:24:36,240 Speaker 5: can live without. 502 00:24:36,560 --> 00:24:38,920 Speaker 2: Talk about shelter just for a moment, because we are 503 00:24:39,080 --> 00:24:42,720 Speaker 2: hearing about the possibility that it's difficult or even impossible 504 00:24:42,720 --> 00:24:45,359 Speaker 2: to get insurance for some housing. Now, certainly we have 505 00:24:45,600 --> 00:24:48,080 Speaker 2: issues in California, We've had them in Florida. How is 506 00:24:48,080 --> 00:24:49,200 Speaker 2: that affecting the marketplace? 507 00:24:49,600 --> 00:24:53,000 Speaker 5: It's impacting all kinds of property. It's not just single 508 00:24:53,000 --> 00:24:55,760 Speaker 5: family homes, which is really where the headlines tend to be. 509 00:24:55,840 --> 00:24:59,600 Speaker 5: But in certain markets in California, in Florida, so many 510 00:24:59,680 --> 00:25:02,040 Speaker 5: Insuran have pulled out of those markets because of all 511 00:25:02,080 --> 00:25:05,320 Speaker 5: of the losses that they've had with climate issues over 512 00:25:05,320 --> 00:25:07,880 Speaker 5: the past couple of years, to the point that you're 513 00:25:07,920 --> 00:25:12,439 Speaker 5: really talking about order of magnitude about thirty percent increases 514 00:25:12,720 --> 00:25:14,680 Speaker 5: year over year for the past couple of years in 515 00:25:14,680 --> 00:25:18,840 Speaker 5: insurance coverage. So that's obviously very difficult for individual homeowners, 516 00:25:18,960 --> 00:25:21,119 Speaker 5: but it's also difficult for investors, those. 517 00:25:21,000 --> 00:25:22,679 Speaker 2: Of us who are basically I says, tend to be 518 00:25:22,760 --> 00:25:24,960 Speaker 2: US centric and our thinking, particularly when it comes to 519 00:25:25,000 --> 00:25:27,359 Speaker 2: real estate. Yes, but there's real estate around the world. 520 00:25:27,440 --> 00:25:29,160 Speaker 2: As you look around the world, do you see markets 521 00:25:29,200 --> 00:25:30,800 Speaker 2: that are particular opportunities right now? 522 00:25:31,480 --> 00:25:34,879 Speaker 5: There are certainly markets where the dynamic is different and 523 00:25:35,560 --> 00:25:39,200 Speaker 5: that can create opportunity. And in particular where I would 524 00:25:39,200 --> 00:25:43,159 Speaker 5: say there's great opportunity is in Mexico in the industrial 525 00:25:43,320 --> 00:25:46,520 Speaker 5: space and particularly along the border, and you have a 526 00:25:46,560 --> 00:25:50,320 Speaker 5: lot of multinational companies that are located there looking for 527 00:25:50,760 --> 00:25:54,359 Speaker 5: logistics and distribution type space, and many of those leases 528 00:25:54,359 --> 00:25:57,560 Speaker 5: their dollars denominated, so you have kind of the premium 529 00:25:57,600 --> 00:26:00,000 Speaker 5: over a very similar You can have an Amazon build 530 00:26:00,200 --> 00:26:02,720 Speaker 5: south of the border or Amazon building north of the border, 531 00:26:03,080 --> 00:26:06,199 Speaker 5: and there's a pretty significant spread in those yields. So 532 00:26:06,240 --> 00:26:08,800 Speaker 5: that I find to be very interesting and we find 533 00:26:08,800 --> 00:26:12,200 Speaker 5: that to be a very compelling investment right now. If 534 00:26:12,200 --> 00:26:15,399 Speaker 5: I go to Asia, the markets are functioning, you know, 535 00:26:15,680 --> 00:26:17,760 Speaker 5: much more normally in Asia than they are in the 536 00:26:17,880 --> 00:26:22,160 Speaker 5: US and or Europe. And while transactions activity is definitely 537 00:26:22,240 --> 00:26:25,840 Speaker 5: muted there, it's not in the same scale that it 538 00:26:25,920 --> 00:26:28,879 Speaker 5: is in terms of the decrease for Europe and Asia. 539 00:26:29,160 --> 00:26:29,720 Speaker 10: And Europe. 540 00:26:29,760 --> 00:26:32,560 Speaker 5: Really the repricing there, I think is a little bit 541 00:26:32,600 --> 00:26:37,400 Speaker 5: further along than it is in the US. But the 542 00:26:37,440 --> 00:26:40,960 Speaker 5: interest rates you know, obviously really impacting the European market. 543 00:26:41,040 --> 00:26:43,600 Speaker 5: The European banks are pretty much out of the market 544 00:26:43,640 --> 00:26:46,760 Speaker 5: from a lending perspective, and that has been composed a 545 00:26:46,760 --> 00:26:49,560 Speaker 5: little bit even more stress on that market. And we 546 00:26:49,640 --> 00:26:52,560 Speaker 5: have to consider the fact that while you know, the 547 00:26:52,640 --> 00:26:55,320 Speaker 5: rising interest rates we've been at about a little more 548 00:26:55,320 --> 00:26:57,160 Speaker 5: than a year here in the US where that's had 549 00:26:57,359 --> 00:27:01,159 Speaker 5: a huge impact, but Europe was you know, really immediately 550 00:27:01,200 --> 00:27:05,000 Speaker 5: impacted by the Ukraine War, and so it's been just 551 00:27:05,119 --> 00:27:07,680 Speaker 5: a longer period of distress in Europe. 552 00:27:07,800 --> 00:27:10,280 Speaker 2: I've heard said Kathy that every business at this point 553 00:27:10,359 --> 00:27:11,920 Speaker 2: is a tech business. I'm not sure if that's right, 554 00:27:12,000 --> 00:27:14,240 Speaker 2: but certainly tech is changing your business. How is it 555 00:27:14,320 --> 00:27:15,159 Speaker 2: changing your business? 556 00:27:15,440 --> 00:27:18,960 Speaker 5: It's changing our business in many many ways. And you 557 00:27:19,040 --> 00:27:22,880 Speaker 5: might have seen that we recently launched an innovation lab, 558 00:27:23,280 --> 00:27:29,400 Speaker 5: and that is multi pronged in terms of having leveraging 559 00:27:29,440 --> 00:27:33,119 Speaker 5: AI and data, in particular our proprietary data from our 560 00:27:33,160 --> 00:27:36,840 Speaker 5: platform in order to have better investment outcomes. But another 561 00:27:36,960 --> 00:27:41,120 Speaker 5: really big and actually quite important aspect of the research 562 00:27:41,240 --> 00:27:43,679 Speaker 5: and development and investment that we intend to do in 563 00:27:43,720 --> 00:27:46,879 Speaker 5: technology through our lab, with our university partners and with 564 00:27:46,920 --> 00:27:52,000 Speaker 5: other technology companies is to address issues around climate and ESG. 565 00:27:52,560 --> 00:27:55,240 Speaker 5: And it's very interesting in the real estate space because 566 00:27:55,280 --> 00:27:59,199 Speaker 5: there really isn't that kind of controversy around ESG that 567 00:27:59,280 --> 00:28:03,280 Speaker 5: you might find in other sectors. You know, having lower 568 00:28:03,400 --> 00:28:07,359 Speaker 5: energy costs and using less water, that's just more income 569 00:28:07,600 --> 00:28:10,000 Speaker 5: for you as an investor in real estate, and that's 570 00:28:10,040 --> 00:28:12,240 Speaker 5: just going to improve your value. So we really have 571 00:28:12,400 --> 00:28:14,720 Speaker 5: a great focus on that. And if you think about 572 00:28:14,800 --> 00:28:17,400 Speaker 5: you know how many companies have made net zero pledges 573 00:28:17,640 --> 00:28:20,720 Speaker 5: by twenty fifty. The only way to get there is 574 00:28:20,840 --> 00:28:24,560 Speaker 5: really to have technology, to use technology, most of which 575 00:28:24,600 --> 00:28:25,280 Speaker 5: does not exist. 576 00:28:25,480 --> 00:28:27,240 Speaker 2: Kathy's great to have you on Willshret Week. Thank you 577 00:28:27,240 --> 00:28:30,160 Speaker 2: for being here. That's Kathy Marcus. She's PGUM real Estate 578 00:28:30,320 --> 00:28:35,600 Speaker 2: co CEO and Global COO. Coming up, A deadly game 579 00:28:35,640 --> 00:28:38,040 Speaker 2: of chess plays out in the Middle East. We go 580 00:28:38,120 --> 00:28:42,040 Speaker 2: through the moves with Bloomberg Senior market editor John Authors. 581 00:28:43,080 --> 00:28:50,760 Speaker 2: That's next on Wall Street Week on Bloomberg. Ok, okay, 582 00:28:53,080 --> 00:28:53,760 Speaker 2: this is Wall Street. 583 00:28:53,760 --> 00:28:53,960 Speaker 1: Weeek. 584 00:28:54,160 --> 00:28:58,400 Speaker 2: I'm David weston. The tragic warren Israel inflamed sentiments around 585 00:28:58,440 --> 00:29:02,000 Speaker 2: the world, and as people very publicly chose sides, it 586 00:29:02,080 --> 00:29:06,480 Speaker 2: drew some institutions into the controversy, including Harvard, which even 587 00:29:06,520 --> 00:29:09,480 Speaker 2: its former president Larry Summers, took issue. 588 00:29:09,160 --> 00:29:16,120 Speaker 3: With the statement by thirty student groups blaming all violents 589 00:29:16,280 --> 00:29:23,440 Speaker 3: on Israel was a moral absurdity that appeared to reflect 590 00:29:23,560 --> 00:29:27,440 Speaker 3: views at Harvard, and I thought it was very important 591 00:29:27,560 --> 00:29:32,479 Speaker 3: that the Harvard administration, the Harvard leadership made clear that 592 00:29:32,560 --> 00:29:37,000 Speaker 3: those students were not speaking for the Harvard community. And 593 00:29:37,080 --> 00:29:40,120 Speaker 3: at the same time, in the same way that previous 594 00:29:40,200 --> 00:29:47,120 Speaker 3: leaders flew the Ukrainian flag over Harvard Yard after Putin's 595 00:29:47,120 --> 00:29:53,360 Speaker 3: invasion in the same way that Harvard stood with America 596 00:29:53,520 --> 00:29:59,240 Speaker 3: after nine to eleven, I thought it was appropriate for 597 00:29:59,440 --> 00:30:04,360 Speaker 3: there to be a strong Harvard statement condemning in the 598 00:30:04,440 --> 00:30:09,000 Speaker 3: strongest possible terms Tomas terrorism, and after a couple of 599 00:30:09,080 --> 00:30:16,440 Speaker 3: days without such a statement, that I expressed my view publicly, 600 00:30:16,560 --> 00:30:22,640 Speaker 3: having expressed it privately before. There was an initial statement 601 00:30:23,840 --> 00:30:28,880 Speaker 3: that frankly I wasn't very strong and didn't distance Harvard 602 00:30:28,960 --> 00:30:32,800 Speaker 3: from the student groups. And now I'm glad to report 603 00:30:32,840 --> 00:30:40,880 Speaker 3: that President Gay has condemned terrorism in strong terms and 604 00:30:41,040 --> 00:30:46,960 Speaker 3: has distanced Harvards from the thirty student group. 605 00:30:47,600 --> 00:30:50,320 Speaker 2: Thanks to our special contributor to Larry Summers of Harvard. 606 00:30:57,240 --> 00:30:59,240 Speaker 2: Our one more thought this week. It comes from our 607 00:30:59,280 --> 00:31:01,600 Speaker 2: senior markets editor, John Arthur's. 608 00:31:03,560 --> 00:31:08,200 Speaker 14: At this point, I think we are fully discounting the 609 00:31:08,280 --> 00:31:11,360 Speaker 14: obvious next step, which is that this will lead to 610 00:31:12,480 --> 00:31:18,239 Speaker 14: a broader Israeli incursion into the Gaza Strip and what 611 00:31:18,440 --> 00:31:23,400 Speaker 14: could obviously be quite an ugly land war. But the 612 00:31:23,440 --> 00:31:27,200 Speaker 14: idea that that is going to have any collateral consequences, 613 00:31:28,120 --> 00:31:32,520 Speaker 14: or that it's going to spread into southern Lebanon, Hezbola, 614 00:31:33,240 --> 00:31:37,360 Speaker 14: Iran most significantly, at this point, I would say, isn't 615 00:31:37,680 --> 00:31:39,960 Speaker 14: priced in by the markets at all. I'm not saying 616 00:31:40,000 --> 00:31:41,760 Speaker 14: it should be priced in as one hundred percent as 617 00:31:41,800 --> 00:31:45,800 Speaker 14: a certainty, but the risks are so great that we 618 00:31:45,920 --> 00:31:49,120 Speaker 14: do get that kind of escalation that I'm surprised markets 619 00:31:49,120 --> 00:31:51,640 Speaker 14: are as calm as they are. If it spreads to Iran, 620 00:31:51,800 --> 00:31:56,600 Speaker 14: that's the single biggest question. And once it spreads to 621 00:31:56,640 --> 00:32:00,480 Speaker 14: Iran again, it depends exactly how it does so how 622 00:32:00,480 --> 00:32:04,520 Speaker 14: far it goes. But then comparisons to the Yom Kiporl 623 00:32:04,560 --> 00:32:08,840 Speaker 14: war in nineteen seventy three at least become possible. You 624 00:32:08,880 --> 00:32:12,640 Speaker 14: can see why the Israeli aim, after the appalling things 625 00:32:12,640 --> 00:32:15,880 Speaker 14: that Hamas has just done, would be to eliminate Hamas. 626 00:32:16,840 --> 00:32:19,440 Speaker 14: You can also see that that's going to be really 627 00:32:19,440 --> 00:32:25,200 Speaker 14: difficult to do and possible, arguably impossible to do without 628 00:32:25,520 --> 00:32:29,800 Speaker 14: causing the kind of civilian casualties that other people are 629 00:32:29,840 --> 00:32:32,360 Speaker 14: not going to be able to tolerate. That that will 630 00:32:33,920 --> 00:32:41,120 Speaker 14: create a broader disturbance across the region. I don't really see. 631 00:32:42,040 --> 00:32:44,040 Speaker 14: It would be wonderful if there was, if there was 632 00:32:44,080 --> 00:32:47,800 Speaker 14: some kind of a deal whereby even the Saudi Arabians 633 00:32:48,400 --> 00:32:53,080 Speaker 14: felt comfortable to recognize Israel, that's conceivable, But the whole 634 00:32:53,080 --> 00:32:55,040 Speaker 14: point of this exercise appears to have been to stop 635 00:32:55,080 --> 00:33:00,440 Speaker 14: that from happening. Obviously, it would be really wonderful if 636 00:33:00,640 --> 00:33:06,880 Speaker 14: the Israeli Palestinian question itself could be resolved. I don't 637 00:33:07,080 --> 00:33:12,160 Speaker 14: myself see how these appalling events have brought that any closer. 638 00:33:13,160 --> 00:33:16,840 Speaker 14: The idea of an outcome in which both Israelis and 639 00:33:17,160 --> 00:33:22,160 Speaker 14: Palestinians considered to be just unfair is further away than ever, 640 00:33:22,800 --> 00:33:26,360 Speaker 14: which is a tragedy. But I just don't quite see 641 00:33:26,400 --> 00:33:30,479 Speaker 14: how that's kind of a positive outcome is available, how 642 00:33:30,520 --> 00:33:32,320 Speaker 14: we would expect to get there from here? 643 00:33:33,440 --> 00:33:35,280 Speaker 2: That does it? For this episode of Wall Street Week, 644 00:33:35,400 --> 00:33:38,400 Speaker 2: I'm David Weston. This is Bloomberg. See you next week.