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Speaker 3: As we've talked about, though, bond traders who have come
Speaker 3: to terms with the prospect of higher for longer interest
Speaker 3: rates through this year are looking toward tomorrow's FED meeting
Speaker 3: for really clues on how to game it out twenty
Speaker 3: twenty five and beyond. That's kind of where we're looking
Speaker 3: at this point. To be fair, though, we have to
Speaker 3: get through tomorrow's FOMC meeting and the dot plot and
Speaker 3: before that another inflation print at that eight thirty am
Speaker 3: Wall Street time, so we'll all be focusing on that
Speaker 3: before we get to the decision.
Speaker 4: Honestly, it sounds like the best day effort for us
Speaker 4: here at you're just seeing It's like, what's great at
Speaker 4: the FED? You got CPI, What more in life is
Speaker 4: there to ask for Kelly.
Speaker 3: It'll create a new narrative, no doubt about it, or
Speaker 3: potentially just reinforce the existing one. Let's get to it
Speaker 3: with Bloomberg News Economics Molly Smith. She's here in studio
Speaker 3: along with Bloomberg News Economics reporter Steve Matthews. He's out
Speaker 3: there in our Atlanta bureau. Molly, I want to start
Speaker 3: with you first, up eight three to am tomorrow CPI report.
Speaker 1: What's expected?
Speaker 3: How might that shape thinking by the Fed and traders
Speaker 3: and economists about the US inflation print.
Speaker 5: Yeah, it's going to be a real super bowl of
Speaker 5: a day for everybody here, for on both sides of
Speaker 5: the buildings, So it's going to be really busy. So yeah,
Speaker 5: starting off with CPI at eight thirty in the morning,
Speaker 5: I mean, I think you're probably going to call this
Speaker 5: maybe moving sideways at best, is still probably the story
Speaker 5: of inflation or graduated or gradually modestly slowing. So it's really,
Speaker 5: you know, this is still nowhere near the disinflation that
Speaker 5: we saw at the end of last year that really
Speaker 5: was starting the fuel the rate cut narrative, and now
Speaker 5: it's really just more like treading kind of laterally and
Speaker 5: not so much you know, those bigger, you know, step
Speaker 5: downs that we had seen toward the end of the year.
Speaker 5: But you know, gas prices came down in the month,
Speaker 5: so that'll be helpful. It really just depends though, how
Speaker 5: much broader beyond that the story is, because that's something
Speaker 5: that FED officials have been looking for. That it's not
Speaker 5: just coming from energy and from goods categories. We need
Speaker 5: to see services moderate as well.
Speaker 3: That's a good point.
Speaker 1: We are a service led economy. Let's remind it.
Speaker 3: Especially having said that, a higher print, a lower print,
Speaker 3: will it just be kind of you know, disregarded, because
Speaker 3: what we keep talking about is we need to see
Speaker 3: like at least three reports to show an existent, you know,
Speaker 3: kind of a really strong trend here when it comes
Speaker 3: to inflation.
Speaker 6: Right, Yeah, and that's exactly the thing.
Speaker 5: When you had the princes in January through March that
Speaker 5: all came in above forecast.
Speaker 6: That's that really the trend.
Speaker 5: Yeah, that really reset the clock. Then on our right,
Speaker 5: we're back to zero. We need to now see another
Speaker 5: three pence three prints to establish a trend, and we
Speaker 5: did get a little bit of that with the April print.
Speaker 5: That underlying inflation there, that's the core measure that excludes
Speaker 5: food and energy, that step down month over months for
Speaker 5: the first time in six months.
Speaker 6: That was a huge deal. If that can be repeated
Speaker 6: also a huge deal.
Speaker 4: But if if it can be repeated, that would be important,
Speaker 4: certainly important to keep in mind. He Steve Matthews, come
Speaker 4: on in here and sort of give us an idea
Speaker 4: of how tomorrow's CPI report or Friday's strong jobs report
Speaker 4: and the overall flow of economic data is going to
Speaker 4: be taken into account when we do get that policy decision.
Speaker 4: And perhaps I think more importantly for a lot of
Speaker 4: our viewers than listeners, the updated summary of economic projections.
Speaker 7: You know, these meetings of the FAT have been kind
Speaker 7: of boring the last several days.
Speaker 8: Yeah, I can't say that.
Speaker 3: Sorry, j all right, sorry, Steve says, you can say
Speaker 3: whatever you want, you can.
Speaker 7: But this is going to be a cliffhanger. This is
Speaker 7: going to be have some fireworks because you know, the
Speaker 7: economists that we survey are evenly split on whether the
Speaker 7: Fed's dot plot is going to show two right cuts
Speaker 7: for this year or one cut. I mean, obviously in
Speaker 7: March they had three cuts that were priced in. We
Speaker 7: had bad inflation numbers in the first three months. As
Speaker 7: Molly said, April showed an improvement, and what we get
Speaker 7: tomorrow in the CPI could well set the tone for
Speaker 7: what happens with the dots. If we get a good number,
Speaker 7: you could perhaps stay at two cuts for the year.
Speaker 7: If you have two cuts for the year, that implies
Speaker 7: that the first cut could happen in September, arguably before that.
Speaker 7: So if you get one cut priced in in the dots,
Speaker 7: that would suggest you're not going to get anything until
Speaker 7: after the election. So it's all important. And Jay Powell
Speaker 7: was asked about this at a recent press conference about Okay,
Speaker 7: if you get data in the middle of the meeting,
Speaker 7: do you really change the dots. His answer was, yes,
Speaker 7: we do change the dots. We encourage the f OMC
Speaker 7: members to change their dots in the middle of the
Speaker 7: meeting with based on the latest data up until mid
Speaker 7: morning of the second meeting, so they can change their
Speaker 7: dots tomorrow.
Speaker 3: Well wait a minute, and Tim's just like saying to me, wait,
Speaker 3: even if it's CPI about me, we're not.
Speaker 4: Talking about PCE here, We're not talking about the FEDS preferred.
Speaker 4: There are inflation.
Speaker 3: Measures, there are inflation prints, and then there are inflation prints.
Speaker 7: That's true, it's not the PC which is what they target,
Speaker 7: but it gives a good indication when you combine the
Speaker 7: CPI and the PPI together of what PC is gonna
Speaker 7: end up at.
Speaker 3: It's really fun because I think the three of us
Speaker 3: were all thinking the same thing, like, okay, wait, does
Speaker 3: the FED pull out like a giant whiteboard say, okay, guys,
Speaker 3: we have to erase this because the CPI came in differently.
Speaker 3: You are saying, bottom line, Yeah, if it's something very dramatic,
Speaker 3: they're going to rethink.
Speaker 7: If it is away from consensus, if it is better
Speaker 7: than expected or worse than expected, they can definitely change
Speaker 7: their dots and they can change the way the median
Speaker 7: turns out.
Speaker 4: Okay, I guess that that's really interesting to hear because
Speaker 4: I actually thought Molly that you know, they wouldn't take
Speaker 4: into account data that came day of. But look, if
Speaker 4: if it is an upside surprise or a downside surprise,
Speaker 4: like Stieve said, that could be part of the equation tomorrow.
Speaker 5: Yeah. It really speaks to that whole cliffhanger element that
Speaker 5: Sea was telling us about here. So we're going to
Speaker 5: be on the edge of our seats in the morning.
Speaker 5: I'm sure, you know, God only knows what's going to
Speaker 5: be happening in Washington at that time. Yeah, and of
Speaker 5: course they're going to be looking for that, you know,
Speaker 5: core services ex housing number, that's always a big one
Speaker 5: that they like to look at. So this is like
Speaker 5: the underlying services inflation in the economy that you know,
Speaker 5: taking out housing inflation because that has been so sticky
Speaker 5: to just get a sense of what are the kinds
Speaker 5: of services you know, like travel, entertainment, other things that
Speaker 5: Americans are spending on. Where is that momentum heading. So
Speaker 5: that's going to be another one that they're going to
Speaker 5: be looking at very closely.
Speaker 7: You know, Steve Matthew Boly has that Collaly has that
Speaker 7: exactly right. The FED is very focused on services and
Speaker 7: Jay Powell is very focused on what's happening with services,
Speaker 7: and that's affected by what's happening with the labor market.
Speaker 7: So you know, to the extent that you've seen some
Speaker 7: kind of moderation in the labor market with unemployment ticking
Speaker 7: up just a little bit, then if you see that
Speaker 7: in the services inflation, that would be really encouraging to
Speaker 7: the FED.
Speaker 5: Well, here's the thing to you, because I know that
Speaker 5: we talk about this all the time in our group,
Speaker 5: but you know, I find it hard when we're covering
Speaker 5: the jobs report and we've got the payrolls survey, you know,
Speaker 5: with the survey of businesses, the establishment survey, sorry saying
Speaker 5: one thing with the payroll's number that was so strong
Speaker 5: last week, and then the household survey painting a very
Speaker 5: different picture of the labor market. So in your expert opinion,
Speaker 5: because you are the expert here, like, what would you
Speaker 5: say is the Fed's better signal right now of the
Speaker 5: truer signal of the labor market.
Speaker 7: Well, I think that is going to be a really
Speaker 7: key question for share Pale in the press conference, is
Speaker 7: how does he view the labor market, because it's like,
Speaker 7: if you look at the job openings figures and the
Speaker 7: quick rate, you know, the number of people quitting and
Speaker 7: the job openings per unemployed, all those seem to have
Speaker 7: returned to pre COVID levels. So there are definitely some
Speaker 7: science and moderation, but it will be really key to
Speaker 7: see how he sees the labor market because if he
Speaker 7: sees the labor market is basically back to balance, then
Speaker 7: that says that they would be much more open to
Speaker 7: cutting rights.
Speaker 3: All right, guys, sit tight, We we got another great
Speaker 3: voice we want to bring into this conversation. Back with
Speaker 3: us is Steve Skanky, chief economic advisor at the Wealth
Speaker 3: Management from Keel Point. Former US Treasury in White House
Speaker 3: National Security Council staff member Steve Skanky joining us from Washington,
Speaker 3: d C. Steve, good to have you here and join
Speaker 3: our conversation. You know, curious about what you've been hearing
Speaker 3: from Molly and from Steve Matthews and what your expectations
Speaker 3: are about what we get from the Fed tomorrow. It's,
Speaker 3: as I agree with Steve Matthews, a little bit of
Speaker 3: a cliffhanger.
Speaker 1: Maybe it's the dot plot.
Speaker 3: You know, we're just kind of trying to figure out
Speaker 3: what the Fed is thinking, especially when you have a
Speaker 3: lot of folks saying, wait, it's not about a rate
Speaker 3: move this year, think about twenty twenty five and beyond.
Speaker 9: Well, that's right, Carol, and thanks for having me on.
Speaker 10: I agree it is a cliphanger, and there's a lot
Speaker 10: of ways that it could go. I think though, we
Speaker 10: start with the with the premise that j. Powell would
Speaker 10: actually like to send a Dubvish tone, and the only
Speaker 10: adhibition to that would be as if we have a
Speaker 10: bad surprise on the CPI, but absent that, even though
Speaker 10: they're not going to cut rates, they're going to have
Speaker 10: a new dot plot. I think there's a growing concern
Speaker 10: that the economic data are moving toward a an inconvenient
Speaker 10: to slow down in the economy.
Speaker 9: The jobs number was.
Speaker 10: A surprise, but as you or Steve pointed out, I
Speaker 10: think Carol, you pointed out, the household number was four
Speaker 10: hundred thousand jobs down, an increase in the unemployment rate
Speaker 10: to reconcile that with two hundred and seventy two after
Speaker 10: they revised down April to one sixty five, A.
Speaker 9: Lot of.
Speaker 10: Opportunity to be confused in that as you're looking at
Speaker 10: first quarter GDP revised down, the second quarter GDP estimates
Speaker 10: among economists are now being revised down below two percent,
Speaker 10: and that spells concerned.
Speaker 8: So Steve J. Powell and the Fed.
Speaker 4: So Steve, Steve Skanky, how are you thinking about this
Speaker 4: at kel point in terms of how many rate cuts
Speaker 4: you think the Fed will actually be able to do
Speaker 4: this year or should do this year?
Speaker 9: And it gets a.
Speaker 4: Little complicated with the whole election coming up in November.
Speaker 10: It does we still believe there's an opportunity for two
Speaker 10: rate cuts. Now, obviously that could change very quickly if
Speaker 10: we have higher inflation prints, certainly from the CPI, which
Speaker 10: is not the Fed's preferred measure, but that then ultimately
Speaker 10: works itself into the pc crystal conception expenditures deflator. I
Speaker 10: think that they'd like to cut twice, Yeah, and and
Speaker 10: so how do they do that? And if they can't
Speaker 10: cut cut twice, how does j. Powell's signal to the
Speaker 10: market that they're they're they're they're trying to go easier
Speaker 10: in their in their policy moves. You know, if it
Speaker 10: if CPI goes the wrong way, it we very easily
Speaker 10: could see a dot plot that shows rate increases right,
Speaker 10: which would which would certainly disrupt market.
Speaker 3: That would be that would be definitely a cliff hangar
Speaker 3: turning into falling off a cliff perhaps.
Speaker 5: But come on back in right, I want to I
Speaker 5: want to come back to Steve Matthews here. This is
Speaker 5: something that we talk about before every FED meeting. And
Speaker 5: you know, Steve, sometimes it's you who's in the chair
Speaker 5: in the in DC who's asking Jay.
Speaker 6: The questions we talked about.
Speaker 5: One that Powell will probably get is how are you
Speaker 5: viewing the labormarket. Right now, what's another one you'd really
Speaker 5: want to hear Powell answer.
Speaker 7: I think, as Steve said, the big question is how
Speaker 7: does he see the current economy? I mean, if you
Speaker 7: look at, for example, the Bloomberg Economic Surprise Index, the
Speaker 7: economic surprises have turned negative. I mean we're now seeing
Speaker 7: data that is trailing the consensus estimates fairly consistently. And
Speaker 7: you know, does that raise some concern that maybe the
Speaker 7: economy is moving to a below trend state? And how
Speaker 7: does he how much worried is about about that? I mean,
Speaker 7: obviously he's going to be asked about the dot plot
Speaker 7: and inflation, but it's like just the view of the
Speaker 7: total economy would be really important.
Speaker 1: One point I wanted to bring up.
Speaker 3: It was really interesting on surveillance this morning with a
Speaker 3: guest about how keeping rates more normal, remember what we
Speaker 3: are in right now is more normal, actually gives the
Speaker 3: Fed a lot more room to cut rates if and
Speaker 3: when that is necessary. And that's a good good thing.
Speaker 3: Steve Matthews, you understand how the Fed moves and how
Speaker 3: it all works, right, The Fed having breathing room around
Speaker 3: policy is a really good thing.
Speaker 7: Yeah, if you hear Powell or other FED officials in
Speaker 7: the aftermath of this meeting talk about the Taylor rule
Speaker 7: and about monetary politicy benchmarks. That is dubvish because right
Speaker 7: now the Fed's rates are much higher than what monetary
Speaker 7: policy rules would suggest they should be, which is around
Speaker 7: four percent. So there is room to bring rates down
Speaker 7: just based on inflation right now if they become convinced
Speaker 7: that the economy can handle that.
Speaker 5: So, Steve Skanky, then is the conversation of potentially a
Speaker 5: rate hike.
Speaker 6: Is that just completely inappropriate?
Speaker 5: Then?
Speaker 6: Based on what Steve Matthews is telling.
Speaker 10: Us, Yeah, I believe that it's inappropriate, and I think J.
Speaker 10: Powell probably has some concern about that if we should
Speaker 10: see a negative surprise on the CPI. You know, the
Speaker 10: feed uses forward guidance to constrain economic activity. I think
Speaker 10: the concern is that they need to encourage economic activity
Speaker 10: for the reasons that we talked about, and so I
Speaker 10: would believe that there's a good chance, absent to a
Speaker 10: CPI surprise, that the forward guidance is going to be
Speaker 10: forward easing, even though they won't change interest rates for
Speaker 10: probably the next couple of meetings.
Speaker 4: Hey, Steve Skanky, very briefly because we want to do
Speaker 4: a final round, but just in thirty seconds. What's at
Speaker 4: stake here? If you don't see the Fed cutting rates
Speaker 4: this year, if that doesn't happen, how would you change
Speaker 4: how you advise the folks at kill point?
Speaker 10: Well, the economy is fundamentally okay, but the downward revision
Speaker 10: that we've had in GDP growth and some of the
Speaker 10: mixed signals in the labor market certainly generate concern. Now,
Speaker 10: earning's growth continues to be remarkably power positive and so
Speaker 10: on that front, we're certainly positive, but we're very cautious
Speaker 10: if the bet continues to hold tight and doesn't signal
Speaker 10: a willingness or desire to loose, and we think that'll
Speaker 10: that'll work poorly for the economy and ultimately financial markets.
Speaker 1: All Right, our wrapid round.
Speaker 3: As we get ready to wrap up, and I'm going
Speaker 3: to start with you, Steve Skanky, very quickly, what would
Speaker 3: be a surprise coming from the Fed tomorrow?
Speaker 1: And you do need to be quick.
Speaker 10: Well for for CPI to bump up and the dot
Speaker 10: plot to show a heavier orientation toward raising rates.
Speaker 1: Wow, that would be crazy, Steve Matthews, real quick.
Speaker 7: I'd say the dot plot showing just zero or one cut,
Speaker 7: and also for long term rights to in the dot
Speaker 7: plot to move up in the neutral so called neutral right.
Speaker 3: That would be our new narrative. Molly Smith save in
Speaker 3: the last thirty for you.
Speaker 5: Maybe if Powell were to say that the labor market
Speaker 5: is still tight, I think that would be a bit
Speaker 5: It would be questionable of how he would fully support that.
Speaker 5: I think there are a lot of other data points
Speaker 5: that would maybe suggest otherwise.
Speaker 3: Which is interesting, right, considering the missed signals in the
Speaker 3: labor market. If you comes out and the title you
Speaker 3: guys the trifecta. Molly Smith, Economics editor at Bloomberg News,
Speaker 3: right here in studio, Steve Matthews out there in our
Speaker 3: Atlanta bureau. He is our economics reporter, follows the Fed
Speaker 3: for US, and Steve Skanke, a regular guest here on
Speaker 3: Bloomberg business Week, chief Economic advisor at kill Point, former
Speaker 3: US Treasury and White House National Security Council staff member.
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Speaker 1: We do want to talk a little bit about Apple.
Speaker 3: It's your number one gainer in the S and P
Speaker 3: five hundred and the Nasdaq one hundred.
Speaker 1: What's interesting?
Speaker 3: Apple investors not impressed yesterday, and we also saw shares
Speaker 3: of some key Apple suppliers sinking overnight as well, following
Speaker 3: their big event that got underway yesterday. But as we said,
Speaker 3: very different tone. Apple shares at a record after that
Speaker 3: great AI reveal. We want to get to it though.
Speaker 3: Once again, I'm lucky for us to have back with
Speaker 3: us our own Bloomberg News Chief Technology correspondent markerm And,
Speaker 3: who continues to write about everything that we are getting
Speaker 3: from the event on Apple and just Apple in general.
Speaker 3: Mark out there in La. So Mark, what happened? Apple
Speaker 3: shares treated lower yesterday? We talked to you realing big
Speaker 3: time today when we talked kind of following the keynote,
Speaker 3: you said your view was that we kind of saw
Speaker 3: nothing better than or different from the competition except marketing
Speaker 3: and a focus on privacy.
Speaker 1: And I love something you said was that.
Speaker 3: They showed up to a party without a gift. It
Speaker 3: was like something we thought just said so much. So
Speaker 3: what's happened in the last twenty four hours.
Speaker 11: Well, like I said, they rolled out a bunch of
Speaker 11: new AI features with a privacy stance, with deep integration
Speaker 11: into their applications. They didn't bring anything new to the party,
Speaker 11: but they did it in an Apple way. But the
Speaker 11: most important part is they showed up to the party,
Speaker 11: I guess. And it took investors in Wall Street sometimes
Speaker 11: to realize that Apple is now here with or without
Speaker 11: something new. They've arrived. The concern on Wall Street was
Speaker 11: that Apple would never show up, or they wouldn't show
Speaker 11: up for a couple more years from now. But they
Speaker 11: worked as fast as they can. It was a year
Speaker 11: and a half for cleaning effort to get Apple Intelligence
Speaker 11: to market. They had all these AI features under development,
Speaker 11: but no synthesized, no integrated package, so it took a
Speaker 11: while to put it all together. And they did that.
Speaker 11: And it's not going to sell new iPhones. I believe
Speaker 11: it may spur a small number of upgrades, but more importantly,
Speaker 11: it's going to lock people into the ecosystem. They're going
Speaker 11: to keep their existing userpace and they're not going to
Speaker 11: lose people away to Android and other AI driven platforms
Speaker 11: because they did this, so it was critically important for
Speaker 11: them to do it, regardless of the fact that nothing
Speaker 11: they brought to the table here is especially new.
Speaker 4: Mark, why don't you think this is sort of a
Speaker 4: huge prompt for a suit recycle upgrade here? Why don't
Speaker 4: you think it's as big as adding five G to
Speaker 4: the phone for example?
Speaker 11: You know, quite frankly, I didn't think five G was
Speaker 11: a supercycle moment either, and it you know it, it
Speaker 11: turned out that way. I mean, iPhone sales growth has
Speaker 11: been stagnant even prior to the five G iPhone. But
Speaker 11: like with AI, with five G did is it kept
Speaker 11: people within the ecosystem and it didn't allow people to
Speaker 11: switch away to rival products that had five G while
Speaker 11: Apple didn't. And so AI is in the same nature.
Speaker 11: It's going to keep people within the ecosystem. I don't
Speaker 11: think if someone has an iPhone fourteen pro today that
Speaker 11: they're going to upgrade to the iPhone sixteen just because
Speaker 11: of those AI features, right. I think that down the line,
Speaker 11: a year or two from now, when they're ready to upgrade,
Speaker 11: that's going to ensure that upgrade happens.
Speaker 3: I'm going to say that my household were a bunch
Speaker 3: of tech simpletons, because I think the five G we do,
Speaker 3: the upgrades on the Apple Phone were still back.
Speaker 8: There is that where you are.
Speaker 1: I'm at a twelve and I'm getting ready to upgrade this.
Speaker 8: Cup far upgrade from twelve.
Speaker 10: It is time.
Speaker 1: Tis time the formal announcement with open AI.
Speaker 11: I mean, let me jump in, let me jump in here.
Speaker 11: Last if you know, if Carol was, you know, really
Speaker 11: focused on our official intelligence and wanting the latest and
Speaker 11: greatest technology, and she has a twelve, the sixteen comes
Speaker 11: out later this year with no AI features. Right, maybe
Speaker 11: she takes a look around and says, you know, AI
Speaker 11: is all the hype right now, that's the vibe right now,
Speaker 11: Maybe I should take a look at Samsung or Android,
Speaker 11: which are completely aiified. Now the iPhone has AI just
Speaker 11: like the competition, right, not a ton different, but they're there.
Speaker 11: And now she says, you know what, of course I'm
Speaker 11: going to get this new iPhone. So I don't think
Speaker 11: it's going to spur upgrades and get people to run
Speaker 11: out to buy them, but it's going to ensure those
Speaker 11: people who are already thinking about getting that phone pick
Speaker 11: that iPhone instead of moving away to Google or.
Speaker 3: Samsung, And I will say, Mark, and I think we've
Speaker 3: talked about this before, and like we're a household where
Speaker 3: it is all Apple, and you know, my daughter when
Speaker 3: she was younger and tried to deviate, We're like, no, that's.
Speaker 1: Not happening, you know.
Speaker 3: So it's like we kind of continue to embrace, embrace
Speaker 3: and embrace. I do want to ask you though about
Speaker 3: the partnership with open aii. Right the formal announcement we
Speaker 3: got that, How important is that And is it any
Speaker 3: different from open AI's other partnerships that are out there,
Speaker 3: And is it always different because it's just Apple doing it?
Speaker 11: Oh, the open ai partnership with Apple is incredibly different.
Speaker 11: So let me give you some perspective here. So Microsoft,
Speaker 11: they rolled out a ton of AI features on their
Speaker 11: computers and their other operating systems for both their in
Speaker 11: house devices and third party devices. The underlying large language
Speaker 11: models and underlying technology that they're using for nearly all
Speaker 11: of their features is powered by open ai. Apple's future
Speaker 11: set ninety percent of it is powered by Apple large
Speaker 11: language models, underlying Apple technology, Apple servers, et cetera. Only
Speaker 11: the chatbot portion primarily, and some of the writing assistance tools.
Speaker 11: Those are powered by open ai, large language models and
Speaker 11: chat GPT.
Speaker 9: So the open Ai.
Speaker 11: Portion of the overall app intelligence story is actually only
Speaker 11: a very small sliver.
Speaker 4: Is it integrated at the OS level? And you can
Speaker 4: probably guess why I'm asking this mark because.
Speaker 11: I can guess why you're about that.
Speaker 4: Okay, good, because well I want to introduce it because
Speaker 4: I don't think everybody is totally caught up on this.
Speaker 4: But yesterday Elon Musk said he would ban Apple devices
Speaker 4: from his companies if open AI's AI software is integrated
Speaker 4: at the operating system level. He called the tie up
Speaker 4: a security risk. Okay, go ahead, please.
Speaker 11: Something integrated at the OS level. That is a vague
Speaker 11: term that can be interpreted in many different ways, so
Speaker 11: it's not entirely clear what he means by that. If
Speaker 11: you ask me, open ai is indeed integrated at the
Speaker 11: OS level, and I'm sure Apple would agree, but I'm
Speaker 11: sure there's some other people who would say that it's
Speaker 11: not integrated at the OS level. It's built into Siri,
Speaker 11: it's built into the OS. It's a chatbot. It's not
Speaker 11: just an application, it's not just a layer on top.
Speaker 11: It is fairly integrated into the operating system. So I
Speaker 11: would say, yes, it is integrated, but just because it's
Speaker 11: integrated at the OS level doesn't mean there aren't parameters.
Speaker 11: And what's known as sandboxing implemented into the coding infrastructure
Speaker 11: that can separate what goes into chet GPT from the
Speaker 11: deeper core of the iOS foundation. Right, And so it's up.
Speaker 11: The burden of proof is on Apple and open Ai
Speaker 11: to show how privacy centric the chat GPT elements are
Speaker 11: of Apple intelligence. Apple did a fifteen out of ten
Speaker 11: job yesterday showing how private and secure their artificial intelligence
Speaker 11: technology is for the phone that's the Apple LLM, how
Speaker 11: secure their their compute cloud is for the LLLM that
Speaker 11: runs in I Cloud. They did an amazing job on that.
Speaker 11: What we didn't hear a lot about is the privacy
Speaker 11: protections that open ai are implementing. From some standpoints, you
Speaker 11: can say it's just you know what, trust us. Maybe
Speaker 11: Apple could say a little bit more there. Either way,
Speaker 11: I think that Elon Musk is competing with Apple and
Speaker 11: open Ai here he has grock from Xai. He has
Speaker 11: a terrible interpretation of Apple and feeling towards Apple and
Speaker 11: their app store rules and the fees they take from
Speaker 11: subscriptions on their platform. He clearly does not like Sam Altman. Right,
Speaker 11: He's embroiled in all sorts of things regarding Sam Altman
Speaker 11: and open Ai.
Speaker 8: He was a co founder of open ai.
Speaker 11: He was a co founder a falling open They had
Speaker 11: a falling out. So his perspective isn't exactly kosher on this.
Speaker 11: On this situation, what do you he raises real privacy
Speaker 11: questions regardless. I just think he's way overboard on it.
Speaker 4: Okay, that said, Mark, how realistic is it that you
Speaker 4: know he could ban these devices at his companies given
Speaker 4: that they're ubiquitous, And I can't imagine employees, you know,
Speaker 4: putting them in some sort of box or leaving them
Speaker 4: in their car as they walk into work at SpaceX
Speaker 4: or the boring company or Tesla.
Speaker 11: It's a top ten most ridiculous elon Musk tweet, Right,
Speaker 11: that's not going to happen. I mean imagine like showing
Speaker 11: up to work and like all of a sudden, you know,
Speaker 11: you can't bring your Apple devices in. You can have
Speaker 11: to leave your iPhone in a far and akad outside
Speaker 11: the office or leave it in your car. That's just
Speaker 11: not going to happen. Right, he's already laid off thousands
Speaker 11: of people from his company, or tens of thousands of
Speaker 11: people from his company. I'm not sure he could afford
Speaker 11: to have people quitting in large numbers at this point,
Speaker 11: but I think that's going to upset a lot of people.
Speaker 5: All Right.
Speaker 3: You know, we always talk about the importance of the
Speaker 3: Chinese market to Apple. Is there something here in terms
Speaker 3: of what we're hearing from this event and you know
Speaker 3: what they're doing in terms of AI that kind of
Speaker 3: moves the needle potentially in their sales over in China.
Speaker 11: Yes, good question. This is a point that, quite frankly,
Speaker 11: I should have made it earlier. Nothing Apple Intelligence, at
Speaker 11: least the first iteration is only available in the US
Speaker 11: or finish yes in the US English. So there's going
Speaker 11: to be a long ramp up here until they're able
Speaker 11: to get it in other languages. Now, let me give
Speaker 11: you some Apple history. When Siri launched in twenty eleven,
Speaker 11: it only launched in English and a couple other languages.
Speaker 11: But one year after Siri initially launched, they released so
Speaker 11: many additional languages. In Siri today it works in every
Speaker 11: Chinese dialect, It works in many many countries. There's no
Speaker 11: barrier to using Siri regardless of where you are in
Speaker 11: the world in most cases. And I would have to
Speaker 11: imagine that getting Apple Intelligence to work properly outside of
Speaker 11: the US, outside of just US English, is going to
Speaker 11: be a very high priority for next year, and so
Speaker 11: I would anticipate China next year. Now, one other piece
Speaker 11: of evidence about how Apple seeds China. It's going to
Speaker 11: be one of the first markets to get the Vision
Speaker 11: pro this month, just a few months after it came
Speaker 11: to the US. So clearly they're thinking, you know US first, right,
Speaker 11: China second. And it's not like China's like down the list.
Speaker 11: It's a priority. So I would imagine AI story right fine,
Speaker 11: I was going to get buttoned up sooner than later.
Speaker 3: Everything we need to know about Apple, Mark arm and
Speaker 3: you rock. Bloomberg News Chief technology correspondent Markerrooman out there
Speaker 3: in LA. That is our top stock story. This shares
Speaker 3: of Apple are rallying.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 4: Okay, Apple a top stock in business story today tomorrow.
Speaker 4: As you know, it's all about the FED and its
Speaker 4: impact on markets and mood and transactions, which brings us
Speaker 4: to Jim Gold CEO over as Stored Partners. It's a
Speaker 4: financial services firm. They've got about thirty five billion dollars
Speaker 4: in assets under management. Gym's here in the Bloomberg Interactive
Speaker 4: Broker's studio waiting patiently. Well, we go through everything that
Speaker 4: happens at the close one of those days.
Speaker 8: It has been one of those days.
Speaker 1: When we think we have our course like something through.
Speaker 4: Hey, you know, as I was preparing for this, I
Speaker 4: went back and saw a note from Berkley's last month
Speaker 4: that said M and A volume has risen seventeen percent
Speaker 4: so far this year. The Investment Banks model projects fifteen
Speaker 4: to twenty percent growth over the next twelve months to
Speaker 4: one point eight trillion dollars. They also reminded us that
Speaker 4: activity in twenty twenty three was the slowest in a decade.
Speaker 4: Remind us of how you play in the M and
Speaker 4: A space Over at Stewart partners and where you see
Speaker 4: the market going this year.
Speaker 9: I think you know the M and A space is accelerating,
Speaker 9: and I think you know the figures we see publicly
Speaker 9: or I think actually woefully underreported because you think about
Speaker 9: the smaller end of the scale where Advisor A sells
Speaker 9: to advisor B and there's not a banker involved, No
Speaker 9: one reports on that transaction, So I would say there's
Speaker 9: probably hundreds more transactions that are out there. I think
Speaker 9: another trend is we look at his breakaway M and A.
Speaker 9: So an advisor from a big four wirehouse firm leaving
Speaker 9: to go somewhere. The assumption is they're getting recruited, but
Speaker 9: in actuality, more of them are actually selling the business today.
Speaker 9: So them and that's M and A because they're selling
Speaker 9: the business.
Speaker 1: Yeah, well that's what I was thinking about. You guys
Speaker 1: are really involved.
Speaker 3: Right in ownership, private equity or like own a company,
Speaker 3: ownership of deals, and that's where you kind of play
Speaker 3: in that space.
Speaker 9: We offer optionalities. We have the ability for advisors to
Speaker 9: affiliate with us and they own their clients and they
Speaker 9: just want to work with the Steward organization. Yeah, and
Speaker 9: then we also offer people the opportunity to say, hey,
Speaker 9: I'm five or six years from retirement. I want to
Speaker 9: sell you guys to business. Help me figure out my.
Speaker 1: Sucresity event right right, yeah, no, continue, yeah please.
Speaker 9: There's a succession crisis going on in wealth management. I
Speaker 9: think it's driven by the boomers actually are working longer
Speaker 9: than expected because they're healthier and mortgage they make a
Speaker 9: good living, and now all of a sudden they're getting
Speaker 9: into their seventies and saying, wait a minute, I got
Speaker 9: to wrap this up at some point.
Speaker 4: I know somebody like that he has a wealth management
Speaker 4: business with a big firm, and he's got all the
Speaker 4: clients that he's had, and he's in his seventies and
Speaker 4: he's like, what am I going to do?
Speaker 2: Now?
Speaker 4: Who's going to buy this thing? His kids don't want
Speaker 4: to get into the business.
Speaker 9: G twos don't have the money.
Speaker 4: It's kids, partners don't want to get into the business,
Speaker 4: right what So what's what are his options?
Speaker 12: Well?
Speaker 9: I think the option there if he has to look
Speaker 9: at and I think at the bigger firms, the challenge
Speaker 9: they have is that there's only one bidder, So how
Speaker 9: do you know what the real value is with the
Speaker 9: test to market right and then the terms around that.
Speaker 4: Isn't it pretty simple though to know what it's worth
Speaker 4: you have assets for that kind of business, assets under management.
Speaker 9: It's so different if you stay, if you stay in
Speaker 9: that channel because they control, they're the only bidder, so
Speaker 9: there's a very suppress valuation.
Speaker 4: But I mean, isn't there a way to create evaluation
Speaker 4: model based on comps?
Speaker 8: Because okay, well like.
Speaker 4: How do you how do you?
Speaker 8: How do you? What are the comps for that type
Speaker 8: of business? Isn't it just like or the multiples for
Speaker 8: that type of business?
Speaker 9: So you're going to see I mean, if you look
Speaker 9: at multiples of ebadah and the smaller end of the scale,
Speaker 9: to say, sell a billion dollar asset firm, they're going
Speaker 9: to be you know, high single digits, approaching double digits
Speaker 9: depending on the other criteria things like growth and how
Speaker 9: old are the clients? Is a business? Growing is a business?
Speaker 4: Ranth meaning a firm with a billion dollars in assets
Speaker 4: under management would sell for nine ten million dollars?
Speaker 9: Yeah are more?
Speaker 8: Okay?
Speaker 9: Yeah?
Speaker 4: Interesting Jim?
Speaker 3: How much pressure is on private equity firms? What are
Speaker 3: you seeing to do those exits because they've been holding
Speaker 3: for a while because the environment hasn't been a good one.
Speaker 3: But they eventually are going to get pressure from their
Speaker 3: investors and they want to free a capitalize. I know
Speaker 3: private credit can come in and help them maneuver through that,
Speaker 3: but how much is on private equity and how much
Speaker 3: does that mean in terms of the m and a
Speaker 3: environment picking up a little bit.
Speaker 9: Well, you have to have private equity right because they
Speaker 9: provide the capital, they provide the fuel, and I think listen,
Speaker 9: the better private equity firms are getting creative where they're
Speaker 9: now having funds that are ten years shelf life. They're
Speaker 9: not the typical five year where they need to turn
Speaker 9: them and flip them. Look, at the end of the day,
Speaker 9: private equity is happy to be illiquid as long as
Speaker 9: they're getting in liquid rates in return. But I think
Speaker 9: the challenge they have is finding the right partner to
Speaker 9: actually execute on that. Right, they're not directly getting involved.
Speaker 9: They're funding a company like Steward. We're not owned by
Speaker 9: private equity. We have two family offices. They are the
Speaker 9: capital behind the capitol. So what they really have to
Speaker 9: find is the right leadership team and the right company
Speaker 9: that has a scale and the resources to actually go
Speaker 9: out and execute on an M and A strategy.
Speaker 3: So in terms of the deal activity that you're seeing
Speaker 3: or expecting, what does it tell you kind of about
Speaker 3: the broader macro environment. I feel like folks like you
Speaker 3: can kind of see a lot when we are seeing
Speaker 3: cross currents when it comes to some of that kind
Speaker 3: of you know, fundamental traditional statistics.
Speaker 9: I think the challenge for advisors who think about succession.
Speaker 9: I think the mistake that's made is this should be
Speaker 9: a three to five year plan. Don't decide today you're
Speaker 9: going to retire at the end of this year, right,
Speaker 9: You have to think about your clients, your team, you know,
Speaker 9: evaluation structure, who's your successor. I think the older folks,
Speaker 9: maybe the gentleman you mentioned who's in the seventies, they
Speaker 9: can't wait for another market cycle. Maybe, so they're starting
Speaker 9: to go, hey, the markets are pretty good here, maybe
Speaker 9: this is the time, and maybe I can't wait eight
Speaker 9: more years to do this or seven more years to
Speaker 9: do this. So I think the demographics are forcing some
Speaker 9: people to make a decision now because they don't feel
Speaker 9: they have a run way to wait through another market cycle.
Speaker 9: If that's where we're having.
Speaker 3: Though are of the deals that maybe you are looking
Speaker 3: at or seeing are people who are pressured that have
Speaker 3: to do something.
Speaker 1: How much are more just still kind of waiting for
Speaker 1: the right environment.
Speaker 9: I think most of folks we're talking to are in
Speaker 9: their sixties. A lot of these are bigger teams though
Speaker 9: that we'll have G one, two three. Yeah, so they're saying, hey,
Speaker 9: to the point you made earlier, my G two and
Speaker 9: three don't have the capital to buy me out right.
Speaker 9: I don't want to leave immediately, so this is really
Speaker 9: my five year plan. But this team's going to be
Speaker 9: here forever. So we love that because we love the
Speaker 9: continuity with the clients as right.
Speaker 4: Right now, what do you think of the idea of
Speaker 4: the wealth management business. I don't want to say, I'm
Speaker 4: not going to say losing relevance, but I'm going to say,
Speaker 4: is that increasingly you're seeing study after study talk about
Speaker 4: passive investing, the rise of passive just investing in index funds,
Speaker 4: And I'm wondering if there's this new class of investors
Speaker 4: who are less interested in paying high fees for their
Speaker 4: money to be managed and more interested in just setting
Speaker 4: it and forget it.
Speaker 8: Right.
Speaker 9: Yeah, there's an old cliche they shave their fees. You know,
Speaker 9: the feeling matters and the absence of value. So I
Speaker 9: think the need for advice is always going to be there.
Speaker 9: If you look at the studies on wealth creation, there's
Speaker 9: more wealth being creative than ever. The more wealth you have,
Speaker 9: the more complex your situation is and your need advice.
Speaker 9: I think the other trend that's really interesting and it's
Speaker 9: good for me on the side of the space that
Speaker 9: seward sits, which is the independent space. Overwhelmingly the sub
Speaker 9: forty advisors want to be in an independent firm. They
Speaker 9: don't want to be at their mom or dad's wealth
Speaker 9: management firm. So that's driving a lot of this flow
Speaker 9: to our side of the space as well. So the
Speaker 9: market may shrink, but the assets are growing and the
Speaker 9: headcount is shranking, so you actually might still have more
Speaker 9: assets or revenue per advisor with a smaller salesforce.
Speaker 4: Do you see those younger advisors, the sub forty advisors,
Speaker 4: changing the way they're charging clients, maybe doing an hourly
Speaker 4: rate versus an assets under management rate.
Speaker 9: We haven't seen it. We think the asset based pricing
Speaker 9: seems to be reasonable and they can use some of
Speaker 9: those tools that could use index ETFs and things like
Speaker 9: that where appropriate and listen, I think the ROAs are
Speaker 9: coming down us to space, but they've always.
Speaker 1: Come down AI.
Speaker 3: How do you think is going to you know, I
Speaker 3: just came back from Nashville Pershing BNY Melon doing their
Speaker 3: inside event at.
Speaker 9: All Team there.
Speaker 1: Yeah, and it's really fascinating.
Speaker 3: Of one of the conversations doing a keynote is that
Speaker 3: what does the future financial advisor look like?
Speaker 1: What does the future investor look like? And what they want?
Speaker 3: And we tapped into a lot of longevity as well
Speaker 3: as a younger, you know investor.
Speaker 1: So how are you thinking about that?
Speaker 9: I think AI is going to be amazing. Actually, our
Speaker 9: CIO actually spoke with the Persian conference.
Speaker 1: Yeah, it's a great feel of kind of what everybody's thinking.
Speaker 9: Yeah, I think it's it's another you know, some folks
Speaker 9: are taking this as the latest threat to advice, right
Speaker 9: and it's like, oh, online trading and advice is going
Speaker 9: to be free. So I think what it's going to
Speaker 9: be amazing for both the client and the advisor. I
Speaker 9: think the COVID world changed how clients say, hey, I
Speaker 9: don't want to hear my advisors out of the office.
Speaker 9: I'll just FaceTime them or tax them our teams are
Speaker 9: or whatever I can do to get a hold of them.
Speaker 9: So I think AI is going to create amazing tools
Speaker 9: for the clients and the advisors to interact. We're seeing
Speaker 9: some of them already, and our CIO knows what he's doing.
Speaker 9: I don't. I tend to lock myself out of the
Speaker 9: computer once a month. So but we're excited about AI.
Speaker 9: We think it's going to be great. I think about
Speaker 9: I was the advisor back in the nineties when the
Speaker 9: Internet was a new thing, and you think about it.
Speaker 9: I remember Sandy wild At once said this. He said,
Speaker 9: they asked.
Speaker 1: Something a City Group, correct.
Speaker 9: And they asked Sandy about the Internet.
Speaker 3: He said, listen, sorry, there is the whole generation that's
Speaker 3: out there that doesn't I know.
Speaker 1: I feel like such an is go.
Speaker 8: To wild Cornell and see who's picture.
Speaker 1: I know, but I feel like I could ask a
Speaker 1: fair amount of folks.
Speaker 9: I'm a grandfather now, I know these things.
Speaker 6: I remember, right, you.
Speaker 1: Remember him creating you know what is now City Group.
Speaker 9: But anyway, forget his call was so it was so prolific,
Speaker 9: was he said, listen. Eighty five percent of the Internet
Speaker 9: based companies today will be bankrupt in ten years and
Speaker 9: the fifteen percent left and you just talked about some
Speaker 9: of them are going to be worth more than all
Speaker 9: of them combined, right, And I think it's the same
Speaker 9: thing Amazon exactly. I mean, we're all around then.
Speaker 10: I was.
Speaker 9: I'm old enough to remember some of the IPOs really fascinate.
Speaker 1: Interesting time to be kind of in the markets.
Speaker 9: Amazing, so amazing because of opportunity.
Speaker 1: Yeah, really was opportunity as well. But there isn't always well,
Speaker 1: I guess there is just appreciation.
Speaker 9: It's got to look harder sometimes.
Speaker 1: Jim, this was fun. Thank you so much for being patient.
Speaker 3: We had a lot going on and I really appreciate
Speaker 3: it and you being really flexible with our team. Jim Gole,
Speaker 3: chief executive Officer, Stewart Partners, joining us right here in
Speaker 3: our Bloomberg at Director Brokers Studio.
Speaker 2: You're listening to the Bloomberg Business Week Podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Eastern Listen
Speaker 2: on Apple car Play and the brout Auto with a
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Speaker 4: Well, you may have missed this this past month, Carol.
Speaker 4: The luxury home prices and select Asian cities are soaring,
Speaker 4: bucking downward trend in more established markets, including here in
Speaker 4: New York and across the pond over in London. We're
Speaker 4: talking about prime property prices there, defined as the top
Speaker 4: five percent of the market. They fell more than two
Speaker 4: percent in New York in London in the first quarter
Speaker 4: compared to the same period a year ago. That's according
Speaker 4: to the real estate consultancy Night Frank.
Speaker 3: All right, so let's get a check on the luxury
Speaker 3: real estate market, residential real estate market. Louis Phillips Forbes
Speaker 3: is a real estate broker with Brown Harris Stevens here
Speaker 3: in New York City. She's been in the business for
Speaker 3: more than thirty years. She's seen different cycles. She has
Speaker 3: sold more than five and a half billion dollars worth
Speaker 3: of real estate, specializing in luxury residential sales and development projects.
Speaker 3: She's back with us here in our Bloomberg Interactive Broker
Speaker 3: studio and a little bit of a busy Tuesday, and
Speaker 3: also on an interesting day, we were talking a lot
Speaker 3: about kind of the economic backdrop and the rate environment.
Speaker 3: First of all, welcome, welcome, thank you. How does the
Speaker 3: market feel right now this moment in time?
Speaker 12: Not quite the same as it was a couple of
Speaker 12: months ago when I was here.
Speaker 1: There is, uh, what's different, what's changed?
Speaker 12: I think that there is. It's not a pause, but
Speaker 12: there is. I think individuals that a month ago they
Speaker 12: might have pulled the trigger that they are still contemplating
Speaker 12: because I think remember, at the end of the year,
Speaker 12: we were expecting five rate reductions, and we haven't seen
Speaker 12: really any of those. In fact, we've had conversations about
Speaker 12: it coming up. So for some of those people it
Speaker 12: means holding off. However, what's right for one person's not
Speaker 12: always right for another.
Speaker 4: What's surprising for me to hear from you about this
Speaker 4: quarter is this is supposed to be the busy time
Speaker 4: of year, I mean spring ahead of summer, and you
Speaker 4: had a great first quarter.
Speaker 12: I had a record, I mean almost one hundred million
Speaker 12: in sales.
Speaker 4: But that's the most as quiet time, right.
Speaker 12: No, not as the cycles are off because of COVID
Speaker 12: number one, number two. You have to realize that people
Speaker 12: have been holding off what decisions that they make since
Speaker 12: twenty nineteen.
Speaker 1: For a minute, so is that why people finally pulled
Speaker 1: the trigger?
Speaker 12: Yes, And I think I believe my psychologically, I think
Speaker 12: that people believed that the interest rates were going to follow.
Speaker 3: How many of your buyers are buying with a more versus.
Speaker 6: Very few right now?
Speaker 12: Ironically of the thirty two transactions, so the average deal
Speaker 12: is not first quarter, the average deal is not thirty
Speaker 12: eight million. The average deal is you know, three, six, five, two,
Speaker 12: six hundred thousand.
Speaker 1: Mortgages are mostly cash.
Speaker 12: All cash, all but seven, all seven of your sixty
Speaker 12: three percent across my business was a little higher, but
Speaker 12: across the market was.
Speaker 6: Sixty three in the first quarter, so percent.
Speaker 1: Why did they pull the trigger?
Speaker 10: Then?
Speaker 12: Then?
Speaker 1: Is it just that they were so for them, the
Speaker 1: rate environment wasn't so much, which is always king.
Speaker 12: It is always king. And it also you've got to
Speaker 12: remember some of these sellers have been waiting for nine months,
Speaker 12: twelve months.
Speaker 1: But that's what I'm saying.
Speaker 3: So it's not like, Okay, they thought maybe it had
Speaker 3: nothing to do with the rain environment.
Speaker 1: I think they were just.
Speaker 12: It was a it's a negotiating tactic. My experience is
Speaker 12: that if I have three offers on a piece of
Speaker 12: property and one's a mortgage, and I'm able to push
Speaker 12: the cash person or even a choose to take less
Speaker 12: because they're cash it was seller driven, it's seller do them.
Speaker 12: Having a choice was very powerful and important and new.
Speaker 12: They hadn't experienced that in a while.
Speaker 4: Can you talk about I think this is unique to
Speaker 4: New York because there are so many cash deals, but
Speaker 4: can you talk a little bit about why a cash
Speaker 4: deal is so much more appealing to you than to
Speaker 4: deal with financing that could come in at a higher price.
Speaker 3: So it's not seeing the reality shows where they're like,
Speaker 3: it's a cash down, it's deal, it's even lower.
Speaker 1: And you're closing next Tuesday and.
Speaker 3: They're closing next Tuesday. Done, like it's fascinating.
Speaker 12: Yes, yes, and you have like eleven inch heels while
Speaker 12: you're doing it.
Speaker 1: I know, I know they look perfect. I know it's
Speaker 1: like a little unreal. But anyway, I.
Speaker 4: Haven't seen any any of these shows.
Speaker 12: I don't, dude, Okay, okay, so no, listen, the preference
Speaker 12: becomes about cleanliness, meaning you know, you go to contract
Speaker 12: and then you don't have an appraisal, Like how would
Speaker 12: you feel if you had five bids on a piece
Speaker 12: of property, which, by the way, this happened all through
Speaker 12: the New year firm myself right and that, and then
Speaker 12: you it doesn't a praise, you have no contingency. But
Speaker 12: how do you feel as a buyer? How does a
Speaker 12: seller feel? Does somebody walk? So it's just cleaner if
Speaker 12: you have the luxury of that choice. Otherwise we are
Speaker 12: it's our job to be able to make things a praise.
Speaker 3: How do you then in your world where you're dealing
Speaker 3: obviously where some people who are listening are being like,
Speaker 3: I'm going to throw up because it's like five six
Speaker 3: million dollars all cash. Like, it's not a slice of
Speaker 3: total American life. It is a slice, right, a small slice.
Speaker 3: Having said that, what does it tell you about the
Speaker 3: broader economic environment in a world where we Louise have
Speaker 3: so many conflicting data points.
Speaker 12: Yes, and I don't think that's going to change for
Speaker 12: a while, Carol, Okay, I mean listen, think just remember
Speaker 12: that when interest rates are high, the rental market is high.
Speaker 1: I that's true.
Speaker 12: Have somebody relocating here who got into the New York
Speaker 12: Academy of Arts and they are relocating here, and we
Speaker 12: were looking for a nine thousand dollars rental two bedroom.
Speaker 12: The same apartment two years ago went for fifty eight hundred,
Speaker 12: and it came on for seventy nine hundred and it
Speaker 12: went for eighty three.
Speaker 1: In two days. That's wild.
Speaker 12: So that is a forty seven percent increase in two
Speaker 12: years because the cost of money is cheaper. I mean,
Speaker 12: it's sorry, the cost of money is more expensive and
Speaker 12: that by so when interest rates are up, buyers can't.
Speaker 12: They get on the sidelines and they rent and they
Speaker 12: are affected.
Speaker 4: So you're saying that people who are not buying are
Speaker 4: driving up the rental market.
Speaker 3: Yes, but you are also safely it's a tougher it's
Speaker 3: environment and says something more broadly macro.
Speaker 12: Right, I'm talking about for the lower end of the market.
Speaker 9: Right.
Speaker 12: So I have somebody who's contemplating selling a townhouse for
Speaker 12: six and a half million dollars and they're like, the
Speaker 12: cost of my capital, I can rent something for fifteen thousand.
Speaker 12: When he goes to look at what you can pay
Speaker 12: for fifteen thousand dollars, he's like, I'm going to wait
Speaker 12: a year, so to.
Speaker 4: Wait to sell, Yes, because interesting.
Speaker 12: It's sometimes some of this is a luxury. It is
Speaker 12: a luxury. And again I ask the same question whether
Speaker 12: it's a twenty million dollar buyer or a six hundred
Speaker 12: thousand dollars buyer. Do you want to pay your own
Speaker 12: mortgage or do you want to pay somebody else's mortgage,
Speaker 12: Because that's what it is, whether you're in a rental building,
Speaker 12: and so it's the whole thing around waiting for the election,
Speaker 12: like okay, but whoever ends up being our president is
Speaker 12: going to be our president, and you are still going
Speaker 12: to need a place to live. So I do think
Speaker 12: that you can try to time everything, but it's really
Speaker 12: about understanding what I mean. I have people that are
Speaker 12: borrowing money from their grandmother who is going to inherit,
Speaker 12: you know, ninety two years old, and he's like, I'd
Speaker 12: love to be able to use it while you're alive,
Speaker 12: and that is what they did. And so people are
Speaker 12: getting creative, and it is what my recommendation is. Is
Speaker 12: whether you're borrowing from your sister, you're co owning with
Speaker 12: your parents, you know. I mean, I'm thinking about I
Speaker 12: have a twenty a son that's going to be twenty
Speaker 12: one years old who's looking at real estate every day,
Speaker 12: like I want to buy my own apartment. He wants
Speaker 12: to buy an apartment where he can have a roommate.
Speaker 12: He doesn't think he can afford to live by himself.
Speaker 3: Yeah, I get one last question. Does what goes on
Speaker 3: in office does it matter? Does it impact you at
Speaker 3: all in terms of certain neighborhoods are not really.
Speaker 12: Certainly excuse people's They're more cnics that are in that field.
Speaker 12: I mean a lot of my business or commercial brokers
Speaker 12: that I do business with, meaning helping them personally with
Speaker 12: their homes.
Speaker 1: Yeah, and you know, they're they're feeling squeezed.
Speaker 12: They're like, oh my god, how are you holding up?
Speaker 12: We is and I'm like, okay, I don't even want
Speaker 12: to tell.
Speaker 1: So because they are feeling so squeen there.
Speaker 10: Yeah.
Speaker 12: I mean the New York Times that there's a building
Speaker 12: and Time Square that just had a short sale, like
Speaker 12: I don't know, was it sixty two percent?
Speaker 13: Yeah, it's pretty yeah.
Speaker 12: So but this, this is the way that that commercial
Speaker 12: market works, and the way lending works, and the way
Speaker 12: that they use the leverage. That is the science of
Speaker 12: that business, and that is always going to find cycles.
Speaker 12: It's going to have cycles, whether it's fifteen years or
Speaker 12: seven years or four years, right or I.
Speaker 4: Just want to mention you're talking about Empire Capital Holdings
Speaker 4: and Nammed our real Tea Group agreed to purchase that
Speaker 4: property at three twenty one West forty fourth.
Speaker 8: Street for less than fifty minus.
Speaker 9: They bought it.
Speaker 4: Yeah, it was a New York City office building owned
Speaker 4: by related company affiliates, set to be sold at a
Speaker 4: steep discount sixty seven percent.
Speaker 3: We're going to say goodbye. Twenty seconds. What are ten seconds?
Speaker 3: The word to describe the environment right now?
Speaker 11: For you?
Speaker 12: The environment is when it's the most scaredest is usually
Speaker 12: when the best opportunities are.
Speaker 8: It's not scary enough.
Speaker 1: Lets it get scariest. Let's get me Gary.
Speaker 12: It was more than one word.
Speaker 1: I was gonna say, come on, doesn't feel scary.
Speaker 4: I mean, the regional banks aren't collapsing, We're not in
Speaker 4: the rows of COVID.
Speaker 12: But I'm always foolish for NYC.
Speaker 1: I love it. I love it and you've seen a lot,
Speaker 1: no doubt about it. Louise, thank you so much. Thanks guys,
Speaker 1: fun to have you.
Speaker 3: Louise Phillips Forbes real estate broker at Brown Harris.
Speaker 1: Stated bromuk.
Speaker 9: A journal.
Speaker 2: How about you let me drive?
Speaker 5: Oh no, no, no, no, who's gone and drive?
Speaker 9: Honay please, I'll do the gravel. Let's wat I want
Speaker 9: to dry.
Speaker 13: It's a good question.
Speaker 2: This is the drive to the clothes think well by
Speaker 2: yold it on Bluebird Radio.
Speaker 3: All right, guys, got about eighteen minutes to go until
Speaker 3: the closing bell on Wall Street. Having said that, one
Speaker 3: other stock we want to bring to your attention, Tim,
Speaker 3: we're watching share Parament. They're done about eight percent here
Speaker 3: in the trade.
Speaker 4: Yeah, this after Sherry Redstone's National Amusements decides to stop
Speaker 4: talks with sky Dance. This according to a report in
Speaker 4: the wash Wall Street Journal. Those shares quickly dropping down
Speaker 4: seven and a half percent right now, the journal reporting
Speaker 4: that ANAI has decided to stop discussions with sky Dance
Speaker 4: and that is causing us all off in the stock.
Speaker 3: Yeah, and here's why I write those previous reports. Listen,
Speaker 3: we have been following this story now for I feel
Speaker 3: like months. It's been a long time, or maybe so long, Carol,
Speaker 3: so long. I do wonder why the time we get
Speaker 3: to December, whether or not there'll be some kind of resolution.
Speaker 3: But National Amusement, you might remember, that is the company
Speaker 3: that controls Paramount. They had been in advanced negotiations to
Speaker 3: sell the majority stake in the company to sky Dance,
Speaker 3: according to previous reports. But again the Wall Street Journal
Speaker 3: saying that National Amusements has decided to stop discussions with Skydance.
Speaker 3: So right now the stock down almost ten percent shares
Speaker 3: of paramount, So keeping an eye on that.
Speaker 4: There were other suitors out there, I know, but it's
Speaker 4: parts of the business.
Speaker 1: Yeah, several people, right.
Speaker 3: Yeah, So anyway, stay tuned. As they like to say,
Speaker 3: we do want to get to though our doctor the
Speaker 3: closed guest delight to add back with us Larry Pitkowski.
Speaker 3: He's managing partner and portfolio manager good Haven Capital Management.
Speaker 3: Larry joining us from Milburn, New Jersey. How are you
Speaker 3: the trade? You know, less than twenty four hours away
Speaker 3: from the FED decision and an inflation print. I don't
Speaker 3: know what's top of mind for you in terms of
Speaker 3: the investment environment, Larry.
Speaker 13: Well, Carol, nice to be here. Tim, nice to be here.
Speaker 13: I'm sorry to disappoint you that what the Fed's going
Speaker 13: to do tomorrow is actually not top of mind. You know.
Speaker 13: I think in whatever area you're investing in, if you
Speaker 13: want to try and generate outsize returns, you have to
Speaker 13: try and find things where you can have a non
Speaker 13: consensus opinion about what's going to happen, whether it's a
Speaker 13: company a sect or an industry, a commodity or whatever,
Speaker 13: and then of course be right. Even we don't think
Speaker 13: we can develop a non consensus view about what the
Speaker 13: FED is going to do tomorrow, so we're really just
Speaker 13: not focused on it. We'll just assume whatever the consensus is.
Speaker 3: Uh, you sound like, is this one of those things, Larry, Like,
Speaker 3: I can't do anything about it. The Fed's going to
Speaker 3: do what the Fed's going to do, right, and then
Speaker 3: we just got to.
Speaker 4: Kind of follow along, like what my mom always says, like,
Speaker 4: worry about things you can control, don't worry about j Powell.
Speaker 6: You had a husband at home like this.
Speaker 13: And your mother is obviously you know, had the right idea.
Speaker 13: But we do try and find individual securities every so
Speaker 13: often where we think we can develop a non consensus view,
Speaker 13: and then we just got to be right. And it's
Speaker 13: worked out, you know, pretty well lately. But we don't
Speaker 13: think we can have an opinion on everything going on
Speaker 13: out there, and nor do we think most people can.
Speaker 3: All right, So what what does drive your investment decisions
Speaker 3: right now? And what does that lead you to in
Speaker 3: terms of either particular areas or names right now?
Speaker 13: Well, here's what we how we think about the overall
Speaker 13: environment out there. You know, it's kind of four environments
Speaker 13: are normally taking place one of four. Okay, the first
Speaker 13: three are rare. Things can be very euphoric, in which
Speaker 13: point you should be a little bit fearful. Things can
Speaker 13: be you know, a lot of negativity. You should be
Speaker 13: a bit more aggressive. There can be existential periods of
Speaker 13: true worry, like you know, COVID great financial crisis. But
Speaker 13: most of the time the economy is a little warmer,
Speaker 13: it's a little colder. Interest rates are within some kind
Speaker 13: of a range, and you should just keep turning over
Speaker 13: rocks looking for a handful of things that you think
Speaker 13: you can understand a bit better than everybody else and
Speaker 13: where you can buy them with a margin of safety.
Speaker 13: So that's how we we think we are in environment
Speaker 13: number four. And by the way, we think we're in
Speaker 13: environment number four most of the time.
Speaker 4: Okay, So let's get to some of the stock picks,
Speaker 4: some of these rocks that you believe you have uncovered
Speaker 4: where there are opportunities. We love it when you come
Speaker 4: on and and bring us stocks to talk about. Tick
Speaker 4: your VTS the tests energy to.
Speaker 1: An EMP company, Right, Yeah, what's going on?
Speaker 13: Well, it actually is not an EMP company, you know, Carol.
Speaker 13: Companies often have these sixty page power points where they
Speaker 13: explain what they do, and they're filled with words that
Speaker 13: you've got to keep reaching for a dictionary and saying,
Speaker 13: what the heck does that mean. Vitests has a I
Speaker 13: think it's twenty four words that explains what they do
Speaker 13: and it goes like Vitessa is focused on returning capital
Speaker 13: to its shareholders by owning financial interests as a non
Speaker 13: operator and oil and gas wells drilled by the leading
Speaker 13: US operators. That's it. They are a capital provider to
Speaker 13: the bigger E and P companies who want a partner
Speaker 13: to share in some of the costs and of course
Speaker 13: the returns from oil and gas wells.
Speaker 1: It's like a right for the NP industry.
Speaker 13: Well rich, very smart uncle, and the history of the tests.
Speaker 2: You know.
Speaker 13: At good Haven we are always keeping an eye out
Speaker 13: for spinoffs because spinoffs from larger companies are often an
Speaker 13: area where there may be some mispricings or where they
Speaker 13: may get left behind or for whatever reasons often have
Speaker 13: to do with market dynamics. People receive shares in the spinoff,
Speaker 13: they don't know what to do with them. The test
Speaker 13: was part of Jefferies for a long time and we
Speaker 13: had the good fortune to watch the management team, Bob
Speaker 13: Garrity and Brian pre operate very successfully. It was spun
Speaker 13: off in early twenty twenty three. It's a modest sized company,
Speaker 13: less than a billion dollar market cap, and it's got
Speaker 13: a very talented management team that has, as I like
Speaker 13: to say, dirt under their fingernails. They know every rock
Speaker 13: in the bocking, which is where they are focused on.
Speaker 13: So we have a stock price that we think is
Speaker 13: about you know, eleven times forward free cash flow, eight
Speaker 13: and a half percent dividend yield. A small company, and
Speaker 13: with all of the mergers taking place in the I
Speaker 13: and P space, we think that bodes well for some
Speaker 13: crumbs left by the big guys, which will turn out
Speaker 13: to be potentially very valuable crumbs, and then some for
Speaker 13: the tests.
Speaker 3: Really interesting like and I appreciate like you're walking through
Speaker 3: the story because I feel like fundamentally that's kind of
Speaker 3: the stuff we care about.
Speaker 1: Twenty seconds left here.
Speaker 3: You know, we've been talking a lot about Apple this week,
Speaker 3: anything in the tech area that you're finding interesting, and
Speaker 3: just real quickly.
Speaker 13: We have a long term holding in Alphabet, which we
Speaker 13: remain very comfortable with. It appears to be reasonably priced,
Speaker 13: and we think that it's a long way from figuring
Speaker 13: out exactly who wins an AI, but you know, they
Speaker 13: have the resources, to people and whatnot, and we think
Speaker 13: we were very comfortable there. We have an indirect holding
Speaker 13: in Apple through a long time, our large position in
Speaker 13: Berkshire Hathaway, and we will continue to look, we think,
Speaker 13: you know, trying to understand exactly how it all plays
Speaker 13: out its early days, but we're comfortable with the exposures
Speaker 13: we've got and we don't think we have to have
Speaker 13: an answer to every aspect of it.
Speaker 3: That's very fair, all right, Larry gotta run, Thank you
Speaker 3: so much.
Speaker 1: Larry Pitkowski.
Speaker 3: He is maging partner portfolio manager of a good Haven
Speaker 3: Capital Management, joining us on this Tuesday.
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