Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanivk. We're here every day bringing
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Speaker 1: YouTube search Bloomberg Global News. Alright, so, as we talked
Speaker 1: about US hiring advance at a robust pace in April,
Speaker 1: yet a smaller labor force may increase pressure on employees
Speaker 1: to boost wages even more to bring workers back. And
Speaker 1: in case you missed it, we talked about at the
Speaker 1: top of the show, non farm payrolls rose four hundred
Speaker 1: twenty eight thousand last month, broad based advance, matching the
Speaker 1: game in March, and then, of course, had the unemployment
Speaker 1: rate holding a three point six percent Averagearily, earnings rose,
Speaker 1: albeit at a more moderate pace from a month earlier.
Speaker 1: Something you Lena definitely focused on. Let's get into it
Speaker 1: with Relea Pollock, the chief economist at ZIPP Recruiter, joining
Speaker 1: us on the phone from Santa Monica, California. Julia, how
Speaker 1: are you in Santa Monica? I know you'd be much
Speaker 1: more hill are you. That's that's the East coast versus
Speaker 1: West coast right there, you know, Uh, Julia, I want
Speaker 1: to talk about the labor labor numbers of course, um.
Speaker 1: You'll initially at from Bloomberg Economics earlier told us that
Speaker 1: this jobs report had had something for for everybody. What
Speaker 1: stuck out to you? Well, I think you know, any
Speaker 1: day you have a big number like this, and the
Speaker 1: games are that broadly distributed across the economy. It's a
Speaker 1: good day for workers, uh, and for hundreds of thousands
Speaker 1: of companies that managed to feel vacancies despite all the odds.
Speaker 1: Um As you dig deeper, the unemployment rate a little
Speaker 1: bit higher than everybody force forecast, labor participation rate going
Speaker 1: down a little bit, average hourly earnings increasing a little
Speaker 1: bit less. So as you dig a little bit deeper,
Speaker 1: how do the data points from the Labor department kind
Speaker 1: of cross with what you are seeing special effectly at
Speaker 1: ZIP Recruiter. Sure, so it's hard to know from what
Speaker 1: we're seeing in the report whether there's any cool down
Speaker 1: happening in the labor market. Yes, average wages are growing
Speaker 1: a bit more slowly, but still at quite a high pace.
Speaker 1: From six point four percent wage growth for non supervisory
Speaker 1: employees is you know, nothing to sneeze at um eleven
Speaker 1: twelve percent pay increases in leisure, hospitality, and in transportation
Speaker 1: warehousing for for ranked file employees, and those are very
Speaker 1: large numbers. Of course, inflation is outstripping pay gains for
Speaker 1: for most employees, but there are still many workers coming
Speaker 1: out ahead. Um that said, we have so many low
Speaker 1: wage workers. Whoops, we're just a little technical difficulty there.
Speaker 1: So hopefully we'll come back to Julia polit Chief Economists
Speaker 1: and ZIP Recruiter, because it was interesting she was gonna
Speaker 1: get into the lower end of the labor force. You
Speaker 1: know what I thought was really fascinating about about the
Speaker 1: way that that she just spoke to us is she
Speaker 1: she presented it in a sense of the employers being
Speaker 1: fortunate to have found labor, which I think is really
Speaker 1: speaks volumes as to where we are right when we
Speaker 1: think about the labor report, we oftentimes look at it
Speaker 1: from the perspective of the worker correct and how many
Speaker 1: Americans are working with the unemployment rate is And she
Speaker 1: said ZIP recruiters, so she knows that the struggles that
Speaker 1: these companies are having actually finding employees. So she said
Speaker 1: that you know more than one of the companies that
Speaker 1: were able to find employees. Think about coming just from
Speaker 1: Milkin and I know the panel I did with the
Speaker 1: CEO of Lowes and Kroger Um stitch fix. I mean,
Speaker 1: top of mind is labor and finding the workers they need. Um,
Speaker 1: let's get back to our guests, Julia Pollock, she's chief
Speaker 1: economist and ZIP recruiter. You know, Julia, Tim and I
Speaker 1: were just at the Milken Institute Global Conference and we
Speaker 1: were talking to CEOs from all industries and top of
Speaker 1: mind is being able to find the workers that they need. UM,
Speaker 1: tell us if that's what you're finding in the data
Speaker 1: points that you guys are tracking as well. Well. There
Speaker 1: are two job openings to every unemployed worker right now.
Speaker 1: Historically it's been the reverse, there have been more than
Speaker 1: two unemployed workers per opening. So this is the tightest
Speaker 1: lave market on records. It means that employers are having
Speaker 1: a really tough time finding you candidate to the vacabuse.
Speaker 1: And at the same time they're seeing these record breaking
Speaker 1: numbers of quits each month, they're finding it harder than
Speaker 1: ever to hang onto the workers they've got. There are
Speaker 1: a bunch of reasons that's happened. The switch to remote
Speaker 1: work rise and remote work is a big, big reason.
Speaker 1: It means that jobs switching costs are much much lower.
Speaker 1: You can leave the job now and stay in the
Speaker 1: same industry, in the same occupation, while staying in the
Speaker 1: same room without having to disrupt your family and up reason.
Speaker 1: We certainly see that in the Jolts data often in
Speaker 1: terms of how that plays out. What's interesting is what
Speaker 1: else do you see? I mean, you guys have a
Speaker 1: lot of data that's in front of you as people
Speaker 1: are searching and looking and tone and so forth. What
Speaker 1: is it that's interesting about the trends um also in
Speaker 1: this particular employment environment. So one exciting trend is that
Speaker 1: we are seeing this full and healthy return of the
Speaker 1: labor market. Today's numbers notwithstanding, uh, you know, the entire
Speaker 1: household survey portion of the report today was a bit
Speaker 1: of a doozy. Everything went down in the household report,
Speaker 1: even the employment level. That's just not consistent with twenty
Speaker 1: eight non farm payroll gains. So I think we should
Speaker 1: discount the household report today. What we've been seeing over
Speaker 1: a longer period is a sustained return of workers to
Speaker 1: the labor force. UH. That is exciting there seeing the
Speaker 1: search behavior pick up. And then we're also seeing this
Speaker 1: sustained interest in remote work and that's causing employers to
Speaker 1: have to adjust what they're offering and to lean into
Speaker 1: the hybrid remote model. Julia, was there anything just in
Speaker 1: the last forty seconds that we have with you, was
Speaker 1: there anything in this report that you didn't see coming
Speaker 1: based on the data that you have on the ZIP
Speaker 1: recruiter platform, Like, was anything a surprise in here? Yes?
Speaker 1: I was surprised to see the uptick in government tie airing. Uh.
Speaker 1: That is an area where we've seen tremendous weakness. Government
Speaker 1: agencies are seeing terrible retention numbers at the moment. The
Speaker 1: private sector is posting much stronger wage games. Non unionized
Speaker 1: workers are getting stronger wage games than unionized workers, So
Speaker 1: the government is struggling to catch up. But it looks
Speaker 1: like they might be turning the tide around. That's interesting
Speaker 1: to see. It is always so good to dig into
Speaker 1: the different sectors and see what they're seeing. Hey, Julia,
Speaker 1: thank you so much. Have a great weekend. Julia Pollock,
Speaker 1: she's a chief Economisturan CIP recruiter. On the phone from
Speaker 1: Santa Monica, California, where the Senoi signs. You're listening to
Speaker 1: Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes.
Speaker 1: Tim Stinovic on Bloomberg Radio. Just ment to the Cynthia
Speaker 1: Coon's story that is in Bloomberg Business Week magazine about
Speaker 1: the abortion pill. We want to get to another story
Speaker 1: that's in the new issue a Business Week, which is
Speaker 1: out on newsstands, online, and of course always on the
Speaker 1: Bloomberg terminal. You know, we've been following and Charlie's been
Speaker 1: talking about shares of Zelo, which are tumbling today start
Speaker 1: getting a two year low after putting out a disappointing outlook.
Speaker 1: We've got a great story that's in the magazine that
Speaker 1: actually looks at the CEO of Zillo. We're talking about
Speaker 1: the CEO Rich Barton. Patrick Clark is real estate reporter
Speaker 1: for Bloomberg News. He's with us now in the Bloomberg
Speaker 1: Interactive Broker Studio. Pat story featured in the new issue
Speaker 1: of Bloomberg Business Week magazine. It is available on news stands,
Speaker 1: on the Bloomberg and at Bloomberg dot com Slash business Week.
Speaker 1: Also joining us is Joel Webber, the editor of Bloomberg
Speaker 1: Business Week. He is joining us on the access line
Speaker 1: right now, Joel, I want to go to you first, Um,
Speaker 1: B Hag. Explain what the hag is. I've never heard
Speaker 1: of it before reading Rich's story. Yeah, Bi, hag is
Speaker 1: certainly one place we could start, and I think I'll
Speaker 1: get there with with Pat's help. But you know, to
Speaker 1: back up a second. You know, Zillo was and has
Speaker 1: been an app and website that people have been obsessed
Speaker 1: with for on the real estate front for years. Um,
Speaker 1: what maybe the company especially interesting within the last couple
Speaker 1: of years was this effort to get into house flipping,
Speaker 1: and so Zilo, looking for growth, sort of became the
Speaker 1: intermediary that was hoping to like actually and and did
Speaker 1: actually buy houses, and then you would actually buy a
Speaker 1: house from Zillo and as Pat, Pat basically broke these
Speaker 1: stories about Zillo's algorithms starting to go off the rails.
Speaker 1: Um and that started sort of happening last year, and
Speaker 1: so this story is sort of the culmination of a
Speaker 1: lot of Pats reporting and he got to spend some
Speaker 1: exclusive time with the CEO and talk to him about
Speaker 1: those efforts and what the heck is a b hag.
Speaker 1: It's a big, hairy, audacious goal. It's obviously, um, it's
Speaker 1: it's a moonshot. It's a it's a you know, a
Speaker 1: big swing. Um. Those are things we hear about, though,
Speaker 1: like moonshots or that's like, you know, common in the
Speaker 1: vernacular is like it's a it's like a nine early
Speaker 1: nineties formulation from Jim Collins is sort of management guru,
Speaker 1: built good to grade and built to last and and
Speaker 1: and you don't at some point, uh So Rich Barton,
Speaker 1: the CEO of Zello, likes he likes the phrase b hag.
Speaker 1: Where others say moon shot, he says be had very often.
Speaker 1: At some point I did check the terminal to see
Speaker 1: how many other quarterly earnings calls be hag has come
Speaker 1: up or big Harry Auday shows, and it's very very seldom.
Speaker 1: It's it's it's basically the other No. I didn't well
Speaker 1: what does it mean in terms of how he runs
Speaker 1: this company and how he thinks about, you know, taking
Speaker 1: risks and when it pays off and when it doesn't.
Speaker 1: The way I think about it, it's it's a way
Speaker 1: that he sort of marshals his employees to pursue something ambitious.
Speaker 1: And in this case, it was transforming Zillo from a
Speaker 1: company that basically sold ads to real estate agents to
Speaker 1: a company that bought houses and tried to capture sort
Speaker 1: of a spread on the flip of each house. And
Speaker 1: then I thought it could attach all these other revenue
Speaker 1: streams to that. And it's not a small effort, right,
Speaker 1: I mean, there's there's um you have to know why
Speaker 1: home prices are going to be now what they are
Speaker 1: in three months from now, which nobody knows. You've got
Speaker 1: to manage portfolio risk like you're a hedge fund and
Speaker 1: you've got to manage a contractor. Network was actually going
Speaker 1: in and pulling up old carpet in and putting up paint,
Speaker 1: you know, all stuff that Zello, all stuff that Zillo
Speaker 1: hadn't done. Go ahead, joll Yeah, So this was Zillo offers, right,
Speaker 1: and it was uh, you know, pat, where where was
Speaker 1: it most successful and what what went wrong? And how
Speaker 1: did uh when it went wrong? How did rich feel
Speaker 1: about it all? Well, everybody loved them and not everybody
Speaker 1: love this. What I should say is, um, it was successful.
Speaker 1: I mean it found a consumer audience. People wanted to
Speaker 1: pay Zello for this service. Now. One of the reasons
Speaker 1: people wanted to pay Zello Zillo was sort of giving
Speaker 1: it away, right, I mean, Zillo was buying homes at
Speaker 1: some point in the second half of last year for
Speaker 1: you know, on average twenty dollars or more than it
Speaker 1: could eventually sell the homes for. So Zello would you know,
Speaker 1: you'd go on zillo dot com. You'd say, make me
Speaker 1: an offer on my house. They would offer you something.
Speaker 1: You would say, well, that looks like thirty thou dollars
Speaker 1: more than I could sell it for right now, and
Speaker 1: that's awesome. What to do it? And so okay, So
Speaker 1: they were successful in buying a lot of houses, and
Speaker 1: they you know, in a in a long term sense,
Speaker 1: they thought they needed to buy a lot of houses
Speaker 1: to get the scale to make this business work. Um.
Speaker 1: As Zillo started to realize and as Barton started to
Speaker 1: realize what had gone down, which is that they had
Speaker 1: you know, overpaid by four d million dollars or so
Speaker 1: for for ten thousand houses or twenty thou houses. Um.
Speaker 1: He said, well, hold on, maybe this isn't um, you know,
Speaker 1: the key to transform in my business into a much
Speaker 1: bigger company and solving consuper problems. Maybe I'm about to
Speaker 1: blow up and um and he thought about it, and
Speaker 1: he said, maybe it'd be better not to do this.
Speaker 1: You know, you bed, you gotta be willing to pull
Speaker 1: the plug on it. Sometimes, you know, you take a
Speaker 1: big swing and sometimes you miss, and you and you
Speaker 1: try to move on from it. And you know what
Speaker 1: Rich has done when Zillo is done is um. You know,
Speaker 1: they sort of took their medicine at the end of
Speaker 1: last year and and um and and and they came
Speaker 1: back out with a new b HAG because that's what well,
Speaker 1: let's talk about that, because I'm wondering where Zillo goes
Speaker 1: from here. You write about the destruction and the value
Speaker 1: of Zillo at least in the on the public markets.
Speaker 1: It's down more than from highs back in February of
Speaker 1: last year. What's next for the company. How's it trying
Speaker 1: to turn itself around? So they at the end of
Speaker 1: the day. They want to do more than just sell
Speaker 1: ads to real estate agents. That's that's a limited business.
Speaker 1: They need a bigger business, okay, And so they did
Speaker 1: what they decided was, um, they still want to They're
Speaker 1: still gonna do some of that. They're going to change
Speaker 1: their revenue model around it. They want to be a
Speaker 1: mortgage lender. Um, they want to. There are these more
Speaker 1: new kinds of mortgage products, basically new kind of bridge loan,
Speaker 1: you know, to help you make a cash offer on
Speaker 1: a house so you don't get beat out by an
Speaker 1: investormer somebody who's got stock options or family money to
Speaker 1: buy a house with. And so they're gonna do all
Speaker 1: of that. And the way they've organized that, they say
Speaker 1: they're gonna they call it a super app for housing
Speaker 1: and you know, go on your phone and manage the
Speaker 1: whole transaction. And uh, they still you know, so it
Speaker 1: came out and said, well, we're gonna double, we're gonna
Speaker 1: double our revenue, we're gonna increase our conversion rates and
Speaker 1: so forth and so on. So it's the new it's
Speaker 1: the new bi HAG. It's not as tangible as we're
Speaker 1: going to transform the company and buy and sell five
Speaker 1: thousand houses a month. It's a little harder to kind
Speaker 1: of get your head around, but nonetheless they've set a
Speaker 1: new target for themselves. Okay, Pat, last thought, can you
Speaker 1: tell us about the moat? And just got about Sure,
Speaker 1: there's Enrich's office on the forty floor of a tower
Speaker 1: in downtown Seattle. When you walk in through the front
Speaker 1: sort of door of the office, there's a there's there's
Speaker 1: a moat, a pool of water that you crossover. And
Speaker 1: Rich told me he was going a little bit cheapishly.
Speaker 1: He was like, well, somebody told me once that crossing
Speaker 1: water makes people feel like they're leaving their troubles behind them.
Speaker 1: And I was designing my office at the time, and
Speaker 1: so I decided to put this here. We need one
Speaker 1: for the studio, Carol, we do have a fish pond
Speaker 1: when you walk in. I'm just gonna it's not exactly
Speaker 1: a mode here at Bloomberg, but end of the same theory,
Speaker 1: it does like troubles behind when I enter work. Oh man,
Speaker 1: b hag, I'm going to start using that around here.
Speaker 1: What do you think? Sure, go ahead the next management meeting.
Speaker 1: I've got an idea. Let's see how that goes. Yeah,
Speaker 1: I wouldn't see how that goes um such fun and
Speaker 1: such great reporting. Patrick Clark, real estate reporter at Bloomberg News.
Speaker 1: Here in studio. Joe Weber, editor of Bloomberg Business Week,
Speaker 1: on the Access line in Brooklyn. Check out this story.
Speaker 1: It is in the new issue of the magazine online
Speaker 1: on the Bloomberg. You're listening to Bloomberg Business Week with
Speaker 1: Carol Messer and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio.
Speaker 1: Speaking of someone who's not quite on the West Coast.
Speaker 1: He spends a lot of used to be right. He
Speaker 1: used to call that home. Hasn't for a while. We're
Speaker 1: talking about Elon us. This story, by the way, among
Speaker 1: the most right on the Bloomberg. It's about Elon Musk's
Speaker 1: fixer who is quietly tending the world's biggest fortune. Leanna
Speaker 1: Baker is one of the authors on that story. She's
Speaker 1: Deal's team leader for Bloomberg News. She joins us on
Speaker 1: the phone from New York. Lenna tell us about the
Speaker 1: man behind the man, who is Jared Birchall. So, Jared
Speaker 1: Birchall has been working with Elon Musk for the past
Speaker 1: six years. He's a former Wall Street Guy he started
Speaker 1: his career at Goldman Sachs. Then he worked at Meryl
Speaker 1: where he was fired. Finally he found a home at
Speaker 1: Morgan's family, which is where he started to sort of
Speaker 1: manage wealthy clients and he had a knack for it.
Speaker 1: And certainly that's uh, you know, come in handy here
Speaker 1: with Elon Musk trying to buy Twitter and all sorts
Speaker 1: of different projects that he's put Jared Burchell on. And
Speaker 1: he's also the only employee, it seems, of the family office.
Speaker 1: So for the world richest man, that is a tall order.
Speaker 1: So it's so interesting. I feel like with Elon Musk's universe, right,
Speaker 1: he is certainly the face and all things he's on
Speaker 1: Musk in his world. But then we start to quietly
Speaker 1: find out about these really smart individuals who are behind
Speaker 1: the scenes where they're at SpaceX or whether it's Tessa
Speaker 1: you know, Um, did you have to do a lot
Speaker 1: of digging or did the company say, hey, maybe you
Speaker 1: want to write about this dude, especially with everything that's
Speaker 1: going on, and I think people are worried about, you know,
Speaker 1: Elon Musk, can he take another thing, you know, put
Speaker 1: another thing on his plate? Um, My colleague on the
Speaker 1: Wealth team. Sophie Alexander did a lot of a heavy
Speaker 1: listing and a lot of the digging and to filings
Speaker 1: to find out more about Jared Burchell. I'm more the
Speaker 1: person that talked to Wall Street and M and A professionals,
Speaker 1: And from what I understand, h Virtill is very much
Speaker 1: in the inner circle and he was instrumental at putting
Speaker 1: together as a Twitter bid. He was sort of the
Speaker 1: face in front of the banks and helped coral them
Speaker 1: along with the help of his former employer, Morgan Stanley,
Speaker 1: to get Musk the money, uh to do this deal.
Speaker 1: So he's really a key person here. What do we
Speaker 1: know about just the way he just his career and
Speaker 1: and what he does. And it's interesting because he's sort
Speaker 1: of the antithesis of Musk in some senses. You and
Speaker 1: Sophie in the story compare and contrast the two men,
Speaker 1: and note that, uh that Birchall is part of the
Speaker 1: Mormon Church and went to b y U and has
Speaker 1: kids and is married, whereas Elon Musk, you know as
Speaker 1: seven kids, has been divorced three times, and there are
Speaker 1: a lot of differences between the two of them. For sure,
Speaker 1: Sometimes you need someone to kind of balance you out,
Speaker 1: and as a Mormon family man who's very much out
Speaker 1: of the headlines and stuff from the story today, Burchill
Speaker 1: definitely serves that role for musque Um. People I spoke
Speaker 1: to who know him just describes him as very nice. Uh.
Speaker 1: He just you know, gets things done. Even though he
Speaker 1: didn't have experience putting together multibillion dollar deals for big
Speaker 1: Internet companies like Twitter, he made it happen. Being a
Speaker 1: manager of a family office also involved taking on odd jobs.
Speaker 1: Apparently he's in charge arch of helping us get nanny's
Speaker 1: for all his kids. So it's not a job for everyone,
Speaker 1: but virtual certainly you know, fits the bill here well.
Speaker 1: And I do think about you know, Ellen's relationship with
Speaker 1: the financial community, especially as he's trying to do this
Speaker 1: Twitter deal and right over the last week or so,
Speaker 1: we keep getting more pieces about it. It It really looks
Speaker 1: like he has lined up so much of it. But
Speaker 1: I do wonder about having someone like Bertill, you know,
Speaker 1: who worked on Wall Street, understands the financial community, Like, what,
Speaker 1: how does the financial community see this dude? Right? So
Speaker 1: he was definitely someone who's coordinating behind the scenes. Let's
Speaker 1: say he would come on a video call first to
Speaker 1: say okay, I'm you know, I'm getting Ellen next on
Speaker 1: the call. But Virtu will be the first person you see. Um,
Speaker 1: he's the one with Tyson Morgan Stanley, as I mentioned
Speaker 1: as a former employee. But I also heard that he's
Speaker 1: just a nice guy and he's not going beyond his capabilities.
Speaker 1: He'll rely on experts and help hire people to bring
Speaker 1: them in to do what has to be done for
Speaker 1: Mosque's financial empire. Lea, this is he's managing the family
Speaker 1: office of the world's wealthiest person within churring sixty billion
Speaker 1: dollar net worth? How much billion dollar net worth? I
Speaker 1: mean most of us tied up in tesla. Take a tesla.
Speaker 1: As you guys write, Um, how lucrative is this? Is
Speaker 1: this for someone like birch Ally? You do? You mentioned
Speaker 1: the story that about a two point five million dollar
Speaker 1: home in Dallas, But you know we're talking We're not
Speaker 1: talking tens of millions of dollars yet. Maybe so we
Speaker 1: don't have any filings or anything to show what a
Speaker 1: salary is, but we do know that, UM, managing a
Speaker 1: family office could be very lucrative, as you can make
Speaker 1: millions a year. One expert set up to three million.
Speaker 1: But considering he's one of very few employees for the
Speaker 1: world's richest man's family office. Uh yeah, but you know,
Speaker 1: the sky's the limit. Some billionaires family offices have a
Speaker 1: hundred employees, and uh, you know, Musk only has one
Speaker 1: or two. So um, he's really the only guy sais
Speaker 1: there's someone to pay, it would be him, But again
Speaker 1: we don't have the reporting to show what he's making.
Speaker 1: I do feel like it's Ellen's world and we're all
Speaker 1: just living in it. That's because that's because you spent
Speaker 1: so much time on Twitter. It's so true. Utlianna, thank
Speaker 1: you so much, really appreciated. Leanna Baker. She is Deal's
Speaker 1: team leader of Bloomberg News. I'm roc journal. Yeah, but
Speaker 1: you let me drive. No, no, no no, honey, please, I'll
Speaker 1: do the riding gravels. I want to drive. It's a
Speaker 1: good question. Good drive. This is the drive to the
Speaker 1: clothes thin well driver Don on Bloomberg Radio. All right, TikTok,
Speaker 1: it's just about ten minutes left in today's trading session.
Speaker 1: Getting ready to wrap up another Vaulatil day and another
Speaker 1: vaulati a week. Although it's interesting, we are seeing some
Speaker 1: Bundy into the clothes. So here we are ahead of
Speaker 1: the weekend, and we're seeing certainly all the major equity
Speaker 1: averages bounce off their loads. We're still down, but just
Speaker 1: barely lower. Dowd just went into uh positive territory. It's
Speaker 1: now up about five points asps. We heard from Charlie.
Speaker 1: Still down, but you know this is what we're seeing here. Yeah,
Speaker 1: Volatility is the name of the game right now. Steve
Speaker 1: Brown his senior portfolio manager at American Century Investments. They've
Speaker 1: got two billion dollars in assets under management. Steve, how
Speaker 1: are you very good? Thank you? Hey, good to good
Speaker 1: to have you with us. Um, what are you thinking
Speaker 1: when when it comes to this volatility right now? I mean,
Speaker 1: it's it's really surprising to see that this is just
Speaker 1: continuing even after we got more insight into how the
Speaker 1: fet is thinking about interest rates and its balance sheet
Speaker 1: for sure. I mean basically, the Feds that they're gonna
Speaker 1: raise the Fed funds rates this year to address inflations concerns,
Speaker 1: and it it's taken a while for its price into
Speaker 1: the equity market. The bottom market is sold off pretty
Speaker 1: dramatically this year because of the higher rates. The equity
Speaker 1: market has been fighting a little bit, but it's starting
Speaker 1: to price in the higher rates than the impact of
Speaker 1: higher rates on the U. S economy. So what does
Speaker 1: it mean for a sector that you focus on, and
Speaker 1: that is specifically the real estate area. And I'm looking
Speaker 1: at for the week overall, real estate UH. If I
Speaker 1: look at the eleven major industry gips in the SPID,
Speaker 1: the real estate index was the worst performer, down about
Speaker 1: three point six UH for the week overall. If I
Speaker 1: look at year to date, real estate is down about
Speaker 1: but near the bottom of the pack. Higher rate environment
Speaker 1: obviously very tricky can be, and we're watching it very
Speaker 1: closely when it comes to the residential market. How about
Speaker 1: for the assets that you oversee, whether it's in the
Speaker 1: Global real Estate Fund or the real Estate Fund of
Speaker 1: Right American Century. Sure, a great question. Um, Well, the
Speaker 1: rate have sold off blood last week, frankly because of
Speaker 1: concerns higher rates. So higher rates investors have concerns that
Speaker 1: cap rates, which is used about commercial real estate, will
Speaker 1: go up. So that's a valid concern. I would say
Speaker 1: though that um, real estate, commercial real estate also benefits
Speaker 1: from inflation, so they've had, you know, expanding earnings over
Speaker 1: the last twelve months. And actually pretty good earning so
Speaker 1: far in the first quarter of this year because with inflation,
Speaker 1: you've got um an impact construction costs, makes new construction
Speaker 1: more expensive. And secondly, there was a slow down in
Speaker 1: construction during COVID, so demands been better than supply. And
Speaker 1: first quarter earnings look good and we're expected about sent
Speaker 1: earnings growth for the read sector this year. But in
Speaker 1: terms of when the investors focus on interest rates, the
Speaker 1: real estate does show up as an asset class that
Speaker 1: has a negative impact on race in terms of evaluation
Speaker 1: of the properties. But if they focus on inflation, generally
Speaker 1: that's a positive environment for real estate earnings performance and
Speaker 1: stock price performance because inflation is commercial real estate's friends.
Speaker 1: So when you're thinking about these rates and analyzing them,
Speaker 1: how how do you think about inflation and the stickiness
Speaker 1: of inflation right now? We didn't even hear the word
Speaker 1: transitory wants from that J. J. Powell earlier this week
Speaker 1: that debate is no longer a debate. Uh, But you
Speaker 1: think that inflation has peaked, well, we think, um. We
Speaker 1: think as we get to June to the cops, the
Speaker 1: comparables for inflation will be easier. So you have that
Speaker 1: going for it. UM, I would say that eventually they're
Speaker 1: gonna we believe the FED will win the battle. As
Speaker 1: they continue to raise rates, it will slow down economically,
Speaker 1: which will the economy, which will slow down demand for
Speaker 1: a lot of activity. So it shouldn't have a you know,
Speaker 1: cooling off on prices and the CPI sometime in the
Speaker 1: second half of this year. There are some property sectors
Speaker 1: that have done actually pretty well this year. Uh. They're
Speaker 1: more defensive, such as healthcare and open air shopping centers.
Speaker 1: But the you know, the healthcare space which has reads
Speaker 1: it owned senior housing. They're up about actually five percent
Speaker 1: year today because um, the fundamentals are improving and if
Speaker 1: if people are concerned, it looks like they are about
Speaker 1: higher rates slow down the economy than a more defensive
Speaker 1: property sectors such as healthcare reads. Uh, their their demand
Speaker 1: for their product type will probably be less impacted by
Speaker 1: a slow on the count even many other sectors. So right,
Speaker 1: so we understand the benefits necessarily, you know, in terms
Speaker 1: of inflation or arising interest rate environment. What about though,
Speaker 1: obviously the other side of all of this is and
Speaker 1: we talk about this Steve in terms of the FED
Speaker 1: overdoing it and leading to some type of recession UM
Speaker 1: and then you know, you wonder how long that recession
Speaker 1: potentially could last, um, how much does that maybe were
Speaker 1: you or or kind of shape the type of investments
Speaker 1: you want to be in right now that you want
Speaker 1: to kind of get ahead of in case we do
Speaker 1: fall into recession. Sure, we definitely believe that the you know,
Speaker 1: the Fed's gonna continue to raise rates until they get
Speaker 1: the results they want. And I think one of the
Speaker 1: after effects of their rate heights will be a slowdown
Speaker 1: and g d P in the second half of the
Speaker 1: year in the United States, as well as the reduction
Speaker 1: and earnings estimates for many companies within the SMP five hundred.
Speaker 1: So in that environment, you know we've shifted is the
Speaker 1: more defensive property sectors such as healthcare, such as open
Speaker 1: air shopping centers such as power reads. Also, I mean
Speaker 1: that may in for their product wireless connectivity will remain strong,
Speaker 1: and we've we've reduced in some of the more or
Speaker 1: reduced quite a bit. And some of the more volatile
Speaker 1: sectors such as uh let's say, regional malls and or
Speaker 1: the office sector, which will be impacted by perhaps slowly
Speaker 1: and hiring in the second half this year, he Steve,
Speaker 1: I want to go to some specific names here that
Speaker 1: you've got your eye on. You like Kite Realty Group
Speaker 1: Trust ticker KRG. What's appealing to you about Kite? Okay, sure,
Speaker 1: it's an open air shopping center company. They didn't make
Speaker 1: a large acquisition last year and basically what they're benefiting
Speaker 1: from is a strong leasing environment UH low bad debt
Speaker 1: into part of their tenants and um open. The reopening
Speaker 1: trade is working very well for them and their type
Speaker 1: of tenants such as a Target of Walmart, Thick Supporting Goods, etcetera, etcetera.
Speaker 1: They're opening stores and their their blending that are in
Speaker 1: store presence with their online presence. What that means is
Speaker 1: that they're very comfortable having buy online and pick up
Speaker 1: at the store as a team, and so they're benefiting
Speaker 1: from that trend. And so we see very good actually
Speaker 1: any growth for the open air centers and picker Kite.
Speaker 1: Kite bought another read last year r P a I
Speaker 1: at a very attractive rate and they dealed and closed
Speaker 1: to say the fourth quarter of two one, So they're
Speaker 1: getting the benefits of that transaction. In two thousands, twenty
Speaker 1: two and they'll have some very good earnings this year
Speaker 1: and beyond. Yeah, and recently raised the two guidance, so
Speaker 1: certainly they're uppeat about the outlook. Hey, Steve, We've got
Speaker 1: to run, but really fun to drill down into this sector.
Speaker 1: Certainly something we talk about a lot here at Bloomberg.
Speaker 1: Ste Brown. He's senior portfolio manager of our American Century Investments,
Speaker 1: roughly two fifteen billion dollars in assets under the under management,
Speaker 1: and he's involved in both their real estate fund their
Speaker 1: Global Real Estate Fund. Joining us on the phone in
Speaker 1: New York City. Thanks for listening to Bloomberg Business Week.
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