Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: The global push into infrastructure, breaking the IPO logjam in text.
Speaker 3: The financial stories that sheep.
Speaker 2: Are work cutting inflation without losing jobs. Do we need
Speaker 2: rate cuts? And if so? How many? Investing in a
Speaker 2: time of geopolitical turmoil.
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Ten Rogueff Economists of Harvard, former FDIC had Shila Bert
Speaker 2: ge CEO, Larry Kulp, San Francisco FED President Mary Daily.
Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: The IMF warns aboug growing US debt as it meets
Speaker 2: in Washington. Tesla lays off ten percent of its employees,
Speaker 2: and Fetcher Pal says he wants to wait to be
Speaker 2: sure about that inflation. This is Bloomberg Wall Street Week.
Speaker 2: I'm David Weston this week. Steve Ratner of will of
Speaker 2: Advisors on EV's losing their momentum.
Speaker 4: The industry has been criticized for decades, has been behind,
Speaker 4: and so they really wanted to be ahead of the curve.
Speaker 2: And Kathy Marcus of Pigeum on timing the commercial real
Speaker 2: estate market.
Speaker 5: June series could likely be a very attractive entry point.
Speaker 2: We begin with geopolitics at the top of the news
Speaker 2: again this week, in the wake of the Iranian strikes
Speaker 2: against Israel last weekend and then Israel's drone strikes in
Speaker 2: retaliation at the end of the week, we asked amb
Speaker 2: Bessador Richard has A's centerview partners and author of the
Speaker 2: news at are Home in a way, how much escalation
Speaker 2: we could see.
Speaker 6: We're potentially into a cycle of escalation, not definitely, and
Speaker 6: if it were to happen, I think the most obvious area,
Speaker 6: other than the emotional reaction to violence, there would be
Speaker 6: did the Iranians take steps to close down the straits
Speaker 6: of Homeboos?
Speaker 2: Did the calculus change, even if subtly, with the role,
Speaker 2: whether tacit or active, of Saudi Arabia, UAE and Jordan
Speaker 2: Because retrospect there are reports that in fact that helped
Speaker 2: with the Israeli defenses, which I think may be something
Speaker 2: different in that region.
Speaker 6: It does it shows you just how alienated they are
Speaker 6: from Iran and how worried they are about the Iranian threat.
Speaker 6: But at the same time, when Iran is not front
Speaker 6: and center, and if we were cycle back to Gaza
Speaker 6: or the West Bank, it's difficult to these countries to
Speaker 6: move closer to Israel given their differences over the Palestinian issue.
Speaker 6: So you've almost got a Middle East now that's operating
Speaker 6: along different fault lines, the Israeli Iranian one directly, what's
Speaker 6: happening in Gaza, what's happening in the North, which has
Speaker 6: gotten worse in the last few days, between Israel and Isbela.
Speaker 2: Many of us follow the news carefully, whether on TV
Speaker 2: or reading the New York Times, Wall Street Journal, but
Speaker 2: much of what's going on we don't see. It's below
Speaker 2: the services were you were part of that. When you're
Speaker 2: in the State Department with Colin pow you've been in
Speaker 2: those rooms. Give us some sense of what you think
Speaker 2: maybe going on that we don't know about it, and
Speaker 2: particularly what the US role is or should be in this.
Speaker 7: Well.
Speaker 6: The big thing is the is the US is trying
Speaker 6: to be reassuring to Israel at the same time they're
Speaker 6: trying to urge them not to respond against Iran. The
Speaker 6: parallel here, David is when I was at the White
Speaker 6: House in nineteen ninety one, it was the opening.
Speaker 7: Days of the go for Iraqi.
Speaker 6: Scuds were landing on Israel, and we the Bush administration
Speaker 6: Bush forty one prevailed upon the Israelis not to retaliate
Speaker 6: directly against Iraq. We were worried that could break apart
Speaker 6: this coalition we had built, but we were in a
Speaker 6: very strong position. Then. We had half a million American
Speaker 6: men and women in uniform over in the Middle East.
Speaker 7: We were at the center of it.
Speaker 6: The Biden administration does not have that kind of influence
Speaker 6: over Israel right now, so I think It's hand is
Speaker 6: somewhat weaker.
Speaker 2: A turn fo Roe, if you went to Ukraine, there
Speaker 2: are a lot of reports that the Russians are really
Speaker 2: putting more and more pressure on Ukrainian forces in the
Speaker 2: east of the country. And we have this debate going
Speaker 2: in the United States and efforts in Europe to try
Speaker 2: to give more support to Ukraine. How bad is the
Speaker 2: situation do you think.
Speaker 7: Well, it's bad, it's getting worse. The shortages of munitions, the.
Speaker 6: Shortages of equipment is it's frustrating, it's tragic, it's irresponsible,
Speaker 6: let's be honest. Hopefully the House of Representatives will correct
Speaker 6: this and reopen this figot of aid to Ukraine, and
Speaker 6: if they do, Ukraine will not be able to liberate
Speaker 6: Crimea or the Eastern Lands. But they'll be able to
Speaker 6: hold the Russians at bay, as they've pretty much done
Speaker 6: for the best part of the last two years.
Speaker 7: So this is critical.
Speaker 6: This is critical for not just for Ukraine, but for
Speaker 6: stability in Europe, and this is critical really for stability
Speaker 6: in the world. Chinese are taking note what we're doing here,
Speaker 6: and people are judging the United States. You know, when
Speaker 6: you're a great power, you don't have the luxury of
Speaker 6: doing things in isolation. What you do on one square
Speaker 6: of the chessboard affects inevitably how you're perceived by friends
Speaker 6: and foes alike everywhere else.
Speaker 2: Richard, you always take a strategic view of these things,
Speaker 2: not just tactical, but given what you just said about
Speaker 2: Ukraine at this point, realistically, are we, if I can
Speaker 2: put us together with Ukraine in the Western world, are
Speaker 2: we playing for a tie rather than a win? As
Speaker 2: you said, it's unlikely that Ukraine anytime soon is going
Speaker 2: to liberate the eastern part of the country.
Speaker 6: Look, tie is not as good as a win, but
Speaker 6: it's a hell of a lot better than a loss.
Speaker 6: And I believe given Russia's scale, given its war economy,
Speaker 6: the best Ukraine can get for the foreseeable future through
Speaker 6: military force is a tie. Then I think over time,
Speaker 6: and this may have to wait, David, beyond Vladimir or Putin.
Speaker 6: I think Ukraine, if it has close ties to the EU,
Speaker 6: close ties to NATO, we continue to arm it can
Speaker 6: play for a win, not through military liberation, but through
Speaker 6: diplomacy and the use of economic coercion. So you almost
Speaker 6: need to break this down in phases. For the foreseeable future,
Speaker 6: Let's get a tie. Let's get a situation where Ukraine
Speaker 6: can continue to exist as a viable, successful country, where
Speaker 6: Putin is frustrated. Then over time we can get Ukraine
Speaker 6: what's rightfully theirs.
Speaker 2: So Richard will of course try to address long term investors,
Speaker 2: big time investors here at Bloomberg. Give us your best
Speaker 2: advice that you would give to investors right now, you
Speaker 2: talk about the Middle East, you talk about Ukraine. By
Speaker 2: the way, we haven't mentioned China with now new tariffs
Speaker 2: on Chinese steel coming in in an election year, and
Speaker 2: we have an election year which itself may pose some
Speaker 2: real issues for the United States and even for financial markets.
Speaker 2: If you're an investor, what do you need to have
Speaker 2: on your dashboard. What do you need to be most
Speaker 2: concerned about.
Speaker 7: You need to have a seat belt and keep it fastened, David,
Speaker 7: more than anything else. Look, you've got the two parties competing.
Speaker 6: Over how tough they can be on China, over protectionism
Speaker 6: to some extent, which is all problematic, and obviously it
Speaker 6: has all sorts of consequences for inflation. The pressure will
Speaker 6: be to titan flows across the border whatever, even though
Speaker 6: that's a good thing, I would argue in terms of security. Also, again,
Speaker 6: that could add to inflationary pressures if we suddenly don't
Speaker 6: have so much.
Speaker 7: Labor that's available.
Speaker 6: I worry, David about the seventy five days between election
Speaker 6: day and inauguration day. That's the period four years ago
Speaker 6: when January sixth happened.
Speaker 7: Imagine this is a close contest.
Speaker 6: Imagine we have not just division and dysfunction, but political violence.
Speaker 7: A lot of people around the world could get unnerved.
Speaker 6: A lot of foes around the world might see that
Speaker 6: as a moment of opportunity.
Speaker 7: And then again after inauguration day.
Speaker 6: What would be functional or dysfunctional is what's happening over
Speaker 6: this aid bill. Is that an exception to the rule.
Speaker 6: Will that be the rule after the election. So I
Speaker 6: think there's lots of issues that obviously if mister Trump
Speaker 6: water win, does he try to undo a lot of
Speaker 6: the architecture in the world that has served this country
Speaker 6: well over seventy five years.
Speaker 3: Richard is always so very helpful to talk with you.
Speaker 3: Thank you.
Speaker 2: That is Richard has of Center View Partners. Market spent
Speaker 2: the week trying to come to terms with that geopolitical risk,
Speaker 2: and in the end it may have been the path of
Speaker 2: the FED and some doubts about big tech that drove
Speaker 2: equities as much as anything else, with the S and
Speaker 2: P five hundred down three percent for the week to
Speaker 2: ended forty nine sixty seven, dipping below that five thousand
Speaker 2: mark for the first time since February and well below
Speaker 2: the consensus year end number of our Bloomberg elves of
Speaker 2: fifty one seventy. The Nasdaq did even worse, giving up
Speaker 2: five and a half percent on the week, while the
Speaker 2: yield on the tenure was up just under ten basis
Speaker 2: points to end the week at four point six percent.
Speaker 2: To take us through it all, welcome back now, Peter Krauss,
Speaker 2: Chairman and CEO of Aperture.
Speaker 3: Investors, Peters such a delight to have you with us.
Speaker 2: Thank you. So give us your take on what the
Speaker 2: markets went through, because we did have the geopolitics at
Speaker 2: the beginning in the end, and then we had a
Speaker 2: fair amount of speculation about the FED.
Speaker 8: In between, well, there was some mixture. I agree with that.
Speaker 9: I do think the geo politics kind of resolved itself
Speaker 9: with Israel taking a somewhat modest approach to retaliation to
Speaker 9: the Iran attack. I think the bigger issue is the
Speaker 9: combination of how people perceive the Fed's behavior and what
Speaker 9: the FED will do over the course of the year,
Speaker 9: and how that interplays with the valuations in the marketplace.
Speaker 9: Coming into the year, as was true last year, people
Speaker 9: were quite optimistic that the FED was going to cut rates.
Speaker 9: Inflation data actually early in the year looked like it
Speaker 9: was benign and actually getting better, and then it got
Speaker 9: strong and then the FED said no, I'm not going
Speaker 9: to cut rates.
Speaker 8: In the market ultimately was very unhappy about.
Speaker 9: That, and so what I think we're seeing is people
Speaker 9: reassessing their positions as a result of the FED saying
Speaker 9: I'm not going to cut rates. There's also a scenario
Speaker 9: that people believe could be happening that if the FED
Speaker 9: doesn't cut rates and in fact companies reporting weaker earnings,
Speaker 9: then the FED maybe behind the curve and could create
Speaker 9: a recession.
Speaker 8: And that's also causing people to take off.
Speaker 9: Risk at the present time, and that may be some
Speaker 9: of what we see in the tech world.
Speaker 2: The FED says, at least it's concentrated on full employment
Speaker 2: and inflation period, not so much worry about what happens
Speaker 2: to corporations and the consequences of that. Do we believe them.
Speaker 2: I mean, they haven't been too concerned about loosening financial conditions.
Speaker 9: I think right now the economy is relatively strong and
Speaker 9: it's actually in the numbers, and I think the FED,
Speaker 9: when the economy is as strong, actually sticks to those
Speaker 9: two principles.
Speaker 8: If the economy really weak, then they would start.
Speaker 9: Worrying about the impact that corporations might have on the
Speaker 9: overall economy if in fact they started laying off workers,
Speaker 9: and if in fact they had defaults on their securities
Speaker 9: and we had real chaos in the market and the
Speaker 9: equity market then would go down dramatically, and then I
Speaker 9: think the FED would start.
Speaker 8: Paying attention to that indicator as well.
Speaker 9: But when the market and the economy is relatively strong.
Speaker 9: The Fed's going to stick to its two principles.
Speaker 2: The value of equity Designer stated is basically a discount
Speaker 2: of future cash flow, which you're expected to do, and
Speaker 2: that it's important what the discount rate is. So if
Speaker 2: the interest date's higher, that means the stock values today
Speaker 2: is lower, particularly with some of the stocks that are
Speaker 2: expecting it in the out years not having it right away.
Speaker 2: Is that a simple explanation for what may be going
Speaker 2: on right now that we were going too far too
Speaker 2: fast with the equity evaluations.
Speaker 9: Well, it's certainly part of the explanation, but I think
Speaker 9: it's maybe a little bit to one, you know, one indicator,
Speaker 9: one dimensional, thank you, one dimensional.
Speaker 8: I think it's I think.
Speaker 9: What we're seeing is more sophisticated than that, or more
Speaker 9: nuanced than that.
Speaker 8: I think that earnings are going to go up.
Speaker 9: The market is reflecting a relatively strong economy. The multiples
Speaker 9: at which stocks trade, which is related to the discount rate,
Speaker 9: that may be under pressure a bit. Remember we had
Speaker 9: a pretty fast increase in stock prices at the beginning
Speaker 9: of the year. Sp was up ten percent, NASDEK was
Speaker 9: up twelve or thirteen percent. Even the tal which was lagging,
Speaker 9: was up five or six percent in a short period
Speaker 9: of time, and that's usually what you get for a
Speaker 9: whole year. So I think that investors are taking a
Speaker 9: breather effectively, and they're reacting to this lack of FED
Speaker 9: enthusiasm for cutting rates. There's also another question of what
Speaker 9: does the yield curve shape look like.
Speaker 8: You know, the yield curve shape has been.
Speaker 9: Inverted for a very long period of time relative to history.
Speaker 9: That creates capital allocation that is not efficient, because when
Speaker 9: you have interest rates in the short end that are
Speaker 9: higher than industrates in the long end, investors then don't
Speaker 9: take risk. In fact, you know they're piling into shorter
Speaker 9: rates because they're more attractive than longer rates. That has
Speaker 9: a tendency to effectively retard economic growth. That's the main
Speaker 9: point of the FED actually having an inverted gild curve.
Speaker 8: But they can't keep it like that forever.
Speaker 2: Thank you so much for Peter Crass. It's really great
Speaker 2: to have you always. Peter Crasse of Avererateuur Investors. Coming up,
Speaker 2: we take a close look at the specific asset class
Speaker 2: of real estate, commercial and otherwise with Kathy Marcus of
Speaker 2: PGM real Estate.
Speaker 5: A lot of the Gyman gloom about the sector has
Speaker 5: been somewhat overblown.
Speaker 2: This is Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David weston commercial real
Speaker 2: estate investments. At least some of them have had a
Speaker 2: hard time of late, but there may be signs that
Speaker 2: we've seen the worst of it. With news this week
Speaker 2: that Ken Griffin is going forward with his sixty two
Speaker 2: story office tower on Park Avenue, and Bank of America
Speaker 2: is saying it's seeing losses on its office property loans.
Speaker 2: Easy for the perspective of a major real estate investor.
Speaker 2: Welcome back now, Kathy Marcus, co CEO and Global Chief
Speaker 2: Operating Officer of PGIUM Real Estate. Okay, so tell us
Speaker 2: where we are on the cycle. Last time you were
Speaker 2: with us, you said it's coming. Basically, the repricing is
Speaker 2: not quite done yet. Where are we on the repricing?
Speaker 5: In terms of the repricing, it's about twenty percent on
Speaker 5: average across the sectors, and that can range from something
Speaker 5: like manufactured housing that has had really almost zero declines
Speaker 5: to office that's closer to thirty five percent, So at
Speaker 5: peach and real estate, we've projected that by the end
Speaker 5: of the day sort of peaked a tross, it'll be
Speaker 5: probably on average twenty two percent. So for a twenty
Speaker 5: we're very close, and so we're feeling a lot better.
Speaker 5: And you know, from my perspective, a lot of the
Speaker 5: gum and gloom about the sector has been somewhat overblown.
Speaker 3: So I'm sure you're not a market timer.
Speaker 2: At the same time, you have to have some sense
Speaker 2: of that cycle, because if you wait too long, the
Speaker 2: price can come back up.
Speaker 3: And you lose some opportunities.
Speaker 2: Do you have any sense of where it really makes
Speaker 2: sense you need to get back in.
Speaker 5: We're advising our investors that June thirtieth could likely be
Speaker 5: a very attractive entry point, and at that point it's
Speaker 5: possible that maybe you're a quarter early, maybe there's one
Speaker 5: more quarter of some value declines, but in this case,
Speaker 5: we really believe that it's better to be a quarter
Speaker 5: early than a quarter late. There's broad consensus that there's
Speaker 5: a lot of capital on the sidelines that is going
Speaker 5: to come in as soon as they feel like the
Speaker 5: values have bottomed.
Speaker 3: We've heard some talk about a wall of maturities?
Speaker 2: Is there a wall of matoritis coming where people are
Speaker 2: going to all have to refine its at the same
Speaker 2: time and have problems.
Speaker 5: There is a wall of maturity? Is There's lots of
Speaker 5: different numbers out there. One of the more popular numbers
Speaker 5: is two point two trillion dollars of maturities that are
Speaker 5: coming somewhere between two thousand and four and two thousand
Speaker 5: and seven.
Speaker 10: I've been at this.
Speaker 5: For a little over thirty five years. In that time,
Speaker 5: there have been at least three other times where a
Speaker 5: wall of maturities was about to crush us any minute,
Speaker 5: and it never came to fruition. And what happens in
Speaker 5: real life is very different than what a chart on
Speaker 5: a piece of paper is going to tell you. The
Speaker 5: fact is that borrowers get ahead of their maturities. Loans
Speaker 5: are extended, loans are restructured, and loans are repaid. And
Speaker 5: even in a very capital constrained environment like we're in
Speaker 5: right now, loans are being repaid every day.
Speaker 2: We tend in the media, we tend to talk about
Speaker 2: real estate or commercial real estate, but how specific is it?
Speaker 2: Even within the office space, some offices presumably are created
Speaker 2: more equal than others.
Speaker 5: There's a lot of divergence in the office space. And
Speaker 5: it's a really good point because in reality, especially if
Speaker 5: you look at the public markets, the public markets are
Speaker 5: pricing office the sector broadly as if it's a very
Speaker 5: homogeneous sector, and it's not a homogeneous sector. It's never
Speaker 5: been a homogeneous sector. But right now it's the least
Speaker 5: homogeneous that it's ever been. And there are you know,
Speaker 5: as many people have talked about winners and losers in
Speaker 5: the office sector, and what do the winners look like.
Speaker 5: The winners generally have some level of green certification. We've
Speaker 5: seen recently that there's about a fifty percent difference in
Speaker 5: the availability rate in office buildings that have some level
Speaker 5: of green certification are close to transit. There's a huge
Speaker 5: difference in how those assets are faring.
Speaker 2: At what point does it make sense to invest in
Speaker 2: an existing office building to bring it up upscale when
Speaker 2: it comes to things like green and office air quality.
Speaker 5: That's actually a very strong strategy right now, and in
Speaker 5: particular in Europe. In Europe, you know, one of the
Speaker 5: investment theses that we believe very strongly in is in
Speaker 5: taking existing office stock in someplace like Paris and investing
Speaker 5: to make it enable it to have the EESG certifications
Speaker 5: that both tenants and then ultimately investors are looking for.
Speaker 2: So we're going to talking about offices. What about multifamily dwellings,
Speaker 2: I mean, where does that stand? Because we've seen some
Speaker 2: sort of a suppression in the building of new homes.
Speaker 5: Yes, for sure, we're seeing a suppression in supply of
Speaker 5: new homes, but also in sales of existing homes, which
Speaker 5: is really being driven by interest rates.
Speaker 8: So we're very we have a.
Speaker 5: Lot of conviction around the living sectors broadly, and in
Speaker 5: particular in this idea of people renting for longer. More
Speaker 5: people renting for longer, so there's a lot of growth
Speaker 5: in the population cohort that tends to rent. Single family dwellings,
Speaker 5: and single family dwellings from an ownership perspective, are less
Speaker 5: and less attainable by people because of a lot of
Speaker 5: trends that we've talked about, this longer, higher for longer
Speaker 5: interest rate and environment, the fact that there's not a
Speaker 5: lot of supply of new homes. All of that leads
Speaker 5: to you know, less and less people being able to
Speaker 5: afford to actually buy a single family home and therefore
Speaker 5: they're going to rent one. So historically the pricing difference,
Speaker 5: the cost between renting a single family home and owning
Speaker 5: a single family home has been somewhere in the thirty
Speaker 5: to thirty five percent range. Now, because of interest rates
Speaker 5: and the cost of for sale housing, it's closer to
Speaker 5: seventy percent. So it's really like an historic delta, and
Speaker 5: it's going to take a while. It will come down,
Speaker 5: but we think it's actually going to be years before
Speaker 5: it even gets close to forty percent.
Speaker 8: One of the.
Speaker 2: Topics we taluched on this last time as well, and
Speaker 2: that's data centers. We hear about data center's an awful lot.
Speaker 2: Where is that market right now? Is it close to saturation?
Speaker 5: I wouldn't say it's close to saturation. From a demand perspective,
Speaker 5: there's still a tremendous amount of demand. There's a very
Speaker 5: long lead time in terms of you know, bringing a
Speaker 5: data center online a law if you will, It can
Speaker 5: be years because first you have to get the power
Speaker 5: and then you start building. So it really can be
Speaker 5: and there are certain markets in the US where it's
Speaker 5: years to get the power that you need. And if
Speaker 5: you think about, you know, the investment thesis and the
Speaker 5: demand side. You think about the ubiquity of cloud computing,
Speaker 5: and you think about the continued adoption of AI. You know,
Speaker 5: we see a long term demand fundamental here and you
Speaker 5: know you also it's very much of a landlord's market
Speaker 5: right now, and the rental increases have been double digit
Speaker 5: and are expected to continue.
Speaker 2: Okay, thank you so much, Kathy, It's always great to
Speaker 2: have you with us.
Speaker 3: Come back again, please.
Speaker 2: That's Kathy Marcus of PGIM the the news this week
Speaker 2: of cutbacks at Tesla. We're just the latest in a
Speaker 2: series of setbacks in what seemed to be before a
Speaker 2: steady march toward the world of electric vehicles. To provide
Speaker 2: some perspective on that world and whether we may have gotten.
Speaker 3: A little bit ahead of ourselves.
Speaker 2: Welcome back now, Steve Ratner, chairman and CEO of Build Advisors,
Speaker 2: who invest the personal and filmanthropic assets of our founder
Speaker 2: and majority shareholder Michael Bloomberg.
Speaker 3: Steve, welcome back. Great to have you here. Thanks so much.
Speaker 9: David.
Speaker 2: Of course, you know the auto industry so well. You
Speaker 2: took it apart and put it back together for President Obama.
Speaker 2: In fairness, you know, EV's where are we is it
Speaker 2: as bad as it looks right now, because at first
Speaker 2: it was really the cats mew and now the bloom
Speaker 2: is off the roads.
Speaker 4: Look, it's so like so many things. You start something new,
Speaker 4: people get excited about it. You do get a new
Speaker 4: often into a little bit of a rational exuberance to
Speaker 4: borrow Allen Greenspan's famous phrase, And there were all kind
Speaker 4: of resets, and so that's what's happening. You had a
Speaker 4: lot of early adopters, you had a lot of enthusiasm,
Speaker 4: and I think as to settle down, people have taken
Speaker 4: a step back and taken a look around. As you know,
Speaker 4: there's been a much greater emphasis on hybrids, which are
Speaker 4: doing really well. So people haven't given up the idea
Speaker 4: of an energy transition. They're just a little worried about EV's,
Speaker 4: particularly about the range anxiety.
Speaker 2: Representative Hayley Stevens of Michigan Service Steve Ratner on President
Speaker 2: Obama's Auto Task Force and her district outside Detroit has
Speaker 2: a lot at stake in the move to EVS. She
Speaker 2: acknowledges that there's some hesitation after an initial spurt, but
Speaker 2: says it should come as no surprise.
Speaker 11: We were never expecting a linear trajectory of growth. We've
Speaker 11: certainly seen big numbers coming out eighteen percent a million
Speaker 11: EV sold. Very pleased to see where we are this
Speaker 11: year technically over the last year and the year before that,
Speaker 11: but we realized it's going to be a little bit
Speaker 11: more of a curve than just that straight linear line.
Speaker 2: It's not so much that consumers don't want evs as
Speaker 2: it is that they want them at affordable prices.
Speaker 3: According to JD Power Consumer.
Speaker 12: Research, there are three key factors that consumers look for
Speaker 12: to transition to an EV.
Speaker 10: The first is is there an EV.
Speaker 12: Substitute that meets their needs? The second is can they
Speaker 12: afford it? And then the third will be infrastructure work
Speaker 12: for them. So when we break down those first two
Speaker 12: and we look at where manufacturers really have the most
Speaker 12: impact today, we compare availability of evs to ICE, and
Speaker 12: only forty three percent of the market is covered with
Speaker 12: a viable substitute, and that's relative to consumer preferences.
Speaker 10: Consumer preferences relative.
Speaker 12: To the segments, the brands, and the price that they
Speaker 12: want to pay. Premium segments have more market coverage at
Speaker 12: seventy three percent. But now as we're poised to move
Speaker 12: into that early majority phase. There's just not enough coverage
Speaker 12: for mass market segments.
Speaker 2: If part of the problem with evs are the prices,
Speaker 2: why did the big automakers start with a high end
Speaker 2: of the markets. Steve Rattner says it was understandable given
Speaker 2: the history of the industry and some of the mistakes
Speaker 2: made in the past.
Speaker 4: Look, I think part of what went on in Detroit
Speaker 4: specifically is the industry has been criticized for decades, has
Speaker 4: been hind that it missed, missed SUVs and it's compacts
Speaker 4: and miss system. It's that, and so they really wanted
Speaker 4: to be ahead of the curve, and GM, going back
Speaker 4: to its investment and crews and so forth, was determined
Speaker 4: to be ahead of the curve. I think they also
Speaker 4: made a determination, which I'm not sure was wrong, that
Speaker 4: the early buyers were probably going to be high end
Speaker 4: people because they had the income. They didn't matter as
Speaker 4: much that the cost of the car was greater. They
Speaker 4: had more commitment, perhaps to the energy transition aspect of it.
Speaker 4: And making an inexpensive EV is tough. It's really tough.
Speaker 4: Making anything small and in expensive in Detroit is tough,
Speaker 4: but EV's especially tough.
Speaker 3: So I don't think it was.
Speaker 4: It may not have been absolutely perfectly pumped, but you
Speaker 4: don't get everything one hundred percent right.
Speaker 2: There is, of course a middle course for those in
Speaker 2: the market for a new car that is environmentally friendly
Speaker 2: or at least friendlier.
Speaker 10: Last year, ED year over year growth was fifty percent.
Speaker 12: Plug in hybrid year over year of growth was thirty
Speaker 12: six percent. But evs outsold plug in hybrids four to one,
Speaker 12: and the reason is because there are a lot more
Speaker 12: evs available than plug and hybrids. You know, there's a
Speaker 12: consumer element to this question, and then also the manufacturers.
Speaker 12: Manufacturers have to balance their portfolio and meet the emission requirements.
Speaker 10: But from a consumer standpoint, we do.
Speaker 12: Collect data from both EV owners and plug in hybrid owners,
Speaker 12: and our ownership data tells us that overall consumers are
Speaker 12: very satisfied with evs, more so than he has in
Speaker 12: almost every category that we measure, and especially in that
Speaker 12: category of the total cost of ownership. It's much higher
Speaker 12: satisfaction for evs. But that said, p has our great.
Speaker 13: Introduction to evs, and our data shows that seventy percent
Speaker 13: of plug and high owners are very likely to consider
Speaker 13: stepping up into an EV and.
Speaker 4: There are people who want to go right into evs
Speaker 4: and as I said, a lot of the early adopters
Speaker 4: have and there are others who are committed and believe
Speaker 4: in climate change. Really they just simply want to save
Speaker 4: money on fuel, doesn't matter, and they're going to take
Speaker 4: the hybrid step. Hybrids have been around a long time,
Speaker 4: and they again, they went through their.
Speaker 3: Own sort of cycle.
Speaker 4: They caught on for a little while and then you
Speaker 4: kind of forgot about them. And now every carmaker is
Speaker 4: going to have a hybrid version I think of most
Speaker 4: of their cars, and I think it's great for people
Speaker 4: to have a set of choices.
Speaker 2: Steve Ratner is going to be staying with us as
Speaker 2: we turn to the broader question of investing in a
Speaker 2: world of higher rates and higher geopolitical risk. That's the
Speaker 2: next time on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 3: This is Wall Street Week. I'm David Weston.
Speaker 2: Steve Ratner Will Advisors is still with the So, Steve,
Speaker 2: we love to talk about investing. Get your thoughts. You
Speaker 2: have an awful lot of money you're responsible for putting
Speaker 2: to work.
Speaker 3: So give us your.
Speaker 2: Sense, particularly right now, with higher interest rates for longer,
Speaker 2: something that you anticipated on Wall Street we a couple
Speaker 2: of years ago, it's come to pass. How is that
Speaker 2: affecting your investment decisions?
Speaker 4: Yeah, I think we do have higher interest rates for longer,
Speaker 4: and we have been cautious about the equity markets for
Speaker 4: some time. Obviously that was not completely correct last year
Speaker 4: in the first few months of this year, but I'm never.
Speaker 3: Going to get it exactly right.
Speaker 4: I feel comfortable with being in a somewhat defensive posture.
Speaker 4: I think I've said on this program before, we pivoted
Speaker 4: a lot toward credit because the risk award ratio between
Speaker 4: credit and equities had really narrowed dramatically with interest rates
Speaker 4: going higher and giving us a lot of opportunity and credit,
Speaker 4: and that is still our position. The market has remained
Speaker 4: more resilient in the face of a rising ten year
Speaker 4: for the first part of the year than I would
Speaker 4: have predicted the last week or so. Obviously this month,
Speaker 4: even the market is certainly taking into account the fact
Speaker 4: that the probability of FED rate cuts I think is
Speaker 4: close to zero for the balance of the year, and
Speaker 4: so we're going to maintain a reasonably defensive position.
Speaker 3: What are you if it's going to do?
Speaker 4: I would take slight Larry Summers didn't say exactly what
Speaker 4: he was The headline said he said, but what I
Speaker 4: think he actually said was a fifteen to twenty five
Speaker 4: percent chance that the next move was up. And I'm
Speaker 4: going to take the other side of that bet. I
Speaker 4: think for the Fed to raise interest rates in this environment,
Speaker 4: election year, no election year, Leome politics aren't even part
Speaker 4: of it. I think it's would take an enormous market upheaval,
Speaker 4: a revolt against the inflation numbers we're seeing now. That said,
Speaker 4: the inflation numbers are not good. Inflation really does seem
Speaker 4: stuck in the three and a half to four percent range.
Speaker 4: Real wages, nominal wages arising a bit faster, which is
Speaker 4: good for real wages, which is good for the real economy,
Speaker 4: but doesn't really help you get inflation down, may keep
Speaker 4: it from going up some more, and so the Fed
Speaker 4: at some point may face a tough choice. There's no
Speaker 4: question that the economy has been more resilient into higher
Speaker 4: interest rates than anybody probably would have predicted, and Fed
Speaker 4: at some point is going to have to deal with that.
Speaker 2: Now, one of the things voke Larry one more time
Speaker 2: has sat in this program more than once. Is part
Speaker 2: of the reason why the economy seems to be more
Speaker 2: resistant higher interstrateges is because he thinks that neutral rage,
Speaker 2: which we can't exactly calibrate, is higher than what the
Speaker 2: Fed thinks it is. Where are you in terms of
Speaker 2: the longer term, not just what happens this year, but
Speaker 2: in the longer term, are we looking at a higher
Speaker 2: interest rate environment? And yes, in higher inflation environment, we're
Speaker 2: not talking about two percent, we're talking two and a half.
Speaker 3: We're talking at three.
Speaker 4: Well, I'm going to leave the theory of all this
Speaker 4: to Larry and Olivia Blanchard and all the real economists
Speaker 4: to sit there and debate our start and all this
Speaker 4: kind of stuff. But look, if you assume inflation is
Speaker 4: even two percent in the long run, and you assume
Speaker 4: investors want something like a two to three percent term
Speaker 4: premium for taking the risk of what might happen over
Speaker 4: a ten year or twenty or thirty year period, then
Speaker 4: four or five percent interest rate on a risk free
Speaker 4: basis is not unreasonable. And so I think we all
Speaker 4: got a lot spoiled. We're worried about the other side,
Speaker 4: the secularstagnation side during the during their first part of
Speaker 4: the century. But now we're facing the opposite issue, and
Speaker 4: I think we have to expect interest rates to hire
Speaker 4: for longer, and that's a shock to the system, especially
Speaker 4: for first time home buyers.
Speaker 2: A shock to the system. One that may explain perhaps
Speaker 2: your tency sy. Let's take a look at credit, because
Speaker 2: in that world, credit might be a little bit more
Speaker 2: attractive because there's a higher yield than for example, stocks,
Speaker 2: to have a higher discount rate. At the same time,
Speaker 2: as you said, private credits really interesting, is that getting
Speaker 2: crowded because an awful lot of people are talking.
Speaker 3: In private credit right now. It has gotten crowded.
Speaker 4: Partly there's always supply and demand, and yes, it has
Speaker 4: definitely gotten more crowded. I think when probably we talked
Speaker 4: about it last time, was the sort of the golden
Speaker 4: moment where you had high base rates and you had
Speaker 4: high spreads and we were able to put money to
Speaker 4: work at ten percent on a floating rate basis in
Speaker 4: really secure credits, and that seemed to us to be
Speaker 4: an exceptional opportunity. Base rates are still exactly the same,
Speaker 4: but the spreads have narrowed one hundred and two hundred
Speaker 4: basis points a bit. The banks have gotten a little
Speaker 4: less worried about their own situation. They've come back in
Speaker 4: the market, and as you said, there have been a
Speaker 4: slew of private equity funds raised out there to do
Speaker 4: private credit, and the demand hasn't quite been as strong.
Speaker 4: Private equity is still pretty slow business at the moment,
Speaker 4: and so the demand hasn't been quite as strong, and
Speaker 4: so we haven't certainly reduced our private our private credit,
Speaker 4: or any of our credit, but it's got certainly gotten
Speaker 4: harder to find new things to do.
Speaker 2: To add Steve tals U about geography, we talked about
Speaker 2: in the past, We talked about China ed various times.
Speaker 2: Your views have changed someone on that is, by the
Speaker 2: way investors views have changed. As I look at the numbers,
Speaker 2: what is attractive to you now right now?
Speaker 4: Geographically, I think the US is still a pretty extraordinary,
Speaker 4: pretty extraordinary place. The performance of this economy in the
Speaker 4: face of everything going on here in the world and
Speaker 4: so on, none of us, as I said, would likely
Speaker 4: have predicted this four percent inflation three and a half.
Speaker 4: It's not great, but it's not cataclysmic, and hopefully we
Speaker 4: can get that down. But you have decent consumer spending
Speaker 4: numbers that just came out this week. You have incredible
Speaker 4: jobs numbers, as I said, you have real Way just
Speaker 4: still going up a bit. I think the tech community
Speaker 4: has kind of pulled itself together AI, which we can debate.
Speaker 4: It's a little bit like EVS. You can debate is
Speaker 4: it going to be big, is it going to be medium, whatever,
Speaker 4: but it's going to be something. And the US is
Speaker 4: clearly the leader by a wide margin in AI, and
Speaker 4: so I still feel very optimistic here. China has become
Speaker 4: a value stock basically that you can buy very quality
Speaker 4: companies at ten times PE's that are still growing reasonably,
Speaker 4: and that is just very attractive. The political risk is
Speaker 4: enormous and it's scary, and I would certainly not want
Speaker 4: to be a China at the multiples that we're there
Speaker 4: two or three years ago, and we wouldn't be if
Speaker 4: they were. I was just in India a few months ago. Definitely,
Speaker 4: I think they're finally getting it together. But that stock
Speaker 4: market has had a pretty big run, and so it
Speaker 4: feels like it a bit price to perfection. And Europe,
Speaker 4: as I've said many times on this show and elsewhere
Speaker 4: is really not great for a whole slower reasons.
Speaker 3: I'm not getting better.
Speaker 4: They've just got one challenge after another and they're not
Speaker 4: dealing with it terribly well. But they've also got a
Speaker 4: tough hand to play, and so we've been very, very
Speaker 4: absent from Europe.
Speaker 2: You didn't mention Japan because we have some people come
Speaker 2: on the program and say, Japan really is an opportunity
Speaker 2: again where it wasn't for many many years.
Speaker 3: Are you seeing as a potential opportunity. I should have
Speaker 3: mentioned Japan.
Speaker 4: I was also there in the last six or eight months,
Speaker 4: and it's a bit like India. It's definitely come back,
Speaker 4: gotten itself together for the first time. You've got wages growing,
Speaker 4: you've got the economy growing.
Speaker 3: But again you've.
Speaker 4: Got the problem that the stock market does a pretty
Speaker 4: good job of anticipating this sort of stuff, and so
Speaker 4: the stock market has had a strong run, and so
Speaker 4: it makes you a little cautious. The end has obviously
Speaker 4: had a big depreciation against the dollar, which in a
Speaker 4: way could be attractive if you want to bet on
Speaker 4: the end or hedge it, I guess. But so we've
Speaker 4: been we find Japan interesting, but a bit like India
Speaker 4: might be a little bit late to the party.
Speaker 2: Steve, it's such a treat having you here. Thank you
Speaker 2: so much of the time. That's Steve Rattner of will
Speaker 2: It Advisors. Conventional Wisdom, Paul Krugman writes, very heavily tends
Speaker 2: to reflect the preferences and the interests of the elite.
Speaker 2: A fair number of those preferences of the elite are
Speaker 2: being upset these days, like the preference for investing in iPhones.
Speaker 14: The overall theme this time around is a nearly ten
Speaker 14: percent shipment decline on an annual basis for Apple. It's
Speaker 14: the most significant decline of any of the phonemakers they track.
Speaker 14: It indicates that Samsung is back in the number one
Speaker 14: global sport ohone sales position, or.
Speaker 2: The preference for buying a new Tesla, which it turns
Speaker 2: out isn't strong enough to justify all those employees.
Speaker 15: This is a company that ended last year with over
Speaker 15: one hundred and forty thousand people, so assuming this is
Speaker 15: company wide, we know it's a global According to Musk's
Speaker 15: email to staff, that would be more than fourteen thousand
Speaker 15: p people.
Speaker 2: Things are certainly changing in the oil industry, as long
Speaker 2: as most of us can remember, the world has had
Speaker 2: something of preference for Middle Eastern oil, judging by how
Speaker 2: much it's bought. But now we learn the United States
Speaker 2: has actually passed Saudi Arabia, not to mention Russia as
Speaker 2: the largest global oil producer. Speaking of Russia, there was
Speaker 2: a day when we knew for certain the Republicans were
Speaker 2: the ones to be the toughest on the Russians.
Speaker 16: The ideas of freedom now are on trial. If they
Speaker 16: don't work, there will be a reversion to not communism,
Speaker 16: which has failed, but what I call a new despotism,
Speaker 16: which would pose a mortal danger to the rest of
Speaker 16: the world because it would be infected with the virus
Speaker 16: of Russian imperialism, which of course has been a characteristic
Speaker 16: of Russian foreign policy for centuries.
Speaker 2: But now we have the de facto leader of the
Speaker 2: Grand Old Party inviting mister Putin to invade European countries
Speaker 2: if they don't pay as much as he'd like on defense.
Speaker 5: You didn't pay your delinquent, he said, yes, let's say
Speaker 5: that happened.
Speaker 3: No, I would not protect you.
Speaker 8: In fact, I would encourage them to do whatever the
Speaker 8: hell they want.
Speaker 3: You gotta pay you gotta pay your bills.
Speaker 2: And maybe the biggest surprise of them all comes from
Speaker 2: the world of college sports. Until now, we thought we
Speaker 2: knew that, for whatever reason, audiences prefer to watch their
Speaker 2: college basketball played by men rather than women. But thanks
Speaker 2: in large part to Caitlin Clark, those days are gone.
Speaker 2: Her University of Iowah Hawkeyes battled South Carolina for the
Speaker 2: national championship in front of eighteen point seven million viewers,
Speaker 2: which was not only more than watched any other men's game,
Speaker 2: it was the largest audience for any basketball game men's
Speaker 2: or women's, amateur or professional since twenty nineteen.
Speaker 16: That's the next evolution of college women's best way.
Speaker 2: Now, Ms Clark heads on to start for the Indiana
Speaker 2: Fever of the WNBA, and we'll all get to see
Speaker 2: what magic she can work.
Speaker 17: There, no matter what the opponent was. I prepped the
Speaker 17: exact same way. I prepared the same way. I brought
Speaker 17: the same fire, I brought the same energy, And I
Speaker 17: think that's the biggest thing going in the into my
Speaker 17: w n B A career.
Speaker 3: That does it.
Speaker 2: For this episode of Wall Street Week, I'm David Weston.
Speaker 2: This is Bloomberg.
Speaker 3: See you next week.
Speaker 17: Yeah, h
Speaker 6: H