Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
Speaker 1: Bloomberg Quick Takes Tim Stanovk. We're here every day bringing
Speaker 1: you the latest news from the world of business and finance,
Speaker 1: plus technology, politics, economics, all partnising the power of Business
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Speaker 1: pm Eastern Time on Bloomberg Radio, or watch us on
Speaker 1: YouTube search Bloomberg Global News. We've got some good news
Speaker 1: and some bad news. We'll start with the good news.
Speaker 1: Rental inflation could be close to topping out this after
Speaker 1: it advanced almost six percent in the twelve months through July.
Speaker 1: There's also some bad news, though. Those high prices are
Speaker 1: going to be around for a while, because it could
Speaker 1: take a while to settle back down to anything resembling
Speaker 1: what we saw before the COVID pandemic. So it, writes
Speaker 1: Matt Bosler, Federal Reserve reporter for Bloomberg News. He joins
Speaker 1: us now on the phone from New York City. Follow
Speaker 1: him on Twitter at bo E s Underscore. Matt, good
Speaker 1: to have you with us. How are you good? Thanks
Speaker 1: for having me, Yeah, it's always great to chat fed
Speaker 1: with you. And of course, um economic data CPI coming
Speaker 1: at us tomorrow. So this is a really important one.
Speaker 1: Why is why is our housing prices so important to watch? Like?
Speaker 1: How does it give us an idea of where inflation
Speaker 1: is going? Yes, so a couple of reasons. Um, you know,
Speaker 1: first of all, the big one is just that rental
Speaker 1: inflation is the biggest component in the overall consumer Price Index,
Speaker 1: so you know, as goes rental inflation, so goes to
Speaker 1: c p I. Another reason is that it tends to
Speaker 1: be the most persistent uh component of the CPI for
Speaker 1: month to month, right, so you don't get these wild
Speaker 1: swings month in and months out where rent is plunging
Speaker 1: one month and then surging. The bactive is pretty persistent
Speaker 1: and so it kind of gives you know, further impetus
Speaker 1: to that underlying trend. Um. And then probably the third reason,
Speaker 1: which is important for a lot of people who work
Speaker 1: in financial markets, is that, um, you know, it's really
Speaker 1: important to the Federal Reserve and you know, both because
Speaker 1: it drives the overall cp I. And also because you know,
Speaker 1: the FED tries to get a sense of underlying inflation
Speaker 1: by slicing the indicing the numbers. You know, people may
Speaker 1: have heard of the median or trim means CPI measures
Speaker 1: by now, because you know, share Jerome Powell and other
Speaker 1: FED officials like to cite them. Those measures all tend
Speaker 1: to be dominated by rent as well, because you know,
Speaker 1: the more you chop out of the CPI, the bigger
Speaker 1: and bigger that biggest component still left over becomes an
Speaker 1: overall importance. And so that's why rental inflation really kind
Speaker 1: of holds the key to the trajectory for for both
Speaker 1: inflation and FED policy going forward. Yeah, man, I wonder
Speaker 1: what do we know much about what the drivers of
Speaker 1: rent inflation are? I mean, I'm assuming this massive run
Speaker 1: up in housing prices, Uh, since the pandemic is a
Speaker 1: big part of it is, is that the main driver
Speaker 1: of of high rent inflation? Do you think? Yeah? So
Speaker 1: it's interesting because you know, I think before the pandemic,
Speaker 1: a lot of people used to look at things like
Speaker 1: house prices. Um. House prices have become definitely more disconnected
Speaker 1: from rent during the pandemic just because you know, house
Speaker 1: prices are up so much and we haven't really seen
Speaker 1: the same kind of reaction in rents. You know, another
Speaker 1: big driver is wage growth. Rental inflation tends to track
Speaker 1: wage growth really closely over time UM, which just kind
Speaker 1: of gives you a sense of you know, landlords uh
Speaker 1: sort of power and being able to um, you know,
Speaker 1: capture that marginal increase in income you know, among the workforce. UM.
Speaker 1: And you know, lately more forecasters have been turning to
Speaker 1: just you know, estimates of market rents, things that are
Speaker 1: put out like by companies like Zillo and apartment list
Speaker 1: on UM, you know, what's happening to the prices of
Speaker 1: new leases. And it turns out the way that the
Speaker 1: rental inflation component in the CPI is constructed, it tends
Speaker 1: to lag those estimates produced by some of those other
Speaker 1: shops like Zoo and apartment lists by six to twelve months.
Speaker 1: And so that's actually an even zier way UM for
Speaker 1: forecasters to kind of get a sense of where, you know,
Speaker 1: the CPI component of rental inflation is going. Okay, So Matt,
Speaker 1: give us an idea of the things to watch for
Speaker 1: to understand if if well, if if rental prices are
Speaker 1: going to start coming down, I mean, what could you
Speaker 1: say to people who are listening right now who just
Speaker 1: got that note from their landlord that rent is going
Speaker 1: to go up? Because I've heard stories about people getting
Speaker 1: their rent raised like, you know, four dollars a month,
Speaker 1: you know, when they renew their lease. Um, what is
Speaker 1: it going to take for those prices to come down? Yeah, So,
Speaker 1: you know, obviously it's been crazy, especially in a lot
Speaker 1: of the big cities, but really across you know, the
Speaker 1: entire country this this year and last year. So you know,
Speaker 1: basically what those private sector measures of rental inflation are
Speaker 1: showing is that, um, you know, rental inflation really peaked
Speaker 1: earlier this year and has started to moderate. Now. The
Speaker 1: problem is that you know, that's looking at new leases,
Speaker 1: right so when you move, you might have been facing
Speaker 1: double digit increases this year and last year. This thing
Speaker 1: about the CPI is that's measuring um, you know, rental
Speaker 1: inflation for everyone and not just people who are moving, um,
Speaker 1: you know, in one given month or year, and so
Speaker 1: people tend to stay put and that's why the measures
Speaker 1: of new lease growth, um, you know, tend to filter
Speaker 1: much more slowly into the CPI, and so that's why
Speaker 1: the CPI component of rental inflation probably unfortunately, is going
Speaker 1: to stay elevated for quite some time, even if it's
Speaker 1: close to topping out here, because um, you know what
Speaker 1: happens is you might stay in your apartment for another
Speaker 1: year or two and you might face you know, some
Speaker 1: rent increase. But you know, then when you move out,
Speaker 1: that's when the landlord really jacks up the price to
Speaker 1: to capture that full increase that we've been seeing in
Speaker 1: new leases, which is unfortunately why this is this is
Speaker 1: probably going to be with us for a while. All right, now,
Speaker 1: we're gonna have to leave it there. It's actually a
Speaker 1: party on Saturday night for people who are moving away
Speaker 1: from the city. They lived in the same apartment for
Speaker 1: seven years and their neighbor came over and was like,
Speaker 1: the landlord is going to check the rent so much
Speaker 1: when you guys leave. Matt Bosler's fet a reserve reporter
Speaker 1: for Bloomberg News, joining us on the phone from New
Speaker 1: York City. You're listening to Bloomberg Business Week with Carol
Speaker 1: Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.
Speaker 1: Well You might remember last year when otto Home was
Speaker 1: approved by the FDA. It's an Alzheimer's treatment. The whole
Speaker 1: approval process was pretty controversial, and we'll get to that
Speaker 1: in just a minute. But it's also a really expensive
Speaker 1: drug and now it's leaving millions in limbo. Writing about
Speaker 1: that in the upcoming issue of Business Week magazine is
Speaker 1: Bob Langreth, his healthcare reporter for Bloomberg News. He's with
Speaker 1: us right now in the Bloomberg Interactive Broker Studio. We're
Speaker 1: also joined by Joel Webber, the editor of Bloomberg business Week,
Speaker 1: in the Bloomberg Interactive Broker Studio. You can follow both
Speaker 1: of these guys on Twitter. Joel is at Joel Webber
Speaker 1: Show and Bob Langreth is at Robert Langrith on Twitter. So, Joel,
Speaker 1: give us an idea of why this whole thing is
Speaker 1: such a mass because I remember when it was approved,
Speaker 1: it was seen as like a really good sign, but
Speaker 1: then all this came back about the approval process. Backlash
Speaker 1: is a good way to describe it. Yeah. Uh, Well,
Speaker 1: Biogen is probably the character at the center of this,
Speaker 1: which is Upstart biotech pharma company, and they have been
Speaker 1: really all over the Alzheimer space, and this was a
Speaker 1: you know, viewed by some quarters as a breakthrough treatment
Speaker 1: and and to that end, what was interesting about it
Speaker 1: was that backlash, right because at first everyone was very
Speaker 1: hopeful about it, and then all of a sudden it
Speaker 1: was like wait a second, and then it got really
Speaker 1: confusing for us normal people. Um, and that's why we
Speaker 1: were like, Bob, Bob, can you help us make sense
Speaker 1: of this? And and you know that I think the
Speaker 1: main thing to know is that this is there are
Speaker 1: you know, so many people affected by this, and there's
Speaker 1: just been a dearth of anything right, and so a
Speaker 1: semblance of hope, uh matters And and therefore it also
Speaker 1: plays with a lot of emotions and and where's the
Speaker 1: science out again, Bob? So that's been the whole problem
Speaker 1: with this whole saga of aging helm. It was supposed
Speaker 1: to be kind of the drug. There's this leading theory.
Speaker 1: The disease is called amiloid. I won't go into the details,
Speaker 1: but anyway, it's been really controversial for years, and amage
Speaker 1: helm was supposed to be the drug was going to
Speaker 1: finally answer the question whether these drugs targeting this amiloid,
Speaker 1: this protein that builds up in the brain, whether it
Speaker 1: actually does something, whether it works, and they were doing
Speaker 1: the giant definitive trials there and they're supposed to get
Speaker 1: a definitive answer and then they cut them short, said
Speaker 1: it failed. Then they said, wait a second, we think
Speaker 1: it works. We're gonna apply for approval. That it was
Speaker 1: approved and everyone thought was going to be a big seller,
Speaker 1: and then then there's this big backlash, massive backlash and
Speaker 1: what what are you doing approving and a lot of
Speaker 1: a lot of doctors were quite upset about that. And
Speaker 1: then Medicare, which has covers almost everyone with Alzheimer's, basically
Speaker 1: one of one of the first times in history, said hey,
Speaker 1: you know, you know, we're not gonna, you know, cover
Speaker 1: this outside of the clinical trial because it's just not
Speaker 1: any real proof that it works. And so like everyone's
Speaker 1: now kind of like in limbo, no one knows quite
Speaker 1: what to do or you know, no one really even
Speaker 1: knows whether this thing works or not. And so we
Speaker 1: now to wait for like yet more studies from other
Speaker 1: drug companies that are working on similar things to try
Speaker 1: to finally get some answers. But it's like the whole
Speaker 1: fields kind of at a stand so still while we
Speaker 1: kind of like work this out. It's just a very
Speaker 1: sad situation. So, Bob, I'm just curious, how does a
Speaker 1: drug get through the clinical trial process and get approved
Speaker 1: if it doesn't seem like it works necessarily well? And
Speaker 1: uh yeah, the whole situation with Adella, it's just like
Speaker 1: bizarre and hard to understand and just very confusing. Uh.
Speaker 1: But they basically, I mean appears like the FDA essentially
Speaker 1: kind of wanting tired of not approving Alzheimer's drugs. And
Speaker 1: you know, this is my perception. I don't direct prove
Speaker 1: of this, but you know, yeah, they kind of wanted
Speaker 1: to approve something, and then this came along, and then
Speaker 1: it became apparent. They originally tried to get approved through
Speaker 1: the regular mechanisms that became apparent. Then they went through
Speaker 1: a public advisory panel like doctors. It was roundly rejected.
Speaker 1: So then the FDA kind of found a backup way
Speaker 1: to approve it. There's mechanisms called accelerated approval where you
Speaker 1: don't actually have to show that it slows the disease
Speaker 1: or improved symptoms. It just improves a biomarker in this case,
Speaker 1: so that they could show it like improve your brain
Speaker 1: scam look better, look prettier. But there was no evidence that,
Speaker 1: no proof that you actually over your content decline with
Speaker 1: slowing down. But your brain scam did look better, and
Speaker 1: that's how it got approved. Okay, So if you weren't
Speaker 1: confused to begin with, we might be even more confused
Speaker 1: because there's a whole another wave of Alzheimer's drugs coming
Speaker 1: from other drug manufacturers. So so what are you looking
Speaker 1: for as we start to see results from these other candidas. Yeah,
Speaker 1: so it's going to be a very interesting fall because
Speaker 1: there's two more a big drug trials coming of similar
Speaker 1: drugs to add a helm. One is from Bob's partner,
Speaker 1: a size Japanese drug company. It invented like one of
Speaker 1: the first Alzheimer's pills ever, this drugg called air Accept
Speaker 1: three years ago and it's been trying to come up
Speaker 1: with a better successor ever since then. So they have
Speaker 1: a giant trial that's supposed to report results potentially as
Speaker 1: soon as the end of this month and maybe early October.
Speaker 1: And then Roche, they big got Swiss drug company also
Speaker 1: is another giant trial. They have taken a drug that
Speaker 1: previously failed uh and then up to dose five times
Speaker 1: five times higher dose, saying they think that dose finally
Speaker 1: might work and you know, we'll see. But if you know,
Speaker 1: both these things don't work, there's really going to have
Speaker 1: to be a big, big reassessment in the drug industry.
Speaker 1: Why they've put like so much attention on like one theory,
Speaker 1: one on one mechanism instead of spreading the bets and
Speaker 1: diversifying because you know, no one knows for sure, like
Speaker 1: what's going to finally work, and why, you know, why
Speaker 1: not spread your bets and tried a lot of different
Speaker 1: ideas because you never know what's finally gonna work. Bob,
Speaker 1: you put a real human element in the lead of
Speaker 1: the story, a woman named Jerry Taylor who's actually Alzheimer's patient. Uh,
Speaker 1: she had a lot of hope for this drug. Um,
Speaker 1: how's she doing? Is it helping her at all? Well,
Speaker 1: you know, and anyone patient, it's really you know, impossible
Speaker 1: to tell whether particularly drug, you know, it's helping you
Speaker 1: at all, because if these drugs work, you know, they're
Speaker 1: gonna slow that the slow the progression a little bit.
Speaker 1: They're not gonna halt it. It's very very clear if
Speaker 1: they work at all, it's gonna be a very modest effect,
Speaker 1: so it's really hard to tell. She thinks and her
Speaker 1: husband thinks, you know, if she was on it for
Speaker 1: years through a clinical trial, they think, you know, it helped,
Speaker 1: but she's clearly you know, progress. But there you know,
Speaker 1: they're kind of her and her husband, they're like activists
Speaker 1: and they're really pushing for approval and coverage and they
Speaker 1: also like are trying to encourage the drug companies remaining
Speaker 1: drug companies that keep going to you know, get some trials.
Speaker 1: But it's just a very hurd story. Is just a
Speaker 1: very poignant story because there's so little out there for
Speaker 1: this time. I wonder, is that the type of thing
Speaker 1: if you got it early enough that maybe the the
Speaker 1: benefits would be be greater. Yeah, So that's what they're
Speaker 1: looking into. Now. They're looking into like pure prevention, like
Speaker 1: they're they're finding people with abnormal brain scans uh and
Speaker 1: seeing if any of these drugs can actually prevent the
Speaker 1: disease from progressing into cognitive decline like before you actually
Speaker 1: have any obvious symptoms. But the problem that's going to
Speaker 1: take another at five, six, several years to find that out.
Speaker 1: So that's just in the very earliest stages. But that's
Speaker 1: exactly where a lot of the research is going right now.
Speaker 1: And just backing up to, you know, again this pipeline
Speaker 1: of all these other things that are coming, are they
Speaker 1: all using effectively the same approach that that is already
Speaker 1: up there now or are they going to different Yeah,
Speaker 1: so we're starting to see the beginnings of a shift,
Speaker 1: and some critics of the way he thinks would may
Speaker 1: you know, would probably say it's long overdue. But we're
Speaker 1: starting to the beginnings of the shift. And you know,
Speaker 1: drug companies focusing some of the research more broadly and
Speaker 1: different theories of disease and different mechanisms of the disease.
Speaker 1: In particular, brain information is one area that's getting a
Speaker 1: lot of focused now and drugs going into trials, and
Speaker 1: that may be the thing that's actually killing nerve cells,
Speaker 1: not the emily that builds up years and years before.
Speaker 1: Bob Langrath his healthcare reporter for Bloomberg News. Check out
Speaker 1: Bob's story. It's in the upcoming issue of Business Week magazine.
Speaker 1: You can read it now though on the Bloomberg terminal
Speaker 1: and also at Bloomberg dot com slash business Week. It's
Speaker 1: called the Alzheimer's drug approval. Mess is leaving millions in limbo.
Speaker 1: We're also very pleased this afternoon to be joined by
Speaker 1: Joel Webber, the editor of Bloomberg Business Week. He's also
Speaker 1: with us in the Bloomberg Interactive Broker Studio. Follow Joel
Speaker 1: on Twitter at Joel Webber Show, and also be sure
Speaker 1: to follow Bob on Twitter as well. Robert Langworth at
Speaker 1: Robert Langworth is his handle. This is Bloomberg Business Week
Speaker 1: with Carol Messer and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. Well, you might remember the last hour, I
Speaker 1: talked a little bit about this on our simulcast. Today's
Speaker 1: Big Take, it's about the world's hottest housing markets are
Speaker 1: facing a painful reset. We're talking about places like Vancouver
Speaker 1: and Toronto in Canada, and then also places including Australia
Speaker 1: and other parts of the world. The story written by
Speaker 1: Ainsley Thomas and the Karen and edited by Kara Wetzel,
Speaker 1: our San Francisco bureau chief. She joins us right now
Speaker 1: on the phone from our San Francisco bureau. Kara, great
Speaker 1: to have you with us this afternoon. So, so, what
Speaker 1: are the themes that sort of tie these housing markets together.
Speaker 1: And where are we talking here, because not every single
Speaker 1: housing market is created equal. Yes, that's right, great to
Speaker 1: be here. Uh. The really, you know, the sort of
Speaker 1: the markets that were really in focus on are the
Speaker 1: ones that were just have and hugely bubbly lack of
Speaker 1: the better word, over the past few years of the
Speaker 1: pandemic boom. This is Australia and New Zealand, Canada, where
Speaker 1: investing in real estate just became a huge phenomenon. You know,
Speaker 1: you've seen price gains of plus per year and you
Speaker 1: know not apparently those are the ones that suddenly are
Speaker 1: rapidly cooling because now that we have this synchronized you know,
Speaker 1: interest rates from central banks around the world, um, borrowing
Speaker 1: costs are going up everywhere, and you have this combination
Speaker 1: of now prices or at record levels or were at
Speaker 1: record levels, and borrowing costs are now just wagh out
Speaker 1: of people's reach. So they're having the quickest come down now.
Speaker 1: You know, Kara, when I read about potential double digit
Speaker 1: home price declines, I kind of have a nasty flashback
Speaker 1: to uh, you know about twelve thirteen years ago and
Speaker 1: the financial crisis. I mean, you covered that, right, so
Speaker 1: if you're like, it's a little close to home for you,
Speaker 1: some chills up the spot a little bit. Yeah, but
Speaker 1: I'm wondering. I mean, so much has been done in
Speaker 1: the US to safeguard the financial system, and we've really
Speaker 1: moved away from those adjustable rate mortgages in the US
Speaker 1: that we're part of the problem back then. But I
Speaker 1: get the impression the rest of the world is still
Speaker 1: more exposed to adjustable rate mortgages than we are in
Speaker 1: the U. S Is that is that true? And you know,
Speaker 1: are there concerns out there about um some sort of
Speaker 1: ripple effects from a drop in property values into the
Speaker 1: global financial system. Yes, that's absolutely true. So the U
Speaker 1: s um has vastly come away from addressable rate mortgages
Speaker 1: in the aftermath of the financial crisis. It's it's been
Speaker 1: about um seven percent is average of loans are in
Speaker 1: the past five years. And it makes sense because you know,
Speaker 1: rates have been so low, why would you not just
Speaker 1: lock in those rates? But the US is actually something
Speaker 1: I've just found and working on the story is pretty
Speaker 1: unique in terms of having you know, thirty year fixed
Speaker 1: mortgages or even fishing here that a lot of these
Speaker 1: countries they are just the mortgage system works by they
Speaker 1: have mortgages that may reset every year depending on you know,
Speaker 1: what central banks do or what um or they may
Speaker 1: even reset just based you know, monthly or just you know,
Speaker 1: just be directly tied. So that is definitely sort of
Speaker 1: what some of the concern is in some of these markets,
Speaker 1: like in New Zealand for instance, more than fifty mortgages
Speaker 1: are going to reset to a higher rate UM by
Speaker 1: next June. So yes, so these are it's not just
Speaker 1: you know, home buyers that are affected by the rising
Speaker 1: rates UM as it largely is here in the U S.
Speaker 1: It's also homeowners who now are going to be facing
Speaker 1: higher monthly payments on loans. In some cases if they
Speaker 1: bought you know, at very high levels, probably were already
Speaker 1: stretching to make you know, to pay for these things.
Speaker 1: And so yes, that that is the concern, and that
Speaker 1: brings ripple effects of consumer spending and other other types
Speaker 1: of things for these economies. So that's something you know,
Speaker 1: again as a central banker's way how much to race
Speaker 1: rates and the effects on the broader economy. That's something
Speaker 1: I think those bankers have to keep in mind. There.
Speaker 1: Kara is there any silver lining here with with with
Speaker 1: this sort of coming down from from the sky high prices.
Speaker 1: And I asked this question fully realizing that we're in
Speaker 1: an environment where interest rates are higher. So you know,
Speaker 1: even if houses become more quote unquote affordable, that monthly
Speaker 1: payment could be even higher than it was for a
Speaker 1: more expensive house because of interest rates. Yes, it could.
Speaker 1: But me, yes, this liver lining is that I think
Speaker 1: you know, we've all been witnessed to this real estate frenzy.
Speaker 1: I mean in the US as well, where you know,
Speaker 1: you're bidding wars and you have to fight you know,
Speaker 1: fifteen other offers to get a home and that's not
Speaker 1: healthy either, and so slowing that down and that's um,
Speaker 1: you know, not necessarily a problem, and it kind of
Speaker 1: puts us back toward normalization. And yes, if home prices
Speaker 1: do come down a bit, you know, if you're a homeowner,
Speaker 1: you're still sitting on a fair amount of equity. Prices
Speaker 1: have gone so much it's hard to cry too many
Speaker 1: tears for like, oh, um, you know my house gained
Speaker 1: twenty percent a year, is now only a ten percent
Speaker 1: from that figure. You're still you know, you're still doing okay.
Speaker 1: So maybe this provides an opportunity for you know, a
Speaker 1: bit of a cool down in the market and this abilization.
Speaker 1: I'm fascinating in the story Care that it says New
Speaker 1: Zealand was really the poster child of the pandemic housing boom. Well,
Speaker 1: what's going on there? Is it just a matter of
Speaker 1: the lowest interest rates? We're people flocking to New Zealand
Speaker 1: in the pandemic? Have you seen those pictures? I'm willing
Speaker 1: to flock there personally, right, and we're all going to
Speaker 1: move there right right us in Peter Thiel right, Yes, exactly. Um,
Speaker 1: it's part of it. I think it's just becomes a
Speaker 1: cultural thing that this is where people see they can
Speaker 1: build their wealth and um, it's it's a big investment play.
Speaker 1: And like it's just the culture of you know, you
Speaker 1: need to be a homeowner, and so everybody um flocked
Speaker 1: to it and it kind of builds on itself. I
Speaker 1: think a similar thing happened in Canada. It's just, um,
Speaker 1: you know, where people see the ability to build wealth
Speaker 1: that you need to buy a house, and and so
Speaker 1: in that extreme and and again and yes, and then
Speaker 1: this colliding at a time of low rates. Obviously the
Speaker 1: pandemic caused a lot of people to rethink how they're
Speaker 1: living and they need a bigger house to work from
Speaker 1: home and that type of thing. It was a bit
Speaker 1: of a you know, all these issues colliding. If we
Speaker 1: were if we were tabloid, we could have gone with
Speaker 1: the headline underwater down under Oh nice, Mike always thinking
Speaker 1: about headlines as senior editor for Bloomberg News. Carol Welzel,
Speaker 1: Hey care, great to have you with us. It's Scarrel Wetzel,
Speaker 1: San Francisco bureau chief for Bloomberg New. She joins us
Speaker 1: on the phone from our San Francisco bureau. Follow her
Speaker 1: on Twitter, you can do that at Kara Wetzel. You're
Speaker 1: listening to Bloomberg Business Week with Carol Messer and Bloomberg
Speaker 1: Quick Takes Tim Stinovic on Bloomberg Radio. Well, last week,
Speaker 1: President Biden took a victory lap on a lot of
Speaker 1: boost chip manufacturing. He attended the groundbreaking of Intel's new
Speaker 1: semiconductor manufacturing facility. It's just outside of Columbus, Ohio, totting
Speaker 1: one of his legislative wins in a crucial midterm election season.
Speaker 1: So why Ohio, And how does a partnership like this work,
Speaker 1: and how does Intel find the right people? After all,
Speaker 1: the facility is going to support three thousand full time jobs,
Speaker 1: that's according to Intel. For this we termed to J
Speaker 1: P NSC President and CEO of Jobs Ohio. It's the
Speaker 1: Economic Development Corporation. It's a private one for the state
Speaker 1: of Ohio. He joins us this afternoon from Dayton, JP.
Speaker 1: How are you doing great? Doing great? How are you doing?
Speaker 1: They were doing well? Thanks for joining us. So give
Speaker 1: us some color on on on how this went down,
Speaker 1: how how Intel chose Ohio and and and why you
Speaker 1: in your opinion, I mean, it's your job to play
Speaker 1: up the state. I mean you've got to be the
Speaker 1: biggest cheerleader for the state. Why you think Ohio was
Speaker 1: was picked as the site? So yes, it is my
Speaker 1: primary role. And you know, first thank you for for
Speaker 1: having us here today. Uh you know, those of us
Speaker 1: that have lived here for a long time in Ohio,
Speaker 1: you know we made the choice to buy into this
Speaker 1: value proposition. It's very interesting value proposition in the American Midwest,
Speaker 1: in particular in Ohio. But Intel, you know it's one
Speaker 1: of the It was the largest investment in Ohio history,
Speaker 1: the largest economic development project in the history of the
Speaker 1: state and for those of us that have been here
Speaker 1: a while, Uh, it was the type of project that
Speaker 1: always went somewhere else. You know, we've had steady outflow.
Speaker 1: You know, our population has been migrating lest in south
Speaker 1: really since after World War Two. NaSTA took a lot
Speaker 1: of our manufacturing south of the border and then was
Speaker 1: offshoring to Asia. So for decades, as the name rust
Speaker 1: Belt developed and Flyover State developed, this is something somewhat
Speaker 1: of a phenomena that's occurred those of us the state
Speaker 1: and stayed at it. Uh. We won because we've been
Speaker 1: working at this so hard during the tough times. Our
Speaker 1: economic development muscle has become very lean. But if you
Speaker 1: talk to until the reason we want According to them,
Speaker 1: we had a site available. The reason we had a
Speaker 1: site available as we've been investing in sites. This the
Speaker 1: Governor Dwine, Lieutenant Governor Houston made a priority to invest
Speaker 1: in sites. We have a very sophisticated private sector developer
Speaker 1: that worked hard to option the land required while the
Speaker 1: negotiation was going on, so they were incurring risk simultaneous
Speaker 1: to us negotiating. So we had a site available, big,
Speaker 1: complex site couldn't have vibrations, so it couldn't be close
Speaker 1: to a highway. Needed up to up to and more
Speaker 1: than a thousand acres to be compared to be prepared
Speaker 1: for expansion. Needed access to millions and millions and millions
Speaker 1: of gallons of water, a lot of the water in
Speaker 1: the process for semiconductors. We also intel tell us they
Speaker 1: were competent, We had the talent that they need they needed.
Speaker 1: You may not know this, but Ohio has over a
Speaker 1: hundred and fifty educational institutions, community colleges, private universities, public universities.
Speaker 1: I went to my wife wrot to the Ohio State University. Yeah,
Speaker 1: she would be very upset if I didn't say the
Speaker 1: Ohio States. So it's well known in our house. I'm
Speaker 1: sure it is, as we know from all the alumni
Speaker 1: that went there. I would do the University of Dayton,
Speaker 1: but you know, there's so many greats that our governor
Speaker 1: went to Miami University, great universities here, but we produced
Speaker 1: year a hundred and seventy seven thousand graduates, and up
Speaker 1: to this point, literally of those leave and go to
Speaker 1: other states. So we just we have a starting point,
Speaker 1: a multi tiered talent strategy where we're producing more STEM talent.
Speaker 1: You know, we have plans through innovation districts that the
Speaker 1: Governor Dwine announced to have three innovation districts that will
Speaker 1: triple the number of STEM degrees to come out of
Speaker 1: our state. We've got certification programs to certify existing workers
Speaker 1: so they can upgrade their skills and be available UH
Speaker 1: to work high high end UH manufacturing and manufacturing technologies. UH.
Speaker 1: And then you know, as as many people leave the
Speaker 1: coasts in other areas, they're not all going to Texas
Speaker 1: or to Nashville or Florida or to Denver. A lot
Speaker 1: of them quietly are coming to Ohio and HP I
Speaker 1: can I can't help but wonder if that being so
Speaker 1: close to the Ohio State University there in Columbus is
Speaker 1: part of what motivated UH in Intel to be attracted
Speaker 1: to this site. Am I right? That Intel is actually
Speaker 1: gonna be investing into some of the colleges and universities
Speaker 1: of Ohio. As part of this, Intel has announced that
Speaker 1: they're going to be investing fifty million dollars into a
Speaker 1: consortiumable Ohio universities to help develop a very specific type
Speaker 1: of talent they're going to need and it's a consortium
Speaker 1: of universities led by the Ohio State University Dr Christina
Speaker 1: Johnson outstanding leader. Uh there and yes, the at Dale
Speaker 1: Singer has mentioned Ohio State several times as primary strength. Again,
Speaker 1: as long as none of that goes to their football program.
Speaker 1: They got enough money that they do have enough money there. Hey, JP,
Speaker 1: we unfortunately have to leave it there, but you gotta
Speaker 1: come back and join us again. Really appreciate you taking
Speaker 1: the time this afternoon. Jpns c if A is a
Speaker 1: president and CEO of Jobs Ohio. It's the private economic
Speaker 1: development corporation in the state. Joining us on the phone
Speaker 1: from Dayton, Ohio Journal Yet, no, no, no, no no, honey, please,
Speaker 1: I'll do the ridels. I want to drive. It's good question.
Speaker 1: This is the drive to the globe. We'll drive up
Speaker 1: down on Bluebird Radio. It's that time already. We got
Speaker 1: less than tenants go until the market and closes. Let's
Speaker 1: drive to the clothes for that. We are joined by
Speaker 1: Max Wasserman, founder and senior portfolio manager at near O
Speaker 1: Mark Capital, joining us on the phone from Northbrook, Illinois. Max,
Speaker 1: how are you. I'm doing well, Thank you. How are
Speaker 1: you guys doing doing well? Thanks? Hey, we just heard
Speaker 1: from Charlie Pellett another rally that we're seeing. It's the
Speaker 1: fourth day in a row of gains for the S
Speaker 1: and P five hundred. Do we trust this rally? I'm
Speaker 1: very skeptical of this rally because everybody seems to be
Speaker 1: so confident in their ability to predict inflation and what
Speaker 1: the Fed's gonna do. So they're telling you they're going
Speaker 1: to be raising rates and it's not just that's because
Speaker 1: of peak inflation. They're gonna try to bring it down substantially.
Speaker 1: So I think they may be surprised, regardless of the
Speaker 1: outcome tomorrow with cp I, if the Fed says we
Speaker 1: raise interest rate seventy five and we're going to continue
Speaker 1: until we see substantial decrease. It's not just that it's peaking,
Speaker 1: but they want to see a decrease in inflation. Is
Speaker 1: that sort of your base case? Max that, uh, you know,
Speaker 1: we'll see seventy five basis points at the next meeting
Speaker 1: and then a continuation of that size hike for the
Speaker 1: foreseeable future. I think we will see if I'd be
Speaker 1: shocked that we don't do seventy five now considering that
Speaker 1: they've really come out the FEDS and said that they
Speaker 1: were going to be very aggressive after that. I think
Speaker 1: it's probably gonna be more in line with probably waiting
Speaker 1: for the data and more line of fifty and but
Speaker 1: regardless of that, keep in mind that the tapering comes off,
Speaker 1: so now you're gonna have basically bonds are not going
Speaker 1: to be supported by the Fed coming in September. So
Speaker 1: that's gonna should be raising interest rates. So I think
Speaker 1: it could be a one two punch that I think
Speaker 1: people are just a little bit too excited right now. Max.
Speaker 1: It's uh, it's great to have a guy like you
Speaker 1: on the show because so often we talk to strategists
Speaker 1: who are macro types who refused to talk about individual stocks.
Speaker 1: But I know you've got some stock picks for us,
Speaker 1: so I want to dive into them a little bit,
Speaker 1: especially as you're you know, you're talking about uh, you know,
Speaker 1: potential for even higher interest rates, presumably even higher mortgage rates.
Speaker 1: But yet home Depot is one of your picks, and
Speaker 1: I'm curious what you're seeing there and whether or not
Speaker 1: a potential cool down in the in the housing market
Speaker 1: effects how you're thinking about home Depot at all. Right, Well, first,
Speaker 1: you know we are approaches were dividend growth investors, So
Speaker 1: we're looking for companies to have the ability and crow
Speaker 1: their cash flows increased the dividend, have tremendous market share potential.
Speaker 1: If you look at home depot with a nine hundred
Speaker 1: billion dollar dressable market, there's a few things people need
Speaker 1: to keep in mind. One, there's about a hundred and
Speaker 1: thirty million houses out there and sent of them over
Speaker 1: twenty five years of age and over forty So regardless
Speaker 1: of what's happen, indeed, you need maintenance on these homes.
Speaker 1: And when you look at it from that perspective, we
Speaker 1: have underinvested in the upkeeping our homes for such a
Speaker 1: long period of time that that we think there's plenty
Speaker 1: of potential there and awesome we're looking at from this
Speaker 1: price point. We're looking at stock now around three hundred,
Speaker 1: that was four twenty at a peak, and it's down
Speaker 1: about thirty percent year to date, training at a market
Speaker 1: multiple about seventeen times a five year dividant growth rate
Speaker 1: of seventeen percent, So we think this risk reward is
Speaker 1: favorable now. It doesn't mean in the next month it
Speaker 1: couldn't come down a little bit more, but if we
Speaker 1: look at the low on this stock of somewhere around
Speaker 1: two sixty six, which is about another fifteen percent, and
Speaker 1: the upside well over thirty. We think somebody with a
Speaker 1: long term time rise in more than six months will
Speaker 1: be rewarded. Hey, Max, forgive me. We're gonna headline right
Speaker 1: now on the Bloomberg terminal. New Jersey raised to A
Speaker 1: from a minus by Fitch. The outlook is positive. Alright,
Speaker 1: finally some good news from my garden state, your home state, Mike.
Speaker 1: Let's lever her up. Time to lever her up. Hey,
Speaker 1: macks um, I don't have a good transition for that,
Speaker 1: but I want to talk to General Dynamics here because
Speaker 1: we just talked to him. Depot one of your picks,
Speaker 1: also General Dynamics another one. Why what's your justification here?
Speaker 1: And why are you bullish? Well again, consistency of earnings
Speaker 1: is with you know, General dynamics in the defense industry.
Speaker 1: People failed to remember that regardless of who's in power,
Speaker 1: Democratic Republican, it really doesn't affect the demand for defense
Speaker 1: spending in even economic times. So we have a continual
Speaker 1: demand for defensemending. And actually, in light of these political
Speaker 1: times and with Europe, rearming if you will. It really
Speaker 1: supports General Dynamics business is like, that's the nuclear subs.
Speaker 1: But on a positive note, there's a little tick on
Speaker 1: General Dynamics is zero space interest in the golf streams,
Speaker 1: and that's when you see people flying more hours, they're
Speaker 1: flying more demand for private jets by corporations and high
Speaker 1: net worth individuals, and that's where we see a tremendous
Speaker 1: potential is on that side of the business as well
Speaker 1: as defense. Well, I want to talk defense real quick.
Speaker 1: We have this great feature on the Bloomberg terminal SPLCU
Speaker 1: type end and you can see the supply chain for
Speaker 1: the company General Dynamics. This is shocking, Mike. The revenue
Speaker 1: comes from the US. Yeah, it makes sense. I guess
Speaker 1: all those those weapons systems and uh, but you know
Speaker 1: it's your point of MAXs. I guess. Uh, as long
Speaker 1: as these geo political tensions are flaring, Uh, there's not
Speaker 1: gonna be any politician anywhere with the stomach to cut
Speaker 1: the defense budget. Presumably. Well that yes, but these are
Speaker 1: long term contracts in nature. And also the fact that
Speaker 1: General Dynamics does the Marines, they do the nuclear subs,
Speaker 1: which are big demand. And also on their vehicles. You know,
Speaker 1: they have the Abram tanks right, and they have the
Speaker 1: Striker vehicles with Europe really wants a lot of these
Speaker 1: tanks and they want a lot of these vehicles, So
Speaker 1: that really demand for what to produce him. But in
Speaker 1: defense in general is a long term commit which which
Speaker 1: has the ability to pass inflation on. But general dynamics
Speaker 1: again has a little bit more cyclical sign with narrow space,
Speaker 1: which we think has been underestimated because of COVID, nobody
Speaker 1: was flying for a period of time, so for many
Speaker 1: years we didn't look to that side of the business
Speaker 1: to grow. But we're seeing more miles are being flown
Speaker 1: and the new upgrade in their fleet of the G
Speaker 1: five hundred, six hundred and the internationally eight hundred. I
Speaker 1: just saw some video of that cool two the G
Speaker 1: eight hundred. How much is that going to send me back? Yeah?
Speaker 1: But yeah, I mean it's spot to change for you.
Speaker 1: I can see your rolling up to work in that time.
Speaker 1: You gotta gotta figure out a place to land it
Speaker 1: down on like seventy two million. I wonder if that
Speaker 1: includes WiFi. I think they'll throw that in for you.
Speaker 1: Got taken along with maybe a Botle of Champagne. If
Speaker 1: you that is, I will tell you though, that is
Speaker 1: a cool looking plane. I saw some video of that
Speaker 1: recently at the Dender Airport. I mean it is pretty
Speaker 1: I would I would definitely take one mic um okay
Speaker 1: Max before I let you go. You got one more
Speaker 1: company in here that we want to talk about. GPC
Speaker 1: Genuine Parts Company. What's going on there? Yeah, that's a
Speaker 1: twenty two billion dollar market cap out of Atlanta, Georgia,
Speaker 1: and they people are familiar with them. They owned the
Speaker 1: NAPA Auto Centers and the joining of their business. Do
Speaker 1: it for you, So keep in mind one thing. You
Speaker 1: have about three hundred million cars out there that are
Speaker 1: over twelve years of age and they require about anywhere
Speaker 1: from eight hundred to a thousand year maintenance. And with
Speaker 1: rising interest rates, right, it's harder to buy new cars.
Speaker 1: They're expensive buying a new car, financing, trying to find
Speaker 1: a use cars becoming difficult. So people are repairing their
Speaker 1: cars and with the complication, they need somebody to do
Speaker 1: it for them. And they've been experiencing like a ten
Speaker 1: to twelve percent growth rate in that side of the business.
Speaker 1: And that's really where we see it. You know, if
Speaker 1: you look at with the e contim blowing down, you're
Speaker 1: gonna keep that car longer. And with twelve year average,
Speaker 1: you know you have a built in sort of annuity
Speaker 1: stream if you're general park because the people need to
Speaker 1: repair their cars. Max, we unfortunately got to leave it there,
Speaker 1: but please come back with us. This was great and
Speaker 1: also I can talk about jets for days, so pretty
Speaker 1: cool to hit on general dynamics there as well. Max Wasserman,
Speaker 1: founder and senior portfolio manager at near Mark Capital, joining
Speaker 1: us this afternoon on the phone from Northbrook. Ellen know It.
Speaker 1: Thanks for listening to Bloomberg Business Week. Download the podcast
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