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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Tom Keene along

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Speaker 2: with Paul Sweeney. Join us each day for insight from

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Speaker 2: the best in economics, finance, investment, and international relations. You

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Speaker 2: mornings from seven to ten am Eastern from our global

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Speaker 2: or anywhere else you listen. And always I'm Bloomberg Radio,

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Speaker 2: the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 3: Wendy Schiller, She's professor at Brown University, joining us this morning.

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Speaker 4: Wenny, thanks so much for joining us here.

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Speaker 3: I'd love to get your thoughts here on the selection

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Speaker 3: of jb as vice president candidate here.

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Speaker 4: What did you make of it?

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Speaker 5: Well, I mean, I think it's the smart but safe choice.

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Speaker 5: I think, you know, Ohio leans read in recent elections,

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Speaker 5: so it solidifies Ohio and it represents, you know, coherence

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Speaker 5: to the Republican platform. It's a missed opportunity as far

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Speaker 5: as I'm concerned, I think that Donald Trump had momentum

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Speaker 5: and then, of course, the tragic attempt on his life

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Speaker 5: and the loss of life at that rally gives him

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Speaker 5: a platform to extend the tent for the Republican Party.

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Speaker 5: So someone like Tim Scott, I think, would have appealed

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Speaker 5: not only to black voters for identity politics or descriptive

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Speaker 5: representation reasons, but also to independent voters who are looking

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Speaker 5: for signs that the Republican Party might be moderating somewhat

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Speaker 5: because they've rejected the most extreme candidates in recent elections. Well,

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Speaker 5: he's a missed opportunity.

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Speaker 2: To me, Wendy, I totally see what you're saying. To me.

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Speaker 2: There is a new acuity this morning. If Trump Vance

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Speaker 2: is going to go against Biden, Harris or something else.

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Speaker 2: Did that polarity in the Democratic Party change with this

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Speaker 2: announcement of JD. Vance.

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Speaker 5: Well, if anything, I think it doubles down on Kamala

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Speaker 5: Harris to continue to be the VP candidate, and possibly

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Speaker 5: if Biden steps aside, there's still a little bit of

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Speaker 5: time left for that for her to be the top

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Speaker 5: of the ticket. It becomes a very stark contrast between

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Speaker 5: a ticket that looks a little bit like the past

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Speaker 5: on the Republican side, and a ticket that looks much

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Speaker 5: more like America looks and the future. So I think again,

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Speaker 5: I'm not sure this does anything to woo back independent voters,

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Speaker 5: which is exactly what the Trump campaign needs to solidify

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Speaker 5: their lead and win the election. I mean, they're going

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Speaker 5: to get every Republican. They've solidified that Republicans are going

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Speaker 5: to be, and they're now counting on unenthusiastic Democratic Party

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Speaker 5: and turnout on that side and just core Republican turn

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Speaker 5: on their side.

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Speaker 3: So when do we sell president? Former President Trump makes

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Speaker 3: an entrance into the RNC convention yesterday with the patch

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Speaker 3: on his ear. What do you expect him to say

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Speaker 3: in his speech here? Do you expect a different tone

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Speaker 3: from this president? The suggestion seems to be that that

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Speaker 3: may be where he's leaning.

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Speaker 5: Well, I mean, he's certainly done a very good job

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Speaker 5: before this incident of staying disciplined, particularly on rerproductive rights

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Speaker 5: and abortion, promising no national ban. I mean that's where JD.

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Speaker 5: Vance's selection kind of contradicts some of his attempts to

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Speaker 5: moderate on abortion, which has been a real problem for

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Speaker 5: the GOP electorally. So that's the confusing part. Jdvans doubles

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Speaker 5: down and is very conservative on that issue. So how

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Speaker 5: do you explain that away? But you know, will he

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Speaker 5: say I've learned a lot about life. Will you get

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Speaker 5: personal emotional? You know, we'll have to wait and see.

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Speaker 2: I'm fascinated, Professor Schuller, how the former governor of South

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Speaker 2: Carolina adapts to this announcement. Tonight, I was joking with

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Speaker 2: Laura Davison, what percentage of the Republican floor is traditional

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Speaker 2: Republican versus MAGA? What would you suggest it is? I mean,

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Speaker 2: is is eighty percent of the floor the Five Serve

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Speaker 2: Center in Milwaukee MAGA? Is it a bigger number than that?

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Speaker 5: You know, imggink that number is probably right. You know,

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Speaker 5: there are always establishment Republicans that go to the convention,

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Speaker 5: so they're elected officials from all the fifty states in

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Speaker 5: the Republican Party, and not all of them are as

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Speaker 5: MAGA as Trump. So you know that percentage of the

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Speaker 5: delegates won't necessarily be MAGA dominated. But the House right now,

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Speaker 5: the Republican Party in the House, you'd have to say

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Speaker 5: one hundred and fifty of them are MAGA. And that's

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Speaker 5: going to change in the MAGA direction when we go

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Speaker 5: into twenty four because some of the retirements on the

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Speaker 5: Republican side in the House are more moderate. So I

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Speaker 5: do think it's a wholly owned MAGA Trump Party. And

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Speaker 5: now with JD. VANCEL get that's what they're doubling down.

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Speaker 2: So who's Haley talking to tonight besides you know what's

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Speaker 2: to come in twenty twenty eight. I mean, she's she's

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Speaker 2: speaking for a cabinet position.

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Speaker 5: I just don't know. You know, the fate of people

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Speaker 5: who align themselves with Trump is not usually good. You know,

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Speaker 5: they either you know, get indicted and go to jail,

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Speaker 5: or get indicted and don't go to jail, but they

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Speaker 5: fade away. I mean it's anybody outside himself doesn't always

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Speaker 5: do well by being associated with him. So it's a

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Speaker 5: bit of a political gamble. She's you know, what is

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Speaker 5: she doing trying to you know, keep her ties open,

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Speaker 5: keep it open. But now with a young JD. Vance

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Speaker 5: is the VP, you know that if Trump wins, that

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Speaker 5: pretty much crowds out almost everybody else where.

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Speaker 2: Did they go? I mean, Paul, that's the arch question.

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Speaker 4: Right, Yeah?

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Speaker 3: So I mean so when do you again, and what

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Speaker 3: do you expect? Is there anything new to come out?

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Speaker 3: Of this convention here, this RNC or is it just

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Speaker 3: Trump at moving this party forward?

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Speaker 5: Paul, I think what be new is if tonight's conversation

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Speaker 5: or rhetoric about immigration is not dehumanizing the way that

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Speaker 5: it's been about the southern border. In other words, Biden failed,

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Speaker 5: it's not secure. That's the rhetoric of the GOP. But

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Speaker 5: if you really start to say everybody's a criminal, et cetera,

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Speaker 5: et cetera, I think that turns off independence. So what

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Speaker 5: could be new here is if Trump can actually moderate

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Speaker 5: the Rhetorican language on immigration, which he's never done. But

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Speaker 5: if he can, that helps them a little bit with

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Speaker 5: independent voter. So what I'm looking for which is new,

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Speaker 5: is softening a little bit about the way that they

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Speaker 5: talk about these issues. I don't know if that will happen,

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Speaker 5: but I think it's a risk for the Repulican Party

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Speaker 5: not to do that.

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Speaker 2: What to listen for tonight, Wendy Schuler, Thank you so much,

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Speaker 2: Amy wo Silverman with RBC Capital Markets. Amy, there's a

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Speaker 2: right tail in the district the risk that we measure,

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Speaker 2: which is the goodness of a story. There's a left tail,

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Speaker 2: which is the angst. What does the left tail of

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Speaker 2: Nvidia look like.

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Speaker 6: The answer is the left tail isn't really up all

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Speaker 6: that much. You know, you're not having that much worry.

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Speaker 6: But importantly, the right tail has come in a lot.

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Speaker 6: So I think that's a big deal. In a name

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Speaker 6: where the right tail's actually been outweighing the left tail,

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Speaker 6: that's very unusual except for a name like in Nvidia.

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Speaker 6: So for that right tail that exuberants have come in

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Speaker 6: so much, I think that's important. We'll see how that

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Speaker 6: moves as we head into earnings.

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Speaker 2: As we head into earnings, for you, as a legit quant,

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Speaker 2: what part of fundamental earnings matters to a quant.

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Speaker 6: You know, I always go back tom to the variance

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Speaker 6: of a portfolio. It's like my favorite pet formula right

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Speaker 6: now because it always goes back to the breadth the

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Speaker 6: weight of the market. And we kind of know that

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Speaker 6: when you look at the math, the weight of tech

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Speaker 6: matters so so much.

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Speaker 3: Right.

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Speaker 6: We can talk about broadening, we could talk about all

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Speaker 6: these things, but it's still those seven names that make

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Speaker 6: the majority of the contribution of returns. So again I'm

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Speaker 6: wantings of the mag seven. I'm watching earnings of Nvidia,

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Speaker 6: and when you start to see that right tail get

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Speaker 6: sucked in as we head into earnings. Yeah, you know,

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Speaker 6: I don't know how great a sign that is.

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Speaker 2: And Paul, that's where mere mortals like us talk about

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Speaker 2: absolute and relative and the media loves to talk about

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Speaker 2: relative analysis. And what Amy was Silverman saying brilliantly is

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Speaker 2: the absolute mass and weight of tech is just ginormous

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Speaker 2: that she learned that princetonous.

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Speaker 3: Exactly, and so Amy, as Tom was just saying, here,

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Speaker 3: it seems like this whole earning season really hangs on

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Speaker 3: a handful of stocks and really their forecast because when

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Speaker 3: this AI when and if this AI momentum breaks, that

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Speaker 3: could be a problem not just for the inturners stocks,

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Speaker 3: but for the market overall.

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Speaker 4: How are you thinking about that?

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Speaker 6: Yeah, you know, look, I've kept saying to our clients,

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Speaker 6: if tech goes to the market goes, and we've actually

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Speaker 6: seen that a few days. So when we talk to investors,

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Speaker 6: they say, look, we can't wait for the market to broaden,

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Speaker 6: you know, we can't wait for maybe IWM to outperform SMP.

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Speaker 6: The thing is, when you see that happen in the past,

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Speaker 6: on certain days, you actually are getting a down days

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Speaker 6: in the SMP. Or the Dow, because again it comes

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Speaker 6: down to that weight. You could have a healthy broadening

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Speaker 6: of the market, but if tech isn't playing nicely, the

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Speaker 6: overall market is still not going to be doing well.

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Speaker 6: And so you know, we're looking at hedges there, we're

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Speaker 6: looking at something like callers, where you sell a little

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Speaker 6: bit of upside own a little bit of downside. I

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Speaker 6: think that's relatively inexpensive right now because all options are

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Speaker 6: really inexpensive, and you continue to have your headline VIX

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Speaker 6: sub thirteen, even with everything going on.

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Speaker 3: Why are options inexpensive? Explain that how that market works

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Speaker 3: for us?

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Speaker 6: Yeah, you know, I've been calling this market the paddling

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Speaker 6: duck market. I haven't been able to find a better analogy,

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Speaker 6: so let me know. But look, it's calm on the surface,

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Speaker 6: right but those those feet are paddling really really violently underneath.

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Speaker 6: You get these rotation days. I think last Thursday was

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Speaker 6: a good example. You had one of the most historic

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Speaker 6: iwmts and p rotations on record flips the next day

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Speaker 6: and you keep seeing that, but when they cancel each

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Speaker 6: other out, you don't see it on that index volatility level.

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Speaker 6: So right now, average single stock volatility compared to index

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Speaker 6: volatility is at its highest spread ever. It's a really

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Speaker 6: big deal, but you just cannot see it when you

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Speaker 6: just look at the VIX alone.

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Speaker 3: We're coming in we think about, at least from my perspective,

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Speaker 3: my experience September in October rough times for the equity markets,

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Speaker 3: what's the risk for this market heading into the fall,

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Speaker 3: heading into again this concentration risk in these tech names.

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Speaker 6: You know, I've been thinking about that a lot. And

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Speaker 6: it's interesting because we are heading into US elections, and

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Speaker 6: when you look historically, the market does tend to rally

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Speaker 6: into US elections. And one step that I just think

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Speaker 6: is super interesting. After the first presidential debate, the imply

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Speaker 6: volatility on actual election day actually went down. It compressed,

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Speaker 6: essentially the market saying that there's a more definitive likely

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Speaker 6: winner to the presidential election. The thing is, when you

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Speaker 6: also look to history, there's a lot of surprises and

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Speaker 6: a lot of runway between now and US elections, especially

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Speaker 6: when you look seasonly at BIX of extensive spike. So

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Speaker 6: I think again, things are inexpensive. You can be the

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Speaker 6: boy who cried wolf, but you do need that exogenous

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Speaker 6: shock to the market to change things, Amy.

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Speaker 2: On't find a question. I look at the option space

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Speaker 2: and the derivatives analysis, and the heart of the matter is,

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Speaker 2: we've got this polarity between capital heavy industrial America and

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Speaker 2: technology capital light America. What does derivative space say about

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Speaker 2: the potential law long winning of capital light technology. What

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Speaker 2: does it say about we just don't need that much money.

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Speaker 2: We've got innovation, We've got people.

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Speaker 6: Yeah, it's interesting because we kind of we track this

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Speaker 6: in two different ways, Tom, We kind of track this

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Speaker 6: through two different kinds of baskets. High quality basket versus

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Speaker 6: low quality basket, which tends to be tech against everything else.

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Speaker 6: We actually track it against Trump basket versus Biden basket,

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Speaker 6: which also tends to be one heavy industrials one not.

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Speaker 6: And when you look at the pricing overall, there's just

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Speaker 6: not that much differentiation right now. And one of the reasons, Tom,

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Speaker 6: is just everything's really low. And again I think that

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Speaker 6: differentiation probably needs to happen as we head towards elections

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Speaker 6: in different political themes.

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Speaker 2: Amy with Silverman, thank you so much, RBC Capital Markets

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Speaker 2: joining us now in eight Ways to Go in a

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Speaker 2: three hour conversation. Dana Telsey, Chief executive Officer Telsey Advisory Group,

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Speaker 2: definitive on retail and relate to the heart and soul

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Speaker 2: of her childhood. Is well. Paul's got a bunch of

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Speaker 2: questions in retail, But I got to talk to you

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Speaker 2: now about the character of luxury turned upside down. And

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Speaker 2: it can be anything besides famous brands buying huge amounts

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Speaker 2: of real estate on Fifth Avenue and on the other

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Speaker 2: side detailed articles of heavy discounting in China. I mean,

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Speaker 2: just as an example, the people from Venice, Botega, Vanada.

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Speaker 2: That's the besket. We've leather things every woman needs. I mean, Dana,

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Speaker 2: What a god's name is going on in retail?

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Speaker 4: Is in?

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Speaker 2: I guess the summary is is it going to be

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Speaker 2: an Arno roll up.

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Speaker 7: In wants retail? And Tom, thank you and Paul for

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Speaker 7: adving me today. I think, oh wha, you are seeing

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Speaker 7: the big getting bigger. You look at the fast new

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Speaker 7: life you mentioned, And could it be one day that

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Speaker 7: the four corners of fifty seventh Street are all occupied

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Speaker 7: by LVMH. Right now they occupy three of the corners,

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Speaker 7: and Wodman is going to be owned by Sacks if

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Speaker 7: the transaction goes through with Neman Marcus, but luxury goods

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Speaker 7: and I had just gotten off the phone with Rechemont.

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Speaker 7: It's interesting some of the resiliency that's out there, given

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Speaker 7: the fact that we have seen moderation. The Americas is

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Speaker 7: holding up even with sales have been moderated. And I

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Speaker 7: think as we go through discerning season cycle, we are

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Speaker 7: going to see everyone's become a little bit more discerning.

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Speaker 7: And we haven't seen the return of tourists travel from

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Speaker 7: the Chinese.

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Speaker 2: And that's I mean, And this is brilliant. I reachedwond

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Speaker 2: I believe is Cardier. I get there these iconic names

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Speaker 2: that will always be there. But in the reporting I

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Speaker 2: saw in China, Montclair, they're the fancy ski jackets that

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Speaker 2: your kids need. Oh okay, if I don't have a

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Speaker 2: Montclark jacket, I'm not going to be able to survive.

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Speaker 2: Dana Telsea Montclair is discounting fifty percent in two years

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Speaker 2: or four years. Where is that partition of luxury between

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Speaker 2: the successful, fancy people and the others discounting. I just

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Speaker 2: don't get how they survive.

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Speaker 7: I don't think discounting is really a part of the

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Speaker 7: luxury ethos. And one of the things we've seen happen,

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Speaker 7: and we see basically less discounting and mother goods than

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Speaker 7: in other categories. Certainly some of the major European houses

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Speaker 7: don't even discount at all. I think what you see

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Speaker 7: was some of the fashion pieces out there, and certainly

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Speaker 7: those where you have weather trends that dictate things you

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Speaker 7: do have to move inventory.

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Speaker 5: It's going to be.

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Speaker 7: Very interesting to see now you mentioned it earlier, what

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Speaker 7: happened in Burbridge with the changing of the guard that's

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Speaker 7: going on there at the C level position.

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Speaker 3: Hey, Dana, we got some retail sales data that came

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Speaker 3: out this morning and just looking at the controlled group

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Speaker 3: positive zero point nine percent, above the consensus for zero

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Speaker 3: point two percent. So it looks like from that data point,

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Speaker 3: the consumer's doing pretty well. Does that tie in with

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Speaker 3: what you're hearing from your retail companies that you follow.

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Speaker 7: I think it's very mixed. I think overall back to

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Speaker 7: school is going to be very measured from the retailers

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Speaker 7: I'm looking at. Look at the data points that we

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Speaker 7: got last week. You saw strength at Aritzia, a very

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Speaker 7: big apparel retailer with frankly only fifties two stores in

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Speaker 7: the US, an opportunity to grow. You saw talk about luxury,

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Speaker 7: Brunello Cucinelli saw strength in the US of high teens.

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Speaker 7: But then you saw companies like PEPSI say that they're

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Speaker 7: seeing the customer be very more value minded and discerning

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Speaker 7: what they're spending after three to four years of elevated

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Speaker 7: pricing in place that even hiring from consumer is measuring

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Speaker 7: the restaurants they go to in the frequency. So I'm

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Speaker 7: thinking it's very measured, and we've seen a moderation spending

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Speaker 7: Danta Telsea.

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Speaker 2: How do you and Joe Feldman study charge card data?

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Speaker 2: Michelle Meyer joined us here ten days ago from MasterCard,

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Speaker 2: and she says, look, this is what people are doing.

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Speaker 2: They're spending, and we just saw it with a good

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Speaker 2: retail sales report and good revisions. How do you tell

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Speaker 2: the advisory groups study what Paul Sweeney does over the

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Speaker 2: weekend with his charge card?

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Speaker 7: A couple of different things. So number one, we're going

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Speaker 7: to extorts ourselves and talking and seeing and seeing what

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Speaker 7: the promotions are. Number two, we're doing weekly web scraping

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Speaker 7: data of what the promotions looked like week over week.

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Speaker 7: But also we have this data going back years, so

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Speaker 7: we look at it year over year two in order

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Speaker 7: to assess the changes in pricing, but also the change

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Speaker 7: is in product trends. And then we're looking at the

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Speaker 7: quantitative data of different snippets that we can believe whether

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Speaker 7: it's a credit cards or whether it's a company commentary

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Speaker 7: like what you had last week outside of the program,

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Speaker 7: just retail, as long as it relates to the consumer.

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Speaker 2: Dana, thank you so much, Dana. Telsea there and luxury

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Speaker 2: of struggles in China as well with a Telsey Advisory group.

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Speaker 2: This is a really important conversation because he has the

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Speaker 2: one volume book where you go, how did we get here?

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Speaker 2: And the answer is nobody got us here with one volume,

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Speaker 2: like Chris Whalen. And he joins us right now in

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Speaker 2: a massive rewrite of his classic Inflated and I can't.

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Speaker 2: I've been livid about the lack of historical and the

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Speaker 2: analysis of this grim assassination attempt. And no, he's done

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Speaker 2: the one volume history of our finance like Chris Whalen.

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Speaker 2: He joins the Center Studio today. Page one six of

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Speaker 2: your book is the analog of the pandemic of nineteen

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Speaker 2: nineteen in what all of our grandparents said was the

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Speaker 2: roaring twenties right Are these the Roaring twenties right now?

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Speaker 1: I think in many ways it is a repeat of

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Speaker 1: the twenties. We have deflation and commercial real estate instead

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Speaker 1: of the farm sector. But we have a boom on

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Speaker 1: Wall Street because there's not much else going on, and

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Speaker 1: Americans always managed to find their way to the securities

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Speaker 1: markets when everything.

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Speaker 2: Is But that analog ended, yes it did. Where is

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Speaker 2: our nineteen twenty nine out there somewhere?

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Speaker 6: No?

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Speaker 1: I think, as my friend Stan Middleman says in the

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Speaker 1: biography I'm coming out with in September, twenty twenty eight,

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Speaker 1: will be the maxi reset in housing after twelve thirteen

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Speaker 1: years of going up. You know, we run out of

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Speaker 1: buyers at a certain point. It won't be a supply

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Speaker 1: side function this time that just brings more homes in

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Speaker 1: as we saw before. That won't be the issue. It'll

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Speaker 1: just be people unable to buy them because they're so expensive.

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Speaker 3: Well, affordability today is an issue. I hear that from

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Speaker 3: real estate folks across the board here, and there's not

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Speaker 3: a lot of supply.

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Speaker 1: And this is the cost of quantitative easing. It solved

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Speaker 1: a lot of problems at the time. We were allowed

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Speaker 1: to fund forbearance for borrowers and renters in this country

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Speaker 1: for two years by stealing from Peter to pay Paul.

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Speaker 1: But now we pay for it all right.

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Speaker 4: I've been around the block once or twice.

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Speaker 2: Here.

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Speaker 3: I've been hearing about, reading about deficits, our national debt forever.

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Speaker 3: I'm starting to hear about it a little bit more

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Speaker 3: from economists, from politicians. Where is that on your radar

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Speaker 3: screen of we got to deal with these things at

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Speaker 3: some point?

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Speaker 1: Well, a lot of people ask me that question, and

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Speaker 1: what I tell people is that the United States has

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Speaker 1: a lot of collateral. So when you throw thirty five

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Speaker 1: trillion dollars at me, on the one hand, I worry

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Speaker 1: because it shows a lack of discipline on the part

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Speaker 1: of our society. We can't borrow from our children forever.

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Speaker 1: We have to stop. Thomas Jefferson addressed that very specifically.

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Speaker 1: But on the other hand, Jim Pickerton said to me

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Speaker 1: the other day, the energy in this country is where

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Speaker 1: the one hundred and seventy five trillion dollars. So should

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Speaker 1: we worry? No, that this country has the income and

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Speaker 1: the assets, and most importantly, the people to fix it.

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Speaker 1: So we can fix it if we.

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Speaker 2: Get a Trump vance presidency and without question there I mean,

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Speaker 2: excuse me, the legislative brand could block, but we get

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Speaker 2: a reaffirmation or an enhancement even of what I'm going

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Speaker 2: to call the Trump tax cuts of a number of

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Speaker 2: years ago. Do we have an analog of that in

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Speaker 2: your book, Inflated? Is there a point where we legislated

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Speaker 2: a good outcome for the elites versus the rest of America,

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Speaker 2: like we said, seem to be in process of doing.

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Speaker 1: Really from Nixon on. You know, Nixon didn't take us

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Speaker 1: off gold, He just closed the window. Fdr took us

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Speaker 1: off gold. But what he did was he enshrined deficit spending.

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Speaker 1: And from that point on we didn't look back.

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Speaker 2: So your guilded age is a lot wider than the

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Speaker 2: modern perception of us.

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Speaker 1: Yes, because it's a function of war. It's a function

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Speaker 1: of the hubris of a society that triumphed over fascism.

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Speaker 1: Used production to do it. By the way, we outproduced them.

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Speaker 1: We didn't out build them and fight them, we outproduced them.

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Speaker 1: And so today here we are the most prosperous nation

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Speaker 1: in the world. Remember, Humphrey Hawkins, we thought we could

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Speaker 1: legislate economic outcomes It reminds me of Tolkien and the

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Speaker 1: earlier parts of the Lord of the Rings when the

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Speaker 1: men thought that they could become immortal and got into

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Speaker 1: big trouble. So, you know, this is a maturation process

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Speaker 1: because remember, one hundred years ago, most people in this

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Speaker 1: country had never been ten miles from their birthplace. This

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Speaker 1: country didn't know about things like debt and on wars.

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Speaker 1: Today we are the Roman Empire reducts.

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Speaker 4: So I mean, there's a million ways ago from that.

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Speaker 3: But the one near term issue that I think people

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Speaker 3: are concerned about, at least I'm just thinking about the

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Speaker 3: banks reporting over the last several days, is when if

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Speaker 3: is commercial real estate going to become an issue for

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Speaker 3: the banks and for this economy, because it seems like

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Speaker 3: it's been several years now, and JP Morgan's talk about

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Speaker 3: it too much, and in your Bank of America I

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Speaker 3: talk about it too much.

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Speaker 2: Later on to that, Chris, every conversation we have a

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Speaker 2: CRI pros is a rationalization of, Oh, everything else is

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Speaker 2: doing fine except what Paul's talking about.

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Speaker 1: No, it's chop salad. Every asset is different. That's why

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Speaker 1: you don't see it hitting the media narrative because it

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Speaker 1: involves institutional investors, pension funds, everybody else who don't have

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Speaker 1: a lot of political sympathy. Let's be fair. We worry

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Speaker 1: about consumers, we don't worry about landlords. So the landlords

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Speaker 1: took a kicking during COVID, and here they are and

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Speaker 1: they don't have the cash to hang on in these buildings.

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Speaker 1: Now that all of a sudden, financing rates are back

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Speaker 1: seven eight nine percent for seven year money. Okay, we

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Speaker 1: were financing these things at two percent tom IT cap

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Speaker 1: rates of one. Obviously that was not going to be sustainable.

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Speaker 4: So is this something that there is a shoe to

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Speaker 4: drop it? Yes, it's quietly dropping.

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00:24:20,520 --> 00:24:25,879
Speaker 1: Shoes dropping, think of little shoes. Reads private developers, people

436
00:24:25,960 --> 00:24:28,600
Speaker 1: you don't normally read about. If you want to hear

437
00:24:28,640 --> 00:24:31,080
Speaker 1: about this, read the Real Deal. In fact, I'm surprised

438
00:24:31,119 --> 00:24:33,840
Speaker 1: Bloomberg hasn't made them an offer. They're having such fun

439
00:24:33,880 --> 00:24:37,600
Speaker 1: at the Real Deal covering this value destruction because.

440
00:24:37,440 --> 00:24:39,560
Speaker 2: Remember the amazing every day there's a story.

441
00:24:40,080 --> 00:24:43,120
Speaker 1: They can't cover ten percent of them. And remember these

442
00:24:43,160 --> 00:24:46,080
Speaker 1: assets went up for a century. When I rated the

443
00:24:46,119 --> 00:24:49,560
Speaker 1: small banks here in New York, they'd never seen it default.

444
00:24:49,320 --> 00:24:51,679
Speaker 2: You know, very famous real estate guy folks in New

445
00:24:51,760 --> 00:24:53,800
Speaker 2: York said to me, you don't understand, Tom, these are

446
00:24:53,880 --> 00:24:57,840
Speaker 2: family stories, totally. Families are three four generations. Yeah, and

447
00:24:57,880 --> 00:25:00,280
Speaker 2: they want a cash call and they're like, we can't

448
00:25:00,280 --> 00:25:01,800
Speaker 2: make it or we don't want to make it. Whatever.

449
00:25:01,880 --> 00:25:03,720
Speaker 1: Well, you know, it's the most chilling thing I read

450
00:25:03,720 --> 00:25:05,800
Speaker 1: the last week or so when the head of Related

451
00:25:06,119 --> 00:25:09,120
Speaker 1: decided to carve out his Florida business which he will

452
00:25:09,200 --> 00:25:11,960
Speaker 1: run and he's stepping away from the big company.

453
00:25:12,240 --> 00:25:14,240
Speaker 2: Look what he did with the Dolphins, Steve Ross.

454
00:25:14,320 --> 00:25:16,639
Speaker 1: No, he's one of the smartest guys in the business.

455
00:25:16,720 --> 00:25:19,439
Speaker 1: But he has some messages that are great. And the

456
00:25:19,480 --> 00:25:22,800
Speaker 1: West Side, you know, Camden, the rail yards on the

457
00:25:22,800 --> 00:25:23,240
Speaker 1: west side.

458
00:25:23,560 --> 00:25:25,200
Speaker 2: I got to get this, send Michael bars in here,

459
00:25:25,200 --> 00:25:27,240
Speaker 2: so we got to cut it. Sharubick, Chris Whale, and

460
00:25:27,240 --> 00:25:29,600
Speaker 2: this is too important. I have a chart which is

461
00:25:29,640 --> 00:25:32,919
Speaker 2: normalized back to August of two thousand and seven of

462
00:25:33,040 --> 00:25:38,160
Speaker 2: six big banks Goldens, Morgan, Stanley, and four others. The

463
00:25:38,200 --> 00:25:41,199
Speaker 2: City Group is not a big bank anymore. It just

464
00:25:41,320 --> 00:25:45,960
Speaker 2: hasn't recovered. How do you perceive City Group versus JP,

465
00:25:46,160 --> 00:25:47,760
Speaker 2: Morgan and Bank of America.

466
00:25:47,840 --> 00:25:50,359
Speaker 1: Well, they're a top five money center bank. Because of

467
00:25:50,400 --> 00:25:53,440
Speaker 1: the payments platform. But you're right, they have pulled back.

468
00:25:53,800 --> 00:25:56,159
Speaker 1: There was a time when City was the biggest derivative

469
00:25:56,160 --> 00:25:58,480
Speaker 1: shop in the industry. You know who it is now,

470
00:25:58,520 --> 00:26:01,199
Speaker 1: Morgan Stanley, Morgan Stanley and Goldman.

471
00:26:01,240 --> 00:26:03,760
Speaker 2: Now where do you perceive City Group in five.

472
00:26:03,600 --> 00:26:06,959
Speaker 1: Years merged with somebody else, maybe with a big asset

473
00:26:06,960 --> 00:26:10,880
Speaker 1: management business, maybe Schwab. But that's what they're missing right now.

474
00:26:10,960 --> 00:26:14,359
Speaker 1: They sold out to Morgan Stanley with the Smiths Barney transaction.

475
00:26:14,760 --> 00:26:18,000
Speaker 1: They don't have the asset manager to make them look

476
00:26:18,080 --> 00:26:21,080
Speaker 1: like everybody else, and they're still you know, Jane has

477
00:26:21,280 --> 00:26:24,320
Speaker 1: Frasier's an enormous work there in terms of getting their

478
00:26:24,359 --> 00:26:26,920
Speaker 1: expenses in line, but she still has to cut five

479
00:26:26,960 --> 00:26:30,360
Speaker 1: points out of their efficiency ratio before she can even

480
00:26:30,400 --> 00:26:33,240
Speaker 1: talk about Jamie Donovan. You know that's the high bar

481
00:26:33,320 --> 00:26:34,359
Speaker 1: he is said ten seconds.

482
00:26:34,400 --> 00:26:36,560
Speaker 2: Who would buy them? Who's lined up to be the

483
00:26:36,600 --> 00:26:39,240
Speaker 2: one to fold in City Group in their internet.

484
00:26:39,240 --> 00:26:41,639
Speaker 1: I keep saying they should merge with Goldman. Let the

485
00:26:41,680 --> 00:26:44,560
Speaker 1: City Bank run credit, Let the Goldman boys run deals,

486
00:26:44,800 --> 00:26:48,160
Speaker 1: because Goldman cannot run credit. To save their lives, They're

487
00:26:48,200 --> 00:26:50,040
Speaker 1: getting a kicking every quarter in credit.

488
00:26:50,480 --> 00:26:52,840
Speaker 2: Now, this is a Chris whaler We know after a

489
00:26:52,840 --> 00:26:55,840
Speaker 2: beverage of his choice, he's like, Chris Whalen, thank you

490
00:26:55,920 --> 00:26:58,760
Speaker 2: so much. We wait for this second edition of Inflated.

491
00:26:58,920 --> 00:27:01,360
Speaker 2: The movie rights have been It's going to be interesting

492
00:27:01,840 --> 00:27:03,480
Speaker 2: to see you, to say the least. This is the

493
00:27:03,480 --> 00:27:08,520
Speaker 2: Bloomberg Surveillance Podcast, bringing you the best in economics, finance, investment,

494
00:27:08,680 --> 00:27:12,320
Speaker 2: and international relations. You can also watch the show live

495
00:27:12,520 --> 00:27:16,840
Speaker 2: on YouTube. Visit the Bloomberg Podcast channel on YouTube to

496
00:27:17,000 --> 00:27:20,399
Speaker 2: see the show weekday mornings from seven to ten am

497
00:27:20,440 --> 00:27:24,480
Speaker 2: Eastern from our global headquarters in New York City. Subscribe

498
00:27:24,480 --> 00:27:27,840
Speaker 2: to the podcast on Apple, Spotify, or anywhere else you

499
00:27:27,920 --> 00:27:32,080
Speaker 2: listen and always on Bloomberg Radio, the Bloomberg Terminal, and

500
00:27:32,119 --> 00:27:33,760
Speaker 2: the Bloomberg Business app