1
00:00:00,800 --> 00:00:04,040
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside

2
00:00:04,040 --> 00:00:06,920
Speaker 1: my co host Matt Miller. Every business day, we bring

3
00:00:06,960 --> 00:00:11,520
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

4
00:00:11,520 --> 00:00:15,600
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

5
00:00:15,600 --> 00:00:18,439
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

6
00:00:18,480 --> 00:00:21,800
Speaker 1: at Bloomberg dot com slash podcast. Today's focus on fixed

7
00:00:21,800 --> 00:00:24,079
Speaker 1: income is brought to you by Pimco, a global leader

8
00:00:24,079 --> 00:00:27,200
Speaker 1: and active fixed income. Learn how Pimco creates opportunities for

9
00:00:27,240 --> 00:00:30,639
Speaker 1: investors at pimco dot com slash bonds. All investments contain

10
00:00:30,760 --> 00:00:34,960
Speaker 1: risk and may lose value. Consult your investment professional before investing.

11
00:00:35,440 --> 00:00:38,040
Speaker 1: All right, So Lisa Bramwinz long ago told me I

12
00:00:38,080 --> 00:00:41,720
Speaker 1: need to pay attention to these treasury auctions and before like,

13
00:00:41,880 --> 00:00:44,159
Speaker 1: really do I have to? Apparently there was a two

14
00:00:44,200 --> 00:00:47,280
Speaker 1: year treasury auction yesterday that saw some week demand. I

15
00:00:47,320 --> 00:00:49,559
Speaker 1: think a five year one is on deck here. So

16
00:00:50,280 --> 00:00:53,880
Speaker 1: Ira Jersey, he's our chief US indust rate strategist. He's

17
00:00:53,880 --> 00:00:56,280
Speaker 1: gonna tell us why don't we need to pay attention?

18
00:00:57,520 --> 00:01:00,120
Speaker 1: You know, I had a producer, um Tim Andreacchi. He

19
00:01:00,520 --> 00:01:02,840
Speaker 1: was always freaking out about the treasury auctions because our

20
00:01:02,880 --> 00:01:04,600
Speaker 1: show was at one o'clock and they always come out,

21
00:01:05,080 --> 00:01:08,839
Speaker 1: I mean what, they rarely tell you anything, don't they ira,

22
00:01:09,640 --> 00:01:15,160
Speaker 1: So they they tell you where demand is at that moment,

23
00:01:15,240 --> 00:01:17,240
Speaker 1: right And and I think that the reason why the

24
00:01:17,240 --> 00:01:21,640
Speaker 1: treasury auctions are so important right now is because they

25
00:01:21,640 --> 00:01:23,880
Speaker 1: give you a hint as to who's willing to take

26
00:01:24,000 --> 00:01:27,039
Speaker 1: risk and if investors are willing to take risk or not.

27
00:01:27,240 --> 00:01:29,720
Speaker 1: And and the last couple of months you've seen a

28
00:01:29,800 --> 00:01:35,320
Speaker 1: significant reduction in demand by particularly foreigners and domestic investment

29
00:01:35,360 --> 00:01:39,000
Speaker 1: funds for for treasuries at auction, and and it just

30
00:01:39,000 --> 00:01:40,920
Speaker 1: shows you that, like you know it, it proves a

31
00:01:41,040 --> 00:01:42,920
Speaker 1: level when when when you think about the fixed income

32
00:01:42,959 --> 00:01:47,039
Speaker 1: market UM, it's not as as homogeneous as saying the

33
00:01:47,080 --> 00:01:50,160
Speaker 1: equity market is in general. So you have multiple bonds

34
00:01:50,200 --> 00:01:52,440
Speaker 1: with different maturities, so you have a lot of different

35
00:01:52,480 --> 00:01:56,560
Speaker 1: instruments at play. And by having a new issue, whether

36
00:01:56,600 --> 00:01:58,320
Speaker 1: it's in the in the corporate world or in the

37
00:01:58,880 --> 00:02:02,080
Speaker 1: UM or in the treasure remarket UM, you you get

38
00:02:02,120 --> 00:02:05,400
Speaker 1: the gauge real demand for that new supply. And you've

39
00:02:05,400 --> 00:02:08,600
Speaker 1: seen that even though the sizes of the treasury auctions

40
00:02:08,639 --> 00:02:11,680
Speaker 1: are getting smaller. You're seeing demand go down even faster.

41
00:02:11,800 --> 00:02:14,320
Speaker 1: And that's the reason you've seen a lot of softness

42
00:02:14,360 --> 00:02:17,360
Speaker 1: in some of these these issues. So why are the

43
00:02:17,400 --> 00:02:20,239
Speaker 1: international buyers, Why are they not there? Maybe like the

44
00:02:20,400 --> 00:02:23,080
Speaker 1: maybe how they used to be well, but partially because

45
00:02:23,080 --> 00:02:25,000
Speaker 1: I think there is a preference for cash right now.

46
00:02:25,040 --> 00:02:28,480
Speaker 1: Because if if you're even if you're a foreign buyer

47
00:02:28,560 --> 00:02:30,640
Speaker 1: where you know yields in the US or you know,

48
00:02:30,760 --> 00:02:33,320
Speaker 1: multiples of what they are in your your home jurisdiction,

49
00:02:33,600 --> 00:02:35,120
Speaker 1: if you think that interest rates are going to keep

50
00:02:35,160 --> 00:02:37,600
Speaker 1: going up, you you don't want to be buying a

51
00:02:37,639 --> 00:02:40,120
Speaker 1: bond because then you'll wind up losing money on on

52
00:02:40,160 --> 00:02:43,480
Speaker 1: the price side, um you know. So so as as

53
00:02:43,520 --> 00:02:45,960
Speaker 1: to your treasury yields, if they go up from you know,

54
00:02:46,040 --> 00:02:49,000
Speaker 1: four percent to five percent, you're gonna lose UM. You're

55
00:02:49,000 --> 00:02:51,560
Speaker 1: gonna lose a couple of percent in UM in terms

56
00:02:51,560 --> 00:02:54,640
Speaker 1: of opportunity cost uh and and the price of that

57
00:02:54,720 --> 00:02:56,880
Speaker 1: instrument will go down. So I think that's the that's

58
00:02:56,919 --> 00:02:58,800
Speaker 1: the A couple of the big reasons is that you

59
00:02:58,840 --> 00:03:01,800
Speaker 1: don't have the um you know, massive demand you also

60
00:03:01,840 --> 00:03:04,320
Speaker 1: have on the other side, and this is this is

61
00:03:04,360 --> 00:03:06,720
Speaker 1: part of The issue I think with with the foreign

62
00:03:06,800 --> 00:03:09,920
Speaker 1: investors and in terms of central banks, is that central

63
00:03:09,960 --> 00:03:12,560
Speaker 1: banks want to uh, you know, want want to prop

64
00:03:12,639 --> 00:03:14,880
Speaker 1: up their own currencies because their own currencies are slipping

65
00:03:15,280 --> 00:03:17,359
Speaker 1: very quickly against the dollar. And if they go out

66
00:03:17,400 --> 00:03:19,880
Speaker 1: and they go buy two year treasuries, they also have

67
00:03:19,919 --> 00:03:21,680
Speaker 1: to buy dollars on top of that, which will just

68
00:03:21,720 --> 00:03:25,320
Speaker 1: weaken their currency even further. So there's so foreign exchange

69
00:03:25,320 --> 00:03:27,800
Speaker 1: managers aren't going to be involved in these auctions like

70
00:03:27,840 --> 00:03:32,000
Speaker 1: they sometimes. I'm just surprised that Japanese. I mean, you're

71
00:03:32,040 --> 00:03:34,800
Speaker 1: if if you're looking at a situation where there's no

72
00:03:34,840 --> 00:03:38,960
Speaker 1: reason for the end um go down. Well, well, let's

73
00:03:38,960 --> 00:03:41,440
Speaker 1: say this, if you're looking at a situation where the

74
00:03:41,520 --> 00:03:46,320
Speaker 1: finance ministry is defending the end and um, you know

75
00:03:46,560 --> 00:03:48,880
Speaker 1: your interest rates on the ten year or zero point

76
00:03:48,920 --> 00:03:51,680
Speaker 1: two percent versus you know, four percent in the US,

77
00:03:51,720 --> 00:03:55,160
Speaker 1: wouldn't you want that? Well no, because again you have

78
00:03:55,240 --> 00:03:57,440
Speaker 1: to buy dollars then, and you're just weakening the end

79
00:03:57,520 --> 00:04:00,880
Speaker 1: versus buying versus the dollar. And and if you're trying

80
00:04:00,920 --> 00:04:03,720
Speaker 1: to defend your currency and trying to stop your currency

81
00:04:03,760 --> 00:04:06,640
Speaker 1: from falling further, you want to actually be selling uh

82
00:04:06,680 --> 00:04:09,800
Speaker 1: dollar denominated assets and buying the end denominated assets. And

83
00:04:09,840 --> 00:04:12,480
Speaker 1: that's the that's the reason why you have those foreign

84
00:04:12,760 --> 00:04:15,000
Speaker 1: foreign reserves, and and and that is one of the

85
00:04:15,040 --> 00:04:17,960
Speaker 1: dynamics that you're seeing in some of these auctions. Now, unfortunately,

86
00:04:17,960 --> 00:04:20,479
Speaker 1: we don't know what exactly what happened yesterday because this

87
00:04:20,600 --> 00:04:24,120
Speaker 1: data comes out after the the auction settle and we

88
00:04:24,160 --> 00:04:26,719
Speaker 1: get all of the other data. But the allotment data,

89
00:04:26,760 --> 00:04:29,440
Speaker 1: when you look at it from the August auctions certainly

90
00:04:29,480 --> 00:04:32,920
Speaker 1: showed that there was a slowdown in demand from foreign

91
00:04:32,920 --> 00:04:35,479
Speaker 1: investors and a lot of the different issues across the curve.

92
00:04:35,520 --> 00:04:37,839
Speaker 1: And I think that isn't part because of this idea

93
00:04:37,880 --> 00:04:40,320
Speaker 1: that they don't want to strengthen their own currency. Now. Now,

94
00:04:40,360 --> 00:04:42,200
Speaker 1: of course, if if they have a maturing bond, they

95
00:04:42,279 --> 00:04:45,640
Speaker 1: might participate in the auction just to roll over that bond.

96
00:04:45,640 --> 00:04:47,839
Speaker 1: They're not buying new dollars or just rolling over the

97
00:04:47,839 --> 00:04:51,159
Speaker 1: old dollars. Um But but you know, no new money

98
00:04:51,200 --> 00:04:53,440
Speaker 1: is going to come in. And and you know, even

99
00:04:53,480 --> 00:04:55,919
Speaker 1: though even though you know, interest rate dynamics are going

100
00:04:55,960 --> 00:05:00,000
Speaker 1: to matter here because eventually this might turn very significant

101
00:05:00,160 --> 00:05:03,280
Speaker 1: because once the once the Fed's done hiking, I think

102
00:05:03,320 --> 00:05:05,640
Speaker 1: what's gonna happen is that other central banks are gonna

103
00:05:05,640 --> 00:05:07,280
Speaker 1: be catching up, and that's when you're going to see

104
00:05:07,279 --> 00:05:09,800
Speaker 1: a significant turn in the dollar. And once you see

105
00:05:09,800 --> 00:05:12,080
Speaker 1: that turn in the dollar, those all of those flows

106
00:05:12,080 --> 00:05:14,839
Speaker 1: could wind up changing very quickly. Um. Now, I don't

107
00:05:14,839 --> 00:05:17,760
Speaker 1: think that's going to happen until three but um, but

108
00:05:17,800 --> 00:05:20,599
Speaker 1: it is something to look out for because the FED

109
00:05:20,800 --> 00:05:23,040
Speaker 1: is ahead of the curve here. Well, I can't see

110
00:05:23,160 --> 00:05:26,440
Speaker 1: the head of the curve that other central banks in

111
00:05:26,480 --> 00:05:29,039
Speaker 1: its hiking cycle, right, so therefore it probably will stop

112
00:05:29,080 --> 00:05:31,200
Speaker 1: before the other central banks are done. The FED is

113
00:05:31,240 --> 00:05:34,240
Speaker 1: the curve. Now FED has the curve just a quick

114
00:05:34,279 --> 00:05:37,760
Speaker 1: thirty seconds. Kind of a plumbing issue, dude. The dealers

115
00:05:37,880 --> 00:05:39,720
Speaker 1: buy does the JP Morgan's of the world in the

116
00:05:39,760 --> 00:05:42,920
Speaker 1: Goldmen Sex? Do they buy for their own account? At auctions?

117
00:05:42,920 --> 00:05:45,880
Speaker 1: They have to Yeah, yeah, they have to bid for

118
00:05:46,040 --> 00:05:49,400
Speaker 1: pro rata amount, so it's twenty primary dealers. They each

119
00:05:49,440 --> 00:05:51,360
Speaker 1: have to bid for five percent of the auctions. That's

120
00:05:51,360 --> 00:05:53,080
Speaker 1: one reason why in the US you won't ever have

121
00:05:53,120 --> 00:05:56,000
Speaker 1: a failed auction um where you have less bids than

122
00:05:56,000 --> 00:05:58,599
Speaker 1: you have issued. But so so they do buy for

123
00:05:58,600 --> 00:06:00,960
Speaker 1: their own account, but they've been getting much smaller over

124
00:06:01,000 --> 00:06:03,800
Speaker 1: the last couple of years in favor of money managers

125
00:06:03,880 --> 00:06:07,200
Speaker 1: who are much more active and really the incremental price

126
00:06:07,240 --> 00:06:10,440
Speaker 1: setters at a lot of these auctions. See, so I just,

127
00:06:10,920 --> 00:06:13,000
Speaker 1: you know, I don't know, step up and buy him.

128
00:06:13,160 --> 00:06:16,200
Speaker 1: See these auctions. See they're important. I just learned something that. Yeah, well,

129
00:06:16,200 --> 00:06:18,200
Speaker 1: I mean, how important is an auction where you have

130
00:06:18,240 --> 00:06:21,760
Speaker 1: a whole bunch of giant banks that are that are

131
00:06:21,800 --> 00:06:25,200
Speaker 1: required to bid. Yeah, but you want him to bid aggressively,

132
00:06:25,240 --> 00:06:27,040
Speaker 1: so you gotta put some competition out there, all right,

133
00:06:27,040 --> 00:06:32,320
Speaker 1: Ira Jersey uh covers interest rates. He's a strategist Bloomberg Intelligence. Also,

134
00:06:32,560 --> 00:06:34,039
Speaker 1: we didn't get to talk to about soccer, but he

135
00:06:34,080 --> 00:06:37,560
Speaker 1: follows soccer religiously. He's also a part owner and some

136
00:06:39,160 --> 00:06:40,920
Speaker 1: I think a minor league I think is a way

137
00:06:40,960 --> 00:06:44,280
Speaker 1: to term it um soccer team professional soccer team in

138
00:06:44,480 --> 00:06:47,760
Speaker 1: central New Jersey. So go figure how many strategies you

139
00:06:47,800 --> 00:06:49,760
Speaker 1: know that owns a soccer team. I mean, he's just

140
00:06:49,800 --> 00:06:52,680
Speaker 1: like these big players. Next is gonna be the premier league.

141
00:06:52,880 --> 00:06:59,920
Speaker 1: Some Americans have to care, Matt. There are a lot

142
00:06:59,920 --> 00:07:02,320
Speaker 1: of electric vehicle companies out there. Just seems like I

143
00:07:02,360 --> 00:07:04,760
Speaker 1: saw a Lucid Air the other day. You know, I

144
00:07:04,839 --> 00:07:06,360
Speaker 1: told my wife, I said, there's a lucid She said,

145
00:07:06,360 --> 00:07:08,000
Speaker 1: what are you talking about? Said lucid Air said, I

146
00:07:08,040 --> 00:07:10,720
Speaker 1: still don't know what you're talking about. Um. It was

147
00:07:10,720 --> 00:07:13,239
Speaker 1: pretty cool, all right. Peter Wine, he's the CEO of Centro.

148
00:07:13,840 --> 00:07:15,160
Speaker 1: What I love about There's a lot of things I

149
00:07:15,200 --> 00:07:17,640
Speaker 1: like that's coming. One of it's based in Freehold, New Jersey.

150
00:07:17,640 --> 00:07:22,480
Speaker 1: You know who came from Freehold, New Jersey, Grover Cleveland. Jeez, Peter,

151
00:07:22,560 --> 00:07:25,080
Speaker 1: can you help him out? Who else is? They came

152
00:07:25,120 --> 00:07:29,760
Speaker 1: from Freehold, New Jersey, between New York and the Pennsylvania

153
00:07:30,120 --> 00:07:33,080
Speaker 1: and the Philadelphia and being good stuff. All right? Peter

154
00:07:33,120 --> 00:07:35,400
Speaker 1: talked to us about Central. What do you guys do there?

155
00:07:35,440 --> 00:07:39,200
Speaker 1: What's talks about your business? Your company? Sancho's visue actually

156
00:07:39,240 --> 00:07:43,440
Speaker 1: beginning in twenty thirteen, and that desired to transform the

157
00:07:43,480 --> 00:07:48,960
Speaker 1: commercial see industry, which to like pseudo mission vehicles. Yeah,

158
00:07:49,000 --> 00:07:54,280
Speaker 1: that has and the remains are so and singer of focus. Yeah.

159
00:07:54,320 --> 00:07:58,840
Speaker 1: We grow from one low speed vehicle in twenties Penteam

160
00:07:59,520 --> 00:08:01,960
Speaker 1: and the two a full product line that the currently

161
00:08:02,000 --> 00:08:07,520
Speaker 1: will include a commercial vehicles and the seven for industry

162
00:08:07,640 --> 00:08:13,080
Speaker 1: use with multiple variations and the one for off road use. Yeah.

163
00:08:13,120 --> 00:08:17,040
Speaker 1: So so our our mission is really try to lead

164
00:08:17,160 --> 00:08:20,680
Speaker 1: the transformation in this automotive industry, and they try to

165
00:08:20,760 --> 00:08:26,080
Speaker 1: become a leader in the electrical commercial vehicle sector. That's

166
00:08:26,120 --> 00:08:29,120
Speaker 1: a little bit. So who's who's your who's your customer?

167
00:08:29,120 --> 00:08:33,440
Speaker 1: Who's that a typical customer for one of your vehicles? Yes,

168
00:08:33,520 --> 00:08:37,920
Speaker 1: it's mostly it's the free operators and also the municiples.

169
00:08:37,960 --> 00:08:41,640
Speaker 1: They provided the local service and which is basically for

170
00:08:41,679 --> 00:08:45,440
Speaker 1: the commercial user morally. Right now, it's like a percent

171
00:08:45,480 --> 00:08:49,240
Speaker 1: of our our customers for steady deliver and the like

172
00:08:49,480 --> 00:08:54,240
Speaker 1: urban services. So, um, how much traction are you getting?

173
00:08:54,280 --> 00:08:56,679
Speaker 1: I mean, what's your revenue growth look like? And how

174
00:08:56,720 --> 00:09:02,040
Speaker 1: are your projections? Yeah, we are already finished the face

175
00:09:02,160 --> 00:09:06,160
Speaker 1: for the vehicle development and the way are looking for

176
00:09:06,240 --> 00:09:11,040
Speaker 1: the first growing in the revenue and in the deliver delivery,

177
00:09:11,160 --> 00:09:15,360
Speaker 1: and we are building our distribution and UH and the

178
00:09:15,559 --> 00:09:20,920
Speaker 1: aftermarket support network in America and the Europe and something

179
00:09:21,000 --> 00:09:24,839
Speaker 1: in Asia. So you've already you've already got what four

180
00:09:24,920 --> 00:09:29,680
Speaker 1: or five thousand vehicles out yes, so far, Yeah, we

181
00:09:29,840 --> 00:09:33,000
Speaker 1: already have more than I think more than five thousand

182
00:09:33,240 --> 00:09:36,160
Speaker 1: already being add to the market. So who do you

183
00:09:36,200 --> 00:09:39,120
Speaker 1: compete against in that part of the market world. You

184
00:09:39,160 --> 00:09:43,720
Speaker 1: know obviously familiar with the consumer automobile segment, the Tessil's

185
00:09:43,720 --> 00:09:45,640
Speaker 1: and and now all the other O E M is

186
00:09:45,679 --> 00:09:48,360
Speaker 1: getting in there, But who do you typically compete against?

187
00:09:48,360 --> 00:09:50,560
Speaker 1: Who do you think you will compete against in this segment?

188
00:09:51,280 --> 00:09:55,240
Speaker 1: I think you know the company like uh like a workhorse,

189
00:09:55,920 --> 00:10:00,520
Speaker 1: you know, that's our primary competitor, and all they're living

190
00:10:00,679 --> 00:10:04,520
Speaker 1: and because the living they produce the pickups, they also

191
00:10:05,240 --> 00:10:09,360
Speaker 1: uh makes deliver van. So that's our I think the

192
00:10:10,000 --> 00:10:15,280
Speaker 1: biggest main competitor the market now. And I think you know,

193
00:10:15,320 --> 00:10:19,440
Speaker 1: with the all the the product and ready, I think

194
00:10:19,640 --> 00:10:22,120
Speaker 1: we are kind of like a leading the sector at

195
00:10:22,120 --> 00:10:24,680
Speaker 1: this moment. So let me just finally ask you about

196
00:10:24,679 --> 00:10:27,720
Speaker 1: the supply chain and the chip management that you've been

197
00:10:27,760 --> 00:10:29,960
Speaker 1: able to do. What does your supply chain look like

198
00:10:30,240 --> 00:10:34,520
Speaker 1: and how is your access to microchips? Yeah, that was

199
00:10:34,880 --> 00:10:38,199
Speaker 1: our you know, last years of struggling. So so it's

200
00:10:38,240 --> 00:10:42,040
Speaker 1: just like everybody is struggling for the supply chain and aware.

201
00:10:42,200 --> 00:10:45,040
Speaker 1: I think we are in the very good position right

202
00:10:45,080 --> 00:10:48,160
Speaker 1: now because you know, some of the r O E

203
00:10:48,320 --> 00:10:53,280
Speaker 1: M is a tier one manufacturer and from from China

204
00:10:53,840 --> 00:10:56,560
Speaker 1: and the previous we have a little bit of shipping problem,

205
00:10:56,640 --> 00:11:00,000
Speaker 1: and but now we see all the shipping price school

206
00:11:00,000 --> 00:11:02,120
Speaker 1: going down and that we are not able to get

207
00:11:02,120 --> 00:11:07,000
Speaker 1: the container. I think, you know, we are strongly positioned

208
00:11:07,080 --> 00:11:10,520
Speaker 1: and very well developed our supply chain base. I think

209
00:11:10,520 --> 00:11:13,400
Speaker 1: away in the supply chain we're doing. I think we're

210
00:11:13,440 --> 00:11:17,200
Speaker 1: doing very good, all right, Peter, Good stuff interesting story here, Peter,

211
00:11:17,240 --> 00:11:20,440
Speaker 1: when he's the CEO of Centro making electric vehicles for

212
00:11:20,480 --> 00:11:25,720
Speaker 1: the commercial commercial vehicle segments. So interesting, you know, segment

213
00:11:25,760 --> 00:11:28,520
Speaker 1: there that likely will be addressed there with a lot

214
00:11:28,559 --> 00:11:32,000
Speaker 1: of competitors. Stuff there. What I'm very much focused on

215
00:11:32,360 --> 00:11:37,000
Speaker 1: is in this space, but more of a consumer vehicle segment.

216
00:11:38,000 --> 00:11:43,360
Speaker 1: Harley Davidson. Today is down on the New York Stock Exchange. UM.

217
00:11:43,440 --> 00:11:45,920
Speaker 1: Today is the day that they merge their live Wire

218
00:11:46,440 --> 00:11:50,600
Speaker 1: electric motorcycle unit with UM. The spack. The spack name

219
00:11:50,679 --> 00:11:55,640
Speaker 1: is a E. A. Bridges Impact Corps. Hopefully, dear goodness,

220
00:11:56,040 --> 00:11:58,480
Speaker 1: they change that name. UM, so it's going to be

221
00:11:58,600 --> 00:12:00,959
Speaker 1: I guess called live Wire now so you can get

222
00:12:01,000 --> 00:12:08,720
Speaker 1: an electric Harley Davidson. Yes, Pounds Sterling steady here today

223
00:12:08,840 --> 00:12:12,640
Speaker 1: one spot zero seven seven, but it has been under

224
00:12:12,720 --> 00:12:16,439
Speaker 1: siege with mounting bets that it may below drop below

225
00:12:16,600 --> 00:12:19,360
Speaker 1: one dollar, the old parody thing. Let's bring in Stephen Gallo.

226
00:12:20,080 --> 00:12:23,880
Speaker 1: He's had of European FIC strategy for BEMO capital markets. Stephen,

227
00:12:24,040 --> 00:12:29,079
Speaker 1: is is parity for sterling? Is that a reasonable possibility?

228
00:12:29,400 --> 00:12:33,880
Speaker 1: I think anything that reasonable possibility or this in this

229
00:12:34,080 --> 00:12:37,480
Speaker 1: ethics environment, with this type of volatility, in these types

230
00:12:37,520 --> 00:12:41,319
Speaker 1: of swings, UM, we'd like to say the bottom for

231
00:12:41,360 --> 00:12:44,520
Speaker 1: the cycle is in. UM. We're kind of hoping that

232
00:12:44,640 --> 00:12:46,640
Speaker 1: the bottom for the cycle is and the thing goes

233
00:12:46,679 --> 00:12:51,920
Speaker 1: for the top in the US dollar. UM, but I'd

234
00:12:51,960 --> 00:12:56,559
Speaker 1: say we have moderate confection the view at this stage. UM,

235
00:12:57,000 --> 00:12:59,560
Speaker 1: in terms of the dollar side of the equation, we're

236
00:12:59,559 --> 00:13:02,160
Speaker 1: pretty confit in at this stage that most of what

237
00:13:02,280 --> 00:13:05,720
Speaker 1: the FET is signaling is now priced in. Uh So,

238
00:13:06,120 --> 00:13:09,840
Speaker 1: the transmission of set policy to the FX market via

239
00:13:09,960 --> 00:13:12,760
Speaker 1: interest rate differentials, we think that has largely when it's

240
00:13:12,800 --> 00:13:17,600
Speaker 1: called course. But what we're less what we're more concerned about,

241
00:13:17,720 --> 00:13:21,320
Speaker 1: unless unless certain is finished, is the extent to which

242
00:13:21,320 --> 00:13:26,120
Speaker 1: the FX market prices in a higher global recession probability,

243
00:13:26,640 --> 00:13:30,800
Speaker 1: as well as the the lingering effect or the ongoing

244
00:13:30,840 --> 00:13:34,600
Speaker 1: effect I should say, of quanticative heightening from the fet Uh.

245
00:13:34,679 --> 00:13:38,360
Speaker 1: These concern us a loss for non dollar currencies. Uh.

246
00:13:38,480 --> 00:13:41,840
Speaker 1: If you think most of the Fed rate hikes are

247
00:13:41,840 --> 00:13:45,320
Speaker 1: priced in, where do you see the terminal rate? Well,

248
00:13:45,400 --> 00:13:50,319
Speaker 1: the BEMO house is uh, you know, around four point

249
00:13:50,440 --> 00:13:54,199
Speaker 1: six issue give or take for the effective set funds rate.

250
00:13:54,360 --> 00:13:59,480
Speaker 1: And that's what he said basically at the press conference. Yeah, so,

251
00:13:59,640 --> 00:14:03,280
Speaker 1: I mean, rough roughly in line with that, um, the

252
00:14:03,280 --> 00:14:06,720
Speaker 1: effective that things are made. Um, we've got them going

253
00:14:07,000 --> 00:14:10,640
Speaker 1: twice more uh in in two dozen twenty two and

254
00:14:10,640 --> 00:14:13,800
Speaker 1: then hiking once again at the first meeting of two

255
00:14:13,840 --> 00:14:17,319
Speaker 1: dozen and twenty three. But the you know, the main

256
00:14:17,480 --> 00:14:19,560
Speaker 1: the main point here is that that is largely the

257
00:14:19,600 --> 00:14:22,520
Speaker 1: old that he reflected, and then some just find a

258
00:14:22,520 --> 00:14:25,360
Speaker 1: little bit uh into the dollar O I ask her. So,

259
00:14:26,120 --> 00:14:29,600
Speaker 1: I mean, if if we start to see um, you know,

260
00:14:30,120 --> 00:14:34,560
Speaker 1: core inflation showing clear signs of decelerating in the United

261
00:14:34,600 --> 00:14:37,360
Speaker 1: States and we get one or two months of negative

262
00:14:37,400 --> 00:14:40,760
Speaker 1: job prints, that that will definitely be a big helping

263
00:14:40,800 --> 00:14:44,560
Speaker 1: hand for um, this dollar peach story. But on the

264
00:14:44,600 --> 00:14:47,440
Speaker 1: other side of that, UM, we have to get through

265
00:14:47,520 --> 00:14:51,480
Speaker 1: this issue of how bad the global and or US

266
00:14:51,560 --> 00:14:54,720
Speaker 1: recession is going to be and we probably haven't gotten

267
00:14:54,720 --> 00:14:58,720
Speaker 1: to the peak pricing for global recession risk just yet. Um,

268
00:14:58,760 --> 00:15:00,840
Speaker 1: and until that happens, it's going to be harder for

269
00:15:00,880 --> 00:15:04,600
Speaker 1: the dollar to fall sharply. Until we're confirmed that is so,

270
00:15:04,720 --> 00:15:06,920
Speaker 1: the FED does a major pivot, it's going to be

271
00:15:07,000 --> 00:15:09,200
Speaker 1: hard for the dollar to fall sharply. Well, you know,

272
00:15:09,280 --> 00:15:11,280
Speaker 1: this is a question that Paul has been asking for

273
00:15:11,360 --> 00:15:15,080
Speaker 1: a couple of weeks now, and UM, we haven't really

274
00:15:15,080 --> 00:15:19,160
Speaker 1: heard anyone say yes, Is there any bearer case for

275
00:15:19,240 --> 00:15:22,000
Speaker 1: the US dollar? Is there a bearer case for the

276
00:15:22,080 --> 00:15:24,880
Speaker 1: US dollar? Is there any bearer case at all in

277
00:15:24,960 --> 00:15:28,800
Speaker 1: the in the medium to long term, potentially in the

278
00:15:29,640 --> 00:15:33,800
Speaker 1: short run. Uh, it's tough to see it. Uh, it's

279
00:15:33,800 --> 00:15:38,720
Speaker 1: tough to see the dollar following system. I mean just look,

280
00:15:38,800 --> 00:15:40,720
Speaker 1: I mean, if the FED word to engineer some type

281
00:15:40,760 --> 00:15:43,400
Speaker 1: of the pivot and were to confirm that it's not

282
00:15:43,520 --> 00:15:45,480
Speaker 1: that we're starting to see a clear science that core

283
00:15:45,520 --> 00:15:48,000
Speaker 1: inflation pressures are rolling over and going in the set

284
00:15:48,200 --> 00:15:50,680
Speaker 1: for a direction United States. The labor market is well,

285
00:15:51,280 --> 00:15:56,120
Speaker 1: you still have all of these structural issues ongoing geopolitical

286
00:15:56,160 --> 00:16:00,640
Speaker 1: and structural issues on the capital flow side, uh, for

287
00:16:00,760 --> 00:16:05,479
Speaker 1: a number of major European currencies, for Asia ex japan currencies,

288
00:16:05,480 --> 00:16:09,160
Speaker 1: for the Japanese en. UM, that that defect pivoting to

289
00:16:09,240 --> 00:16:11,960
Speaker 1: a neutual policy stand is not simply going to make

290
00:16:12,000 --> 00:16:15,880
Speaker 1: go away. It might help the healing process beginning for

291
00:16:15,920 --> 00:16:19,920
Speaker 1: those structural um claws and those currencies. UM, but it's

292
00:16:19,920 --> 00:16:23,360
Speaker 1: not gonna make no way. UM. You know, when we're

293
00:16:23,400 --> 00:16:28,400
Speaker 1: moving from an environment or an era of globalization, UM

294
00:16:28,400 --> 00:16:31,120
Speaker 1: where we got very used to ultra low interest rates,

295
00:16:31,200 --> 00:16:35,120
Speaker 1: quantitative easing, high asset valuations, to an on the binding

296
00:16:35,200 --> 00:16:38,640
Speaker 1: of that. Um, it's very hard for non dollar currencies

297
00:16:38,640 --> 00:16:44,200
Speaker 1: to really sustainably uh. So UM, that's the picture. Unfortunately, Stephen,

298
00:16:44,240 --> 00:16:46,160
Speaker 1: you've been in this FX game a long time. What

299
00:16:46,240 --> 00:16:50,720
Speaker 1: did you make in the actual trading of pounds sterling

300
00:16:50,720 --> 00:16:57,600
Speaker 1: over the past couple of days? Pretty pretty wild moves there. Well, UM,

301
00:16:57,640 --> 00:17:00,440
Speaker 1: I'm not I'm a strategist, so I don't I don't

302
00:17:00,480 --> 00:17:03,640
Speaker 1: have to write, but I mean, it's just just just

303
00:17:03,720 --> 00:17:06,159
Speaker 1: the movements. What what what was that market, Telly, and

304
00:17:06,240 --> 00:17:08,280
Speaker 1: just the market was just really give us an adjective.

305
00:17:10,600 --> 00:17:14,160
Speaker 1: I think I think that we've seen a very here,

306
00:17:14,359 --> 00:17:19,240
Speaker 1: but probably in my view, a long overdue repricing of

307
00:17:19,520 --> 00:17:24,320
Speaker 1: UK risk premia um because of the fiscal picture, because

308
00:17:24,320 --> 00:17:26,800
Speaker 1: of the good picture, because of the balance of payments picture.

309
00:17:27,400 --> 00:17:30,199
Speaker 1: And I think that caught up with the currency and

310
00:17:30,280 --> 00:17:33,520
Speaker 1: the guilt market this week and last week. And what

311
00:17:33,560 --> 00:17:38,520
Speaker 1: you saw basically was a liquidity event, a low lack

312
00:17:38,560 --> 00:17:41,439
Speaker 1: of liquidity in both the FX market and the guilt market,

313
00:17:41,480 --> 00:17:44,920
Speaker 1: which made the price action ten times worse than it

314
00:17:44,960 --> 00:17:48,480
Speaker 1: would have been. Uh with that to be there, um

315
00:17:48,640 --> 00:17:51,840
Speaker 1: so um. You know, we're getting into a situation now

316
00:17:51,880 --> 00:17:54,919
Speaker 1: where risk premia are adjusting, but they're not adjusting an

317
00:17:55,040 --> 00:17:58,880
Speaker 1: orderly fashion. All right, good stuff, appreciate it as always

318
00:17:59,400 --> 00:18:02,320
Speaker 1: Stephen gal Bmo Capital Market. So we didn't even get

319
00:18:02,320 --> 00:18:03,800
Speaker 1: to the end. We didn't even get to the end.

320
00:18:03,840 --> 00:18:06,600
Speaker 1: But that was it seems like ancient history, but that

321
00:18:06,680 --> 00:18:10,320
Speaker 1: was just last week that the Finance Ministry intervened in

322
00:18:10,359 --> 00:18:14,280
Speaker 1: the Japanese end to defend the currency for the first

323
00:18:14,320 --> 00:18:20,080
Speaker 1: time since that was twenty four years ago. Remember it. Well,

324
00:18:20,160 --> 00:18:26,640
Speaker 1: good year. Look at the housing market. We had new

325
00:18:26,640 --> 00:18:29,280
Speaker 1: home sales data came out today, came in better than expected,

326
00:18:29,760 --> 00:18:33,199
Speaker 1: uh six eighty five thousand verses consensus A five thousand,

327
00:18:33,760 --> 00:18:37,240
Speaker 1: a little bit higher than last month, which was revised higher.

328
00:18:37,280 --> 00:18:40,200
Speaker 1: But certainly they're housing sales are coming down from the

329
00:18:40,240 --> 00:18:43,800
Speaker 1: peak of the pandemic. Question is can this housing market

330
00:18:43,840 --> 00:18:46,879
Speaker 1: and engineer a soft landing or will it be ugly?

331
00:18:47,040 --> 00:18:49,919
Speaker 1: Can it serve five rates? Rates? And what did you

332
00:18:49,920 --> 00:18:53,119
Speaker 1: say that mortgage races today six point seven that's a

333
00:18:53,200 --> 00:18:55,680
Speaker 1: long way from you know, three and a quarter from

334
00:18:55,720 --> 00:18:58,480
Speaker 1: just you know, a year ago. Sam Dunlap ce Io

335
00:18:58,600 --> 00:19:01,600
Speaker 1: at Angelo Capital, join just Sam, love to get your

336
00:19:01,600 --> 00:19:04,560
Speaker 1: thoughts on kind of the register, you know, the residential

337
00:19:04,720 --> 00:19:07,600
Speaker 1: real estate market here, how do you how do you

338
00:19:07,800 --> 00:19:10,000
Speaker 1: characterize the last few years? And and then maybe where

339
00:19:10,000 --> 00:19:12,560
Speaker 1: we are right now. Thanks for having me on a

340
00:19:12,560 --> 00:19:15,040
Speaker 1: great question, you know, the to your point on you know,

341
00:19:15,160 --> 00:19:18,560
Speaker 1: Cannon housing achieve a soft landing and given the pace

342
00:19:18,560 --> 00:19:23,680
Speaker 1: of appreciation we saw and home prices really post pandemic um,

343
00:19:23,720 --> 00:19:27,080
Speaker 1: it's clearly very difficult to sustain those type of levels.

344
00:19:27,160 --> 00:19:29,000
Speaker 1: And and as you all know, you know, case Shiller

345
00:19:29,080 --> 00:19:32,840
Speaker 1: came out this morning and uh it was below expectations

346
00:19:32,880 --> 00:19:35,439
Speaker 1: and one of the more swift declines we've seen in

347
00:19:35,480 --> 00:19:38,800
Speaker 1: the index um, you know, rising six on a year

348
00:19:38,800 --> 00:19:41,960
Speaker 1: of a year basis, but we expect you know, home

349
00:19:42,200 --> 00:19:45,080
Speaker 1: the home pace of a home price appreciation clearly cannot

350
00:19:45,240 --> 00:19:49,719
Speaker 1: sustain the current levels. But you know, the housing market

351
00:19:49,760 --> 00:19:52,800
Speaker 1: was really benefiting from you know, this historic supplying to

352
00:19:52,840 --> 00:19:56,639
Speaker 1: man mismatch that market participants have been identifying for years.

353
00:19:57,480 --> 00:20:01,840
Speaker 1: But the extraordinarily a little mortgage rates fueled surging home prices,

354
00:20:01,880 --> 00:20:05,080
Speaker 1: particularly during COVID. While that's not sustainable. Uh, you know,

355
00:20:05,080 --> 00:20:09,280
Speaker 1: we do expect the very favorable supply and demand dynamic

356
00:20:09,320 --> 00:20:12,920
Speaker 1: in US housing supporting home prices, but the pace of

357
00:20:12,960 --> 00:20:17,600
Speaker 1: appreciation clearly cannot cannot keep up. But what is um,

358
00:20:18,200 --> 00:20:20,840
Speaker 1: what what does it look like in terms of US

359
00:20:20,920 --> 00:20:24,840
Speaker 1: housing that makes you feel like it's supportive in terms

360
00:20:24,840 --> 00:20:26,560
Speaker 1: of the supply and demand? Right? Is there just not

361
00:20:26,760 --> 00:20:31,560
Speaker 1: enough land? Our builders UM still having trouble getting Uh,

362
00:20:31,720 --> 00:20:36,520
Speaker 1: construction materials are is labored? The problem? What's the issue

363
00:20:36,800 --> 00:20:38,920
Speaker 1: on the supply side? You know, on the supply side

364
00:20:38,960 --> 00:20:42,359
Speaker 1: is you know, we just historically underbuilt really after the

365
00:20:42,400 --> 00:20:45,640
Speaker 1: global financial crisis and that that really has not changed.

366
00:20:45,720 --> 00:20:48,399
Speaker 1: And very similar to the dynamics that we saw in

367
00:20:48,440 --> 00:20:51,520
Speaker 1: the not late nineteen seventies with the baby boomers, you know,

368
00:20:51,520 --> 00:20:54,920
Speaker 1: they were forming households at a very brisk pace. We're

369
00:20:55,040 --> 00:20:57,960
Speaker 1: still seeing that from the millennials, you know, on annualized

370
00:20:58,000 --> 00:21:02,080
Speaker 1: pace of approximately one point two mill and household formations

371
00:21:02,520 --> 00:21:05,800
Speaker 1: today and that's very supportive. Is is you know, the

372
00:21:05,800 --> 00:21:08,600
Speaker 1: demand for single family shelter, particularly coming out of COVID,

373
00:21:08,720 --> 00:21:12,760
Speaker 1: still remains strong. But affordability has really been the challenge

374
00:21:12,800 --> 00:21:16,040
Speaker 1: here as the FEDS is inflicted as as Chairman Powell

375
00:21:16,080 --> 00:21:18,800
Speaker 1: wanted a lot of pain clearly on the economy, and

376
00:21:18,840 --> 00:21:22,400
Speaker 1: the initial transmission mechanism has definitely been surging mortgage rates

377
00:21:22,400 --> 00:21:25,880
Speaker 1: as you pointed out, and that's really hurt the affordability aspect,

378
00:21:25,960 --> 00:21:30,000
Speaker 1: but the underlying demand UH and lack of supply and

379
00:21:30,000 --> 00:21:33,640
Speaker 1: and just the fact of how underbuilt the US housing

380
00:21:33,720 --> 00:21:37,080
Speaker 1: as we think, you know, achieves that soft landing for

381
00:21:37,080 --> 00:21:40,840
Speaker 1: for US housing and not the you know, extreme downturn

382
00:21:40,880 --> 00:21:43,560
Speaker 1: that we saw really coming out of the financial crisis.

383
00:21:43,600 --> 00:21:45,880
Speaker 1: What are you doing in your fund? Sam? You manage

384
00:21:46,160 --> 00:21:50,719
Speaker 1: the Angelo Multi Strategy Income Fund, the Strategic Credit Fund,

385
00:21:50,840 --> 00:21:55,800
Speaker 1: the Core Impact Fund, um Multi Strategy Income You see

386
00:21:55,840 --> 00:21:57,399
Speaker 1: I T S fund. I don't even know what you

387
00:21:57,440 --> 00:21:59,880
Speaker 1: see I t S means, But what are you doing

388
00:22:00,200 --> 00:22:02,560
Speaker 1: in those funds right now. Yeah, So you know, the

389
00:22:02,840 --> 00:22:05,800
Speaker 1: mortgage market, like all areas fixed income, has been under

390
00:22:05,800 --> 00:22:08,240
Speaker 1: a tremendous amount of pressure this year, just given the

391
00:22:08,280 --> 00:22:11,520
Speaker 1: swift pace of tightening and a complete revision of of

392
00:22:11,600 --> 00:22:16,080
Speaker 1: fat expectations. But uh, mortgages have been particularly sensitive to

393
00:22:16,240 --> 00:22:19,480
Speaker 1: what we're describing is really a volatility shock. So you know,

394
00:22:19,520 --> 00:22:22,240
Speaker 1: we we went through the first phase of the inflation shock.

395
00:22:22,400 --> 00:22:26,320
Speaker 1: Is inflation with parabolic this year, as we all um

396
00:22:26,600 --> 00:22:30,000
Speaker 1: know very well at this point. But also you saw

397
00:22:30,560 --> 00:22:35,399
Speaker 1: rates clearly repriced very swiftly, and volatility surging and the

398
00:22:35,400 --> 00:22:39,240
Speaker 1: interest rate world to historic highs. And from a volatility perspective,

399
00:22:39,600 --> 00:22:42,920
Speaker 1: we're really at a crisis like levels from a from

400
00:22:42,920 --> 00:22:47,400
Speaker 1: an historical standpoint, and uh, that presents an extraordinarily favorable

401
00:22:47,440 --> 00:22:51,439
Speaker 1: time for mortgages in particular, is uh we view, you know,

402
00:22:51,680 --> 00:22:54,800
Speaker 1: this near term event is not necessarily a credit event

403
00:22:55,359 --> 00:22:58,720
Speaker 1: where you know, mortgage credit is is frankly pristine and

404
00:22:58,760 --> 00:23:01,080
Speaker 1: it's the best that we've ever seen seen it. Um,

405
00:23:01,200 --> 00:23:05,840
Speaker 1: the underwriting standards of an extraordinary unemployment remains very very low,

406
00:23:05,920 --> 00:23:09,560
Speaker 1: and we still have a very brisk labor market. But mortgages,

407
00:23:09,840 --> 00:23:12,639
Speaker 1: given the volatility and rate shock that we've seen have

408
00:23:12,640 --> 00:23:15,680
Speaker 1: have really widened out from a spread perspective, both agency

409
00:23:15,680 --> 00:23:19,479
Speaker 1: and non agency mortgages. UH prevent a present and our

410
00:23:19,560 --> 00:23:23,600
Speaker 1: view an extraordinarily favorable opportunity here UH to lock in

411
00:23:23,760 --> 00:23:26,679
Speaker 1: you know, equally like returns and and very high quality

412
00:23:26,720 --> 00:23:29,520
Speaker 1: areas of fixed income. UH. And we think that you know,

413
00:23:29,560 --> 00:23:32,879
Speaker 1: patient investors will will be rewarded. Um. You know in

414
00:23:32,960 --> 00:23:36,720
Speaker 1: this amidst this volatility shock, we're currently in SAMA about

415
00:23:36,720 --> 00:23:40,040
Speaker 1: thirty seconds. But where does demanded destruction come in from

416
00:23:40,040 --> 00:23:43,240
Speaker 1: a motor's rate perspectives here? Well, I think you're starting

417
00:23:43,280 --> 00:23:47,240
Speaker 1: to see that demand destruction UH pretty significantly just given

418
00:23:47,280 --> 00:23:49,959
Speaker 1: the deterioration that we've seen an affordability. But as as

419
00:23:50,000 --> 00:23:53,920
Speaker 1: mortgage investors, UH, you know, it's not necessarily contingent on

420
00:23:53,960 --> 00:23:56,800
Speaker 1: the pace of housing activity. We definitely expected to slow

421
00:23:56,840 --> 00:24:00,480
Speaker 1: down and housing activity. But what's important clearly is more

422
00:24:00,520 --> 00:24:03,840
Speaker 1: of the delinquencies and what that actual home price is

423
00:24:03,960 --> 00:24:07,840
Speaker 1: if you actually have a default particularly nod agen see mortgages,

424
00:24:07,880 --> 00:24:11,600
Speaker 1: and what that ultimate recovery value is and so uh,

425
00:24:11,880 --> 00:24:13,520
Speaker 1: you know, if you think about the LTV of the

426
00:24:13,560 --> 00:24:17,840
Speaker 1: US housing market today at approximately thirty we've never seen

427
00:24:17,880 --> 00:24:19,960
Speaker 1: this much equity in the housing market. So we think,

428
00:24:20,320 --> 00:24:23,480
Speaker 1: you know, the resiliency of of the underlying asset class

429
00:24:23,520 --> 00:24:25,760
Speaker 1: will will hold up quite well. But there is a

430
00:24:25,840 --> 00:24:28,679
Speaker 1: tremendous amount of demand destruction just given the surge that

431
00:24:28,720 --> 00:24:31,600
Speaker 1: we've seen in mortgage rates. UH. And and again activity

432
00:24:31,640 --> 00:24:34,000
Speaker 1: will continue to slow. All right, Sam, good stuff. Really

433
00:24:34,000 --> 00:24:38,160
Speaker 1: appreciate getting uh the review update on the mortgage market,

434
00:24:38,160 --> 00:24:41,399
Speaker 1: housing market. Sam Dunlap see io at angel Oka a

435
00:24:41,520 --> 00:24:45,359
Speaker 1: Capital talking about the housing market here, such a surgeon

436
00:24:45,480 --> 00:24:48,040
Speaker 1: early part of the pandemic. Coming back down to reality.

437
00:24:49,960 --> 00:24:54,000
Speaker 1: Hurricane Ian, it made landfall in Cuba. Now it's got

438
00:24:54,000 --> 00:24:56,399
Speaker 1: his sights on Florida. It looks like the west coast

439
00:24:56,400 --> 00:24:58,760
Speaker 1: of Florida is going to get the brunt of it.

440
00:24:58,800 --> 00:25:01,399
Speaker 1: Of course, that brings into question and Tampa. When you

441
00:25:01,440 --> 00:25:04,240
Speaker 1: think about big, big metro cities, you think about, you know,

442
00:25:04,280 --> 00:25:06,359
Speaker 1: some of the insured losses are and what that means

443
00:25:06,359 --> 00:25:08,480
Speaker 1: for some of the big insurance companies in addition to

444
00:25:08,560 --> 00:25:11,720
Speaker 1: the good folks on the ground. Matthew Palazola, Bloomberg Intelligence,

445
00:25:11,720 --> 00:25:15,119
Speaker 1: Senior Annals covering property and casualty insurance. He joins us

446
00:25:15,119 --> 00:25:18,399
Speaker 1: here in a Bloomberg Interactive broker Studio. Tampa is a

447
00:25:18,480 --> 00:25:21,520
Speaker 1: big market, big insured market. What are some of the

448
00:25:21,640 --> 00:25:24,280
Speaker 1: estimates here potential damage? And apparently it's not a place

449
00:25:24,320 --> 00:25:26,679
Speaker 1: that gets hit by hurricanes. A lot does not get

450
00:25:26,800 --> 00:25:30,159
Speaker 1: hit by hurricanes often. Uh. There were some analogs in

451
00:25:30,240 --> 00:25:35,000
Speaker 1: the eighteen hundreds, the forties, the fifties, um, but nothing

452
00:25:35,280 --> 00:25:39,479
Speaker 1: directly hitting Tampa. Lloyd's of London has a scenario, not

453
00:25:39,560 --> 00:25:42,760
Speaker 1: for this storm specifically, but for a direct hit on Tampa,

454
00:25:42,840 --> 00:25:45,280
Speaker 1: which could be a hundred billion dollars of damage. Now

455
00:25:45,320 --> 00:25:48,879
Speaker 1: that's big, right, that is big. That would be the

456
00:25:48,920 --> 00:25:51,280
Speaker 1: biggest insured loss ever. I don't know if it would.

457
00:25:51,400 --> 00:25:53,240
Speaker 1: This storm is probably not getting to that level. But

458
00:25:53,280 --> 00:25:55,240
Speaker 1: if we're talking about insured value in the region, that's

459
00:25:55,280 --> 00:25:59,000
Speaker 1: that's what we're looking at. Uh. It's gonna miss the

460
00:25:59,040 --> 00:26:01,919
Speaker 1: oil rigs, right, so it's not gonna go Brian Sullivan

461
00:26:01,960 --> 00:26:05,040
Speaker 1: was telling us yesterday, it's probably not gonna be west

462
00:26:05,240 --> 00:26:09,880
Speaker 1: enough to hit the oil production hubs. That is correct.

463
00:26:09,920 --> 00:26:13,600
Speaker 1: So it's it's really focusing more more east. So the

464
00:26:13,640 --> 00:26:16,840
Speaker 1: models come out every six hours and they've been shifting.

465
00:26:17,119 --> 00:26:19,720
Speaker 1: Initially they were all the way from Louisiana to Florida,

466
00:26:19,920 --> 00:26:23,680
Speaker 1: but they've been moving more and more east to the Florida.

467
00:26:23,760 --> 00:26:25,960
Speaker 1: So how far is it right now from the Florida coast?

468
00:26:26,000 --> 00:26:30,280
Speaker 1: So it's about forty eight hours from from landfall in Florida,

469
00:26:30,400 --> 00:26:32,919
Speaker 1: and we still don't know. The latest run literally just

470
00:26:32,960 --> 00:26:34,879
Speaker 1: came up minutes before I came in. Here was a

471
00:26:34,920 --> 00:26:37,920
Speaker 1: little more south of Tampa. So a little bit better

472
00:26:38,000 --> 00:26:40,080
Speaker 1: of a forecast from an insured lost point of view,

473
00:26:40,560 --> 00:26:42,960
Speaker 1: a category one to two versus a two to three

474
00:26:43,440 --> 00:26:46,480
Speaker 1: uh and south of Tampa, okay, So what are some

475
00:26:46,520 --> 00:26:50,040
Speaker 1: of the companies that maybe have exposure there? From an

476
00:26:50,040 --> 00:26:52,760
Speaker 1: insurance perspective, So it's interesting what's going on is the

477
00:26:52,800 --> 00:26:55,240
Speaker 1: reinsurance companies will definitely have exposure. There's a name is

478
00:26:55,320 --> 00:26:59,399
Speaker 1: like so reinsure insure insurance company exactly. Those guys are

479
00:26:59,400 --> 00:27:03,320
Speaker 1: the altar risked bearers, right, the reinsurers. Well, so the

480
00:27:03,400 --> 00:27:05,440
Speaker 1: primary insurer retains a lot of the risk and then

481
00:27:05,440 --> 00:27:07,639
Speaker 1: they give some to the resations, not not all of it.

482
00:27:07,640 --> 00:27:10,560
Speaker 1: And ess interesting what's happening in Florida now anyway, is

483
00:27:10,920 --> 00:27:14,520
Speaker 1: reinsurance companies don't want to be there. There's rampant fraud

484
00:27:14,560 --> 00:27:19,520
Speaker 1: in the state. Aside from the risk of these hurricanes Florida. No, yes,

485
00:27:20,480 --> 00:27:23,080
Speaker 1: very much so. So they've been stepping back to begin with.

486
00:27:23,119 --> 00:27:26,280
Speaker 1: So before any of this is even happening, Uh, primary

487
00:27:26,280 --> 00:27:28,840
Speaker 1: companies are having a lot of trouble getting reinsurance to

488
00:27:28,880 --> 00:27:31,359
Speaker 1: the point where someone are leaving the state or actually

489
00:27:31,359 --> 00:27:36,080
Speaker 1: going insolvent. Interesting, So who are the biggest reinsurers? Are

490
00:27:36,080 --> 00:27:38,800
Speaker 1: we talking about munich Re or International? Yeah, so the

491
00:27:39,080 --> 00:27:42,680
Speaker 1: biggest reinsurers in the world are this, munich Re, Swiss Ree, Um,

492
00:27:43,080 --> 00:27:45,200
Speaker 1: I don't cover them. The companies I cover based out

493
00:27:45,200 --> 00:27:48,040
Speaker 1: of Bermuda, their names like Renaissance Ree, everest Ree, they

494
00:27:48,080 --> 00:27:50,680
Speaker 1: probably have. They will definitely have some exposure, probably less

495
00:27:50,680 --> 00:27:53,080
Speaker 1: than than the bigger companies though. So how about some

496
00:27:53,080 --> 00:27:55,479
Speaker 1: of the primary insurers that might have some risk. I mean,

497
00:27:55,480 --> 00:27:58,840
Speaker 1: I just think of all those gleaming office towers that

498
00:27:58,920 --> 00:28:01,399
Speaker 1: all the Wall Street terms are taking up now on

499
00:28:01,440 --> 00:28:04,159
Speaker 1: the law firms. I mean, it is a major skyline,

500
00:28:04,160 --> 00:28:07,399
Speaker 1: it is a major city, man. I just some of

501
00:28:07,400 --> 00:28:09,800
Speaker 1: these insurance companies might really be I'm sure they're paying

502
00:28:09,840 --> 00:28:11,720
Speaker 1: attention to it, like of course they are. Of course

503
00:28:11,720 --> 00:28:15,080
Speaker 1: they are. So the biggest UM, the biggest primary insurance

504
00:28:15,080 --> 00:28:17,880
Speaker 1: state farm which is not a public company. H Then

505
00:28:17,920 --> 00:28:19,760
Speaker 1: there's also a lot of the homes in the state

506
00:28:19,800 --> 00:28:22,879
Speaker 1: are with the state fund, so that's it's the taxpayers

507
00:28:22,960 --> 00:28:25,600
Speaker 1: essentially paying for it themselves. There's other names like all state,

508
00:28:25,800 --> 00:28:28,359
Speaker 1: um chub would be a name a I g. Who

509
00:28:28,359 --> 00:28:32,840
Speaker 1: would have exposure to maybe commercial properties not not outsized though.

510
00:28:33,280 --> 00:28:37,320
Speaker 1: So um does FEMA have any bearing on this? I mean,

511
00:28:37,320 --> 00:28:39,320
Speaker 1: do they go in there and and help out to

512
00:28:39,400 --> 00:28:42,800
Speaker 1: some extent or I think I guess so it will,

513
00:28:42,840 --> 00:28:44,920
Speaker 1: you know, eventually, depending on how bad it is, It

514
00:28:44,920 --> 00:28:50,040
Speaker 1: wouldn't matter dramatically for the insurance companies what what FEMA does.

515
00:28:50,080 --> 00:28:52,200
Speaker 1: But I guess it all depends on the severity of

516
00:28:52,200 --> 00:28:56,080
Speaker 1: the storm. But what's the big story long term thought

517
00:28:56,120 --> 00:29:00,960
Speaker 1: about the insurance business? Climate change just more and more radical.

518
00:29:01,440 --> 00:29:04,760
Speaker 1: You know, there's found more fires, bigger fires, more floods,

519
00:29:04,800 --> 00:29:07,320
Speaker 1: bigger floods, hurricanes, all that kind of stuff. Yeah, it's

520
00:29:07,320 --> 00:29:11,239
Speaker 1: all it's all happening. I mean, um, the reinsurers are

521
00:29:11,280 --> 00:29:13,040
Speaker 1: kind of the first line in this, so they're the

522
00:29:13,080 --> 00:29:14,840
Speaker 1: ones that are stepping back and saying these risks are

523
00:29:14,840 --> 00:29:18,360
Speaker 1: getting too big to take. What probably will happen. We

524
00:29:18,440 --> 00:29:20,360
Speaker 1: just had a cold today with someone who said there

525
00:29:20,440 --> 00:29:24,520
Speaker 1: might be more public private partnerships, meaning the insurance just

526
00:29:24,760 --> 00:29:26,520
Speaker 1: we're just not doing it. And if you want to

527
00:29:26,560 --> 00:29:28,760
Speaker 1: live close to a wildfire area or you want to

528
00:29:28,800 --> 00:29:31,280
Speaker 1: live in a hurricane prone area, then the state is

529
00:29:31,320 --> 00:29:33,880
Speaker 1: going to have to work out some solution with you

530
00:29:34,360 --> 00:29:36,640
Speaker 1: and it's going to ultimately fall in taxpayers. But you

531
00:29:36,680 --> 00:29:42,320
Speaker 1: do see um, uh, these kind of events happening more frequently.

532
00:29:42,880 --> 00:29:45,280
Speaker 1: We do. I mean, there's no one is saying that

533
00:29:46,000 --> 00:29:49,000
Speaker 1: country is not happening. I would say one thing, there

534
00:29:49,080 --> 00:29:51,880
Speaker 1: was a big period of kind of benign weather right

535
00:29:51,920 --> 00:29:54,920
Speaker 1: before this, and now we're seeing more extreme So could

536
00:29:55,000 --> 00:29:58,480
Speaker 1: we could we be in a mean reversion or could

537
00:29:58,480 --> 00:30:02,200
Speaker 1: we be in a kind of crazier weather forever? Uh,

538
00:30:02,360 --> 00:30:04,640
Speaker 1: you know, we don't know. Alright, good stuff. Matthew Palozola,

539
00:30:04,760 --> 00:30:08,320
Speaker 1: Bloomberg Intelligent senior analysts covering the property insurance business, joining

540
00:30:08,400 --> 00:30:11,920
Speaker 1: us in studio. He does not phone it in, he

541
00:30:11,960 --> 00:30:15,000
Speaker 1: comes in studio. So we're talking about Hurricane Ian. Obviously

542
00:30:15,040 --> 00:30:16,960
Speaker 1: it's a big, big, big issue for all the good

543
00:30:16,960 --> 00:30:19,240
Speaker 1: folks down there in far to to deal with it.

544
00:30:19,240 --> 00:30:20,960
Speaker 1: Looks like it will be a pretty significant storm. But

545
00:30:21,000 --> 00:30:23,280
Speaker 1: there's also the business end of at the P and

546
00:30:23,400 --> 00:30:26,280
Speaker 1: l end of it, which is the insurance angle h

547
00:30:26,320 --> 00:30:29,360
Speaker 1: and kind of what is the ensurable losses potential in

548
00:30:29,440 --> 00:30:31,560
Speaker 1: some of these markets. So guys like Matthew help us

549
00:30:31,560 --> 00:30:34,440
Speaker 1: out there. Thanks for listening to the Bloomberg Markets podcast.

550
00:30:34,840 --> 00:30:38,040
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts

551
00:30:38,160 --> 00:30:42,080
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm

552
00:30:42,120 --> 00:30:46,160
Speaker 1: on Twitter at Matt Miller three. Pet On Ball Sweeney

553
00:30:46,160 --> 00:30:48,800
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you

554
00:30:48,840 --> 00:30:51,240
Speaker 1: can always catch us worldwide at Bloomberg Radio