Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: All right, So Lisa Bramwinz long ago told me I
Speaker 1: need to pay attention to these treasury auctions and before like,
Speaker 1: really do I have to? Apparently there was a two
Speaker 1: year treasury auction yesterday that saw some week demand. I
Speaker 1: think a five year one is on deck here. So
Speaker 1: Ira Jersey, he's our chief US indust rate strategist. He's
Speaker 1: gonna tell us why don't we need to pay attention?
Speaker 1: You know, I had a producer, um Tim Andreacchi. He
Speaker 1: was always freaking out about the treasury auctions because our
Speaker 1: show was at one o'clock and they always come out,
Speaker 1: I mean what, they rarely tell you anything, don't they ira,
Speaker 1: So they they tell you where demand is at that moment,
Speaker 1: right And and I think that the reason why the
Speaker 1: treasury auctions are so important right now is because they
Speaker 1: give you a hint as to who's willing to take
Speaker 1: risk and if investors are willing to take risk or not.
Speaker 1: And and the last couple of months you've seen a
Speaker 1: significant reduction in demand by particularly foreigners and domestic investment
Speaker 1: funds for for treasuries at auction, and and it just
Speaker 1: shows you that, like you know it, it proves a
Speaker 1: level when when when you think about the fixed income
Speaker 1: market UM, it's not as as homogeneous as saying the
Speaker 1: equity market is in general. So you have multiple bonds
Speaker 1: with different maturities, so you have a lot of different
Speaker 1: instruments at play. And by having a new issue, whether
Speaker 1: it's in the in the corporate world or in the
Speaker 1: UM or in the treasure remarket UM, you you get
Speaker 1: the gauge real demand for that new supply. And you've
Speaker 1: seen that even though the sizes of the treasury auctions
Speaker 1: are getting smaller. You're seeing demand go down even faster.
Speaker 1: And that's the reason you've seen a lot of softness
Speaker 1: in some of these these issues. So why are the
Speaker 1: international buyers, Why are they not there? Maybe like the
Speaker 1: maybe how they used to be well, but partially because
Speaker 1: I think there is a preference for cash right now.
Speaker 1: Because if if you're even if you're a foreign buyer
Speaker 1: where you know yields in the US or you know,
Speaker 1: multiples of what they are in your your home jurisdiction,
Speaker 1: if you think that interest rates are going to keep
Speaker 1: going up, you you don't want to be buying a
Speaker 1: bond because then you'll wind up losing money on on
Speaker 1: the price side, um you know. So so as as
Speaker 1: to your treasury yields, if they go up from you know,
Speaker 1: four percent to five percent, you're gonna lose UM. You're
Speaker 1: gonna lose a couple of percent in UM in terms
Speaker 1: of opportunity cost uh and and the price of that
Speaker 1: instrument will go down. So I think that's the that's
Speaker 1: the A couple of the big reasons is that you
Speaker 1: don't have the um you know, massive demand you also
Speaker 1: have on the other side, and this is this is
Speaker 1: part of The issue I think with with the foreign
Speaker 1: investors and in terms of central banks, is that central
Speaker 1: banks want to uh, you know, want want to prop
Speaker 1: up their own currencies because their own currencies are slipping
Speaker 1: very quickly against the dollar. And if they go out
Speaker 1: and they go buy two year treasuries, they also have
Speaker 1: to buy dollars on top of that, which will just
Speaker 1: weaken their currency even further. So there's so foreign exchange
Speaker 1: managers aren't going to be involved in these auctions like
Speaker 1: they sometimes. I'm just surprised that Japanese. I mean, you're
Speaker 1: if if you're looking at a situation where there's no
Speaker 1: reason for the end um go down. Well, well, let's
Speaker 1: say this, if you're looking at a situation where the
Speaker 1: finance ministry is defending the end and um, you know
Speaker 1: your interest rates on the ten year or zero point
Speaker 1: two percent versus you know, four percent in the US,
Speaker 1: wouldn't you want that? Well no, because again you have
Speaker 1: to buy dollars then, and you're just weakening the end
Speaker 1: versus buying versus the dollar. And and if you're trying
Speaker 1: to defend your currency and trying to stop your currency
Speaker 1: from falling further, you want to actually be selling uh
Speaker 1: dollar denominated assets and buying the end denominated assets. And
Speaker 1: that's the that's the reason why you have those foreign
Speaker 1: foreign reserves, and and and that is one of the
Speaker 1: dynamics that you're seeing in some of these auctions. Now, unfortunately,
Speaker 1: we don't know what exactly what happened yesterday because this
Speaker 1: data comes out after the the auction settle and we
Speaker 1: get all of the other data. But the allotment data,
Speaker 1: when you look at it from the August auctions certainly
Speaker 1: showed that there was a slowdown in demand from foreign
Speaker 1: investors and a lot of the different issues across the curve.
Speaker 1: And I think that isn't part because of this idea
Speaker 1: that they don't want to strengthen their own currency. Now. Now,
Speaker 1: of course, if if they have a maturing bond, they
Speaker 1: might participate in the auction just to roll over that bond.
Speaker 1: They're not buying new dollars or just rolling over the
Speaker 1: old dollars. Um But but you know, no new money
Speaker 1: is going to come in. And and you know, even
Speaker 1: though even though you know, interest rate dynamics are going
Speaker 1: to matter here because eventually this might turn very significant
Speaker 1: because once the once the Fed's done hiking, I think
Speaker 1: what's gonna happen is that other central banks are gonna
Speaker 1: be catching up, and that's when you're going to see
Speaker 1: a significant turn in the dollar. And once you see
Speaker 1: that turn in the dollar, those all of those flows
Speaker 1: could wind up changing very quickly. Um. Now, I don't
Speaker 1: think that's going to happen until three but um, but
Speaker 1: it is something to look out for because the FED
Speaker 1: is ahead of the curve here. Well, I can't see
Speaker 1: the head of the curve that other central banks in
Speaker 1: its hiking cycle, right, so therefore it probably will stop
Speaker 1: before the other central banks are done. The FED is
Speaker 1: the curve. Now FED has the curve just a quick
Speaker 1: thirty seconds. Kind of a plumbing issue, dude. The dealers
Speaker 1: buy does the JP Morgan's of the world in the
Speaker 1: Goldmen Sex? Do they buy for their own account? At auctions?
Speaker 1: They have to Yeah, yeah, they have to bid for
Speaker 1: pro rata amount, so it's twenty primary dealers. They each
Speaker 1: have to bid for five percent of the auctions. That's
Speaker 1: one reason why in the US you won't ever have
Speaker 1: a failed auction um where you have less bids than
Speaker 1: you have issued. But so so they do buy for
Speaker 1: their own account, but they've been getting much smaller over
Speaker 1: the last couple of years in favor of money managers
Speaker 1: who are much more active and really the incremental price
Speaker 1: setters at a lot of these auctions. See, so I just,
Speaker 1: you know, I don't know, step up and buy him.
Speaker 1: See these auctions. See they're important. I just learned something that. Yeah, well,
Speaker 1: I mean, how important is an auction where you have
Speaker 1: a whole bunch of giant banks that are that are
Speaker 1: required to bid. Yeah, but you want him to bid aggressively,
Speaker 1: so you gotta put some competition out there, all right,
Speaker 1: Ira Jersey uh covers interest rates. He's a strategist Bloomberg Intelligence. Also,
Speaker 1: we didn't get to talk to about soccer, but he
Speaker 1: follows soccer religiously. He's also a part owner and some
Speaker 1: I think a minor league I think is a way
Speaker 1: to term it um soccer team professional soccer team in
Speaker 1: central New Jersey. So go figure how many strategies you
Speaker 1: know that owns a soccer team. I mean, he's just
Speaker 1: like these big players. Next is gonna be the premier league.
Speaker 1: Some Americans have to care, Matt. There are a lot
Speaker 1: of electric vehicle companies out there. Just seems like I
Speaker 1: saw a Lucid Air the other day. You know, I
Speaker 1: told my wife, I said, there's a lucid She said,
Speaker 1: what are you talking about? Said lucid Air said, I
Speaker 1: still don't know what you're talking about. Um. It was
Speaker 1: pretty cool, all right. Peter Wine, he's the CEO of Centro.
Speaker 1: What I love about There's a lot of things I
Speaker 1: like that's coming. One of it's based in Freehold, New Jersey.
Speaker 1: You know who came from Freehold, New Jersey, Grover Cleveland. Jeez, Peter,
Speaker 1: can you help him out? Who else is? They came
Speaker 1: from Freehold, New Jersey, between New York and the Pennsylvania
Speaker 1: and the Philadelphia and being good stuff. All right? Peter
Speaker 1: talked to us about Central. What do you guys do there?
Speaker 1: What's talks about your business? Your company? Sancho's visue actually
Speaker 1: beginning in twenty thirteen, and that desired to transform the
Speaker 1: commercial see industry, which to like pseudo mission vehicles. Yeah,
Speaker 1: that has and the remains are so and singer of focus. Yeah.
Speaker 1: We grow from one low speed vehicle in twenties Penteam
Speaker 1: and the two a full product line that the currently
Speaker 1: will include a commercial vehicles and the seven for industry
Speaker 1: use with multiple variations and the one for off road use. Yeah.
Speaker 1: So so our our mission is really try to lead
Speaker 1: the transformation in this automotive industry, and they try to
Speaker 1: become a leader in the electrical commercial vehicle sector. That's
Speaker 1: a little bit. So who's who's your who's your customer?
Speaker 1: Who's that a typical customer for one of your vehicles? Yes,
Speaker 1: it's mostly it's the free operators and also the municiples.
Speaker 1: They provided the local service and which is basically for
Speaker 1: the commercial user morally. Right now, it's like a percent
Speaker 1: of our our customers for steady deliver and the like
Speaker 1: urban services. So, um, how much traction are you getting?
Speaker 1: I mean, what's your revenue growth look like? And how
Speaker 1: are your projections? Yeah, we are already finished the face
Speaker 1: for the vehicle development and the way are looking for
Speaker 1: the first growing in the revenue and in the deliver delivery,
Speaker 1: and we are building our distribution and UH and the
Speaker 1: aftermarket support network in America and the Europe and something
Speaker 1: in Asia. So you've already you've already got what four
Speaker 1: or five thousand vehicles out yes, so far, Yeah, we
Speaker 1: already have more than I think more than five thousand
Speaker 1: already being add to the market. So who do you
Speaker 1: compete against in that part of the market world. You
Speaker 1: know obviously familiar with the consumer automobile segment, the Tessil's
Speaker 1: and and now all the other O E M is
Speaker 1: getting in there, But who do you typically compete against?
Speaker 1: Who do you think you will compete against in this segment?
Speaker 1: I think you know the company like uh like a workhorse,
Speaker 1: you know, that's our primary competitor, and all they're living
Speaker 1: and because the living they produce the pickups, they also
Speaker 1: uh makes deliver van. So that's our I think the
Speaker 1: biggest main competitor the market now. And I think you know,
Speaker 1: with the all the the product and ready, I think
Speaker 1: we are kind of like a leading the sector at
Speaker 1: this moment. So let me just finally ask you about
Speaker 1: the supply chain and the chip management that you've been
Speaker 1: able to do. What does your supply chain look like
Speaker 1: and how is your access to microchips? Yeah, that was
Speaker 1: our you know, last years of struggling. So so it's
Speaker 1: just like everybody is struggling for the supply chain and aware.
Speaker 1: I think we are in the very good position right
Speaker 1: now because you know, some of the r O E
Speaker 1: M is a tier one manufacturer and from from China
Speaker 1: and the previous we have a little bit of shipping problem,
Speaker 1: and but now we see all the shipping price school
Speaker 1: going down and that we are not able to get
Speaker 1: the container. I think, you know, we are strongly positioned
Speaker 1: and very well developed our supply chain base. I think
Speaker 1: away in the supply chain we're doing. I think we're
Speaker 1: doing very good, all right, Peter, Good stuff interesting story here, Peter,
Speaker 1: when he's the CEO of Centro making electric vehicles for
Speaker 1: the commercial commercial vehicle segments. So interesting, you know, segment
Speaker 1: there that likely will be addressed there with a lot
Speaker 1: of competitors. Stuff there. What I'm very much focused on
Speaker 1: is in this space, but more of a consumer vehicle segment.
Speaker 1: Harley Davidson. Today is down on the New York Stock Exchange. UM.
Speaker 1: Today is the day that they merge their live Wire
Speaker 1: electric motorcycle unit with UM. The spack. The spack name
Speaker 1: is a E. A. Bridges Impact Corps. Hopefully, dear goodness,
Speaker 1: they change that name. UM, so it's going to be
Speaker 1: I guess called live Wire now so you can get
Speaker 1: an electric Harley Davidson. Yes, Pounds Sterling steady here today
Speaker 1: one spot zero seven seven, but it has been under
Speaker 1: siege with mounting bets that it may below drop below
Speaker 1: one dollar, the old parody thing. Let's bring in Stephen Gallo.
Speaker 1: He's had of European FIC strategy for BEMO capital markets. Stephen,
Speaker 1: is is parity for sterling? Is that a reasonable possibility?
Speaker 1: I think anything that reasonable possibility or this in this
Speaker 1: ethics environment, with this type of volatility, in these types
Speaker 1: of swings, UM, we'd like to say the bottom for
Speaker 1: the cycle is in. UM. We're kind of hoping that
Speaker 1: the bottom for the cycle is and the thing goes
Speaker 1: for the top in the US dollar. UM, but I'd
Speaker 1: say we have moderate confection the view at this stage. UM,
Speaker 1: in terms of the dollar side of the equation, we're
Speaker 1: pretty confit in at this stage that most of what
Speaker 1: the FET is signaling is now priced in. Uh So,
Speaker 1: the transmission of set policy to the FX market via
Speaker 1: interest rate differentials, we think that has largely when it's
Speaker 1: called course. But what we're less what we're more concerned about,
Speaker 1: unless unless certain is finished, is the extent to which
Speaker 1: the FX market prices in a higher global recession probability,
Speaker 1: as well as the the lingering effect or the ongoing
Speaker 1: effect I should say, of quanticative heightening from the fet Uh.
Speaker 1: These concern us a loss for non dollar currencies. Uh.
Speaker 1: If you think most of the Fed rate hikes are
Speaker 1: priced in, where do you see the terminal rate? Well,
Speaker 1: the BEMO house is uh, you know, around four point
Speaker 1: six issue give or take for the effective set funds rate.
Speaker 1: And that's what he said basically at the press conference. Yeah, so,
Speaker 1: I mean, rough roughly in line with that, um, the
Speaker 1: effective that things are made. Um, we've got them going
Speaker 1: twice more uh in in two dozen twenty two and
Speaker 1: then hiking once again at the first meeting of two
Speaker 1: dozen and twenty three. But the you know, the main
Speaker 1: the main point here is that that is largely the
Speaker 1: old that he reflected, and then some just find a
Speaker 1: little bit uh into the dollar O I ask her. So,
Speaker 1: I mean, if if we start to see um, you know,
Speaker 1: core inflation showing clear signs of decelerating in the United
Speaker 1: States and we get one or two months of negative
Speaker 1: job prints, that that will definitely be a big helping
Speaker 1: hand for um, this dollar peach story. But on the
Speaker 1: other side of that, UM, we have to get through
Speaker 1: this issue of how bad the global and or US
Speaker 1: recession is going to be and we probably haven't gotten
Speaker 1: to the peak pricing for global recession risk just yet. Um,
Speaker 1: and until that happens, it's going to be harder for
Speaker 1: the dollar to fall sharply. Until we're confirmed that is so,
Speaker 1: the FED does a major pivot, it's going to be
Speaker 1: hard for the dollar to fall sharply. Well, you know,
Speaker 1: this is a question that Paul has been asking for
Speaker 1: a couple of weeks now, and UM, we haven't really
Speaker 1: heard anyone say yes, Is there any bearer case for
Speaker 1: the US dollar? Is there a bearer case for the
Speaker 1: US dollar? Is there any bearer case at all in
Speaker 1: the in the medium to long term, potentially in the
Speaker 1: short run. Uh, it's tough to see it. Uh, it's
Speaker 1: tough to see the dollar following system. I mean just look,
Speaker 1: I mean, if the FED word to engineer some type
Speaker 1: of the pivot and were to confirm that it's not
Speaker 1: that we're starting to see a clear science that core
Speaker 1: inflation pressures are rolling over and going in the set
Speaker 1: for a direction United States. The labor market is well,
Speaker 1: you still have all of these structural issues ongoing geopolitical
Speaker 1: and structural issues on the capital flow side, uh, for
Speaker 1: a number of major European currencies, for Asia ex japan currencies,
Speaker 1: for the Japanese en. UM, that that defect pivoting to
Speaker 1: a neutual policy stand is not simply going to make
Speaker 1: go away. It might help the healing process beginning for
Speaker 1: those structural um claws and those currencies. UM, but it's
Speaker 1: not gonna make no way. UM. You know, when we're
Speaker 1: moving from an environment or an era of globalization, UM
Speaker 1: where we got very used to ultra low interest rates,
Speaker 1: quantitative easing, high asset valuations, to an on the binding
Speaker 1: of that. Um, it's very hard for non dollar currencies
Speaker 1: to really sustainably uh. So UM, that's the picture. Unfortunately, Stephen,
Speaker 1: you've been in this FX game a long time. What
Speaker 1: did you make in the actual trading of pounds sterling
Speaker 1: over the past couple of days? Pretty pretty wild moves there. Well, UM,
Speaker 1: I'm not I'm a strategist, so I don't I don't
Speaker 1: have to write, but I mean, it's just just just
Speaker 1: the movements. What what what was that market, Telly, and
Speaker 1: just the market was just really give us an adjective.
Speaker 1: I think I think that we've seen a very here,
Speaker 1: but probably in my view, a long overdue repricing of
Speaker 1: UK risk premia um because of the fiscal picture, because
Speaker 1: of the good picture, because of the balance of payments picture.
Speaker 1: And I think that caught up with the currency and
Speaker 1: the guilt market this week and last week. And what
Speaker 1: you saw basically was a liquidity event, a low lack
Speaker 1: of liquidity in both the FX market and the guilt market,
Speaker 1: which made the price action ten times worse than it
Speaker 1: would have been. Uh with that to be there, um
Speaker 1: so um. You know, we're getting into a situation now
Speaker 1: where risk premia are adjusting, but they're not adjusting an
Speaker 1: orderly fashion. All right, good stuff, appreciate it as always
Speaker 1: Stephen gal Bmo Capital Market. So we didn't even get
Speaker 1: to the end. We didn't even get to the end.
Speaker 1: But that was it seems like ancient history, but that
Speaker 1: was just last week that the Finance Ministry intervened in
Speaker 1: the Japanese end to defend the currency for the first
Speaker 1: time since that was twenty four years ago. Remember it. Well,
Speaker 1: good year. Look at the housing market. We had new
Speaker 1: home sales data came out today, came in better than expected,
Speaker 1: uh six eighty five thousand verses consensus A five thousand,
Speaker 1: a little bit higher than last month, which was revised higher.
Speaker 1: But certainly they're housing sales are coming down from the
Speaker 1: peak of the pandemic. Question is can this housing market
Speaker 1: and engineer a soft landing or will it be ugly?
Speaker 1: Can it serve five rates? Rates? And what did you
Speaker 1: say that mortgage races today six point seven that's a
Speaker 1: long way from you know, three and a quarter from
Speaker 1: just you know, a year ago. Sam Dunlap ce Io
Speaker 1: at Angelo Capital, join just Sam, love to get your
Speaker 1: thoughts on kind of the register, you know, the residential
Speaker 1: real estate market here, how do you how do you
Speaker 1: characterize the last few years? And and then maybe where
Speaker 1: we are right now. Thanks for having me on a
Speaker 1: great question, you know, the to your point on you know,
Speaker 1: Cannon housing achieve a soft landing and given the pace
Speaker 1: of appreciation we saw and home prices really post pandemic um,
Speaker 1: it's clearly very difficult to sustain those type of levels.
Speaker 1: And and as you all know, you know, case Shiller
Speaker 1: came out this morning and uh it was below expectations
Speaker 1: and one of the more swift declines we've seen in
Speaker 1: the index um, you know, rising six on a year
Speaker 1: of a year basis, but we expect you know, home
Speaker 1: the home pace of a home price appreciation clearly cannot
Speaker 1: sustain the current levels. But you know, the housing market
Speaker 1: was really benefiting from you know, this historic supplying to
Speaker 1: man mismatch that market participants have been identifying for years.
Speaker 1: But the extraordinarily a little mortgage rates fueled surging home prices,
Speaker 1: particularly during COVID. While that's not sustainable. Uh, you know,
Speaker 1: we do expect the very favorable supply and demand dynamic
Speaker 1: in US housing supporting home prices, but the pace of
Speaker 1: appreciation clearly cannot cannot keep up. But what is um,
Speaker 1: what what does it look like in terms of US
Speaker 1: housing that makes you feel like it's supportive in terms
Speaker 1: of the supply and demand? Right? Is there just not
Speaker 1: enough land? Our builders UM still having trouble getting Uh,
Speaker 1: construction materials are is labored? The problem? What's the issue
Speaker 1: on the supply side? You know, on the supply side
Speaker 1: is you know, we just historically underbuilt really after the
Speaker 1: global financial crisis and that that really has not changed.
Speaker 1: And very similar to the dynamics that we saw in
Speaker 1: the not late nineteen seventies with the baby boomers, you know,
Speaker 1: they were forming households at a very brisk pace. We're
Speaker 1: still seeing that from the millennials, you know, on annualized
Speaker 1: pace of approximately one point two mill and household formations
Speaker 1: today and that's very supportive. Is is you know, the
Speaker 1: demand for single family shelter, particularly coming out of COVID,
Speaker 1: still remains strong. But affordability has really been the challenge
Speaker 1: here as the FEDS is inflicted as as Chairman Powell
Speaker 1: wanted a lot of pain clearly on the economy, and
Speaker 1: the initial transmission mechanism has definitely been surging mortgage rates
Speaker 1: as you pointed out, and that's really hurt the affordability aspect,
Speaker 1: but the underlying demand UH and lack of supply and
Speaker 1: and just the fact of how underbuilt the US housing
Speaker 1: as we think, you know, achieves that soft landing for
Speaker 1: for US housing and not the you know, extreme downturn
Speaker 1: that we saw really coming out of the financial crisis.
Speaker 1: What are you doing in your fund? Sam? You manage
Speaker 1: the Angelo Multi Strategy Income Fund, the Strategic Credit Fund,
Speaker 1: the Core Impact Fund, um Multi Strategy Income You see
Speaker 1: I T S fund. I don't even know what you
Speaker 1: see I t S means, But what are you doing
Speaker 1: in those funds right now. Yeah, So you know, the
Speaker 1: mortgage market, like all areas fixed income, has been under
Speaker 1: a tremendous amount of pressure this year, just given the
Speaker 1: swift pace of tightening and a complete revision of of
Speaker 1: fat expectations. But uh, mortgages have been particularly sensitive to
Speaker 1: what we're describing is really a volatility shock. So you know,
Speaker 1: we we went through the first phase of the inflation shock.
Speaker 1: Is inflation with parabolic this year, as we all um
Speaker 1: know very well at this point. But also you saw
Speaker 1: rates clearly repriced very swiftly, and volatility surging and the
Speaker 1: interest rate world to historic highs. And from a volatility perspective,
Speaker 1: we're really at a crisis like levels from a from
Speaker 1: an historical standpoint, and uh, that presents an extraordinarily favorable
Speaker 1: time for mortgages in particular, is uh we view, you know,
Speaker 1: this near term event is not necessarily a credit event
Speaker 1: where you know, mortgage credit is is frankly pristine and
Speaker 1: it's the best that we've ever seen seen it. Um,
Speaker 1: the underwriting standards of an extraordinary unemployment remains very very low,
Speaker 1: and we still have a very brisk labor market. But mortgages,
Speaker 1: given the volatility and rate shock that we've seen have
Speaker 1: have really widened out from a spread perspective, both agency
Speaker 1: and non agency mortgages. UH prevent a present and our
Speaker 1: view an extraordinarily favorable opportunity here UH to lock in
Speaker 1: you know, equally like returns and and very high quality
Speaker 1: areas of fixed income. UH. And we think that you know,
Speaker 1: patient investors will will be rewarded. Um. You know in
Speaker 1: this amidst this volatility shock, we're currently in SAMA about
Speaker 1: thirty seconds. But where does demanded destruction come in from
Speaker 1: a motor's rate perspectives here? Well, I think you're starting
Speaker 1: to see that demand destruction UH pretty significantly just given
Speaker 1: the deterioration that we've seen an affordability. But as as
Speaker 1: mortgage investors, UH, you know, it's not necessarily contingent on
Speaker 1: the pace of housing activity. We definitely expected to slow
Speaker 1: down and housing activity. But what's important clearly is more
Speaker 1: of the delinquencies and what that actual home price is
Speaker 1: if you actually have a default particularly nod agen see mortgages,
Speaker 1: and what that ultimate recovery value is and so uh,
Speaker 1: you know, if you think about the LTV of the
Speaker 1: US housing market today at approximately thirty we've never seen
Speaker 1: this much equity in the housing market. So we think,
Speaker 1: you know, the resiliency of of the underlying asset class
Speaker 1: will will hold up quite well. But there is a
Speaker 1: tremendous amount of demand destruction just given the surge that
Speaker 1: we've seen in mortgage rates. UH. And and again activity
Speaker 1: will continue to slow. All right, Sam, good stuff. Really
Speaker 1: appreciate getting uh the review update on the mortgage market,
Speaker 1: housing market. Sam Dunlap see io at angel Oka a
Speaker 1: Capital talking about the housing market here, such a surgeon
Speaker 1: early part of the pandemic. Coming back down to reality.
Speaker 1: Hurricane Ian, it made landfall in Cuba. Now it's got
Speaker 1: his sights on Florida. It looks like the west coast
Speaker 1: of Florida is going to get the brunt of it.
Speaker 1: Of course, that brings into question and Tampa. When you
Speaker 1: think about big, big metro cities, you think about, you know,
Speaker 1: some of the insured losses are and what that means
Speaker 1: for some of the big insurance companies in addition to
Speaker 1: the good folks on the ground. Matthew Palazola, Bloomberg Intelligence,
Speaker 1: Senior Annals covering property and casualty insurance. He joins us
Speaker 1: here in a Bloomberg Interactive broker Studio. Tampa is a
Speaker 1: big market, big insured market. What are some of the
Speaker 1: estimates here potential damage? And apparently it's not a place
Speaker 1: that gets hit by hurricanes. A lot does not get
Speaker 1: hit by hurricanes often. Uh. There were some analogs in
Speaker 1: the eighteen hundreds, the forties, the fifties, um, but nothing
Speaker 1: directly hitting Tampa. Lloyd's of London has a scenario, not
Speaker 1: for this storm specifically, but for a direct hit on Tampa,
Speaker 1: which could be a hundred billion dollars of damage. Now
Speaker 1: that's big, right, that is big. That would be the
Speaker 1: biggest insured loss ever. I don't know if it would.
Speaker 1: This storm is probably not getting to that level. But
Speaker 1: if we're talking about insured value in the region, that's
Speaker 1: that's what we're looking at. Uh. It's gonna miss the
Speaker 1: oil rigs, right, so it's not gonna go Brian Sullivan
Speaker 1: was telling us yesterday, it's probably not gonna be west
Speaker 1: enough to hit the oil production hubs. That is correct.
Speaker 1: So it's it's really focusing more more east. So the
Speaker 1: models come out every six hours and they've been shifting.
Speaker 1: Initially they were all the way from Louisiana to Florida,
Speaker 1: but they've been moving more and more east to the Florida.
Speaker 1: So how far is it right now from the Florida coast?
Speaker 1: So it's about forty eight hours from from landfall in Florida,
Speaker 1: and we still don't know. The latest run literally just
Speaker 1: came up minutes before I came in. Here was a
Speaker 1: little more south of Tampa. So a little bit better
Speaker 1: of a forecast from an insured lost point of view,
Speaker 1: a category one to two versus a two to three
Speaker 1: uh and south of Tampa, okay, So what are some
Speaker 1: of the companies that maybe have exposure there? From an
Speaker 1: insurance perspective, So it's interesting what's going on is the
Speaker 1: reinsurance companies will definitely have exposure. There's a name is
Speaker 1: like so reinsure insure insurance company exactly. Those guys are
Speaker 1: the altar risked bearers, right, the reinsurers. Well, so the
Speaker 1: primary insurer retains a lot of the risk and then
Speaker 1: they give some to the resations, not not all of it.
Speaker 1: And ess interesting what's happening in Florida now anyway, is
Speaker 1: reinsurance companies don't want to be there. There's rampant fraud
Speaker 1: in the state. Aside from the risk of these hurricanes Florida. No, yes,
Speaker 1: very much so. So they've been stepping back to begin with.
Speaker 1: So before any of this is even happening, Uh, primary
Speaker 1: companies are having a lot of trouble getting reinsurance to
Speaker 1: the point where someone are leaving the state or actually
Speaker 1: going insolvent. Interesting, So who are the biggest reinsurers? Are
Speaker 1: we talking about munich Re or International? Yeah, so the
Speaker 1: biggest reinsurers in the world are this, munich Re, Swiss Ree, Um,
Speaker 1: I don't cover them. The companies I cover based out
Speaker 1: of Bermuda, their names like Renaissance Ree, everest Ree, they
Speaker 1: probably have. They will definitely have some exposure, probably less
Speaker 1: than than the bigger companies though. So how about some
Speaker 1: of the primary insurers that might have some risk. I mean,
Speaker 1: I just think of all those gleaming office towers that
Speaker 1: all the Wall Street terms are taking up now on
Speaker 1: the law firms. I mean, it is a major skyline,
Speaker 1: it is a major city, man. I just some of
Speaker 1: these insurance companies might really be I'm sure they're paying
Speaker 1: attention to it, like of course they are. Of course
Speaker 1: they are. So the biggest UM, the biggest primary insurance
Speaker 1: state farm which is not a public company. H Then
Speaker 1: there's also a lot of the homes in the state
Speaker 1: are with the state fund, so that's it's the taxpayers
Speaker 1: essentially paying for it themselves. There's other names like all state,
Speaker 1: um chub would be a name a I g. Who
Speaker 1: would have exposure to maybe commercial properties not not outsized though.
Speaker 1: So um does FEMA have any bearing on this? I mean,
Speaker 1: do they go in there and and help out to
Speaker 1: some extent or I think I guess so it will,
Speaker 1: you know, eventually, depending on how bad it is, It
Speaker 1: wouldn't matter dramatically for the insurance companies what what FEMA does.
Speaker 1: But I guess it all depends on the severity of
Speaker 1: the storm. But what's the big story long term thought
Speaker 1: about the insurance business? Climate change just more and more radical.
Speaker 1: You know, there's found more fires, bigger fires, more floods,
Speaker 1: bigger floods, hurricanes, all that kind of stuff. Yeah, it's
Speaker 1: all it's all happening. I mean, um, the reinsurers are
Speaker 1: kind of the first line in this, so they're the
Speaker 1: ones that are stepping back and saying these risks are
Speaker 1: getting too big to take. What probably will happen. We
Speaker 1: just had a cold today with someone who said there
Speaker 1: might be more public private partnerships, meaning the insurance just
Speaker 1: we're just not doing it. And if you want to
Speaker 1: live close to a wildfire area or you want to
Speaker 1: live in a hurricane prone area, then the state is
Speaker 1: going to have to work out some solution with you
Speaker 1: and it's going to ultimately fall in taxpayers. But you
Speaker 1: do see um, uh, these kind of events happening more frequently.
Speaker 1: We do. I mean, there's no one is saying that
Speaker 1: country is not happening. I would say one thing, there
Speaker 1: was a big period of kind of benign weather right
Speaker 1: before this, and now we're seeing more extreme So could
Speaker 1: we could we be in a mean reversion or could
Speaker 1: we be in a kind of crazier weather forever? Uh,
Speaker 1: you know, we don't know. Alright, good stuff. Matthew Palozola,
Speaker 1: Bloomberg Intelligent senior analysts covering the property insurance business, joining
Speaker 1: us in studio. He does not phone it in, he
Speaker 1: comes in studio. So we're talking about Hurricane Ian. Obviously
Speaker 1: it's a big, big, big issue for all the good
Speaker 1: folks down there in far to to deal with it.
Speaker 1: Looks like it will be a pretty significant storm. But
Speaker 1: there's also the business end of at the P and
Speaker 1: l end of it, which is the insurance angle h
Speaker 1: and kind of what is the ensurable losses potential in
Speaker 1: some of these markets. So guys like Matthew help us
Speaker 1: out there. Thanks for listening to the Bloomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
Speaker 1: on Twitter at Matt Miller three. Pet On Ball Sweeney
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
Speaker 1: can always catch us worldwide at Bloomberg Radio