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Speaker 2: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 3: Well, Amazon shares hitting their first record since twenty twenty one.
Speaker 3: Amazon CEO Andy Jassiott with a new letter that said
Speaker 3: his company's cloud infrastructure will become an essential part of
Speaker 3: the Jenai boom. He also said Carol that Ai may
Speaker 3: be the largest tech transformation since the cloud. He should
Speaker 3: know a thing or two about the cloud. Andy Jassey
Speaker 3: came from AWS, of course. I mean this is the
Speaker 3: guy you created AWS and that the societal and business
Speaker 3: benefit from Jenai will astound us.
Speaker 2: All.
Speaker 4: Let's get to it. A Spencer Soaper Bloomberg News Technology
Speaker 4: and e commerce reporter, and he was up early out
Speaker 4: there in Seattle covering it all, including the including the
Speaker 4: latest missive from the Amazon and ceo. Hay Spencer always
Speaker 4: good to check in with you. So what do we know?
Speaker 4: What do we need to know about this annual letter
Speaker 4: from jasse.
Speaker 5: They get longer every year.
Speaker 4: Sorry, well said, I love it.
Speaker 5: He's up to he's up to fifty five hundred words,
Speaker 5: but he count this year from from from five thousand
Speaker 5: the previous year and forty five hundred the year before that.
Speaker 3: He's like taking a cue from Jamie Diamond.
Speaker 4: I think that's because it costs nothing. Is glad for
Speaker 4: him to put him up there, all right, he can
Speaker 4: read as much as he wants.
Speaker 5: Yeah, yeah, but uh, I don't know. It was it
Speaker 5: was an interesting letter. It's uh, it doesn't It certainly
Speaker 5: doesn't generate as much buzz as his predecessor's annual letters,
Speaker 5: you know, founder Jeff Bezos. People would really dissect them
Speaker 5: and look for any clues on where Amazon might be headed,
Speaker 5: because it was always seen as just kind of being
Speaker 5: so leading edge. But this one was more like the
Speaker 5: top really just read like an earnings report, just kind
Speaker 5: of going through some highlights and you've got to get
Speaker 5: deep down into the bottom before he starts talking aboutitive
Speaker 5: primitive tools is what he seemed to be highlighting that.
Speaker 5: And I think what he's really trying to address is
Speaker 5: this feeling that maybe is like there's a sentiment that
Speaker 5: maybe Amazon's getting a little bit left behind in the
Speaker 5: AI race to like Microsoft and Google, and he's trying
Speaker 5: to really assert like, look, we're gonna make the infrastructure
Speaker 5: that this stuff, you know, thrives on. And he's really
Speaker 5: trying to draw parallels between their investments and data centers
Speaker 5: and Amazon web services in the cloud with the next
Speaker 5: wave of AI, and that they're going to be in
Speaker 5: a good position to even if they're not out there
Speaker 5: in front publicly, they're gonna be building the tools behind
Speaker 5: the scenes that anyone working in the space is going to.
Speaker 2: Want to use.
Speaker 4: Spencer feels like a one two punch because last night
Speaker 4: at the White House, present Biden and Japanese Prime Minister
Speaker 4: a Fumio Kashida a big state dinner, but they also
Speaker 4: held a press conference. But they are enlisting Amazon an
Speaker 4: Nvidia to fund a new joint AI research program. The
Speaker 4: two nations looking obviously to do better when it comes
Speaker 4: to collaboration around the technology. But it's interesting, Jeff Bezos
Speaker 4: was at that dinner, you know, it does sound like
Speaker 4: they're kind of all out there when it comes to AI.
Speaker 4: I don't know, how do you think about it when
Speaker 4: you report report about this company and kind of its
Speaker 4: role when it comes to artificial intelligence, sounds like the cloud.
Speaker 4: I mean, people are going to need the cloud maybe
Speaker 4: to you know, do some of this machine learning and
Speaker 4: data processing if you will.
Speaker 5: Yeah, I mean it's all it's all going to be
Speaker 5: about like speed and efficiency, cost. And so when when
Speaker 5: I look at as a reporter, I try to ignore
Speaker 5: AI and artificial intelligence just as buzzwords and just figure out, Okay,
Speaker 5: what are what is it enabling you to do? What
Speaker 5: did you used to do, How is it done? How
Speaker 5: is how has that changed? How are you doing it now?
Speaker 5: And for the most part, it's really just automating a
Speaker 5: lot of ROTE tasks, you know. So and and there's
Speaker 5: still always going to need that human element to differentiate.
Speaker 5: Like if everybody's using the same AI tools to do
Speaker 5: the same things, it's all going to look the same,
Speaker 5: you know. So it certainly helps in terms of inputs
Speaker 5: and ROTE tasks, you know, but it's still going to
Speaker 5: require that human element and creativity and things that these
Speaker 5: machines can't do to help people differentiate.
Speaker 3: Spenster ask everyone this, and I haven't had the chance
Speaker 3: to ask you this, but you know, Jasse talked about
Speaker 3: the societal benefit here in your reporting. What are the
Speaker 3: wildest things that are going to benefit society from gen AI.
Speaker 5: I think that just the processing of vast amounts of
Speaker 5: information is always the thing in spotting trends and stuff
Speaker 5: and doing it efficiently, you know, rather than having someone
Speaker 5: else do it. There's always this kind of framework of
Speaker 5: math and calculation that has to be done when it
Speaker 5: comes to breakthroughs. But the more you can delegate that
Speaker 5: to machines, you know, just the more you can focus
Speaker 5: on and target your efforts and energy. So I think
Speaker 5: that's a lot of it is just you know, just
Speaker 5: processing data and that sort of thing to read trends.
Speaker 5: But in terms of like life changing breakthroughs, I just
Speaker 5: I haven't seen it, you know, you know. I imagine
Speaker 5: we'll be there and we'll look backward and recognize it.
Speaker 5: But right now, which it is hard to it's hard
Speaker 5: to see the forest through the trees.
Speaker 3: Carol's still waiting for the robot that does dishes.
Speaker 4: Yeah, you know, that's all I'm asking for and like
Speaker 4: kind of figures out what we need to do around
Speaker 4: the home and just takes care of it.
Speaker 2: I'm with you.
Speaker 4: I'd like to get rid of my to do list Spencer,
Speaker 4: thank you so appreciate it. Spencer Soper, He's Bloomberg News
Speaker 4: Technology and e Commerce reporter, joining us out in Seattle
Speaker 4: or Seattle Bureau. Check him out though on x at
Speaker 4: Spencer Soaper.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 1: Well.
Speaker 4: Among our most read stories on the Bloomberg Today, it's
Speaker 4: specifically about Manhattan apartment rents unexpectedly declining in March after
Speaker 4: months of increases, though it's unlikely to be a sign
Speaker 4: of a softening market.
Speaker 3: Yeah, the first time in four months that rents fell
Speaker 3: on an annual basis, and an unusual twist at the
Speaker 3: tail end of winter, when prices tend to begin climbing
Speaker 3: toward their traditional summertime peaks. Carol our next guest understands
Speaker 3: the Manhattan residential market, having represented buyers and sellers for
Speaker 3: more than thirty years.
Speaker 4: All right, let's get to our interview. Back with us
Speaker 4: is Louise Phillips Forbes real estate broker at Brown Harris
Speaker 4: Stevens joining us here in studio. Nice to have you here.
Speaker 4: How are you? First quarter just wrapped up? How was
Speaker 4: it for you guys?
Speaker 6: Well, not for everybody, but I feel like I'm very
Speaker 6: blessed in that I had a very strong quarter with
Speaker 6: twenty nine transactions and exceeding almost ninety million, and you know,
Speaker 6: and it's still coming. I mean, those rents dropped because
Speaker 6: people are buying.
Speaker 4: How does it compare? I always think about this with
Speaker 4: like the past year, how it compares with the pandemic?
Speaker 4: How compares with the pre pandemic?
Speaker 6: You know, I think what I would say to you
Speaker 6: is that there's only so long people are going to
Speaker 6: put their life on hold. They were so many individuals
Speaker 6: that were prevented from buying a home that we kind
Speaker 6: of had a wonky market in twenty eighteen and part
Speaker 6: of nineteen and twenty twenty. In January was strong, started
Speaker 6: to be strong, and then we had the pandemic. So,
Speaker 6: not to mention the pandemic, there's also the cause and
Speaker 6: effect of interest rates in inflation. So people are not
Speaker 6: going to wait anymore, especially in a vertical market like
Speaker 6: New York.
Speaker 3: So what's happening in your segment right now? Because you
Speaker 3: have a unique window into what's going on in residential
Speaker 3: real estate. You certainly do have a diverse clientele, but
Speaker 3: let's be honest, there are people with lots and lots
Speaker 3: of money who are buying very expensive property.
Speaker 6: Yes, I mean literally, one week in March represented five
Speaker 6: hundred and fifty five million dollars worth of contract science.
Speaker 6: That's one week. That is quite powerful. And when you
Speaker 6: I said to you just earlier, like you know something's
Speaker 6: going on in the market when off market deals are
Speaker 6: done for seventy two million dollars in the West Village.
Speaker 3: So what is going on in the market.
Speaker 4: I think that.
Speaker 6: There is a confidence in our economy. I think that
Speaker 6: you know we're not going to have you know, we
Speaker 6: have an election year, so you start to hear the rumbles.
Speaker 6: I'm going to wait till after that. I don't think
Speaker 6: people are going to wait because they are There's so
Speaker 6: many other circumstances that have prevented people from leaning into
Speaker 6: this market. So I am expecting this to continue. And
Speaker 6: my advice to my buyers is don't be late to
Speaker 6: the party, and you have to start looking for the
Speaker 6: right home, not the right deal. And if you think
Speaker 6: with your heart before your head. You will find yourself
Speaker 6: being an owner instead of paying somebody else's more.
Speaker 4: Having said that, right, we all remember like a pandemic,
Speaker 4: just various properties in multiple bids, especially outside kind of
Speaker 4: major metropolitan cities. Who's got the upper hand right now?
Speaker 4: Is it buyers or sellers at this point?
Speaker 6: Viz Well, I think in vertical cities like New York
Speaker 6: that did not have a collapse in the market, but
Speaker 6: a pause in the market during it was a difficult time.
Speaker 6: I mean, we saw forty percent less transactions last year
Speaker 6: in twenty twenty three when we had people not making
Speaker 6: decisions for that period of time where interest rates and
Speaker 6: inflation was doing their dance. But you know, I will
Speaker 6: say that we are in a housing market crisis across
Speaker 6: the nation. Places like think about Nashville, Austin, Darien, Connecticut.
Speaker 6: There's seven listings on the market in Darien, where compared
Speaker 6: to one hundred and seventeen you know, ten years ago,
Speaker 6: where are people going? And that's a cause and effect
Speaker 6: still shaking out from the pandem where people that market
Speaker 6: surged thirty five percent.
Speaker 3: Right, So, but is this the new normal because we're
Speaker 3: not going back to that era of zero rates anytime
Speaker 3: soon at least no look never say never, but all
Speaker 3: all signs points that that's not.
Speaker 6: I do think that we're going to have interest rates
Speaker 6: pull back continued to support our economy, but it's not
Speaker 6: going to be the zero rates. But let's be clear,
Speaker 6: when you're paying five or seven or six percent, you're
Speaker 6: making a lot more money in the bank with money
Speaker 6: in the bank. And when I had a three percent
Speaker 6: interest rate, I wasn't getting paid but fifty basis points
Speaker 6: on the money that I had in my bank account.
Speaker 6: So it all depends on how you choose to look
Speaker 6: at it. And I do think that as interest rates
Speaker 6: pull back, even if they just go to five percent,
Speaker 6: prices are going to go up.
Speaker 4: We're not there. We've got mortgage rates in the US
Speaker 4: rising for a second straight week, average thirty year fixed
Speaker 4: loan six point eight eight percent, up from six point
Speaker 4: eight two percent last week, and it's not a level
Speaker 4: reached in early March. Your buyers, So higher rates impact
Speaker 4: your buyers, give us remind us of you know, sometimes
Speaker 4: we bring in people like they're cash buyers. They're good.
Speaker 6: Well, it forced a lot of cash deals last year
Speaker 6: because they were the ones they were getting the deals.
Speaker 6: Cash was always king, but in the market where people
Speaker 6: are priced out of it, that's why interest rates. With
Speaker 6: interest rates up, the rental market surged, particularly the one
Speaker 6: bedroom market. If you're looking to buy a million dollar
Speaker 6: one bedroom and you can afford five thousand dollars a
Speaker 6: month for your one bedroom, you're pushing the thirty eight
Speaker 6: hundred dollars COVID deal out of the rental market because
Speaker 6: you'll pay forty five.
Speaker 4: But so, who is your customer, like, give us an
Speaker 4: idea of like a typical I hate to say that,
Speaker 4: because it's probably not a typical transaction. Well, I think
Speaker 4: that the majority I do.
Speaker 6: I mean, I would say I do from twenty million
Speaker 6: dollars to seven hundred thousand. So I am over the game.
Speaker 4: I'm all over the game. I'm the majority of the deals.
Speaker 6: Five probably, and most of them are taking mortgages. And
Speaker 6: there was a period of time where people saw the
Speaker 6: value in buying the rate down and paying fifty thousand dollars.
Speaker 6: Interest only loans are opportunities and choices. People like myself.
Speaker 6: I'm commission only, so when I flush fifty thousand dollars,
Speaker 6: I can buy down my mortgage and adjust my rate
Speaker 6: right there in real time.
Speaker 3: Hey, speaking of commissions, got to ask about the National
Speaker 3: Association of Realtors in the settlement reached last month. What
Speaker 3: does that do to You're a business person, you're an
Speaker 3: independent contractor. I mean, commissions is how you make money.
Speaker 3: Does that affect the way you're getting paid?
Speaker 1: Well, we.
Speaker 6: Markets like New York are not quite like the mls
Speaker 6: outside and across the nation how that works. But you know, look,
Speaker 6: I think it's all a matter of transparency, about educating
Speaker 6: and talking and listen. I believe that it's very important
Speaker 6: for people to understand who they represent and that what
Speaker 6: their choices are. And I will be that person till
Speaker 6: I'm in my grave telling people the value that I'm
Speaker 6: supposed to be bringing to the table, and people have
Speaker 6: historically never had a problem with paying for that. I
Speaker 6: think it's really just about the transparency. I'm not quite
Speaker 6: sure how the cause and effect is going to be.
Speaker 6: We are proactively starting to talk to all of our
Speaker 6: relationships because they need to understand this is a change.
Speaker 6: It's probably coming down to the pipe to us. I
Speaker 6: don't think it's going to affect us the same way
Speaker 6: it will outside of the city. But that's still part
Speaker 6: of the arm of our company.
Speaker 4: Ten seconds on pricing, prices going up?
Speaker 6: I think they're still strong.
Speaker 4: Yes, they're still strong. Are they still going up?
Speaker 6: I think that there are pockets of opportunity, and it
Speaker 6: depends on how long they've been on the market, and
Speaker 6: if sellers will allow the brokers to price their homes
Speaker 6: instead of themselves and pricing from yesterday, they're going to
Speaker 6: make those transactions.
Speaker 4: Shot as Zoeys Louise Phillips Forbes real estate broker at
Speaker 4: Brown Harris T. Stevens. Of course joining us in studio.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Listen live
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Speaker 4: Well Big Deal. This week, Blackstone struck a roughly ten
Speaker 4: billion dollars deal for an apartment landlord in the latest
Speaker 4: sign at the real estate investor sees a right moment
Speaker 4: to pour money into the property market.
Speaker 3: And in February, Bloomberg reporting on Predium, the largest single
Speaker 3: family landlord in the US and that it was planning
Speaker 3: new housing bets on apartment properties. The firm also recently
Speaker 3: sold a stake to hunter Point Capital as it seeks
Speaker 3: financial muscle for new initiatives.
Speaker 4: Wenew, we want to know more, So with more and
Speaker 4: what Predium is up to. Back with us is ROBERTA. Goss.
Speaker 4: She's senior managing director, head of the bank, loan and
Speaker 4: COLO platform at Predium. She's joining us here in our
Speaker 4: Bloomberg Interactior broker studio. By the way, Predium has some
Speaker 4: fifty one point eight billion in assets under management. You
Speaker 4: know them. They're focused on US residential real estate, residential credit,
Speaker 4: and corporate credits. So all right, related out there, how
Speaker 4: are you great?
Speaker 7: We've been really busy.
Speaker 4: Well, tell us about that. What does that mean for
Speaker 4: you and what specifically?
Speaker 7: So as a firm, we've been very focused on what
Speaker 7: opportunities are coming and through the dislocation that we really
Speaker 7: see as a result of regional banks pulling back. And
Speaker 7: I think that speaks to the strategic investments we've made
Speaker 7: and the fact that we really think we're going to
Speaker 7: be extending into new areas in single family rental. We're
Speaker 7: extending now into multifamily with the acquisition of BH which
Speaker 7: is unique for us and terrific. And then on the
Speaker 7: rezidet side, we think also a potential big opportunity as
Speaker 7: we move forward, So extending from resie mortgages into commercial
Speaker 7: debt where we think there'll be a dislocation opportunity.
Speaker 3: What did that dislocation look like?
Speaker 7: So really more on the commercial side and focused on
Speaker 7: really the senior levels of debt within within commercial real estate.
Speaker 4: Well, what kind of deals are getting done? So like
Speaker 4: walk us through some of the financial structures that we're seeing.
Speaker 4: And I know it's hard to kind of jump everything
Speaker 4: at a big bucket, but give us an idea. I
Speaker 4: guess what we're trying to do is right, the deals
Speaker 4: tell us to some extent, who's in the driver's seat
Speaker 4: or how much someone coming off of the concerns, the
Speaker 4: woes if you will have the regional banking sector, and
Speaker 4: how other people have come in. But I'm curious about
Speaker 4: what kind of deals then are being done.
Speaker 7: Yeah, So for us, it's really opportunities in multi family
Speaker 7: coming from you know, ownership of properties that need to
Speaker 7: be refinanced.
Speaker 4: So under pressure, under duress.
Speaker 7: I wouldn't I would say, not yet, but we're expecting
Speaker 7: more dress as we as we go through the next
Speaker 7: couple of years, so refinancing opportunities and the need for
Speaker 7: new sources, and I think this will move from the
Speaker 7: banks to more private, private debt and private asset management opportunities.
Speaker 3: You mentioned the opportunities arising in the wake of the
Speaker 3: stress on regional banks, specifically what we saw in March
Speaker 3: of last year. I'm wondering if you think that the
Speaker 3: stress on regional banks is over, I think.
Speaker 7: That's really hard to call. I'd say, uh, you know,
Speaker 7: when we looked at you know, Silicon Valley Bank a
Speaker 7: year ago, you would have said, okay, we're you know,
Speaker 7: that was a unique, uh situation. We've seen other banks
Speaker 7: you know, have to pull back and shore up capital
Speaker 7: over the course of the last year. So I think
Speaker 7: it's very difficult to call. I think, you know, we're
Speaker 7: just believe that there's a broader opportunity as the regional banks,
Speaker 7: you know, over the next five to ten years really
Speaker 7: start to shrink to retrench.
Speaker 4: Also in terms of is it it's interesting because I
Speaker 4: know Bloomberg going to think it was our Patrick Clark
Speaker 4: reporter back in February you guys were extending credit to
Speaker 4: homebuilders because of the void that was created by the
Speaker 4: regional banks as they were retreating back. So how would
Speaker 4: you kind of characterize that level of activity. You said
Speaker 4: you're very busy. Is it give us an idea exponentially,
Speaker 4: like in the last six months or something, how much
Speaker 4: it's increased.
Speaker 7: Well, I think from our perspective in terms of being
Speaker 7: really busy, we've positioned ourselves strategically to be set up
Speaker 7: for all of these opportunities.
Speaker 4: Whoever needs it.
Speaker 7: Right, we had been very active with the home builders
Speaker 7: now for a cup of years and.
Speaker 4: When you guys did well off the great financial crisis,
Speaker 4: right when it came to residential.
Speaker 7: Yes, opportunities down started the firm in twenty twelve, really,
Speaker 7: as you know, with a view that there was a
Speaker 7: structural shortage of homes in the United States, and that
Speaker 7: has allen your founder, the founder, Don Mullen, and that
Speaker 7: really hasn't resolved. It's probably became become more amplified as
Speaker 7: we go, you know, over the last decade twelve years,
Speaker 7: and we think that that's still an opportunity and going
Speaker 7: to continue to be one.
Speaker 3: So you don't think that will get resolved anytime soon.
Speaker 7: The structural Yeah.
Speaker 3: And the reason I ask is because there are some
Speaker 3: folks out there who are arguing, you know, it's getting
Speaker 3: so bad that we're starting to see actual zoning changes
Speaker 3: in some towns and municipalities, which you know, when it
Speaker 3: comes to people who fight these sorts of things, they're
Speaker 3: starting to give in in some areas because they realized
Speaker 3: that the housing crisis is so bad.
Speaker 7: Well, I think that what we're trying to do is
Speaker 7: solve for this problem. And I think our relationship with
Speaker 7: the homebuilders really goes to that. We're trying to, you know,
Speaker 7: fix what we think is you know, a nationwide issue
Speaker 7: and partner with the right either municipalities or home builders
Speaker 7: or financial partners that are trying to solve for this shortage.
Speaker 4: I wonder to Roberta, are there certain geographic areas where
Speaker 4: you guys are finding more opportunities than elsewhere.
Speaker 7: Well, we've been almost exclusively focused on the Sun Belt,
Speaker 7: and that has been everybody loves the sun Pias. So
Speaker 7: from uh, you know, Arizona through through to Florida and
Speaker 7: you're going to stay there or I think for now
Speaker 7: that's where our resources are really concentrated. And I think
Speaker 7: through COVID we've seen a lot of migration to those areas.
Speaker 4: Three family members too, though, kind of like just before
Speaker 4: COVID and then another one after COVID.
Speaker 3: But don't even think about it, not yet.
Speaker 4: But I kind of like the East Coast, I like
Speaker 4: I like Northeast alone.
Speaker 3: What about the flip side of that question is areas
Speaker 3: that you'd that you see yourself avoiding over the next
Speaker 3: few years.
Speaker 7: Within our three businesses, which are single family rental work,
Speaker 7: extending into multi and REZI mortgage debt, we're extending into
Speaker 7: commercial real estate debt. And then in my business, which
Speaker 7: is corporate credit I think, uh, probably one of the
Speaker 7: stronger of the three this year and leverage loans. You know,
Speaker 7: we're just we think that there's just opportunity to grow
Speaker 7: within those three businesses. So it'll be natural extensions, but
Speaker 7: probably not new businesses.
Speaker 4: We'd be remiss and we'd like it because you guys
Speaker 4: have a great vantage point on kind of stuff that's
Speaker 4: going on in the economy, and here we are debating,
Speaker 4: you know, what the is going to do with the
Speaker 4: economic reports, just got about a minute left here. How
Speaker 4: would you describe kind of the business environment, the investment environment.
Speaker 7: So I would say in my world, which is leverage
Speaker 7: loans and corporate credit, it has been incredibly strong all year.
Speaker 4: Would to me say strength because if there's stress in
Speaker 4: the markets, that's not going to be.
Speaker 7: There, right, it's not going to be It hasn't been
Speaker 7: in corporate credit, right, even though we've seen some elevation
Speaker 7: and defaults, you know, not nothing close to the levels
Speaker 7: we were seeing in the GFC.
Speaker 4: And we don't get there.
Speaker 7: No, we don't believe that we'll get back to GFC levels.
Speaker 7: We'll sort of sit last year defaults were in the
Speaker 7: just below four percent. We'll sit at that level this.
Speaker 4: Year, but nothing like a downturn of recession. Forgive me,
Speaker 4: just got about twenty twenty five seconds.
Speaker 7: No, we believe that corporate credit's going to continue to
Speaker 7: perform fairly strong this year. And elevated rates are good
Speaker 7: for leverage loans because we're a floating right product.
Speaker 4: Right, And it does look like you guys are looking
Speaker 4: to do more deals a get more money to work. ROBERTA,
Speaker 4: thank you, so I appreciate it. ROBERTA. Goss, Senior Managing Director,
Speaker 4: a head of the Bank Loan and CLO platform over
Speaker 4: at Predium.
Speaker 5: Hum, brother Marc.
Speaker 4: A journal. How about you let me drive?
Speaker 2: No, no, no, no, who's going to drive?
Speaker 5: Honey?
Speaker 2: Please, I'll do the riding gravels. Let's wat I want
Speaker 2: to try it.
Speaker 3: It's a good question.
Speaker 2: Try This is the drive to the clothes dot Com
Speaker 2: for me.
Speaker 1: I think we'll buy around.
Speaker 2: Found it on Bluebird Radio.
Speaker 4: All right, everybody, just about eighteen minutes left in today's
Speaker 4: trading session, getting ready to wrap up the Friday trade,
Speaker 4: which just turned from Charlie. We definitely have a Raleigh
Speaker 4: underway when it comes to the equity trade. In fact,
Speaker 4: we're seeing some buying here, certainly on Nasdaq one hundred
Speaker 4: looking at it now, up about one point eight percent.
Speaker 4: So interesting to see the interest in activity.
Speaker 3: Okay, so maybe seeing some buying. But over on the
Speaker 3: yield curve, things look a little different, Carol. The tenure
Speaker 3: yield wow, moving higher right now by two basis points,
Speaker 3: up at four four point five six percent.
Speaker 4: Yeah, we talked about right this is you know, it
Speaker 4: looks like the new reality, the new level, certainly when
Speaker 4: it comes to the tenure. Hey, let's see what Kathy
Speaker 4: Jones has to say about all of this. We've got
Speaker 4: a great voice on all of it as we drive
Speaker 4: to the clothes on this Thursday. She is managing director,
Speaker 4: chief fixed income strategist at the Schwab Center for Financial Research. So, Kathy,
Speaker 4: an interesting week again coming off a second inflation print.
Speaker 4: But it really was CPI that you made us change
Speaker 4: our tune again in terms of rate expectations of what
Speaker 4: the Fed might do. How are you seeing it? What
Speaker 4: do you think is the reality when it comes to
Speaker 4: the US Treasury curve? What are you looking at?
Speaker 1: Well, you know, yeah, I mean expectations changed on the
Speaker 1: CPI number, you know, so interesting now we're carrying it
Speaker 1: out to two and three decimal points to try to determine,
Speaker 1: you know, where we're going on inflation. I don't think
Speaker 1: the reality has changed dramatically. You know. We know the
Speaker 1: FAD doesn't target CPI as its major benchmarkets core PCE,
Speaker 1: and we had some decent numbers on a PPI today
Speaker 1: that feed in more closely to that core metric, that
Speaker 1: core PCE. So we may get a little bit of
Speaker 1: relief when those numbers come out down the road. But
Speaker 1: I think the big question is, you know, is the
Speaker 1: FAD going to cut this year? If so, how many
Speaker 1: rate cuts are realistic to expect, and since the mandate
Speaker 1: that they have dictates that they need confidence that they're
Speaker 1: getting to two percent, doesn't look like these numbers are
Speaker 1: giving them confidence. You know, the economy has been resilient,
Speaker 1: we have pockets of inflation still burbling up, not getting
Speaker 1: as much traction in the decline and inflation, so we're
Speaker 1: probably looking at two ray cuts this year instead of three.
Speaker 1: I still think that there will be ray cuts. I
Speaker 1: don't think the talk of hiking makes a lot of sense.
Speaker 4: But but what, Kathy, what is the Feed need to
Speaker 4: cut rates if we still have an economy where it
Speaker 4: feels like growth expectations are moving up. We just talked
Speaker 4: with our Gina Martin Adams about earnings and you know
Speaker 4: she's looking for Our estimates are for decent earnings growth
Speaker 4: again for the second quarter or for the quarter that
Speaker 4: we just finished. So I mean, where is where's the
Speaker 4: weakness that the FED needs to maybe hedge against, if
Speaker 4: you will, in the US economy?
Speaker 1: Yeah, I don't think it's so much as they're hedging
Speaker 1: against weakness in the economy allthough, there's pockets of softness
Speaker 1: that are shelling up. When you look at delinquencies and
Speaker 1: credit cards and car loans and things like that. But
Speaker 1: I think it's more normalization. Right, five and a half
Speaker 1: percent fed funds, when you effectively have inflation running it,
Speaker 1: let's call it two and a half to three, it's
Speaker 1: a high reel interest rate. Can the economy continue with
Speaker 1: a high reel interest rate for a while, But you're
Speaker 1: definitely seeing pockets of weakness showing up, And their goal
Speaker 1: is not to tip the economy into recession or to
Speaker 1: stress it so much, just to get inflation down. So
Speaker 1: I think it's a waiting game. But I don't think
Speaker 1: the destination is all that different. The direction of travel
Speaker 1: is still down. It's just a much longer time to
Speaker 1: get to the destination. The destination may be higher than
Speaker 1: in the past, not if still, but.
Speaker 3: Just when I'm wondering, Kathy, about what your outlook for
Speaker 3: rates is for the remainder of the year here, I mean,
Speaker 3: I think a lot of people would have said, Okay,
Speaker 3: I think we're kind of done, seeing you know, four
Speaker 3: point five five percent on the tenure a couple months ago.
Speaker 3: That turned out not to be the case, with yields
Speaker 3: hitting their highest today on the tenure. That they've hit
Speaker 3: since November. How much higher do you think they could
Speaker 3: go this year or at least the cycle.
Speaker 1: Yeah, it certainly looks like we could test for seventy
Speaker 1: five four eighty again, that that was sort of a
Speaker 1: stopping point. I don't that's on my base case scenario,
Speaker 1: but it is a possibility. I think as we get
Speaker 1: down the road, you know, we'll focus in on some
Speaker 1: of the better news on inflation rather than the worst
Speaker 1: news on inflation. But you can't rule it out. I
Speaker 1: don't think we're going back to that five oh two
Speaker 1: high that we saw a year ago or close to
Speaker 1: a year ago, but you can't rule out another push
Speaker 1: up here for seventy five four eighty until we really
Speaker 1: get a grasp of you know, where is bad policy going.
Speaker 1: Has inflation actually stalled out? I don't think any of
Speaker 1: those things. I don't think it's stalled out. I think
Speaker 1: it continues to go lower. But you know, we have
Speaker 1: to test the thesis.
Speaker 4: Why are we up today on the equity side of things?
Speaker 4: I don't usually like to do day to day, but
Speaker 4: I don't know.
Speaker 3: I think it's kind of she's fixed income strategist.
Speaker 4: Okay, all right, that's fine. Well based.
Speaker 3: Why but you can still please, you can still feel
Speaker 3: free to answer.
Speaker 4: You're smart, you watch the markets. It's all connected and
Speaker 4: they you know, we get that. So why is it
Speaker 4: based on if we're for and a half percent? Is
Speaker 4: it just potentially equity investors like, yeah, I can live
Speaker 4: with this.
Speaker 2: Yeah.
Speaker 1: I mean, I'm not the equity strategist, but I think
Speaker 1: you can. Look, you're just talking about corporate profits. I
Speaker 1: hit a new all time high in the last quarter.
Speaker 1: They're expected to continue to grow. That should be the
Speaker 1: driving force behind the equity market is those earnings. So
Speaker 1: if those earnings continue to look good, I imagine people
Speaker 1: will pile back into equities.
Speaker 3: Okay, I'm getting some questions from some listeners and viewers here.
Speaker 3: Is there a perpetual demand for yield and fixed income
Speaker 3: if no cuts come?
Speaker 5: Yeah?
Speaker 1: I think so. I think one of the things that
Speaker 1: hasn't been focused on very much is how tremendous the
Speaker 1: demand has been for fixed income as since rates went up,
Speaker 1: Since the Fed hiked rates, we've had, you know, very
Speaker 1: strong inflows. The foreign capital continues to come in, but
Speaker 1: so domestically, you know, we were yield starved for a
Speaker 1: decade and now people look at five percent, four and
Speaker 1: a half five percent on relatively low risk assets and
Speaker 1: they say, yes, I'll take that. You know, especially if
Speaker 1: you're trying to plan for the future, if you're trying
Speaker 1: to generate a paycheck and retirement all those things. You know,
Speaker 1: that's where the demand for fixed income is and it
Speaker 1: keeps coming in.
Speaker 4: Well, that's interesting. I was listening, I think it was
Speaker 4: on surveillance this morning with Tom and the Gang, and
Speaker 4: I just think they were talking about one of their guests,
Speaker 4: like this idea that if you are near or thinking
Speaker 4: about retirement, locking in on the fixed income side of
Speaker 4: things on the US Treasury like this is not so bad.
Speaker 4: Why not do it and take risk off the table?
Speaker 4: Like that makes sense to me.
Speaker 3: Yeah, locking into five percent on for the next two years, that's.
Speaker 4: Not bad, right, Yeah.
Speaker 1: Or look at her on the investment yeah, or investment
Speaker 1: great corporate bonds, which I've been you know, high ratings,
Speaker 1: generally very low default rate. Those yields are five to
Speaker 1: five and a half percent for you go out five
Speaker 1: to seven years. I mean, if you want to have
Speaker 1: a five percent yield, you don't have to sit at
Speaker 1: a short end. You can you can move out the
Speaker 1: curve and not take a lot of risk to get
Speaker 1: it all right.
Speaker 4: Can leave it on that note, Hey, listen, Thank you
Speaker 4: so much. Kathy Jones, Managing Director, chief fixed income strategist
Speaker 4: over at the Schwab Center Financial Research, joining us from Miami.
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