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Speaker 3: US shoppers spend fourteen point two billion dollars during a
Speaker 3: prime day. I was not one of them, but that's
Speaker 3: up eleven percent from a year ago, as Lisa was reporting,
Speaker 3: so pretty solid results here. You got to like that
Speaker 3: if you're an Amazon follower. Punam Goyle. She is an
Speaker 3: Amazon follower, senior US equity, e commerce and retail analysts
Speaker 3: for Bloomberg Intelligence, joining us from Princeton, New Jersey via
Speaker 3: zoom pullm that the numbers Lisa was just reporting, you know,
Speaker 3: eleven billion. I'm fourteen point two billion dollars, eleven percent
Speaker 3: growth year every year. That seems pretty good to me.
Speaker 3: What do you think?
Speaker 4: Yeah, the numbers are great. You know, they continue to
Speaker 4: show that shoppers are focused on sales and their seating value,
Speaker 4: and when Amazon and others have events such as these,
Speaker 4: they do drive traffic and conversion onto the platforms. So
Speaker 4: really good numbers likely some pull forward and spend, so
Speaker 4: you will probably see things will taper off a little
Speaker 4: bit after the Prime Day sales event, but nonetheless a
Speaker 4: very strong start. It seems to three Q for Amazon.
Speaker 5: Yeah.
Speaker 3: I was just looking at eMarketer, which I know is
Speaker 3: an independent group that kind of looks at this stuff.
Speaker 3: They were expecting your shoppers to spend eight point two
Speaker 3: billion dollars on Amazon during the event, So I guess
Speaker 3: better than expected as a way to think about it.
Speaker 4: Yes, I mean the numbers are a little different because
Speaker 4: the numbers that Adobe reported are not just on Amazon,
Speaker 4: they're total online sales okay, but nonetheless very strong results,
Speaker 4: and they are better than Adobe's initial estimates for a
Speaker 4: ten point five percent increase.
Speaker 3: Average households spend one hundred and fifty two bucks on
Speaker 3: Amazon on Prime Day. That sounds like a good number
Speaker 3: as well. How does that stack out?
Speaker 4: It's like good number. We expected Amazon shoppers to shop
Speaker 4: less this year on Prime Day than last year according
Speaker 4: to our own survey that we ran ahead of Prime Day,
Speaker 4: so no surprise there. As you know, shoppers are crunched
Speaker 4: for cash and they are trying to be picky and
Speaker 4: choosy on where they spend what they spend shopping really
Speaker 4: on the lists that they had going into Prime Day.
Speaker 4: So we're seeing a little bit of that, but overall,
Speaker 4: more shoppers joined Prime Day this year, reported by Amazon,
Speaker 4: which proves to be even more encouraging because you know,
Speaker 4: when you see that, you know that trend hopefully holds
Speaker 4: up and drives more shopping on the platform even after
Speaker 4: Prime Day.
Speaker 3: You know, you see numbers like the Amazon Prime Day
Speaker 3: number of the eleven percent growth year every year. It
Speaker 3: seems like a really strong number. We had Retail sales
Speaker 3: earlier in the week came in better than expected. You know,
Speaker 3: I know the consumer's hurting out there. I know inflation's
Speaker 3: hitting a lot of folks really hard, but it doesn't
Speaker 3: seem like we're seeing in the spending. How do you
Speaker 3: guys think about it? What do you hear from the
Speaker 3: companies that you cover?
Speaker 4: Yeah, I think it depends on the retailers that you're
Speaker 4: looking at. I do think that, you know, we've talked
Speaker 4: about this in the past, where the value customer is
Speaker 4: trading down. We've seen that in the results earlier this
Speaker 4: year at Walmart, where numbers are strong because they are
Speaker 4: driving in more customers into their doors and online, and
Speaker 4: then the middle you know, the department stores. They continue
Speaker 4: to get squeezed to the large extent, and I think
Speaker 4: that trend will continue. So I do think that where
Speaker 4: there's the right product the right price, customers are going there.
Speaker 4: They're still going to experiences, They're going for convenience, which
Speaker 4: is where Amazon plays a big role. But they are
Speaker 4: being picky and choosy, and there will be some bifurcation
Speaker 4: when they report between the numbers because not everyone will
Speaker 4: do well as we're hearing and seeing in these numbers.
Speaker 3: It's only mid July, but I guess people with kids
Speaker 3: have to start thinking about back this school. My guys
Speaker 3: are all out of that stage, thankfully. What's the back
Speaker 3: to school season look like this year? What are the expectations.
Speaker 4: Yeah, the expectations are for back to school season sales
Speaker 4: to grow and Prime Day is going to help with that.
Speaker 4: This year's Prime Day event came a little later in
Speaker 4: the season, which means that more back to school shopping
Speaker 4: likely occurred, dorm shopping, etc. On the Prime Day sales event.
Speaker 4: That said, you know, you will see people buy backpacks,
Speaker 4: you will see them by supplies, you will see them
Speaker 4: shop for dorm room stuff and apparel. But at the
Speaker 4: same time, where are they shopping for that. I think
Speaker 4: the retailers that are going to drive that spend are
Speaker 4: continuing to be the same. It's going to be the Amazon's,
Speaker 4: It's going to be the walmarts, the targets where they
Speaker 4: can get the value that they're looking for.
Speaker 3: So what is the expectation for the holiday season this year?
Speaker 3: Are you guys forecasting growth in holiday spending? Because I
Speaker 3: know that's the big part for the big season for retailers.
Speaker 4: We are expecting growth this holiday season, but I do
Speaker 4: think there are challenges as we enter the holiday season.
Speaker 4: Keep in mind that the retail calendar is different this year,
Speaker 4: so it is a tougher calendar. Comparison. Last year was
Speaker 4: very very strong. Last year had some extra selling days,
Speaker 4: so the calendar shakes up as being a headwind and
Speaker 4: going into the holiday season. That said, with elections and
Speaker 4: just so many other things happening this year, we do
Speaker 4: think the consumer is going to be a little diverted,
Speaker 4: so retailers will have to work harder to capture their
Speaker 4: spend and it will be a tougher holiday season. But
Speaker 4: we do see some growth still this year.
Speaker 3: What are we seeing just in the dynamic punum of
Speaker 3: the of the bricks and mortar versus e commerce Because
Speaker 3: we had gone through i'm going to say almost a
Speaker 3: generation of downsizing retail footprint in the United States, and
Speaker 3: I kind of got the sense that they're in a
Speaker 3: pandemic that kind of slowed, if not reversed a little bit.
Speaker 3: Where are we on that dynamic beyond between I need
Speaker 3: to own some brick and mortar versus you know, I
Speaker 3: can kind of go lean more heavily on retail.
Speaker 4: On etail, sure, so I think, you know, we'll always
Speaker 4: need brick and mortar store. They don't think they go away.
Speaker 4: But we've talked about this before. I do think we
Speaker 4: need some balance, and we're still continuing to push forward
Speaker 4: on that balance. There will be more consolidation in retail.
Speaker 4: I think it's necessary because we still are overstored. But
Speaker 4: at the same time, we have retailers coming in from
Speaker 4: abroad that are expanding. Whether it's the Primarks once again
Speaker 4: of value play, or whether it's the Alds and some
Speaker 4: of the Grosers. We are seeing them take space as
Speaker 4: they encroach on the US landscape.
Speaker 6: That's that our.
Speaker 4: Estimates call for retail sales growing to a third, retail
Speaker 4: sales growing to a third of total retail sales, up
Speaker 4: from twenty five percent last year. So still high single digit,
Speaker 4: double digit growth in the online landscape for the next
Speaker 4: five to seven years, which means that people will be
Speaker 4: shopping less eforic and mortars and more online. And we
Speaker 4: saw that trend come back, you know, right after the pandemic,
Speaker 4: you saw this rush to stores because people wanted the
Speaker 4: experience of seeing things, touching things being out there. But
Speaker 4: now they've normalized again and we are seeing the shift
Speaker 4: back to shopping more online.
Speaker 3: All right, interesting stuff. Put them Goyle, Thank you so
Speaker 3: much for joining us. Put Them Goyle, Senior US e
Speaker 3: Commerce and Retail Annis Bloomberg Intelligence. Joining us via zoom
Speaker 3: from Princeton.
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Speaker 3: Let's talk to from Earning Shore. We had a big
Speaker 3: earnings play coming out of the financial services Blackstone profit.
Speaker 3: Blackstone just huge, huge asset manager. It's just amazing how
Speaker 3: big they've become on global Wall Street. But their profit
Speaker 3: missed estimates as real estate exit slow. Let's bring in
Speaker 3: Paul Goldberg. He follows that part of the financial services
Speaker 3: sector for us. Paul Blackstone doesn't get any bigger, more
Speaker 3: influential from an asset management perspective than our friends at Blackstone.
Speaker 3: Talk to us about the quarter they just reported.
Speaker 7: Thank you for having me. The quarter was more and
Speaker 7: more or less as expected. You did mention and missed
Speaker 7: by a few pennies. But a lot of the profitability
Speaker 7: depends on realization activity, which was slow, and it wasn't
Speaker 7: just the real estate. It was kind of on the
Speaker 7: slower end across the segments and the strategies that they cover.
Speaker 7: So I don't think it's surprising. And what we've saw
Speaker 7: is what we're kind of seeing in the headlines. The
Speaker 7: private equity is improving but slowly. Real estate's still kind
Speaker 7: of dragging its feet, and the private credit is being
Speaker 7: very strong. So the profitability that they showed was very
Speaker 7: much along those lines.
Speaker 3: What are they saying about the real commercial real estate business?
Speaker 3: Because when I think about that business. I think about
Speaker 3: the Blackstones of the world, I think about Morgan Stanley.
Speaker 3: They've always been big investors in real estate. What are
Speaker 3: the smart people telling you about that part of the market.
Speaker 7: The smart people that Blackstone said, we got out of
Speaker 7: that market, so not not completely. So there's still a
Speaker 7: few percentage of the portfolio in the US real estate,
Speaker 7: and they still mention that it's pretty painful and globally
Speaker 7: there is some commercial real estate that they're in, but
Speaker 7: three quarters of the real estate portfolio is in multifamily
Speaker 7: logistic data centers where they're pushing with their AI. It's
Speaker 7: a very different composition. Can you see idiosyncratic pains, something
Speaker 7: going out of line, Yes, absolutely, But in terms of
Speaker 7: the future growth, I think they're positioned quite differently from
Speaker 7: the kind of seen from the banks.
Speaker 3: And Blackstone is up about three and a half percent today,
Speaker 3: the stock at a fifty two week high. What are
Speaker 3: they saying about deal activity here? Because I know Paul,
Speaker 3: the m and A market, the IPO market the last
Speaker 3: couple of years has been pretty slow, so it's tough
Speaker 3: for the Blackstones of the world to kind of realize
Speaker 3: and get some liquidity on their investments. What are they
Speaker 3: saying about that?
Speaker 7: Yeah, so some green shoots there some improvement in second quarter,
Speaker 7: although obviously not material enough to lift the earnings, but
Speaker 7: they're seeing getting better into a second half and most
Speaker 7: of it and they kind of mentioned it three months
Speaker 7: ago on the earnings call. We'll probably have to wait
Speaker 7: till the end of the year and go into the
Speaker 7: twenty five for material improvement. And that's what you're kind
Speaker 7: of seen in the consensus reflected that people do see
Speaker 7: a significant lift. And in terms of activity, they deployed
Speaker 7: thirty four billion dollars. They had almost forty billion dollars
Speaker 7: of being closed during the quarter. So the activity is improving.
Speaker 7: It's not at the twenty twenty one levels, and it
Speaker 7: will take some time to get back there, but it's better.
Speaker 3: Hey, Paul, you know when you think Blackstoney thinks Stephen Schwartzman,
Speaker 3: the chairman, the CEO, the co founder, one of the
Speaker 3: all time greats of the giants in private equity. He's
Speaker 3: seventy seven years old. And I know Jonathan Gray there
Speaker 3: is the president's COO and he's fifty four. What is
Speaker 3: a succession plan there at Blackstone?
Speaker 7: You did mention the two figures and it kind of
Speaker 7: looks pretty straight at the moment unless things engine. But
Speaker 7: Jonathan Gray has been doing a great job and Schwartzman
Speaker 7: is not planning to step away as we see in
Speaker 7: at the moment. But there's a line of succession that's
Speaker 7: clearly there.
Speaker 3: Paul, Are they is Blackson in a capital raise mode?
Speaker 8: Now?
Speaker 3: Where are they in terms of their capital.
Speaker 7: I think with one point one trillion dollars of assets
Speaker 7: on management and different buckets that I discussed earlier, they
Speaker 7: constantly in the fundraising mode. So the big areas where
Speaker 7: they fundraising, they fundraising, and infrastructure they're fundraising, and mentioned
Speaker 7: data centers, then fundraising in wealth strategies. They have already
Speaker 7: two hundred and forty billion dollars of assets that in
Speaker 7: different wealth strategies. Early in the year. Last year we
Speaker 7: had some issues where you saw some outflows from wealth strategies.
Speaker 7: They all positive this quarter, so those are so those
Speaker 7: are good things. And then they talked about the big
Speaker 7: flagship funds. They're raising more of them in the second
Speaker 7: half and even more coming back in twenty twenty five,
Speaker 7: which helps their peace YEP.
Speaker 3: Absolutely all right, Paul, thanks very much, appreciate it. As
Speaker 3: always Paul Goldberg. He's a senior echoanalyst Bloomberg Intelligence. He
Speaker 3: covers a lot of those asset managers, the kqrs, the
Speaker 3: blackstones of the world. He also covers the Canadian banks,
Speaker 3: so he does it all for Bloomberg Intelligence. He's then
Speaker 3: in Princeton.
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Speaker 3: Matt Miller sitting in for Alex Steel here today on
Speaker 3: Paul Sooney. You live here on our Bloomberg Interactive Brokers studio,
Speaker 3: streaming live on YouTube as well.
Speaker 1: Here.
Speaker 3: We had a raft of economic data recently, including today,
Speaker 3: we had the initial jobless claims. Give me a little
Speaker 3: bit higher than expect it. But I don't know. The
Speaker 3: question I think is has this been a reserve already
Speaker 3: gotten us a soft landing. I don't know. It feels
Speaker 3: like it ticking with a professional who does the stuff
Speaker 3: for a living wall this joins us in studio. How
Speaker 3: good is that? So he gets a gold star. He's
Speaker 3: the chief economist over at RSM Joe, how's our FED
Speaker 3: done here in landing this economy?
Speaker 5: Okay?
Speaker 8: So you know, when we look back on this in
Speaker 8: a number of years, we're gonna think the FED did
Speaker 8: an extraordinary did an extraordinary thing, a real policy achievement
Speaker 8: in bringing the US economy in for soft landing after
Speaker 8: hiking the federal funds rate by five hundred and fifty
Speaker 8: basis points. You know what, the FED was truly data dependent.
Speaker 8: We wouldn't be waiting for a September cut to be cutting.
Speaker 1: Now.
Speaker 8: As a matter of fact, if you're all out there,
Speaker 8: look at the tayl on your Bloomberg terminal.
Speaker 6: Ah, the tailor rule. I love that function.
Speaker 8: Actually, you can estimate the Fed's reaction function using four
Speaker 8: percent as a non accelering rate of inflation and unemployment.
Speaker 8: That's the Fed's estimate, and I would suggest a neutral
Speaker 8: rate of one point one. You get an optimal rate
Speaker 8: of three point nine percent, which implies the Fed's policy rate, people,
Speaker 8: is way too tight.
Speaker 6: Why do you choose a neutral rate of one point one?
Speaker 6: Isn't it higher?
Speaker 4: No?
Speaker 8: I think it's actually well, the Fed on Williams thinks
Speaker 8: it two point five. Now I'm double that and it
Speaker 8: indeed may be higher. That's something that's unobservable. We do
Speaker 8: our best to make that estimate, Matt. But I think
Speaker 8: that that's appropriate given where the economy is and the
Speaker 8: structural changes that we're going through, because I think we're
Speaker 8: all pretty much here in Wall Street in agreement that
Speaker 8: rates are going to be higher for longer because inflation
Speaker 8: is not going to be what it was for the
Speaker 8: twenty years prior to the pandemic.
Speaker 1: It's just not due to the just you know, the.
Speaker 8: Distortions around movement of supply chains back to friendly countries,
Speaker 8: and the geopolitical tensions that are going to cause problems
Speaker 8: no matter who's in the White House.
Speaker 6: Now if we get a Trump presidency, I'm fascinated by
Speaker 6: some of his proposals because the whole premise of you know,
Speaker 6: the Republican Party is that Biden caused this inflation, and
Speaker 6: Biden inflation is bad and they're going to stop inflation.
Speaker 7: Right.
Speaker 6: But Trump wants to cut taxes.
Speaker 1: I'm happy about that.
Speaker 6: Yes, I know you're not fighting against that, but he
Speaker 6: wants to basically give us a ton of cash. Plus
Speaker 6: he wants to put tariffs on everything that's inflationary. Right,
Speaker 6: those two things are inflationary. And he wants to stop
Speaker 6: immigration and deport all of the illegal immigrants that are
Speaker 6: already here, so that would tighten the labor pool. That's inflationary.
Speaker 6: Seems like everything he wants to do is inflationary. Is
Speaker 6: he just not going to follow through on this stuff? No?
Speaker 8: Actually, after the four years of Trump, I actually take
Speaker 8: him at his word. Literally, that's what he intends to do. Right,
Speaker 8: So if you look at expectations on Wall Street, matter
Speaker 8: of fact, look at the WRP screen FED Funds probabilities
Speaker 8: market's pricing in one hundred basis points of cuts over
Speaker 8: the next five meetings. Okay, if Donald Trump is elected,
Speaker 8: that's a big if. And if he's not a very
Speaker 8: big if, well, I don't want to go there now.
Speaker 6: Gods are strong.
Speaker 8: Yeah, I agree, and I see that, and we're all
Speaker 8: adjusting our base case for twenty twenty five as we speak.
Speaker 8: But if he gets in, and if he follows through
Speaker 8: on this, unemployment rate's going to fall, Wage prices are
Speaker 8: going to go up. The FED is going to be
Speaker 8: worried about a wage price spiral. Right, then the FED
Speaker 8: will reverse course and begin hiking rates and there's where
Speaker 8: we get into what I think is the single biggest
Speaker 8: economic and financial risk of a potentially second Trump administration
Speaker 8: the independence of the Central Bank. I'm not talking about personalities.
Speaker 8: Whether Palace fired, stays, goes is immaterial. It's the instrumental
Speaker 8: independence of the FED that's at risk.
Speaker 6: I'm glad you mentioned that. Jason Furman, who was the
Speaker 6: head of the National Economic Council for Obama. Right, he
Speaker 6: tweeted out that he has selected recently announced policies and
Speaker 6: ranked them in terms of how consequentially bad they would be.
Speaker 6: Number one is the ten percent across the board tariffs.
Speaker 6: This is Furman's opinion, not mine. Number two is the
Speaker 6: four and a half trillion of tax cuts. Number three
Speaker 6: is threatening independence of the Fed. I would have thought
Speaker 6: that'd be a little bit higher. Number four is permanent
Speaker 6: tax free tips. I don't see why that matters. Nobody
Speaker 6: ever claims tips anyway. And then number five is the
Speaker 6: five percent cap on rent increases that Biden has floated.
Speaker 8: Okay, so number five, I just want to be on
Speaker 8: the record that's not a good idea.
Speaker 1: It might make things worse.
Speaker 8: And I mean not just on the supply side of
Speaker 8: you know, people there won't mean a center for builders
Speaker 8: to build homes. People will not want to move, and
Speaker 8: we'll have the same problem in the realm market we
Speaker 8: have as in the in the home buying market. That's
Speaker 8: not a good move. But you know, I followed Jason
Speaker 8: and Jase. By the way, Jason Fremant is an excellent economist,
Speaker 8: and I envy the people get to take EC ten
Speaker 8: over at Harvard from him these days. All right, he's
Speaker 8: a professor, that's right, That course is absolutely fantastic. But
Speaker 8: the thing is, you know what the people who follow
Speaker 8: him wrote back. They disagreed with him. It was the
Speaker 8: FED independence that was number one. I think Jason was
Speaker 8: taken a little bit of.
Speaker 6: Back, but right, well, I think his premise is that
Speaker 6: it wouldn't be possible to threaten FED independence. Donald Trump
Speaker 6: seems to want to. But still you've got to rank
Speaker 6: them in order.
Speaker 8: So I saw Liz trust was at the GOP convention. Yeah,
Speaker 8: they might want to be thinking about what ahead of
Speaker 8: Lettuce means, right, because if they were to try to
Speaker 8: do something like that, you know, we would begin talking
Speaker 8: about the Bond vigilantes, whoever those guys are. By the way,
Speaker 8: you know, live in Austin, Texas these days. I've seen
Speaker 8: one of the guys from zz Top and I'm like,
Speaker 8: that's what a bond.
Speaker 6: Vigilant is sweet, right, that's a great face, Right.
Speaker 1: That's that's what a bond vigilante looks like.
Speaker 8: But they will they will be back quickly, and it
Speaker 8: will be painful if the GOP attempts to do that
Speaker 8: or do something something more ridiculous. It's like to value
Speaker 8: the dollar, right, Yeah.
Speaker 3: So we got the ten year treasury at four point
Speaker 3: one six percent. Where's that going to be year end?
Speaker 3: Do you think?
Speaker 8: Okay, so my year in target was four point two
Speaker 8: with some downside risk. I still think that's you know,
Speaker 8: in intact, I think that when the Fed gets to
Speaker 8: the point where it begins to telegraph it's cutting rates,
Speaker 8: probably right after the July thirty first meeting, you begin
Speaker 8: to see the front end of the curve begin to
Speaker 8: move down. Because what we're going to be doing here
Speaker 8: is this is a good thing, right, is we want
Speaker 8: the price of money to be positive. We want a
Speaker 8: turn premium that's positive on the on the yield curve, right,
Speaker 8: We're going to get a dis inversion of the yield
Speaker 8: curve next year. Hey, guys, this is what's supposed to happen.
Speaker 8: This is what financial markets are supposed to look like
Speaker 8: pre two thousand and you know, pre GFC. Right, Yeah,
Speaker 8: we're going back to the future and it's a good thing.
Speaker 6: So we'll get so we will have then we will
Speaker 6: have had two years of inverted yield curve and no
Speaker 6: real recession.
Speaker 1: Well, Matt, as.
Speaker 8: You know, I'm a firm believer in that the yield
Speaker 8: curves in you know, predicted eleven of the last three recessions.
Speaker 8: I dropped that rule of thumb a long time ago.
Speaker 8: Don't get me wrong. We pay attention to it because
Speaker 8: it shows stresses and strains across the yield curve. I mean,
Speaker 8: excuse me, stresses and strains across financial markets. But it's
Speaker 8: not the predictor that it might have been, you know,
Speaker 8: back in the eighties or nineties, back when.
Speaker 6: Paul was at Duke, right back when skipping exactly Cam's courses.
Speaker 3: To go play golf. So the golf course is right
Speaker 3: across the how I mean exactly who.
Speaker 1: Is your professor that he can Harvey? Cam Harvey?
Speaker 3: So really I didn't know that cool? So he's yeah,
Speaker 3: so he's one of the out of the Chicago school guys.
Speaker 1: So the primary risk.
Speaker 3: It sounds like from your perspective, is this FED holds
Speaker 3: rates too high.
Speaker 8: Too high for too long, and of course oil. Right,
Speaker 8: those are the real two big risks. But you know,
Speaker 8: I don't think that investors or firms have really priced
Speaker 8: in what friend shoring means. But the relocation of the
Speaker 8: supply chains means in terms of a permanently altered structure
Speaker 8: of pricing, both domestically and globally, We're going to have
Speaker 8: higher inflation, We're going to have higher interest rates, right,
Speaker 8: and I do think that's going to be an ongoing
Speaker 8: issue again, regardless of who wins the White House.
Speaker 6: I want to get your take on the markets quickly.
Speaker 6: We lam a minute left. But as an economist, what
Speaker 6: do you think of the fact that Gena Martin Adams
Speaker 6: has written about the S and P four ninety three, Right,
Speaker 6: the companies that aren't the giant megacap tech stocks have
Speaker 6: been in an earnings recession for six quarters and they're
Speaker 6: finally going to start to post some growth, at least
Speaker 6: that's the hope. Do you watch earning season.
Speaker 1: Oh, very closely.
Speaker 8: We use we actually use the artificial tool on bloomber
Speaker 8: to go through and look at the key earnings that
Speaker 8: really are important to our firm. Look, no one likes
Speaker 8: the over concentration or risk in the bag seven. I'm
Speaker 8: happy now it's beginning to broaden out. That puts a
Speaker 8: smile on my face. Although I think that we generally
Speaker 8: are underestimating the positive productivity shock that artificial intelligence is
Speaker 8: going to bring to the US in global economy, That too,
Speaker 8: should begin to spill over as we're in the second
Speaker 8: phase of AI, where we're past the euphoria.
Speaker 1: Now, how are we going to use that?
Speaker 5: Right?
Speaker 3: Yep, So we'll get to that. That's the next big
Speaker 3: thing in this market. How do you use AI? Joe Ruswallows,
Speaker 3: thanks for joining us. Appreciate that Joe Bershwall's chief economists
Speaker 3: are semi joining us here in studio.
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Speaker 3: Looking at the Airline Business United airlines. They said a
Speaker 3: third quarter profit will fall short of Wall Streets expectations
Speaker 3: as US carriers slash ticket prices to lore domestic travelers,
Speaker 3: keeping even the industry's largest players from fully capitalizing on
Speaker 3: record summer travel. Let's bring in George Ferguson. He does
Speaker 3: this stuff for living. He's his senior Aerospace, Defense and
Speaker 3: airlinesanos from Bloomberg Intelligence. George, again, I haven't been on
Speaker 3: a plane in a long time that wasn't packed to
Speaker 3: the gills. Here. If the airlines can't make money, now,
Speaker 3: when can they? What's happening in your industry?
Speaker 5: Yeah?
Speaker 9: So I tell a lot of people who, right, you
Speaker 9: can't confuse airline airplanes being full with profitability. Right, everything
Speaker 9: depends on the price paid by those folks flying. Really,
Speaker 9: the industry is just suffering from overcapacity, right. United confirm
Speaker 9: that today. Delta told us the same thing earlier. We
Speaker 9: saw Alaska results come out today as well, their load
Speaker 9: factors down, yields flat load factors down, telling me they
Speaker 9: can't fill airplanes at the right price point.
Speaker 5: We need capacity to come out.
Speaker 9: Everybody's pointing to an inflection point in three Q. You
Speaker 9: know today United said that, you know they'd get down
Speaker 9: and maybe after mid August maybe two three percent growth
Speaker 9: in capacity. I just think I think that's just still
Speaker 9: a too high level of capacity growth. Right, This isn't
Speaker 9: an economy that probably a year over year grew about
Speaker 9: a percent. I think that number ought to be tied
Speaker 9: much closer to GDP growth you just talked about in
Speaker 9: the update about unemployment right right to the the US
Speaker 9: economy appears to be slowing a bit. So I think
Speaker 9: those things are working against the airlines right now. A
Speaker 9: bunch of capacity has to come out, I think, to
Speaker 9: get back to pricing power, and that's what's needed to
Speaker 9: get profitability going.
Speaker 6: So how does that happen? I mean, do the airlines
Speaker 6: themselves pull capacity out? Don't they have competition in this market?
Speaker 6: Don't we have regulators to ensure that?
Speaker 5: Yeah, So how does it happen? We're starting to see
Speaker 5: some of it happen. Today.
Speaker 9: Alaska announced that they were going to add more premium
Speaker 9: seeding to the.
Speaker 6: Can I just pause here for a fun fact, George.
Speaker 6: For a long time, Paul Sweeney thought that the Eskimo
Speaker 6: on the Alaska Airlines tail was actually a picture of
Speaker 6: Jerry Garcia.
Speaker 9: I did, Yeah, actually he's told me that.
Speaker 5: I'm not sure what that says about, Paul.
Speaker 6: I mean, what an airline do you put a picture
Speaker 6: of Jerry Garcia on the tail.
Speaker 3: They're so cool?
Speaker 5: All right?
Speaker 6: So sorry, sorry, go ahead.
Speaker 9: So we're starting to see capacity come out with these
Speaker 9: announcements like Alaska where they said, hey, we're gonna take
Speaker 9: you know, we're gonna add more premium seating, which usually
Speaker 9: means a bit less capacity in the marketplace. Frontier is
Speaker 9: gonna block your middle seat so you can get a
Speaker 9: premium seat out of Frontier. That obviously brings the capacity out.
Speaker 9: But what you really you know, what you really need
Speaker 9: is you need air airlines to start parking airplanes. And
Speaker 9: I think that's hard too, right, So United Delta all
Speaker 9: jazzed up about this inflection point. But look, I would
Speaker 9: note that there's a lot of very fast growing, low
Speaker 9: cost airlines in the US. Frontier, Spirit, even Jet Blue, right,
Speaker 9: they lease a lot of airplanes. You fly airplanes you
Speaker 9: lease because you got you gotta pay that least.
Speaker 5: Payment, no matter what.
Speaker 9: Right, So I think it gets difficult here, and it
Speaker 9: takes a little while to get capacity out. Maybe next summer,
Speaker 9: you know, I don't know.
Speaker 6: I was talking to the CEO of JSX the other
Speaker 6: day on my new television program called Bloomberg Open Interest
Speaker 6: Tune in weekdays nine to eleven. And you know, they
Speaker 6: fly fascinating roots. For example, they'll fly from the west
Speaker 6: Chester Airport to the Naples Airport, right or some airport
Speaker 6: outside of l A into you know, Palm Beach. So
Speaker 6: are we gonna see more of these upstarts, George.
Speaker 9: Well, so we always do in the industry, right. So
Speaker 9: the beautiful thing about this industry is when people sell airplanes,
Speaker 9: someone buys them cheap and starts flying routes like that,
Speaker 9: and there's always someone that wants that come to this industry, right.
Speaker 9: It's it's got just a heavy allure. Everybody wants to
Speaker 9: own an airline. That becomes one of the challenges too,
Speaker 9: I think, and sort of making money in this industry.
Speaker 5: But the big folks, they'd love.
Speaker 9: To have more, you know, more maybe the ultra low
Speaker 9: cost point at those smaller airports, but you just don't
Speaker 9: get the demand out of those smaller airports, you know,
Speaker 9: to really fill big airplanes, and so that becomes part
Speaker 9: of the challenge I think right now. One of the
Speaker 9: bigger parts of the challenge is definitely business is kinda
Speaker 9: We heard United say one hundred percent of what it
Speaker 9: was in twenty nineteen. Obviously that gives you sort of
Speaker 9: no growth since the pandemic. They're saying the share of
Speaker 9: revenue in the cabin is lower. That's always at a
Speaker 9: really nice price point. And business likes to go different
Speaker 9: places than leisure does, so it diversifies your routes to
Speaker 9: a certain degree, but you need enough of it to
Speaker 9: go to those other destinations. So business just isn't back enough.
Speaker 9: I think to let the big full service carriers move
Speaker 9: into maybe some smaller sized airplanes, more diversified destinations and
Speaker 9: get competition off those sort of heavy volume routes.
Speaker 5: And I think that's part of the problem too.
Speaker 3: And Matt, you know, once a year George Ferkston goes
Speaker 3: on this boondoggle with all these other airline people. They
Speaker 3: go to either Paris one year and then the next
Speaker 3: year it's London for these air shows where the big
Speaker 3: airlines and the aerospace companies buy and sell it always
Speaker 3: see guys jab Yeah, it's just a total scam. But anyway,
Speaker 3: George is going next week to Farnborough in England, George,
Speaker 3: what do you expect there? Are we going to see
Speaker 3: some big orders? What's Boeing going to do? Do they have
Speaker 3: to go do like a mayor culpritur in Farnsborough.
Speaker 5: I think they are.
Speaker 9: I think they'll be holding customer's hands, talking to about,
Speaker 9: you know, all their quality changes, how it's going to
Speaker 9: make a better airplane, and you know, sort of giving
Speaker 9: them an update on when they're going to get deliveries.
Speaker 9: I don't see this being a big sales show. It
Speaker 9: is a sales show, but I don't see you know,
Speaker 9: sort of Airbus and Boeing walking out the door with
Speaker 9: bags and bags of orders if you put them in bags.
Speaker 5: You know.
Speaker 9: I just kind of think it's going to be pretty
Speaker 9: muted because of both those supply chain challenges and you know,
Speaker 9: the US airlines earning season showing us that maybe too
Speaker 9: much capacity in the US. We heard Lufton's of Warren already.
Speaker 9: Maybe there's a little too much capacity In Europe. I
Speaker 9: think people really expected, you know, a much harder bounce
Speaker 9: back from the pandemic again, still missing some of that
Speaker 9: business travel economy slowing just not there. So I think
Speaker 9: it'll be a bit of a muted sales show at
Speaker 9: the at the show.
Speaker 3: All right, George, thanks so much for joining us. Appreciate
Speaker 3: it as always. George Ferguson, senior Aerospace, Defense and Airlines
Speaker 3: analysts for Bloomberg in Intelligence. But always had some those
Speaker 3: air shows. You see these monster deals, you know, Emmerts
Speaker 3: Airlines buying, you know, fifty.
Speaker 6: Seven true air and they're often the surprise, so, you know,
Speaker 6: tough to predict. But I feel like both of the
Speaker 6: members of our airplane making duopoly have already got order
Speaker 6: backlogs going out years, right, So what difference.
Speaker 1: Does it make?
Speaker 3: Yeah, what difference does it make? And Boeing's got its problems.
Speaker 3: I mean, George talks about the builds they're building, like
Speaker 3: the thirty five, thirty six, seven thirty seven months that
Speaker 3: needs to be well north of forty for them to
Speaker 3: start getting some cash flow.
Speaker 2: There you're listening to the Bloomberg Intelligence Podcast. Catch us
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Speaker 3: steels out Today. They're telling me Matt Miller is going
Speaker 3: to be here thin eleven o'clock hour. I will believe
Speaker 3: it when I see it. Let's talk some real estate here,
Speaker 3: commercial real estate, residential real estate. We can do that
Speaker 3: with David O'Reilly. He's the CEO of Howard Hughes. Howard
Speaker 3: Hughes is a public traded company. Triple hhhh is a
Speaker 3: ticker in your Bloomberg terminal. That'll bring it up for you, David,
Speaker 3: Thanks very much for being here in what pre're city,
Speaker 3: in New York City, other than being that world's financial capital.
Speaker 10: Allways, a pleasure to be here. Thanks for having me.
Speaker 10: We do have an asset here at the South Street
Speaker 10: Seaport in the Lower eas side of Manhattan. We're in
Speaker 10: the middle of filing with the SEC for spinoff of
Speaker 10: those assets into its own separately traded company focused on
Speaker 10: entertainment that will leave Howard. You is positioned really just
Speaker 10: entirely focused on building world class communities that we've been
Speaker 10: doing since we were form.
Speaker 3: Stories for me and my gang at the South stat
Speaker 3: Street Board in the late nineteen eighties. We'll just leave
Speaker 3: it at that. Talk to us about, first of all,
Speaker 3: Howard Hughes. Where did this company come from? Given the name?
Speaker 1: So it was spun out from General Growth Properties.
Speaker 10: Bill Ackman of Pershing Square took control of General Growth,
Speaker 10: the mall company that went bankrupt fourteen years ago, and
Speaker 10: he found in the mall company were these great communities,
Speaker 10: the woodlands outside of Houston summer and outside of Las Vegas, YEP, Columbia, Maryland.
Speaker 1: Between DC and Baltimore. He said, these.
Speaker 10: Companies don't belong in a public mall red Okay. They
Speaker 10: need their own company, all.
Speaker 3: Right, So let's just talk. I'm just looking at what
Speaker 3: you guys have there. Let's talk about office space. You
Speaker 3: have six point eight million square of office space. Six
Speaker 3: point eight million square feet of office space. I go
Speaker 3: through any town, USA, any office yard, You're going to
Speaker 3: see the sign stuck in the grass outside X number
Speaker 3: square feet for for rent here. What's your portfolio look
Speaker 3: like in terms of occupancy rates, that kind of thing.
Speaker 10: You know, our occupancy is traveling up close to ninety
Speaker 10: percent last quarter really and it has defied gravity and
Speaker 10: really defied the national headlines of doom and gloom.
Speaker 3: Why is that?
Speaker 10: You know, we during the pandemic saw the migration of
Speaker 10: a lot of really smart, well educated workers coming from
Speaker 10: the coasts, leaving higher crime, leaving higher taxes, chasing quality
Speaker 10: of life, chasing affordability. And now we're seeing companies chase
Speaker 10: those employees. And we're seeing those companies come in from
Speaker 10: those big cities into places like the Woodlands, where we
Speaker 10: filled up over the past two years almost three quarters
Speaker 10: of a million square feet.
Speaker 3: Interesting, So where is your office space today versus maybe
Speaker 3: pre pandemic in terms of vacant occupancy and rate and
Speaker 3: that kind of thing.
Speaker 10: I would say vacancy is a tick higher. We were
Speaker 10: about ninety two percent. Pre pandemic rates are almost identical.
Speaker 3: Really, yes, interesting because I mean you know the story.
Speaker 3: And then cities like New York City, for example, you
Speaker 3: know the story Here is if if you're in an
Speaker 3: a office space like Bloomberg's headquarters, you're fine. Right, If
Speaker 3: you're in anything else, good luck.
Speaker 1: Tough sletting, no doubt.
Speaker 10: But in a community like the Woodlands, we control the
Speaker 10: development of all new product, so We're only building to
Speaker 10: meet supply. There aren't four folks with a shovel in
Speaker 10: the ground, all at the same time, rushing to be
Speaker 10: first and the other three lose.
Speaker 1: So by controlling the.
Speaker 10: Supply side of the equation, we're able to mitigate some
Speaker 10: of those bigger swings that are typically associated with the
Speaker 10: office market.
Speaker 3: Six thousand multi family units. Where are those units generally speaking?
Speaker 3: And how's that business doing?
Speaker 10: The business is incredible. We've seen great same store growth
Speaker 10: year over year. A big picture, we have a three
Speaker 10: million plus housing you to shortfall across the country, and
Speaker 10: multi family is trying to address some of that, especially
Speaker 10: from an affordability perspective. Our portfolio in the Woodlands remains
Speaker 10: high nineties, rents increasing year over year. Same with our
Speaker 10: portfolio in Columbia and some of land outside of Las Vegas.
Speaker 3: I love some of another great golf course there and
Speaker 3: some of it all those courses out there. How is
Speaker 3: Vegas doing generally, because that's one of those markets up
Speaker 3: and down. It's kind of the poster child from when
Speaker 3: things are great, poster child when things are bad. Where
Speaker 3: are we now in that cycle for Vegas?
Speaker 10: Vegas isn't a really good spot right now. You know,
Speaker 10: we're selling over a thousand homes in Summerland this year,
Speaker 10: and last year we hit ruck at home sales. First
Speaker 10: quarter we were up twenty four percent. Builders are buying
Speaker 10: land from US at a record price per acre, and
Speaker 10: where you know, kind of the catcher's mitt of all
Speaker 10: those residents looking for quality of life.
Speaker 3: All right, you've got a land bank. I'm not a
Speaker 3: real stick guy, so I don't know what a land
Speaker 3: bank is. I'm guessing you guys just own you guys
Speaker 3: owned thirty five thousand acres in a land bank.
Speaker 1: All right, what do.
Speaker 3: You do with that? Build stuff he developed, develop it
Speaker 3: or we sell it.
Speaker 1: We play SimCity.
Speaker 10: We build, We put in the roads, we put in
Speaker 10: the hospital's, police, fire stations, wetewater treatment plans, and then
Speaker 10: we grade land and sell it to homebuilders who build homes.
Speaker 1: Residents move in.
Speaker 10: They need commercial amenities, places to shop, office buildings to work.
Speaker 10: We build those with the cash from selling land to
Speaker 10: home builders and create these communities like Summerland.
Speaker 1: Sometimes we build golf courses.
Speaker 3: Right exactly, the TPC some in I've lost a lot
Speaker 3: of golf balls in that desert. What's next? What's the
Speaker 3: growth for your company. Here I'm looking at just on
Speaker 3: the Bloomberg terminal. Here here's a company, folks. You got
Speaker 3: a market cap about the three point seven billion dollars.
Speaker 3: This company's got revenue, you know, about just right around
Speaker 3: a billion dollars billion. Two is a forecast for twenty
Speaker 3: twenty four ebitdah, which is what I look at because
Speaker 3: that's actually you guys are a real estate company, so
Speaker 3: operating come three hundred million. So this is a real
Speaker 3: size company, some heft. You got about a five billion
Speaker 3: dollars of debt on your balance sheet. Where's the growth
Speaker 3: going forward?
Speaker 1: It's across all of our communities.
Speaker 10: Our job is to transform that raw land, that land
Speaker 10: bank as you referred to it, into income producing assets
Speaker 10: by meeting the demands in our community. And like I said,
Speaker 10: across our portfolio, our multi family is very tight, high
Speaker 10: nineties occupancy.
Speaker 1: We need to build more.
Speaker 10: So we're moving very quickly to start that next multi
Speaker 10: family project in the Woodlands and the next one in
Speaker 10: Summerland to meet the demand that's in that community.
Speaker 3: So it's better to stay, I guess your strategies and
Speaker 3: take your existing communities, the Woodlands in outside of Houston,
Speaker 3: summer land in Vegas and expand those as opposed to
Speaker 3: saying I'm going to Phoenix or something.
Speaker 10: Well, it's funny you should say that. Two years ago
Speaker 10: we went to Phoenix and bought thirty seven thousand acres
Speaker 10: in a community called Arravalis. We're entitled for three hundred
Speaker 10: thousand residents and fifty five million square feet of commercial space,
Speaker 10: roughly the size of Saint Louis. We've already under contract
Speaker 10: and sold over eight hundred lots to home builders at
Speaker 10: over seven hundred thousand dollars an acre to meet the
Speaker 10: housing demand that exists in the West Valley of Phoenix.
Speaker 3: So who builds the homes? Do you build the homes here?
Speaker 3: You go to DH hort and or Toll Brothers are
Speaker 3: one of those guys.
Speaker 10: We sell to all the public builders, a lot of
Speaker 10: large regional private builders as well. We try to be
Speaker 10: Switzerland sell land whoever bids highest and delivers the best product.
Speaker 3: What's this interest We've been in this interest rate environment
Speaker 3: for the past couple of years of much higher rates.
Speaker 3: We all grew up, seems to like over the last
Speaker 3: fifteen years with zero in interest rates. How's that impacted
Speaker 3: your business's higher rates for longer.
Speaker 10: It's been an accelerant sell It's absolutely contrary to popular opinion,
Speaker 10: and its contrary to the headlines that we read every
Speaker 10: day that higher rates is killing homes.
Speaker 1: They're less affordable.
Speaker 10: But really what it's done is it's taken out supply.
Speaker 1: There's almost no.
Speaker 10: Resale out there, so the home build there's a new
Speaker 10: home construction, which is our business, are thriving.
Speaker 1: We're seen greater.
Speaker 10: Demand for those new homes than we have seen in
Speaker 10: a long time. And if you add in that, last month,
Speaker 10: for the first time in decades, new home pricing was
Speaker 10: less expensive than resale. New homes have typically traded on
Speaker 10: average for twenty or seventeen percent premium. Last month, they
Speaker 10: were less expensive, interesting, and it's really pushing a lot
Speaker 10: of buyers that want that quality of life in our
Speaker 10: communities to buy new home construction. And that has been
Speaker 10: an accelerant on our business.
Speaker 3: I'll tell you, I mean just dh Horton. Just today
Speaker 3: the stock jumps to a record high as their third
Speaker 3: quarter earnings beat estimates.
Speaker 1: Sometimes I'm lucky, not good.
Speaker 10: I think it was about six months ago I thought
Speaker 10: that to twenty twenty four would be the goal age
Speaker 10: of home building rates would start to tick down a
Speaker 10: little bit so that we'd see more demand in buying homes,
Speaker 10: but not so much that.
Speaker 1: We'd see resale pickup.
Speaker 10: And the record margins that public homebuilders have been printing,
Speaker 10: you know, twenty five to thirty percent, which to me,
Speaker 10: I don't remember that in my career, just going to
Speaker 10: remain strong.
Speaker 3: So when you're selling lant to a dhort and you're like,
Speaker 3: I'm not giving you a break on this, and I
Speaker 3: just saw your earnings yesterday, guys are crushing it.
Speaker 10: We put them out for bid, and we bid based
Speaker 10: on a couple of different factors. One is price per acre,
Speaker 10: but other is our builder price participation. We're expecting a
Speaker 10: home to sell for call it five hundred thousand dollars.
Speaker 1: If it trades for six hundred thousand, I get about
Speaker 1: twenty percent of that upside. Okay, to make sure it's
Speaker 1: a little bit.
Speaker 10: Of smuck insurance, right if the market rips, I want
Speaker 10: to make sure I get paid for my dirt appropriately,
Speaker 10: so we have a little true up at the end
Speaker 10: when the homes are sold.
Speaker 3: Interesting, that's so smart. What do you expect in straits
Speaker 3: to do? Here, I mean here, this global Wall Street,
Speaker 3: that's all we talk about. It seems like what you're
Speaker 3: on the ground, actually in the business.
Speaker 1: Yeah.
Speaker 10: Look, if I knew for sure, I wouldn't be talking
Speaker 10: to you. I'd be on a beach somewhere. I do think,
Speaker 10: you know, rates will start to come down towards the
Speaker 10: end of the year. I think it'll be a modest decrease.
Speaker 10: I don't think there'll be anything massive that will that
Speaker 10: will shift the tides, so to speak. And I think
Speaker 10: it'll be continue to be good for new home sales,
Speaker 10: continue to be good for home builders, and continue to
Speaker 10: be good for the value of our land.
Speaker 3: All right, very good, and we'll see I mean again,
Speaker 3: DH Horton came up with some big numbers today, so
Speaker 3: that new housing market remains very strong. And if you've
Speaker 3: got quality prop properties like you know the woodlands, or
Speaker 3: you know someone in a good spot to be David O'Reilly,
Speaker 3: thank you for joining us. David O'Reilly. He's the CEO
Speaker 3: of Howard Hughes Trades on the NASDAQ. This ticker is
Speaker 3: h h H. It's got a market cap at three
Speaker 3: point six pillion dollars, up one point four percent today,
Speaker 3: We appreciate you coming in.
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