Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
Speaker 1: I get to break to our next guest, Dan if
Speaker 1: she covers Dan, it's Tritty's birthday. He's a tech Yeah,
Speaker 1: he's a kick geek, so it's not a geek. What's
Speaker 1: nerds and geeks? Totally? Totally he's into the tech stuff.
Speaker 1: And we got to start with what he's wearing today.
Speaker 1: This is, in a word, disturbing. We've got powder blue
Speaker 1: kind of pants and sport jack and then a late
Speaker 1: green shirt. It's very eighties. Prom I love it. I
Speaker 1: to be warm outside today. It looks good to me.
Speaker 1: It's spring. It's it's all mindset exactly. It's all my
Speaker 1: set exactly. So what was your mindset?
Speaker 3: Dan?
Speaker 1: I have some web bush on the Tesla numbers here
Speaker 1: the stocks off about seven percent.
Speaker 4: Yeah, I mean the outfit's at more positive than my
Speaker 4: view of what happened with earnings because it was all
Speaker 4: about margins. I mean, demand has been pretty robust since
Speaker 4: the price cuts, but margins twenty percent was the magical threshold.
Speaker 4: Came in below that, and they sort of kept things
Speaker 4: sort of close to the chest in terms of what
Speaker 4: they were really talking about margins going forward. That's why
Speaker 4: the stocks off because the worry here is that if
Speaker 4: they continue to cut prices, margins continue to go down.
Speaker 4: That's key to the multiple.
Speaker 1: But they can is the big deal?
Speaker 5: Right?
Speaker 2: Do they have to or is it that they can?
Speaker 2: Are they doing this because they have to drive demand
Speaker 2: or is it because they can inflict pain on general
Speaker 2: motors in Volkswagen.
Speaker 4: I think it's eighty percent because they can twenty percent
Speaker 4: to ultimately catalyze demand a soft macro because I think
Speaker 4: the way Musk and Tessa are looking at it, this
Speaker 4: is a flex to Muscles moment. It's essentially game of
Speaker 4: thrones and electric vehicles and Tasso recognizes you got be
Speaker 4: an iron fence around that install based protect continue to
Speaker 4: go after marks. But with that said, the margins, they
Speaker 4: have massive margin flexibility over traditional auto but also testa
Speaker 4: is held do a higher stand. That's why it tradees
Speaker 4: like a tech stock. That's why twenty percent margins going
Speaker 4: below that it's gonna I'll call it tenuous in terms
Speaker 4: of the next few quarters. In terms of that margin
Speaker 4: called tuggle.
Speaker 2: War, I would I wonder if it's not more they
Speaker 2: have to because I would argue if they hadn't been
Speaker 2: lazy about design, they really need to bring out new products,
Speaker 2: and if they were better in terms of quality control
Speaker 2: they have infamously bad build quality, then they wouldn't have
Speaker 2: to cut prices this much. I mean, the Model Y
Speaker 2: was going for sixty five grand and now you can
Speaker 2: get one for under fifty.
Speaker 1: That's a big, big chunk.
Speaker 4: We can make great points, and especially in China because
Speaker 4: China is really where the price wars happened between Neo
Speaker 4: bid x Ping and others. And that's the hearts and
Speaker 4: alongs of the Testa story. So I think right now
Speaker 4: in terms of the game of poker, like for many
Speaker 4: many years Musk has played, others have played checkers, but
Speaker 4: now in terms of competition grown in terms of what
Speaker 4: we see three wine three area code four GM as
Speaker 4: well as out of Europe. Now this is a time
Speaker 4: to gain market shop, but at what price, and that's
Speaker 4: why I most investors the frustration showed that margin story
Speaker 4: doesn't get into that mid teens.
Speaker 2: Are you worried that he's spent too much time? I mean,
Speaker 2: clearly he's spent spends way too much time tweeting and
Speaker 2: doing stupid childish.
Speaker 1: Wait, he's got another tweet out today congratulating SpaceX. Okay,
Speaker 1: but that's actually cool.
Speaker 2: So that's something where he's making progress for mankind. I mean,
Speaker 2: that's what Elon Musk should be doing. He's just launched
Speaker 2: the most powerful rocket that has ever come off the
Speaker 2: surface of this planet, and it's so cool. But maybe
Speaker 2: he should be paying more attention to, you know, uh,
Speaker 2: furthering great causes for humanity than doing stupid stuff on Twitter.
Speaker 4: Wee Twitter, We talked about me. It's gonna be the
Speaker 4: most overpaid tech acquisition the history of deals, and forty
Speaker 4: four billion for someone that's probably worth twelve to fifteen
Speaker 4: billion today. It's also with a time sucker, and I
Speaker 4: think that's the issue, is that at a time where
Speaker 4: Tesla and SpaceX need Musk more than ever, you don't
Speaker 4: just want to see him sitting there third floor of
Speaker 4: Twitter headquarters just tweeting So.
Speaker 1: When did the Tesla story become a margin story as
Speaker 1: opposed to just a great cool growth.
Speaker 4: Story starting this year once they started cut prices. I mean,
Speaker 4: you've got six price cuts, and I think that that's
Speaker 4: where margins ultimately company.
Speaker 1: Want it to be there or they don't even care,
Speaker 1: do they, because I mean, like for example, Facebook slash Meta,
Speaker 1: they've kind of tried to transition people from getting away
Speaker 1: from subscriber growth numbers and all that kind of stuff
Speaker 1: and focus on the profitability and a free cash love
Speaker 1: of our business. I mean, that's they're trying to drive
Speaker 1: the investment narrative. Tesla doesn't really care about.
Speaker 4: Looking twenty two billion of cash right and I think
Speaker 4: they're viewing it is like, we don't care what you
Speaker 4: think for now. You gotta trust us in terms of
Speaker 4: the last decade and right now we are looking to
Speaker 4: go on the offensive, not defensive in terms of margins
Speaker 4: and cutting prices. That's sort of their strategy. Look, and
Speaker 4: some investors love it, some investors won't. That's what you
Speaker 4: see right now. In terms of Bulbear debate, we.
Speaker 2: Have a question, the Question of the Day, which has
Speaker 2: been up on the Bloomberg television screen has Tesla started
Speaker 2: a price war.
Speaker 4: What do you think, Oh, I think the price war
Speaker 4: has begun, and I think in China it's already started.
Speaker 4: And ultimately it's here in the footsteps of gm Ford.
Speaker 4: You have Mercedes, you have others that are coming because
Speaker 4: they're Look, they're no longer the only game in town.
Speaker 4: Now clearly it's their world. Everyone else pays rent in
Speaker 4: terms of electric vehicles. But now with competition increasing, they
Speaker 4: can't just sit there on their high horse. They need
Speaker 4: to cut prices and that's that's really what's happening here.
Speaker 4: But again it comes down to the managing team, the guidance.
Speaker 4: You know, I think there's more questions and answers, which
Speaker 4: is why the stocks reacting the way.
Speaker 2: And now, if you want to buy an electric are
Speaker 2: there's so many other choices you could get. If you
Speaker 2: want to get something cheap, you could pick up a
Speaker 2: Chevy Bolt. If you want to get something cool, you
Speaker 2: could get a Kia EV six GT. If you want
Speaker 2: to get something expensive, you could go with a BMW
Speaker 2: I X and on that that's built with hand laid
Speaker 2: carbon fiber and Washington tament.
Speaker 1: That's awesome stuff.
Speaker 2: So Tesla, you know, they had these ten year old products.
Speaker 2: Is the cyber truck gonna come out this year? Are
Speaker 2: they gonna do anything that's awesome and new?
Speaker 4: Yeah, I think by Howween we should have the cyber
Speaker 4: truck announcement. And that's important because as you've talked about
Speaker 4: for a long time in terms of new automobile, new models,
Speaker 4: I think the sub thirty k comes out next year.
Speaker 1: But look for Tesla right now.
Speaker 4: It's that supercharger network. It's the Musk DNA, I mean
Speaker 4: supercharger network. It's the Musk DNA, and it's the cachet
Speaker 4: of owning a Tesla. And I think that continues to
Speaker 4: be there. But no doubt you gotta cut prices in
Speaker 4: that's sense of what they're doing.
Speaker 1: So, but Kevin Tynan and our auto ational supple more intelligence,
Speaker 1: he says, the Choice does have come out with a
Speaker 1: ton of cars if they're not making money on them.
Speaker 1: You know, they've even paired back the four pairback the
Speaker 1: Mustang mock e because a certain prece just won't just
Speaker 1: saw mock e hearse. Yeah, you see that. Somebody made it.
Speaker 1: Mock e hearse.
Speaker 2: They're coming out with new cars, dude, that's the only
Speaker 2: thing they're gonna make from now on his electric cars.
Speaker 2: You can argue that that's a horrible strategy, a big mistake.
Speaker 2: They're putting all their eggs in one basket. Pretty much
Speaker 2: all car makers are, but they're all gonna come out
Speaker 2: with new electric cars. It's gonna be from twenty thirty
Speaker 2: either electric, all electric, or hybrid. Really, that's the only
Speaker 2: that's the only choice. Almost every single car maker has
Speaker 2: has vowed that they will no longer make solely internal
Speaker 2: combustion engines after twenty thirty.
Speaker 4: And to your point, must knows that bulls eye in
Speaker 4: their back and that's why they, Okay, guess what, We're
Speaker 4: just gonna keep cutting prices in flipting the pen. And
Speaker 4: that's a say it's dreve demand. But from an investor
Speaker 4: perspective out it's like, okay, at what point? And that's
Speaker 4: really what the stocks are?
Speaker 1: So can I buy Tesla here? I mean because if
Speaker 1: typically I don't want to own a company who's in
Speaker 1: a price war, much less initiating one.
Speaker 4: Sure I view it if this was something that was
Speaker 4: going to continue to go on, then obviously that's the
Speaker 4: concern I view a more transitory in terms of this
Speaker 4: price war dangerous word. And ultimately, you know it's really
Speaker 4: the next two to three quarters you see this price war,
Speaker 4: then you really start to see I think stabilization. That's
Speaker 4: really the story for tests. In terms of the bull case,
Speaker 4: I continue view this in Apple as the two most
Speaker 4: transformational names in the market.
Speaker 1: What is the Apple call today?
Speaker 4: I mean, look Apple Call today, it's rocket Gibralter and
Speaker 4: that I mean if you look units holding up just
Speaker 4: by many yelling fire and a crowd theater. Cook's a tactician.
Speaker 4: That's why a Hall of Famers CEO. And that's the
Speaker 4: stock that continues to sort of rerate even in this
Speaker 4: environment because they have something that no one else does
Speaker 4: install Base, that's the golden two billion Eyess devices. And
Speaker 4: even in India, I mean they just decided, hey, we'll
Speaker 4: try to penetrate that market. That could be an incremental
Speaker 4: fifteen to twenty billion next few years.
Speaker 3: All right.
Speaker 2: They have three hundred and like three hundred and sixty
Speaker 2: million people in the Indian middle class. Yeah, three hundred
Speaker 2: and sixty million people that can afford the product right
Speaker 2: out of one point five billion in total.
Speaker 1: Yeah, and they really stepped it up. All right, Dan,
Speaker 1: thanks so much. For coming out. I really appreciate you
Speaker 1: coming into the studio here despite the wardrobe. So good
Speaker 1: luck walking down the street with that before twenty yeah,
Speaker 1: before twenty There you go. Dan Ice, he's a senior
Speaker 1: equity analyst, So what Bush Security is one of our
Speaker 1: real top go to names. And we want to talk
Speaker 1: technology when we want to talk Apple, Tesla. He's all
Speaker 1: over that stuff, so we appreciate getting a few minutes
Speaker 1: of his time.
Speaker 3: You're listening to the team Ken's are Live program Bloomberg
Speaker 3: Markets weekdays at ten am Eastern on Bloomberg dot Com,
Speaker 3: the iHeartRadio app, and the Bloomberg Business App, or listen
Speaker 3: on demand wherever you get your podcasts.
Speaker 1: I want to talk real estate. I think we need
Speaker 1: to talk real estate investment trust and you want to
Speaker 1: go there. You got to do a couple of things. One,
Speaker 1: you got to get somebody who worked at Green Street Advisors.
Speaker 1: Those are the big folks in the reed business. We
Speaker 1: take that box with David Auerback. He's a managing director
Speaker 1: at Armada ETF so he did a stint to Green Street.
Speaker 1: And the second place you got to go is Jeff Langbaum.
Speaker 1: He covers the reats for Bloomberg Intelligence, and we've got
Speaker 1: both of these gentlemen in our Bloomberg Interactive Brokers studio.
Speaker 1: Here's my thing. I'm walking around Midtown. I'll walk to
Speaker 1: Penn Station today. I'll walk by these gleaming office towers.
Speaker 1: Now they'll be kind of full today because it's a Thursday.
Speaker 1: But let's face it, nobody's coming back to work here
Speaker 1: in this You mean in terms.
Speaker 2: Of people, people, but they're not full in terms of stores, right,
Speaker 2: there's no lot.
Speaker 1: Well, there's no people, there's no stores. There's nobody going
Speaker 1: to the deli's. It's a Thursday. It'll be better. David auerback,
Speaker 1: what do you do from a real estate perspective? What's
Speaker 1: the call here from a real estate perspective when you
Speaker 1: look at office reads and just office space.
Speaker 6: Well, Paul Matt, it's great to be with you guys today.
Speaker 6: I just came from the NYU Shack Reads and Posium
Speaker 6: conference yesterday, and this is a big topic that came
Speaker 6: up in conversation. And what you're noticing from some of
Speaker 6: the big reed institutional buyers that are out there is,
Speaker 6: after being opportunistic, they are starting to tiptoe back into
Speaker 6: some of these really distressed sectors here and realizing that,
Speaker 6: you know, we might be in for more short term pain,
Speaker 6: maybe over the next year or two years. But on
Speaker 6: the other side, they do feel like there are compelling opportunities.
Speaker 6: I was walking over here with Jeff and we just
Speaker 6: noticed like seventy five thousand square feet of vacant retail
Speaker 6: space right here at this intersection in Roenberg headquarters. And
Speaker 6: you know, I asked them, like, hey, what tenants were here. Oh,
Speaker 6: this was Container Store, and here was this you know, innovation.
Speaker 2: M We had a Victoria's Secret, We had like a
Speaker 2: J Crew or a J Crew.
Speaker 1: Brand I think Banana Republic maybe.
Speaker 7: But yeah, there were a ton of stores here that
Speaker 7: are just gone.
Speaker 6: And I fall back on my you know comment I
Speaker 6: always like to say is that, you know, there's only
Speaker 6: one New York City. Eventually, it may take some time,
Speaker 6: but it is going to bounce back. I think the
Speaker 6: landlords are you know, some of these guys are I
Speaker 6: think rolling to maybe kind of lower the rental rate
Speaker 6: just to be able to bring some people in. Instead
Speaker 6: maybe saying to have let's say thirty thousand square feet available,
Speaker 6: will put a wall in, have two fifteen thousand foot
Speaker 6: spots in and so hopefully they'll be able to target
Speaker 6: that next generation of retailer tenants or the next generation
Speaker 6: of office tenants to come in. I mean, we'll talk
Speaker 6: about sau Green's earnings yesterday, and they had a massive,
Speaker 6: great first quarter of leasing, like well above what analysts
Speaker 6: were expecting as far as how much they were looking
Speaker 6: to get back in the office. And so I think
Speaker 6: we're starting to see some pockets of strength that's out there,
Speaker 6: but overall on the bigger picture, yes, they're still weakness.
Speaker 7: It's really the return to office thing that's the problem.
Speaker 2: Right, And Jeff, you know, I'll ask you because David
Speaker 2: mentioned NYU for this conference.
Speaker 7: If you're in student housing, you're golden, right.
Speaker 2: If you're in a medical office buildings, no problem. The
Speaker 2: problem is, you know, workers like us, me and Paul
Speaker 2: are the only people who come to this building. And
Speaker 2: that's why you know, we don't do enough shopping at
Speaker 2: Victoria's Secret and the Container's Store to keep those stores afloat.
Speaker 3: Right.
Speaker 7: So, but office is really the only problem.
Speaker 2: Are the other parts of the real estate market in
Speaker 2: the US still going strong?
Speaker 7: Every other one, I don't want to say every other one.
Speaker 8: I'm sure, there are pockets of weakness, and certainly within
Speaker 8: segments there are going to be individual circumstances. But yeah,
Speaker 8: I mean, multifamily is strong, Warehouses are strong. Certain aspects
Speaker 8: of the healthcare real estate are very strong. Office is
Speaker 8: the problem child. And and you know, Paul, you talk
Speaker 8: about how many people are in the building, that's not
Speaker 8: the entire focus for a company making the decision to
Speaker 8: sign a lease for office space. Right, you still need
Speaker 8: space even if you only have fifty or sixty percent
Speaker 8: of your people in at any given time. And today's
Speaker 8: point es still Green announced yesterday at least over five
Speaker 8: hundred thousand square feet of space in New York office.
Speaker 1: Building really in the first quarter.
Speaker 8: Okay, so it's not it's not dead, it's certainly challenged.
Speaker 1: Rents.
Speaker 8: The rents on the five hundred thousand square feet that
Speaker 8: they least, we're five percent higher than the expiring rents
Speaker 8: on those leads. Now, granted those quality buildings, these are
Speaker 8: the are you know, top of the going to It's
Speaker 8: not Third Avenue, Midtown US in yards will sell.
Speaker 1: Third Avenue is not going to sell?
Speaker 3: Is that right?
Speaker 1: I mean kind of is that kind of what we're seeing?
Speaker 8: Well, the other thing to remember also is you know
Speaker 8: these are you you're re signing leases that were last
Speaker 8: signed ten years ago. So even if we're kind of
Speaker 8: falling off to the peak, your mark to market is elevated,
Speaker 8: and so you know, it's it's it's there's still activity happening.
Speaker 8: You know, their portfolio is about ninety percent occupied. So
Speaker 8: you hear stories of you know, occupancies tanking. It's not.
Speaker 7: Like I said, it's not dead, it's just a struggle.
Speaker 2: I got a viewer, a listener writing in here.
Speaker 1: He's maybe he's also a viewer.
Speaker 2: Maybe he's just looking at his radio right now and
Speaker 2: he wants to know, David, how worried are you about
Speaker 2: the CRI maturity wall of five hundred billion a year
Speaker 2: for the next couple of years.
Speaker 7: Is it?
Speaker 1: Is it a huge headwind?
Speaker 6: It's definitely something to take note of. I think you
Speaker 6: need to take a look at it on a case
Speaker 6: by case, company by company basis, because a lot of
Speaker 6: our you know, especially the publicly traded reads, they're working
Speaker 6: with some of the largest banks in the world, the Goldman's,
Speaker 6: the JP Morgan's, and so you know, one of the
Speaker 6: biggest conversations is how we how are we going to
Speaker 6: refinance our debt stack? Looking out in the future, you know,
Speaker 6: we're past COVID, We're not in a one and a
Speaker 6: half percent operating environment. The blended extent is kind of gone.
Speaker 6: But in that same breadth, if we're able to you know,
Speaker 6: piecemeal our stacks over the next couple of years of
Speaker 6: restructuring it, I think we'll be able to weather the storm.
Speaker 6: Now again, if you're some of these other trouble companies
Speaker 6: that are out there, you might have a longer runway
Speaker 6: than you know, somebody that's a class A you know,
Speaker 6: retail operator or apartment guy where it's not really you know,
Speaker 6: Freddie Fanny is always there to refine.
Speaker 7: It's not a problem.
Speaker 2: But there are going to be people who do have
Speaker 2: problems refinancing. There is going to be a storm to weather.
Speaker 2: Is there going to be real consolidation you.
Speaker 6: Think, I think we're going to see some consolidation. I mean,
Speaker 6: we talked about yesterday. You're not really seeing much public
Speaker 6: to public MNA transaction based off the discounts of a
Speaker 6: lot of these guys are trading. But you know, one
Speaker 6: key thing, and Jeff and I are talking about it earlier.
Speaker 6: You know, there's sovereign wealth funds that are out there.
Speaker 6: You got Government of Singapore, You've got QYA, you got
Speaker 6: Candidate Pension. A lot of these big sovereign wealth funds
Speaker 6: are out there and they've got capital, and they're looking
Speaker 6: at that long term opportunity. Not just five years. We're
Speaker 6: talking twenty five fifty years out. Like you know, are
Speaker 6: we gonna tear down the GM building anytime soon? No,
Speaker 6: that's just going to continue to you know, the met
Speaker 6: Life building another good example. They're ready to come right,
Speaker 6: sit down, write a check, and you know, focus on
Speaker 6: this long term investment. So I think that there are
Speaker 6: good capital partners that are out there.
Speaker 8: I actually think that's going to be the key.
Speaker 3: Right.
Speaker 8: So you ask about refinancing and that maturity wall. There
Speaker 8: are going to be properties that have a problem refinancing,
Speaker 8: and it's probably going to be mostly concentrated in the
Speaker 8: office space. Who is willing to step up and put
Speaker 8: a loan on these properties? What kind of additional equity
Speaker 8: is required to fill any gap if loan to value,
Speaker 8: if values come down and loan to values have to
Speaker 8: have to kind of shrink accordingly, and if there is distress,
Speaker 8: who's willing to step up and write a check to
Speaker 8: buy these properties.
Speaker 1: When do you think we'll get to that point? Is
Speaker 1: that something that's just gonna roll over the next couple
Speaker 1: of years. It's going to be an extended time frame.
Speaker 8: And right now we are in a massive information void
Speaker 8: because there are no data points on assets trading. Nobody's
Speaker 8: nobody's willing to step up and buy because sellers aren't
Speaker 8: yet forced to lower their asking price. You've got, you've
Speaker 8: you've got the only data points that you're seeing. Our
Speaker 8: people are companies that are defaulting on loans, and so
Speaker 8: it's you've got plenty of bad news into this information void.
Speaker 8: But but you need we need to start seeing data
Speaker 8: points on properties trading and loans getting under rid.
Speaker 7: By the way, it's not all about New York, even
Speaker 7: though we think.
Speaker 1: Yeah, I need to think, I need to get on
Speaker 1: the road a little more. Is it all about New York?
Speaker 2: No, you're from Austin, right, so Dallas, you're from Dallas. Sorry,
Speaker 2: but you went to ut I did. I was just
Speaker 2: down in Austin and it was sick and there were
Speaker 2: cranes everywhere. Right, they're just putting up buildings left and right.
Speaker 2: They can't build them fast enough. So I'm not saying
Speaker 2: specifically there, but there are places around the country where
Speaker 2: it's still very busy, very popular, and people may even
Speaker 2: want to go to an office.
Speaker 6: So mass we've discussed. You know, we run the Residential
Speaker 6: ret Income UTF Ticker's House ha US and one of
Speaker 6: our focuses is look yet where the migration trends are happening.
Speaker 6: And as a result, you've got Redfin, Solo, Coast Star,
Speaker 6: all these data sources that are telling you here's where
Speaker 6: the demand is Nashville, Charlotte, Austin, Tampa, Jacksonville. And as
Speaker 6: a result, look at the city skylines and you see
Speaker 6: all the cranes and the question is where are all
Speaker 6: these people going to live? And so it's these residential
Speaker 6: riek guys because of how crazy the home ownership market
Speaker 6: is right now, they're the ones that are in the
Speaker 6: driver's seat to inherit all that potential office worker demand
Speaker 6: in those aftermarkets.
Speaker 1: Jeffany, you talk to institutional investors, where in the reach
Speaker 1: space do they really want to be these days?
Speaker 7: Not office other than house h a U S.
Speaker 8: Honestly, you know, there there has been a kind of
Speaker 8: sector wide push down on prices, and I think that
Speaker 8: that's just you know, rising rates have have impacted across
Speaker 8: the board, fear of you know, that maturity wall that
Speaker 8: that you know, this kind of cre fear. But some
Speaker 8: of the sectors that I mentioned up front are kind
Speaker 8: of still going strong. Warehouse is a multifamily, medical office,
Speaker 8: life science.
Speaker 6: Necessity based retail, grocery, the grocery anchor shopping center, the Starbucks,
Speaker 6: the CBS, Dwayne Reed, Walgreens. People are out there spending
Speaker 6: Madison Square Garden, Madison Square Garden for Fish concert.
Speaker 1: Fish is coming back to town. There's where you're going.
Speaker 1: Are you going, Jeff? This is where I drop out
Speaker 1: of it. He drops out of the conversation. All right, guys,
Speaker 1: thanks so much for coming in. We had a cool,
Speaker 1: cool roundtable talking about all things real estate. Here we
Speaker 1: did with Jeff Langbaum, he is the senior read analyst
Speaker 1: a Bloomberg Intelligence and David auerback managing director, are Maadi
Speaker 1: ETF Advisors talking about the real estate biz, and yeah,
Speaker 1: office real estate a little tough, particularly in some of
Speaker 1: those coastal cities like New York and San Francisco, but
Speaker 1: other areas doing well.
Speaker 3: You're listening to the tape cans are live program Bloomberg
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Speaker 3: flagship New York station. Just say Alex, it's play Bloomberg eleven.
Speaker 1: Let's talk the legal weed business. Cannabis. It continues to
Speaker 1: roll out across the country on a state by state basis,
Speaker 1: and it's rolled out here in New York City. But
Speaker 1: it's kind of been I don't get. I mean, there's
Speaker 1: only a handful of stores that are approved, yet they're
Speaker 1: on every street corner. I don't know, Matt how this
Speaker 1: whole thing it is an absolute mess.
Speaker 2: But on a day like today, four twenty, that is,
Speaker 2: I think, you know a lot of consumers are going
Speaker 2: to be like.
Speaker 1: Blessed this mess. Bless this mess. George Arcos he joins
Speaker 1: and he's the CEO, chairman, and co founder of cannabis
Speaker 1: company Verano. George, give us an overview. You've been in
Speaker 1: this business since you co found a Verano in twenty seventeen.
Speaker 1: Just give us an overview of where the legalized cannabis
Speaker 1: business is today in US.
Speaker 5: Hey, good morning, pleasure to be here today. Legal cannabis
Speaker 5: business is thriving, doing well, you know, despite a little
Speaker 5: negative sentiment at the moment to safe banking and didn't
Speaker 5: happen last year, and there hasn't been much subtle reforms.
Speaker 5: You know, we've built our business to be able to
Speaker 5: sustain and survivee in times like this, and you know,
Speaker 5: today's the super Bowl of cannabis in an exciting date
Speaker 5: for all of our consumers, our employees, and all of
Speaker 5: our shareholders.
Speaker 7: Yeah, it's I mean, I think it's very exciting.
Speaker 2: You have a billion dollar market cap, but it has
Speaker 2: been much higher?
Speaker 1: Is it?
Speaker 2: You think the disappointment in safe banking or the lack
Speaker 2: of the Safe Banking Act that has had shareholders kind
Speaker 2: of running for the exits?
Speaker 3: I do.
Speaker 5: I mean the biggest issue is the type of shareholders
Speaker 5: to be attractorally, not being able to you know, bring
Speaker 5: in institutional shareholders has affected our industry. We'll mostly case
Speaker 5: on the detail and you know, trade the stock exchange
Speaker 5: and company like ours, with the revenue the profitability that
Speaker 5: we have, we should be in a smater change and
Speaker 5: we should have a legal business that doesn't is the
Speaker 5: subject to to ade and all these onerous laws that
Speaker 5: hinder our capability.
Speaker 2: Will george any any any expectation. Yeah, in terms of
Speaker 2: fighting the fight, I mean, are you guys lobbying? Are
Speaker 2: you banding together with other cannabis businesses to send people
Speaker 2: to Congress to send money, let's face it, to send
Speaker 2: money to congressmen and congresswomen to get them to vote
Speaker 2: the way you want them to.
Speaker 5: You know, we're doing everything we can. Unfortunately we're not
Speaker 5: you know, we're not as put together as pharma and
Speaker 5: big alcohol, so the lobbying dollars aren't as substantial as
Speaker 5: some of those larger industries. But we're doing the best
Speaker 5: we can. You know, there's a lot of new interests
Speaker 5: to the space, coachal equity applicants, et cetera. So we
Speaker 5: have to fight the fights for so many then there's
Speaker 5: only a handful of us that have the capability to
Speaker 5: do so. But we're doing the best we can, and
Speaker 5: the more we speak and the more we talk about it,
Speaker 5: hopefully it gets some change here soon.
Speaker 1: So in the interim, how do companies like yours finance
Speaker 1: themselves on a day to day basis, on a longer
Speaker 1: term basis, how is how have you and your your
Speaker 1: peers kind of evolved in terms of capitalization and financing, so.
Speaker 5: We've all taken different paths. For us, profitability has always
Speaker 5: been a key point of our business, so we've continued
Speaker 5: to grow through our cash flow. This year, we'll have
Speaker 5: a substantial amount of cash flow from our business as
Speaker 5: our capex is doing those the majority of our projects
Speaker 5: are done, so we're excited about that. A lot of
Speaker 5: our acquisition liabilities are done, so we'll have very strong
Speaker 5: cashrow this year to be able to continue to grow
Speaker 5: the business paid on debt, and it gives us a
Speaker 5: lot of optionality. Some others might not be so fortunate.
Speaker 5: You know, they were building their business and hoping for
Speaker 5: safe banking to pass, to be able to access the
Speaker 5: public markets and additional banks, and you know, there might
Speaker 5: be some turbulence ahead for some operators. But for Verano,
Speaker 5: we were built four times like this, like I said earlier,
Speaker 5: and we're going to continue to thrive and hope well,
Speaker 5: we foresee some opportunistic m and A opportunities and we're
Speaker 5: going to continue to go down the road and be successful.
Speaker 5: And we have a great team, great people, great product,
Speaker 5: and we're excited about the future.
Speaker 2: What do you think about the way Americans feel about
Speaker 2: the product?
Speaker 1: I mean, is it.
Speaker 7: Becoming more mainstream stream?
Speaker 1: Is something I guess I can talk about on the
Speaker 1: radio sure days.
Speaker 2: You know, is it becoming more accepted? Are we going
Speaker 2: to see many more states legalize it?
Speaker 5: You will? I mean Connecticut converted over January this year.
Speaker 5: Maryland should convert over hopefully in July of this year.
Speaker 5: I think Florida, Pennsylvania, and Ohio will be coming up
Speaker 5: the next couple of years. You see multiple more markets
Speaker 5: converting over to medical use. You see Alabama and North
Speaker 5: Carolina's got some things moving Texas. So the polling that
Speaker 5: you look state by state has been trending very strongly
Speaker 5: for positive, you know, on the positive side of cannabis.
Speaker 5: So it's something you can't ignore and it's something the
Speaker 5: politicians can't be. So as long as we continue to
Speaker 5: do a great job provide a consistent and state products
Speaker 5: for both our medical and ALUs, consumers will continue to
Speaker 5: grow and positive things will happen for our company and
Speaker 5: others like us.
Speaker 2: What about innovation on the product side, You know, there
Speaker 2: are people out there who say Matt. You know, I
Speaker 2: love weed, but it just makes me eat like a
Speaker 2: pint of hogandas every time I consume it.
Speaker 1: Is there any possibility of altering.
Speaker 2: The product so that you can do it in a
Speaker 2: more nutritious way.
Speaker 5: There are? You know, there's multiple cannabinoids in the plant
Speaker 5: and they all do different things. So there's ongoing research
Speaker 5: not only in our own companies, with other companies as well,
Speaker 5: and we're continuing to fight find cannabinoids that affect the
Speaker 5: body in different ways. And there's even appetites of pressments
Speaker 5: in certain cannabinoids. So the con formulations will continue to change,
Speaker 5: products will continue to develop, and will continue to roll
Speaker 5: them up.
Speaker 1: George, What's what's the growth drivers for your company? I'm
Speaker 1: looking at some of the analysts consensus and they've got
Speaker 1: double digit top line growth for you guys. Is that
Speaker 1: How much is that as just the market growing versus
Speaker 1: you guys doing company specific things to drive the top line.
Speaker 5: It's both. I mean, the biggest driver of our business
Speaker 5: is to flip from medical to adult use. I mean
Speaker 5: we had a pretty big driver last year from New Jersey.
Speaker 5: Illinois was a big, big jump for ours big lifts.
Speaker 5: This year we had Connecticut. We'll also have Maryland here
Speaker 5: hopefully the summer fall. So those are the biggest drivers
Speaker 5: by far. And then you know the medical markets, although
Speaker 5: this year that's declined a bit because of the economy.
Speaker 5: Normally have nice continuous growth, right, So it's a combination.
Speaker 5: They're up. And obviously you have to do a great
Speaker 5: job and you have to provide great products, rate service,
Speaker 5: and state reliable products. So those those all things for
Speaker 5: mine will continue to drive our company forward. There are
Speaker 5: multiple states are out the US that don't have medical
Speaker 5: and ORLT use programs, so there's growth for many years
Speaker 5: I had.
Speaker 1: All right, it is for twenty the Super Bowls. You
Speaker 1: said of cannabis. What are you guys doing at your stores,
Speaker 1: your retail us today?
Speaker 5: You know, today's almost like a massive customerreciation day. We
Speaker 5: have all types of promotions. We do food trucks, music
Speaker 5: events throughout the country and all of our different locations,
Speaker 5: our wholesale partners. You tried them with promotions, et cetera
Speaker 5: for the consumers. So it's a fun day for all
Speaker 5: not only our consumers, but it's a fun day for
Speaker 5: our employees as well, right, the day for them to
Speaker 5: be thankful for what we have and what they've been
Speaker 5: given and what we've been given. And it's just a good,
Speaker 5: good vibe day for us.
Speaker 1: Good vibes. What it's all about. What it's all about,
Speaker 1: Man George Arco's CEO, chairman, co founder of Verano. Verano
Speaker 1: is a public trade of cannabis company trades over the
Speaker 1: counter tickers v r n F. It's kind of market
Speaker 1: cap just under one billion dollars over.
Speaker 3: That was it?
Speaker 1: Just over okay? Just over one non is very good.
Speaker 1: Talking about the legalized cannabis market, it is a growing
Speaker 1: market and again also looking at some of the analysts
Speaker 1: forecasted revenue growth a double digit ten eleven, twelve percent,
Speaker 1: so pretty interesting growth story there, but still lots of
Speaker 1: legalities to be negotiated, including safe banking is probably the
Speaker 1: key one for the growth of that business.
Speaker 3: You're listening to the team Ken's are Live program Bloomberg
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Speaker 1: And let's turn to those banks. It's been a busy
Speaker 1: day for earnings and a busy day for the regional banks.
Speaker 1: And this is important because it's been a busy month
Speaker 1: for Herman. It has been a herbin Chen who covers
Speaker 1: the regional banks. I mean, you know, you couldn't pick
Speaker 1: this guy out of a lineup a month ago. Now
Speaker 1: he's like star, stage and screen and radio.
Speaker 2: I actually, I actually the other day I was in
Speaker 2: the car switched on Bloomberg Radio mid sentence and I
Speaker 2: was like, oh, that's Herman.
Speaker 1: But now I recognize his voice on the fly. That's
Speaker 1: how bad it's gotten. So Herman, thanks so much for
Speaker 1: joining us yet again here in studio. Talk to us
Speaker 1: about some of the banks that reported today. What do
Speaker 1: we kind of take away here?
Speaker 9: Yeah, mixed trends.
Speaker 10: Over all.
Speaker 9: I would say that the issues that are facing banks
Speaker 9: is not a liquidator or solvency issue. It's more of
Speaker 9: an earnings issue, with deposits starting to continue to face
Speaker 9: some attrition and higher banks are having to raise their
Speaker 9: deposit pricing. So all that means that netedgor's margins are
Speaker 9: going to be narrower and banks will sort of muddle through.
Speaker 9: But the valuations for these companies has already reflected with
Speaker 9: banks are trading at around tangible book value. So everything's
Speaker 9: been priced in, but the stocks continue to So when I.
Speaker 1: Look at valuation for a regional bank, give me the
Speaker 1: where it trades at the bottom and where it trades
Speaker 1: kind of at the top of kind of where are we?
Speaker 3: Yeah?
Speaker 9: Sure, so during the financial crisis, banks are trading below
Speaker 9: tangible book value because there was a lot of concerns
Speaker 9: that if banks would survive, they.
Speaker 1: Ran European books.
Speaker 2: European banks, by the way, sat at below book value
Speaker 2: for a decade.
Speaker 9: Right exactly, So that was an elongated issue there. And
Speaker 9: on the top range, you know, you're you're talking about
Speaker 9: something like around two times, so it's.
Speaker 1: Okay, and right now we're just about tangible book fag.
Speaker 1: So one could argue, as if you're a value investor,
Speaker 1: I'm gonna go buy some banks here.
Speaker 9: You could argue, if you're a long term investor, some
Speaker 9: of these issues will will go away, and but you're
Speaker 9: gonna have to wait a while because we're not even
Speaker 9: at the recessionary type scenario where banks are facing higher
Speaker 9: net charge off some bad debts, so that part of
Speaker 9: the story hasn't played out yet.
Speaker 1: But well, they pay me dividends. I'm looking at your
Speaker 1: old employer, M and T Bank, I got a four
Speaker 1: percent dividend, Yet I'm getting paid Wait a little bit here,
Speaker 1: get paid the way point?
Speaker 9: Maybe, Yeah, that's right, You're you're getting paid a weight.
Speaker 9: You have to face some volatility, Buy it and forget
Speaker 9: it for a few years and you should be fine.
Speaker 1: Has anybody ever have we seen some of these hedge
Speaker 1: fund managers come out and say I'm buying the banks.
Speaker 1: Have we seen any of that? Not quite yet.
Speaker 9: We're still in a bit of uncertainty mode. But but
Speaker 9: I think what the one Q earnings has has demonstrated
Speaker 9: is that the contagion fears are off the table, where
Speaker 9: the banks are just going to mouddle through and face
Speaker 9: some weaker earnings.
Speaker 2: But yeah, that's the key, right, because we don't know
Speaker 2: how weak they're gonna be. Right, you said they haven't
Speaker 2: repriced deposit rates, so you're still looking at minuscule rates
Speaker 2: on the money you put in the banks. Competition could
Speaker 2: flare up, right, and they could have to start trying
Speaker 2: to out outprice each other, and then you know, next
Speaker 2: quarter's earnings could be worse, the third quarter earnings could.
Speaker 1: Be even worse. And how bad does it get.
Speaker 9: Yeah, the hope is things that are starting to stabilize,
Speaker 9: and the banks are talking about that. There's been about
Speaker 9: two three percent at the average to climb in deposits
Speaker 9: for the regional banks, and they're talking about things stabilizing
Speaker 9: in the third court in the second quarter and beyond.
Speaker 9: So that's helpful. And then the issue is that you're
Speaker 9: gonna as you mentioned, the posit costs are arising. It's
Speaker 9: going to be a case where the banks need to
Speaker 9: pay up to retain the deposit relationships. So it is aheadwind.
Speaker 1: And what are they saying about loan growth, because again
Speaker 1: my concern about the macroeconomy is if I want to
Speaker 1: go if I see a vacant store in some of
Speaker 1: New Jersey and I've got a great idea for a
Speaker 1: store to put in there, and I go to my
Speaker 1: local bank, I either can't get the loan or they're
Speaker 1: they're it's too expensive, and that slows down the economy overall. Yeah,
Speaker 1: that's right.
Speaker 9: The overall take away from a lot of the management
Speaker 9: commentary is that the things are tightening in terms of
Speaker 9: credit availability and the banks are being a bit more
Speaker 9: cautious with who they're lending to. And second, they've also
Speaker 9: mentioned there's caution from the borrowers as well, so business
Speaker 9: borrowers in particular. Huntington just mentioned that their business customers
Speaker 9: are being a bit more cautious and not doing as
Speaker 9: much M and A as they probably would have been
Speaker 9: without some of the disruption that's happened so far.
Speaker 1: That's how Ohioans are. Ohioans. We're a cautious bunch. Cautious bunch. Yeah,
Speaker 1: well you're also a hearty bunch, right, we are hardy,
Speaker 1: big football players, all right. Are what do we look
Speaker 1: at going forward? Herman? I mean we are we still
Speaker 1: focusing on deposits? Are we still focusing on loan growth?
Speaker 1: Are those still the metrics I need to pay attention.
Speaker 9: Yeah, that's right. Deposit growth, loan growth, and what's happening
Speaker 9: with deposit repricing and what are the effects to the
Speaker 9: men ander's margin. Those are the things we're talking about.
Speaker 9: We're not talking about borrowing from the Federal Reserve discount
Speaker 9: window and that's the sort of thing anymore, because that's
Speaker 9: that's not an issue across the region.
Speaker 1: And I'm looking at crisis over crisis averted, Yes, exactly,
Speaker 1: I'm looking at just the earnings for M and T
Speaker 1: Bank again kind of my little poster child for a
Speaker 1: high quality regional bank. And I'm just looking at the
Speaker 1: street consensus and it's kind of got, you know, earnings
Speaker 1: flat year of a year twenty four to twenty three, right, right,
Speaker 1: So and then maybe some growth kicking in.
Speaker 2: Then twenty billion dollar bank trading at one point four
Speaker 2: times tangible book value.
Speaker 1: Right.
Speaker 9: The benefits from interest rates really happened last year, and
Speaker 9: so they're giving back some of the benefits with higher
Speaker 9: deposit repricing. But overall things still look pretty decent for
Speaker 9: a bank.
Speaker 2: Like we had a great story on the Bloomberg terminal
Speaker 2: overnight about corporate debt, you know, investment grade corporate debt.
Speaker 2: The spreads are so tight to treasuries, and when you
Speaker 2: factor in the cost of funding for banks, they're just
Speaker 2: not getting the kind of risk premium that they need,
Speaker 2: and so they're no longer going to be able to
Speaker 2: buy that debt. Now it's only I think banks make
Speaker 2: up about seven percent of the ownership, but how much
Speaker 2: is their cost of funding and what are they going
Speaker 2: to put their money in now that we're also freaked
Speaker 2: out about the whole the maturity portfolios and commercial real estate.
Speaker 9: That's right. The bank securities portfolio will start to shrink
Speaker 9: because they need to balance the balance sheet with the
Speaker 9: decline and deposits, and they'd rather park their assets into
Speaker 9: any sort of lending that's still available to them. So
Speaker 9: that's one of the things that it's critical with what's
Speaker 9: going to happen with how the BRAKE leaders come in
Speaker 9: in and sort of push some of new regulations in
Speaker 9: terms of how they manage the balance sheet with with
Speaker 9: the issues with the unrealized losses. So overall, I think
Speaker 9: going forward for the next few quarters, we'd expect securities
Speaker 9: portfolios to decline.
Speaker 1: All right, And the next big issue to watch for
Speaker 1: the regional banks will be First Republic Bank the report
Speaker 1: their earnings Monday after the close. Look at this stock,
Speaker 1: brutal man. I know down eighty year two.
Speaker 2: You should have got a mortgage from them because they
Speaker 2: were giving interest only at zero rates for like where
Speaker 2: was it years and then it finally kicks in, yeah,
Speaker 2: at three percent.
Speaker 1: About finance. My love that story. Finance my mortgage. Don't
Speaker 1: you worry. I'm going to get a four handle on
Speaker 1: it when I refinanced in twelve to eighteen months time.
Speaker 1: How about that. Herman Chan, he's the regional banks analyst
Speaker 1: for Bloomberg Intelligence. He's been doing Yeoman's work really over
Speaker 1: the last month or so. Get it keeping us up
Speaker 1: to date on what is going on with the bankside
Speaker 1: automaph I know exactly. He's a player. We're gonna have
Speaker 1: more coming up. This is Bloomberg.
Speaker 3: You're listening to the tape kens our live program, Bloomberg
Speaker 3: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 3: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 3: You can also listen live on Amazon Alexa from our
Speaker 3: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: Well, there are a lot of cross current score investors
Speaker 1: to negotiate these days. What with the Federal Reserve, is
Speaker 1: it going to stop hiking? How when will stop hiking?
Speaker 1: Will start the cut rates? We've got, certainly geopolitical issues,
Speaker 1: We've got economic issues as it relates to recession, How deep,
Speaker 1: how shallow, how long, all those types of things. And
Speaker 1: then oh yeah, we're negotiating earnings as we speak. So
Speaker 1: it really helps if an investor can take a long
Speaker 1: term focus that might make things a little bit easier.
Speaker 1: I think that's what our next guest is going to
Speaker 1: focus on. Heather Brilliant, she's the CEO and president of
Speaker 1: Diamond Hill joining us on the phone, and Hender, thanks
Speaker 1: so much for joining us here. How do you guys
Speaker 1: approach investing given all the cross current out there that
Speaker 1: investors have to navigate?
Speaker 10: Thanks for having me. Yeah, I mean at Diamond Hill,
Speaker 10: we're really trying to take a multi year perspective. We
Speaker 10: try to look out really the next five years into
Speaker 10: the earnings power of the businesses that we own, and
Speaker 10: it really helps navigate environments like this where we see
Speaker 10: a lot of volatility. There's certainly a tremendous amount of
Speaker 10: economic uncertainty, as you were just mentioning on that news
Speaker 10: flash with the data of today even but that matters
Speaker 10: a lot less when you're looking for businesses that you
Speaker 10: think can generate cash flow well into the future and
Speaker 10: return capital to shareholders.
Speaker 1: So what types of sectors does that lead you to?
Speaker 1: I mean, it's a lot of folks, you know, look
Speaker 1: at some of these, whether it's semiconductors for example, there
Speaker 1: are such long cycles and you get a little bit
Speaker 1: spooked by it. But what sectors do you guys tend
Speaker 1: to focus on feel scary?
Speaker 10: I mean, I think we tend to really look for
Speaker 10: businesses that in any sector can compound returns over time.
Speaker 10: So one example of that would be even in the
Speaker 10: property and casualty insurance market, we look at all State
Speaker 10: as a company that is likely to benefit from a
Speaker 10: lot of the changes going on in property casualty. We're
Speaker 10: seeing a lot of changes in pricing there as that's
Speaker 10: become a more challenging market with more claims. But with
Speaker 10: all of the companies really taking a fresh look at pricing,
Speaker 10: it really gives a tailwind to this industry. And All
Speaker 10: State has been valued as a business that historically had
Speaker 10: life and annuity as well as property casualty, and they
Speaker 10: sold their life an annuity business a couple of years ago,
Speaker 10: and we don't really think that's reflected in the valuation.
Speaker 10: As well as some of these business improvements that will
Speaker 10: really start to come through in the next couple of years.
Speaker 2: What are some of the other business improvements talk to
Speaker 2: us about. The company ticker is al L.
Speaker 10: Yeah, So essentially their focus is on being as omni
Speaker 10: channel as possible within property casualty. So they're looking to
Speaker 10: add some more ancillary lines of insurance and things like
Speaker 10: roadside assistants, which are more voluntary. Right generally property and
Speaker 10: casualty is required, and so that's one of the reasons
Speaker 10: why we think it's such a good fundamental business even
Speaker 10: in an economic environment like this. But over the next
Speaker 10: couple of years, they're really looking to focus on some
Speaker 10: of those new areas that I think will be a
Speaker 10: little bit more discretionary and could benefit on the other
Speaker 10: side of you know, coming out of a recession. Also,
Speaker 10: they are essentially you know, across the US and also
Speaker 10: distributing Canada as well, which gives them a scale benefit
Speaker 10: because you know, when they're doing marketing, they can really
Speaker 10: think about how they reach people across the country instead
Speaker 10: of having to think nit more narrowly about their market.
Speaker 1: So, Hea, do you also have Lear Corporation on there?
Speaker 1: When I think of Lear, I think of just kind
Speaker 1: of you know, they work with the automobile industry, and
Speaker 1: there's an industry that's undergoing tremendous amounts of change as
Speaker 1: of airplanes, I think, but that's Learjet. I think this
Speaker 1: is Lear Corporation. So if they make seats. I don't know.
Speaker 1: Let's ask why do you own Lear? L Ea.
Speaker 10: Yeah, so Lear is essentially a automotive seating business. That's
Speaker 10: about seventy five percent of their revenue today, and we
Speaker 10: think it's interesting for a couple of reasons. First of all,
Speaker 10: their focus has been on the luxury side of the
Speaker 10: automotive market, and that means that they're really at the
Speaker 10: cutting edge of technology when it comes to seats. And
Speaker 10: you know, you might laugh about the thought of, you know,
Speaker 10: how innovative can a seat really be, but we all
Speaker 10: know from you know, driving our cars that we want
Speaker 10: them to heat up and be able to be cooled,
Speaker 10: and have all electric mechanisms for moving them around. And
Speaker 10: these days you can even get massages.
Speaker 1: I want them to massage exactly. No, I want to
Speaker 1: be I don't. I don't laugh.
Speaker 2: By the way, I once trecked all the way out
Speaker 2: to Detroit to make an entire package about the kid
Speaker 2: who designed the seats for the Corvette.
Speaker 1: Yeah, and what'd you find? He was awesome, Sean Mauger.
Speaker 2: He designs like everything, but and the seats were amazing
Speaker 2: and it's an incredibly important part of the automobile now.
Speaker 1: So you have to be able to drive a German car.
Speaker 1: There's no heat, no no whatsoever because it's Germans. The
Speaker 1: Germans don't care about that.
Speaker 10: So no, Lear does work with Audi and BMW, so
Speaker 10: they've got some German clients. So eventually maybe some more
Speaker 10: luxuries coming to your seat.
Speaker 1: Do you, guys at your firm, how do you think
Speaker 1: about valuation? Is that a big, big driver of what
Speaker 1: you own? Or are you just looking for a good
Speaker 1: story and you know you can make the valuation work
Speaker 1: or do you have a how do you think about that?
Speaker 10: I really appreciate that question because valuation is critical to
Speaker 10: the way we think about investing. Every business can be
Speaker 10: attractive at the right price and can be unattractive at
Speaker 10: the wrong price. And so we really start by looking
Speaker 10: at what we believe to be the intrinsic value of
Speaker 10: the business, and we do that by building a discounting
Speaker 10: cash flow model and really taking a look at the
Speaker 10: underlying drivers of the business. Not only does that help you,
Speaker 10: I think, really fundamentally understand what the future cash flows
Speaker 10: of the business are worth, but it also gives you
Speaker 10: a good grounding to be able to look beyond, you know,
Speaker 10: the near term when it could be a weaker economic
Speaker 10: environment to the real earning's power of the business.
Speaker 2: By the way, I look at a lot of these
Speaker 2: charts are choppy, leer and all state.
Speaker 7: But I look at HDFC Bank, which you also like.
Speaker 2: The ticker is HDB, and not only does the chart
Speaker 2: just go up into the right like it's amazing, it's
Speaker 2: also a one hundred and thirty billion dollar company that I've.
Speaker 1: Never heard of in India. Where how do you pick this?
Speaker 1: How do you screen for these kind of stocks?
Speaker 10: Well, we do have an international team and strategy that
Speaker 10: are really looking at ideas outside the US, and they
Speaker 10: identified HDFC Bank as an opportunity for a couple of reasons.
Speaker 10: First of all, it is in India, as you point out,
Speaker 10: and it's a private bank in India, which means it
Speaker 10: is privately held as opposed to public you know, owned
Speaker 10: by the government, which is different than of course how
Speaker 10: we define private banking here in the US. So important
Speaker 10: to note that. But by being private, they've been able
Speaker 10: to invest in their business and really be able to
Speaker 10: to be at the forefront of technology, and that is
Speaker 10: really critical for a couple of reasons. First, obviously there's
Speaker 10: a lot of growth in the middle class in India,
Speaker 10: which is a huge tailwind for this business. But second,
Speaker 10: because digital transactions were literally less than twenty percent of
Speaker 10: the market a mere five years ago and are now
Speaker 10: over eighty percent of the market in India. So they've
Speaker 10: really been able to benefit from the customer base in
Speaker 10: India moving more and more to digital while they're at
Speaker 10: the forefront of the technological revolution going on within banking.
Speaker 3: There.
Speaker 1: All right, interesting story there, Heather, thanks so much for
Speaker 1: joining us.
Speaker 3: There.
Speaker 1: Heather Brilliant, CEO and president of Diamond Hill. She is
Speaker 1: all in Chicago. By that, I mean she got her
Speaker 1: undergraduate degree in economics from Northwestern then she figured, hey,
Speaker 1: this is good town. I'll stick around. She gets her
Speaker 1: MBA from the University of Chicago, and I know a
Speaker 1: lot of Chicago Booth graduates, and they're all comfortable with
Speaker 1: the math. I sense that Heather grew up around. I
Speaker 1: can hear the Chicago. You ken in here, boys, the Illinois.
Speaker 1: I hear it, the Illinois. Yeah, okay, all right, interesting,
Speaker 1: but yeah, all in in Chicago again, Universe Chicago NBA.
Speaker 1: I'm a huge fan of the Graduate School of Business
Speaker 1: now called the Booth School at Chicago. A lot of
Speaker 1: the great professors at Duke came from University of Chicago.
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