Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is Bloomberg business Week inside from the reporters and
Speaker 2: editors who bring you America's most trusted business magazine, plus
Speaker 2: global business, finance and tech news. The Bloomberg Business Week
Speaker 2: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 3: Our Bloomberg opinion columnist Andrea Felstede. She put out a
Speaker 3: column today. She said that after three years of rushing
Speaker 3: to book trips in the wake of the pandemic era
Speaker 3: restrictions sharply higher fares, protests against tourism, fatigue from endless
Speaker 3: hour spent in airports, and income squeeze by inflation, tim
Speaker 3: are all taking their toll.
Speaker 4: Okay, So let's check in with Kevin Jacobs about this.
Speaker 4: He's the president and CFO over at Hilton Worldwide. Holding's
Speaker 4: home to twenty three brands, including Hilton Hotels and Resorts,
Speaker 4: Waldorf Astoria, Hampton, DoubleTree, Embassy Suites, and new brands like
Speaker 4: Spark by Hilton and Lift Smart Studios by Hilton.
Speaker 3: Kevin is in New York City. Kevin, great to have
Speaker 3: you here here on Bloomberg Business Week. So, as I mentioned,
Speaker 3: our Bloomberg opinion columnist, writing, she says travel demand is
Speaker 3: far from falling off a cliff, but there are signs
Speaker 3: that our wanderlust is downshifting from never ending to a
Speaker 3: more normal pattern. What are you seeing, you guys see
Speaker 3: a lot firsthand and welcome.
Speaker 5: Yeah, first of all, Carol, Tim, thanks for having me on.
Speaker 5: We're not really seeing that. I mean, I think leisure
Speaker 5: travel has been normalizing off of kind of the boom
Speaker 5: that it had during COVID. But we're still seeing growing
Speaker 5: demand for travel, and in fact, most people expect the
Speaker 5: summer travel season to be quite strong. And you know,
Speaker 5: business travel is coming back and group actually is leading
Speaker 5: the way, which wasn't the case during COVID, But you
Speaker 5: now have a lot of pent up demand for meetings
Speaker 5: and events that is fueling growth in our business as well.
Speaker 5: So we're still seeing trends. You know, certainly same store
Speaker 5: sales growth is not going to be what it was
Speaker 5: last year, but it's still going to be quite strong
Speaker 5: for this year going forward.
Speaker 4: So where are you seeing the best growth, the biggest growth,
Speaker 4: Which portion of the of the hotel properties or which
Speaker 4: brands are seeing the best growth?
Speaker 5: Well, if you think, I mean really all of the
Speaker 5: brands are seeing the best growth. The higher segments are
Speaker 5: growing better than the really lower segments at the moment,
Speaker 5: and our same store sales outlook as two to four
Speaker 5: percent for the year, and we think the US will
Speaker 5: be sort of at the lower end of that range,
Speaker 5: and everywhere else outside of the US will kind of
Speaker 5: be at the higher end of that range. So international
Speaker 5: growth is still a bit stronger than the US but
Speaker 5: still growing, you know, reasonably well, like kind of low
Speaker 5: single digit same store sales growth, but.
Speaker 4: You're seeing sort of the same growth. Whether we're talking
Speaker 4: sort of the budget lower end brands in the portfolio
Speaker 4: versus the high end brands in the portfolio.
Speaker 5: Well, in our portfolio, we don't have a lot of budget.
Speaker 5: We have a premium economy brand that you mentioned called Spark,
Speaker 5: and we're really not as distributed at the really low segments,
Speaker 5: which you know, they've been a little bit weaker, but
Speaker 5: that's a lot of that has to do with more
Speaker 5: difficult comparables to last year because they were quite strong,
Speaker 5: and there's a little bit of an effect of that
Speaker 5: consumer sort of feel slowing down a little bit, but
Speaker 5: mostly across our growth is pretty consistent across the segments
Speaker 5: that we operate, so.
Speaker 3: Any signs of softness, you know, we kicked off this
Speaker 3: hour talking with our international Economics and Policy correspondent Michael McKee.
Speaker 3: There's a lot of economic data, including labor data, of course,
Speaker 3: throughout this week. But last week we saw, you know,
Speaker 3: some points of showing some softness when it comes to
Speaker 3: consumer spending here in the US. Any signs of softness
Speaker 3: or folks trading down at all.
Speaker 5: We're not seeing trade down, and we're not really again,
Speaker 5: other than the really low end of the business, which
Speaker 5: is a little bit lower than where we operate, we're
Speaker 5: really not seeing the consumer pull back. The consumer still
Speaker 5: feels really solid.
Speaker 6: All right.
Speaker 3: We know you guys have a ton of properties, about
Speaker 3: seventy five hundred properties, including time shares. I think that
Speaker 3: was at the end of last year. I think when
Speaker 3: I was checking some of the data points, you own
Speaker 3: a small amount, you manage a bunch. The bulk, though,
Speaker 3: is franchise ease. What's top of mind for your French cheese.
Speaker 6: They're not French cheese. That's like a grilled cheese. SWaCH.
Speaker 3: Franchisee owners, I'm a little hungry, what are their stress points?
Speaker 3: And again, does the growth kind of mirror or the
Speaker 3: upside mirror what you are telling us that you've already
Speaker 3: kind of shared with us.
Speaker 5: Yeah, I mean, like you said, you know, upwards of
Speaker 5: eighty percent of our hotels now, our franchises are you know,
Speaker 5: we manage a bunch of hotels and our ownership segment
Speaker 5: is quite small, but you know, their outlook is quite good.
Speaker 5: Our you know, our construction starts, you know, so new development.
Speaker 5: First of all, we think we're going to open will
Speaker 5: open nearly two hotels per day this year, right, so
Speaker 5: our prospects for growth are quite strong. Most of our
Speaker 5: franchisees are seeing the same thing we're seeing. The prospects
Speaker 5: for development are quite good. Our construction starts, so new
Speaker 5: hotels going under development was up forty five percent in
Speaker 5: the first quarter. We think that will continue to be
Speaker 5: up this year. And we actually we think we'll start
Speaker 5: more rooms under construction this year than we did pre pandemic.
Speaker 5: So I think, you know, look it it's not equal everywhere.
Speaker 5: And you know, our franchises are looking at prospects for
Speaker 5: revenue growth. They're thinking about their cost profile, right because
Speaker 5: with this great inflation that has fueled the revenue and
Speaker 5: our you know, there's cost inflation, so we're working with
Speaker 5: them to think about how to drive incrementals cost savings
Speaker 5: in the hotels. But generally speaking, our owners and franchises
Speaker 5: are quite fullish as well.
Speaker 3: We want to talk a bit more about the cost equation,
Speaker 3: but I want to go back to that, you know,
Speaker 3: two new hotels every day. You guys had come out
Speaker 3: with some news today about expanding your lifestyle portfolio, doubling
Speaker 3: it to seven hundred hotels within the next four years.
Speaker 3: How come how and where? Like, where are you doubling?
Speaker 3: Where are you opening two new hotels every day?
Speaker 5: Well, it's really across the globe and so yeah, we
Speaker 5: put out a press release this morning about our growth
Speaker 5: and lifestyle. We're celebrating our tenth anniversary in the lifestyle space.
Speaker 5: Fifty percent of the luxury the lifestyle segment broadly has
Speaker 5: grown fifty percent over the last five years, and it's
Speaker 5: been double the addition the additional hotel count and lifestyle
Speaker 5: hotels has been double out of the broader industry. So
Speaker 5: these are very popular type brands. We've been in the
Speaker 5: space for a while. We recently acquired the Graduate brand
Speaker 5: and we entered into a joint venture with another group
Speaker 5: to bring the Nomad brand, which is a luxury lifestyle brand,
Speaker 5: into our portfolio. So we now have six great lifestyle brands.
Speaker 5: And yeah, we we think we can go from what
Speaker 5: we have three hundred and fifty lifestyle hotels today, we
Speaker 5: think we'll have seven hundred within the next four years
Speaker 5: and the growth will really be around the world.
Speaker 4: So, Kevin, how do you make sure that the new
Speaker 4: properties that you add, as you mentioned two new hotels
Speaker 4: per day around the world, how do you make sure
Speaker 4: that the franchisees are geographically protected from competing with Hilton
Speaker 4: and other owners of Hilton when they're out there.
Speaker 5: Well, yeah, I mean we're pretty careful. Look where the
Speaker 5: interests are aligned, right, one hundred nearly virtually one hundred
Speaker 5: percent of the capital for our growth comes from other
Speaker 5: from hotel and people investing in hotels, either building new
Speaker 5: hotels or buying hotels and affiliating with them in our brands.
Speaker 5: And we're invested in their success because if they're successful,
Speaker 5: then they will choose us for their next deals and
Speaker 5: that that obviously enhances our growth rate. And so the
Speaker 5: way you do it is you're you know you're just
Speaker 5: very careful. We work with each on each and every
Speaker 5: new hotel deal. We work with our partners to find
Speaker 5: the right locations for the right brands, and we want
Speaker 5: and need each of our hotels to be successful. So
Speaker 5: it's sort of it's pretty self regulating. Interests are aligned,
Speaker 5: and none of us want to put a hotel, you know,
Speaker 5: on top of another hotel where they're going to compete
Speaker 5: too much. And the reality is is we it's up
Speaker 5: to us to keep growing our customer base, having our
Speaker 5: brands be strong and driving that premium performance so that
Speaker 5: our owners make more money when they invest with us.
Speaker 5: And if they make more money when they invest with us,
Speaker 5: then they'll choose us for our next deals for their
Speaker 5: next deals, excuse me, which which enhances our growth rate?
Speaker 3: Hey, Kevin, our Bloomberg intelligence team of analysts noting that
Speaker 3: you guys cleared your debt maturity schedule before twenty twenty five,
Speaker 3: the majority now do in twenty twenty eight and beyond
Speaker 3: cushioning it against sector headwind So it sounds like it
Speaker 3: really gives you, guys, really some you know, freedom to
Speaker 3: move around no matter what might happen in the economic environment.
Speaker 3: At least for a couple of years.
Speaker 6: Is that fair?
Speaker 5: Yeah, I think we remained. We're all we've always been
Speaker 5: focused on financial flexibility. So it's not just the ultimate
Speaker 5: quantum of our debt or the cost of our debt,
Speaker 5: which of course we care about a lot, but we're
Speaker 5: always looking for opportunities to push maturity. We have one
Speaker 5: small maturity in twenty twenty five, and then and then
Speaker 5: we don't have maturities for a while, and that served
Speaker 5: us well in COVID, you know, and COVID when our
Speaker 5: revenues went to new year zero, we didn't need to
Speaker 5: abend our credit facility because we didn't have any near
Speaker 5: term maturities. We didn't breach any covenants, and so we've
Speaker 5: always been really focused on financial flexibilities. One of our
Speaker 5: one of the core tenants of our capitol.
Speaker 6: All right, ten seconds, what's the hottest place? Where's everybody going?
Speaker 6: Real quickly?
Speaker 7: Everywhere?
Speaker 2: Everywhere?
Speaker 5: Oh yeah, everywhere?
Speaker 3: All right, all right, all right, Kevin favorite children, Kevin Jacobs,
Speaker 3: thanks so much, President CFO at Hilton Worldwide Holdings Holdings.
Speaker 3: Excuse me, you're.
Speaker 2: Listening to the Bloomberg Business Week podcast. Catch us live
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Speaker 4: Just a bit of news in the world of commercial
Speaker 4: real estate in recent days. Common, once the largest co
Speaker 4: living company in North America, files for bankruptcy and it's
Speaker 4: going to liquid date after it was squeezed by overhead
Speaker 4: costs and rising interest rates. Also in other news, Rockefeller
Speaker 4: Center Plaza here in New York. It's what's known as
Speaker 4: a privately owned public space. It's set to get a
Speaker 4: fifty million dollar makeover.
Speaker 2: Carol.
Speaker 4: These are just a couple of the headlines from the
Speaker 4: world of commercial real estate in recent days.
Speaker 3: There's a lot going on. You know, all of our
Speaker 3: listeners and viewers certainly know we like to talk about it.
Speaker 3: Let's get more on the space warrend To Han is
Speaker 3: CEO of a Core Capital. It is one of the
Speaker 3: biggest non bank commercial real estate lenders in the United States.
Speaker 3: The firm has offices in New York, LA, Miami, San Francisco,
Speaker 3: and Dallas. They've got about twenty billion dollars in assets
Speaker 3: under management. We're joining us here in studio in our
Speaker 3: interactive broker studio.
Speaker 8: Welcome, welcome, Thank you very much, nice to be here.
Speaker 6: It's great to have you here. We do like the
Speaker 6: real estate space.
Speaker 3: I hate when we say how's it going, because it's
Speaker 3: obviously there's a lot of verticals to it in different areas.
Speaker 3: But look at the space, tell us how things are going,
Speaker 3: where's their strength, where there's weakness.
Speaker 8: Look, I mean there's a lot of headlines around the
Speaker 8: negativity in commercial real estate today, and a lot of
Speaker 8: that really driven by this rapid increase in interest rates.
Speaker 8: I mean, really when lasted we see interest rates rise
Speaker 8: this rapidly, and commercial real estate is an interst rate
Speaker 8: sensitive investment, so by virtue of that, one would conclude
Speaker 8: that there's going to be some issues. But the part
Speaker 8: that I think a lot of people are glossing over
Speaker 8: is the fact that fundamentals for commercial real estate are
Speaker 8: actually quite solid. And when I talk about fundamentals, just
Speaker 8: think about it in the context of what drives demand
Speaker 8: for a commercial real estate product, whether it's a hotel,
Speaker 8: whether it's an apartment building, whether it's an industrial complex,
Speaker 8: whether it's self storage, and the list.
Speaker 7: Can go on.
Speaker 8: What are those demand generators? And when we look at
Speaker 8: it and This is one of the reasons why I
Speaker 8: think this is in my career, twenty eight yr career,
Speaker 8: the most compelling time to be in commercial real estate,
Speaker 8: whether that coming in through the credit side like Acre does,
Speaker 8: or investing in this new vintage of equity. It's really
Speaker 8: that the fundamentals remain incredibly strong.
Speaker 7: So demand is there for.
Speaker 4: The products, but the fundamentals aren't strong across different sectors
Speaker 4: of commercial real estate. I mean, we talk a lot
Speaker 4: about different classes of office buildings, for example, and what
Speaker 4: we hear over and over again from folks is, okay, well,
Speaker 4: demand is strong when it comes to Class A buildings,
Speaker 4: but at the lower end you're not seeing demand for those.
Speaker 8: I mean, that's true, but let's go up one level.
Speaker 8: So what drives demand the consumer? Okay, So the consumer,
Speaker 8: particularly the higher income owners, continue to spend, and they
Speaker 8: could spend a lot.
Speaker 7: Take hotels as an example.
Speaker 8: If you take a look at the high end sector
Speaker 8: of hotels, the average daily rates is higher than it
Speaker 8: was in twenty nineteen by a big margin, and continues
Speaker 8: to grow.
Speaker 6: We just talked about it with the CFO of Hilton. Yeah.
Speaker 7: Absolutely so, yeah, and they're seeing it.
Speaker 8: They're also seeing expansion in the groups, meaning that the
Speaker 8: shrinking and the commercial risk state office sector is resulting
Speaker 8: in more folks wanting to go off.
Speaker 7: Sites to do group outings.
Speaker 8: So we've seen hospitality perform well, so the help of
Speaker 8: the consumer, right particularly higher end consumer. Secondly, corporate spending
Speaker 8: is rapid, and thirdly is government spending. In the United States,
Speaker 8: we have tremendous amount of stimulus going on through these
Speaker 8: various acts, whether it's the Infrastructure Act, the Chips Act,
Speaker 8: or otherwise driving trillions of dollars back into the economy.
Speaker 8: And all of this does is it drives the demand
Speaker 8: for commercial real estate product one way or another.
Speaker 3: Okay, big picture, I get it right. That sounds like
Speaker 3: a long term perspective. But what's the state of play
Speaker 3: between real estate right now and banks? And I'm curious
Speaker 3: if there's still some leeway to extend and kind of
Speaker 3: wait for lower rates to happen, because you know, as
Speaker 3: you say, real estate very sensitive to higher rates, and
Speaker 3: so for some folks in a low rate environment in
Speaker 3: the real estate spase, no problem higher rates, or if
Speaker 3: they've got to rethink those loans or rework those loans,
Speaker 3: that's a whole different story. And that's when you get
Speaker 3: into either problems defaults in some difficult situations.
Speaker 8: You're absolutely correct, and this is the story and the
Speaker 8: focus now. Clearly, at the beginning of the year, there
Speaker 8: was a lot of optimism as the FED was pivoting
Speaker 8: effectively signaling that they were going to pivot. Resulted in
Speaker 8: a lot more transaction volume and a buildup of investment
Speaker 8: sales and optimism buyers wanting to come in and sell
Speaker 8: ers wanting to transact. With a reversal in that sort
Speaker 8: of behavior, things have slowed down, at least on the
Speaker 8: transaction volume side.
Speaker 7: But coming back to the bank.
Speaker 8: Issue, this is the big issue, and this is the
Speaker 8: secular change in behavior that we see in the capital markets.
Speaker 8: So the regional banks made up seventy five percent of
Speaker 8: all commercial estate learns in the banking sector. It's just
Speaker 8: simply math, is what I tell our investors too. The
Speaker 8: bank's cost of borrowing is significantly higher than what it
Speaker 8: was historically, whether it's through deposits or whether it's through
Speaker 8: borrowing through the FED window or otherwise. And their assets,
Speaker 8: a lot of them are longer term assets at lower
Speaker 8: yield rates, resulting in margin compression for the banks. They
Speaker 8: have other issues to balance sheet, to relate issues. My
Speaker 8: belief is that we're going to see a lot more
Speaker 8: pain in that sector. You're also seeing an increased regulatory
Speaker 8: oversight of the regional banks. So them and the banks
Speaker 8: are overweight commercial real estate loans. So what's happening to
Speaker 8: them is their ability to deploy new capital today is
Speaker 8: highly highly limited.
Speaker 3: Now think about it, get it off their balance sheet.
Speaker 7: Yeah, that's so, there we go.
Speaker 8: So the question that I get asked a lot is, so,
Speaker 8: what is the investment opportunity in commercial real estate credit
Speaker 8: and how do.
Speaker 7: You access it?
Speaker 8: Think about it as four waves that are going to
Speaker 8: crest at a different point in time. There's half a
Speaker 8: trillion dollars of equity raised to invest in commercial real
Speaker 8: estates sitting on the sideline looking to invest. Secondly, you've
Speaker 8: got two and a half trillion dollars of debt coming
Speaker 8: due in the next four and a half years that
Speaker 8: needs to get refinanced. Thirdly, you have the banks to
Speaker 8: your point, sitting on a bloated ballanced sheets of commercial
Speaker 8: real estate. Those loans, with the FED keeping rates where
Speaker 8: they are, and they of capitals staying hi, they're going
Speaker 8: to need to offload some of these assets.
Speaker 7: So that's the third wave.
Speaker 8: And the fourth wave is that not many people are
Speaker 8: talking about. Is with interest rates being as high as
Speaker 8: there are, there's not a lot of free cash flow
Speaker 8: available to invest in the commercial real estate properties. So
Speaker 8: from a debt perspective, the banks are going to pull back.
Speaker 8: The private lenders are going to step into the void
Speaker 8: and provide the capital for the commercial real estate sector.
Speaker 4: But at the end of the day, your investors want
Speaker 4: to return, and in a higher interest rate environment, that
Speaker 4: might require a bit of patience. So I'm wondering about
Speaker 4: the patients that you guys have with real estate owners
Speaker 4: who borrowed perhaps a few years ago. Are you preparing
Speaker 4: for foreclosures as rates go up? Are you working with
Speaker 4: these borrowers? What's going on?
Speaker 8: Yeah, it's a fantastic question. Every lender is doing their
Speaker 8: invest to work with a borrowers. Now, keep in mind,
Speaker 8: this wasn't a situation where borrowers were behaving badly. It's
Speaker 8: not even an oversupply issue for the most part. There's
Speaker 8: some oversupply in this sectors, but that isn't really the driver.
Speaker 8: It was simply that you had good borrows. You made
Speaker 8: a good loan, but when a rate cap expires and
Speaker 8: the interest rate goes from three to eight, they can't afford.
Speaker 8: There's no free cash flows.
Speaker 6: So how patient are you?
Speaker 8: Well, look, we try to be as patient as possible.
Speaker 8: Most of our capital is actually long term capital. Those
Speaker 8: that are those lenders are going to have bigger issues
Speaker 8: are those that have leverage short term leverage obligations on
Speaker 8: warehouse lines and otherwise, and they're going to be less
Speaker 8: patient with borrows.
Speaker 3: So we're what's your long term So give me an
Speaker 3: idea of what long term is. They're taking five years,
Speaker 3: ten you We're like, what is it?
Speaker 8: Oh for our capital, Yeah, it's long term capital. It's
Speaker 8: way more than five years. So we can on some
Speaker 8: assets we're taking back.
Speaker 6: You can write it.
Speaker 8: We'll write it through, you know. And we have a
Speaker 8: very large asset management team. So we're very focused on
Speaker 8: getting out in front of the issues, working with borrows
Speaker 8: and then trying to get to.
Speaker 7: The other side.
Speaker 6: But will there be foreclosures and where will they be?
Speaker 8: There's going to be foreclosures that they're starting already now.
Speaker 8: Clearly we talked about office quickly. That is the eight
Speaker 8: underd pound Gorilla that is a secular change in demand
Speaker 8: driven by COVID. No one was expecting that. But you
Speaker 8: take a mid office building that is a B quality,
Speaker 8: a building that was no good to.
Speaker 7: Go in the first place.
Speaker 8: Yeah, that building is going to be riddled with problems.
Speaker 8: And there are a lot of those buildings in cities
Speaker 8: like New York, Chicago, Los Angeles and other places that
Speaker 8: are clearly having problems already. There's not it's very difficult.
Speaker 8: There's no real simple solution there. There's adaptive reuse. You
Speaker 8: can turn them into apartment buildings. That's tough, exactly, not easy, right,
Speaker 8: and and there's a bit of hope there. But there
Speaker 8: are things that Lenda's are going to take back that
Speaker 8: there's no real reuse. But it's I would say, it's
Speaker 8: really isolated to office.
Speaker 3: Is it just some office where there's going to be foreclosures?
Speaker 3: Is there other parts of the commercial real estate market
Speaker 3: where you where there might be some foreclosures?
Speaker 6: And forgive us, we.
Speaker 8: Said no, no, you're exactly So what's going to drive it?
Speaker 8: So we talked about fundamentals besides office. Right then you
Speaker 8: nailed it to im, talking specifically about the high end
Speaker 8: office buildings doing really well, well and out performing. But
Speaker 8: what are we facing today is an interesting thing. This
Speaker 8: isn't really a structural problem with commercial real estate. In
Speaker 8: other words, it's not necessarily an oversupply issue. It's not
Speaker 8: really an over leverage issue. It's really a capital structure
Speaker 8: problem where rates ran up so quickly and people have
Speaker 8: been caught. No one was expecting to pay eight percent
Speaker 8: interest and buying it a three or four cap or
Speaker 8: a five cap would imply that you kind.
Speaker 4: Of borrow it eight correct, you got to come back.
Speaker 6: I feel like we could do.
Speaker 4: You know, we love talking real estate.
Speaker 6: We do love talking. Hopefully you come back.
Speaker 7: I'm happy to come back.
Speaker 6: We would love it.
Speaker 3: Warnd de Hahn. He's chief executive officer of a corps.
Speaker 3: I think I said it incorrectly to begin with. But
Speaker 3: joining us here in our Bloomberg Interactive Broker studio.
Speaker 7: Mark a journal, how about you let me drive?
Speaker 2: No, no, no, honey, please, I'll do the riding.
Speaker 7: I want to try.
Speaker 2: It's a good question. This is the drive to the globe,
Speaker 2: well yelling on Bloomberg Radio.
Speaker 4: Can you believe it?
Speaker 2: Carol?
Speaker 7: It's that time?
Speaker 4: Which part it's that time?
Speaker 6: I know?
Speaker 4: Time flies when you're having fun time.
Speaker 6: But flies when you are having fun.
Speaker 4: You've got a big week.
Speaker 6: I have a big week and jumping on a plane tomorrow.
Speaker 4: But I'll be here tomorrow leaving me and my show.
Speaker 6: Going to Nashville.
Speaker 3: Baby, our show got a new song. I'm going to
Speaker 3: take it to the open old opry.
Speaker 4: You're basically there for twenty four hours. When you're coming
Speaker 4: back to Yes, it might be the same plane when
Speaker 4: you come back.
Speaker 6: You have done that before, you have done that.
Speaker 3: Someday, Tim and I are going to write a story
Speaker 3: about our less than twenty four hours in Vegas because
Speaker 3: it was crazy.
Speaker 4: Don't go to Vegas for that, Don't fly that far
Speaker 4: for such a short time. That's what I'll say. Hey,
Speaker 4: interesting market moves today.
Speaker 3: Also, yeah, some volatility is Abigail was talking about coming
Speaker 3: back into the market.
Speaker 6: And also you know, just some crazy trades.
Speaker 3: It wasn't just the meme stocks, but also we're still
Speaker 3: trying to figure out what happened with some names like Chipotle, Berkshire,
Speaker 3: Abbot Labs.
Speaker 6: It's a wacky Monday.
Speaker 4: Yeah, And commodities under pressure, the price of oil tumbling
Speaker 4: following OPEC plus unexpectedly rolling out a plan to restore
Speaker 4: some production to the market this year. What does it
Speaker 4: all mean? Let's get to Adrian Yamaki, founder and financial
Speaker 4: advisor at Strategic Wealth Capital, based in San Francisco. The
Speaker 4: firm really is a specialty in high net worth individuals
Speaker 4: portfolio assets above five million dollars. Adrian joins us from
Speaker 4: the Bay Area.
Speaker 1: How are you, I mean good?
Speaker 6: How are you guys doing good?
Speaker 4: It's good to have you back with us. I know
Speaker 4: you were back on with you were on with us
Speaker 4: just a few months ago. I'm wondering about the questions
Speaker 4: that you're getting right now. It's something that we've been
Speaker 4: asking a lot of our markets guests as we've seen
Speaker 4: the markets move over the last six weeks or so.
Speaker 4: What are the questions that you're getting from your clients
Speaker 4: right now?
Speaker 1: Most of the questions, as you can imagine, are about
Speaker 1: what's going on with the election. And it's one of
Speaker 1: the most emotional elections that I can remember, especially from
Speaker 1: the standpoint of there are a lot of legal implications,
Speaker 1: social economic implications, and it's something that clients because it's
Speaker 1: a I mean, we look at the polls every week,
Speaker 1: having what you look at, but it looks fairly close.
Speaker 1: And the platforms, the economic platforms there each campaigning on,
Speaker 1: are so different. Clients are quite honestly, really nervous economically
Speaker 1: and also from a very standpoint of what does this
Speaker 1: mean for legal decision making around I mean, you can
Speaker 1: imagine a lot of the socioeconomic topics that are being discussed.
Speaker 1: So that's definitely the first number one.
Speaker 3: Well, so having said that, if someone says, listen, Adrian,
Speaker 3: you know we I'm wondering, do I need to start
Speaker 3: adjusting my portfolio because of what we think might potentially happen,
Speaker 3: you know, come November, or maybe I just want to
Speaker 3: play it safe and whatever or the outcome. I'm just
Speaker 3: somewhere where I can ride it out for a little
Speaker 3: bit until we kind of see how the desk settles.
Speaker 6: I don't know, what do you tell them?
Speaker 1: That is such a such a good question, because that's
Speaker 1: exactly that's twinny, That's exactly the sentiment that people have
Speaker 1: are having, which is essentially what does a sideline look like?
Speaker 1: The election cycles so fraught, We're tired about hearing about
Speaker 1: convictions and potential convictions and trade and what it means.
Speaker 1: Can we just sit out and wait and see what happens.
Speaker 3: Really good question, parket in a two year and get
Speaker 3: like almost five percent?
Speaker 4: Right, like, way, okay, why not? I'll say why not?
Speaker 4: And I'm not giving financial advice here, but the track
Speaker 4: record for timing the market just in general for normal
Speaker 4: people has not been good. I mean, I'd be hard
Speaker 4: pressed to find any person who manages money saying, you know,
Speaker 4: you should ever try to time the market. The whole
Speaker 4: idea is time in the market, not time the market.
Speaker 1: No, one hundred percent, exactly tim That's exactly right, very
Speaker 1: well said. And it's funny because I think intellectually often
Speaker 1: clients know this, but they feel like anything anytime something
Speaker 1: is unknown. I mean, that's what effectively plays out in risk.
Speaker 6: That's what risk is.
Speaker 1: People want to be to separate from it. So in
Speaker 1: this case they separate from I think of the stock
Speaker 1: market and to some extent the debt markets. But just
Speaker 1: like Carl said, can you just sit on the sidelines?
Speaker 1: The thing is, in reality, there is no sideline, There
Speaker 1: is no completely neutral We're buffered from everything. The closest
Speaker 1: would be, say, putting it in a short term treasury bill,
Speaker 1: and treasuries are still yielding a lot the problem with thinking,
Speaker 1: so that's its own deliberate decisions. So instead of saying sideline,
Speaker 1: we say, why don't we just sell what we have
Speaker 1: and put it in cash. And of course, just like
Speaker 1: Tim is saying you can't time anything, the danger of
Speaker 1: doing that, it's correct that if it's in cash, the
Speaker 1: upside is what the maturity of the treasury or the
Speaker 1: CD is. The problem is, if we look historically at
Speaker 1: what has happened after elections, it has very little, especially
Speaker 1: the first twelve months, it has very little bearing whether
Speaker 1: it's Democrat or Republican and the specific candidate. It has
Speaker 1: very little bearing, in fact, so little as to not
Speaker 1: be something to make large financial decisions on, such as
Speaker 1: use at allocation, very little to do with how the
Speaker 1: market performs. So if we look at, for example, the
Speaker 1: last two elections, there's fascinating research that shows deep red,
Speaker 1: deep blue parts of the country how they record their
Speaker 1: sentiment and what they plan to do for spending, career decisions,
Speaker 1: home buying, and if we look at the actual data
Speaker 1: underlying the decisions in those communities, they're completely at odds
Speaker 1: with what people feel they want they there, how optimistic
Speaker 1: they feel about the country, based on the candidate who won.
Speaker 1: So we can say, if this party wins, I'm going
Speaker 1: to do this. I just I want to go to Canada.
Speaker 1: I want to I'm going to stop spending, but the
Speaker 1: actual spending and consumer behavior doesn't change.
Speaker 3: Well, like if you have to buy a house, you
Speaker 3: have to buy a car, you have to do this,
Speaker 3: like you're just going to do it right, no matter what.
Speaker 3: Having said that, all right, and I guess the one
Speaker 3: thing I would argue is that maybe I'm not talking
Speaker 3: about timing the market, but capital preservation is an investment
Speaker 3: strategy as well. So holding on to your principle, even
Speaker 3: if it's for a little bit, can be an important
Speaker 3: strategy so that you don't lose some ground.
Speaker 6: All right.
Speaker 3: So elections having little bearing maybe at least the first
Speaker 3: twelve months or so when it comes to maybe the
Speaker 3: investment arena, FED policy though, can certainly impact things.
Speaker 6: Got a FED meeting next week?
Speaker 3: How are you thinking about that in the packed it
Speaker 3: might have on someone's portfolio right now? And just got
Speaker 3: about a minute left.
Speaker 1: YEP, I think that's the right question. So last year
Speaker 1: the deficit was about one point seven trillion, so over
Speaker 1: six percent of GDP so this is one hundred percent.
Speaker 1: I'm glad you asked that. This is what I would
Speaker 1: focus on, which is whether or not the next So
Speaker 1: it takes a long path from candidate campaign promises to
Speaker 1: who's elected and then to what happens in Congress. So
Speaker 1: the thing that we're all thinking of is are the
Speaker 1: text cuts drawn back? Tax cuts going to be extended?
Speaker 1: If they're not extended. In a sunset in a year
Speaker 1: and a half, six out of the top seven brackets
Speaker 1: go up. The long term trend and the macro trend
Speaker 1: is that taxes are going to have to be higher,
Speaker 1: whether it's the next president, the next term, in the future.
Speaker 1: The deficit, it's what it is, and it's eight and
Speaker 1: unstoppable force. Of course, that's going to drive everything longer term,
Speaker 1: and that is the biggest For my clients who are
Speaker 1: fortunate and lucky enough to have saved, taxes are going
Speaker 1: to be the biggest issue, and I focus in then
Speaker 1: agree year and a half on what can you do
Speaker 1: to save on the taxes.
Speaker 4: I think it's Carol, I think it makes sense. I
Speaker 4: think the political will to raise taxes, though, is really
Speaker 4: tough to find.
Speaker 6: Not a good one.
Speaker 3: That's for sure, Adrian, Thank you so much. Adrian Imaki,
Speaker 3: founder and financial advisor at Strategic Wealth Capital, joining us
Speaker 3: right now from San Francisco.
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