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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moven News.

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Speaker 1: I'm the Bloomberg Markets Podcast on Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com Slash podcast.

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Speaker 1: The retailers coming in with some numbers here today, Target,

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Speaker 1: TJ Max, we got Walmart tomorrow. Let's let's round table

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Speaker 1: this thing with some smart folks. Jen Bartash is senior

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Speaker 1: industry an also with Bloomberg Intelligence and Bloomberg News. Jen

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Speaker 1: joins us via the cam from the Princeton office of

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Speaker 1: Bloomberg Intelligence. And then we got Simone Foxman. She is

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Speaker 1: a Bloomberg reporter for Bloomberg Television, joining us here in studio,

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Speaker 1: Jen Bartashes, Let's start with you. TGT Target stocks up

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Speaker 1: over five percent the market. What is it like here

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Speaker 1: out of the Target results.

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Speaker 3: Well, when we look at Target, you know with the

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Speaker 3: market it likes is that margin is up and it's

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Speaker 3: up significantly over last year. At the same time, I

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Speaker 3: think everyone recognizes that it's a difficult operating environment, and

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Speaker 3: so even though target reduced, it's full of your guidance

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Speaker 3: for sales and for profit. I think that people are

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Speaker 3: encouraged by the the way that margins are responding even

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Speaker 3: in that environment.

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Speaker 1: All right, So genders for our viewers on YouTube, I

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Speaker 1: want to point out that you have what is probably

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Speaker 1: the best quote unquote office in Bloomberg. It is a

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Speaker 1: kind of a corner office. Now, no one, I mean

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Speaker 1: no one at Bloomberg has offices. We all sit at

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Speaker 1: our desks in kind of the bullpen style. But Jenna's

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Speaker 1: got bad as close as you can get to a

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Speaker 1: corner office. I just want to point that out now

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Speaker 1: because she's been running the Princeton office for decades. I mean,

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Speaker 1: she's basically the leader down there. So we were able

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Speaker 1: to bring her to BI. So that's pretty cool.

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Speaker 2: All right, Simone teach Simone Foughtsman sits near a window.

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Speaker 1: She does sit near a window.

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Speaker 4: I also sit near the great Michael McKee, who's a

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Speaker 4: frequent Bloomberg radio. Yes, but I once had my own

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Speaker 4: office because I was the only correspondent in the country.

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Speaker 4: So anyway, but yes, but you want to hear about

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Speaker 4: retail in the United States.

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Speaker 1: Yes, So what do you got here on our good

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Speaker 1: friends at TJMAX.

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Speaker 4: Yeah, I mean beaten a raise really right across the board,

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Speaker 4: raising their outlook for the year, seeing compar bill sales

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Speaker 4: three to four percent. I mean, the idea value is

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Speaker 4: attracting customers. They're seeing increased traffic across all their major brands.

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Speaker 4: According to the CEO, there even home Goods that was

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Speaker 4: not expected to do quite so well. Comp sales there

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Speaker 4: were expected to be slightly in the negative, but we

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Speaker 4: saw four percent year on year rise. So even though

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Speaker 4: consumers are looking away from their homes, they spent so

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Speaker 4: much time there, they've invested there during the pandemic, and

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Speaker 4: they are moving on, home goods is still able to

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Speaker 4: attract people. So a broadly very positive earnings report for TJX,

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Speaker 4: though I will say shares three points six percent higher,

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Speaker 4: not the five plus that we see.

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Speaker 1: Into time high for TJX. I wild point that out

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Speaker 1: all time high for the stock.

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Speaker 2: Well, I mean, are people stepping down? Are you starting

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Speaker 2: to see that?

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Speaker 5: Jen?

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Speaker 2: You know, for a long time we've been hearing guests

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Speaker 2: come in the studio and tell Paul and me that

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Speaker 2: people step down from target to Walmart. Are they stepping

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Speaker 2: down from Target to TJX.

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Speaker 3: Well, I think across the board, you're talking about what

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Speaker 3: we consider to be a flight to value, and so

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Speaker 3: regardless of where your household income level lies, people are

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Speaker 3: increasingly seeing value. And that's one of the things that

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Speaker 3: makes TJX such a great opportunity for people, and that

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Speaker 3: it's there's something always new they go in there. It's

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Speaker 3: treasure hunt. And if you're talking about the Walmart's and

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Speaker 3: the Targets of the world, you're seeing consumers shift into

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Speaker 3: areas where they think there is value. So there are

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Speaker 3: some shoppers who have moved from Target to Walmart, especially

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Speaker 3: when you're talking about essentials, where Walmart's prices are just

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Speaker 3: generally very, very sharp. But we're all also seeing people

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Speaker 3: move from Walmart down to dollar stores. So it's really

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Speaker 3: that progression of the flight to value that is really

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Speaker 3: describing the current economic environment and the consumer environment that

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Speaker 3: we're seeing.

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Speaker 4: And I think when you think about it too, you know,

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Speaker 4: the area we've heard folks across the consumer space be

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Speaker 4: really negative is those middle income consumers who want to

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Speaker 4: cut their discretionary spending, and TJX offers a bit more

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Speaker 4: of that discretionary spend. So instead of going to the

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Speaker 4: top line retailer, you have people going out and saying,

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Speaker 4: I want to do that treasure hunting. I think that

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Speaker 4: that is a better use of my wallet than just

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Speaker 4: simply going to a store where the kind of where

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Speaker 4: I don't have to do that, but I'm also going

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Speaker 4: to pay it.

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Speaker 1: And simone I noticed, you know, kind of what was

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Speaker 1: unusual for TJ Max here is okay, they beat the quarter,

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Speaker 1: and but unlike the Target who was cautious in their outlook,

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Speaker 1: they boosted. TJ Max boosted their outlook here. So what's

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Speaker 1: kind of the the.

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Speaker 4: Extremely strong commentary saying that they're off to an incredible,

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Speaker 4: a very strong start, I believe is word for word

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Speaker 4: in the third quarter. So I think everyone very optimistic

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Speaker 4: there that this flight to value, as Jennifer was talking about,

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Speaker 4: will continue even if even if a recovery to some

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Speaker 4: degree materializes in the way that Target has been I

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Speaker 4: guess hoping and praying for on their call, Jen, what do.

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Speaker 2: You hear about the excess savings? I heard someone this morning,

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Speaker 2: I think carl Rickodonna on Bloomberg Surveillance say that carl

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Speaker 2: Rickodonna over at BNP, Perry of BA saying that at least,

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Speaker 2: like you know, there's been a debate about whether or

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Speaker 2: not Americans still have excess savings left, but he says,

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Speaker 2: one thing is for sure that the lower let's say

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Speaker 2: three quinn tiles have already blown through it and have

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Speaker 2: nothing left.

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Speaker 3: Yeah, that's that's what we're seeing too. And there's you know,

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Speaker 3: growing use of credit card that credit cards and is

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Speaker 3: a little bit on the rise, especially for those quintiles

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Speaker 3: that he was talking about, and so those consumers are

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Speaker 3: really looking for where to spend that money. And I

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Speaker 3: think one of the other things to think about is

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Speaker 3: that the retailers in general haven't they still haven't gone

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Speaker 3: back to pre pandemic days of promotions and the same

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Speaker 3: types of levels of sales and discounts, and so although

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Speaker 3: they're offering value, that type of sales environment or promotional

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Speaker 3: environment hasn't yet come back. Now that maybe on the

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Speaker 3: horizon if things don't change soon. But I think it

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Speaker 3: also supports why we're seeing the popularity of things like TJX,

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Speaker 3: because people aren't getting those sales at the big box

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Speaker 3: retailers or some of the other retailers at the moment,

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Speaker 3: and so they're looking for where they can find some

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Speaker 3: of those key brands but at a much lower cost.

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Speaker 1: Simon, what else are you looking at here in the

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Speaker 1: retail space as we get somebody's come to reporting earnings.

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Speaker 4: Yeah, I mean tomorrow we have Walmart. That's the big

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Speaker 4: dog there. I think shares hit an all time high

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Speaker 4: earlier this week, and so I think expectations are very

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Speaker 4: high that they can do they can benefit from this

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Speaker 4: environment in a similar way to perhaps TJ Max. Is

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Speaker 4: that consumers are trading down, They're doing more of their

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Speaker 4: spending at Walmart. Walmart plus growing and increasing number of

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Speaker 4: subscribers that are using its food businesses and that sort

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Speaker 4: of thing. So that'll be an interesting data point to watch.

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Speaker 4: I'm also interested. You know, we heard from Target this

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Speaker 4: morning about the impact of student loan repayments kicking back up.

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Speaker 4: Do we hear that from TJ Max? They have yet

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Speaker 4: to have their call, do we hear that from Walmart.

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Speaker 4: We're just trying to get a sense of how much

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Speaker 4: this is actually going to weigh on consumers as we

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Speaker 4: head towards the fall, and then of course head towards

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Speaker 4: the holiday season.

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Speaker 2: You ever been a TJ Max Paul. Probably yes, I

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Speaker 2: have to say, I haven't been there in a while,

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Speaker 2: but when I when I would go, and still if

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Speaker 2: I would go today, Jenna is right or I don't

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Speaker 2: know who said that about hunting for like, it is

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Speaker 2: an adventure to go in there because there's so much

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Speaker 2: stuff and you know you're gonna find like like three

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Speaker 2: cool polo shirts for twenty nine to ninety nine that

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Speaker 2: you would normally pay, like I don't know, one hundred

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Speaker 2: bucks for.

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Speaker 4: So I think that's how you can make sense of it, right.

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Speaker 4: You know, when I was younger, I loved doing that

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Speaker 4: so much more.

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Speaker 3: Uh.

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Speaker 4: And I think if my thanks Bloomberg for paying me.

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Speaker 4: But I think if my pennies were tighter, I would

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Speaker 4: I would worry a little bit more about where each

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Speaker 4: dollar was going. Uh, And therefore I would feel like, Okay,

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Speaker 4: I've done. I've put in the hard work to go

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Speaker 4: and buy this handbag, even though you know, my dimes

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Speaker 4: are tight. Whereas Walmart, whereas whereas I guess you go

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Speaker 4: to Target, it's much everything's much more laid out for you.

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Speaker 2: I mean, my point is it's actually a great way

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Speaker 2: to spend an hour or two in the city, like

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Speaker 2: like going to a Barnes and Noble and.

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Speaker 1: Just hanging out.

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Speaker 4: But this is why you come.

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Speaker 1: This is the great Matt Miller.

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Speaker 2: When I was a kid, I used to do that.

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Speaker 1: Far you fall and Jen Bartash is senior Industrial so

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Speaker 1: Bloomberg can tell and simoon Foxman from Bloomberg. She's reported

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Speaker 1: there joining us talking to us about all things retail.

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Speaker 5: You're listening to the team Ken's are live program Bloomberg

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Speaker 5: Markets weekdays at ten am Eastern on Bloomberg dot Com,

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Speaker 5: the iHeartRadio app and the Bloomberg Business App, or listen

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Speaker 5: on demand wherever you get your podcasts.

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Speaker 1: Next week, Jackson Hole, I am still searching my inbox

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Speaker 1: for the invite Matt, and I'm just I know it's there,

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Speaker 1: I just can't find it. But I don't know if

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Speaker 1: that's gonna be a big deal. Anyway.

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Speaker 2: I heard they disinvited a lot of people, Like remember

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Speaker 2: when the Soho House canceled all the bankers memberships. Yes,

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Speaker 2: I think that's Jackson All did the same thing a

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Speaker 2: couple of years ago.

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Speaker 1: All right, let's bring in Danielle di Martino Booth. She's

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Speaker 1: the CEO and chief strategist at QI research. She joins

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Speaker 1: us live here in our Bloomberg Interactive Brokers studio and

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Speaker 1: on YouTube. So that's even better, Danielle. I guess the

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Speaker 1: narrative now with our feter reserve and with rates is,

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Speaker 1: you know, not how higher they go, but it could

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Speaker 1: be how long are we going to stay here? How

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Speaker 1: are you viewing that part of the narrative.

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Speaker 6: So I think the higher for longer narrative is something

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Speaker 6: that markets do not want to accept. But we have

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Speaker 6: to bear in mind that Jay Powell started in January

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Speaker 6: of twenty twenty two kind of like Obi wan Kenobi,

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Speaker 6: this will happen, This will happen, this will happen. These

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Speaker 6: are not the droids you're looking for. And so he's

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Speaker 6: managed to really extend this narrative. And I think that,

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Speaker 6: you know, if you look at what a lot of

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Speaker 6: people are starting to believe compared to twelve months ago.

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Speaker 6: Now they're saying we might not see quantitative tightening stop

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Speaker 6: until the fourth quarter of twenty twenty four. That is

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Speaker 6: a form of higher for longer, even if we see

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Speaker 6: rate cuts in twenty twenty four.

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Speaker 1: All Right, A very smart listener of ours kind of

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Speaker 1: wrote in and asked about that the relationship between running

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Speaker 1: off the balance sheet and interest rates. You made a

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Speaker 1: comment the last time you were here about that. What

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Speaker 1: did you mean by that relationship?

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Speaker 6: So, I mean we are a nation that exists. Liquidity

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Speaker 6: is the lifeblood of the US economy. It's seventy percent consumption,

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Speaker 6: but so much of business investment, so much of consumption

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Speaker 6: is derived from credit. And when you're pulling liquidity from

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Speaker 6: the system, you end up seeing things like the New

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Speaker 6: York FEDS work that shows that that companies anticipate rejections

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Speaker 6: being at the highest level on record in the next

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Speaker 6: twelve months when it comes to a credit card, home loan,

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Speaker 6: auto loans, and what have you. So that is a

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Speaker 6: reflection of a credit crunch, which I've learned to some

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Speaker 6: is a term that showed up in nineteen sixty six.

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Speaker 6: Oh two guys from Salomon Brothers created the term. They said,

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Speaker 6: they said, a squeeze and a pinch. They might be

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Speaker 6: kind of friendly. A crunch is not. A crunch can

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Speaker 6: break a bone. And that's what we're in the midst of, quietly,

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Speaker 6: and that's what we're seeing with Moodi's and Fitch and

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Speaker 6: the warnings that we've got on banks.

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Speaker 2: I love that. So what they these two guys of

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Speaker 2: Solomon said, you used to be people would say credit

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Speaker 2: squeeze or credit pinch, but that was like too fun.

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Speaker 6: It was too fun. And so that's what happened in

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Speaker 6: nineteen sixty six. You had banks pull back on lending

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Speaker 6: while the US government had been spending a lot of money.

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Speaker 6: I don't see any parallels here.

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Speaker 2: That's sarcasm for those of you who aren't watching.

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Speaker 7: And what did we see?

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Speaker 6: We saw a massive pullback. So there's something to be

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Speaker 6: said for quantitative tightening directly influencing that flow of liquidity

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Speaker 6: or not into the system. It's something we see every

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Speaker 6: Friday afternoon aft the close. In the fed's h eight document,

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Speaker 6: you're seeing commercial and industrial lending negative.

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Speaker 2: How much does the treasury issuance sort of add to

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Speaker 2: that liquidity problem?

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Speaker 6: Well, so the first three hundred billion or so, we're

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Speaker 6: kind of benign. You saw money move out of the

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Speaker 6: Fed's facility overnight facility. People were like, oh, look at this.

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Speaker 6: You know, I'm going to move it into into treasury bills,

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Speaker 6: money market funds. Where are we going going forward? I mean,

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Speaker 6: if inflation is as sticky as the inflation used to

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Speaker 6: say it's going to be. Then, if I'm a money

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Speaker 6: market fund, I'm going to say, wait a minute, I'm

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Speaker 6: not going to go into bills. If I think the

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Speaker 6: Fed's going to raise interest rates one more time in

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Speaker 6: twenty twenty three, maybe it's September, maybe it's December, then

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Speaker 6: I'll wait and I'll keep my money at the FED.

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Speaker 6: Meaning they're not going to naturally absorb all of this

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Speaker 6: treasury issuance, keeping that effect benign, and you end up

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Speaker 6: having quantitative tightening join with treasury built issuance, and you're

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Speaker 6: having a double pulling of liquidity out of the system.

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Speaker 1: All right, I consider myself a pretty good reader. That

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Speaker 1: the nuns of Blessed Saque instilled that in me early age.

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Speaker 1: But I'll tell you what, I am not reading the

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Speaker 1: FED meeting minutes come out later today.

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Speaker 2: That's why we have people like Danielle.

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Speaker 1: That's why I have people like Mount Sacred Heart. So

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Speaker 1: we're like, okay, yeah, very good. So what will you

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Speaker 1: be looking for in these meeting minutes.

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Speaker 6: The softer the landing narrative, the more they're gonna stick

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Speaker 6: with their higher for longer.

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Speaker 1: Okay, So I.

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Speaker 6: Mean, look, minutes can be massaged. Janet Yellen said so

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Speaker 6: in two thousand and eight. She said, minutes can be

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Speaker 6: like any other tool in the toolbox. It's not like

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Speaker 6: the minutes from a corporate board meeting or something like that.

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Speaker 6: In the three weeks that are that come in between,

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Speaker 6: the Fed can change what actually occurred inside that room.

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Speaker 6: It's kind of like magic. So if they want to

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Speaker 6: nod to retail sales being stronger than what was expected,

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Speaker 6: then you can have a more hawkish tone in these minutes.

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Speaker 6: And that's what I'm anticipating.

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Speaker 2: What about the difference between j Powell's standard line. You

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Speaker 2: know that we're going to keep rates higher for I

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Speaker 2: think last time he said for years or did so.

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Speaker 2: At the same time, we get a dot plot, which

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Speaker 2: I know is not a forecast from the Fed, but

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Speaker 2: it is each individual members essentially forecasts, right, that showed

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Speaker 2: at least one full percentage point of rate cuts next year.

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Speaker 2: How can he say We're going to keep rates at

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Speaker 2: this level for years and everybody, even you know, assuming

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Speaker 2: I'm assuming the voters are saying no, it's going to

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Speaker 2: come down one percent.

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Speaker 6: So it's kind of like if you ever heard one martini,

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Speaker 6: two martini three Martini's floor, so he can he can

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Speaker 6: withstand one or two descents and maintain his power base.

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Speaker 6: You start to get to a number like three, and

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Speaker 6: you start to say, is there a mutiny on the FMC.

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Speaker 6: So we might see descent next year from some of

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Speaker 6: the more dubbish contingency. He might want to hold out

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Speaker 6: for longer, and that might mean that we see his

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Speaker 6: first real dissent. And we have, I mean, we've seen

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Speaker 6: Neil Kashgari, who used to be the most delish person

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Speaker 6: on planet Earth, become like, you know, we're not finished

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Speaker 6: fighting Involution yet. So he's like very hellkish.

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Speaker 2: And still and still says we're not done exactly.

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Speaker 6: It was just a few days ago.

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Speaker 1: Our good friends at Goldman Sachs, I guess, on Sunday

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Speaker 1: put out a note saying that they expect the rate

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Speaker 1: cut in the second quarter of next year. Was that

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Speaker 1: just to sell books or do you think there's something to.

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Speaker 6: That talking a book at Goldman? My gosh, I've never

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Speaker 6: heard of such, just thinking. Look, Goldman tax has tremendous

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Speaker 6: influence on the New York Fed. The New York Fed

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Speaker 6: has a permanent vote on the Federal Open Market Committee,

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Speaker 6: this is a known known so it's I think Goldman

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Speaker 6: is definitely trying to control the narrative, and they've done

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Speaker 6: a very good job of that in the past, of

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Speaker 6: having you know, a very extra large influence on FED thinking.

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Speaker 6: But you know, Powell's not an academic. Powell was the

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Speaker 6: one who brokered the treasury scandal at Solomon Brothers with

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Speaker 6: Warren Buffett in nineteen ninety eight when he was just

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Speaker 6: a Treasury the secretary. Powell's not intimidated by bankers.

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Speaker 1: Sorry.

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Speaker 2: Interesting, one of the things that you were telling us

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Speaker 2: about Palell around s and p you know, thirty seven,

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Speaker 2: thirty eight hundred, was that he wants to break the FED. Put.

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Speaker 2: He wants to destroy the idea that the FED is

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Speaker 2: going to come to your rescue. Mister market. Every time

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Speaker 2: the equity indexes fall now we're at forty five hundred,

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Speaker 2: he is that making it harder for him to succeed.

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Speaker 2: When the market just continues dully as they raise.

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Speaker 6: No, it's making it easier for him. I mean, he's

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Speaker 6: basically shut down the commercial mortgage backed securities market. So

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Speaker 6: that's one corner of securitization that's vaporized into thin air.

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Speaker 6: When in March of twenty twenty, the entire commercial real

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Speaker 6: estate industry was like, hold on, we need a bail

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Speaker 6: out too.

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Speaker 1: But he's taken.

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Speaker 6: He's actually created price discovery in a market where none existed.

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Speaker 6: There was a building that just sold for sixty seven

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Speaker 6: percent off of its prior appraisal in San Francisco a

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Speaker 6: few days ago. So he's slowly killing off lines of

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Speaker 6: speculation into the markets. I think the CLO market is next.

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Speaker 6: So let the stock market be as high it once.

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Speaker 6: It gives Powell license to continue depleting liquidity from the

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Speaker 6: system and taking out some of the most speculative forms

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Speaker 6: covers the word yeah, all right, So I mean this

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Speaker 6: in the nicest way possible, Danielle.

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Speaker 1: But you are that's data geek of the highest magnitude.

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Speaker 1: What data are you looking at that? Maybe we're not so.

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Speaker 6: I follow two things very closely. The employee retention credit

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Speaker 6: it's advertised everywhere by a manage.

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Speaker 2: I mean we we.

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Speaker 6: It surpassed thirty billion for the first time in the

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Speaker 6: month of July, so on a twelve month run rate,

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Speaker 6: it's pumping four hundred billion dollars into the economy, very

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Speaker 6: real money. That's about one and a half percentage point

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Speaker 6: of GDP growth on an annualized basis. We're seeing that

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Speaker 6: manifest and much higher international travel. So it's going to

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Speaker 6: your kind of your top quintile of earners, if you will,

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Speaker 6: and that's being actively sold. So I'm paying very close

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Speaker 6: attention to active fiscal stimulus for billion dollars a year

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Speaker 6: is not nothing. In Daily Jobcuts dot Com, we've gone

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Speaker 6: from five business closings to nine from the summer months

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Speaker 6: after the debt sealing reserves into August. The founder of

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Speaker 6: the website said he's seeing a massive increase in companies

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Speaker 6: just closing up shop in August, saying I don't see

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Speaker 6: over the horizon the holiday season, holiday shopping season saving me.

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Speaker 6: So I'm paying really close attention to main Street as well.

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Speaker 2: Wow, very good, Daniel de Martinez to watch the fiscal side,

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Speaker 2: you know, because not a lot of fedgeeks do not

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Speaker 2: close enough attention to the fiscal highly relevant.

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Speaker 8: It's highly relevant.

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Speaker 1: Daniel de Martinez Booth CEO and chief strategist at QI Research,

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Speaker 1: joining us live here in our Bloomberg Interactive Broker studio,

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Speaker 1: which is always a treat.

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Speaker 5: You're listening to the tape Cat's are live program Bloomberg

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Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

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Speaker 5: You can also listen live on Amazon Alexa from our

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00:18:48,160 --> 00:18:52,560
Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven thirty.

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Speaker 1: You know, against my better judgment, I'm told we got

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Speaker 1: to talk about Washington and politics and all that stuff

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Speaker 1: that happens the making of the sausage. And if we're

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Speaker 1: gonna do that, we're gonna go to our ace, and

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Speaker 1: that is Nathan Dean. He's the senior policy Analyst US

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Speaker 1: Latin America for Bloomberg Intelligence. Bloomberg Intelligence, we got people

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Speaker 1: that just do everything, and we got a guy who

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Speaker 1: is mister Washington, DC, and that's Nathan Dean. He joined

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Speaker 1: us live here in our Bloomberg Interactive Brokers studio. Nathan,

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Speaker 1: where I want to start is kind of with President

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Speaker 1: Biden last week seemingly getting a little tougher with China,

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Speaker 1: but it seems like you kind of pulled some punches there.

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Speaker 1: Talk to us about what Biden did via I think

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Speaker 1: executive order last week with China and kind of what

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Speaker 1: it means.

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Speaker 9: Yeah, exactly. So President Biden put out an executive order

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Speaker 9: essentially directing Treasury to limit or prohibit US investments, so

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Speaker 9: primarily private equity venture capital fund investment into China in

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Speaker 9: certain sectors like quantum computing, AI, artificial I'm sorry, semiconductors. Now,

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Speaker 9: this was a much narrower order than what had previously

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Speaker 9: been anticipated, so I think the markets were actually kind

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Speaker 9: of happy with that. We don't think there's going to

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Speaker 9: be that much of an impact here, you know, most

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Speaker 9: of I think if you look at the private equity

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Speaker 9: firms today, the big ones, they're about two percent below

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Speaker 9: in terms of total assets with exposure to China. So

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Speaker 9: this is really just a symbolism executive order. Now the

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Speaker 9: Treasury has to implement it, so things could change, and

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Speaker 9: with anything in the US China relations, you know, Biden

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Speaker 9: can always pull the plug if you know it suits

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Speaker 9: as well.

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Speaker 2: You did have the at the end of last month,

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Speaker 2: the House Select Committee on the Chinese Communist Party. Oh

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Speaker 2: that's a Is that really the name? The House Select

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Speaker 2: Committee on the Chinese Yeah, it's lucky they threw the

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Speaker 2: word communist in there, so we know how they feel

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Speaker 2: about them, right, that's a little bit loaded. They they

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Speaker 2: alleged that Blackrock is investing in Chinese companies acting against

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Speaker 2: US interest. Now I'm guessing this is a Republican controlled committee.

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Speaker 2: Obviously those guys don't like Larry Fink. He's like the

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Speaker 2: new George Soros for a lot on the right. But

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Speaker 2: we had a story by Sila brush Out yesterday. I

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Speaker 2: said Blackrock, MSCI and other firms are bracing for tighter oversight.

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Speaker 2: Is that is that talk on Capitol Hill going after

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Speaker 2: these big, big Wall Street fund managers.

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Speaker 9: Absolutely, And to your point, it's actually a bipartisan committee

437
00:21:07,359 --> 00:21:09,840
Speaker 9: because being seen tough on China is good politics no

438
00:21:09,840 --> 00:21:12,399
Speaker 9: matter who you are. So you know, when President Biden

439
00:21:12,400 --> 00:21:14,320
Speaker 9: put out his order, we saw a statement from that

440
00:21:14,359 --> 00:21:17,320
Speaker 9: committee from both parties essentially saying that this could have

441
00:21:17,359 --> 00:21:19,520
Speaker 9: gone farther, and they wished it to have gone further. Now,

442
00:21:19,560 --> 00:21:22,000
Speaker 9: the question about Blackrock and the other firms is what

443
00:21:22,119 --> 00:21:25,320
Speaker 9: is considered oversight and what is actually going to happen.

444
00:21:25,640 --> 00:21:28,720
Speaker 9: Now that committee cannot write legislation. They need other committees

445
00:21:28,760 --> 00:21:32,200
Speaker 9: to do that. And with a Republican House, a Democratic Senate,

446
00:21:32,520 --> 00:21:36,159
Speaker 9: and a president who also has to stare Juginepigi in

447
00:21:36,160 --> 00:21:39,480
Speaker 9: the face at certain you know events. You know, I'm

448
00:21:39,520 --> 00:21:43,159
Speaker 9: not sure there's actually going to be actionable concern for

449
00:21:43,240 --> 00:21:46,679
Speaker 9: those firms, So it's mostly headline risk. Just always keep

450
00:21:46,720 --> 00:21:49,280
Speaker 9: in mind that when it comes to China, Congress loves

451
00:21:49,280 --> 00:21:51,600
Speaker 9: to be tough, but it's the White House that actually

452
00:21:51,600 --> 00:21:53,240
Speaker 9: pulls things back and moderates it.

453
00:21:53,280 --> 00:21:55,640
Speaker 2: Well, the White House, I mean Biden last week said

454
00:21:56,080 --> 00:21:59,520
Speaker 2: that the Communist Party are bad folks, right, he said

455
00:21:59,720 --> 00:22:01,640
Speaker 2: the best Elton wrote initiative, he called that the Debt

456
00:22:01,640 --> 00:22:02,639
Speaker 2: and News initiative.

457
00:22:02,960 --> 00:22:05,879
Speaker 9: Well, there's a difference between calling somebody bad folks and

458
00:22:06,040 --> 00:22:09,280
Speaker 9: actually creating a trade deal or you know, sanctions and

459
00:22:09,320 --> 00:22:12,320
Speaker 9: so forth that actually, you know, changes what we here

460
00:22:12,359 --> 00:22:14,199
Speaker 9: in New York City are trading on.

461
00:22:14,560 --> 00:22:16,920
Speaker 1: All Right, you're down in DC, better or worse, you're

462
00:22:16,920 --> 00:22:18,959
Speaker 1: in the swamp. You're part of it. Actually, quite frankly,

463
00:22:19,520 --> 00:22:22,399
Speaker 1: to be honest, what is what is the feeling in

464
00:22:22,480 --> 00:22:26,080
Speaker 1: DC about China? How worried should the world be about

465
00:22:26,200 --> 00:22:27,880
Speaker 1: us and China? What's the feeling in DC?

466
00:22:28,400 --> 00:22:30,560
Speaker 9: So, you know, there was this thought of, you know,

467
00:22:30,840 --> 00:22:33,040
Speaker 9: will we get into a war over a Taiwan and

468
00:22:33,080 --> 00:22:36,040
Speaker 9: we have a national security analyst who has been writing

469
00:22:36,040 --> 00:22:37,040
Speaker 9: about this on the terminal.

470
00:22:37,200 --> 00:22:40,120
Speaker 1: The general thought on Washington is we're still years away.

471
00:22:40,160 --> 00:22:42,000
Speaker 9: I mean that this is not something that you can

472
00:22:42,040 --> 00:22:45,280
Speaker 9: anticipate will happen in the next few years, you know.

473
00:22:45,359 --> 00:22:47,159
Speaker 9: And when it comes to how do you approach this

474
00:22:47,240 --> 00:22:50,840
Speaker 9: in terms of a market perspective, you know, it's sort

475
00:22:50,880 --> 00:22:53,960
Speaker 9: of something that like everything that we've seen before has

476
00:22:54,000 --> 00:22:56,479
Speaker 9: happened in the past. I mean, there's really you know,

477
00:22:56,800 --> 00:22:59,000
Speaker 9: there's not been a lot of actions from China that

478
00:22:59,119 --> 00:23:01,760
Speaker 9: haven't been actually done ten years ago, fifteen years ago,

479
00:23:01,840 --> 00:23:04,600
Speaker 9: so forth. So you know, we're just still in this

480
00:23:04,640 --> 00:23:07,760
Speaker 9: weight and see mode. I think most if you talk

481
00:23:07,840 --> 00:23:10,800
Speaker 9: to most Congress folks, they're just rather happy to blast

482
00:23:10,880 --> 00:23:12,640
Speaker 9: China and get the good politics from it.

483
00:23:13,080 --> 00:23:16,399
Speaker 2: I'm pretty excited because Ohio looks like it's going to

484
00:23:16,440 --> 00:23:19,440
Speaker 2: be the next state to legalize marijuana, and this is

485
00:23:19,480 --> 00:23:22,480
Speaker 2: something that we're following very closely. Right of course, for

486
00:23:22,560 --> 00:23:25,199
Speaker 2: recreational use, that would be the twenty fourth state now

487
00:23:25,320 --> 00:23:32,320
Speaker 2: still federally illegal. And Nathan, you follow closely the Safe

488
00:23:32,359 --> 00:23:34,959
Speaker 2: Banking Act, which I think is actually moving slowly enough

489
00:23:35,040 --> 00:23:37,520
Speaker 2: that following it closely is no problem, right, But the

490
00:23:37,600 --> 00:23:43,080
Speaker 2: cool thing about Ohio is Shared Brown is our senator,

491
00:23:43,320 --> 00:23:45,920
Speaker 2: the Senator from the Great State of Ohio, and he's

492
00:23:46,000 --> 00:23:49,520
Speaker 2: also the chairman of the Senate Banking Committee. So if

493
00:23:49,560 --> 00:23:52,080
Speaker 2: it's legal in his home state, does he have then

494
00:23:52,200 --> 00:23:56,520
Speaker 2: more I guess covered a push for broader legalization federally.

495
00:23:56,760 --> 00:23:59,640
Speaker 9: Yeah. I mean, if Shared Brown wanted this thing done,

496
00:23:59,680 --> 00:24:02,480
Speaker 9: he could have it done today. I mean, there's nothing

497
00:24:02,560 --> 00:24:05,399
Speaker 9: that is prohibiting the Safe Banking Act other than Shared

498
00:24:05,440 --> 00:24:08,160
Speaker 9: Brown and a couple of other senior senators. I'm both

499
00:24:08,200 --> 00:24:10,359
Speaker 9: parties when it comes to the Safe Banking Act. The

500
00:24:10,400 --> 00:24:13,880
Speaker 9: problem they have is or the bill has, is timing

501
00:24:14,000 --> 00:24:16,400
Speaker 9: and the procedures. Now, there's a lot of people hoping

502
00:24:16,480 --> 00:24:18,359
Speaker 9: that the Safe Banking Act goes as part of the

503
00:24:18,400 --> 00:24:20,800
Speaker 9: funding bill that is going to come up to September.

504
00:24:21,000 --> 00:24:23,320
Speaker 9: Now that's most likely going to end in a government shutdown,

505
00:24:23,320 --> 00:24:26,360
Speaker 9: and Speaker McCarthy was talking about having a quick continuing,

506
00:24:26,840 --> 00:24:30,800
Speaker 9: continuing lose resolution into December. That means the Safe Banking

507
00:24:30,880 --> 00:24:32,440
Speaker 9: Act probably won't be assigned to that.

508
00:24:32,760 --> 00:24:34,240
Speaker 1: Then you get into December.

509
00:24:33,880 --> 00:24:37,680
Speaker 9: There's only eight days where Congress is meeting per month, October, November, December,

510
00:24:37,920 --> 00:24:40,440
Speaker 9: and then we're in election season. So I just I'm

511
00:24:40,480 --> 00:24:42,800
Speaker 9: not sure the Safe Banking Act actually has a vehicle

512
00:24:42,840 --> 00:24:45,960
Speaker 9: to get the passage unless Shared Brown steps up and

513
00:24:46,000 --> 00:24:48,840
Speaker 9: says I want this done today. And I have not

514
00:24:48,920 --> 00:24:50,920
Speaker 9: seen anything that says that he's in. You know, he's

515
00:24:50,960 --> 00:24:53,600
Speaker 9: been a lot of he's been flirting a lot of yeah,

516
00:24:53,680 --> 00:24:56,320
Speaker 9: well I like this, but also this and so forth.

517
00:24:56,760 --> 00:24:59,880
Speaker 9: And there's a whole issue right now on Senator Jack.

518
00:25:00,160 --> 00:25:02,639
Speaker 9: It's been trying to negotiate with Republicans on and they

519
00:25:02,680 --> 00:25:03,959
Speaker 9: haven't made any headway on that.

520
00:25:04,640 --> 00:25:06,920
Speaker 1: What are you focusing on down there in DC legislation

521
00:25:06,960 --> 00:25:09,520
Speaker 1: wise or otherwise that Matt and I are totally ignorant of.

522
00:25:09,680 --> 00:25:11,920
Speaker 2: Well, the shutdown, for one, I mean just said, yeah,

523
00:25:11,960 --> 00:25:12,400
Speaker 2: that's big.

524
00:25:12,520 --> 00:25:16,600
Speaker 9: Well the shutdown is actually we you know, we dust

525
00:25:16,640 --> 00:25:18,920
Speaker 9: off our note every two years when this comes out,

526
00:25:19,119 --> 00:25:21,800
Speaker 9: and when it comes to the shutdown, markets get scared

527
00:25:21,840 --> 00:25:24,800
Speaker 9: within the first two days, and then once they realize

528
00:25:24,840 --> 00:25:28,040
Speaker 9: that the economic impact of a short term shutdown isn't

529
00:25:28,040 --> 00:25:30,360
Speaker 9: all that great, markets actually go up. If you look

530
00:25:30,359 --> 00:25:32,399
Speaker 9: at the thirty day shutdown that happened under the President

531
00:25:32,400 --> 00:25:36,120
Speaker 9: of Trump administration, the markets actually were pretty much fine

532
00:25:36,160 --> 00:25:38,560
Speaker 9: with it. And if you're invested in the contractors. Well,

533
00:25:38,600 --> 00:25:41,440
Speaker 9: most contractors, at least the big ones, have eighteen months,

534
00:25:41,440 --> 00:25:44,119
Speaker 9: two year, two and a half year contracts. So the

535
00:25:44,119 --> 00:25:47,640
Speaker 9: only people that are harmed are the contractors work in Washington,

536
00:25:47,720 --> 00:25:49,960
Speaker 9: DC and those of us who can't take our kids.

537
00:25:49,800 --> 00:25:50,280
Speaker 4: To the zoo.

538
00:25:50,880 --> 00:25:53,000
Speaker 1: See I mean when Nake and Deane you can go

539
00:25:53,080 --> 00:25:57,159
Speaker 1: from China to the US government shutdown, to weed to

540
00:25:57,200 --> 00:25:59,960
Speaker 1: the zoo, to the zoo all in one conversation.

541
00:26:01,400 --> 00:26:05,240
Speaker 5: You're listening to the Team canser Line program Bloomberg Markets

542
00:26:05,280 --> 00:26:08,399
Speaker 5: weekdays at ten am Eastern on Bloomberg dot Com, the

543
00:26:08,480 --> 00:26:11,600
Speaker 5: iHeartRadio app, and the Bloomberg Business app, or listen on

544
00:26:11,680 --> 00:26:13,760
Speaker 5: demand wherever you get your podcasts.

545
00:26:15,600 --> 00:26:18,080
Speaker 1: Joining us since Studios. Doug Baker, He's a portfolio manager

546
00:26:18,240 --> 00:26:22,920
Speaker 1: head of preferred Securities at Nouvene. Doug, I'm an issuer.

547
00:26:23,359 --> 00:26:27,399
Speaker 1: Why would I consider issuing preferred stock? Sell me on it.

548
00:26:27,200 --> 00:26:29,040
Speaker 8: It depends what geography you're talking about.

549
00:26:29,040 --> 00:26:31,080
Speaker 10: It If you're talking about the United States, most SERI

550
00:26:31,160 --> 00:26:35,240
Speaker 10: issuances from the bank and the insurance sector. Those two

551
00:26:35,240 --> 00:26:39,360
Speaker 10: sectors banks in particular issue prefers primarily to meet capital requirements.

552
00:26:39,720 --> 00:26:42,800
Speaker 10: Insurance companies capital requirements, but more importantly, they use prefer

553
00:26:42,880 --> 00:26:44,360
Speaker 10: to help manage their ratings.

554
00:26:44,960 --> 00:26:48,800
Speaker 2: So if I'm an investor, do I care if a

555
00:26:48,840 --> 00:26:50,640
Speaker 2: stock is preferred or not when I buy it?

556
00:26:51,080 --> 00:26:51,359
Speaker 1: Oh?

557
00:26:51,400 --> 00:26:56,000
Speaker 10: Absolutely, I mean, because there are several components to the

558
00:26:56,080 --> 00:26:59,520
Speaker 10: capital stock, and as a preferred investor, you're actually senior

559
00:27:00,080 --> 00:27:02,560
Speaker 10: to the common investors, so that that's first off, So

560
00:27:02,600 --> 00:27:04,479
Speaker 10: compared to the common shareholder, your senior.

561
00:27:05,760 --> 00:27:06,159
Speaker 5: But the.

562
00:27:07,680 --> 00:27:11,119
Speaker 10: Similarity with common stock is oftentimes the payments on a

563
00:27:11,119 --> 00:27:14,199
Speaker 10: preferred or considered dividends. So for individuals you get that

564
00:27:14,240 --> 00:27:17,080
Speaker 10: beneficial tax treatment a lot of instances. So so you're

565
00:27:17,200 --> 00:27:18,760
Speaker 10: you're kind of moving up the capital stack.

566
00:27:19,040 --> 00:27:21,320
Speaker 2: You're a little you're safer in the event of a bust,

567
00:27:21,359 --> 00:27:22,800
Speaker 2: which hopefully doesn't happen.

568
00:27:23,119 --> 00:27:26,840
Speaker 8: Yeah, yeah, you are. Arguably you are on paper you are.

569
00:27:27,000 --> 00:27:29,280
Speaker 8: The reality is that it just depends on the situation.

570
00:27:30,240 --> 00:27:33,720
Speaker 1: Are most preferreds are they? Are they investment grading?

571
00:27:34,680 --> 00:27:37,560
Speaker 8: Well, most of the issuers are in mosted issues. So

572
00:27:37,840 --> 00:27:39,000
Speaker 8: so here's how it works.

573
00:27:39,040 --> 00:27:42,200
Speaker 10: If you look at the issuers on average, you're going

574
00:27:42,240 --> 00:27:44,040
Speaker 10: to find that issuers are around.

575
00:27:43,760 --> 00:27:45,120
Speaker 8: A single a rated institution.

576
00:27:45,640 --> 00:27:48,720
Speaker 10: However, the preferreds on average are triple B rated, and

577
00:27:48,760 --> 00:27:52,119
Speaker 10: it's because they're subordinate in the capital stack the rating agencies,

578
00:27:52,160 --> 00:27:55,080
Speaker 10: because that subordination will knock the ratings down typically four

579
00:27:55,119 --> 00:27:59,320
Speaker 10: to five notches versus the senior ratio of that same issuer.

580
00:27:59,400 --> 00:28:02,680
Speaker 8: So you have exposure to investment grade rated companies.

581
00:28:03,000 --> 00:28:07,120
Speaker 10: However, the securities may not necessarily reflect that through their rating.

582
00:28:07,119 --> 00:28:09,880
Speaker 1: All right, So we had the little mini bank crisis.

583
00:28:10,320 --> 00:28:12,120
Speaker 1: The big banks. Oh, everybody's going to pay the price

584
00:28:12,160 --> 00:28:15,520
Speaker 1: with some I guess higher credit, I guess hire more,

585
00:28:15,560 --> 00:28:17,439
Speaker 1: more and more restrictions. How does that impact the preferred

586
00:28:17,440 --> 00:28:20,640
Speaker 1: market and their use of you know, the bank's use

587
00:28:20,680 --> 00:28:21,359
Speaker 1: of the preferred market.

588
00:28:21,480 --> 00:28:23,240
Speaker 10: So it's going to be, in our opinion, a lot

589
00:28:23,359 --> 00:28:28,120
Speaker 10: like two thousand and seven eighty nine, where horrible, horrible

590
00:28:28,160 --> 00:28:31,320
Speaker 10: situation right and earlier this year not as bad, but

591
00:28:31,359 --> 00:28:34,880
Speaker 10: still pretty traumatic. But looking forward, it's going to create

592
00:28:34,880 --> 00:28:38,560
Speaker 10: a great opportunity. We're going to see the regulatory environment change,

593
00:28:38,640 --> 00:28:41,520
Speaker 10: which is going to benefit the credit investor, which includes

594
00:28:41,560 --> 00:28:43,720
Speaker 10: the preferred investor. And one of the things that we're

595
00:28:43,720 --> 00:28:46,680
Speaker 10: seeing now is a big build in capital or likely

596
00:28:46,680 --> 00:28:49,600
Speaker 10: a big build in common equity capital going forward. So

597
00:28:50,120 --> 00:28:52,320
Speaker 10: it's going to be at the expense of the common shareholder.

598
00:28:52,360 --> 00:28:54,600
Speaker 10: It's going to dilute the return on equity, but it's

599
00:28:54,640 --> 00:28:58,360
Speaker 10: going to enhance the credit profile for the credit investor,

600
00:28:58,360 --> 00:28:59,800
Speaker 10: which includes the preferred investor.

601
00:29:00,800 --> 00:29:01,680
Speaker 2: So what do you like?

602
00:29:02,280 --> 00:29:04,480
Speaker 8: What do we like? We like the big banks.

603
00:29:04,720 --> 00:29:07,320
Speaker 10: We think that there are selective opportunities even in the

604
00:29:07,320 --> 00:29:10,080
Speaker 10: regional bank space. We know that that's kind of you know,

605
00:29:11,280 --> 00:29:13,840
Speaker 10: some people think that the regional banks just across the

606
00:29:13,880 --> 00:29:14,360
Speaker 10: board are.

607
00:29:15,920 --> 00:29:17,200
Speaker 8: Risky area of our market.

608
00:29:17,480 --> 00:29:19,880
Speaker 10: But if you actually do the work, you do the

609
00:29:19,920 --> 00:29:23,400
Speaker 10: objective analysis, things like commercial real estate, while they're risks,

610
00:29:23,720 --> 00:29:26,560
Speaker 10: a lot of these headlines that we had earlier this year,

611
00:29:27,080 --> 00:29:29,480
Speaker 10: you apply some analysis, you do some stress testing on it.

612
00:29:29,560 --> 00:29:32,720
Speaker 10: Indeed a risk, but more from an earning's perspective, right.

613
00:29:32,800 --> 00:29:36,920
Speaker 10: So we also like some of the spaces outside of

614
00:29:36,960 --> 00:29:40,640
Speaker 10: our larger sectors banks insurance, like aircraft lessors, So you

615
00:29:40,680 --> 00:29:44,120
Speaker 10: have aircraft leasing companies that are benefiting from this tremendous

616
00:29:44,120 --> 00:29:46,360
Speaker 10: boom in air travel and they're the ones that are

617
00:29:46,360 --> 00:29:50,040
Speaker 10: financing the airplanes. And so you do have some opportunities

618
00:29:50,080 --> 00:29:52,680
Speaker 10: in spaces outside of banks insurance companies to play the

619
00:29:52,720 --> 00:29:56,720
Speaker 10: preferred market. But at the end of the day, most

620
00:29:56,720 --> 00:29:58,800
Speaker 10: of your exposure and preferreds is going to be financial

621
00:29:58,800 --> 00:29:59,600
Speaker 10: services related.

622
00:29:59,840 --> 00:30:02,520
Speaker 1: Right, So when I if I buy a preferred stock,

623
00:30:02,760 --> 00:30:04,480
Speaker 1: I get a fixed rate a floating rate. He does

624
00:30:04,480 --> 00:30:04,920
Speaker 1: it all work?

625
00:30:04,960 --> 00:30:07,520
Speaker 10: It depends what you buy, okay, And that's where I

626
00:30:07,520 --> 00:30:10,520
Speaker 10: think active management can really help out, because there are

627
00:30:10,600 --> 00:30:12,920
Speaker 10: preferreds out there that will just pay the same fixed

628
00:30:13,000 --> 00:30:14,960
Speaker 10: rate coupon over the entire life of the security.

629
00:30:15,280 --> 00:30:17,200
Speaker 8: And if that's a perpetual.

630
00:30:16,640 --> 00:30:19,080
Speaker 10: Security, a lot of investors don't realize they're taking a

631
00:30:19,120 --> 00:30:21,880
Speaker 10: lot of duration risks or interest rate sensitivity risk with that.

632
00:30:22,280 --> 00:30:25,040
Speaker 10: But there's also a large population of securities that they

633
00:30:25,040 --> 00:30:27,440
Speaker 10: may start out paying a fixed rate coupon, but down

634
00:30:27,480 --> 00:30:30,040
Speaker 10: the road that coupon can adjust, and not only does

635
00:30:30,040 --> 00:30:32,320
Speaker 10: that allow you to benefit from a rise and rate environment,

636
00:30:32,680 --> 00:30:36,440
Speaker 10: but it also helps you control that interest rate risk,

637
00:30:36,560 --> 00:30:39,200
Speaker 10: which is really I think the primary risk of those

638
00:30:39,240 --> 00:30:40,360
Speaker 10: fixed rate structures.

639
00:30:41,400 --> 00:30:44,440
Speaker 1: All Right, So what's the risk to the preferred market here?

640
00:30:44,440 --> 00:30:47,720
Speaker 1: I mean, I guess I got concentration risk with the financials.

641
00:30:47,840 --> 00:30:49,840
Speaker 10: Yeah, So that's the first one that we mentioned, and

642
00:30:49,880 --> 00:30:51,400
Speaker 10: then the second one we were just touching on to

643
00:30:51,600 --> 00:30:55,520
Speaker 10: interest rate risk. Okay, Now, in our opinion, we think

644
00:30:55,560 --> 00:30:59,400
Speaker 10: that the interest rate risk is probably the one that

645
00:30:59,440 --> 00:31:03,120
Speaker 10: we can map the best. Truly, though, when it comes

646
00:31:03,120 --> 00:31:06,400
Speaker 10: to financial service exposure, there's only so much we feel

647
00:31:06,480 --> 00:31:10,560
Speaker 10: you can diversify away from that, so we do oftentimes.

648
00:31:10,560 --> 00:31:13,680
Speaker 10: When we're having these these discussions with investors and they

649
00:31:13,800 --> 00:31:15,680
Speaker 10: like preferreds, they want to add preferreds, one of the

650
00:31:15,680 --> 00:31:17,320
Speaker 10: things that we ask them to do is, hey, check

651
00:31:17,360 --> 00:31:19,840
Speaker 10: the rest of your client's portfolio. See how much other

652
00:31:19,920 --> 00:31:23,920
Speaker 10: financial service exposure is there already, because you don't want

653
00:31:23,920 --> 00:31:26,400
Speaker 10: to have them take an unintended bet on a sector

654
00:31:26,480 --> 00:31:28,160
Speaker 10: unless they mean to do so.

655
00:31:29,080 --> 00:31:30,200
Speaker 2: How do you first get into this?

656
00:31:30,640 --> 00:31:30,880
Speaker 5: Was it?

657
00:31:31,040 --> 00:31:32,840
Speaker 2: Were you doing your CFA and you're like, hey, I

658
00:31:32,920 --> 00:31:33,480
Speaker 2: like this section.

659
00:31:34,080 --> 00:31:36,680
Speaker 1: Well he went to the Here we Go University, Chicago

660
00:31:36,720 --> 00:31:39,720
Speaker 1: Graduate School of the Business, which I love. The GSB Moniker.

661
00:31:39,920 --> 00:31:42,840
Speaker 1: They've now received the kajillion dollars from mister Booth, so

662
00:31:42,880 --> 00:31:44,120
Speaker 1: it's a Booth School of Business.

663
00:31:44,160 --> 00:31:44,640
Speaker 2: I get it.

664
00:31:44,920 --> 00:31:48,680
Speaker 1: But I'm a GS big guy. There's not a bum

665
00:31:48,840 --> 00:31:51,960
Speaker 1: I've done like a dozen Chicago NBA guys. There's not

666
00:31:52,000 --> 00:31:52,480
Speaker 1: a bumm in THEO.

667
00:31:52,600 --> 00:31:54,000
Speaker 2: But they're they're all math people.

668
00:31:54,160 --> 00:31:56,560
Speaker 1: Yeah, well, yeah, they're geeky that way the math even

669
00:31:56,560 --> 00:31:59,280
Speaker 1: our listen there are Bramowitz, who is super smart. She's

670
00:31:59,480 --> 00:32:03,760
Speaker 1: undergraduate at Chicago. So they're all good. So anyway, but but.

671
00:32:03,600 --> 00:32:06,360
Speaker 2: Prefers, did you pick this or were you at Neuvien?

672
00:32:06,400 --> 00:32:08,280
Speaker 2: And they were like, somebody's got to do a preferred man,

673
00:32:08,320 --> 00:32:08,600
Speaker 2: it's you.

674
00:32:09,040 --> 00:32:11,640
Speaker 10: I hate to say it, but it's the latter. So

675
00:32:11,920 --> 00:32:13,520
Speaker 10: when I first came into Nouvene, I was actually a

676
00:32:13,560 --> 00:32:17,360
Speaker 10: derivatives guy. Yes, would you sure? And I don't tell

677
00:32:17,360 --> 00:32:19,880
Speaker 10: many people this, but I was a derivative sales.

678
00:32:19,520 --> 00:32:21,000
Speaker 8: Guy at Lehman Brothers.

679
00:32:21,160 --> 00:32:23,480
Speaker 2: Okay, so that doesn't come up very often anymore, you know,

680
00:32:23,560 --> 00:32:23,800
Speaker 2: you don't.

681
00:32:23,920 --> 00:32:24,479
Speaker 8: That's awesome.

682
00:32:24,600 --> 00:32:26,720
Speaker 1: So if I'm a banker, If I'm a banker and

683
00:32:26,760 --> 00:32:30,120
Speaker 1: I'm doing a new issue for Wells Fargo, You're like

684
00:32:30,160 --> 00:32:32,280
Speaker 1: one of my first calls. Right, you're a big buyer

685
00:32:32,320 --> 00:32:32,960
Speaker 1: in the marketplace.

686
00:32:33,000 --> 00:32:35,160
Speaker 8: I would hope, I would hope we're up there. Yeah.

687
00:32:35,280 --> 00:32:39,280
Speaker 10: So we're typically having the conversations with syndicate desks in

688
00:32:39,320 --> 00:32:40,440
Speaker 10: advance of a deal coming.

689
00:32:40,520 --> 00:32:43,040
Speaker 1: They're whining and dining you. They're the guy. You're the

690
00:32:43,080 --> 00:32:44,520
Speaker 1: guy that they need to get to.

691
00:32:44,960 --> 00:32:47,680
Speaker 10: Yeahs kind of gone the way of the dinosaur.

692
00:32:47,800 --> 00:32:51,000
Speaker 8: We don't get this. But what we do is we

693
00:32:51,040 --> 00:32:52,160
Speaker 8: give them the feedback.

694
00:32:52,240 --> 00:32:54,840
Speaker 10: We're going to be one of the largest typically players

695
00:32:54,840 --> 00:32:57,000
Speaker 10: in a book or in a deal for someone like that,

696
00:32:57,600 --> 00:32:59,760
Speaker 10: you know, so our larger competitors are gonna get the

697
00:32:59,760 --> 00:33:01,800
Speaker 10: phone call too. But the nice thing about that is

698
00:33:02,120 --> 00:33:04,760
Speaker 10: we get to help drive the terms of the deal

699
00:33:05,080 --> 00:33:06,600
Speaker 10: in favor of our investors.

700
00:33:06,600 --> 00:33:08,200
Speaker 8: So yeah, we're typically the.

701
00:33:08,080 --> 00:33:10,520
Speaker 10: Ones that will get, you know, the phone calls before

702
00:33:10,520 --> 00:33:12,720
Speaker 10: the deal really comes to market to get a you know,

703
00:33:12,920 --> 00:33:14,200
Speaker 10: temperature check of what we're looking for.

704
00:33:14,280 --> 00:33:15,880
Speaker 2: So when Paul was on the street, it was all

705
00:33:15,920 --> 00:33:18,320
Speaker 2: and I'm sure when you started as well, you were

706
00:33:18,360 --> 00:33:21,560
Speaker 2: flying everywhere twice a week, you were living out of

707
00:33:21,560 --> 00:33:25,520
Speaker 2: a hotel half the time, constantly face to face meetings.

708
00:33:25,600 --> 00:33:27,200
Speaker 2: And now is it completely changed.

709
00:33:27,360 --> 00:33:29,920
Speaker 10: It's actually going back to that oh yeah, back, yeah,

710
00:33:30,080 --> 00:33:33,120
Speaker 10: So we're doing I mean, I think we're the virtual

711
00:33:33,520 --> 00:33:37,840
Speaker 10: you know kind of remote meetings are That's going to

712
00:33:37,880 --> 00:33:39,840
Speaker 10: be still a big component of it. But yeah, I

713
00:33:39,880 --> 00:33:42,040
Speaker 10: think feet on the ground and I think getting involved

714
00:33:42,080 --> 00:33:44,080
Speaker 10: with folks face to face in a room.

715
00:33:44,720 --> 00:33:46,719
Speaker 8: Look, there's just better communication.

716
00:33:46,240 --> 00:33:48,480
Speaker 10: That way, and it also builds a level of trust

717
00:33:48,520 --> 00:33:50,400
Speaker 10: that Hey, you know, it's easy for me to say

718
00:33:50,400 --> 00:33:52,800
Speaker 10: on the phone, like, yeah, we're gonna have interest at

719
00:33:52,840 --> 00:33:55,200
Speaker 10: this type of level, but to do that in person,

720
00:33:55,400 --> 00:33:57,360
Speaker 10: I think there's just a different connection there. And I

721
00:33:57,360 --> 00:33:59,520
Speaker 10: think having that level of trust with you know, our

722
00:33:59,560 --> 00:34:03,080
Speaker 10: partners on the syndicate side, with our investors is truly important.

723
00:34:03,080 --> 00:34:05,800
Speaker 10: So that FaceTime, that in person travel has really picked up,

724
00:34:05,920 --> 00:34:07,360
Speaker 10: i would say, over the past years.

725
00:34:07,360 --> 00:34:09,160
Speaker 1: So, how many new issues do you guys at Moving

726
00:34:09,239 --> 00:34:11,520
Speaker 1: buy like you for your preferred fund?

727
00:34:11,640 --> 00:34:13,840
Speaker 10: Like, there haven't been many lately, and this out this

728
00:34:13,920 --> 00:34:16,120
Speaker 10: is one of the technicals to our market that's been

729
00:34:16,239 --> 00:34:18,919
Speaker 10: incredibly supportive valuations and it's going to stay this way.

730
00:34:19,040 --> 00:34:22,520
Speaker 10: We've had more preferreds redeemed this year than new issue

731
00:34:22,520 --> 00:34:25,359
Speaker 10: can keep up with. So yeah, and part of it

732
00:34:25,400 --> 00:34:28,200
Speaker 10: is that, you know, as the economy slows, our outlook

733
00:34:28,239 --> 00:34:30,040
Speaker 10: is banks aren't going to need as much capital because

734
00:34:30,040 --> 00:34:34,240
Speaker 10: they're balance sheet shrinks, right, not as many people want loans,

735
00:34:34,600 --> 00:34:36,480
Speaker 10: and if they're not making loans all, the size of

736
00:34:36,560 --> 00:34:39,520
Speaker 10: balance sheet shrinks, and their capital is measured as a

737
00:34:39,560 --> 00:34:42,919
Speaker 10: percent of their balance sheet. So we're seeing more redemptions

738
00:34:42,960 --> 00:34:45,360
Speaker 10: and we're seeing new issuance, but when new issuance comes,

739
00:34:46,120 --> 00:34:49,279
Speaker 10: use of proceeds as almost to refinance or to call

740
00:34:49,320 --> 00:34:50,520
Speaker 10: an existing preferred.

741
00:34:50,320 --> 00:34:52,799
Speaker 2: And it gets snapped up because people are looking for

742
00:34:52,840 --> 00:34:53,880
Speaker 2: the prefers. There's no supply.

743
00:34:53,960 --> 00:34:56,319
Speaker 10: They're looking to reinvest their cash, and luckily for them,

744
00:34:56,320 --> 00:34:58,759
Speaker 10: they're in this interest rate environment. The structures that we're

745
00:34:58,760 --> 00:35:02,359
Speaker 10: seen are very attractive, talking mid seven percent type coupons

746
00:35:02,800 --> 00:35:06,000
Speaker 10: with adjustable rate, you know, a component down the road

747
00:35:06,040 --> 00:35:06,440
Speaker 10: after the.

748
00:35:06,360 --> 00:35:10,040
Speaker 8: First call date. You know, it would be a little

749
00:35:10,040 --> 00:35:10,960
Speaker 8: bit more concerned if we.

750
00:35:10,880 --> 00:35:13,200
Speaker 10: Were in a low interest rate environment and folks didn't

751
00:35:13,239 --> 00:35:15,720
Speaker 10: have this attractive opportunity. We do think that the Yeffords

752
00:35:15,760 --> 00:35:17,600
Speaker 10: are coming to market today are going to be a

753
00:35:17,680 --> 00:35:19,600
Speaker 10: rare vintage because of these higher coupons.

754
00:35:19,600 --> 00:35:20,680
Speaker 8: He's attractive structure.

755
00:35:20,760 --> 00:35:24,440
Speaker 10: So so more often than not, we're participating in the

756
00:35:24,440 --> 00:35:25,480
Speaker 10: new deals that we do see.

757
00:35:25,560 --> 00:35:27,960
Speaker 1: All Right, Doug Baker, he is our go to preferred guy, right,

758
00:35:28,000 --> 00:35:30,120
Speaker 1: He's our go to preferred guy, portfolio manager, the head

759
00:35:30,120 --> 00:35:32,080
Speaker 1: of preferred securities at NOVENE.

760
00:35:32,360 --> 00:35:35,480
Speaker 5: You're listening to the tape. Catch are live program Bloomberg

761
00:35:35,520 --> 00:35:39,120
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio. The

762
00:35:39,160 --> 00:35:42,399
Speaker 5: tune in app Bloomberg dot Com and the Bloomberg Business App.

763
00:35:42,440 --> 00:35:45,279
Speaker 5: You can also listen live on Amazon Alexa from our

764
00:35:45,280 --> 00:35:50,320
Speaker 5: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.

765
00:35:51,040 --> 00:35:54,200
Speaker 1: Let's get right to our next guest, Caroline Frederickson, Distinguished

766
00:35:54,320 --> 00:35:58,239
Speaker 1: Visiting Professor at Georgetown Law. Caroline, thanks so much for

767
00:35:58,320 --> 00:36:00,000
Speaker 1: joining us. We love to start as it relates to

768
00:36:00,400 --> 00:36:05,400
Speaker 1: former President Trump and his legal challenges. Why maybe just

769
00:36:05,400 --> 00:36:07,360
Speaker 1: give us a sense of kind of where his greatest

770
00:36:07,400 --> 00:36:11,160
Speaker 1: exposure is with these four issues that he's facing. From

771
00:36:11,160 --> 00:36:13,440
Speaker 1: your perspective, well, I.

772
00:36:13,360 --> 00:36:16,480
Speaker 7: Mean, they're actually therefore prosecutions, but there are a lot

773
00:36:16,560 --> 00:36:22,480
Speaker 7: more than four issues, so you know, it looks I mean,

774
00:36:22,480 --> 00:36:26,120
Speaker 7: I guess I would. I would start by talking about

775
00:36:26,120 --> 00:36:30,160
Speaker 7: which are the most consequential. We could look at both

776
00:36:30,200 --> 00:36:33,720
Speaker 7: the cases that are brought in DC. The federal case

777
00:36:34,680 --> 00:36:38,640
Speaker 7: focusing on January sixth, and the Georgia case is really

778
00:36:38,640 --> 00:36:43,680
Speaker 7: being central to the concern that we have about President

779
00:36:43,680 --> 00:36:49,319
Speaker 7: Trump allegedly trying to undermine our very democratic system. The

780
00:36:49,360 --> 00:36:52,839
Speaker 7: other two cases, albeit important, don't have the same kind

781
00:36:52,880 --> 00:36:59,680
Speaker 7: of real existential issues for the United States of America

782
00:37:00,200 --> 00:37:03,839
Speaker 7: continuing to exist as a democracy. Now in terms of

783
00:37:03,880 --> 00:37:08,560
Speaker 7: what the you know, sort of the ultimate greatest danger

784
00:37:08,640 --> 00:37:10,480
Speaker 7: is for Donald Trump. I mean, we'll still have to

785
00:37:10,520 --> 00:37:14,359
Speaker 7: see how this will unfold because we haven't seen either

786
00:37:14,400 --> 00:37:16,839
Speaker 7: of the prosecutors lay out their case. I think they're

787
00:37:17,000 --> 00:37:20,520
Speaker 7: There are a couple of different theories here, and one

788
00:37:20,560 --> 00:37:29,040
Speaker 7: is that the approach taken by the Department of Justice,

789
00:37:29,320 --> 00:37:33,279
Speaker 7: which has been not to name the the the so

790
00:37:33,360 --> 00:37:38,600
Speaker 7: far unindicted co conspirators, but to really move in a

791
00:37:38,640 --> 00:37:42,399
Speaker 7: different in a different and more focused way, is one

792
00:37:42,440 --> 00:37:45,919
Speaker 7: strategy to try and really focus the attention on Donald Trump,

793
00:37:46,080 --> 00:37:49,479
Speaker 7: perhaps behind the scenes, to try and negotiate with those

794
00:37:49,520 --> 00:37:51,719
Speaker 7: who haven't been named yet in the federal lawsuit, to

795
00:37:51,800 --> 00:37:54,120
Speaker 7: include some of the same people who are actually named

796
00:37:55,200 --> 00:38:01,560
Speaker 7: in the Georgia State prosecution, the Fulton County prosecutor in

797
00:38:01,600 --> 00:38:06,480
Speaker 7: that case. You know, you have nineteen defendants and forty

798
00:38:06,520 --> 00:38:11,840
Speaker 7: one charges, and I think they're taking a very different strategy,

799
00:38:11,840 --> 00:38:15,160
Speaker 7: which is very narrative, which is telling a story and

800
00:38:15,320 --> 00:38:19,880
Speaker 7: working on the potential of the defendants. They're turning on

801
00:38:19,960 --> 00:38:23,160
Speaker 7: each other, some of them taking plea deals and so forth.

802
00:38:23,239 --> 00:38:26,279
Speaker 7: So they're both very consequential for the president. It's really

803
00:38:26,320 --> 00:38:31,520
Speaker 7: hard to say they have both significant prison time for

804
00:38:31,640 --> 00:38:33,160
Speaker 7: you if he is prosecuted.

805
00:38:33,400 --> 00:38:37,480
Speaker 2: I want to ask Professor about something I saw on

806
00:38:37,520 --> 00:38:39,880
Speaker 2: the Times over the weekend that I think a lot

807
00:38:39,920 --> 00:38:44,400
Speaker 2: of people probably read, bringing up the possibility that according

808
00:38:44,400 --> 00:38:48,360
Speaker 2: to the original meeting of the fourteenth Amendment, Donald Trump

809
00:38:48,600 --> 00:38:52,040
Speaker 2: is ineligible to hold government office. And there was a

810
00:38:52,080 --> 00:38:56,440
Speaker 2: paper written by a couple of a couple of I

811
00:38:56,440 --> 00:39:01,200
Speaker 2: guess attorneys that are or were associated with the Federalist Society.

812
00:39:01,320 --> 00:39:04,560
Speaker 2: So this is coming from a fairly conservative group, right,

813
00:39:05,080 --> 00:39:11,520
Speaker 2: in which they argue that because he essentially engaged in insurrection,

814
00:39:12,080 --> 00:39:15,880
Speaker 2: he is barred from holding office due to this amendment

815
00:39:15,920 --> 00:39:18,279
Speaker 2: that was put in place after the Civil War. Does

816
00:39:18,320 --> 00:39:19,840
Speaker 2: that hold any water do you think?

817
00:39:20,640 --> 00:39:22,640
Speaker 7: I think it's a very strong argument. And first of all,

818
00:39:22,640 --> 00:39:24,919
Speaker 7: i'd say they're actually law professors, one of them, Will

819
00:39:24,960 --> 00:39:27,239
Speaker 7: bode Is at the University of.

820
00:39:27,280 --> 00:39:30,920
Speaker 2: Chicago exactly, and Michael Stokes Paulson from the University of

821
00:39:30,920 --> 00:39:31,960
Speaker 2: Saint Thomas.

822
00:39:32,480 --> 00:39:35,759
Speaker 7: And they're very conservative, associated with the Federalist Society, as

823
00:39:35,760 --> 00:39:39,400
Speaker 7: you said, but also originalists. And I think in the

824
00:39:39,480 --> 00:39:42,320
Speaker 7: sense that they that they went back and they looked

825
00:39:42,360 --> 00:39:46,719
Speaker 7: through a lot of the documentation around the around the

826
00:39:46,719 --> 00:39:51,960
Speaker 7: debates around the amendments adoption, and it was clear they

827
00:39:51,960 --> 00:39:56,160
Speaker 7: were not just focused on of those who've been guilty

828
00:39:56,160 --> 00:40:02,440
Speaker 7: of treason during the Civil War the Confederates, but was

829
00:40:02,480 --> 00:40:05,760
Speaker 7: meant to be prospective and keep people who have taken

830
00:40:05,800 --> 00:40:09,879
Speaker 7: an oath of office to the United States from being

831
00:40:09,920 --> 00:40:17,000
Speaker 7: eligible to serve again in such positions of trust. There

832
00:40:17,040 --> 00:40:20,920
Speaker 7: has been one successful effort so far to put some

833
00:40:21,080 --> 00:40:23,120
Speaker 7: keep somebody off the ballot, and that was brought by

834
00:40:23,239 --> 00:40:26,640
Speaker 7: group called Citizens for Responsibility and Ethics in Washington against

835
00:40:27,480 --> 00:40:32,359
Speaker 7: somebody who participated in January sixth insurrection, and they kept

836
00:40:32,440 --> 00:40:37,080
Speaker 7: him from being able to to get elected. So I

837
00:40:37,080 --> 00:40:41,439
Speaker 7: think it's a very strong argument, and I think it's

838
00:40:41,480 --> 00:40:43,319
Speaker 7: going to We're going to see how that will play

839
00:40:43,360 --> 00:40:47,279
Speaker 7: out as election officials take action from parts of.

840
00:40:47,200 --> 00:40:50,439
Speaker 1: The count Carolyn, what's your sense of the timeline here

841
00:40:50,840 --> 00:40:55,800
Speaker 1: with these four cases? When will the first one? I guess,

842
00:40:56,640 --> 00:40:59,919
Speaker 1: I guess, I guess what's the timeline as you understand it?

843
00:41:01,080 --> 00:41:03,719
Speaker 7: Well, it's very fluid right now. I mean, I think

844
00:41:03,960 --> 00:41:10,160
Speaker 7: the Special Prosecutor UH is trying to move forward as

845
00:41:10,239 --> 00:41:14,080
Speaker 7: expeditiously as possible, and it looks like they're going to

846
00:41:14,160 --> 00:41:16,120
Speaker 7: try and get that trial started before the end of

847
00:41:16,120 --> 00:41:18,520
Speaker 7: the year. I mean, these things are you know, UH

848
00:41:19,040 --> 00:41:24,040
Speaker 7: can keep changing. The mar Lago documents case looks like

849
00:41:24,080 --> 00:41:29,960
Speaker 7: it's going to start really underway in spring. The Fulton

850
00:41:30,040 --> 00:41:34,960
Speaker 7: County prosecution in Georgia. I think that's you know, they

851
00:41:35,000 --> 00:41:39,640
Speaker 7: have an interesting schedule that speedy trial rule that means

852
00:41:39,680 --> 00:41:43,479
Speaker 7: that anyone of those defendants can demand speedy trial, which

853
00:41:43,840 --> 00:41:48,200
Speaker 7: can really accelerate the pace of this that prosecution, meaning

854
00:41:48,200 --> 00:41:51,879
Speaker 7: that it could even be starting or you know, mid

855
00:41:52,000 --> 00:41:56,560
Speaker 7: mid fall, you know, October, November and uh, and those

856
00:41:56,640 --> 00:41:59,520
Speaker 7: cases could be divided because they could because some of

857
00:41:59,520 --> 00:42:03,879
Speaker 7: the defendant might commit you'll agree to a plea or

858
00:42:03,920 --> 00:42:05,200
Speaker 7: otherwise get severed.

859
00:42:05,480 --> 00:42:08,200
Speaker 1: All right, well off the obviously fluid situation, as you mentioned,

860
00:42:08,200 --> 00:42:09,719
Speaker 1: will stay on top of it. Thank you very much

861
00:42:09,760 --> 00:42:14,839
Speaker 1: for your time, Caroline Frederickson Distinguish visiting professor at Georgetown Law,

862
00:42:14,920 --> 00:42:16,640
Speaker 1: trying to give us a little bit more clarity as

863
00:42:16,680 --> 00:42:19,960
Speaker 1: this legal issues of the former president continue.

864
00:42:20,120 --> 00:42:23,239
Speaker 5: You're listening to the tape Cat's are Live program Bloomberg

865
00:42:23,320 --> 00:42:26,920
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the

866
00:42:26,960 --> 00:42:30,200
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business app.

867
00:42:30,239 --> 00:42:33,040
Speaker 5: You can also listen live on Amazon Alexa from our

868
00:42:33,080 --> 00:42:38,160
Speaker 5: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.

869
00:42:38,719 --> 00:42:41,719
Speaker 1: All right, let's talk about the housing market. The residential

870
00:42:41,760 --> 00:42:45,080
Speaker 1: real estate market. US mortgage rate climbs to seven point

871
00:42:45,080 --> 00:42:48,600
Speaker 1: one six percent, matching the highest sense two thousand and one.

872
00:42:48,880 --> 00:42:49,800
Speaker 1: That gets your attention.

873
00:42:49,840 --> 00:42:53,080
Speaker 2: Potentially have great credit. Yeah, and that's the gold standard

874
00:42:53,160 --> 00:42:54,759
Speaker 2: mortgage rate, because if you look at bank Rade, we're

875
00:42:54,800 --> 00:42:56,080
Speaker 2: already up over seven and a half.

876
00:42:56,080 --> 00:42:58,120
Speaker 1: That's right, Yeah, that's right. So we need to figure

877
00:42:58,120 --> 00:42:59,600
Speaker 1: out what's happening out there and what it means for

878
00:42:59,640 --> 00:43:02,359
Speaker 1: this market. Lisa's a sturt event. She joins us. She's

879
00:43:02,360 --> 00:43:06,360
Speaker 1: a chief economist at Bright MLS. Lisa, we had some

880
00:43:06,480 --> 00:43:10,880
Speaker 1: housing data come out today. Housing starts pretty strong, I

881
00:43:10,880 --> 00:43:13,319
Speaker 1: guess the housing industries, the homebuilders are trying to meet

882
00:43:13,320 --> 00:43:16,000
Speaker 1: the demand out there. But what's going on in a

883
00:43:16,040 --> 00:43:18,239
Speaker 1: residential real estate market today? How would you characterize it?

884
00:43:19,000 --> 00:43:21,839
Speaker 11: Yeah, it's such a strange market, housing market, isn't it.

885
00:43:21,840 --> 00:43:25,840
Speaker 11: It's housing has really confounded expectations in so many ways.

886
00:43:26,480 --> 00:43:29,760
Speaker 11: You point to the homebuilder data this morning, New housing

887
00:43:29,760 --> 00:43:32,279
Speaker 11: starts are up from a year ago, up from last month.

888
00:43:32,840 --> 00:43:36,759
Speaker 11: We're seeing that home bolders are really responding not only

889
00:43:36,880 --> 00:43:39,680
Speaker 11: to the demand in the housing market, which has stayed

890
00:43:40,080 --> 00:43:43,719
Speaker 11: surprisingly resilient despite those higher mortgage rates, but they're really

891
00:43:43,719 --> 00:43:47,560
Speaker 11: responding to the fact that inventory is really at near

892
00:43:47,680 --> 00:43:51,480
Speaker 11: record lows and there really is so little for prospective

893
00:43:51,520 --> 00:43:54,399
Speaker 11: home barers to choose from. Home builders are ramping up.

894
00:43:54,920 --> 00:43:58,000
Speaker 11: The amount of inventory that's accounted for by new home

895
00:43:58,040 --> 00:44:01,800
Speaker 11: construction is at its highest level really in the last

896
00:44:01,800 --> 00:44:04,920
Speaker 11: couple of decades, and it's been a really strong housing market.

897
00:44:05,080 --> 00:44:07,759
Speaker 11: We may be, though, prepared to see some changes in

898
00:44:07,800 --> 00:44:09,040
Speaker 11: the market as we head into fall.

899
00:44:10,160 --> 00:44:13,600
Speaker 2: So what what do you think the catalyst for that

900
00:44:13,719 --> 00:44:17,000
Speaker 2: will be, Because I don't know what's going to move

901
00:44:17,080 --> 00:44:19,080
Speaker 2: us out of this stalemate that we're kind of in

902
00:44:19,160 --> 00:44:22,680
Speaker 2: right now. Owners who have low mortgages don't want to sell,

903
00:44:23,120 --> 00:44:26,640
Speaker 2: and buyers can't afford the high mortgages or the prices

904
00:44:28,040 --> 00:44:28,680
Speaker 2: right right.

905
00:44:28,719 --> 00:44:31,359
Speaker 11: So you know, we sort of expected back a year ago,

906
00:44:31,400 --> 00:44:34,520
Speaker 11: when the Fed started raising rates and mortgage rates were rising,

907
00:44:34,560 --> 00:44:37,040
Speaker 11: that we would see a real strong pullback in demand,

908
00:44:37,120 --> 00:44:41,040
Speaker 11: maybe home prices would fall, but in fact, aside from

909
00:44:41,719 --> 00:44:45,319
Speaker 11: a slowdown late last year. We've seen buyers back in

910
00:44:45,360 --> 00:44:50,200
Speaker 11: the market in record numbers in the spring, primarily because

911
00:44:50,520 --> 00:44:53,440
Speaker 11: there's just such strong demand for home ownership. A lot

912
00:44:53,440 --> 00:44:56,000
Speaker 11: of folks have record levels of equity in their homes

913
00:44:56,040 --> 00:44:58,400
Speaker 11: that they're able to roll into a home purchase in

914
00:44:58,440 --> 00:45:01,359
Speaker 11: a sense from buying down at higher rate. But as

915
00:45:01,400 --> 00:45:03,680
Speaker 11: you point out, the real reason why home prices have

916
00:45:03,719 --> 00:45:06,959
Speaker 11: remained firm so far is inventory has been locked down,

917
00:45:07,160 --> 00:45:10,120
Speaker 11: as many homeowners are in those sort of golden handcuffs

918
00:45:10,160 --> 00:45:13,200
Speaker 11: of lower rates. But I think we're at a point

919
00:45:13,239 --> 00:45:15,480
Speaker 11: now where there's just a lot of fatigue in the

920
00:45:15,520 --> 00:45:19,480
Speaker 11: housing market, and rates surpassing seven or even seven and

921
00:45:19,560 --> 00:45:22,799
Speaker 11: a half percent could be what send us to a

922
00:45:22,920 --> 00:45:26,480
Speaker 11: much slower market in terms of transaction level here this fall.

923
00:45:27,000 --> 00:45:30,359
Speaker 1: So a lot of folks are wondering, like myself, when

924
00:45:30,400 --> 00:45:33,239
Speaker 1: mortgage rates are going to decline it? And is there

925
00:45:33,280 --> 00:45:37,080
Speaker 1: a level that once we get there, that I may

926
00:45:37,120 --> 00:45:39,840
Speaker 1: be free up some activity here? Is it five percent?

927
00:45:39,880 --> 00:45:41,799
Speaker 1: Is it six percent? Is it four percent? Is there

928
00:45:42,080 --> 00:45:44,640
Speaker 1: a rate where you think it would kind of thall

929
00:45:44,719 --> 00:45:45,560
Speaker 1: out this market?

930
00:45:46,200 --> 00:45:46,480
Speaker 5: Sure?

931
00:45:46,600 --> 00:45:48,920
Speaker 11: Yeah, right, it's not going to be three percent, right,

932
00:45:48,920 --> 00:45:50,359
Speaker 11: It's not going to be back to where we were

933
00:45:50,440 --> 00:45:52,839
Speaker 11: during the pandemic. I don't think it has to come

934
00:45:52,920 --> 00:45:55,960
Speaker 11: down even to four or five percent to help free

935
00:45:56,080 --> 00:45:59,160
Speaker 11: up some sellers who may be waiting to move but

936
00:45:59,280 --> 00:46:00,680
Speaker 11: feeling that final pinch.

937
00:46:00,960 --> 00:46:01,120
Speaker 5: You know.

938
00:46:01,200 --> 00:46:03,600
Speaker 11: One thing that we're tracking really closely is the fact

939
00:46:03,640 --> 00:46:05,839
Speaker 11: that the spread between the yield on the ten year

940
00:46:05,880 --> 00:46:09,080
Speaker 11: Treasury and the thirty year fixed rate mortgage still remains

941
00:46:09,200 --> 00:46:13,680
Speaker 11: quite wide. So even though mortgage rates will remain relatively

942
00:46:14,000 --> 00:46:16,719
Speaker 11: elevated here in the latter half of twenty twenty three,

943
00:46:17,360 --> 00:46:20,240
Speaker 11: if we do expect and I think we do expect,

944
00:46:20,239 --> 00:46:23,560
Speaker 11: that gap between treasury yields and rates to begin to narrow,

945
00:46:23,600 --> 00:46:26,080
Speaker 11: and we could see rates come down to below six

946
00:46:26,160 --> 00:46:29,000
Speaker 11: percent next year, which I think is what will be

947
00:46:29,120 --> 00:46:31,080
Speaker 11: enough to bring more sellers from the sidelines.

948
00:46:31,120 --> 00:46:34,399
Speaker 2: What's an historical what's a rule of thumb in terms

949
00:46:34,440 --> 00:46:37,480
Speaker 2: of that spread? Where is it typically or has it

950
00:46:37,520 --> 00:46:39,160
Speaker 2: been over say, the last twenty years.

951
00:46:39,320 --> 00:46:42,520
Speaker 11: Yeah, we're typically around maybe one point eight two percentage points,

952
00:46:42,520 --> 00:46:44,360
Speaker 11: So we're now up at three percentage points.

953
00:46:44,840 --> 00:46:51,799
Speaker 2: Ah, So historically we should see mortgage rates about six, right,

954
00:46:52,000 --> 00:46:54,080
Speaker 2: and we're looking at a little bit more than seven.

955
00:46:54,880 --> 00:46:56,919
Speaker 11: That's right, and so if you imagine sort of as

956
00:46:56,920 --> 00:46:58,600
Speaker 11: we move through the rest of the year that we

957
00:46:58,680 --> 00:47:02,920
Speaker 11: could we should expect rates to come down, maybe settling

958
00:47:02,960 --> 00:47:04,719
Speaker 11: around six and a half percent by the end of

959
00:47:04,719 --> 00:47:07,080
Speaker 11: the year, and continue to come down further as we.

960
00:47:07,040 --> 00:47:07,879
Speaker 7: Head into next year.

961
00:47:08,320 --> 00:47:10,560
Speaker 1: All right, So I guess I'm refinancing. I guess with

962
00:47:10,560 --> 00:47:11,200
Speaker 1: a five handle.

963
00:47:11,400 --> 00:47:16,120
Speaker 2: So right, what about Paul top ticked the mortgage market,

964
00:47:16,960 --> 00:47:19,160
Speaker 2: but he got an arm so he's ready to move

965
00:47:19,160 --> 00:47:21,000
Speaker 2: in and pounds when they rates come back down. What

966
00:47:21,080 --> 00:47:23,920
Speaker 2: about new supply coming on the market, So we know

967
00:47:24,000 --> 00:47:27,560
Speaker 2: that there is there are very little transactions in terms

968
00:47:27,560 --> 00:47:31,560
Speaker 2: of previously owned homes. Our builders out there putting up

969
00:47:31,600 --> 00:47:33,759
Speaker 2: new supply like crazy so they can get them into

970
00:47:33,760 --> 00:47:37,040
Speaker 2: the hands of home buyers who are willing to either

971
00:47:37,080 --> 00:47:40,160
Speaker 2: pay cash or go with a seven percent mortgage. Yeah.

972
00:47:40,200 --> 00:47:43,120
Speaker 11: You know, there's been a long period of time during

973
00:47:43,120 --> 00:47:46,120
Speaker 11: which homebuilders had a really tough time with supply chain issues,

974
00:47:46,160 --> 00:47:49,359
Speaker 11: difficulty getting materials and labor. And now over the last

975
00:47:49,400 --> 00:47:53,280
Speaker 11: few months, we've really seen homebuilders ramp up construction because

976
00:47:53,320 --> 00:47:56,640
Speaker 11: there's just simply no other inventory out there and they

977
00:47:56,719 --> 00:48:01,080
Speaker 11: are having to do things to entice buyers in though

978
00:48:01,360 --> 00:48:04,600
Speaker 11: we're seeing more builder financing.

979
00:48:04,680 --> 00:48:07,920
Speaker 2: We're seeing the builder financing at lower rates, right, Lisa,

980
00:48:08,120 --> 00:48:08,799
Speaker 2: that's right, that's right.

981
00:48:08,800 --> 00:48:11,759
Speaker 11: I'm sorry, Billage offering financing at lower rates to help

982
00:48:11,760 --> 00:48:14,760
Speaker 11: bring more buyers in. What we're not seeing is builders

983
00:48:14,840 --> 00:48:19,400
Speaker 11: dropping prices of new construction yet, and maybe they won't

984
00:48:19,440 --> 00:48:21,200
Speaker 11: have to as we head through the rest of the year.

985
00:48:21,239 --> 00:48:24,359
Speaker 11: But we are seeing, you know, some sort of give

986
00:48:24,400 --> 00:48:28,200
Speaker 11: backs in terms of upgrades and other things. But right now,

987
00:48:28,480 --> 00:48:30,279
Speaker 11: there are a lot of home buyers who are on

988
00:48:30,400 --> 00:48:32,840
Speaker 11: the lots of new houses and they didn't expect to be,

989
00:48:33,160 --> 00:48:35,120
Speaker 11: but that's where they are because that's what's available for

990
00:48:35,120 --> 00:48:35,440
Speaker 11: saying I.

991
00:48:35,440 --> 00:48:36,880
Speaker 2: Mean, why would you drop the price. You put up

992
00:48:36,920 --> 00:48:41,360
Speaker 2: a bunch of McMansions and you know, Connecticut commutable area,

993
00:48:41,480 --> 00:48:43,160
Speaker 2: and then you can if you say, hey, we'll give

994
00:48:43,200 --> 00:48:45,359
Speaker 2: you a four point nine to nine percent mortgage, people

995
00:48:45,360 --> 00:48:47,440
Speaker 2: are like, wow, okay, whatever you want.

996
00:48:48,640 --> 00:48:50,640
Speaker 11: Right, And it definitely is region specific.

997
00:48:50,680 --> 00:48:50,839
Speaker 5: Right.

998
00:48:50,840 --> 00:48:53,600
Speaker 11: We have some parts of the country we're not seeing

999
00:48:53,600 --> 00:48:56,320
Speaker 11: as much home building. Here in the Washington area, for example,

1000
00:48:56,360 --> 00:49:00,319
Speaker 11: we're still seeing home prices of existing homes rising as

1001
00:49:00,360 --> 00:49:02,719
Speaker 11: demand has slowed, and that's simply because we're not seeing

1002
00:49:02,760 --> 00:49:04,960
Speaker 11: a lot of new construction that's been coming online.

1003
00:49:05,160 --> 00:49:08,040
Speaker 1: So when the home builders are out there building and

1004
00:49:08,080 --> 00:49:13,000
Speaker 1: again building permits, housing starts up three three point nine

1005
00:49:13,080 --> 00:49:17,800
Speaker 1: percent month on month, much better than forecast here this morning.

1006
00:49:18,440 --> 00:49:20,960
Speaker 1: What are they building? Are they building those McMansions or

1007
00:49:20,960 --> 00:49:23,640
Speaker 1: are they building what the market really needs, which are

1008
00:49:23,800 --> 00:49:24,520
Speaker 1: starter homes.

1009
00:49:25,560 --> 00:49:27,719
Speaker 11: Well, the market needs starter homes for sure, but it

1010
00:49:27,760 --> 00:49:30,680
Speaker 11: has been a long time since we've seen new construction

1011
00:49:30,800 --> 00:49:32,960
Speaker 11: really be the main supplier of starter homes.

1012
00:49:33,239 --> 00:49:33,959
Speaker 2: But what we are.

1013
00:49:33,920 --> 00:49:37,080
Speaker 11: Seeing is a range of new construction activity in that

1014
00:49:37,120 --> 00:49:40,279
Speaker 11: middle market as well as that luxury market, which then

1015
00:49:40,400 --> 00:49:44,799
Speaker 11: allows the starter homes in the existing stock to be

1016
00:49:44,880 --> 00:49:47,399
Speaker 11: vacated where folks are able to move up. I mean,

1017
00:49:47,400 --> 00:49:51,320
Speaker 11: it's part of a whole housing ladder, right, But because

1018
00:49:51,320 --> 00:49:53,799
Speaker 11: of the cost of materials, the cost of labor, the

1019
00:49:53,800 --> 00:49:58,600
Speaker 11: cost of local regulation for home builders, it's really financially

1020
00:49:58,680 --> 00:50:01,520
Speaker 11: challenging for a builder to build at very.

1021
00:50:01,360 --> 00:50:02,240
Speaker 7: Low home prices.

1022
00:50:02,320 --> 00:50:04,320
Speaker 11: So we really seeing sort of bin market and luxury

1023
00:50:04,320 --> 00:50:05,920
Speaker 11: construction by and large.

1024
00:50:06,200 --> 00:50:07,799
Speaker 2: What about multifamily.

1025
00:50:08,719 --> 00:50:13,080
Speaker 11: Multi Yeah, the rental market has been certainly going like

1026
00:50:13,120 --> 00:50:16,720
Speaker 11: gangbusters in many markets. In fact, we've seen that rents

1027
00:50:16,719 --> 00:50:18,520
Speaker 11: are beginning to come down year over year. On a

1028
00:50:18,560 --> 00:50:22,200
Speaker 11: national basis, rents are down in many markets across the US.

1029
00:50:22,680 --> 00:50:27,000
Speaker 11: This is all happening despite the fact that mortgage rates

1030
00:50:27,000 --> 00:50:30,880
Speaker 11: are higher. We're seeing just more new rental construction coming online,

1031
00:50:30,880 --> 00:50:33,320
Speaker 11: which is giving renters more options. So if we're looking

1032
00:50:33,400 --> 00:50:36,720
Speaker 11: for some sort of bright side in the housing market,

1033
00:50:36,880 --> 00:50:39,000
Speaker 11: people who are in the rental market are finding more

1034
00:50:39,440 --> 00:50:42,080
Speaker 11: options and are finding rents stabilizing, are coming down.

1035
00:50:42,640 --> 00:50:44,440
Speaker 1: Heylly, so thanks so much for joining us. I really

1036
00:50:44,480 --> 00:50:47,520
Speaker 1: appreciate getting your thoughts here. Lisa Sturt, event chief e

1037
00:50:47,560 --> 00:50:49,440
Speaker 1: Commerce for Bright MLS.

1038
00:50:49,600 --> 00:50:52,680
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can

1039
00:50:52,719 --> 00:50:56,520
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

1040
00:50:56,600 --> 00:51:00,240
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

1041
00:51:00,520 --> 00:51:02,439
Speaker 2: at Matt Miller nineteen seventy three.

1042
00:51:02,880 --> 00:51:05,280
Speaker 1: And I'm Paul Sweeney. I'm on Twitter at pt Sweeney.

1043
00:51:05,400 --> 00:51:08,040
Speaker 1: Before the podcast, you can always catch us worldwide at

1044
00:51:08,080 --> 00:51:08,799
Speaker 1: Bloomberg Radio.