WEBVTT - Target, Preferred Stocks, Trump, and Mortgage Rates 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moven News. 0:00:14.160 --> 0:00:17.279 I'm the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.360 --> 0:00:20.520 you listen to podcasts, and at Bloomberg dot com Slash podcast. 0:00:21.040 --> 0:00:26.799 The retailers coming in with some numbers here today, Target, 0:00:26.840 --> 0:00:30.360 TJ Max, we got Walmart tomorrow. Let's let's round table 0:00:30.400 --> 0:00:32.440 this thing with some smart folks. Jen Bartash is senior 0:00:32.479 --> 0:00:35.720 industry an also with Bloomberg Intelligence and Bloomberg News. Jen 0:00:36.000 --> 0:00:40.600 joins us via the cam from the Princeton office of 0:00:40.640 --> 0:00:43.479 Bloomberg Intelligence. And then we got Simone Foxman. She is 0:00:43.640 --> 0:00:47.199 a Bloomberg reporter for Bloomberg Television, joining us here in studio, 0:00:48.000 --> 0:00:52.440 Jen Bartashes, Let's start with you. TGT Target stocks up 0:00:52.440 --> 0:00:54.920 over five percent the market. What is it like here 0:00:55.000 --> 0:00:56.720 out of the Target results. 0:00:57.600 --> 0:00:59.720 Well, when we look at Target, you know with the 0:00:59.760 --> 0:01:02.520 market it likes is that margin is up and it's 0:01:02.560 --> 0:01:05.760 up significantly over last year. At the same time, I 0:01:05.800 --> 0:01:09.399 think everyone recognizes that it's a difficult operating environment, and 0:01:09.480 --> 0:01:11.880 so even though target reduced, it's full of your guidance 0:01:12.000 --> 0:01:15.920 for sales and for profit. I think that people are 0:01:16.000 --> 0:01:19.480 encouraged by the the way that margins are responding even 0:01:19.480 --> 0:01:20.320 in that environment. 0:01:20.640 --> 0:01:24.360 All right, So genders for our viewers on YouTube, I 0:01:24.400 --> 0:01:26.920 want to point out that you have what is probably 0:01:27.120 --> 0:01:29.360 the best quote unquote office in Bloomberg. It is a 0:01:29.440 --> 0:01:32.360 kind of a corner office. Now, no one, I mean 0:01:32.440 --> 0:01:34.759 no one at Bloomberg has offices. We all sit at 0:01:34.800 --> 0:01:38.200 our desks in kind of the bullpen style. But Jenna's 0:01:38.200 --> 0:01:39.679 got bad as close as you can get to a 0:01:39.680 --> 0:01:41.320 corner office. I just want to point that out now 0:01:41.520 --> 0:01:45.000 because she's been running the Princeton office for decades. I mean, 0:01:45.000 --> 0:01:48.160 she's basically the leader down there. So we were able 0:01:48.200 --> 0:01:50.640 to bring her to BI. So that's pretty cool. 0:01:51.040 --> 0:01:53.919 All right, Simone teach Simone Foughtsman sits near a window. 0:01:54.120 --> 0:01:55.240 She does sit near a window. 0:01:55.280 --> 0:01:57.720 I also sit near the great Michael McKee, who's a 0:01:57.760 --> 0:02:01.520 frequent Bloomberg radio. Yes, but I once had my own 0:02:01.520 --> 0:02:04.200 office because I was the only correspondent in the country. 0:02:04.240 --> 0:02:07.880 So anyway, but yes, but you want to hear about 0:02:08.240 --> 0:02:09.800 retail in the United States. 0:02:09.919 --> 0:02:11.919 Yes, So what do you got here on our good 0:02:11.960 --> 0:02:13.440 friends at TJMAX. 0:02:13.919 --> 0:02:17.840 Yeah, I mean beaten a raise really right across the board, 0:02:18.680 --> 0:02:21.480 raising their outlook for the year, seeing compar bill sales 0:02:21.520 --> 0:02:24.920 three to four percent. I mean, the idea value is 0:02:24.960 --> 0:02:29.520 attracting customers. They're seeing increased traffic across all their major brands. 0:02:29.560 --> 0:02:33.360 According to the CEO, there even home Goods that was 0:02:33.400 --> 0:02:36.080 not expected to do quite so well. Comp sales there 0:02:36.080 --> 0:02:38.720 were expected to be slightly in the negative, but we 0:02:38.800 --> 0:02:43.520 saw four percent year on year rise. So even though 0:02:43.960 --> 0:02:46.520 consumers are looking away from their homes, they spent so 0:02:46.600 --> 0:02:49.120 much time there, they've invested there during the pandemic, and 0:02:49.160 --> 0:02:52.280 they are moving on, home goods is still able to 0:02:52.320 --> 0:02:57.600 attract people. So a broadly very positive earnings report for TJX, 0:02:57.600 --> 0:03:00.760 though I will say shares three points six percent higher, 0:03:00.880 --> 0:03:03.000 not the five plus that we see. 0:03:02.800 --> 0:03:05.519 Into time high for TJX. I wild point that out 0:03:05.720 --> 0:03:06.680 all time high for the stock. 0:03:06.840 --> 0:03:09.680 Well, I mean, are people stepping down? Are you starting 0:03:09.680 --> 0:03:10.120 to see that? 0:03:10.400 --> 0:03:10.600 Jen? 0:03:11.520 --> 0:03:14.120 You know, for a long time we've been hearing guests 0:03:14.120 --> 0:03:16.520 come in the studio and tell Paul and me that 0:03:17.639 --> 0:03:20.680 people step down from target to Walmart. Are they stepping 0:03:20.680 --> 0:03:22.040 down from Target to TJX. 0:03:22.840 --> 0:03:25.160 Well, I think across the board, you're talking about what 0:03:25.200 --> 0:03:27.920 we consider to be a flight to value, and so 0:03:28.440 --> 0:03:32.600 regardless of where your household income level lies, people are 0:03:32.600 --> 0:03:34.920 increasingly seeing value. And that's one of the things that 0:03:34.960 --> 0:03:37.880 makes TJX such a great opportunity for people, and that 0:03:37.960 --> 0:03:40.440 it's there's something always new they go in there. It's 0:03:40.520 --> 0:03:44.800 treasure hunt. And if you're talking about the Walmart's and 0:03:44.840 --> 0:03:48.200 the Targets of the world, you're seeing consumers shift into 0:03:48.480 --> 0:03:51.040 areas where they think there is value. So there are 0:03:51.080 --> 0:03:54.600 some shoppers who have moved from Target to Walmart, especially 0:03:54.600 --> 0:03:58.040 when you're talking about essentials, where Walmart's prices are just 0:03:58.160 --> 0:04:00.760 generally very, very sharp. But we're all also seeing people 0:04:00.800 --> 0:04:03.800 move from Walmart down to dollar stores. So it's really 0:04:03.840 --> 0:04:07.120 that progression of the flight to value that is really 0:04:07.120 --> 0:04:10.480 describing the current economic environment and the consumer environment that 0:04:10.480 --> 0:04:10.960 we're seeing. 0:04:11.760 --> 0:04:13.760 And I think when you think about it too, you know, 0:04:13.840 --> 0:04:18.560 the area we've heard folks across the consumer space be 0:04:18.680 --> 0:04:23.640 really negative is those middle income consumers who want to 0:04:23.680 --> 0:04:28.760 cut their discretionary spending, and TJX offers a bit more 0:04:28.800 --> 0:04:32.200 of that discretionary spend. So instead of going to the 0:04:32.240 --> 0:04:35.720 top line retailer, you have people going out and saying, 0:04:35.760 --> 0:04:38.600 I want to do that treasure hunting. I think that 0:04:38.600 --> 0:04:42.160 that is a better use of my wallet than just 0:04:42.279 --> 0:04:44.560 simply going to a store where the kind of where 0:04:44.600 --> 0:04:45.919 I don't have to do that, but I'm also going 0:04:45.960 --> 0:04:46.240 to pay it. 0:04:46.320 --> 0:04:48.000 And simone I noticed, you know, kind of what was 0:04:48.080 --> 0:04:51.400 unusual for TJ Max here is okay, they beat the quarter, 0:04:51.640 --> 0:04:55.880 and but unlike the Target who was cautious in their outlook, 0:04:56.720 --> 0:04:59.520 they boosted. TJ Max boosted their outlook here. So what's 0:04:59.600 --> 0:05:00.359 kind of the the. 0:05:00.480 --> 0:05:04.320 Extremely strong commentary saying that they're off to an incredible, 0:05:04.520 --> 0:05:07.320 a very strong start, I believe is word for word 0:05:08.200 --> 0:05:12.080 in the third quarter. So I think everyone very optimistic 0:05:12.200 --> 0:05:16.000 there that this flight to value, as Jennifer was talking about, 0:05:16.080 --> 0:05:21.520 will continue even if even if a recovery to some 0:05:21.560 --> 0:05:24.320 degree materializes in the way that Target has been I 0:05:24.320 --> 0:05:27.160 guess hoping and praying for on their call, Jen, what do. 0:05:27.120 --> 0:05:31.719 You hear about the excess savings? I heard someone this morning, 0:05:32.040 --> 0:05:36.200 I think carl Rickodonna on Bloomberg Surveillance say that carl 0:05:36.279 --> 0:05:41.599 Rickodonna over at BNP, Perry of BA saying that at least, 0:05:41.800 --> 0:05:43.320 like you know, there's been a debate about whether or 0:05:43.360 --> 0:05:45.880 not Americans still have excess savings left, but he says, 0:05:46.160 --> 0:05:48.960 one thing is for sure that the lower let's say 0:05:49.040 --> 0:05:52.440 three quinn tiles have already blown through it and have 0:05:52.560 --> 0:05:53.200 nothing left. 0:05:54.160 --> 0:05:56.839 Yeah, that's that's what we're seeing too. And there's you know, 0:05:57.000 --> 0:06:00.520 growing use of credit card that credit cards and is 0:06:00.560 --> 0:06:05.039 a little bit on the rise, especially for those quintiles 0:06:05.040 --> 0:06:09.799 that he was talking about, and so those consumers are 0:06:09.880 --> 0:06:12.039 really looking for where to spend that money. And I 0:06:12.040 --> 0:06:14.240 think one of the other things to think about is 0:06:14.240 --> 0:06:17.480 that the retailers in general haven't they still haven't gone 0:06:17.480 --> 0:06:20.839 back to pre pandemic days of promotions and the same 0:06:20.920 --> 0:06:24.359 types of levels of sales and discounts, and so although 0:06:24.360 --> 0:06:27.880 they're offering value, that type of sales environment or promotional 0:06:27.960 --> 0:06:30.839 environment hasn't yet come back. Now that maybe on the 0:06:30.839 --> 0:06:33.760 horizon if things don't change soon. But I think it 0:06:33.800 --> 0:06:37.279 also supports why we're seeing the popularity of things like TJX, 0:06:37.960 --> 0:06:40.960 because people aren't getting those sales at the big box 0:06:41.000 --> 0:06:43.880 retailers or some of the other retailers at the moment, 0:06:44.240 --> 0:06:46.160 and so they're looking for where they can find some 0:06:46.200 --> 0:06:49.040 of those key brands but at a much lower cost. 0:06:49.960 --> 0:06:52.279 Simon, what else are you looking at here in the 0:06:52.279 --> 0:06:56.160 retail space as we get somebody's come to reporting earnings. 0:06:56.480 --> 0:06:59.360 Yeah, I mean tomorrow we have Walmart. That's the big 0:06:59.400 --> 0:07:04.119 dog there. I think shares hit an all time high 0:07:04.200 --> 0:07:07.800 earlier this week, and so I think expectations are very 0:07:07.839 --> 0:07:11.240 high that they can do they can benefit from this 0:07:11.400 --> 0:07:14.680 environment in a similar way to perhaps TJ Max. Is 0:07:14.720 --> 0:07:17.640 that consumers are trading down, They're doing more of their 0:07:17.680 --> 0:07:21.360 spending at Walmart. Walmart plus growing and increasing number of 0:07:21.440 --> 0:07:25.200 subscribers that are using its food businesses and that sort 0:07:25.200 --> 0:07:28.400 of thing. So that'll be an interesting data point to watch. 0:07:28.560 --> 0:07:31.400 I'm also interested. You know, we heard from Target this 0:07:31.560 --> 0:07:36.960 morning about the impact of student loan repayments kicking back up. 0:07:37.800 --> 0:07:39.440 Do we hear that from TJ Max? They have yet 0:07:39.440 --> 0:07:42.400 to have their call, do we hear that from Walmart. 0:07:42.520 --> 0:07:44.160 We're just trying to get a sense of how much 0:07:44.200 --> 0:07:45.960 this is actually going to weigh on consumers as we 0:07:46.040 --> 0:07:48.400 head towards the fall, and then of course head towards 0:07:48.440 --> 0:07:49.119 the holiday season. 0:07:49.320 --> 0:07:53.000 You ever been a TJ Max Paul. Probably yes, I 0:07:53.040 --> 0:07:54.800 have to say, I haven't been there in a while, 0:07:54.800 --> 0:07:57.320 but when I when I would go, and still if 0:07:57.360 --> 0:08:01.400 I would go today, Jenna is right or I don't 0:08:01.400 --> 0:08:03.360 know who said that about hunting for like, it is 0:08:03.400 --> 0:08:06.320 an adventure to go in there because there's so much 0:08:06.360 --> 0:08:08.840 stuff and you know you're gonna find like like three 0:08:08.920 --> 0:08:11.800 cool polo shirts for twenty nine to ninety nine that 0:08:11.880 --> 0:08:13.920 you would normally pay, like I don't know, one hundred 0:08:13.920 --> 0:08:14.280 bucks for. 0:08:14.720 --> 0:08:17.680 So I think that's how you can make sense of it, right. 0:08:17.760 --> 0:08:20.040 You know, when I was younger, I loved doing that 0:08:20.080 --> 0:08:20.840 so much more. 0:08:21.480 --> 0:08:21.760 Uh. 0:08:21.800 --> 0:08:24.680 And I think if my thanks Bloomberg for paying me. 0:08:24.720 --> 0:08:27.120 But I think if my pennies were tighter, I would 0:08:27.400 --> 0:08:29.480 I would worry a little bit more about where each 0:08:29.680 --> 0:08:33.040 dollar was going. Uh, And therefore I would feel like, Okay, 0:08:33.120 --> 0:08:35.080 I've done. I've put in the hard work to go 0:08:35.120 --> 0:08:38.439 and buy this handbag, even though you know, my dimes 0:08:38.440 --> 0:08:42.439 are tight. Whereas Walmart, whereas whereas I guess you go 0:08:42.520 --> 0:08:44.640 to Target, it's much everything's much more laid out for you. 0:08:44.720 --> 0:08:46.800 I mean, my point is it's actually a great way 0:08:46.840 --> 0:08:49.480 to spend an hour or two in the city, like 0:08:49.480 --> 0:08:50.920 like going to a Barnes and Noble and. 0:08:50.880 --> 0:08:51.480 Just hanging out. 0:08:51.720 --> 0:08:52.559 But this is why you come. 0:08:52.720 --> 0:08:54.000 This is the great Matt Miller. 0:08:55.600 --> 0:08:56.920 When I was a kid, I used to do that. 0:08:57.200 --> 0:08:59.280 Far you fall and Jen Bartash is senior Industrial so 0:08:59.280 --> 0:09:03.760 Bloomberg can tell and simoon Foxman from Bloomberg. She's reported 0:09:03.800 --> 0:09:06.040 there joining us talking to us about all things retail. 0:09:07.120 --> 0:09:10.520 You're listening to the team Ken's are live program Bloomberg 0:09:10.559 --> 0:09:13.920 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:09:14.000 --> 0:09:17.160 the iHeartRadio app and the Bloomberg Business App, or listen 0:09:17.240 --> 0:09:19.480 on demand wherever you get your podcasts. 0:09:21.920 --> 0:09:24.679 Next week, Jackson Hole, I am still searching my inbox 0:09:24.720 --> 0:09:26.680 for the invite Matt, and I'm just I know it's there, 0:09:26.920 --> 0:09:28.560 I just can't find it. But I don't know if 0:09:28.559 --> 0:09:29.760 that's gonna be a big deal. Anyway. 0:09:29.800 --> 0:09:32.040 I heard they disinvited a lot of people, Like remember 0:09:32.040 --> 0:09:35.520 when the Soho House canceled all the bankers memberships. Yes, 0:09:36.520 --> 0:09:38.640 I think that's Jackson All did the same thing a 0:09:38.679 --> 0:09:39.320 couple of years ago. 0:09:39.400 --> 0:09:41.719 All right, let's bring in Danielle di Martino Booth. She's 0:09:41.720 --> 0:09:45.000 the CEO and chief strategist at QI research. She joins 0:09:45.040 --> 0:09:47.840 us live here in our Bloomberg Interactive Brokers studio and 0:09:48.040 --> 0:09:51.800 on YouTube. So that's even better, Danielle. I guess the 0:09:51.920 --> 0:09:54.360 narrative now with our feter reserve and with rates is, 0:09:54.960 --> 0:09:56.960 you know, not how higher they go, but it could 0:09:56.960 --> 0:09:59.640 be how long are we going to stay here? How 0:09:59.679 --> 0:10:01.679 are you viewing that part of the narrative. 0:10:02.440 --> 0:10:05.080 So I think the higher for longer narrative is something 0:10:05.120 --> 0:10:07.800 that markets do not want to accept. But we have 0:10:07.840 --> 0:10:09.920 to bear in mind that Jay Powell started in January 0:10:09.960 --> 0:10:12.640 of twenty twenty two kind of like Obi wan Kenobi, 0:10:13.040 --> 0:10:15.360 this will happen, This will happen, this will happen. These 0:10:15.360 --> 0:10:17.600 are not the droids you're looking for. And so he's 0:10:17.640 --> 0:10:21.080 managed to really extend this narrative. And I think that, 0:10:21.480 --> 0:10:23.320 you know, if you look at what a lot of 0:10:23.360 --> 0:10:25.600 people are starting to believe compared to twelve months ago. 0:10:25.760 --> 0:10:28.920 Now they're saying we might not see quantitative tightening stop 0:10:29.080 --> 0:10:32.920 until the fourth quarter of twenty twenty four. That is 0:10:32.920 --> 0:10:34.719 a form of higher for longer, even if we see 0:10:34.800 --> 0:10:36.080 rate cuts in twenty twenty four. 0:10:36.120 --> 0:10:39.320 All Right, A very smart listener of ours kind of 0:10:39.320 --> 0:10:44.520 wrote in and asked about that the relationship between running 0:10:44.520 --> 0:10:46.439 off the balance sheet and interest rates. You made a 0:10:46.480 --> 0:10:49.240 comment the last time you were here about that. What 0:10:49.280 --> 0:10:50.920 did you mean by that relationship? 0:10:51.640 --> 0:10:54.960 So, I mean we are a nation that exists. Liquidity 0:10:55.160 --> 0:10:59.440 is the lifeblood of the US economy. It's seventy percent consumption, 0:10:59.520 --> 0:11:01.880 but so much of business investment, so much of consumption 0:11:02.240 --> 0:11:05.719 is derived from credit. And when you're pulling liquidity from 0:11:05.720 --> 0:11:08.000 the system, you end up seeing things like the New 0:11:08.040 --> 0:11:13.040 York FEDS work that shows that that companies anticipate rejections 0:11:13.080 --> 0:11:15.559 being at the highest level on record in the next 0:11:15.600 --> 0:11:18.720 twelve months when it comes to a credit card, home loan, 0:11:19.320 --> 0:11:21.680 auto loans, and what have you. So that is a 0:11:21.679 --> 0:11:24.800 reflection of a credit crunch, which I've learned to some 0:11:25.000 --> 0:11:27.720 is a term that showed up in nineteen sixty six. 0:11:27.840 --> 0:11:31.319 Oh two guys from Salomon Brothers created the term. They said, 0:11:31.360 --> 0:11:33.040 they said, a squeeze and a pinch. They might be 0:11:33.120 --> 0:11:35.679 kind of friendly. A crunch is not. A crunch can 0:11:35.679 --> 0:11:38.439 break a bone. And that's what we're in the midst of, quietly, 0:11:38.480 --> 0:11:40.080 and that's what we're seeing with Moodi's and Fitch and 0:11:40.120 --> 0:11:41.720 the warnings that we've got on banks. 0:11:41.720 --> 0:11:44.679 I love that. So what they these two guys of 0:11:44.720 --> 0:11:47.240 Solomon said, you used to be people would say credit 0:11:47.240 --> 0:11:49.920 squeeze or credit pinch, but that was like too fun. 0:11:50.360 --> 0:11:52.000 It was too fun. And so that's what happened in 0:11:52.040 --> 0:11:55.079 nineteen sixty six. You had banks pull back on lending 0:11:55.520 --> 0:11:58.320 while the US government had been spending a lot of money. 0:11:58.360 --> 0:11:59.520 I don't see any parallels here. 0:12:00.400 --> 0:12:02.560 That's sarcasm for those of you who aren't watching. 0:12:03.880 --> 0:12:05.280 And what did we see? 0:12:05.320 --> 0:12:07.920 We saw a massive pullback. So there's something to be 0:12:07.960 --> 0:12:12.599 said for quantitative tightening directly influencing that flow of liquidity 0:12:12.880 --> 0:12:15.000 or not into the system. It's something we see every 0:12:15.040 --> 0:12:18.560 Friday afternoon aft the close. In the fed's h eight document, 0:12:18.559 --> 0:12:20.760 you're seeing commercial and industrial lending negative. 0:12:20.880 --> 0:12:24.680 How much does the treasury issuance sort of add to 0:12:24.760 --> 0:12:26.360 that liquidity problem? 0:12:26.760 --> 0:12:29.120 Well, so the first three hundred billion or so, we're 0:12:29.240 --> 0:12:31.600 kind of benign. You saw money move out of the 0:12:31.640 --> 0:12:34.360 Fed's facility overnight facility. People were like, oh, look at this. 0:12:34.440 --> 0:12:36.440 You know, I'm going to move it into into treasury bills, 0:12:36.440 --> 0:12:40.600 money market funds. Where are we going going forward? I mean, 0:12:40.640 --> 0:12:43.000 if inflation is as sticky as the inflation used to 0:12:43.120 --> 0:12:45.120 say it's going to be. Then, if I'm a money 0:12:45.120 --> 0:12:47.079 market fund, I'm going to say, wait a minute, I'm 0:12:47.080 --> 0:12:49.199 not going to go into bills. If I think the 0:12:49.240 --> 0:12:51.080 Fed's going to raise interest rates one more time in 0:12:51.120 --> 0:12:54.280 twenty twenty three, maybe it's September, maybe it's December, then 0:12:54.320 --> 0:12:56.720 I'll wait and I'll keep my money at the FED. 0:12:56.800 --> 0:12:59.920 Meaning they're not going to naturally absorb all of this 0:13:00.440 --> 0:13:04.200 treasury issuance, keeping that effect benign, and you end up 0:13:04.200 --> 0:13:08.560 having quantitative tightening join with treasury built issuance, and you're 0:13:08.600 --> 0:13:11.040 having a double pulling of liquidity out of the system. 0:13:11.280 --> 0:13:13.800 All right, I consider myself a pretty good reader. That 0:13:13.960 --> 0:13:16.679 the nuns of Blessed Saque instilled that in me early age. 0:13:16.679 --> 0:13:18.480 But I'll tell you what, I am not reading the 0:13:18.520 --> 0:13:21.120 FED meeting minutes come out later today. 0:13:21.559 --> 0:13:22.920 That's why we have people like Danielle. 0:13:22.960 --> 0:13:24.920 That's why I have people like Mount Sacred Heart. So 0:13:24.960 --> 0:13:27.439 we're like, okay, yeah, very good. So what will you 0:13:27.520 --> 0:13:29.959 be looking for in these meeting minutes. 0:13:30.440 --> 0:13:33.480 The softer the landing narrative, the more they're gonna stick 0:13:33.520 --> 0:13:34.520 with their higher for longer. 0:13:34.640 --> 0:13:35.439 Okay, So I. 0:13:35.360 --> 0:13:38.640 Mean, look, minutes can be massaged. Janet Yellen said so 0:13:38.679 --> 0:13:40.400 in two thousand and eight. She said, minutes can be 0:13:40.520 --> 0:13:42.560 like any other tool in the toolbox. It's not like 0:13:42.600 --> 0:13:44.840 the minutes from a corporate board meeting or something like that. 0:13:44.880 --> 0:13:47.640 In the three weeks that are that come in between, 0:13:47.640 --> 0:13:50.640 the Fed can change what actually occurred inside that room. 0:13:50.679 --> 0:13:53.440 It's kind of like magic. So if they want to 0:13:53.520 --> 0:13:56.640 nod to retail sales being stronger than what was expected, 0:13:56.840 --> 0:13:58.800 then you can have a more hawkish tone in these minutes. 0:13:58.800 --> 0:13:59.960 And that's what I'm anticipating. 0:14:00.320 --> 0:14:04.200 What about the difference between j Powell's standard line. You 0:14:04.240 --> 0:14:06.520 know that we're going to keep rates higher for I 0:14:06.559 --> 0:14:09.600 think last time he said for years or did so. 0:14:10.080 --> 0:14:12.679 At the same time, we get a dot plot, which 0:14:12.760 --> 0:14:14.960 I know is not a forecast from the Fed, but 0:14:15.040 --> 0:14:19.960 it is each individual members essentially forecasts, right, that showed 0:14:20.440 --> 0:14:23.960 at least one full percentage point of rate cuts next year. 0:14:24.600 --> 0:14:27.280 How can he say We're going to keep rates at 0:14:27.280 --> 0:14:31.800 this level for years and everybody, even you know, assuming 0:14:31.840 --> 0:14:34.600 I'm assuming the voters are saying no, it's going to 0:14:34.640 --> 0:14:35.520 come down one percent. 0:14:35.840 --> 0:14:37.720 So it's kind of like if you ever heard one martini, 0:14:37.760 --> 0:14:41.360 two martini three Martini's floor, so he can he can 0:14:41.400 --> 0:14:46.640 withstand one or two descents and maintain his power base. 0:14:47.160 --> 0:14:48.800 You start to get to a number like three, and 0:14:48.840 --> 0:14:50.920 you start to say, is there a mutiny on the FMC. 0:14:51.560 --> 0:14:54.600 So we might see descent next year from some of 0:14:54.640 --> 0:14:57.560 the more dubbish contingency. He might want to hold out 0:14:57.600 --> 0:15:01.120 for longer, and that might mean that we see his 0:15:01.280 --> 0:15:03.920 first real dissent. And we have, I mean, we've seen 0:15:04.000 --> 0:15:06.080 Neil Kashgari, who used to be the most delish person 0:15:06.120 --> 0:15:09.080 on planet Earth, become like, you know, we're not finished 0:15:09.080 --> 0:15:11.200 fighting Involution yet. So he's like very hellkish. 0:15:11.080 --> 0:15:13.600 And still and still says we're not done exactly. 0:15:13.720 --> 0:15:14.680 It was just a few days ago. 0:15:14.800 --> 0:15:16.920 Our good friends at Goldman Sachs, I guess, on Sunday 0:15:16.960 --> 0:15:19.200 put out a note saying that they expect the rate 0:15:19.280 --> 0:15:22.280 cut in the second quarter of next year. Was that 0:15:22.360 --> 0:15:24.440 just to sell books or do you think there's something to. 0:15:24.480 --> 0:15:28.120 That talking a book at Goldman? My gosh, I've never 0:15:28.120 --> 0:15:31.320 heard of such, just thinking. Look, Goldman tax has tremendous 0:15:31.320 --> 0:15:33.040 influence on the New York Fed. The New York Fed 0:15:33.040 --> 0:15:35.080 has a permanent vote on the Federal Open Market Committee, 0:15:35.120 --> 0:15:38.560 this is a known known so it's I think Goldman 0:15:38.600 --> 0:15:40.520 is definitely trying to control the narrative, and they've done 0:15:40.560 --> 0:15:42.400 a very good job of that in the past, of 0:15:42.520 --> 0:15:47.200 having you know, a very extra large influence on FED thinking. 0:15:47.440 --> 0:15:51.360 But you know, Powell's not an academic. Powell was the 0:15:51.360 --> 0:15:54.560 one who brokered the treasury scandal at Solomon Brothers with 0:15:54.600 --> 0:15:56.600 Warren Buffett in nineteen ninety eight when he was just 0:15:56.800 --> 0:15:59.960 a Treasury the secretary. Powell's not intimidated by bankers. 0:16:00.160 --> 0:16:00.480 Sorry. 0:16:00.680 --> 0:16:03.120 Interesting, one of the things that you were telling us 0:16:03.120 --> 0:16:06.920 about Palell around s and p you know, thirty seven, 0:16:07.040 --> 0:16:11.520 thirty eight hundred, was that he wants to break the FED. Put. 0:16:12.040 --> 0:16:15.160 He wants to destroy the idea that the FED is 0:16:15.200 --> 0:16:18.080 going to come to your rescue. Mister market. Every time 0:16:18.360 --> 0:16:21.600 the equity indexes fall now we're at forty five hundred, 0:16:23.040 --> 0:16:25.880 he is that making it harder for him to succeed. 0:16:25.960 --> 0:16:28.320 When the market just continues dully as they raise. 0:16:28.280 --> 0:16:30.240 No, it's making it easier for him. I mean, he's 0:16:30.280 --> 0:16:33.560 basically shut down the commercial mortgage backed securities market. So 0:16:33.600 --> 0:16:36.600 that's one corner of securitization that's vaporized into thin air. 0:16:37.000 --> 0:16:39.440 When in March of twenty twenty, the entire commercial real 0:16:39.520 --> 0:16:41.280 estate industry was like, hold on, we need a bail 0:16:41.280 --> 0:16:42.240 out too. 0:16:42.280 --> 0:16:43.200 But he's taken. 0:16:43.280 --> 0:16:46.920 He's actually created price discovery in a market where none existed. 0:16:46.960 --> 0:16:48.960 There was a building that just sold for sixty seven 0:16:49.000 --> 0:16:51.720 percent off of its prior appraisal in San Francisco a 0:16:51.720 --> 0:16:54.640 few days ago. So he's slowly killing off lines of 0:16:54.680 --> 0:16:58.280 speculation into the markets. I think the CLO market is next. 0:16:58.600 --> 0:17:00.520 So let the stock market be as high it once. 0:17:00.600 --> 0:17:03.960 It gives Powell license to continue depleting liquidity from the 0:17:04.000 --> 0:17:07.160 system and taking out some of the most speculative forms 0:17:07.680 --> 0:17:10.040 covers the word yeah, all right, So I mean this 0:17:10.119 --> 0:17:11.520 in the nicest way possible, Danielle. 0:17:11.560 --> 0:17:15.040 But you are that's data geek of the highest magnitude. 0:17:15.400 --> 0:17:18.720 What data are you looking at that? Maybe we're not so. 0:17:18.720 --> 0:17:21.280 I follow two things very closely. The employee retention credit 0:17:21.320 --> 0:17:23.280 it's advertised everywhere by a manage. 0:17:25.359 --> 0:17:25.959 I mean we we. 0:17:26.520 --> 0:17:28.600 It surpassed thirty billion for the first time in the 0:17:28.600 --> 0:17:31.000 month of July, so on a twelve month run rate, 0:17:31.000 --> 0:17:34.000 it's pumping four hundred billion dollars into the economy, very 0:17:34.080 --> 0:17:36.520 real money. That's about one and a half percentage point 0:17:36.520 --> 0:17:39.199 of GDP growth on an annualized basis. We're seeing that 0:17:39.280 --> 0:17:42.639 manifest and much higher international travel. So it's going to 0:17:42.760 --> 0:17:45.840 your kind of your top quintile of earners, if you will, 0:17:46.520 --> 0:17:49.200 and that's being actively sold. So I'm paying very close 0:17:49.240 --> 0:17:52.560 attention to active fiscal stimulus for billion dollars a year 0:17:52.600 --> 0:17:55.080 is not nothing. In Daily Jobcuts dot Com, we've gone 0:17:55.119 --> 0:17:58.919 from five business closings to nine from the summer months 0:17:58.920 --> 0:18:02.280 after the debt sealing reserves into August. The founder of 0:18:02.359 --> 0:18:05.720 the website said he's seeing a massive increase in companies 0:18:05.840 --> 0:18:09.000 just closing up shop in August, saying I don't see 0:18:09.000 --> 0:18:13.480 over the horizon the holiday season, holiday shopping season saving me. 0:18:13.640 --> 0:18:16.760 So I'm paying really close attention to main Street as well. 0:18:17.080 --> 0:18:20.359 Wow, very good, Daniel de Martinez to watch the fiscal side, 0:18:20.400 --> 0:18:24.119 you know, because not a lot of fedgeeks do not 0:18:24.400 --> 0:18:26.359 close enough attention to the fiscal highly relevant. 0:18:26.400 --> 0:18:27.440 It's highly relevant. 0:18:27.520 --> 0:18:31.919 Daniel de Martinez Booth CEO and chief strategist at QI Research, 0:18:32.040 --> 0:18:34.240 joining us live here in our Bloomberg Interactive Broker studio, 0:18:34.240 --> 0:18:35.080 which is always a treat. 0:18:35.240 --> 0:18:38.359 You're listening to the tape Cat's are live program Bloomberg 0:18:38.440 --> 0:18:42.040 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:18:42.080 --> 0:18:45.280 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:18:45.359 --> 0:18:48.160 You can also listen live on Amazon Alexa from our 0:18:48.160 --> 0:18:52.560 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:18:54.520 --> 0:18:56.280 You know, against my better judgment, I'm told we got 0:18:56.320 --> 0:18:59.159 to talk about Washington and politics and all that stuff 0:18:59.160 --> 0:19:00.959 that happens the making of the sausage. And if we're 0:19:01.000 --> 0:19:03.639 gonna do that, we're gonna go to our ace, and 0:19:03.680 --> 0:19:06.920 that is Nathan Dean. He's the senior policy Analyst US 0:19:07.000 --> 0:19:10.680 Latin America for Bloomberg Intelligence. Bloomberg Intelligence, we got people 0:19:10.680 --> 0:19:12.920 that just do everything, and we got a guy who 0:19:13.000 --> 0:19:15.400 is mister Washington, DC, and that's Nathan Dean. He joined 0:19:15.480 --> 0:19:18.639 us live here in our Bloomberg Interactive Brokers studio. Nathan, 0:19:18.680 --> 0:19:20.760 where I want to start is kind of with President 0:19:20.760 --> 0:19:24.840 Biden last week seemingly getting a little tougher with China, 0:19:25.359 --> 0:19:27.520 but it seems like you kind of pulled some punches there. 0:19:27.720 --> 0:19:30.400 Talk to us about what Biden did via I think 0:19:30.440 --> 0:19:32.560 executive order last week with China and kind of what 0:19:32.600 --> 0:19:33.120 it means. 0:19:33.040 --> 0:19:35.640 Yeah, exactly. So President Biden put out an executive order 0:19:35.720 --> 0:19:40.080 essentially directing Treasury to limit or prohibit US investments, so 0:19:40.160 --> 0:19:43.800 primarily private equity venture capital fund investment into China in 0:19:43.840 --> 0:19:50.320 certain sectors like quantum computing, AI, artificial I'm sorry, semiconductors. Now, 0:19:50.400 --> 0:19:53.760 this was a much narrower order than what had previously 0:19:53.800 --> 0:19:56.360 been anticipated, so I think the markets were actually kind 0:19:56.359 --> 0:19:58.800 of happy with that. We don't think there's going to 0:19:58.840 --> 0:20:01.160 be that much of an impact here, you know, most 0:20:01.160 --> 0:20:02.639 of I think if you look at the private equity 0:20:02.680 --> 0:20:05.679 firms today, the big ones, they're about two percent below 0:20:05.720 --> 0:20:08.840 in terms of total assets with exposure to China. So 0:20:08.920 --> 0:20:12.119 this is really just a symbolism executive order. Now the 0:20:12.160 --> 0:20:14.960 Treasury has to implement it, so things could change, and 0:20:15.080 --> 0:20:17.920 with anything in the US China relations, you know, Biden 0:20:17.960 --> 0:20:20.040 can always pull the plug if you know it suits 0:20:20.040 --> 0:20:20.400 as well. 0:20:20.560 --> 0:20:23.000 You did have the at the end of last month, 0:20:23.000 --> 0:20:26.600 the House Select Committee on the Chinese Communist Party. Oh 0:20:26.920 --> 0:20:29.200 that's a Is that really the name? The House Select 0:20:29.240 --> 0:20:31.480 Committee on the Chinese Yeah, it's lucky they threw the 0:20:31.480 --> 0:20:33.600 word communist in there, so we know how they feel 0:20:33.600 --> 0:20:36.800 about them, right, that's a little bit loaded. They they 0:20:36.840 --> 0:20:41.960 alleged that Blackrock is investing in Chinese companies acting against 0:20:42.200 --> 0:20:45.679 US interest. Now I'm guessing this is a Republican controlled committee. 0:20:46.119 --> 0:20:48.600 Obviously those guys don't like Larry Fink. He's like the 0:20:48.680 --> 0:20:51.359 new George Soros for a lot on the right. But 0:20:51.920 --> 0:20:53.879 we had a story by Sila brush Out yesterday. I 0:20:53.880 --> 0:20:58.280 said Blackrock, MSCI and other firms are bracing for tighter oversight. 0:20:59.080 --> 0:21:01.800 Is that is that talk on Capitol Hill going after 0:21:01.840 --> 0:21:04.600 these big, big Wall Street fund managers. 0:21:04.640 --> 0:21:07.360 Absolutely, And to your point, it's actually a bipartisan committee 0:21:07.359 --> 0:21:09.840 because being seen tough on China is good politics no 0:21:09.840 --> 0:21:12.399 matter who you are. So you know, when President Biden 0:21:12.400 --> 0:21:14.320 put out his order, we saw a statement from that 0:21:14.359 --> 0:21:17.320 committee from both parties essentially saying that this could have 0:21:17.359 --> 0:21:19.520 gone farther, and they wished it to have gone further. Now, 0:21:19.560 --> 0:21:22.000 the question about Blackrock and the other firms is what 0:21:22.119 --> 0:21:25.320 is considered oversight and what is actually going to happen. 0:21:25.640 --> 0:21:28.720 Now that committee cannot write legislation. They need other committees 0:21:28.760 --> 0:21:32.200 to do that. And with a Republican House, a Democratic Senate, 0:21:32.520 --> 0:21:36.159 and a president who also has to stare Juginepigi in 0:21:36.160 --> 0:21:39.480 the face at certain you know events. You know, I'm 0:21:39.520 --> 0:21:43.159 not sure there's actually going to be actionable concern for 0:21:43.240 --> 0:21:46.679 those firms, So it's mostly headline risk. Just always keep 0:21:46.720 --> 0:21:49.280 in mind that when it comes to China, Congress loves 0:21:49.280 --> 0:21:51.600 to be tough, but it's the White House that actually 0:21:51.600 --> 0:21:53.240 pulls things back and moderates it. 0:21:53.280 --> 0:21:55.640 Well, the White House, I mean Biden last week said 0:21:56.080 --> 0:21:59.520 that the Communist Party are bad folks, right, he said 0:21:59.720 --> 0:22:01.640 the best Elton wrote initiative, he called that the Debt 0:22:01.640 --> 0:22:02.639 and News initiative. 0:22:02.960 --> 0:22:05.879 Well, there's a difference between calling somebody bad folks and 0:22:06.040 --> 0:22:09.280 actually creating a trade deal or you know, sanctions and 0:22:09.320 --> 0:22:12.320 so forth that actually, you know, changes what we here 0:22:12.359 --> 0:22:14.199 in New York City are trading on. 0:22:14.560 --> 0:22:16.920 All Right, you're down in DC, better or worse, you're 0:22:16.920 --> 0:22:18.959 in the swamp. You're part of it. Actually, quite frankly, 0:22:19.520 --> 0:22:22.399 to be honest, what is what is the feeling in 0:22:22.480 --> 0:22:26.080 DC about China? How worried should the world be about 0:22:26.200 --> 0:22:27.880 us and China? What's the feeling in DC? 0:22:28.400 --> 0:22:30.560 So, you know, there was this thought of, you know, 0:22:30.840 --> 0:22:33.040 will we get into a war over a Taiwan and 0:22:33.080 --> 0:22:36.040 we have a national security analyst who has been writing 0:22:36.040 --> 0:22:37.040 about this on the terminal. 0:22:37.200 --> 0:22:40.120 The general thought on Washington is we're still years away. 0:22:40.160 --> 0:22:42.000 I mean that this is not something that you can 0:22:42.040 --> 0:22:45.280 anticipate will happen in the next few years, you know. 0:22:45.359 --> 0:22:47.159 And when it comes to how do you approach this 0:22:47.240 --> 0:22:50.840 in terms of a market perspective, you know, it's sort 0:22:50.880 --> 0:22:53.960 of something that like everything that we've seen before has 0:22:54.000 --> 0:22:56.479 happened in the past. I mean, there's really you know, 0:22:56.800 --> 0:22:59.000 there's not been a lot of actions from China that 0:22:59.119 --> 0:23:01.760 haven't been actually done ten years ago, fifteen years ago, 0:23:01.840 --> 0:23:04.600 so forth. So you know, we're just still in this 0:23:04.640 --> 0:23:07.760 weight and see mode. I think most if you talk 0:23:07.840 --> 0:23:10.800 to most Congress folks, they're just rather happy to blast 0:23:10.880 --> 0:23:12.640 China and get the good politics from it. 0:23:13.080 --> 0:23:16.399 I'm pretty excited because Ohio looks like it's going to 0:23:16.440 --> 0:23:19.440 be the next state to legalize marijuana, and this is 0:23:19.480 --> 0:23:22.480 something that we're following very closely. Right of course, for 0:23:22.560 --> 0:23:25.199 recreational use, that would be the twenty fourth state now 0:23:25.320 --> 0:23:32.320 still federally illegal. And Nathan, you follow closely the Safe 0:23:32.359 --> 0:23:34.959 Banking Act, which I think is actually moving slowly enough 0:23:35.040 --> 0:23:37.520 that following it closely is no problem, right, But the 0:23:37.600 --> 0:23:43.080 cool thing about Ohio is Shared Brown is our senator, 0:23:43.320 --> 0:23:45.920 the Senator from the Great State of Ohio, and he's 0:23:46.000 --> 0:23:49.520 also the chairman of the Senate Banking Committee. So if 0:23:49.560 --> 0:23:52.080 it's legal in his home state, does he have then 0:23:52.200 --> 0:23:56.520 more I guess covered a push for broader legalization federally. 0:23:56.760 --> 0:23:59.640 Yeah. I mean, if Shared Brown wanted this thing done, 0:23:59.680 --> 0:24:02.480 he could have it done today. I mean, there's nothing 0:24:02.560 --> 0:24:05.399 that is prohibiting the Safe Banking Act other than Shared 0:24:05.440 --> 0:24:08.160 Brown and a couple of other senior senators. I'm both 0:24:08.200 --> 0:24:10.359 parties when it comes to the Safe Banking Act. The 0:24:10.400 --> 0:24:13.880 problem they have is or the bill has, is timing 0:24:14.000 --> 0:24:16.400 and the procedures. Now, there's a lot of people hoping 0:24:16.480 --> 0:24:18.359 that the Safe Banking Act goes as part of the 0:24:18.400 --> 0:24:20.800 funding bill that is going to come up to September. 0:24:21.000 --> 0:24:23.320 Now that's most likely going to end in a government shutdown, 0:24:23.320 --> 0:24:26.360 and Speaker McCarthy was talking about having a quick continuing, 0:24:26.840 --> 0:24:30.800 continuing lose resolution into December. That means the Safe Banking 0:24:30.880 --> 0:24:32.440 Act probably won't be assigned to that. 0:24:32.760 --> 0:24:34.240 Then you get into December. 0:24:33.880 --> 0:24:37.680 There's only eight days where Congress is meeting per month, October, November, December, 0:24:37.920 --> 0:24:40.440 and then we're in election season. So I just I'm 0:24:40.480 --> 0:24:42.800 not sure the Safe Banking Act actually has a vehicle 0:24:42.840 --> 0:24:45.960 to get the passage unless Shared Brown steps up and 0:24:46.000 --> 0:24:48.840 says I want this done today. And I have not 0:24:48.920 --> 0:24:50.920 seen anything that says that he's in. You know, he's 0:24:50.960 --> 0:24:53.600 been a lot of he's been flirting a lot of yeah, 0:24:53.680 --> 0:24:56.320 well I like this, but also this and so forth. 0:24:56.760 --> 0:24:59.880 And there's a whole issue right now on Senator Jack. 0:25:00.160 --> 0:25:02.639 It's been trying to negotiate with Republicans on and they 0:25:02.680 --> 0:25:03.959 haven't made any headway on that. 0:25:04.640 --> 0:25:06.920 What are you focusing on down there in DC legislation 0:25:06.960 --> 0:25:09.520 wise or otherwise that Matt and I are totally ignorant of. 0:25:09.680 --> 0:25:11.920 Well, the shutdown, for one, I mean just said, yeah, 0:25:11.960 --> 0:25:12.400 that's big. 0:25:12.520 --> 0:25:16.600 Well the shutdown is actually we you know, we dust 0:25:16.640 --> 0:25:18.920 off our note every two years when this comes out, 0:25:19.119 --> 0:25:21.800 and when it comes to the shutdown, markets get scared 0:25:21.840 --> 0:25:24.800 within the first two days, and then once they realize 0:25:24.840 --> 0:25:28.040 that the economic impact of a short term shutdown isn't 0:25:28.040 --> 0:25:30.360 all that great, markets actually go up. If you look 0:25:30.359 --> 0:25:32.399 at the thirty day shutdown that happened under the President 0:25:32.400 --> 0:25:36.120 of Trump administration, the markets actually were pretty much fine 0:25:36.160 --> 0:25:38.560 with it. And if you're invested in the contractors. Well, 0:25:38.600 --> 0:25:41.440 most contractors, at least the big ones, have eighteen months, 0:25:41.440 --> 0:25:44.119 two year, two and a half year contracts. So the 0:25:44.119 --> 0:25:47.640 only people that are harmed are the contractors work in Washington, 0:25:47.720 --> 0:25:49.960 DC and those of us who can't take our kids. 0:25:49.800 --> 0:25:50.280 To the zoo. 0:25:50.880 --> 0:25:53.000 See I mean when Nake and Deane you can go 0:25:53.080 --> 0:25:57.159 from China to the US government shutdown, to weed to 0:25:57.200 --> 0:25:59.960 the zoo, to the zoo all in one conversation. 0:26:01.400 --> 0:26:05.240 You're listening to the Team canser Line program Bloomberg Markets 0:26:05.280 --> 0:26:08.399 weekdays at ten am Eastern on Bloomberg dot Com, the 0:26:08.480 --> 0:26:11.600 iHeartRadio app, and the Bloomberg Business app, or listen on 0:26:11.680 --> 0:26:13.760 demand wherever you get your podcasts. 0:26:15.600 --> 0:26:18.080 Joining us since Studios. Doug Baker, He's a portfolio manager 0:26:18.240 --> 0:26:22.920 head of preferred Securities at Nouvene. Doug, I'm an issuer. 0:26:23.359 --> 0:26:27.399 Why would I consider issuing preferred stock? Sell me on it. 0:26:27.200 --> 0:26:29.040 It depends what geography you're talking about. 0:26:29.040 --> 0:26:31.080 It If you're talking about the United States, most SERI 0:26:31.160 --> 0:26:35.240 issuances from the bank and the insurance sector. Those two 0:26:35.240 --> 0:26:39.360 sectors banks in particular issue prefers primarily to meet capital requirements. 0:26:39.720 --> 0:26:42.800 Insurance companies capital requirements, but more importantly, they use prefer 0:26:42.880 --> 0:26:44.360 to help manage their ratings. 0:26:44.960 --> 0:26:48.800 So if I'm an investor, do I care if a 0:26:48.840 --> 0:26:50.640 stock is preferred or not when I buy it? 0:26:51.080 --> 0:26:51.359 Oh? 0:26:51.400 --> 0:26:56.000 Absolutely, I mean, because there are several components to the 0:26:56.080 --> 0:26:59.520 capital stock, and as a preferred investor, you're actually senior 0:27:00.080 --> 0:27:02.560 to the common investors, so that that's first off, So 0:27:02.600 --> 0:27:04.479 compared to the common shareholder, your senior. 0:27:05.760 --> 0:27:06.159 But the. 0:27:07.680 --> 0:27:11.119 Similarity with common stock is oftentimes the payments on a 0:27:11.119 --> 0:27:14.199 preferred or considered dividends. So for individuals you get that 0:27:14.240 --> 0:27:17.080 beneficial tax treatment a lot of instances. So so you're 0:27:17.200 --> 0:27:18.760 you're kind of moving up the capital stack. 0:27:19.040 --> 0:27:21.320 You're a little you're safer in the event of a bust, 0:27:21.359 --> 0:27:22.800 which hopefully doesn't happen. 0:27:23.119 --> 0:27:26.840 Yeah, yeah, you are. Arguably you are on paper you are. 0:27:27.000 --> 0:27:29.280 The reality is that it just depends on the situation. 0:27:30.240 --> 0:27:33.720 Are most preferreds are they? Are they investment grading? 0:27:34.680 --> 0:27:37.560 Well, most of the issuers are in mosted issues. So 0:27:37.840 --> 0:27:39.000 so here's how it works. 0:27:39.040 --> 0:27:42.200 If you look at the issuers on average, you're going 0:27:42.240 --> 0:27:44.040 to find that issuers are around. 0:27:43.760 --> 0:27:45.120 A single a rated institution. 0:27:45.640 --> 0:27:48.720 However, the preferreds on average are triple B rated, and 0:27:48.760 --> 0:27:52.119 it's because they're subordinate in the capital stack the rating agencies, 0:27:52.160 --> 0:27:55.080 because that subordination will knock the ratings down typically four 0:27:55.119 --> 0:27:59.320 to five notches versus the senior ratio of that same issuer. 0:27:59.400 --> 0:28:02.680 So you have exposure to investment grade rated companies. 0:28:03.000 --> 0:28:07.120 However, the securities may not necessarily reflect that through their rating. 0:28:07.119 --> 0:28:09.880 All right, So we had the little mini bank crisis. 0:28:10.320 --> 0:28:12.120 The big banks. Oh, everybody's going to pay the price 0:28:12.160 --> 0:28:15.520 with some I guess higher credit, I guess hire more, 0:28:15.560 --> 0:28:17.439 more and more restrictions. How does that impact the preferred 0:28:17.440 --> 0:28:20.640 market and their use of you know, the bank's use 0:28:20.680 --> 0:28:21.359 of the preferred market. 0:28:21.480 --> 0:28:23.240 So it's going to be, in our opinion, a lot 0:28:23.359 --> 0:28:28.120 like two thousand and seven eighty nine, where horrible, horrible 0:28:28.160 --> 0:28:31.320 situation right and earlier this year not as bad, but 0:28:31.359 --> 0:28:34.880 still pretty traumatic. But looking forward, it's going to create 0:28:34.880 --> 0:28:38.560 a great opportunity. We're going to see the regulatory environment change, 0:28:38.640 --> 0:28:41.520 which is going to benefit the credit investor, which includes 0:28:41.560 --> 0:28:43.720 the preferred investor. And one of the things that we're 0:28:43.720 --> 0:28:46.680 seeing now is a big build in capital or likely 0:28:46.680 --> 0:28:49.600 a big build in common equity capital going forward. So 0:28:50.120 --> 0:28:52.320 it's going to be at the expense of the common shareholder. 0:28:52.360 --> 0:28:54.600 It's going to dilute the return on equity, but it's 0:28:54.640 --> 0:28:58.360 going to enhance the credit profile for the credit investor, 0:28:58.360 --> 0:28:59.800 which includes the preferred investor. 0:29:00.800 --> 0:29:01.680 So what do you like? 0:29:02.280 --> 0:29:04.480 What do we like? We like the big banks. 0:29:04.720 --> 0:29:07.320 We think that there are selective opportunities even in the 0:29:07.320 --> 0:29:10.080 regional bank space. We know that that's kind of you know, 0:29:11.280 --> 0:29:13.840 some people think that the regional banks just across the 0:29:13.880 --> 0:29:14.360 board are. 0:29:15.920 --> 0:29:17.200 Risky area of our market. 0:29:17.480 --> 0:29:19.880 But if you actually do the work, you do the 0:29:19.920 --> 0:29:23.400 objective analysis, things like commercial real estate, while they're risks, 0:29:23.720 --> 0:29:26.560 a lot of these headlines that we had earlier this year, 0:29:27.080 --> 0:29:29.480 you apply some analysis, you do some stress testing on it. 0:29:29.560 --> 0:29:32.720 Indeed a risk, but more from an earning's perspective, right. 0:29:32.800 --> 0:29:36.920 So we also like some of the spaces outside of 0:29:36.960 --> 0:29:40.640 our larger sectors banks insurance, like aircraft lessors, So you 0:29:40.680 --> 0:29:44.120 have aircraft leasing companies that are benefiting from this tremendous 0:29:44.120 --> 0:29:46.360 boom in air travel and they're the ones that are 0:29:46.360 --> 0:29:50.040 financing the airplanes. And so you do have some opportunities 0:29:50.080 --> 0:29:52.680 in spaces outside of banks insurance companies to play the 0:29:52.720 --> 0:29:56.720 preferred market. But at the end of the day, most 0:29:56.720 --> 0:29:58.800 of your exposure and preferreds is going to be financial 0:29:58.800 --> 0:29:59.600 services related. 0:29:59.840 --> 0:30:02.520 Right, So when I if I buy a preferred stock, 0:30:02.760 --> 0:30:04.480 I get a fixed rate a floating rate. He does 0:30:04.480 --> 0:30:04.920 it all work? 0:30:04.960 --> 0:30:07.520 It depends what you buy, okay, And that's where I 0:30:07.520 --> 0:30:10.520 think active management can really help out, because there are 0:30:10.600 --> 0:30:12.920 preferreds out there that will just pay the same fixed 0:30:13.000 --> 0:30:14.960 rate coupon over the entire life of the security. 0:30:15.280 --> 0:30:17.200 And if that's a perpetual. 0:30:16.640 --> 0:30:19.080 Security, a lot of investors don't realize they're taking a 0:30:19.120 --> 0:30:21.880 lot of duration risks or interest rate sensitivity risk with that. 0:30:22.280 --> 0:30:25.040 But there's also a large population of securities that they 0:30:25.040 --> 0:30:27.440 may start out paying a fixed rate coupon, but down 0:30:27.480 --> 0:30:30.040 the road that coupon can adjust, and not only does 0:30:30.040 --> 0:30:32.320 that allow you to benefit from a rise and rate environment, 0:30:32.680 --> 0:30:36.440 but it also helps you control that interest rate risk, 0:30:36.560 --> 0:30:39.200 which is really I think the primary risk of those 0:30:39.240 --> 0:30:40.360 fixed rate structures. 0:30:41.400 --> 0:30:44.440 All Right, So what's the risk to the preferred market here? 0:30:44.440 --> 0:30:47.720 I mean, I guess I got concentration risk with the financials. 0:30:47.840 --> 0:30:49.840 Yeah, So that's the first one that we mentioned, and 0:30:49.880 --> 0:30:51.400 then the second one we were just touching on to 0:30:51.600 --> 0:30:55.520 interest rate risk. Okay, Now, in our opinion, we think 0:30:55.560 --> 0:30:59.400 that the interest rate risk is probably the one that 0:30:59.440 --> 0:31:03.120 we can map the best. Truly, though, when it comes 0:31:03.120 --> 0:31:06.400 to financial service exposure, there's only so much we feel 0:31:06.480 --> 0:31:10.560 you can diversify away from that, so we do oftentimes. 0:31:10.560 --> 0:31:13.680 When we're having these these discussions with investors and they 0:31:13.800 --> 0:31:15.680 like preferreds, they want to add preferreds, one of the 0:31:15.680 --> 0:31:17.320 things that we ask them to do is, hey, check 0:31:17.360 --> 0:31:19.840 the rest of your client's portfolio. See how much other 0:31:19.920 --> 0:31:23.920 financial service exposure is there already, because you don't want 0:31:23.920 --> 0:31:26.400 to have them take an unintended bet on a sector 0:31:26.480 --> 0:31:28.160 unless they mean to do so. 0:31:29.080 --> 0:31:30.200 How do you first get into this? 0:31:30.640 --> 0:31:30.880 Was it? 0:31:31.040 --> 0:31:32.840 Were you doing your CFA and you're like, hey, I 0:31:32.920 --> 0:31:33.480 like this section. 0:31:34.080 --> 0:31:36.680 Well he went to the Here we Go University, Chicago 0:31:36.720 --> 0:31:39.720 Graduate School of the Business, which I love. The GSB Moniker. 0:31:39.920 --> 0:31:42.840 They've now received the kajillion dollars from mister Booth, so 0:31:42.880 --> 0:31:44.120 it's a Booth School of Business. 0:31:44.160 --> 0:31:44.640 I get it. 0:31:44.920 --> 0:31:48.680 But I'm a GS big guy. There's not a bum 0:31:48.840 --> 0:31:51.960 I've done like a dozen Chicago NBA guys. There's not 0:31:52.000 --> 0:31:52.480 a bumm in THEO. 0:31:52.600 --> 0:31:54.000 But they're they're all math people. 0:31:54.160 --> 0:31:56.560 Yeah, well, yeah, they're geeky that way the math even 0:31:56.560 --> 0:31:59.280 our listen there are Bramowitz, who is super smart. She's 0:31:59.480 --> 0:32:03.760 undergraduate at Chicago. So they're all good. So anyway, but but. 0:32:03.600 --> 0:32:06.360 Prefers, did you pick this or were you at Neuvien? 0:32:06.400 --> 0:32:08.280 And they were like, somebody's got to do a preferred man, 0:32:08.320 --> 0:32:08.600 it's you. 0:32:09.040 --> 0:32:11.640 I hate to say it, but it's the latter. So 0:32:11.920 --> 0:32:13.520 when I first came into Nouvene, I was actually a 0:32:13.560 --> 0:32:17.360 derivatives guy. Yes, would you sure? And I don't tell 0:32:17.360 --> 0:32:19.880 many people this, but I was a derivative sales. 0:32:19.520 --> 0:32:21.000 Guy at Lehman Brothers. 0:32:21.160 --> 0:32:23.480 Okay, so that doesn't come up very often anymore, you know, 0:32:23.560 --> 0:32:23.800 you don't. 0:32:23.920 --> 0:32:24.479 That's awesome. 0:32:24.600 --> 0:32:26.720 So if I'm a banker, If I'm a banker and 0:32:26.760 --> 0:32:30.120 I'm doing a new issue for Wells Fargo, You're like 0:32:30.160 --> 0:32:32.280 one of my first calls. Right, you're a big buyer 0:32:32.320 --> 0:32:32.960 in the marketplace. 0:32:33.000 --> 0:32:35.160 I would hope, I would hope we're up there. Yeah. 0:32:35.280 --> 0:32:39.280 So we're typically having the conversations with syndicate desks in 0:32:39.320 --> 0:32:40.440 advance of a deal coming. 0:32:40.520 --> 0:32:43.040 They're whining and dining you. They're the guy. You're the 0:32:43.080 --> 0:32:44.520 guy that they need to get to. 0:32:44.960 --> 0:32:47.680 Yeahs kind of gone the way of the dinosaur. 0:32:47.800 --> 0:32:51.000 We don't get this. But what we do is we 0:32:51.040 --> 0:32:52.160 give them the feedback. 0:32:52.240 --> 0:32:54.840 We're going to be one of the largest typically players 0:32:54.840 --> 0:32:57.000 in a book or in a deal for someone like that, 0:32:57.600 --> 0:32:59.760 you know, so our larger competitors are gonna get the 0:32:59.760 --> 0:33:01.800 phone call too. But the nice thing about that is 0:33:02.120 --> 0:33:04.760 we get to help drive the terms of the deal 0:33:05.080 --> 0:33:06.600 in favor of our investors. 0:33:06.600 --> 0:33:08.200 So yeah, we're typically the. 0:33:08.080 --> 0:33:10.520 Ones that will get, you know, the phone calls before 0:33:10.520 --> 0:33:12.720 the deal really comes to market to get a you know, 0:33:12.920 --> 0:33:14.200 temperature check of what we're looking for. 0:33:14.280 --> 0:33:15.880 So when Paul was on the street, it was all 0:33:15.920 --> 0:33:18.320 and I'm sure when you started as well, you were 0:33:18.360 --> 0:33:21.560 flying everywhere twice a week, you were living out of 0:33:21.560 --> 0:33:25.520 a hotel half the time, constantly face to face meetings. 0:33:25.600 --> 0:33:27.200 And now is it completely changed. 0:33:27.360 --> 0:33:29.920 It's actually going back to that oh yeah, back, yeah, 0:33:30.080 --> 0:33:33.120 So we're doing I mean, I think we're the virtual 0:33:33.520 --> 0:33:37.840 you know kind of remote meetings are That's going to 0:33:37.880 --> 0:33:39.840 be still a big component of it. But yeah, I 0:33:39.880 --> 0:33:42.040 think feet on the ground and I think getting involved 0:33:42.080 --> 0:33:44.080 with folks face to face in a room. 0:33:44.720 --> 0:33:46.719 Look, there's just better communication. 0:33:46.240 --> 0:33:48.480 That way, and it also builds a level of trust 0:33:48.520 --> 0:33:50.400 that Hey, you know, it's easy for me to say 0:33:50.400 --> 0:33:52.800 on the phone, like, yeah, we're gonna have interest at 0:33:52.840 --> 0:33:55.200 this type of level, but to do that in person, 0:33:55.400 --> 0:33:57.360 I think there's just a different connection there. And I 0:33:57.360 --> 0:33:59.520 think having that level of trust with you know, our 0:33:59.560 --> 0:34:03.080 partners on the syndicate side, with our investors is truly important. 0:34:03.080 --> 0:34:05.800 So that FaceTime, that in person travel has really picked up, 0:34:05.920 --> 0:34:07.360 i would say, over the past years. 0:34:07.360 --> 0:34:09.160 So, how many new issues do you guys at Moving 0:34:09.239 --> 0:34:11.520 buy like you for your preferred fund? 0:34:11.640 --> 0:34:13.840 Like, there haven't been many lately, and this out this 0:34:13.920 --> 0:34:16.120 is one of the technicals to our market that's been 0:34:16.239 --> 0:34:18.919 incredibly supportive valuations and it's going to stay this way. 0:34:19.040 --> 0:34:22.520 We've had more preferreds redeemed this year than new issue 0:34:22.520 --> 0:34:25.359 can keep up with. So yeah, and part of it 0:34:25.400 --> 0:34:28.200 is that, you know, as the economy slows, our outlook 0:34:28.239 --> 0:34:30.040 is banks aren't going to need as much capital because 0:34:30.040 --> 0:34:34.240 they're balance sheet shrinks, right, not as many people want loans, 0:34:34.600 --> 0:34:36.480 and if they're not making loans all, the size of 0:34:36.560 --> 0:34:39.520 balance sheet shrinks, and their capital is measured as a 0:34:39.560 --> 0:34:42.919 percent of their balance sheet. So we're seeing more redemptions 0:34:42.960 --> 0:34:45.360 and we're seeing new issuance, but when new issuance comes, 0:34:46.120 --> 0:34:49.279 use of proceeds as almost to refinance or to call 0:34:49.320 --> 0:34:50.520 an existing preferred. 0:34:50.320 --> 0:34:52.799 And it gets snapped up because people are looking for 0:34:52.840 --> 0:34:53.880 the prefers. There's no supply. 0:34:53.960 --> 0:34:56.319 They're looking to reinvest their cash, and luckily for them, 0:34:56.320 --> 0:34:58.759 they're in this interest rate environment. The structures that we're 0:34:58.760 --> 0:35:02.359 seen are very attractive, talking mid seven percent type coupons 0:35:02.800 --> 0:35:06.000 with adjustable rate, you know, a component down the road 0:35:06.040 --> 0:35:06.440 after the. 0:35:06.360 --> 0:35:10.040 First call date. You know, it would be a little 0:35:10.040 --> 0:35:10.960 bit more concerned if we. 0:35:10.880 --> 0:35:13.200 Were in a low interest rate environment and folks didn't 0:35:13.239 --> 0:35:15.720 have this attractive opportunity. We do think that the Yeffords 0:35:15.760 --> 0:35:17.600 are coming to market today are going to be a 0:35:17.680 --> 0:35:19.600 rare vintage because of these higher coupons. 0:35:19.600 --> 0:35:20.680 He's attractive structure. 0:35:20.760 --> 0:35:24.440 So so more often than not, we're participating in the 0:35:24.440 --> 0:35:25.480 new deals that we do see. 0:35:25.560 --> 0:35:27.960 All Right, Doug Baker, he is our go to preferred guy, right, 0:35:28.000 --> 0:35:30.120 He's our go to preferred guy, portfolio manager, the head 0:35:30.120 --> 0:35:32.080 of preferred securities at NOVENE. 0:35:32.360 --> 0:35:35.480 You're listening to the tape. Catch are live program Bloomberg 0:35:35.520 --> 0:35:39.120 Markets weekdays at ten am Eastern on Bloomberg Radio. The 0:35:39.160 --> 0:35:42.399 tune in app Bloomberg dot Com and the Bloomberg Business App. 0:35:42.440 --> 0:35:45.279 You can also listen live on Amazon Alexa from our 0:35:45.280 --> 0:35:50.320 flagship New York station Just Say Alexa playing Bloomberg eleven thirty. 0:35:51.040 --> 0:35:54.200 Let's get right to our next guest, Caroline Frederickson, Distinguished 0:35:54.320 --> 0:35:58.239 Visiting Professor at Georgetown Law. Caroline, thanks so much for 0:35:58.320 --> 0:36:00.000 joining us. We love to start as it relates to 0:36:00.400 --> 0:36:05.400 former President Trump and his legal challenges. Why maybe just 0:36:05.400 --> 0:36:07.360 give us a sense of kind of where his greatest 0:36:07.400 --> 0:36:11.160 exposure is with these four issues that he's facing. From 0:36:11.160 --> 0:36:13.440 your perspective, well, I. 0:36:13.360 --> 0:36:16.480 Mean, they're actually therefore prosecutions, but there are a lot 0:36:16.560 --> 0:36:22.480 more than four issues, so you know, it looks I mean, 0:36:22.480 --> 0:36:26.120 I guess I would. I would start by talking about 0:36:26.120 --> 0:36:30.160 which are the most consequential. We could look at both 0:36:30.200 --> 0:36:33.720 the cases that are brought in DC. The federal case 0:36:34.680 --> 0:36:38.640 focusing on January sixth, and the Georgia case is really 0:36:38.640 --> 0:36:43.680 being central to the concern that we have about President 0:36:43.680 --> 0:36:49.319 Trump allegedly trying to undermine our very democratic system. The 0:36:49.360 --> 0:36:52.839 other two cases, albeit important, don't have the same kind 0:36:52.880 --> 0:36:59.680 of real existential issues for the United States of America 0:37:00.200 --> 0:37:03.839 continuing to exist as a democracy. Now in terms of 0:37:03.880 --> 0:37:08.560 what the you know, sort of the ultimate greatest danger 0:37:08.640 --> 0:37:10.480 is for Donald Trump. I mean, we'll still have to 0:37:10.520 --> 0:37:14.359 see how this will unfold because we haven't seen either 0:37:14.400 --> 0:37:16.839 of the prosecutors lay out their case. I think they're 0:37:17.000 --> 0:37:20.520 There are a couple of different theories here, and one 0:37:20.560 --> 0:37:29.040 is that the approach taken by the Department of Justice, 0:37:29.320 --> 0:37:33.279 which has been not to name the the the so 0:37:33.360 --> 0:37:38.600 far unindicted co conspirators, but to really move in a 0:37:38.640 --> 0:37:42.399 different in a different and more focused way, is one 0:37:42.440 --> 0:37:45.919 strategy to try and really focus the attention on Donald Trump, 0:37:46.080 --> 0:37:49.479 perhaps behind the scenes, to try and negotiate with those 0:37:49.520 --> 0:37:51.719 who haven't been named yet in the federal lawsuit, to 0:37:51.800 --> 0:37:54.120 include some of the same people who are actually named 0:37:55.200 --> 0:38:01.560 in the Georgia State prosecution, the Fulton County prosecutor in 0:38:01.600 --> 0:38:06.480 that case. You know, you have nineteen defendants and forty 0:38:06.520 --> 0:38:11.840 one charges, and I think they're taking a very different strategy, 0:38:11.840 --> 0:38:15.160 which is very narrative, which is telling a story and 0:38:15.320 --> 0:38:19.880 working on the potential of the defendants. They're turning on 0:38:19.960 --> 0:38:23.160 each other, some of them taking plea deals and so forth. 0:38:23.239 --> 0:38:26.279 So they're both very consequential for the president. It's really 0:38:26.320 --> 0:38:31.520 hard to say they have both significant prison time for 0:38:31.640 --> 0:38:33.160 you if he is prosecuted. 0:38:33.400 --> 0:38:37.480 I want to ask Professor about something I saw on 0:38:37.520 --> 0:38:39.880 the Times over the weekend that I think a lot 0:38:39.920 --> 0:38:44.400 of people probably read, bringing up the possibility that according 0:38:44.400 --> 0:38:48.360 to the original meeting of the fourteenth Amendment, Donald Trump 0:38:48.600 --> 0:38:52.040 is ineligible to hold government office. And there was a 0:38:52.080 --> 0:38:56.440 paper written by a couple of a couple of I 0:38:56.440 --> 0:39:01.200 guess attorneys that are or were associated with the Federalist Society. 0:39:01.320 --> 0:39:04.560 So this is coming from a fairly conservative group, right, 0:39:05.080 --> 0:39:11.520 in which they argue that because he essentially engaged in insurrection, 0:39:12.080 --> 0:39:15.880 he is barred from holding office due to this amendment 0:39:15.920 --> 0:39:18.279 that was put in place after the Civil War. Does 0:39:18.320 --> 0:39:19.840 that hold any water do you think? 0:39:20.640 --> 0:39:22.640 I think it's a very strong argument. And first of all, 0:39:22.640 --> 0:39:24.919 i'd say they're actually law professors, one of them, Will 0:39:24.960 --> 0:39:27.239 bode Is at the University of. 0:39:27.280 --> 0:39:30.920 Chicago exactly, and Michael Stokes Paulson from the University of 0:39:30.920 --> 0:39:31.960 Saint Thomas. 0:39:32.480 --> 0:39:35.759 And they're very conservative, associated with the Federalist Society, as 0:39:35.760 --> 0:39:39.400 you said, but also originalists. And I think in the 0:39:39.480 --> 0:39:42.320 sense that they that they went back and they looked 0:39:42.360 --> 0:39:46.719 through a lot of the documentation around the around the 0:39:46.719 --> 0:39:51.960 debates around the amendments adoption, and it was clear they 0:39:51.960 --> 0:39:56.160 were not just focused on of those who've been guilty 0:39:56.160 --> 0:40:02.440 of treason during the Civil War the Confederates, but was 0:40:02.480 --> 0:40:05.760 meant to be prospective and keep people who have taken 0:40:05.800 --> 0:40:09.879 an oath of office to the United States from being 0:40:09.920 --> 0:40:17.000 eligible to serve again in such positions of trust. There 0:40:17.040 --> 0:40:20.920 has been one successful effort so far to put some 0:40:21.080 --> 0:40:23.120 keep somebody off the ballot, and that was brought by 0:40:23.239 --> 0:40:26.640 group called Citizens for Responsibility and Ethics in Washington against 0:40:27.480 --> 0:40:32.359 somebody who participated in January sixth insurrection, and they kept 0:40:32.440 --> 0:40:37.080 him from being able to to get elected. So I 0:40:37.080 --> 0:40:41.439 think it's a very strong argument, and I think it's 0:40:41.480 --> 0:40:43.319 going to We're going to see how that will play 0:40:43.360 --> 0:40:47.279 out as election officials take action from parts of. 0:40:47.200 --> 0:40:50.439 The count Carolyn, what's your sense of the timeline here 0:40:50.840 --> 0:40:55.800 with these four cases? When will the first one? I guess, 0:40:56.640 --> 0:40:59.919 I guess, I guess what's the timeline as you understand it? 0:41:01.080 --> 0:41:03.719 Well, it's very fluid right now. I mean, I think 0:41:03.960 --> 0:41:10.160 the Special Prosecutor UH is trying to move forward as 0:41:10.239 --> 0:41:14.080 expeditiously as possible, and it looks like they're going to 0:41:14.160 --> 0:41:16.120 try and get that trial started before the end of 0:41:16.120 --> 0:41:18.520 the year. I mean, these things are you know, UH 0:41:19.040 --> 0:41:24.040 can keep changing. The mar Lago documents case looks like 0:41:24.080 --> 0:41:29.960 it's going to start really underway in spring. The Fulton 0:41:30.040 --> 0:41:34.960 County prosecution in Georgia. I think that's you know, they 0:41:35.000 --> 0:41:39.640 have an interesting schedule that speedy trial rule that means 0:41:39.680 --> 0:41:43.479 that anyone of those defendants can demand speedy trial, which 0:41:43.840 --> 0:41:48.200 can really accelerate the pace of this that prosecution, meaning 0:41:48.200 --> 0:41:51.879 that it could even be starting or you know, mid 0:41:52.000 --> 0:41:56.560 mid fall, you know, October, November and uh, and those 0:41:56.640 --> 0:41:59.520 cases could be divided because they could because some of 0:41:59.520 --> 0:42:03.879 the defendant might commit you'll agree to a plea or 0:42:03.920 --> 0:42:05.200 otherwise get severed. 0:42:05.480 --> 0:42:08.200 All right, well off the obviously fluid situation, as you mentioned, 0:42:08.200 --> 0:42:09.719 will stay on top of it. Thank you very much 0:42:09.760 --> 0:42:14.839 for your time, Caroline Frederickson Distinguish visiting professor at Georgetown Law, 0:42:14.920 --> 0:42:16.640 trying to give us a little bit more clarity as 0:42:16.680 --> 0:42:19.960 this legal issues of the former president continue. 0:42:20.120 --> 0:42:23.239 You're listening to the tape Cat's are Live program Bloomberg 0:42:23.320 --> 0:42:26.920 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:42:26.960 --> 0:42:30.200 tune in app, Bloomberg dot Com, and the Bloomberg Business app. 0:42:30.239 --> 0:42:33.040 You can also listen live on Amazon Alexa from our 0:42:33.080 --> 0:42:38.160 flagship New York station. Just say Alexa, play Bloomberg eleven thirty. 0:42:38.719 --> 0:42:41.719 All right, let's talk about the housing market. The residential 0:42:41.760 --> 0:42:45.080 real estate market. US mortgage rate climbs to seven point 0:42:45.080 --> 0:42:48.600 one six percent, matching the highest sense two thousand and one. 0:42:48.880 --> 0:42:49.800 That gets your attention. 0:42:49.840 --> 0:42:53.080 Potentially have great credit. Yeah, and that's the gold standard 0:42:53.160 --> 0:42:54.759 mortgage rate, because if you look at bank Rade, we're 0:42:54.800 --> 0:42:56.080 already up over seven and a half. 0:42:56.080 --> 0:42:58.120 That's right, Yeah, that's right. So we need to figure 0:42:58.120 --> 0:42:59.600 out what's happening out there and what it means for 0:42:59.640 --> 0:43:02.359 this market. Lisa's a sturt event. She joins us. She's 0:43:02.360 --> 0:43:06.360 a chief economist at Bright MLS. Lisa, we had some 0:43:06.480 --> 0:43:10.880 housing data come out today. Housing starts pretty strong, I 0:43:10.880 --> 0:43:13.319 guess the housing industries, the homebuilders are trying to meet 0:43:13.320 --> 0:43:16.000 the demand out there. But what's going on in a 0:43:16.040 --> 0:43:18.239 residential real estate market today? How would you characterize it? 0:43:19.000 --> 0:43:21.839 Yeah, it's such a strange market, housing market, isn't it. 0:43:21.840 --> 0:43:25.840 It's housing has really confounded expectations in so many ways. 0:43:26.480 --> 0:43:29.760 You point to the homebuilder data this morning, New housing 0:43:29.760 --> 0:43:32.279 starts are up from a year ago, up from last month. 0:43:32.840 --> 0:43:36.759 We're seeing that home bolders are really responding not only 0:43:36.880 --> 0:43:39.680 to the demand in the housing market, which has stayed 0:43:40.080 --> 0:43:43.719 surprisingly resilient despite those higher mortgage rates, but they're really 0:43:43.719 --> 0:43:47.560 responding to the fact that inventory is really at near 0:43:47.680 --> 0:43:51.480 record lows and there really is so little for prospective 0:43:51.520 --> 0:43:54.399 home barers to choose from. Home builders are ramping up. 0:43:54.920 --> 0:43:58.000 The amount of inventory that's accounted for by new home 0:43:58.040 --> 0:44:01.800 construction is at its highest level really in the last 0:44:01.800 --> 0:44:04.920 couple of decades, and it's been a really strong housing market. 0:44:05.080 --> 0:44:07.759 We may be, though, prepared to see some changes in 0:44:07.800 --> 0:44:09.040 the market as we head into fall. 0:44:10.160 --> 0:44:13.600 So what what do you think the catalyst for that 0:44:13.719 --> 0:44:17.000 will be, Because I don't know what's going to move 0:44:17.080 --> 0:44:19.080 us out of this stalemate that we're kind of in 0:44:19.160 --> 0:44:22.680 right now. Owners who have low mortgages don't want to sell, 0:44:23.120 --> 0:44:26.640 and buyers can't afford the high mortgages or the prices 0:44:28.040 --> 0:44:28.680 right right. 0:44:28.719 --> 0:44:31.359 So you know, we sort of expected back a year ago, 0:44:31.400 --> 0:44:34.520 when the Fed started raising rates and mortgage rates were rising, 0:44:34.560 --> 0:44:37.040 that we would see a real strong pullback in demand, 0:44:37.120 --> 0:44:41.040 maybe home prices would fall, but in fact, aside from 0:44:41.719 --> 0:44:45.319 a slowdown late last year. We've seen buyers back in 0:44:45.360 --> 0:44:50.200 the market in record numbers in the spring, primarily because 0:44:50.520 --> 0:44:53.440 there's just such strong demand for home ownership. A lot 0:44:53.440 --> 0:44:56.000 of folks have record levels of equity in their homes 0:44:56.040 --> 0:44:58.400 that they're able to roll into a home purchase in 0:44:58.440 --> 0:45:01.359 a sense from buying down at higher rate. But as 0:45:01.400 --> 0:45:03.680 you point out, the real reason why home prices have 0:45:03.719 --> 0:45:06.959 remained firm so far is inventory has been locked down, 0:45:07.160 --> 0:45:10.120 as many homeowners are in those sort of golden handcuffs 0:45:10.160 --> 0:45:13.200 of lower rates. But I think we're at a point 0:45:13.239 --> 0:45:15.480 now where there's just a lot of fatigue in the 0:45:15.520 --> 0:45:19.480 housing market, and rates surpassing seven or even seven and 0:45:19.560 --> 0:45:22.799 a half percent could be what send us to a 0:45:22.920 --> 0:45:26.480 much slower market in terms of transaction level here this fall. 0:45:27.000 --> 0:45:30.359 So a lot of folks are wondering, like myself, when 0:45:30.400 --> 0:45:33.239 mortgage rates are going to decline it? And is there 0:45:33.280 --> 0:45:37.080 a level that once we get there, that I may 0:45:37.120 --> 0:45:39.840 be free up some activity here? Is it five percent? 0:45:39.880 --> 0:45:41.799 Is it six percent? Is it four percent? Is there 0:45:42.080 --> 0:45:44.640 a rate where you think it would kind of thall 0:45:44.719 --> 0:45:45.560 out this market? 0:45:46.200 --> 0:45:46.480 Sure? 0:45:46.600 --> 0:45:48.920 Yeah, right, it's not going to be three percent, right, 0:45:48.920 --> 0:45:50.359 It's not going to be back to where we were 0:45:50.440 --> 0:45:52.839 during the pandemic. I don't think it has to come 0:45:52.920 --> 0:45:55.960 down even to four or five percent to help free 0:45:56.080 --> 0:45:59.160 up some sellers who may be waiting to move but 0:45:59.280 --> 0:46:00.680 feeling that final pinch. 0:46:00.960 --> 0:46:01.120 You know. 0:46:01.200 --> 0:46:03.600 One thing that we're tracking really closely is the fact 0:46:03.640 --> 0:46:05.839 that the spread between the yield on the ten year 0:46:05.880 --> 0:46:09.080 Treasury and the thirty year fixed rate mortgage still remains 0:46:09.200 --> 0:46:13.680 quite wide. So even though mortgage rates will remain relatively 0:46:14.000 --> 0:46:16.719 elevated here in the latter half of twenty twenty three, 0:46:17.360 --> 0:46:20.240 if we do expect and I think we do expect, 0:46:20.239 --> 0:46:23.560 that gap between treasury yields and rates to begin to narrow, 0:46:23.600 --> 0:46:26.080 and we could see rates come down to below six 0:46:26.160 --> 0:46:29.000 percent next year, which I think is what will be 0:46:29.120 --> 0:46:31.080 enough to bring more sellers from the sidelines. 0:46:31.120 --> 0:46:34.399 What's an historical what's a rule of thumb in terms 0:46:34.440 --> 0:46:37.480 of that spread? Where is it typically or has it 0:46:37.520 --> 0:46:39.160 been over say, the last twenty years. 0:46:39.320 --> 0:46:42.520 Yeah, we're typically around maybe one point eight two percentage points, 0:46:42.520 --> 0:46:44.360 So we're now up at three percentage points. 0:46:44.840 --> 0:46:51.799 Ah, So historically we should see mortgage rates about six, right, 0:46:52.000 --> 0:46:54.080 and we're looking at a little bit more than seven. 0:46:54.880 --> 0:46:56.919 That's right, and so if you imagine sort of as 0:46:56.920 --> 0:46:58.600 we move through the rest of the year that we 0:46:58.680 --> 0:47:02.920 could we should expect rates to come down, maybe settling 0:47:02.960 --> 0:47:04.719 around six and a half percent by the end of 0:47:04.719 --> 0:47:07.080 the year, and continue to come down further as we. 0:47:07.040 --> 0:47:07.879 Head into next year. 0:47:08.320 --> 0:47:10.560 All right, So I guess I'm refinancing. I guess with 0:47:10.560 --> 0:47:11.200 a five handle. 0:47:11.400 --> 0:47:16.120 So right, what about Paul top ticked the mortgage market, 0:47:16.960 --> 0:47:19.160 but he got an arm so he's ready to move 0:47:19.160 --> 0:47:21.000 in and pounds when they rates come back down. What 0:47:21.080 --> 0:47:23.920 about new supply coming on the market, So we know 0:47:24.000 --> 0:47:27.560 that there is there are very little transactions in terms 0:47:27.560 --> 0:47:31.560 of previously owned homes. Our builders out there putting up 0:47:31.600 --> 0:47:33.759 new supply like crazy so they can get them into 0:47:33.760 --> 0:47:37.040 the hands of home buyers who are willing to either 0:47:37.080 --> 0:47:40.160 pay cash or go with a seven percent mortgage. Yeah. 0:47:40.200 --> 0:47:43.120 You know, there's been a long period of time during 0:47:43.120 --> 0:47:46.120 which homebuilders had a really tough time with supply chain issues, 0:47:46.160 --> 0:47:49.359 difficulty getting materials and labor. And now over the last 0:47:49.400 --> 0:47:53.280 few months, we've really seen homebuilders ramp up construction because 0:47:53.320 --> 0:47:56.640 there's just simply no other inventory out there and they 0:47:56.719 --> 0:48:01.080 are having to do things to entice buyers in though 0:48:01.360 --> 0:48:04.600 we're seeing more builder financing. 0:48:04.680 --> 0:48:07.920 We're seeing the builder financing at lower rates, right, Lisa, 0:48:08.120 --> 0:48:08.799 that's right, that's right. 0:48:08.800 --> 0:48:11.759 I'm sorry, Billage offering financing at lower rates to help 0:48:11.760 --> 0:48:14.760 bring more buyers in. What we're not seeing is builders 0:48:14.840 --> 0:48:19.400 dropping prices of new construction yet, and maybe they won't 0:48:19.440 --> 0:48:21.200 have to as we head through the rest of the year. 0:48:21.239 --> 0:48:24.359 But we are seeing, you know, some sort of give 0:48:24.400 --> 0:48:28.200 backs in terms of upgrades and other things. But right now, 0:48:28.480 --> 0:48:30.279 there are a lot of home buyers who are on 0:48:30.400 --> 0:48:32.840 the lots of new houses and they didn't expect to be, 0:48:33.160 --> 0:48:35.120 but that's where they are because that's what's available for 0:48:35.120 --> 0:48:35.440 saying I. 0:48:35.440 --> 0:48:36.880 Mean, why would you drop the price. You put up 0:48:36.920 --> 0:48:41.360 a bunch of McMansions and you know, Connecticut commutable area, 0:48:41.480 --> 0:48:43.160 and then you can if you say, hey, we'll give 0:48:43.200 --> 0:48:45.359 you a four point nine to nine percent mortgage, people 0:48:45.360 --> 0:48:47.440 are like, wow, okay, whatever you want. 0:48:48.640 --> 0:48:50.640 Right, And it definitely is region specific. 0:48:50.680 --> 0:48:50.839 Right. 0:48:50.840 --> 0:48:53.600 We have some parts of the country we're not seeing 0:48:53.600 --> 0:48:56.320 as much home building. Here in the Washington area, for example, 0:48:56.360 --> 0:49:00.319 we're still seeing home prices of existing homes rising as 0:49:00.360 --> 0:49:02.719 demand has slowed, and that's simply because we're not seeing 0:49:02.760 --> 0:49:04.960 a lot of new construction that's been coming online. 0:49:05.160 --> 0:49:08.040 So when the home builders are out there building and 0:49:08.080 --> 0:49:13.000 again building permits, housing starts up three three point nine 0:49:13.080 --> 0:49:17.800 percent month on month, much better than forecast here this morning. 0:49:18.440 --> 0:49:20.960 What are they building? Are they building those McMansions or 0:49:20.960 --> 0:49:23.640 are they building what the market really needs, which are 0:49:23.800 --> 0:49:24.520 starter homes. 0:49:25.560 --> 0:49:27.719 Well, the market needs starter homes for sure, but it 0:49:27.760 --> 0:49:30.680 has been a long time since we've seen new construction 0:49:30.800 --> 0:49:32.960 really be the main supplier of starter homes. 0:49:33.239 --> 0:49:33.959 But what we are. 0:49:33.920 --> 0:49:37.080 Seeing is a range of new construction activity in that 0:49:37.120 --> 0:49:40.279 middle market as well as that luxury market, which then 0:49:40.400 --> 0:49:44.799 allows the starter homes in the existing stock to be 0:49:44.880 --> 0:49:47.399 vacated where folks are able to move up. I mean, 0:49:47.400 --> 0:49:51.320 it's part of a whole housing ladder, right, But because 0:49:51.320 --> 0:49:53.799 of the cost of materials, the cost of labor, the 0:49:53.800 --> 0:49:58.600 cost of local regulation for home builders, it's really financially 0:49:58.680 --> 0:50:01.520 challenging for a builder to build at very. 0:50:01.360 --> 0:50:02.240 Low home prices. 0:50:02.320 --> 0:50:04.320 So we really seeing sort of bin market and luxury 0:50:04.320 --> 0:50:05.920 construction by and large. 0:50:06.200 --> 0:50:07.799 What about multifamily. 0:50:08.719 --> 0:50:13.080 Multi Yeah, the rental market has been certainly going like 0:50:13.120 --> 0:50:16.720 gangbusters in many markets. In fact, we've seen that rents 0:50:16.719 --> 0:50:18.520 are beginning to come down year over year. On a 0:50:18.560 --> 0:50:22.200 national basis, rents are down in many markets across the US. 0:50:22.680 --> 0:50:27.000 This is all happening despite the fact that mortgage rates 0:50:27.000 --> 0:50:30.880 are higher. We're seeing just more new rental construction coming online, 0:50:30.880 --> 0:50:33.320 which is giving renters more options. So if we're looking 0:50:33.400 --> 0:50:36.720 for some sort of bright side in the housing market, 0:50:36.880 --> 0:50:39.000 people who are in the rental market are finding more 0:50:39.440 --> 0:50:42.080 options and are finding rents stabilizing, are coming down. 0:50:42.640 --> 0:50:44.440 Heylly, so thanks so much for joining us. I really 0:50:44.480 --> 0:50:47.520 appreciate getting your thoughts here. Lisa Sturt, event chief e 0:50:47.560 --> 0:50:49.440 Commerce for Bright MLS. 0:50:49.600 --> 0:50:52.680 Thanks for listening to the Bloomberg Markets podcast. You can 0:50:52.719 --> 0:50:56.520 subscribe and listen to interviews at Apple Podcasts or whatever 0:50:56.600 --> 0:51:00.240 podcast platform you prefer. I'm Matt Miller. I'm on Twitter 0:51:00.520 --> 0:51:02.439 at Matt Miller nineteen seventy three. 0:51:02.880 --> 0:51:05.280 And I'm Paul Sweeney. I'm on Twitter at pt Sweeney. 0:51:05.400 --> 0:51:08.040 Before the podcast, you can always catch us worldwide at 0:51:08.080 --> 0:51:08.799 Bloomberg Radio.