Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am
Speaker 1: Eastern on Apple card playing and Broid Auto with the
Speaker 1: Bloomberg Business app. Listen on demand wherever you get your podcasts,
Speaker 1: or watch us live on YouTube.
Speaker 2: So lion Elbasel. If you don't know the company, takers
Speaker 2: lyb It's basically a chemicals company. It's thirty billion dollar
Speaker 2: chemicals company, think things like plastic. It is also doing
Speaker 2: a lot of shift into sustainability, retrofitting certain plans to
Speaker 2: make greener stuff. And this stuff is important because it's
Speaker 2: things we use every single day and the most mundane things,
Speaker 2: and it's difficult to really decarbonize those sectors. Joining us
Speaker 2: now is Tracy Campbell, Executive VP of Sustainability and Corporate Affairs,
Speaker 2: but she's held many positions within the company.
Speaker 3: Tracy, great to see you.
Speaker 4: Thank you. It's a pleasure to be here, and who
Speaker 4: doesn't want to be in midtown Manhattan on a day
Speaker 4: like today. Thank you.
Speaker 2: That means it's nice out right. Okay, we'll take your reustry.
Speaker 2: So let's just start with the macro for a second,
Speaker 2: because for those for those viewers who don't know. Devis
Speaker 2: Hell makes all the stuff we need, plastics, ethylene, all
Speaker 2: the things. How's it going, like, what's demand like right now?
Speaker 4: You know, demand has been very steady, certainly in the Americas,
Speaker 4: and I think demand got a bit of a boost
Speaker 4: yesterday the economy did as well. So we're excited about that.
Speaker 4: And while yes, some of the global markets are substantially weak. China,
Speaker 4: for example, is an important market, but we're not as
Speaker 4: exposed there as others. And of course you're up's a
Speaker 4: bit slow to recover as well. But no, we're really
Speaker 4: excited about about the demand that we're seeing here in
Speaker 4: the Americas. And I've been in the industry for more
Speaker 4: than thirty five years. I've lived through this cycle of
Speaker 4: low demand and strong demand, and we don't subscribe to
Speaker 4: this doom and gloom that you hear out there. So
Speaker 4: we're excited about the recovery that we're going to see because,
Speaker 4: as you said, Alex, we make the materials that people
Speaker 4: count on every single day, and that's fundamentally not changing.
Speaker 5: How does a company like yours and any global petro
Speaker 5: chemical company, plastics company, how do they balance the business requirements,
Speaker 5: grow the business, invest delivered profits for shareholders, and then
Speaker 5: make this transition to maybe a cleaner business. How do
Speaker 5: you guys balance that?
Speaker 4: In general, we see it as an end When you
Speaker 4: think about the value play that we have for more
Speaker 4: sustainable products, whether they're more circular, perhaps they're low emission products.
Speaker 4: We believe that that's a value proposition for the company
Speaker 4: as itself, and we have a play there because we
Speaker 4: can bring these products to market at scale. We're not
Speaker 4: doing it for the greater good of society, while that's
Speaker 4: an added benefit, We're doing it because we believe it's
Speaker 4: a creative to earnings in the long run. So there
Speaker 4: are consumers and brand owners out there that are looking
Speaker 4: for those materials.
Speaker 3: So in what sense does this happen.
Speaker 2: Is it like we're going to use greener feedstock to
Speaker 2: make stuff, Is it we're going to use alternative energy,
Speaker 2: renewable energy to run our plant? Or is it we're
Speaker 2: going to capture any sort of emissions? And then with it,
Speaker 2: like what's the strategy?
Speaker 4: There are multiple strategies there, and I think you hit
Speaker 4: on quite a few of them. If you think about
Speaker 4: our strategy as a company. We still believe that our
Speaker 4: core petrochemical business is here to stay. However, we can
Speaker 4: change the way we operate the feedstocks we use the
Speaker 4: type of like you said, renewable energy and things like
Speaker 4: that to lower the emissions that are being generated as
Speaker 4: we make these materials. You know, another core piece of
Speaker 4: our strategy is to really again leveraging our core business
Speaker 4: to fund a much less capital intensive ecosystem for circular products,
Speaker 4: for things waste materials being brought back into our system
Speaker 4: and using those as the feedstocks essentially for the products
Speaker 4: of the future. So really, there is renewable energy, there
Speaker 4: is low carbon emissions, There is technology out there for
Speaker 4: carbon capture and utilization. All of these are part of
Speaker 4: the transition, including hydrogen for example, to bring either fossil
Speaker 4: based materials or renewable and recyclable materials to the market
Speaker 4: that we're looking at all of those.
Speaker 5: I know, I mean, your company is truly a global company.
Speaker 5: Roughly half the revenue in the US, half your revenue
Speaker 5: outside the.
Speaker 4: US, roughly, right, How is it?
Speaker 5: How are the requirements or the environments for maybe migrating
Speaker 5: your company to a more eco friendly business model. Is
Speaker 5: it different in the US and it is outside the US?
Speaker 4: I think the pace of change is different in different
Speaker 4: parts of the world, but we see that change happening
Speaker 4: on a global scale. For example, in Europe earlier today,
Speaker 4: fact in Germany you'll see our press release soon. We
Speaker 4: are laying the foundation stone of our advanced, our first
Speaker 4: scalable advanced recycling unit, and we see the Germans sort
Speaker 4: of and the Europeans advancing quickly right with respect to
Speaker 4: embracing circular and low carbon. But it is we are
Speaker 4: seeing the same trends here in the United States and
Speaker 4: even with our joint ventures and our activity in Asia.
Speaker 4: So it's just happening at a different time scale, but
Speaker 4: the momentum and energy and the excitement around those products
Speaker 4: is really not different. The policies might be a little
Speaker 4: bit different depending on what country we're operating in, but
Speaker 4: our direction is still the same. So we're very excited
Speaker 4: about that announcement today in Germany.
Speaker 3: So talk me about costs for a second.
Speaker 2: So the working theory is that when you make stuff green,
Speaker 2: it costs more. So a is that even true? And
Speaker 2: if it is, how do you offset those costs? I mean, yeah,
Speaker 2: and how do you offset it? Like do you wind
Speaker 2: up having the cost end user have to pay more,
Speaker 2: or there are different ways it's offset, even if it's
Speaker 2: from policy like tax credits.
Speaker 4: You know, when technology it's new, and when you're transitioning technology,
Speaker 4: yes there are investments that need to be made, need
Speaker 4: to be made to accelerate that transition. So you know,
Speaker 4: I don't think in the long run the materials will
Speaker 4: cost more. But the transition, of course is what where
Speaker 4: the investment is tricky, right, and we need to look
Speaker 4: at that. But if you look at consumer demand for
Speaker 4: these materials, if you look at the governments programs that
Speaker 4: are out there to accelerate the transition. The unit that
Speaker 4: I spoke about that we're laying the foundation stone in
Speaker 4: Germany just this morning was a recipient of a European
Speaker 4: Innovation Fund, you know, millions of dollars to help us
Speaker 4: with transition. But we really see the consumers stepping up,
Speaker 4: the brand owners stepping up, and I think over time
Speaker 4: the technology to make this transition. Tax credits for example
Speaker 4: for hydrogen production, for hydrogen consumption are important as well.
Speaker 4: So I really see a lot of activity in that
Speaker 4: space to help us transition.
Speaker 5: Jason from Omaha, Nebraska Rights and how have ocean Freight
Speaker 5: costs affected the US ability to export our cheaper plastics
Speaker 5: to the rest of the world ocean.
Speaker 4: You know, I'm not an expert on ocean rates anymore. Okay,
Speaker 4: at one point in my career, I can still plan
Speaker 4: on radio. Yeah I can still Yeah, pretend. But you
Speaker 4: know what we think about as our company, we really
Speaker 4: focus on differentiating our assets in terms of feedstock advantages,
Speaker 4: technology advantages, scale advantages. So do we have assets in
Speaker 4: regions that depend on ocean freight. Absolutely, we have JVS
Speaker 4: in the Middle East, We're growing there. We have owned
Speaker 4: assets in the United States, and yes, we do export
Speaker 4: these materials and we stay on top and we actually
Speaker 4: have a supply chain organization and is constantly looking at
Speaker 4: the optimization of freight to make sure we can deliver
Speaker 4: those materials to market very competitively.
Speaker 2: In terms of all of it, the transition, dealing with
Speaker 2: current slowdown in Europe and Asia, etc. And this comes
Speaker 2: from Ryan Hornan. So see, I'm going to ask your question,
Speaker 2: do you think that animal spirits will awaken and we
Speaker 2: get more M and A in the chemical space with
Speaker 2: those low rates? And I would add on, are you
Speaker 2: kind of forced to make acquisitions or even boltons as you're.
Speaker 3: Also making this energy transition.
Speaker 4: You know, growth is important to us, and I talked
Speaker 4: about growing and upgrading our core and even growing this
Speaker 4: circular and low carbon economy that we're looking at. So
Speaker 4: I think M and A is always part of our
Speaker 4: part of our optionality.
Speaker 6: Right.
Speaker 4: You've seen us grow our footprint in the Middle East.
Speaker 4: I lived in Asia recently where we grew some footprints,
Speaker 4: we grew some joint venors over there. So I think
Speaker 4: M and A is always going to be in the
Speaker 4: cards for us. And we do see ourselves as a
Speaker 4: consolidator and a very efficient, scalable provider of these circular
Speaker 4: and low carbon solutions. So there's a lot of activity
Speaker 4: that we're doing there to consolidate feedstock acquisition, to build
Speaker 4: these integrated hubs in order to have a very scalable
Speaker 4: and optimized delivery system for these materials of the future.
Speaker 4: So M and A is always an option for companies
Speaker 4: of our size for sure.
Speaker 5: Again, as a global company, I'm guessing you guys have
Speaker 5: a vested interest in all this talk coming into Washington
Speaker 5: to various degrees various parties about tariffs and things like that.
Speaker 5: Does that impact your business? Has it impacted your business
Speaker 5: over the last four or five years.
Speaker 4: And you know, tariffs to me are I'm a believer
Speaker 4: in a free market economy, right, and I think tariffs
Speaker 4: in the long run tend to hurt to hurt that.
Speaker 4: So you know, we really are positioning our company need
Speaker 4: to be resilient no matter the outcome of any election
Speaker 4: in the world. So you know, we're making sure that
Speaker 4: we've got the right products, the right assets. We have
Speaker 4: that differentiation to really be successful regardless of whether a
Speaker 4: particular person wants to have tariffs or not.
Speaker 3: So that was a very That was an SVP answer.
Speaker 4: I try to be an enterprise thinker.
Speaker 3: It's fair.
Speaker 2: It's fair when we talk about the cost situation. And
Speaker 2: this also plays into Paul's tariff question. Do you secure
Speaker 2: customers for your products and that then help you build
Speaker 2: the product, or after it's done, you have to go
Speaker 2: out and sell them And what is both?
Speaker 3: What do both of those processes look like?
Speaker 4: We work with brand owners and with customers to build
Speaker 4: the future materials and to help design those applications, so.
Speaker 2: They have to commit to stuff. They have to be
Speaker 2: like we will give you this much money for this
Speaker 2: much product.
Speaker 4: We work with them right from the early stage of
Speaker 4: concepts through designed through perhaps a long term contract for example.
Speaker 4: But yeah, having that being solutions provider requires us to
Speaker 4: really develop those materials together.
Speaker 2: Is it hard to come up with those numbers right
Speaker 2: now with your customers in terms of pricing?
Speaker 7: You know?
Speaker 4: I don't think so. I think it's always been. We've
Speaker 4: always worked with our customers and with downstream, so the
Speaker 4: entire value chain to really design the materials that you know,
Speaker 4: consumers like ourselves are looking for. So yes, as we
Speaker 4: work through that process, we're looking at our cost to
Speaker 4: deliver the material, the intermediate, the converter costs, the custom
Speaker 4: consumer costs. But I don't think. I don't think the
Speaker 4: uncertainty is any more, you know, is any higher than
Speaker 4: it's ever been. Frankly, I think it's just something that
Speaker 4: we're always making sure that we design for all options
Speaker 4: and we have the flexibility to pivot if we need to.
Speaker 3: All Right, Tracy, so great.
Speaker 2: I've been trying to get Tracy on for like since
Speaker 2: what February March LA here. Yeah, yes, it's great to
Speaker 2: be Thank you so much, really appreciate I know you're
Speaker 2: here for Climate Weeks. I'm looking forward to what will
Speaker 2: come out and yes as well, Tercy Campbell joining us.
Speaker 3: There your titles long is SVP of No, I'm trying
Speaker 3: to find it.
Speaker 5: I've got executive stainability over affairs.
Speaker 2: Oh, come on an email, Alex, come on, all right, trades,
Speaker 2: appreciate that. Joining us from mine elvisl on all things
Speaker 2: energy transition when it comes to petro chemicals.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecard Play and Android
Speaker 1: Auto with the Bloomberg Business. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station. Just
Speaker 1: say Alexa play Bloomberg eleven thirty.
Speaker 2: Markets at a record there's some serious volume coming into play.
Speaker 2: I was talking to one market technician who was like,
Speaker 2: we get options expiration tomorrow. You gotta reshuffle your delta,
Speaker 2: which I guess is a fancy option word. So that's
Speaker 2: why you're seeing a lot of the flows here. Emily
Speaker 2: Rowland is co chief investment strategist for John Hancock Investment Management,
Speaker 2: and she joins us. Now, Emily, do I just blame
Speaker 2: technicals an options expiration or is this some serious, real fomore.
Speaker 3: Yeah?
Speaker 8: No, I think that that's probably some noise that does
Speaker 8: a curve periodically. You know, Look, markets are celebrating today.
Speaker 8: We're near new all time highs or kissing them, as
Speaker 8: you said earlier, and I think there's a lot of
Speaker 8: relief around this Dubvish pivot that the Fed has taken.
Speaker 9: Here.
Speaker 8: There was a bit of confusion in the markets yesterday
Speaker 8: after Powell came out and told us not to get
Speaker 8: too excited that more fifty basis point CODs aren't coming.
Speaker 8: But I think overall, it was a Dubvish FED meeting
Speaker 8: and it looks like markets can continue sunning themselves on
Speaker 8: soft Landing Island.
Speaker 2: Very nice Netflix Season one.
Speaker 5: Hey, we've actually got a yield curve that's steepening here.
Speaker 5: We got the two year at three point five eight percent,
Speaker 5: ten years three point seven two percent.
Speaker 7: What does that tell you?
Speaker 8: Yeah, I mean you're bond yields came a long way
Speaker 8: prior to this Dubvish FED meeting yesterday, So I think
Speaker 8: you're seeing a little bit of repricing there across the curve.
Speaker 8: You know, I think that we could see some chopping
Speaker 8: rates from here as we kind of navigate through this
Speaker 8: environment where there's kind of some better than expected economic data.
Speaker 8: You know, maybe we're continuing to see some broad deceleration,
Speaker 8: but again, this deceleration is happening slowly enough that it's
Speaker 8: sort of providing this perfect backdrop for the Fed to,
Speaker 8: you know, to continue to implement rate cuts amidst a
Speaker 8: decelerating economic environment. It's going to happen in choppy fashion,
Speaker 8: but for now, I think you're kind of going to
Speaker 8: see rates hold steady. As yesterday was a big event.
Speaker 8: We've gotten through it and we'll see what happens from here.
Speaker 2: So do you chase here or is there something on
Speaker 2: your shopping list or is it just a rotation at
Speaker 2: this point?
Speaker 8: Yeah, I mean we would look at any backup in
Speaker 8: bond yields is a nice opportunity to lean in income.
Speaker 3: There is still elevated.
Speaker 8: Of course, yields have come down a lot over the
Speaker 8: course of this summer, but we still don't think that
Speaker 8: bonds have fully sniffed out this disinflationary, lower growth environment.
Speaker 8: So we'd like higher quality areas like mortgage backed securities,
Speaker 8: investment great corporate bonds, sprinkle in a little bit of
Speaker 8: treasuries there. So we think there's a buying opportunity there.
Speaker 8: You know, stocks are fully reflective of this soft landing backdrop.
Speaker 8: We continue to embrace higher quality stocks, and we're looking
Speaker 8: for areas that provide quality at a reasonable price as well,
Speaker 8: so we would be leaning into things like healthcare stocks.
Speaker 8: We're legging into more defensive areas of the market like
Speaker 8: utilities and infrastructure equities. And we continue to see US
Speaker 8: mid cap stocks is a big beneficiar area of onshoring
Speaker 8: activity and the fiscal spending that's still happening against this
Speaker 8: this this decent economic backdrop.
Speaker 5: Emily, when you get big moves into market like we're
Speaker 5: seeing today, that kind of just raises the valuation flag
Speaker 5: for a lot of investors. How are you kind of
Speaker 5: thinking about valuation any equity markets?
Speaker 8: Yeah, I mean it's not great, I'll tell you. You know,
Speaker 8: certainly with markets you know, bumping up on twenty one
Speaker 8: twenty two times forward earnings, I think are well priced
Speaker 8: for this soft landing scenario that we've been talking about.
Speaker 8: You know, and you look at areas like technology stops
Speaker 8: which are trading at thirty times forward earnings, which is
Speaker 8: about as high as we've gotten over the last cycle.
Speaker 8: It's not the fifty times forward earnings that we saw
Speaker 8: in the late nineteen nineties. So I think the froth
Speaker 8: is is a bit of a concern. But I would
Speaker 8: tell you that valuations just simply aren't a catalyst for
Speaker 8: a market rotation. They haven't been historically. I think you'd
Speaker 8: need to really see some kind of shift in the
Speaker 8: economic regime. You'd have to see a big shift in
Speaker 8: earnings trends to really see that market leadership change. And
Speaker 8: you know, you can blame a lot of things on
Speaker 8: the multiple expansion that we've seen in technology, but you
Speaker 8: can't blame the denominator. The earnings have been there for
Speaker 8: these companies, which makes us continue to be constructive there.
Speaker 2: Which also the reason of the question, how where do
Speaker 2: you go in terms of large, mid small? So I've
Speaker 2: been reading a lot about, particularly from Bank of America,
Speaker 2: how maybe this is the time for midcaps? And mid
Speaker 2: caps hit a record high yesterday, they outro foot today,
Speaker 2: they outperformed yesterday, Like, is not the sweet spot for
Speaker 2: that environment that you're talking about?
Speaker 8: Yeah, midcaps are the sweet spot for us. You know,
Speaker 8: when you go down into small caps, you're looking at
Speaker 8: companies that are unprofitable, they have higher interest burdens. You know,
Speaker 8: the Rustle of two thousand is comprised about forty percent
Speaker 8: of that index is comprised of companies that don't make money.
Speaker 8: They could do really well in an early cycle environment,
Speaker 8: but we just don't think that we're there yet. And
Speaker 8: you see these little rallies in small cap equities based
Speaker 8: on the idea that rates are coming down. But remember
Speaker 8: rates are coming down because there's a challenge with growth,
Speaker 8: and we think that that does not benefit the most
Speaker 8: cyclical areas, namely small caps. Moving up into MidCap equities,
Speaker 8: you get a big overweight to the industrial sector. So
Speaker 8: think about the relative sector composition there, and we think
Speaker 8: mid cap industrials are massive beneficiaries of the spending that's
Speaker 8: happening in the US. There's a manufacturing renaissance happening right
Speaker 8: now in the US Midwest due to onshoring and due
Speaker 8: to things like the Chips Act and the Infrastructure and
Speaker 8: Jobs Act. So we want to look to mid caps
Speaker 8: as a way to capture that. They're also trading at
Speaker 8: the deepest discount to their large cap counterparts since the
Speaker 8: late nineteen nineties, so you're not overpaying for this theme.
Speaker 5: Emily, how do you feel about the earnings backdrop here
Speaker 5: for the.
Speaker 8: Market, Well, I love it going into the third quarter
Speaker 8: because the bar is low. It's actually analysts are penciling
Speaker 8: in four point three percent earnings growth as we look
Speaker 8: forward to the next quarter's earning.
Speaker 3: Season, So we love a low bar there.
Speaker 8: I think we should enjoy it while we can because
Speaker 8: Q four earnings growth is penciled in to be about
Speaker 8: fifteen percent, and then analysts are looking at fifteen percent
Speaker 8: into next year. So not only is the market trading
Speaker 8: at an elevated valuation, but that's also against expectations that
Speaker 8: we're going to see about fifteen percent earnings growth next year.
Speaker 8: That's probably a bit optimistic, so we may see a
Speaker 8: challenge to that right now. Multiple expansions helping as we
Speaker 8: continue to embrace the fad pivot here and the soft landing,
Speaker 8: but ultimately the earnings need to come through as stock
Speaker 8: prices over time, we're going to follow profits and follow earnings,
Speaker 8: so we think that's going to be critical to watch
Speaker 8: as we look forward.
Speaker 3: Emily, great stuff.
Speaker 2: Really good to see you, Emily Roland, co, Chief Investment
Speaker 2: Strategies for John Hancock Investment Management, joining us.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on Apocarplaying and Broyd Auto
Speaker 1: with the Bloomberg Business app. Listen on demand wherever you
Speaker 1: get your podcasts, or watch us live on YouTube.
Speaker 2: It's a good moment to check in on media stuff
Speaker 2: and media deals. And I read that really interesting article
Speaker 2: in the Wall Street Journal about how there's going to
Speaker 2: be a show on Amazon where people get to basically
Speaker 2: compete to get a slot in the in their big
Speaker 2: Amazon dot com store. So they're describing it as like
Speaker 2: Shark Tank meets Home Shopping Network, which.
Speaker 3: I don't know. For me, you would actually watch this
Speaker 3: one hundred percent? Would you not? Okay, you're not gonna
Speaker 3: watch it. Paul, No, that's not his thing. KEITHA helped
Speaker 3: me out.
Speaker 2: Keithan wrong or not them, Boomberg Intelligence US media analyst.
Speaker 2: This sounds brilliant to me. Did you see this article?
Speaker 6: I did not, but it definitely sounds intriguing.
Speaker 2: So it's a new competition show next month. Entrepreneurs are
Speaker 2: going to pitch their products to a studio audience as
Speaker 2: well as to judges including Amazon executives and some celebrities.
Speaker 2: Like Goop founder Gwyneth Paltrow and designer Christian Siriano, and
Speaker 2: then finalists will have their inventions sold in a new
Speaker 2: Amazon Buy It Now online store.
Speaker 3: That's synergy, That's what I'm saying.
Speaker 2: Yes, whether or not you watch it, that has some synergy.
Speaker 2: So she's not gonna watch it. I'm I the only
Speaker 2: one that gonna watch thinks, So all right, fine, fine,
Speaker 2: all right, you talk now, Paul.
Speaker 5: All right, Keitha, thanks so much for joining us here.
Speaker 5: What I want to talk to you is about is
Speaker 5: just kind of where are we these days, Githa on
Speaker 5: cable networks, staying on cable systems like the old days.
Speaker 5: I know, Warner Brothers Discovery. They have a new deal
Speaker 5: with Charter. Talk to us about that and why it's important.
Speaker 6: This was a really big deal for Warner Brothers Discovery.
Speaker 6: And the reason it's such a big deal is, of course,
Speaker 6: one thing is ninety percent of Warner Brothers Discoveries profits
Speaker 6: actually come from its television networks. But the reason it
Speaker 6: was so critical, and especially from a timing perspective, was
Speaker 6: because Warner Brothers has just lost its rights to NBA programming.
Speaker 6: And remember NBA is one of the main draws for TNT,
Speaker 6: which is their most expensive channel right now in their
Speaker 6: network lineup, and so there's been a lot of fear,
Speaker 6: you know, amongst investors that Warner Brothers TV revenue, especially
Speaker 6: it's affiliate fee revenues, is going to be a tremendous risk.
Speaker 6: And so this deal actually with Charter, it was actually
Speaker 6: coming up for renewal only next year, but I guess
Speaker 6: David Zaslav wanted to go ahead and assuage investor fears,
Speaker 6: and so he signed this deal a whole year in advance,
Speaker 6: maintaining the same affiliate fee revenue trajectory. So it's kind
Speaker 6: of it's definitely provides some temporary relief from an outlook
Speaker 6: perspective for Warner Brothers.
Speaker 2: All right, fine, see, but you know they're struggling because
Speaker 2: there's cool shows like this like Shark Tank and a
Speaker 2: home shopping network on Amazon now whatever. Fine, all right,
Speaker 2: so what are their questions? Are still a bubbling up
Speaker 2: in the media community. There was a great piece on
Speaker 2: By your Succession a couple of weeks ago talking about
Speaker 2: that what else are you focusing on?
Speaker 6: The carriage continues to be a big, you know, a
Speaker 6: big bone of contention across the whole TV space, Alex.
Speaker 6: I mean, yes, we had this Warner Brothers Discovery each
Speaker 6: Other deal, which was somewhat of a low drama deal,
Speaker 6: but there was one that was high drama, and that
Speaker 6: was actually Disney with Direct TV. Those two companies were
Speaker 6: fighting it out. There was a blackout of all Disney
Speaker 6: programming on DirecTV systems for almost two weeks until finally
Speaker 6: both of them caved. And you know, Disney obviously wanted
Speaker 6: to have carriage free increases, which I think at got.
Speaker 6: What Direct TV was really looking for was more flexibility
Speaker 6: and you know, programming and packaging, and they got that.
Speaker 6: So we're seeing kind of all these deals become really
Speaker 6: contentious as kind of the whole video A landscape keeps shifting,
Speaker 6: so carriage continues to be a really big thing. And
Speaker 6: then the other thing is, of course, we have you know,
Speaker 6: the M and A chatter coming up every now and then.
Speaker 6: The most recent one, of course, was direc TV with
Speaker 6: Dish that will obviously have huge implications for the entire
Speaker 6: TV landscape.
Speaker 5: So let's switch gears a little bit to a business
Speaker 5: that I think is actually investors still like, and that's
Speaker 5: just a theme park business. We think theme parks, we
Speaker 5: think the Walt Disney company. I'll be down a Walt
Speaker 5: Disney World in a few weeks doing some due diligence.
Speaker 5: But Comcast also has a big theme park business. Talk
Speaker 5: to us about their theme park business and the investments
Speaker 5: they're making and how important it is to that company.
Speaker 6: Oh, absolutely so with Comcast. I mean when we think
Speaker 6: of Comcasts, we always think of the cable business, and
Speaker 6: rightly so. Cable actually makes up eighty percent of their ibadah.
Speaker 6: But the one area that has kind of been ignored
Speaker 6: for Comcast I think over the past few years has
Speaker 6: been their NBC division, and NBC through Universal of course,
Speaker 6: not only owns TV Networks studios, but also the theme parks.
Speaker 6: And the big thing for Comcasts and its theme parks
Speaker 6: is they're actually opening a whole new theme park next year,
Speaker 6: which is Epic Universe in Orlando. It actually doubles their
Speaker 6: entire Orlando footprints, So they go from about eight hundred
Speaker 6: acres right now in Orlando to almost sixteen hundred acres
Speaker 6: with this park, and it's going to obviously do you know,
Speaker 6: so much for their attendance. So right now, Universal attracts
Speaker 6: about thirty million subscribers domestically to their parks. Of course,
Speaker 6: the big behemoth is Disney with about eighty two hundred
Speaker 6: million almost domestically. But with this we think Comcast actually
Speaker 6: kind of gets closer to Disney, right, they can get
Speaker 6: about forty forty five million visitors to their domestic parks
Speaker 6: on an annual basis, so it's going to do a
Speaker 6: whole lot for their attendance. And really, Paul, as we
Speaker 6: kind of see the business going out, we think, you know,
Speaker 6: theme parks almost it used to be a few years ago,
Speaker 6: theme parks was about twenty five percent of NBC's profit.
Speaker 6: In a few years, we think theme parks can actually
Speaker 6: be fifty percent of NBC's profit.
Speaker 3: That's fascinating. Well, it's it is and it's not.
Speaker 5: It's good because the theme bark business is growing, but
Speaker 5: it also reflects the fact that their cable network business
Speaker 5: is declining dramatically and that's the cashal historically.
Speaker 2: A good point, I guess. I wonder though too, that
Speaker 2: is that also more recession proof or not? Like what
Speaker 2: goes first? Ad spending for a linear TV or people
Speaker 2: not taking their kids to Disneyland.
Speaker 3: Is there an Avengers theme park. Do we note? I
Speaker 3: don't know why am I asking Paul? All right?
Speaker 2: Anyway, thanks Ethan, We appreciate you. Geith the wrong and
Speaker 2: not then. Bloomberg Intelligence US media analysts.
Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecar Play and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just say Alexa playing Bloomberg eleven thirty.
Speaker 2: All right, let's get to David Koodlan now, a founder
Speaker 2: and CEO and chief investment strategist, I should say at
Speaker 2: Mainstay Capital Management, He joins us. Now, hey, David, are
Speaker 2: you buying into this record rally?
Speaker 10: Here?
Speaker 11: We're buying into this record rally.
Speaker 9: I know that there are many who are still concerned
Speaker 9: about a recession, that are worried at that price, the
Speaker 9: price of stocks at these levels, we're at new highs.
Speaker 9: But look what we've seen here now, with this cut
Speaker 9: yesterday and what we have going forward, we're you know,
Speaker 9: if there's such a thing as a Goldilocks scenario, we're
Speaker 9: about as close as we can be to it. So
Speaker 9: you know, I've had the expression for the last two years,
Speaker 9: the recession that's always six months away. The recession is
Speaker 9: always six months away. GDP now right now Atlanta GDP
Speaker 9: now for the third quarters at two point nine percent.
Speaker 11: We had three percent growth in the second quarter.
Speaker 9: We're looking for We're still looking for that soft landing
Speaker 9: that the FED rarely pulls off, so more of a
Speaker 9: mid cycle slow down and then we slowly reaccelerate and
Speaker 9: we don't get that recession. And if that's the case,
Speaker 9: twelve months later after a first rate cut, stocks are
Speaker 9: higher and significantly higher. If you get a recession after
Speaker 9: a first rate cut, stocks are lower. So that's what
Speaker 9: we're pivoting on. But we're still optimistic and constructive on
Speaker 9: stocks at this point.
Speaker 5: So, David, I think when I listen to some folks
Speaker 5: that are still constructive on the market, they just kind
Speaker 5: of I think they hang their hat on a couple
Speaker 5: of things, which is one, I've got to fed the
Speaker 5: cutting rates, and I've got a pretty decent earnings environment.
Speaker 11: That's pretty good. But one of the things that we.
Speaker 5: Just don't know it's an election year, and I don't
Speaker 5: know what that means for the markets. How do you
Speaker 5: guys talk about that to your clients.
Speaker 11: I'm glad you brought that up.
Speaker 9: You know, we get preoccupied with politics as it relates
Speaker 9: to our investment strategy. And when I say that, I
Speaker 9: mean at average investors out there. You know, there are
Speaker 9: investors that believe if so and so gets elected, it's
Speaker 9: the We're it's doomsday.
Speaker 11: If so and so gets elected, it's nirvana.
Speaker 9: What we find out is, and this is why we'll
Speaker 9: have volatility over the next couple of months until the election,
Speaker 9: is the market's hate uncertainty. So it's about getting that
Speaker 9: uncertainty out of the way. But then it's not as
Speaker 9: much about whether it's Democrat or Republican as far as
Speaker 9: where we invest. As tactical asset allocators, we want to
Speaker 9: look at the difference in policies. There's differences in policies
Speaker 9: and energy and a lot of areas between these two candidates,
Speaker 9: and depending on how the House and Senate go in
Speaker 9: terms of taxes and everything, So that matters as far
Speaker 9: as technically how we invest. But the people that go
Speaker 9: to cash because they're scared, concerned, wait and see end
Speaker 9: up typically in election years, end up suffering an opportunity costs,
Speaker 9: and that's exactly what's happened this year so far for
Speaker 9: people that have stepped to the sidelines.
Speaker 2: Is there a risk by pivot back to the fit
Speaker 2: per second, so put elections on the side. Is there
Speaker 2: a risk that we're going to see kind of more
Speaker 2: growth and demand resurface in a particular way because we're
Speaker 2: in that rate cutting cycle, because we got that jumbo
Speaker 2: rate hike. And is that a risk eventually for resurgence
Speaker 2: and inflation?
Speaker 7: It is.
Speaker 9: It is a risk. But what we've seen so far
Speaker 9: is inflation is on this glide path to the Fed's target.
Speaker 9: If anything, I think with the disinflationary forces that will
Speaker 9: come back into effect as we get by all the
Speaker 9: effects of the pandemic. You know, we may overshoot the
Speaker 9: two percent, but we're certainly on a glide path to
Speaker 9: two percent. And right now, you know where we are
Speaker 9: with the labor market.
Speaker 11: We had some good news today.
Speaker 9: You know, there's still some concern out there about credit
Speaker 9: card debt, credit card industry, auto loan delinquencies, things like that,
Speaker 9: But we balance that all out and we think the
Speaker 9: inflation problem is gone. It's now about labor unemployment. We
Speaker 9: get to the point where that needs to be rates
Speaker 9: come down to, you know, if it's the long term
Speaker 9: neut rate of three percent here through twenty twenty five
Speaker 9: for the Fed funds rate. We're in a good environment
Speaker 9: for stockstill. We know they're expensive, but stocks can be
Speaker 9: we know, overvalued or undervalued for a very very long time.
Speaker 5: All right, David, So what sectors are screening well for
Speaker 5: you these days? Again, we've had an S and P
Speaker 5: five hundred index move about twenty percent year today. But
Speaker 5: I know not everybody's participated. So how are you guys
Speaker 5: approaching maybe like sector selection.
Speaker 9: Right, So you know one area for sure that that's
Speaker 9: been troubled for quite a while, you know, especially a
Speaker 9: while back here with some of the a few of
Speaker 9: the bank failures. But banks, financial services look very good.
Speaker 9: As the yield curve continues to steepen. NIM improves net
Speaker 9: interest margin for the banks. We're finally getting that yield
Speaker 9: curve steepening. So we like the financials a lot. We
Speaker 9: still like technology a lot, the AI story. But what
Speaker 9: we're able to do now we can broaden into value,
Speaker 9: we can broaden into cyclicals, we can broaden into small
Speaker 9: caps and diverse, diverse fire portfolios from the Magnificent seven
Speaker 9: to these other areas. You know, small cap companies are
Speaker 9: far more reliant on debt and with interest rates coming down,
Speaker 9: their costs of capital coming down, maybe coming down a
Speaker 9: lot over the next year. That's good for small caps
Speaker 9: and that's what we've been seeing recently in IWM or
Speaker 9: the Russell two thousand index.
Speaker 3: Mid caps sweet spot.
Speaker 9: You like them mid caps as well. Mid caps the
Speaker 9: same thing. Small and mid caps just become more attractive,
Speaker 9: and mid caps a kind of that sweet spot in between.
Speaker 9: You know, it's been a large cap dominated stock market
Speaker 9: for quite a while.
Speaker 11: We've had a lot of headcake at fakes.
Speaker 9: With small cap in MidCap, but we think they now
Speaker 9: have a runway with raids coming down.
Speaker 5: All right, David, thank you so much for joining us.
Speaker 5: Always appreciate getting a few minutes of your time. David Kudlap,
Speaker 5: he's the founder, he's the CEO, and he's a chief
Speaker 5: investment strategist at Mainstay Capitol Management.
Speaker 11: I call him the boss.
Speaker 7: There.
Speaker 5: I guess basically.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on applecard Play and Android
Speaker 1: Auto with the Bloomberg Business App. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station.
Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 11: All Right, the FED cuts rates.
Speaker 5: One of the beneficiaries I would think.
Speaker 11: Would be real estate people.
Speaker 5: People if you want to build a building, develop a building,
Speaker 5: if you want to rent in a building, buying a building.
Speaker 5: I mean, it's got to be good for them, right,
Speaker 5: Money's cheaper. Let's talk to somebody who actually does it
Speaker 5: for being. Mickey enough Tally, chairman and Sea of the
Speaker 5: Naught Tally Group, joined by Abigail Dulo, our market's reporter
Speaker 5: for Bloomberg News, got them all here in a Bloomberg
Speaker 5: Interactive Broker studio. Let's talk luxury condos. I'm asking for
Speaker 5: a friend here Mickey talks about the luxury condo business.
Speaker 5: I know that's an area of the market that you
Speaker 5: know very well.
Speaker 7: You're very active.
Speaker 11: It's a sense of how the market is in New
Speaker 11: York City these days.
Speaker 7: Right, So the market is actually good.
Speaker 12: We opened last week three sales offices at the same
Speaker 12: day in the same week, which is the right quote
Speaker 12: for us, and all.
Speaker 7: Three so we have three new projects starting three new projects.
Speaker 12: They're already under construction, but we we launched sales Upper
Speaker 12: west Side, Upper east Side, and Williamsburg on the waterfront.
Speaker 7: All three are doing very well.
Speaker 12: There is not much inventory in New York City and
Speaker 12: buyers are looking for the right product.
Speaker 10: So the FED cut reads yesterday, of course by fifty
Speaker 10: basis points. That certainly helps you, I imagine with some
Speaker 10: of your carrying costs. But given the fact that you
Speaker 10: are catering to a high net worth individual, how many
Speaker 10: cash deals do you see or does this really help
Speaker 10: you know your buyers as well?
Speaker 12: Right, So it's very interesting the more expensive apartments we
Speaker 12: see cash type of deals. But when we do it,
Speaker 12: for example in Williamsburg, we have a lot of the
Speaker 12: inventory trading between two to five million. Those are buyers
Speaker 12: that usually take mortgage and the cut, the rate cut
Speaker 12: is obviously helping them a lot, and I suspect that
Speaker 12: we'll see much more activity in the market in the
Speaker 12: next twelve to eighteen months.
Speaker 2: What is the competition like to get the apartments?
Speaker 10: Like?
Speaker 2: Is there the kind of competition that we would have seen,
Speaker 2: say five years ago for these kind of properties.
Speaker 12: Yes, so there is not much inventory and definitely there
Speaker 12: is not much of quality inventory. The reason is that
Speaker 12: it was very and it's still very difficult to get
Speaker 12: construction loans. So for example, developers are just on the
Speaker 12: sideline they can get the construction loans. There are not
Speaker 12: too many projects under construction in New York.
Speaker 7: That's number one.
Speaker 12: Number two, construction cost insurance costs are just really almost
Speaker 12: doubled then five years ago, So it's very difficult to
Speaker 12: get to a point that the project make financial sense,
Speaker 12: which means that there is very low inventory.
Speaker 10: So you're saying that there's very low inventory. And yet
Speaker 10: I've certainly been a part of the speculation. Other people
Speaker 10: have been part of the speculation that some of these
Speaker 10: massive buildings out here on Billionaire's Row, or even some
Speaker 10: up on the Upper east Side, one of which I
Speaker 10: know for a fact a few years ago, a big
Speaker 10: bulk of it was empty, even though you never would
Speaker 10: have guessed that from the website. So as all that
Speaker 10: inventory that would seem to be floating out there in
Speaker 10: these fancy buildings, has that been eaten up?
Speaker 7: No? So well, no, no, no, yes, But it's all
Speaker 7: about quality. First of all.
Speaker 12: Whatever someone decided to call this fifty seven billionaire Row,
Speaker 12: this is a different market, really mainly relying on foreigners.
Speaker 12: How many New Yorkers really want to live on fifty
Speaker 12: seventh Street. Think about schools, think about kindergarten whatever, right,
Speaker 12: you need the infrastructure. It doesn't feel as a residential neighborhood.
Speaker 12: Beautiful views, big buildings, right, So those are cater to foreigners.
Speaker 7: So we had the Russians, they're not buying anymore.
Speaker 12: We had the Chinese, they're not buying anymore, and so
Speaker 12: on and so forth. And every time there is a
Speaker 12: wave of foreigners that are coming to New York. Because
Speaker 12: New York is still the capital. I see it as
Speaker 12: the capital of the world, right, but this is a
Speaker 12: very different market.
Speaker 7: It's also about quality.
Speaker 12: Yes, there are a couple of buildings that are not
Speaker 12: selling well. But when you dive into the detail and
Speaker 12: you walk those buildings and you look at those apartments,
Speaker 12: they're not good. They're not well designed, they're not well esthetically,
Speaker 12: they are not good, you know whatever. Maybe they're in
Speaker 12: a busy area. So it's all about the buyers are
Speaker 12: very sophisticated. Buyers know what they want and when they
Speaker 12: see a product that is well designed, were located, and
Speaker 12: reasonable price to the market to whatever the market they're buying.
Speaker 7: There's not much inventory in this segment of the market.
Speaker 10: That's really interesting to hear about a divergence within the
Speaker 10: high end. There would not have necessarily anticipated that.
Speaker 5: All Right, So you call me up and you want
Speaker 5: a construction loan. Why am I making a loan to you?
Speaker 5: And maybe I'm not making them to other people?
Speaker 12: You're right, and I have an answer on the two sides.
Speaker 12: Because part of our business is debt business. We are
Speaker 12: lending to other developers, so we're running also a debt fund.
Speaker 12: And it's all about reputation, and it's all about can
Speaker 12: this developer can really get the project done?
Speaker 7: And the commercial lenders are looking at you.
Speaker 12: Okay, if you ask for a loan and they look
Speaker 12: at your reputation, what you have done? I mean, are
Speaker 12: you capable to do it? Do you have enough equity?
Speaker 12: And if you're underwriting make financial sense? And if you
Speaker 12: are dreaming dreams and the project that you have in
Speaker 12: mind is not going to make financial sense, you're not
Speaker 12: going to get financing, definitely, not from the commercial lenders.
Speaker 7: You might be able to.
Speaker 12: Get financing at ten over sofa, right, Okay, you're not
Speaker 12: going to make it right.
Speaker 7: So you really want to be in.
Speaker 12: The mid threes to low force over soffur and that's
Speaker 12: the only way you're going to make it.
Speaker 2: Are there any deals you think to taking office buildings
Speaker 2: and converting them. I know, I feel like this is
Speaker 2: a pretty sensitive topic. Like some are like, yeah, I
Speaker 2: can totally make money up of that.
Speaker 7: No.
Speaker 3: Others are like no way, right, So.
Speaker 12: There's a lot of hype about that. And from two
Speaker 12: thousand to two thousand and seven I converted a lot
Speaker 12: of buildings in New York from office to residential, so
Speaker 12: I have a lot of experience doing so.
Speaker 7: Most of the office buildings.
Speaker 12: Their floorplate, each and every floor is just too big,
Speaker 12: too deep. Residential you have for each and every bedroom.
Speaker 12: You have to have light and air. You have to
Speaker 12: have a window, you have to have legal.
Speaker 7: Light and air.
Speaker 12: There's a certain distance that it needs to be from
Speaker 12: the neighbor a building. And when you have a very
Speaker 12: for example, here, this floor is very deep, so it's
Speaker 12: very good for office, it's very good for studios. It's
Speaker 12: not very easy to convert it to residential. So there's
Speaker 12: a lot of five.
Speaker 2: A really nice floor through the apartment, right, I mean
Speaker 2: from both right.
Speaker 12: So when you are close to the window, right, that's great.
Speaker 12: Here is the problem now when you when you try
Speaker 12: to convert it and you have a lot of space
Speaker 12: that is not usable, what.
Speaker 7: Are you going to do with it?
Speaker 12: So it goes back to yes, you can convert those buildings,
Speaker 12: but most of those buildings need some type of incentive,
Speaker 12: either tax or some type of incentive to help the
Speaker 12: developers to convert their And if you really stop for
Speaker 12: a second and you ask yourself, how many of those
Speaker 12: buildings are really being converted versus all the talk around it,
Speaker 12: there are not too many that are doing well.
Speaker 10: Speaking of office in terms of the overall commercial real
Speaker 10: estate space, I know that you don't do office, but
Speaker 10: other developers told us that the weakness from that one space,
Speaker 10: that there is an impact on the rest of commercial
Speaker 10: real estate.
Speaker 3: Do you feel that at all?
Speaker 12: So I don't do it for a reason because I
Speaker 12: think the residential space, to me, is the most safe
Speaker 12: kind of a space of sector in real estate.
Speaker 7: But what we see in the office space is very interesting.
Speaker 12: The brand new, truly class A office buildings are doing well.
Speaker 12: Those that are new with all the amenities and the
Speaker 12: state of the art systems, mechanical systems, those are doing well.
Speaker 12: But if we look at New York, and not only
Speaker 12: in New York, every major urban city does a lot
Speaker 12: out of inventory of what we call B and C
Speaker 12: type of office buildings, those struggle a lot. Some of
Speaker 12: them will need to be converted from one use to another.
Speaker 10: But does that weakness there in the possible the faults
Speaker 10: that could be coming and just everybody's talking about, you know,
Speaker 10: extended pretend values. Does that impact.
Speaker 3: Your area at all?
Speaker 10: Do you see it pushing out in any way, like
Speaker 10: on the financing that sort of right?
Speaker 12: No, because because the residential construction lenders are not they
Speaker 12: mostly focus on the residential sector, the same as when
Speaker 12: we on our that side, we focus.
Speaker 7: Only on the residential sector.
Speaker 12: I don't lend, I don't I don't know enough about
Speaker 12: the office or retail to really make a judgment if
Speaker 12: one location or one building is better than either. I
Speaker 12: have a general review, but you know it's so specific.
Speaker 12: Real estate is so specific, and it's so it's it's
Speaker 12: quite sophisticated. I better know what I'm doing before I
Speaker 12: land money, so much money, before.
Speaker 5: We let you go here. It give us your thoughts
Speaker 5: on South Florida, and you've got experience there as well.
Speaker 5: Is that are we overdone there?
Speaker 10: Is?
Speaker 7: It's still right, So so South Florida.
Speaker 12: Let's zero in again, because every every market is different.
Speaker 12: I think Miami is actually doing well. Of course, it's
Speaker 12: all about the very delicate between inventory and demand. But
Speaker 12: Miami mature to a point of no return. There's so
Speaker 12: many great things. This is not only anymore just okay,
Speaker 12: I want to be there a couple of months during
Speaker 12: the winter time. I mean there are amazing restaurants, museums, sports,
Speaker 12: you know, whatever you want is they're not not too
Speaker 12: exactly the level of New York City, but very close
Speaker 12: to it. So the market is doing well. We have
Speaker 12: we have a very big project in Miami. This is
Speaker 12: the fourth sales office that that is open for us
Speaker 12: and and and the product is selling well. So what
Speaker 12: we see over there, we see different buyers than we
Speaker 12: see in New York City.
Speaker 5: Just for a cookie thirty seconds, who's your buyer?
Speaker 7: Who's your best buyer to walk through the door where?
Speaker 5: Yeah, I mean it's not the Russians, it's not the Chinese.
Speaker 11: Who's a good buyer for you?
Speaker 12: Just someone that really wants to buy and really looking
Speaker 12: for for a product in a specific area, and I
Speaker 12: want them to step in and look at my product,
Speaker 12: and if you know, if they like it, that's fifty percent.
Speaker 7: Of the sale. Right.
Speaker 12: They might it might be too expensive for them, it
Speaker 12: might be whatever, not the right size for them. But
Speaker 12: if they step in and they like the product, it's
Speaker 12: fifty percent of the world.
Speaker 5: All right, Mickey, thank you so much for joining. I
Speaker 5: really appreciate it. Love getting your perspective. Mickey Natally, chairman
Speaker 5: and CEO of Naftali Group, talking about the residential real
Speaker 5: estate business in Manhattan.
Speaker 11: Abigail Do, a little.
Speaker 5: Market reporter for Bloomberg News, also joining us, helping us
Speaker 5: kind of spend some more time on the real estate business.
Speaker 5: I find it fascinating and there's a lot of different pockets.
Speaker 5: I'm learning some are doing better than others.
Speaker 3: I wasn't there you interested in luxury apartment buying in
Speaker 3: his New.
Speaker 5: Jersey those days Thursdays River I sold everything I owned
Speaker 5: and now safely sconced down the Jersey.
Speaker 3: Yeah, no, that's a that's definitely something.
Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apples, Spotify,
Speaker 1: and anywhere else you get your podcasts. Listen live each
Speaker 1: weekday ten am to noon Eastern on Bloomberg dot Com,
Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app.
Speaker 1: You can also watch us live every weekday on YouTube
Speaker 1: and always on the Bloomberg terminal