WEBVTT - Traders Pare Bets on December Fed Cut 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.840 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.040 or watch us live on YouTube. 0:00:27.120 --> 0:00:28.720 We just don't have a lot of economic data. 0:00:28.720 --> 0:00:30.720 There's a lot of uncertainty out there in the marketplace 0:00:30.720 --> 0:00:32.320 as to where this economy is. 0:00:32.840 --> 0:00:33.560 I don't help. 0:00:33.440 --> 0:00:35.800 People do it who actually get paid to do this 0:00:35.840 --> 0:00:38.400 stuff for a living. Like our next guest, Sema Shaw, Chief, 0:00:38.479 --> 0:00:42.920 a global strategist at Principal Asset Management. Seema, what are 0:00:42.960 --> 0:00:45.319 you making of the last I don't know, two three 0:00:45.400 --> 0:00:47.440 weeks seem to be a little market seem to be 0:00:47.600 --> 0:00:49.440 just a little unsettled here. I mean there's only a 0:00:49.440 --> 0:00:51.320 three percent draw down and yes, and paid, nothing to 0:00:51.600 --> 0:00:52.560 really write home about. 0:00:52.560 --> 0:00:53.920 But you know, what do you make of some of 0:00:53.920 --> 0:00:55.560 this uncertainty we're seeing the marketplace? 0:00:56.560 --> 0:00:57.320 Good morning, Nathan. 0:00:57.400 --> 0:01:00.240 Yeah, absolutely, this has been a really, really rocky and 0:01:00.280 --> 0:01:02.959 it's been interesting because I think what the shutdown did 0:01:03.000 --> 0:01:06.600 is just created this vacuum which has allowed some really 0:01:06.920 --> 0:01:09.160 kind of negative narratives to take route and the key 0:01:09.200 --> 0:01:11.679 one is that how the FED isn't going to be 0:01:11.680 --> 0:01:16.000 interpreting the direction of the economy. I think coming into this, 0:01:16.280 --> 0:01:19.440 to the shutdown, the general consensus was that the doves 0:01:19.480 --> 0:01:21.480 of the FMC would have the upper hand and almost 0:01:21.520 --> 0:01:24.560 assuring a December eight cut, And if anything, what's happened 0:01:24.600 --> 0:01:27.360 is actually the more hawkish members have seemed to become 0:01:27.360 --> 0:01:30.160 a little bit more dominant, and as a result, we're 0:01:30.200 --> 0:01:33.400 in this point where now the odds of a FED 0:01:33.400 --> 0:01:35.440 cut in December is just down to fifty to fifty, 0:01:35.480 --> 0:01:38.800 and it really is rattling the market, partly because we 0:01:38.840 --> 0:01:42.080 just don't have a clear narrative, as you said, So. 0:01:42.040 --> 0:01:44.000 I'm looking at the VIX index, of course, that's Wall 0:01:44.040 --> 0:01:46.360 Street Sphere engage. I'm seeing it sitting around the twenty 0:01:46.400 --> 0:01:49.000 two handle. What do you make of the current volatility 0:01:49.000 --> 0:01:51.400 in the market. Do you expect it to sort of 0:01:51.800 --> 0:01:52.560 temper out here? 0:01:54.600 --> 0:01:56.520 I mean, I think it could once we start to 0:01:56.560 --> 0:01:59.120 get a clearer direction, But again, it really does depend 0:01:59.120 --> 0:02:00.600 on how the FED is going to respond. 0:02:01.520 --> 0:02:02.280 I think that's one thing. 0:02:02.320 --> 0:02:04.480 And then of course there's the AI story, and those 0:02:04.520 --> 0:02:07.520 fears seem like they're really taking root. We don't want 0:02:07.520 --> 0:02:09.440 to jump to many conclusions because of course it got 0:02:09.480 --> 0:02:12.240 the end video earnings report coming, so everything could just 0:02:12.560 --> 0:02:16.400 completely turn around if that's a good release and start 0:02:16.440 --> 0:02:18.400 to you know, once again put some of those fears 0:02:18.400 --> 0:02:21.160 to bed. But at least you know, as we're going 0:02:21.160 --> 0:02:23.760 into twenty twenty six and we are expecting a bit 0:02:23.800 --> 0:02:25.560 of an economic slow down, a bit of a labor 0:02:25.600 --> 0:02:28.000 market slow down, that is typically the time when you 0:02:28.040 --> 0:02:30.120 start to see some of these fears really start to 0:02:30.120 --> 0:02:32.680 take route, particularly when you consider it from a late 0:02:32.720 --> 0:02:33.480 cycle narrative. 0:02:34.680 --> 0:02:37.480 S we're just in the process of finishing up this 0:02:37.800 --> 0:02:40.720 third quarter earnings release and buying large earnings were really 0:02:40.800 --> 0:02:44.079 pretty solid double digit, low double digit kind of growth rate. 0:02:44.080 --> 0:02:46.760 There is that enough to support this market? 0:02:46.760 --> 0:02:49.000 Sea it should be. 0:02:49.080 --> 0:02:51.600 I mean, typically you just need to have like positive 0:02:51.639 --> 0:02:55.360 economic growth driving positive earnings growth, and ultimately the S 0:02:55.360 --> 0:02:57.919 and P five hundred for example, is very very tightly 0:02:57.960 --> 0:03:00.600 correlated with our earnings performance, so it should do. 0:03:00.639 --> 0:03:00.760 Now. 0:03:00.800 --> 0:03:02.600 Of course, there's going to be some bumps along the road, 0:03:02.600 --> 0:03:05.640 and when you look at valuations, particularly for those big 0:03:05.680 --> 0:03:09.960 tech companies, there's going to be moments, potholes, air pockets, 0:03:10.000 --> 0:03:11.680 whatever you want to call it where the market really 0:03:11.760 --> 0:03:15.000 does have that moment of a hesitation where they. 0:03:14.919 --> 0:03:16.360 Really start to question the direction. 0:03:16.800 --> 0:03:18.480 But the key thing for us is, look as long 0:03:18.520 --> 0:03:22.520 as you can continue with positive growth in twenty twenty six, 0:03:22.560 --> 0:03:24.560 maybe a little bit lower than what we've enjoyed in 0:03:24.639 --> 0:03:27.080 twenty twenty five on the whole, but as long as 0:03:27.120 --> 0:03:29.480 there's positive growth, and really you should see this continuation 0:03:29.520 --> 0:03:31.480 of ardness growth and that should be enough to support 0:03:31.480 --> 0:03:34.560 the act market. We're not, of course, expecting very significant 0:03:34.600 --> 0:03:37.720 gains through next year, but at least you know in 0:03:37.720 --> 0:03:40.480 a upper trajectory where it does become important where you're 0:03:40.480 --> 0:03:41.240 going to be positioned. 0:03:41.480 --> 0:03:43.080 Which are the companies, which are the sectors? 0:03:44.400 --> 0:03:46.360 So you mentioned you flicked at the idea. There's a 0:03:46.400 --> 0:03:48.640 lot of fear surrounding AI. We've been hearing so much 0:03:48.680 --> 0:03:51.640 talk about market valuations being too high. So where do 0:03:51.720 --> 0:03:53.240 you want to be in this market? 0:03:54.720 --> 0:04:00.120 So we do have overweight to that megacab trade like 0:04:00.160 --> 0:04:02.080 everyone else is in the market. Has been really important 0:04:02.120 --> 0:04:05.800 to start doing well, to continue the analysis of these 0:04:05.800 --> 0:04:08.840 companies and looking at valuations now that valuations are frothy. 0:04:08.880 --> 0:04:11.400 That goes without saying, but I think the comparison to 0:04:11.440 --> 0:04:15.280 the dot com bubble is very much exaggerated. We have 0:04:15.360 --> 0:04:17.760 been very much reassured by the fact that the balance 0:04:17.760 --> 0:04:22.840 sheets of these companies are very strong, But there are 0:04:22.880 --> 0:04:25.320 concerns and the concerns that we need to track. One 0:04:25.360 --> 0:04:27.280 thing which is driving which I don't think is going 0:04:27.320 --> 0:04:30.119 to be answered at anytime soon, of course, is how 0:04:30.160 --> 0:04:32.320 it's going to be delivering on all of that productivity 0:04:32.360 --> 0:04:35.120 potential that people are hoping for, and that simply will 0:04:35.160 --> 0:04:38.160 not be answered anytime soon. So then the key thing 0:04:38.200 --> 0:04:40.599 that we have to be keeping a track of is 0:04:40.880 --> 0:04:44.080 how they're financing all of their AI capics. Is this 0:04:44.360 --> 0:04:47.120 debt financing becoming more of a trend in which case 0:04:47.560 --> 0:04:50.160 concerns around the bubble are going to increase if it's 0:04:50.200 --> 0:04:51.520 not matched by profit growth. 0:04:51.680 --> 0:04:52.640 So I think we're at the. 0:04:52.600 --> 0:04:56.800 Early innings of some of these concerns, which, unfortunate doesn't 0:04:56.800 --> 0:04:58.920 mean it's going to grow. But as long as these 0:04:58.960 --> 0:05:01.640 companies can continue to deliver on the earning side, we 0:05:01.680 --> 0:05:05.440 do think it can you know, dispel those fizz as 0:05:05.480 --> 0:05:07.880 they continue to grow. So it's an opportrajectory, but very 0:05:07.960 --> 0:05:08.960 very noisy. 0:05:09.160 --> 0:05:11.440 Sea Michhaw, Thank you so much. We always appreciate getting 0:05:11.440 --> 0:05:14.039 a few innutes your time, Semashaw. She's a chief global 0:05:14.040 --> 0:05:18.520 strategist principal asset Management located over there in the city 0:05:18.720 --> 0:05:19.479 of London. 0:05:19.520 --> 0:05:22.479 Appreciate that. Stay with us. More from Bloomberg Surveillance coming 0:05:22.560 --> 0:05:23.440 up after this. 0:05:29.440 --> 0:05:33.000 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:05:33.080 --> 0:05:36.240 weekday afternoons from seven to ten am Eastern Listen on 0:05:36.320 --> 0:05:40.000 Applecarplay and Android Auto with the Bloomberg Business app, or 0:05:40.120 --> 0:05:41.560 watch us live on YouTube. 0:05:41.720 --> 0:05:43.120 I'll switch gears to commodities. 0:05:43.120 --> 0:05:45.680 A lot going on out there in the space here, 0:05:45.800 --> 0:05:48.039 I don't know. I'm getting ready for the next season 0:05:48.040 --> 0:05:51.000 of Landman, which means I focus on oil, and I 0:05:51.000 --> 0:05:53.640 see wtacrud to oil below sixty dollars. I like that 0:05:53.680 --> 0:05:55.279 as a consumer, but I know the folks in the 0:05:55.320 --> 0:05:57.960 patch don't have they like seventy five dollars. 0:05:58.080 --> 0:06:00.360 Of course, you know the cost of productions. 0:06:00.080 --> 0:06:02.719 In a mid fifties, so they're making some good scratch there, 0:06:02.720 --> 0:06:04.000 but it's down here at sixty. 0:06:04.000 --> 0:06:05.760 They're not so happy. You've got somebody who does this 0:06:05.760 --> 0:06:06.320 stuff for a living. 0:06:06.400 --> 0:06:09.680 Francisco Blunch, head of Global Commodities at Bank of America Securities. 0:06:10.120 --> 0:06:11.880 I know them as Merrill Lynch back in the day, 0:06:11.880 --> 0:06:14.560 but they can call themselves whatever they want these days. Francisco, 0:06:14.560 --> 0:06:16.200 thanks so much for joining us here in our Bloomberg 0:06:16.240 --> 0:06:21.040 and Director Brokers studio. On the commodities front, what do 0:06:21.120 --> 0:06:22.960 your clients want to talk to you about these days? 0:06:24.240 --> 0:06:26.360 They want to talk about going through all oil, They 0:06:26.360 --> 0:06:29.520 want to talk about gold yep, they want to talk 0:06:29.560 --> 0:06:33.000 about what's going on in the metal space, some of 0:06:33.080 --> 0:06:36.320 the tire if impact on agriculture, and they I think 0:06:36.360 --> 0:06:39.320 they also want to talk about power and AI. 0:06:39.680 --> 0:06:41.680 All right, let's let's go with the power in the 0:06:41.720 --> 0:06:43.440 AI story, because that's kind of a new thing. 0:06:43.720 --> 0:06:43.920 You know. 0:06:44.320 --> 0:06:47.000 AI has been such a theme for this marketplace, certainly 0:06:47.040 --> 0:06:49.600 for the tech stocks that have direct exposure, and then 0:06:49.600 --> 0:06:51.839 people started looking for a derivative places and they come 0:06:51.880 --> 0:06:53.920 to your world, which is, how are we going to 0:06:53.960 --> 0:06:56.760 power all this stuff? How does that impact kind of 0:06:56.839 --> 0:06:59.520 the commodity discussion in terms of power? 0:06:59.760 --> 0:07:02.760 So the biggest impact, the most direct impact, has been 0:07:03.000 --> 0:07:05.760 perhaps in the metals markets, which are kind of the 0:07:05.760 --> 0:07:09.720 pick and shovels of health. Christy, we you've seen that 0:07:09.760 --> 0:07:13.280 in the price of copper you've seen the price of silver, 0:07:14.120 --> 0:07:16.080 and we expected to continue or the course of the 0:07:16.120 --> 0:07:17.720 next twelve to eighteen months. So we are bullish on 0:07:17.760 --> 0:07:20.160 those two commodities. Just to be clear, we have a 0:07:20.240 --> 0:07:23.760 fifteen thousand dollar per ton copper target over the next 0:07:24.080 --> 0:07:27.880 twenty four months, and we have and we have over 0:07:27.880 --> 0:07:29.680 the next twelve months or so. We got a sixty 0:07:29.680 --> 0:07:33.760 five dollar announced silver target. So we're bullishing those two commodities. 0:07:33.920 --> 0:07:37.920 Their key the best and the second best electricity conductors 0:07:37.920 --> 0:07:41.200 in the world as a commodity, so we think those 0:07:41.200 --> 0:07:46.600 two make makes sense. Strong exposure to or panels to grid. Also, 0:07:46.680 --> 0:07:50.960 people want to talk about gas and how gas powers electricity. 0:07:53.080 --> 0:07:55.000 In the US, we've seen a big rump up in 0:07:55.000 --> 0:07:57.760 Henry Hog prices. You may have noticed that we are 0:07:57.800 --> 0:07:59.960 now trading around four and a half low or cinemmb 0:08:00.080 --> 0:08:05.240 to you, that's a pretty big pickup. And remember gas 0:08:05.720 --> 0:08:08.320 is in the US been hit by two things. First, 0:08:08.400 --> 0:08:11.640 demand for power has been very strong, although that's not 0:08:11.680 --> 0:08:14.600 really the reason why gas prices have risen. It's because 0:08:14.640 --> 0:08:18.760 of the LNG export story to power the rest of 0:08:18.760 --> 0:08:22.239 the world, and of course the US launched a large 0:08:22.280 --> 0:08:27.960 investment into LERNG export facilities, liquid natural gas export facilities. 0:08:28.400 --> 0:08:31.280 These are coming online very quickly. They are soaking up 0:08:31.320 --> 0:08:33.520 all that gas, freezing it and shipping it to Europe 0:08:33.559 --> 0:08:36.200 and to other parts of the world. And that's been 0:08:36.240 --> 0:08:39.280 the true story for the last few months and will 0:08:39.320 --> 0:08:40.920 remain the big story for the next few months. So 0:08:41.240 --> 0:08:44.360 we're not I mean, we're not super bowlish, in part 0:08:44.400 --> 0:08:47.480 because we think producers are very good at. 0:08:47.600 --> 0:08:48.559 Cranking out output. 0:08:48.600 --> 0:08:53.079 So you talked about oil and how folks need higher 0:08:53.080 --> 0:08:57.040 price than sixty dollars a barrel to get a decent return, 0:08:57.559 --> 0:08:59.400 but for gas, the number is a lot lower than 0:08:59.440 --> 0:09:01.240 four and a half our MBTUS. 0:09:00.760 --> 0:09:04.880 So we're going to see a ramp up there in activity. 0:09:05.240 --> 0:09:07.480 So you're the expert in commodities, but I have the 0:09:07.600 --> 0:09:10.920 g lco go function on the Bloomberg termat Global Commodities, 0:09:11.120 --> 0:09:12.720 so I can see everything, and I can at a 0:09:12.720 --> 0:09:14.000 copto party, I can sell. 0:09:13.920 --> 0:09:14.520 It an expert. 0:09:16.000 --> 0:09:18.280 Honestly, I wanted to stick with that AI play that 0:09:18.280 --> 0:09:20.360 we were talking at a bit earlier. What are some 0:09:20.480 --> 0:09:23.280 other maybe derivative plays that you think maybe investors are 0:09:23.360 --> 0:09:25.320 underappreciating during this time period. 0:09:27.120 --> 0:09:31.600 So we we like in the commodity world. 0:09:31.600 --> 0:09:34.840 You can also look at power prices themselves, and we 0:09:34.880 --> 0:09:37.160 think those power prices are likely to need to go up. 0:09:37.160 --> 0:09:42.520 Wholesale power prices, we've seen pasty auctions very strong and 0:09:42.559 --> 0:09:46.320 across pretty in PGM, and in the northeast there's a 0:09:46.360 --> 0:09:48.480 huge data center build out as you know going on 0:09:48.760 --> 0:09:52.760 in Virginia. It's having uploided complication as well. Right, we've 0:09:52.760 --> 0:09:57.240 seen the cost of living remaining a core issue in elections, 0:09:57.720 --> 0:10:01.040 and we expected to remain so because it's you know, 0:10:01.559 --> 0:10:07.520 we don't really see the pressures fading away. But one 0:10:08.040 --> 0:10:13.640 derivative side of power right is perhaps the most the 0:10:13.640 --> 0:10:19.000 most underappreciated, is aluminium. Aluminum is essentially solid electricity. When 0:10:19.000 --> 0:10:21.760 you have a lot spare electricity, you basically can make 0:10:22.360 --> 0:10:25.120 very cheap aluminum because it takes fourteen megal hours of 0:10:25.520 --> 0:10:30.040 power to make a ton of aluminum. So we expect 0:10:30.080 --> 0:10:33.240 aluminum prices to also write rise quite significantly. And it's 0:10:33.280 --> 0:10:36.080 interesting because aluminium is one of the komaries that has 0:10:36.160 --> 0:10:39.040 been subject to a fifty percent diarrey, even though it's 0:10:39.080 --> 0:10:44.360 really a Canadian import, So we expect aluminum prices to 0:10:44.360 --> 0:10:45.360 trend higher globally. 0:10:45.400 --> 0:10:46.360 That's one area. 0:10:46.400 --> 0:10:48.839 We think as a result of the AI boom, and 0:10:48.920 --> 0:10:50.720 it's essentially solid electricity. 0:10:51.480 --> 0:10:54.880 Looking at WTIQ to oil roughly sixty dollars a barrel 0:10:54.920 --> 0:10:56.160 of brent sixty four? 0:10:58.000 --> 0:10:59.680 Is there an oil glut out? 0:10:59.679 --> 0:11:01.839 There were in a period of. 0:11:02.160 --> 0:11:05.480 Prolonged oversupply and crew do you think we are? 0:11:05.600 --> 0:11:09.040 And that's the You know, it's interesting because we talked 0:11:09.040 --> 0:11:11.040 about all this energy demand and here we are with 0:11:11.160 --> 0:11:12.800 really pressed Cruler prices. 0:11:13.000 --> 0:11:18.240 So what's going on? Simply we have we have a 0:11:18.240 --> 0:11:19.040 price war. 0:11:20.400 --> 0:11:24.880 Right now between OPEC plus and rest of the world. 0:11:25.080 --> 0:11:27.080 For the last three years, in twenty two, twenty three, 0:11:27.160 --> 0:11:29.559 twenty four, price of oil average almost ninety dollars a 0:11:29.600 --> 0:11:33.440 barrel and Brent and mid eighties for WTI. But you 0:11:33.440 --> 0:11:36.080 know what, US production went up three million barrels a day. 0:11:36.520 --> 0:11:39.319 Saudi production went down two million barrels a day. They 0:11:39.360 --> 0:11:41.480 cannot keep doing this forever. And they're like, well, you know, 0:11:42.080 --> 0:11:44.679 nineteel oil doesn't really work for us. It works too 0:11:44.679 --> 0:11:46.200 well for you, but it doesn't really work for us 0:11:46.200 --> 0:11:47.600 at all. So we got to get some of that 0:11:47.679 --> 0:11:49.880 market share back. And that's what's going on. They've been 0:11:49.920 --> 0:11:54.800 adding a lot of barrels, and that's the press prices. 0:11:55.280 --> 0:11:58.960 We've averaged about sixty nine dollars a barrel in brand 0:11:59.000 --> 0:12:00.600 this year, about four sunder. 0:12:00.400 --> 0:12:03.960 From t I sixty five. Last year we averaged around eighty. 0:12:04.120 --> 0:12:08.000 Right, So it's it's and honestly like there is like 0:12:08.120 --> 0:12:10.400 a lot and and OPEK ten days ago decided to 0:12:10.440 --> 0:12:13.120 pause and partly because they thought, well, maybe there's too 0:12:13.200 --> 0:12:15.160 much money in the market. We're going to the first quarter, 0:12:15.320 --> 0:12:18.120 which is seasonally weak, so let's put a pulse on 0:12:18.200 --> 0:12:20.640 things here because OPEC doesn't want to run a price 0:12:20.679 --> 0:12:21.440 war like. 0:12:21.200 --> 0:12:24.040 Like twenty twenty or twenty fifteen. Right, you're based in 0:12:24.120 --> 0:12:25.280 Madrid right now? 0:12:25.320 --> 0:12:27.360 Yah, Okay, here's the problem I have with the Madrid 0:12:27.440 --> 0:12:30.400 maybe Spain in general. Tell us I'm an early to bed, 0:12:30.400 --> 0:12:31.600 early to rhymes kind of guy. 0:12:31.840 --> 0:12:34.000 These people don't go out to dinner till like nine 0:12:34.040 --> 0:12:34.880 ten o'clock at night. 0:12:34.920 --> 0:12:36.319 What is that? What is up with that? 0:12:36.920 --> 0:12:37.240 All right? 0:12:37.320 --> 0:12:39.360 So, so just a quick historical five. 0:12:40.440 --> 0:12:44.080 About one hundred years ago, maybe ninety years ago, Spain 0:12:44.160 --> 0:12:49.320 changed the time zone to align it with with Prism Berlin. Okay, 0:12:49.320 --> 0:12:52.720 really so, so Spain has a time zone which is 0:12:52.760 --> 0:12:56.120 aligned with really I mean today, if you go to 0:12:56.160 --> 0:12:58.040 Warsaw at the same time zone as Madrid, that doesn't 0:12:58.040 --> 0:13:00.920 make any sense because you go to the Grewch meridian 0:13:00.920 --> 0:13:03.480 and it crosses straight through Valencia. 0:13:03.520 --> 0:13:05.000 Okay, so the whole of. 0:13:04.960 --> 0:13:08.920 Spain should be on UK time zone, not on German 0:13:09.000 --> 0:13:09.480 time zone. 0:13:09.520 --> 0:13:12.400 But that's kind of something happened ninety years ago and 0:13:12.840 --> 0:13:15.120 nobody seems to have been willing to change it. There's 0:13:15.120 --> 0:13:16.960 a big debate in the country as to whether that 0:13:17.040 --> 0:13:18.280 makes any sense. 0:13:18.360 --> 0:13:20.040 Should we change that? Well, people love. 0:13:20.000 --> 0:13:23.559 Going out I move. It's also pretty horrific. You wake 0:13:23.640 --> 0:13:26.280 up sometimes eight in the morning, eight to fifteen's the lark. 0:13:26.960 --> 0:13:30.199 Oh my goodness, it is phenomenal. City loves that must be. 0:13:31.040 --> 0:13:33.120 It is awesome. Francisco, thank you so. 0:13:33.160 --> 0:13:33.760 Much for joining us. 0:13:33.760 --> 0:13:35.160 We appreciate our Francisco. 0:13:34.720 --> 0:13:37.840 Blanchi's head of Global Commodities at Bank of America's Securities 0:13:37.840 --> 0:13:39.440 based in Madrid, but journey us live here in our 0:13:39.440 --> 0:13:41.239 Bloomberg Interactive Broker. 0:13:41.000 --> 0:13:43.360 Studio, and we appreciate that. Stay with us. More from 0:13:43.360 --> 0:13:45.520 Bloomberg Surveillance coming up after this. 0:13:51.440 --> 0:13:55.040 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:13:55.080 --> 0:13:58.280 weekday afternoons from seven to ten am Eastern Listen on 0:13:58.360 --> 0:14:01.760 Apple Karplay and Android Auto with the Bloomberg Business app, 0:14:01.920 --> 0:14:03.640 or watch us live on YouTube. 0:14:03.840 --> 0:14:07.120 Hassam Naji joins us. He's the CEO of Marcus and Milichip. 0:14:07.160 --> 0:14:10.800 That's the business that he does, retail, commercial, all that 0:14:10.880 --> 0:14:13.160 kind of stuff. He joins us here in studio, Hassan, 0:14:13.240 --> 0:14:16.240 talk to us about the country here in retail, commercial, 0:14:16.280 --> 0:14:16.680 real estate. 0:14:16.720 --> 0:14:17.560 What's the market look like? 0:14:17.960 --> 0:14:19.480 Good morning, Great to be with you again. 0:14:20.040 --> 0:14:23.800 Retail has a short term and a long term picture 0:14:23.840 --> 0:14:26.560 that we have to talk about in order to really 0:14:27.080 --> 0:14:29.600 express the current state of the market. The long term 0:14:29.600 --> 0:14:34.880 picture comes from pain twenty years of reinvention of retail commerce, 0:14:34.960 --> 0:14:38.040 killing brick and mortar, and the industry stopped building any 0:14:38.040 --> 0:14:41.920 new product for the most part, and reposition so many 0:14:41.920 --> 0:14:44.200 shopping centers and retail concepts. 0:14:45.000 --> 0:14:45.960 And we've come. 0:14:45.800 --> 0:14:49.400 Out of that much tighter and a reinvented way of 0:14:49.480 --> 0:14:52.800 using brick and mortar retail, which is now being very successful. 0:14:53.080 --> 0:14:58.120 It's all pretty much driven by fitness, entertainment, food, and 0:14:58.200 --> 0:15:02.120 destination shopping. Those things are moving in a very positive 0:15:02.120 --> 0:15:06.520 direction in the near term because wages have been growing 0:15:06.640 --> 0:15:09.880 and consumer confidence has been really high and high net 0:15:09.960 --> 0:15:12.920 worth individuals have been spending thanks to the stock market 0:15:12.920 --> 0:15:17.000 and other wealth creation mechanisms. Sales have been really, really strong, 0:15:17.440 --> 0:15:20.880 So two very short term and long term positive factors going. 0:15:21.600 --> 0:15:25.040 Some of the headwinds are the uncertainty related to interest 0:15:25.080 --> 0:15:30.120 rates tariffs that made many retailers pause for a moment 0:15:30.280 --> 0:15:37.040 in store openings, and balancing forecasting where consumer confidence may 0:15:37.080 --> 0:15:39.560 be going, which has weakened in the last few months. 0:15:40.280 --> 0:15:43.880 So it's really a battle between some of that uncertainty 0:15:44.120 --> 0:15:45.480 and very strong fundamentals. 0:15:45.800 --> 0:15:46.320 So during the. 0:15:46.320 --> 0:15:48.520 Break, you were talking to us about how some of 0:15:48.560 --> 0:15:51.800 the retail spaces are performing well in suburban areas. 0:15:51.880 --> 0:15:53.920 Talk to us a bit about what are those. 0:15:53.800 --> 0:15:56.640 Like regionally as we think about demand for retail space. 0:15:57.080 --> 0:16:00.640 You mentioned New York right here at the heart of 0:16:00.720 --> 0:16:05.120 the capital markets, at center of the world. We're creating 0:16:05.280 --> 0:16:08.000 seventy to eighty thousand jobs a year. New York is back. 0:16:08.320 --> 0:16:10.840 Yet there is a lot of urban retail storefronts that 0:16:10.880 --> 0:16:12.440 are still empty or struggling. 0:16:13.160 --> 0:16:15.760 The consumer habits, the you know. 0:16:15.720 --> 0:16:18.720 Tourism hit that we took earlier this year, all those 0:16:18.760 --> 0:16:22.560 things play into street urban retail Suburban retail, on the 0:16:22.600 --> 0:16:25.800 other hand, has been doing much much better. And I 0:16:25.840 --> 0:16:28.280 would say urban retail is on the recovery, but not 0:16:28.360 --> 0:16:31.760 quite quite as strongly because the post pandemic effect of 0:16:31.800 --> 0:16:35.280 a lot of people flaying urban markets. That's changing, thank god, 0:16:35.440 --> 0:16:37.920 because of the mandate to return to office, which is 0:16:38.040 --> 0:16:40.800 also helping to improve both residential and retail. 0:16:41.200 --> 0:16:43.520 You know now that I think about our Lectionington Avenue 0:16:43.520 --> 0:16:46.800 fifty eight fifty night, I mean, whoever owns those building 0:16:46.800 --> 0:16:49.240 and manages those buildings, they're doing a bad job. 0:16:49.600 --> 0:16:52.640 I think I could sell that. I could sell that stuff. 0:16:52.720 --> 0:16:56.320 I mean it's prime location, it's people are back, it's packed. 0:16:56.760 --> 0:16:58.560 So I think so I don't get all. 0:16:58.680 --> 0:17:01.400 You just hit the most important part of creating wealth 0:17:01.400 --> 0:17:02.880 through commercial real estate, and that is what are you 0:17:02.920 --> 0:17:03.800 going to do with the asset? 0:17:04.280 --> 0:17:05.880 Why did you buy it in the first place, how 0:17:05.880 --> 0:17:06.280 did you. 0:17:06.160 --> 0:17:09.120 Finance it, What was the value in and your expected 0:17:09.200 --> 0:17:11.760 value out and in between? What are you going to 0:17:11.800 --> 0:17:14.840 do to create value and make the property stand out. 0:17:15.080 --> 0:17:17.480 At the end of the day, it's just a business 0:17:17.520 --> 0:17:19.720 execution of that strategy, asset by asset. 0:17:20.080 --> 0:17:21.760 Yeah, they got the signs in the Windo. I'm going 0:17:21.840 --> 0:17:24.200 to call that number and sit, give them a marine poll. 0:17:24.440 --> 0:17:27.120 Get going here, all right? Interest rates are coming down, 0:17:28.720 --> 0:17:31.760 and that's good for your business? How good for your business? 0:17:32.640 --> 0:17:35.120 Really fascinating to see what's happened with commercial reals did 0:17:35.119 --> 0:17:38.320 as a whole. We have three very positive forces working 0:17:38.320 --> 0:17:42.240 for the industry. One is price corrections. Since twenty twenty 0:17:42.240 --> 0:17:45.560 two peak March of that year, prices have cone down 0:17:45.640 --> 0:17:49.360 on average fifteen to twenty percent across the entire industry. 0:17:49.480 --> 0:17:50.560 Interest rates are coming down. 0:17:50.560 --> 0:17:53.560 As a second positive, and more important than that, is 0:17:53.600 --> 0:17:57.400 the fact that financing is back. Banks are lending again, 0:17:57.520 --> 0:18:01.320 credit unions are lending again. And that doesn't capture much 0:18:01.320 --> 0:18:04.440 headlines because more than eighty percent of all transactions in 0:18:04.440 --> 0:18:07.800 commercial real estate are sub ten million dollars executed by 0:18:07.880 --> 0:18:12.600 high net worth individuals and high net worth households, not institutions, 0:18:13.000 --> 0:18:17.520 And so when debt becomes more available and lenders are 0:18:17.520 --> 0:18:20.760 more confident, the lender spreads come in, and that's why 0:18:20.800 --> 0:18:21.960 interest rates are coming down. 0:18:22.480 --> 0:18:24.560 The only real headwind we have is. 0:18:24.520 --> 0:18:28.400 This uncertainty around the government shutdown and the data that 0:18:28.520 --> 0:18:32.000 the federalies on and all the question marks about the 0:18:32.000 --> 0:18:34.800 effect of tariffs on inflation and what the Fed will 0:18:34.880 --> 0:18:39.160 or will not do. That's pretty much the only real 0:18:39.200 --> 0:18:41.440 headwind we're facing. Fundamentals look really great. 0:18:42.200 --> 0:18:45.439 So in my previous role, before I became markets correspondent 0:18:45.440 --> 0:18:47.960 for Bloomberg Television, I was on our equities team. 0:18:48.080 --> 0:18:49.160 Oh thanks, Paul. 0:18:50.440 --> 0:18:51.960 I was on our equities team, and I covered real 0:18:52.040 --> 0:18:55.639 estate's box. I covered reads in particular, and I was 0:18:55.680 --> 0:18:58.440 surprised to learn that office reads only make up about 0:18:58.520 --> 0:19:01.000 less than four percent of reachs. More and broadly. So 0:19:01.040 --> 0:19:03.480 a lot of people look at commercial real estate is bad, bad, 0:19:03.520 --> 0:19:06.520 bad because of struggles in office. But it's really confleating 0:19:06.520 --> 0:19:08.720 that idea and really making it brought it out for 0:19:08.800 --> 0:19:11.880 the broader sector. But what other areas are you keeping 0:19:11.880 --> 0:19:14.280 an eye on? I know I used to senior housing 0:19:14.280 --> 0:19:16.080