WEBVTT - A Closer Look At The Housing Market 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.600 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.319 at Bloomberg dot com slash podcast. Let's get to the 0:00:22.400 --> 0:00:24.759 housing market. We have Brad Dillman with us. He's the 0:00:24.800 --> 0:00:30.840 chief economist over at Courtland, joining us out of Hot Lanta. Brad, Um, 0:00:30.920 --> 0:00:34.720 we've had some interesting well existing home sales yesterday, I 0:00:34.720 --> 0:00:37.920 think they were down two percent, which I've found quite interesting, 0:00:37.960 --> 0:00:40.640 and I've seen more and more stories that maybe these 0:00:40.720 --> 0:00:46.320 high prices are driving people away from um making purchases. 0:00:46.440 --> 0:00:48.520 How do you look at the housing market right now? 0:00:49.800 --> 0:00:52.320 You agree with that statement. I mean, there's no question 0:00:52.400 --> 0:00:56.000 that we've seen a lot of price movement resulting from 0:00:56.000 --> 0:00:58.280 low mortgage rates over the last two years at this point, 0:00:58.840 --> 0:01:00.720 and then of course we have the supply eye conditions 0:01:00.760 --> 0:01:03.040 that are are often spoken about as well. They're contributing 0:01:03.040 --> 0:01:05.880 to those pressures. Brad. One of the things we've heard 0:01:05.880 --> 0:01:08.240 from a lot of the home builders, Uh this quarter 0:01:08.360 --> 0:01:12.399 and in recent quarters, is they can't build as many 0:01:12.440 --> 0:01:16.759 houses as they want because it's maybe supply chain issues, um, labor, 0:01:16.760 --> 0:01:19.280 those types of issues. How big even of a challenge 0:01:19.319 --> 0:01:21.880 is that for the US in terms of trying to 0:01:22.319 --> 0:01:24.080 you know, build up our housing stock to get people 0:01:24.080 --> 0:01:26.880 into homes. Yeah, I think we definitely know that that's 0:01:26.880 --> 0:01:30.119 a challenge. Just quantifying that is really part of the 0:01:30.200 --> 0:01:32.839 even bigger challenge that we're facing. But when we focus 0:01:32.959 --> 0:01:35.000 just on what's happened recently on and we're missing the 0:01:35.040 --> 0:01:38.000 bigger picture and the bigger pictures one where coming out 0:01:38.000 --> 0:01:40.160 of the Great Recession, we did a lot of things 0:01:40.160 --> 0:01:44.000 to inflate housing to help engender a recovery, and that 0:01:44.080 --> 0:01:48.440 in turn contributed to this undersupply situation that we're in today. 0:01:48.640 --> 0:01:50.160 So part of what we're looking at is not so 0:01:50.240 --> 0:01:52.080 much a question of what's going to happen on the 0:01:52.120 --> 0:01:54.200 supply chain side, but what are going to be the 0:01:54.280 --> 0:01:57.000 ramifications of this out of control home price appreciation that 0:01:57.040 --> 0:02:00.400 we've seen over the last eighteen months. Well, we had 0:02:00.400 --> 0:02:02.800 a story on the Bloomberg a couple of days ago 0:02:02.880 --> 0:02:07.600 that said one of the ramifications is exacerbated in equal inequality, 0:02:08.280 --> 0:02:11.000 you know, because if you're a young person and you 0:02:11.040 --> 0:02:14.720 can't come up with a down payment today and prices 0:02:14.800 --> 0:02:16.959 keep rising, you're not coming up with a down payment 0:02:17.000 --> 0:02:19.720 tomorrow either. And at the end of the day, you're 0:02:19.760 --> 0:02:21.920 going to be someone without a home. And we know 0:02:22.000 --> 0:02:25.000 that's a big store of wealth for people that do 0:02:25.080 --> 0:02:28.840 own them. What would be your prescription, Brad, in order 0:02:28.880 --> 0:02:31.359 to get us out of this situation? I mean it's 0:02:31.400 --> 0:02:35.200 something that you know, governments have tried around the world 0:02:35.200 --> 0:02:38.200 throughout history to figure out for for so long, right, 0:02:38.240 --> 0:02:40.000 and we've never really come up with a good way 0:02:40.040 --> 0:02:43.720 to deal with higher price with prices that are two high. Yeah. 0:02:43.760 --> 0:02:46.120 And also it depends on the school of economic thought 0:02:46.120 --> 0:02:48.959 one subscribes to, but many people with points of view 0:02:49.000 --> 0:02:51.639 that simply by intervening and markets at different times, you 0:02:51.720 --> 0:02:54.920 end up creating the condition for some kind of an 0:02:54.919 --> 0:02:57.560 issue down the road. I think we could see that 0:02:57.600 --> 0:02:59.280 over the last twenty years in this country when we 0:02:59.320 --> 0:03:01.880 look at the effort that we're done to to increase 0:03:01.919 --> 0:03:04.440 the home ownership rate after the dot com ver session 0:03:04.440 --> 0:03:07.000 actually been beginning in the late nineties, in many ways 0:03:07.000 --> 0:03:10.160 contributing to the oversupply and the out of control home 0:03:10.200 --> 0:03:13.480 price appreciation that was the housing bubble experience, and then 0:03:13.520 --> 0:03:15.840 the very efforts to get us out of that, creating 0:03:15.840 --> 0:03:19.160 this undersupply situation that we're in today. I don't have 0:03:19.200 --> 0:03:22.800 an answer. I'm just one economist. I'm not you know, 0:03:22.919 --> 0:03:26.560 a policy walk, as it were. But one thing I 0:03:26.560 --> 0:03:29.680 would look at is the alternatives in the rental space. 0:03:29.919 --> 0:03:31.880 If we look at what's happening in the housing starts, 0:03:31.880 --> 0:03:34.640 we can't see that multifamily housing starts are really taken off. 0:03:34.920 --> 0:03:37.280 Permitting has looked good to we know there's been this 0:03:37.360 --> 0:03:40.520 development in the single family for rent space. But to 0:03:40.560 --> 0:03:43.360 your point about what this means for people building equity 0:03:43.440 --> 0:03:48.440 and building their own wealth over time, that's a different question. So, Brad, 0:03:48.480 --> 0:03:50.800 one of the things you know when we hear from 0:03:51.080 --> 0:03:53.080 the home builders is and and you know, folks that 0:03:53.160 --> 0:03:56.080 look at the real estate business, the housing that is 0:03:56.120 --> 0:04:00.000 being built isn't necessarily for the first time buyer um, 0:04:00.040 --> 0:04:02.840 and that's creating this inequality that Matt mentioned, or is 0:04:02.880 --> 0:04:06.880 adding to it. I guess, um. Yeah, obviously the margins 0:04:06.880 --> 0:04:09.120 are much better for these builders on the big McMansions 0:04:09.120 --> 0:04:11.160 and so on. But is there anything that can be 0:04:11.200 --> 0:04:14.240 done to kind of you know, incent builders to build 0:04:14.240 --> 0:04:18.040 homes for the people that really need them. There's always 0:04:18.080 --> 0:04:20.480 policy actions that could be taken to do things like that. 0:04:20.560 --> 0:04:23.159 On the margin, we've heard different things being discussed at 0:04:23.160 --> 0:04:25.440 different times of the last five years. If it ranges 0:04:25.480 --> 0:04:29.080 from trying to use state powers to overcome local zoning 0:04:29.200 --> 0:04:31.479 ordinances and things like this. But we'll also see the 0:04:31.480 --> 0:04:34.200 population respond, right, so people live at home longer to 0:04:34.200 --> 0:04:37.360 say about more money, they migrate to affordability, and there's 0:04:37.400 --> 0:04:39.880 certainly markets in the country. I point to Boise, Idaho 0:04:39.920 --> 0:04:42.560 as an example. There's just a lot of activity going 0:04:42.560 --> 0:04:44.240 on is people who have moved to an area where 0:04:44.240 --> 0:04:47.120 they can price themselves back into the market when it 0:04:47.160 --> 0:04:48.760 comes down to the savings that they can you know, 0:04:48.760 --> 0:04:50.960 accrue in a more expensive area and then move to 0:04:51.000 --> 0:04:53.279 a more affordable one in order to deploy those savings 0:04:53.279 --> 0:04:56.400 in the housing market. I've heard so much about Boise 0:04:56.520 --> 0:04:58.080 the last few weeks it makes me kind of want 0:04:58.080 --> 0:05:02.240 to look into that's either Schuster Boisett maybe. I mean, 0:05:03.680 --> 0:05:08.760 I don't recall hearing this much about Boise. Since I 0:05:08.760 --> 0:05:11.400 think legends of the Fall, I believe there was a 0:05:11.440 --> 0:05:14.400 scene in that movie where Brad Pitt goes back to Boise. 0:05:14.560 --> 0:05:17.400 But I gotta check that. I gotta check it out. 0:05:17.640 --> 0:05:20.080 Folks from the West Coast when they get priced out 0:05:20.080 --> 0:05:22.320 of the Bay are at Boise was like a place 0:05:22.360 --> 0:05:25.240 to go. So anyway, Brad Dilman, thank you so much 0:05:25.320 --> 0:05:29.359 for joining us. Uh. Brad Delman, chief economist for Courtland, 0:05:29.440 --> 0:05:32.600 joining us on the phone from Atlanta again talking about 0:05:32.600 --> 0:05:35.320 the housing market and UH, for those that are looking 0:05:35.360 --> 0:05:39.360 to buy a house, very difficult times here, limited inventory, 0:05:39.800 --> 0:05:42.719 higher prices making it very difficult in the rental market 0:05:42.760 --> 0:05:45.240 also is no joke on a lot of these markets here. 0:05:45.279 --> 0:05:51.160 So again looking for that market to stabilize. A lot 0:05:51.200 --> 0:05:54.599 of ECO data today, including the Leading Index for the 0:05:54.640 --> 0:05:56.560 month of August I came in and gain of zero 0:05:56.560 --> 0:05:59.599 point nine, a little bit better than expected of some 0:05:59.640 --> 0:06:01.919 good new zero. Let's break it down with Ottoman Azldrem. 0:06:02.320 --> 0:06:05.680 He is director of Economic Research and Global Research Chair 0:06:05.720 --> 0:06:08.719 at the Conference Board. Ottoman, what are the key drivers 0:06:08.720 --> 0:06:14.360 that we saw in the August Leading Index? Um, good morning. Yes, 0:06:14.440 --> 0:06:18.520 the ALI rose sharply and that those games were pretty 0:06:18.640 --> 0:06:23.880 widespread among the ten different components uh in the index. Uh. 0:06:23.920 --> 0:06:27.680 You know whether you you're looking at UM orders or 0:06:27.760 --> 0:06:33.120 labor markets or housing markets, financial indicators pretty widespread, strong 0:06:33.160 --> 0:06:41.520 gains there. And how how sustainable do you think this is? Well? Uh, 0:06:41.760 --> 0:06:44.599 you know, the monthly games have picked up over the 0:06:44.680 --> 0:06:48.800 last three months, UM, and the index has really the 0:06:48.880 --> 0:06:52.320 trajectory has picked up compared to earlier in the year. 0:06:52.680 --> 0:06:57.800 So that does suggest to some sustainable growth in the economy. Um. 0:06:57.839 --> 0:07:02.599 You know, the ALI is pointing to basically a strong 0:07:02.760 --> 0:07:06.120 expansion in the U s economy in a way, UM, 0:07:06.160 --> 0:07:09.360 to the underlying fundamentals are fairly strong. It's kind of 0:07:09.480 --> 0:07:13.840 normalizing growth. UM. But the way ahead there could be 0:07:14.240 --> 0:07:18.200 some headwinds and there could be some turbulence. So automania. 0:07:18.280 --> 0:07:20.800 You know. How does you know this delta variant continues 0:07:20.840 --> 0:07:24.280 to really be a difficult challenge around the world, certainly 0:07:24.280 --> 0:07:27.560 here in the US, particularly in certain parts. How does 0:07:27.600 --> 0:07:30.640 that factor in? I mean it kind of suggests. Does 0:07:30.680 --> 0:07:35.840 your data suggest that people are kind of looking beyond that? Well, um, 0:07:35.880 --> 0:07:39.200 the data does reflect that to some extent. Uh. The 0:07:39.280 --> 0:07:42.560 delta does put a damper on UH sort of the 0:07:42.640 --> 0:07:47.000 expected UH switch to more services and more in service 0:07:47.320 --> 0:07:51.440 in person services in the economy. That does derail that 0:07:51.480 --> 0:07:53.600 outlook a little bit, and it does show up in 0:07:53.640 --> 0:07:59.280 the labor markets and employment insurance numbers. It also shows 0:07:59.360 --> 0:08:03.760 up in know what consumers are expecting about business conditions, uh, 0:08:03.800 --> 0:08:07.560 you know, in six months, in twelve months, um so. UM, 0:08:07.640 --> 0:08:13.480 you know, the the resurgence of the delta does put 0:08:13.560 --> 0:08:20.200 some concern, especially for those consumer services categories. UM So 0:08:20.920 --> 0:08:24.120 what about the inflationary hit? I mean, is this just 0:08:24.240 --> 0:08:27.760 not as much of um a headwind as maybe we 0:08:27.800 --> 0:08:32.640 had thought it would be. We think that you know, 0:08:32.720 --> 0:08:40.000 inflation will likely stay more transitory or transient, um, although 0:08:40.080 --> 0:08:42.680 it will prices will be you know high for a 0:08:42.679 --> 0:08:45.360 while yet before starting to come down at the end 0:08:45.360 --> 0:08:50.640 of the year. Um. There's possibly an adjustments going on 0:08:51.240 --> 0:08:54.920 people getting used to uh those higher prices. But that 0:08:55.040 --> 0:08:57.600 is also another area that we're watching in terms of 0:08:58.000 --> 0:09:01.480 risks to this business cycle. Expanse should outman. You know, 0:09:01.559 --> 0:09:04.120 when Matt and I talked to corporate executives, we hear 0:09:04.200 --> 0:09:09.160 pretty much across most industries that supply chain challenges are big, 0:09:09.200 --> 0:09:13.240 big crimp in the reopening of their businesses and uh 0:09:13.440 --> 0:09:15.640 short and kind of crimping their margins and so on. 0:09:15.800 --> 0:09:17.640 How does that factor into kind of the data you 0:09:17.640 --> 0:09:22.360 look at. Yeah, that's another area that we're watching closely, 0:09:22.400 --> 0:09:24.760 and we're hearing from our members at the conference board 0:09:24.800 --> 0:09:29.040 about these UH demand and supply mismatches that are showing 0:09:29.120 --> 0:09:33.960 up in supply chain disruptions. UM and UM. I think, um, 0:09:34.120 --> 0:09:39.240 you know, another area that highlights UH those disruptions is 0:09:39.440 --> 0:09:42.080 the new orders data. And I think some of that 0:09:42.720 --> 0:09:45.640 holatility that we're seeing there is partly due to those 0:09:45.679 --> 0:09:50.960 supply chain issues. UM. You know that I think again 0:09:51.920 --> 0:09:56.640 will likely be more temporary than permanent. As the economy 0:09:57.320 --> 0:10:01.480 around the world, you know, reopens, these issues will get 0:10:01.800 --> 0:10:05.280 sorted out, but there are some UH frictions that are 0:10:05.360 --> 0:10:09.240 creating these volatilities in the outlook. Again, you have to 0:10:09.320 --> 0:10:13.239 expect the supply chain issues, well, even if they're temporary, 0:10:13.320 --> 0:10:15.560 still last quite a while. I mean, we talked about 0:10:15.559 --> 0:10:20.120 a six month period and I don't hear from CEOs 0:10:20.160 --> 0:10:22.400 of at least big automakers that they expect this to 0:10:22.440 --> 0:10:26.800 be resolved in six months. Certainly, you know, And and 0:10:27.120 --> 0:10:29.800 some of this is happening in the context of longer, 0:10:30.320 --> 0:10:34.880 longer term changes, structural changes and supply chains that have 0:10:35.040 --> 0:10:38.720 been underway, you know, after the you know last great 0:10:38.720 --> 0:10:42.400 recession that we saw, so that triggered some of those changes. 0:10:42.480 --> 0:10:47.400 And the context is one of these UM major UH 0:10:47.840 --> 0:10:52.880 reorganization I guess in supply chains and these demands, supply 0:10:53.040 --> 0:10:57.520 mismatches and disruptions are certainly not helping UH. And as 0:10:57.520 --> 0:11:01.240 you mentioned, you know some some UH sectors are much 0:11:01.280 --> 0:11:04.680 more vulnerable to those than others. All right, Ottoman, thanks 0:11:04.720 --> 0:11:07.880 very much, Ottoman. Azzle drom there, director of Economic Research 0:11:07.920 --> 0:11:13.839 and the Global Research Chair for the Conference board. E 0:11:14.360 --> 0:11:18.520 s G. Environmental, Social and Governance has certainly become a 0:11:18.679 --> 0:11:22.800 very big topic in investing, both equity side and fixed 0:11:22.840 --> 0:11:25.400 income side. Let's bringing an expert there on the credit 0:11:25.440 --> 0:11:28.040 part of it, Robert Lamb, co head of Credit at 0:11:28.120 --> 0:11:31.160 Man new Merrick. Rob thanks much for joining us here. 0:11:31.240 --> 0:11:35.320 I love to just step backt view and say, what 0:11:35.600 --> 0:11:37.719 is E s G investing to you and how does 0:11:37.720 --> 0:11:44.520 it factor into your credit strategies? Yeah, great question. UM, 0:11:44.559 --> 0:11:47.440 I look at it from this perspective. You know, percent 0:11:47.679 --> 0:11:51.880 of all US high old mandates are managed by traditional 0:11:51.920 --> 0:11:55.240 discretionary managers UM, and to me that means that the 0:11:55.280 --> 0:11:57.680 majority of credit investors in the market are using a 0:11:57.760 --> 0:12:01.640 very similar investment process. So when the market structure is 0:12:01.679 --> 0:12:05.320 so skewed, it actually creates inefficiencies, and I believe real 0:12:05.400 --> 0:12:09.840 opportunities to harness those inefficiencies as well. Currently, I actually 0:12:09.960 --> 0:12:13.240 don't believe that credit investors are using enough data in 0:12:13.280 --> 0:12:16.880 their investment process. So the reason for this is because 0:12:16.920 --> 0:12:20.520 that some data sets and quantitative techniques are frankly just 0:12:20.600 --> 0:12:24.880 out of reach for many traditional discretionary investors. So, taking 0:12:24.880 --> 0:12:27.800 a step back, as your question highlighted, UM, when I 0:12:27.840 --> 0:12:31.760 think about the rise of systematic credit strategies where our 0:12:31.880 --> 0:12:35.959 value proposition is to use a fully systematic, quantitatively driven 0:12:35.960 --> 0:12:40.360 investment process that can really leverage the explosion of alternative 0:12:40.440 --> 0:12:42.640 data that we've seen over the last number of years, 0:12:43.200 --> 0:12:45.760 I think that actually goes hand in hand and it's 0:12:45.800 --> 0:12:49.400 quite complementary to how we're approaching E s G as well. Um, 0:12:49.600 --> 0:12:52.959 and E s G has certainly seen an equally eye 0:12:52.960 --> 0:12:57.000 opening increase in data availability and of course along with 0:12:57.040 --> 0:13:00.719 that data complexity. But what is it? What is E 0:13:01.040 --> 0:13:04.160 s G? Do we just assume, at least for the 0:13:04.200 --> 0:13:09.640 first few generations that this is really greenwashing for the 0:13:09.640 --> 0:13:13.760 most part, I mean nice terms and a lot of talk, 0:13:13.880 --> 0:13:17.520 but I mean surely you're not making money on doing 0:13:17.559 --> 0:13:27.040 things that are that are truly UM, environmentally sustainable and sacrificing, 0:13:27.120 --> 0:13:32.640 you know, an advantage for good social and governance. Yeah, 0:13:32.679 --> 0:13:35.200 it's a it's a good point, and I certainly hope 0:13:35.280 --> 0:13:38.520 that UM the majority of what the market is presenting 0:13:38.559 --> 0:13:41.520 and what we're presenting is not interpreted it as greenwashing, 0:13:41.559 --> 0:13:45.080 although I think UM as an industry as a whole, 0:13:45.160 --> 0:13:47.760 we have to be very careful about that concept because 0:13:47.800 --> 0:13:51.119 it does happen, and I think that there's real tangible 0:13:51.160 --> 0:13:53.599 good that's being happened being done in E s G 0:13:53.760 --> 0:13:58.080 research and strategies. It's really adding transparency and accountability to 0:13:58.120 --> 0:14:02.920 the companies. UM. But greenwashing as a concept, right, kind 0:14:02.920 --> 0:14:06.040 of that surface level marketing of of E s G 0:14:06.720 --> 0:14:09.640 UM can really be harmful to the adoption of E 0:14:09.800 --> 0:14:12.720 s G within credit and within all asset classes. So 0:14:13.120 --> 0:14:15.200 UM that has the potential to reverse a lot of 0:14:15.200 --> 0:14:19.000 the good that's been happening UM with this increased focus 0:14:19.040 --> 0:14:22.480 in in E s G. And to your other question, UM, 0:14:22.680 --> 0:14:25.560 uh you are asking about you know what is E 0:14:25.800 --> 0:14:28.640 s G and UM is it? Is it kind of 0:14:28.840 --> 0:14:31.480 a source of alpha or source of returns that that 0:14:31.520 --> 0:14:35.640 investors should be considering UM. I think as as a 0:14:35.720 --> 0:14:38.240 high level E s G is a a focus as 0:14:38.360 --> 0:14:42.800 as you highlight environmental, social, and governance aspects UM that 0:14:42.960 --> 0:14:46.800 spans a huge number of sub bodels actually UM and 0:14:46.840 --> 0:14:49.800 a huge number of aspects UM to be able to 0:14:49.840 --> 0:14:54.359 capture and evaluate a company within within those uh those parameters. 0:14:54.400 --> 0:14:57.160 So it's a highly debated topic whether E s G 0:14:57.480 --> 0:15:00.400 is an alpha source and I think the views really 0:15:00.440 --> 0:15:04.640 span the spectrum UM, and from my perspective, I kind 0:15:04.640 --> 0:15:06.760 of look at it from a number of different angles, right, 0:15:06.840 --> 0:15:10.040 I mean the primary question that you have, what are 0:15:10.080 --> 0:15:15.720 some businesses that you invest in that make money? A 0:15:15.760 --> 0:15:18.560 lot of my businesses make money. In fact, let's talk 0:15:18.600 --> 0:15:20.240 about them. I mean, I just I want to get 0:15:20.280 --> 0:15:23.320 to the to the heart of it, you know, So 0:15:23.400 --> 0:15:25.080 give us an example, so, you know, give us some 0:15:25.120 --> 0:15:27.960 examples rob that you know, you know, the E s 0:15:28.000 --> 0:15:31.840 G investors hold out as this, these are wins by 0:15:31.880 --> 0:15:35.440 doing E s G investing, employing this into our investment strategy, 0:15:35.480 --> 0:15:40.360 we've generated superior returns. Yeah. So I think some of 0:15:40.400 --> 0:15:43.840 the more unique aspects of E s G UM include 0:15:44.040 --> 0:15:46.440 things like what a company is doing in terms of 0:15:46.480 --> 0:15:50.000 their diversity policies. What are companies doing in terms of 0:15:50.080 --> 0:15:53.920 lowering their incidents rates and infractions? Right? Um? What are 0:15:53.920 --> 0:15:56.880 they doing in terms of helping and kind of improving 0:15:56.880 --> 0:16:01.960 the labor policies for their employees? Now, those are concepts 0:16:02.000 --> 0:16:04.680 that are relatively new to the market. If we were 0:16:04.680 --> 0:16:07.440 talking about this to three years ago, you know a 0:16:07.440 --> 0:16:09.600 lot of people would or maybe even further than that, 0:16:09.640 --> 0:16:11.920 maybe five years ago, a lot of people wouldn't even 0:16:11.960 --> 0:16:15.440 be considering that when evaluating a company. Now that it's 0:16:15.480 --> 0:16:17.840 on the table, and now that it's such a prevalent factor, 0:16:18.240 --> 0:16:20.240 it can really be a driver of returns. So when 0:16:20.280 --> 0:16:23.240 you evaluate that you know, that coal company, or that 0:16:23.360 --> 0:16:27.800 energy company or even that technology company. Um, you're going 0:16:27.840 --> 0:16:30.400 to want to consider kind of what are those diversity 0:16:30.440 --> 0:16:32.520 policies and what are those factors? And I don't believe 0:16:32.560 --> 0:16:35.200 the market is fully priced that in right now. So 0:16:35.240 --> 0:16:37.400 that's yeah. One of the things Robb but I don't 0:16:37.520 --> 0:16:40.960 understand is what or who determines whether a company is 0:16:41.000 --> 0:16:45.040 e s G compliant, Like does does the SEC say, okay, 0:16:45.080 --> 0:16:50.600 this security this bond is s G compliant. Um? You know, 0:16:50.720 --> 0:16:54.680 regular regulatory bodies bodies can certainly UM step in in 0:16:54.720 --> 0:16:57.280 a small aspect of of kind of the E s 0:16:57.320 --> 0:17:00.640 G segment UM. As an example, you know, green bonds 0:17:01.000 --> 0:17:05.320 has been a relatively small segment UM. Not all projects 0:17:05.600 --> 0:17:07.879 or sorry, not all bonds can be a green bond, 0:17:07.920 --> 0:17:10.200 even if it's coming from an E s G UH 0:17:10.240 --> 0:17:12.760 focus company. It has to be earmarked for a specific 0:17:12.880 --> 0:17:16.920 UM for a specific project and use of capital UM. 0:17:16.960 --> 0:17:19.680 But for the most part, I think there are independent 0:17:19.880 --> 0:17:22.960 firms UM that are doing a really good job at 0:17:22.960 --> 0:17:26.280 evaluating kind of the E s G qualities of companies. 0:17:26.560 --> 0:17:30.480 Kind of similar in in my opinion, parallel to rating agencies. 0:17:30.600 --> 0:17:34.080 Rating agencies kind of have an independent view of UM 0:17:34.119 --> 0:17:37.040 the credit risk. Maybe you're better off, maybe you have 0:17:37.080 --> 0:17:39.879 an edge if there isn't a one body saying this 0:17:40.040 --> 0:17:42.200 is e s G and this isn't if you can 0:17:42.200 --> 0:17:45.240 spot it before your competitors do. In any case, very 0:17:45.280 --> 0:17:54.480 interesting stuff. Robert Lamb, co head of credit at man Numeric. Wow, Wow, wow, 0:17:54.520 --> 0:17:58.240 Wow with you dude. Tenure yield is all of a 0:17:58.320 --> 0:18:03.119 sudden above one forty yep, yep, what on earth is 0:18:03.200 --> 0:18:05.080 going on. Let's get over to Chrift Gaffney right now. 0:18:05.119 --> 0:18:08.399 He's president of world markets at t I A a bank, 0:18:09.160 --> 0:18:14.560 And um, you know I saw someone writing today, Chris 0:18:14.600 --> 0:18:18.439 that the move in Evergrand was a delayed response to 0:18:18.480 --> 0:18:22.320 report yesterday. I don't buy delayed responses in markets, So 0:18:22.359 --> 0:18:27.920 this isn't likely a delayed response to Jerome Pale's perceived 0:18:27.960 --> 0:18:34.080 hawkishness yesterday. But what is happening in rates? Yeah, we're 0:18:34.119 --> 0:18:38.200 seeing the curves steep, and I think it's uh just 0:18:38.240 --> 0:18:41.880 to move by uh, certainly by bond investors believing that 0:18:42.359 --> 0:18:45.840 you know, the the economic rebound is going to continue 0:18:45.920 --> 0:18:50.159 and and uh um you know, a realization that growth 0:18:50.240 --> 0:18:53.320 is going to increase and and rate uh you know, 0:18:53.400 --> 0:18:56.119 inflation is going to run a little hotter than maybe 0:18:56.119 --> 0:19:00.879 in a little quicker than previously thought. Yeah. And so Chris, 0:19:00.920 --> 0:19:04.000 I guess you know, for these equity markets, by the 0:19:04.080 --> 0:19:09.639 dip folks, they're right again. I guess yeah, And and uh, 0:19:09.680 --> 0:19:11.720 you know I I kind of agree with them. I mean, 0:19:11.760 --> 0:19:16.720 the financial conditions for equity investors look very good right 0:19:16.760 --> 0:19:19.560 now going forward, you know, whether you have a shorter 0:19:19.600 --> 0:19:23.879 or medium term view. Um, you know, consumers balance sheets 0:19:23.920 --> 0:19:29.600 are are very healthy. Still, uh, company balance sheets are healthy. Um, 0:19:29.640 --> 0:19:33.959 that should lead to higher earnings and and those higher earnings, 0:19:34.000 --> 0:19:37.560 of course, is what supports equity prices. Now there there's 0:19:37.600 --> 0:19:40.679 certainly some risks in the market, and uh, you know, 0:19:40.720 --> 0:19:43.840 evergram presents kind of a new risk out there. Um, 0:19:43.880 --> 0:19:47.639 we've got the delta COVID, you know, variant UM. But 0:19:48.119 --> 0:19:52.640 I think the the economic environment still is very kay 0:19:54.400 --> 0:20:00.000 oh oh oh are we losing you, Chris? I'm here? 0:20:00.040 --> 0:20:02.560 Are you there? Okay, Yeah, we're just it's like if 0:20:02.600 --> 0:20:04.840 you're on a wire phone at your house and you're 0:20:04.840 --> 0:20:08.800 too far away from the base, and it's that's what 0:20:08.880 --> 0:20:12.960 it sounds like. UM. Alright, so we're seeing raids take off, 0:20:13.000 --> 0:20:19.520 We're seeing UM stocks take off. What are you concerned 0:20:19.560 --> 0:20:22.800 about anything right now? Are their headwinds that make you 0:20:22.920 --> 0:20:26.840 want to, you know, check yourself little here? Yeah, I 0:20:27.200 --> 0:20:30.480 mean there's still concerns and and I guess the main 0:20:30.560 --> 0:20:36.080 concern is really in the lack of UM. You know, 0:20:36.119 --> 0:20:41.280 the price pressure is being put on on on the margins. 0:20:41.720 --> 0:20:45.399 And when I say that, uh company margins, UM are 0:20:45.440 --> 0:20:49.480 gonna get squeezed. We're seeing and put prices uh increase 0:20:49.800 --> 0:20:53.800 pretty much across the board and uh, um, you know, 0:20:53.880 --> 0:20:56.800 they they're not going to be able to probably pass 0:20:57.000 --> 0:21:01.320 all of those increases onto their uh to the ultimate consumers. 0:21:01.359 --> 0:21:04.679 So I do expect to see some margins with Another 0:21:04.720 --> 0:21:08.679 thing that concerning is, of course, um you know, the 0:21:08.800 --> 0:21:14.640 lack of labor participation UM in the US economy. Um 0:21:14.720 --> 0:21:17.360 you know, is this a tight labor market. It certainly 0:21:17.359 --> 0:21:21.600 seems like it's tight in some instances, but um, you know, 0:21:21.760 --> 0:21:25.080 the company's lack of hiring, lack of being able to 0:21:25.200 --> 0:21:32.720 hire workers is certainly going to um weigh on on 0:21:32.720 --> 0:21:35.760 on the earnings, especially for the service sector where they 0:21:35.800 --> 0:21:37.840 just don't have enough people to take care of the 0:21:37.880 --> 0:21:41.160 business that they have coming in. So uh, that certainly 0:21:41.160 --> 0:21:45.639 should weigh on uh some of those company earnings. But 0:21:45.960 --> 0:21:48.840 again I think those are you know, it's it's it's 0:21:48.880 --> 0:21:51.560 something that will work them their way through the system. 0:21:51.880 --> 0:21:54.439 And Chris, let's let's talk about valuation in these equity 0:21:54.480 --> 0:21:56.639 markets here. You know, as a former equity analyst, I 0:21:56.720 --> 0:21:59.560 was trained to look at valuation, whether it's pe or 0:21:59.680 --> 0:22:02.920 ev to but uh, and it just feels like this market. Yes, 0:22:02.960 --> 0:22:05.000 we've had some good earnings growth over the last few quarters, 0:22:05.040 --> 0:22:08.840 but evaluations feel a little stretched. Should we be concerned 0:22:08.920 --> 0:22:13.159 or how Yeah, no, I I totally agree that valuations 0:22:13.200 --> 0:22:16.119 are probably stretched here in the US. UM. But it 0:22:16.119 --> 0:22:19.040 gets back to you know, with the interest rates where 0:22:19.080 --> 0:22:22.160 they are. UM. You know, low interest rates, ultra low 0:22:22.240 --> 0:22:26.160 interest rates support higher price earnings. UM. You know, are 0:22:26.200 --> 0:22:29.640 we at an earnings peak? Um? You know that's another 0:22:29.760 --> 0:22:32.240 question our earnings and it can be going to be 0:22:32.320 --> 0:22:35.880 able to continue to grow. I think in this environment, um, 0:22:36.280 --> 0:22:41.240 we we can see higher earnings. So while they are stretched, UM, 0:22:41.359 --> 0:22:43.600 it's not a major concern. I I don't think, and 0:22:44.080 --> 0:22:47.280 in fact, I think we have further to go um 0:22:47.800 --> 0:22:51.119 on on the on the earnings, especially especially if the 0:22:51.200 --> 0:22:54.760 FED continues to keep rates at these ultra low levels. 0:22:55.040 --> 0:22:56.800 By the way, is the dead ceiling something that matters 0:22:56.840 --> 0:22:58.919 to you? Does that good question? Has that a problem? 0:22:59.000 --> 0:23:04.120 You think? It's not? Um, you know they Uh, it's 0:23:04.359 --> 0:23:09.320 it's there'll be some gamemanship on both sides, but uh, 0:23:09.440 --> 0:23:12.199 we won't default on the US that and uh you 0:23:12.240 --> 0:23:15.440 know that that feeling will be raised. UM. I think 0:23:15.720 --> 0:23:19.560 really Evergrand is a similar situation. China is not going 0:23:19.600 --> 0:23:25.080 to let um you know Evergrand failure impact uh their 0:23:25.160 --> 0:23:30.080 overall economy. So UM, I think in both situations, UH, 0:23:30.119 --> 0:23:33.520 it'll work its way through the system. Um. Yeah, it's 0:23:33.560 --> 0:23:37.240 it's uh um, you know, a highlights h that the 0:23:37.280 --> 0:23:39.040 amount of that. That's the one thing it does do 0:23:39.200 --> 0:23:41.840 is it highlights just how much that is out there, 0:23:42.119 --> 0:23:44.840 and so that is a concern. All right. Hey, Chris, 0:23:44.840 --> 0:23:47.760 thanks so much for joining us. Really appreciated Chris Gaffney, 0:23:47.840 --> 0:23:51.760 president of World Markets at t I A A Bank, 0:23:51.840 --> 0:23:54.639