1 00:00:00,800 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day, we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,600 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:21,840 Speaker 1: at Bloomberg dot com slash podcast. Still, you know, we're 7 00:00:21,840 --> 00:00:24,400 Speaker 1: talking about earnings, but let's be honest, the Fed has 8 00:00:24,440 --> 00:00:26,599 Speaker 1: really been moving this market is likely to continue to 9 00:00:26,600 --> 00:00:29,240 Speaker 1: do so for some time. So that means we have 10 00:00:29,400 --> 00:00:31,680 Speaker 1: to talk to Ira Jersey. Whether we want to or not, 11 00:00:31,760 --> 00:00:33,640 Speaker 1: we have to talk to Ira Jersey because he is 12 00:00:33,720 --> 00:00:36,159 Speaker 1: the go to guy. He's the chief US interest rate 13 00:00:36,159 --> 00:00:40,839 Speaker 1: strategist for Bloomberg Intelligence. So Ira, you know, what do 14 00:00:40,920 --> 00:00:43,440 Speaker 1: you expect from your Federal Reserve Here? The talk is 15 00:00:43,520 --> 00:00:45,640 Speaker 1: kind of really ramped up on. Hey, we only need 16 00:00:45,640 --> 00:00:48,800 Speaker 1: twenty five basis points this time. Yeah, I still think 17 00:00:48,840 --> 00:00:51,400 Speaker 1: that they'll they'll do twenty five basis points and they'll 18 00:00:51,440 --> 00:00:53,760 Speaker 1: leave the door open to doing one or two more 19 00:00:54,120 --> 00:00:56,360 Speaker 1: um interest rate hikes. Remember, we don't get a summary 20 00:00:56,360 --> 00:00:58,560 Speaker 1: of economic projections this time, so there won't be any 21 00:00:58,600 --> 00:01:01,080 Speaker 1: new Dot plot or anything like that. But but it 22 00:01:01,160 --> 00:01:05,240 Speaker 1: will be parsing very carefully j Powell's post meeting statement 23 00:01:05,280 --> 00:01:07,880 Speaker 1: next Wednesday, because um, you know, we want to get 24 00:01:07,920 --> 00:01:10,600 Speaker 1: a hint of what their reaction function is based on 25 00:01:10,800 --> 00:01:15,400 Speaker 1: incoming data, Like will they potentially stop at the March meeting. Um, 26 00:01:15,440 --> 00:01:17,880 Speaker 1: we don't think that they will, but um, but it's 27 00:01:17,920 --> 00:01:21,240 Speaker 1: going to be a very close call thereafter, we think so. Um, 28 00:01:21,400 --> 00:01:23,640 Speaker 1: And it will be very data dependent. So if if 29 00:01:23,680 --> 00:01:27,440 Speaker 1: inflation keeps on the down trajectory that has been on 30 00:01:27,840 --> 00:01:30,240 Speaker 1: in recent months, then you know, we might be very 31 00:01:30,240 --> 00:01:33,800 Speaker 1: close to nearing the end of interest rate tykes. Um, 32 00:01:33,840 --> 00:01:37,360 Speaker 1: that's a big if, right, because as China reopens and 33 00:01:37,400 --> 00:01:41,240 Speaker 1: Europe seems to avoid a deep procession, there could be 34 00:01:41,360 --> 00:01:44,399 Speaker 1: a lot more a lot more spending on commodities that 35 00:01:44,440 --> 00:01:47,960 Speaker 1: could push prices up and that could come through an inflation. Yeah, 36 00:01:48,040 --> 00:01:50,840 Speaker 1: that's true, man. You know, I think one of the 37 00:01:50,880 --> 00:01:53,320 Speaker 1: one of the risks though, and one of the one 38 00:01:53,320 --> 00:01:56,520 Speaker 1: of the key factors that's helping the inflationary environment right 39 00:01:56,560 --> 00:01:59,200 Speaker 1: now is is base effects. Right. So, so the spring 40 00:01:59,240 --> 00:02:01,600 Speaker 1: of last year, when you saw the largest month on 41 00:02:01,680 --> 00:02:05,160 Speaker 1: month increases in a lot of prices and now you're 42 00:02:05,480 --> 00:02:07,600 Speaker 1: going to see some of those base effects roll off, 43 00:02:07,680 --> 00:02:10,359 Speaker 1: so you'll actually have, um, you know, somewhat of a 44 00:02:10,400 --> 00:02:13,440 Speaker 1: stabilization on a year on year perspective. UM. But but 45 00:02:13,440 --> 00:02:15,320 Speaker 1: but you're right, like and and one of the things 46 00:02:15,320 --> 00:02:18,280 Speaker 1: that we've often noted is, look, if if the Federal 47 00:02:18,320 --> 00:02:21,440 Speaker 1: Reserve hikes to five percent, you know, plus or minus points, 48 00:02:21,440 --> 00:02:24,600 Speaker 1: so let's say it's five percent UM then and and 49 00:02:24,680 --> 00:02:28,280 Speaker 1: you wind up having the PC deflator more or less 50 00:02:28,320 --> 00:02:30,960 Speaker 1: five percent, which seems like it's very likely going to 51 00:02:31,000 --> 00:02:34,120 Speaker 1: happen over the next couple of months. UM. Then really 52 00:02:34,120 --> 00:02:36,320 Speaker 1: the Federal Reserve will say, Okay, look, our job is 53 00:02:36,360 --> 00:02:39,160 Speaker 1: not done, but we're we're just not cutting policy. And 54 00:02:39,440 --> 00:02:42,480 Speaker 1: what's still amazing to me is that even though the 55 00:02:42,520 --> 00:02:45,360 Speaker 1: Fed's been very consistent for the last six seven months, 56 00:02:45,760 --> 00:02:48,160 Speaker 1: with almost every member saying, look, once we reach the peak, 57 00:02:48,200 --> 00:02:50,280 Speaker 1: we're going to stay there for a long period of time, 58 00:02:50,800 --> 00:02:53,080 Speaker 1: the market still doesn't believe that. Right. The market is 59 00:02:53,120 --> 00:02:56,679 Speaker 1: still pricing in cuts that I don't want to sit 60 00:02:56,720 --> 00:03:00,280 Speaker 1: around with five percent inflation. I mean, base effect was 61 00:03:00,360 --> 00:03:03,280 Speaker 1: the mantra that we heard at the beginning of twenty two, 62 00:03:03,280 --> 00:03:05,240 Speaker 1: and it still didn't slow inflation down that much. Right, 63 00:03:05,280 --> 00:03:07,400 Speaker 1: if you look at year over year cp I, it 64 00:03:07,520 --> 00:03:10,639 Speaker 1: averaged seven percent in two thousand twenty one, it averaged 65 00:03:10,680 --> 00:03:13,560 Speaker 1: six and a half percent in twenty two. So let's 66 00:03:13,600 --> 00:03:15,360 Speaker 1: say we get down to five and a half percent 67 00:03:15,360 --> 00:03:17,400 Speaker 1: in twenty three. I don't want to look forward to 68 00:03:17,440 --> 00:03:20,560 Speaker 1: five percent in four like, get it done. Well, that's 69 00:03:20,600 --> 00:03:22,040 Speaker 1: and that's the reason why they're not going to be 70 00:03:22,040 --> 00:03:24,560 Speaker 1: cutting right, So I think, you know, the we we 71 00:03:24,600 --> 00:03:28,200 Speaker 1: have to well, they they're not going to probably raise 72 00:03:28,280 --> 00:03:30,120 Speaker 1: much more than five and a half percent or five 73 00:03:30,160 --> 00:03:34,160 Speaker 1: and a quarter um in part because the the some 74 00:03:34,200 --> 00:03:36,760 Speaker 1: of the underlying inflationary pressures are coming down. So you 75 00:03:37,040 --> 00:03:40,880 Speaker 1: mentioned things like commodities and and um uh and and 76 00:03:41,040 --> 00:03:44,080 Speaker 1: good prices, and good prices have already been falling, right, 77 00:03:44,080 --> 00:03:46,320 Speaker 1: So so I think we we throughout all of this, 78 00:03:46,360 --> 00:03:49,200 Speaker 1: we've actually missed the fact that core goods prices are 79 00:03:49,240 --> 00:03:52,360 Speaker 1: actually falling on a month a month basis. What's continuing 80 00:03:52,400 --> 00:03:56,520 Speaker 1: to rise significantly is our services prices, and those are 81 00:03:56,560 --> 00:04:00,000 Speaker 1: driven in large part by by wages and wage games um. 82 00:04:00,040 --> 00:04:03,640 Speaker 1: And obviously the employment situation continues to be um, you know, 83 00:04:04,000 --> 00:04:07,880 Speaker 1: reasonably good. So so the federal Reserve will be pretty happy, 84 00:04:08,040 --> 00:04:11,480 Speaker 1: I think to maintain interest rates this year. Look if Matt, 85 00:04:11,520 --> 00:04:13,680 Speaker 1: if you if you're you know, you're right, And there 86 00:04:13,760 --> 00:04:16,360 Speaker 1: is a large portion of the market that still thinks 87 00:04:16,360 --> 00:04:18,080 Speaker 1: that the Federal Reserve is behind the curve and they 88 00:04:18,120 --> 00:04:21,080 Speaker 1: need to continue to hike well beyond five there's a 89 00:04:21,080 --> 00:04:24,280 Speaker 1: whole another part side of the market that's actually, you know, 90 00:04:24,320 --> 00:04:26,560 Speaker 1: clearly winning saying that hey, we're going to be in 91 00:04:26,600 --> 00:04:28,279 Speaker 1: a recession in the second half of the year, and 92 00:04:28,320 --> 00:04:29,920 Speaker 1: because of that, the Fed is going to be cutting 93 00:04:30,200 --> 00:04:33,960 Speaker 1: sooner rather than later before um uh, you know, and 94 00:04:34,360 --> 00:04:36,440 Speaker 1: even before year end. We we actually did a piece 95 00:04:36,520 --> 00:04:39,719 Speaker 1: yesterday looking at what options markets are pricing and option 96 00:04:39,800 --> 00:04:41,880 Speaker 1: and even though the market is currently pricing for about 97 00:04:41,920 --> 00:04:44,400 Speaker 1: forty basis points of interest rate cuts by the end 98 00:04:44,400 --> 00:04:47,280 Speaker 1: of the year, it's what the market is really pricing 99 00:04:47,320 --> 00:04:51,560 Speaker 1: for is either one cut or four or five six cuts, right, So, 100 00:04:51,560 --> 00:04:55,839 Speaker 1: so we're really pricing this bimodal distribution of of uh, 101 00:04:55,960 --> 00:04:58,560 Speaker 1: but but all leaning toward cuts and not much more 102 00:04:58,560 --> 00:05:00,600 Speaker 1: in terms of hikes. So so, even though there were 103 00:05:00,640 --> 00:05:03,160 Speaker 1: some that are sympathetic to your view, Matt Well, um 104 00:05:03,200 --> 00:05:04,880 Speaker 1: that most of the market is not and and that 105 00:05:05,000 --> 00:05:07,960 Speaker 1: we're priced for four cuts and which I personally thinks 106 00:05:08,000 --> 00:05:10,640 Speaker 1: won't happen. I just want them to take care of 107 00:05:10,720 --> 00:05:15,599 Speaker 1: inflation before we get into such a deepercession that my 108 00:05:15,720 --> 00:05:18,120 Speaker 1: boss isn't willing to give me a raise to keep 109 00:05:18,200 --> 00:05:23,080 Speaker 1: up with inflation. Right, this is a bad situation. And uh, 110 00:05:23,240 --> 00:05:25,880 Speaker 1: it's been going on for too long already. And if 111 00:05:25,920 --> 00:05:28,080 Speaker 1: they continue just to let it go on, it's going 112 00:05:28,160 --> 00:05:30,680 Speaker 1: to get much worse. Because until now, wage gains have 113 00:05:30,920 --> 00:05:33,800 Speaker 1: almost kept up with inflation. They they still have been 114 00:05:33,839 --> 00:05:36,679 Speaker 1: outpaced by inflation. But if you get into a situation 115 00:05:36,680 --> 00:05:40,400 Speaker 1: where inflation keeps smoldering and not only you know, we 116 00:05:40,520 --> 00:05:43,359 Speaker 1: see three m like starting to fire people, they're definitely 117 00:05:43,400 --> 00:05:46,840 Speaker 1: not giving any raises. Now. You know the the FC 118 00:05:47,880 --> 00:05:51,039 Speaker 1: Central New Jersey tickets that cost me twenty dollars last 119 00:05:51,120 --> 00:05:53,080 Speaker 1: year and thirty dollars this year, that cost me forty 120 00:05:53,080 --> 00:05:54,799 Speaker 1: dollars next year. I'm not gonna be able to afford 121 00:05:54,839 --> 00:05:56,640 Speaker 1: to go anymore. Well, and and that's one of the 122 00:05:56,640 --> 00:05:59,839 Speaker 1: reasons why, and that that the Federal Reserve, I think 123 00:05:59,880 --> 00:06:02,919 Speaker 1: is not is going to take away and see approach 124 00:06:02,960 --> 00:06:05,360 Speaker 1: once they once they reached the next couple of a 125 00:06:05,400 --> 00:06:07,680 Speaker 1: couple of meetings and they reached that five percent level. 126 00:06:07,760 --> 00:06:09,520 Speaker 1: That not that that five percent levels any kind of 127 00:06:09,560 --> 00:06:13,800 Speaker 1: magic number, UM, but they they know that there is 128 00:06:13,839 --> 00:06:16,920 Speaker 1: starting to see a slowdown in the in economic activity. 129 00:06:16,960 --> 00:06:20,599 Speaker 1: And usually slowdowns in economic activity are followed by UM, 130 00:06:21,279 --> 00:06:24,400 Speaker 1: followed by slower price gains and and uh, and inflation 131 00:06:24,440 --> 00:06:26,960 Speaker 1: tends to come down. So that's the reason why I 132 00:06:27,000 --> 00:06:28,400 Speaker 1: think that the Fed is going to take a little 133 00:06:28,440 --> 00:06:31,080 Speaker 1: bit of a wait and see approach. And UM, you know, 134 00:06:31,120 --> 00:06:34,440 Speaker 1: if if, certainly, if if inflation re accelerates in a 135 00:06:34,440 --> 00:06:37,560 Speaker 1: major way, UM, then the Federal Reserve at that point 136 00:06:37,640 --> 00:06:39,520 Speaker 1: would be able to hike more. But but I think, 137 00:06:39,720 --> 00:06:42,760 Speaker 1: you know, taking a pause and then trying to maintain 138 00:06:42,880 --> 00:06:46,320 Speaker 1: rates at five five and a quarter percent is what 139 00:06:46,400 --> 00:06:49,080 Speaker 1: they intend on doing, right And and look, my job 140 00:06:49,120 --> 00:06:51,520 Speaker 1: also met is not to not to tell them what 141 00:06:51,600 --> 00:06:54,320 Speaker 1: to do and not to give my opinion, but trying 142 00:06:54,360 --> 00:06:56,880 Speaker 1: to point out what they should be doing. What they 143 00:06:56,920 --> 00:06:58,720 Speaker 1: will do, and what I think that they will do 144 00:06:59,120 --> 00:07:00,880 Speaker 1: is maintain interest rate. It's for the rest of this year, 145 00:07:00,920 --> 00:07:05,120 Speaker 1: probably into because if the employment situation is strong enough, 146 00:07:05,120 --> 00:07:07,360 Speaker 1: they'll have the ability to do that. That's what we 147 00:07:07,400 --> 00:07:09,960 Speaker 1: need though, someone to tell us what they will do. 148 00:07:10,000 --> 00:07:12,320 Speaker 1: You don't need to hear from me and Vince tell 149 00:07:12,400 --> 00:07:15,360 Speaker 1: them what they should do. Good stuff. We'll get to 150 00:07:15,760 --> 00:07:18,880 Speaker 1: a soccer discussion at another time. IRA Jersey, Chief US 151 00:07:18,920 --> 00:07:22,800 Speaker 1: Interest rate strategist for Bloomberg Intelligence. We wove in the soccer, Yeah, yeah, 152 00:07:22,800 --> 00:07:25,640 Speaker 1: we woven into a little bit f C United FC 153 00:07:25,720 --> 00:07:28,920 Speaker 1: Central Jersey or something like that, Central Jersey or something 154 00:07:28,960 --> 00:07:31,160 Speaker 1: like that Rayal Center, New Jersey, Real Central New Jersey. 155 00:07:31,160 --> 00:07:37,200 Speaker 1: All right, there we go. I have a buddy, uh, 156 00:07:37,360 --> 00:07:40,920 Speaker 1: David Auerbach. He's a managing director at Armada E T 157 00:07:41,120 --> 00:07:45,760 Speaker 1: F Advisors and also a fellow Fish fan. Oh. We 158 00:07:45,920 --> 00:07:47,960 Speaker 1: actually went to see the New Year's Eve shows together, 159 00:07:48,080 --> 00:07:52,160 Speaker 1: one of them ye at Madison Square. Wasn't it was amazing? 160 00:07:53,200 --> 00:07:55,360 Speaker 1: That's it. It was fantastic. But the funny thing is, 161 00:07:55,720 --> 00:07:58,960 Speaker 1: so we're sitting there and we had a suite, a 162 00:07:59,040 --> 00:08:02,200 Speaker 1: couple of couple of c eats, um great view. The 163 00:08:02,320 --> 00:08:05,800 Speaker 1: light show is insane, and in the second set we 164 00:08:05,880 --> 00:08:10,480 Speaker 1: get into this deep, like spacey discussion about Mall Reads 165 00:08:11,440 --> 00:08:14,080 Speaker 1: and I thought, you know what, in this entire stadium, 166 00:08:14,080 --> 00:08:16,920 Speaker 1: in all of MSG, nobody else is talking about Mall ranks. 167 00:08:17,000 --> 00:08:19,640 Speaker 1: Right now, let's bring in David on the phone, joining 168 00:08:19,720 --> 00:08:21,960 Speaker 1: us out of Texas. UM great to have you on 169 00:08:21,960 --> 00:08:25,840 Speaker 1: the program. David, Let's start by talking about the situation 170 00:08:25,920 --> 00:08:29,800 Speaker 1: that that the real estate industry, or the residential real 171 00:08:29,880 --> 00:08:32,520 Speaker 1: estate industry funds itself in right now. We'll get to 172 00:08:32,559 --> 00:08:36,520 Speaker 1: the malls later. But you run house h a U S, 173 00:08:36,559 --> 00:08:38,920 Speaker 1: which is an e t F and actively managed e 174 00:08:39,080 --> 00:08:41,800 Speaker 1: t F that invests in publicly traded reads. Talk to 175 00:08:41,800 --> 00:08:45,680 Speaker 1: me about the state of your industry. Well, good morning, 176 00:08:45,720 --> 00:08:47,440 Speaker 1: thanks for having me back on the air, and of 177 00:08:47,480 --> 00:08:50,560 Speaker 1: course I'd rather talk about our fun experience. But you know, 178 00:08:50,720 --> 00:08:53,320 Speaker 1: right now, in the world of publicly traded reads, you know, 179 00:08:53,520 --> 00:08:56,080 Speaker 1: we see really a lot of upside as you know, 180 00:08:56,200 --> 00:08:59,840 Speaker 1: after the ball told results, you know, a lot of 181 00:08:59,840 --> 00:09:02,360 Speaker 1: the reats are coming out basically forecasting we're not going 182 00:09:02,400 --> 00:09:04,199 Speaker 1: to have as great of a year and o Y 183 00:09:04,360 --> 00:09:07,360 Speaker 1: growth and you know, really crushed it like we did 184 00:09:07,400 --> 00:09:09,880 Speaker 1: last year, because last year was almost unprecedented for some 185 00:09:09,920 --> 00:09:13,079 Speaker 1: of the residential reeths. But these guys are still forecasting 186 00:09:13,160 --> 00:09:15,920 Speaker 1: growth and in the wake of rising interest rates and 187 00:09:16,040 --> 00:09:20,520 Speaker 1: rising inflation, we're focused on that end rental payment. We 188 00:09:20,600 --> 00:09:24,320 Speaker 1: call it the residential reat income ets because we say 189 00:09:24,360 --> 00:09:27,760 Speaker 1: that the rent payment goes into your pocket as income 190 00:09:27,760 --> 00:09:30,760 Speaker 1: in the form of dividends, and pretty much across the board, 191 00:09:30,800 --> 00:09:35,280 Speaker 1: these residential reeths have been raising their UH dividends over 192 00:09:35,320 --> 00:09:39,160 Speaker 1: the past couple of years through COVID. That's great for Paul, Paul, 193 00:09:39,200 --> 00:09:44,120 Speaker 1: how good is you? You You love dividends stuff. So 194 00:09:44,559 --> 00:09:48,319 Speaker 1: has the residential real estate market, I mean, is it's 195 00:09:48,360 --> 00:09:52,440 Speaker 1: still adjusting to this higher mortgage rate environment. Has it steadied? 196 00:09:52,480 --> 00:09:56,520 Speaker 1: What are we seeing here? Yeah, it's definitely adjusting, there's 197 00:09:56,559 --> 00:09:58,520 Speaker 1: no question about it. You know, some of the home 198 00:09:58,559 --> 00:10:01,240 Speaker 1: sales numbers that have been coming out recently, though there's 199 00:10:01,280 --> 00:10:04,520 Speaker 1: somewhat kind of dated results, are showing somewhat of a 200 00:10:04,559 --> 00:10:06,880 Speaker 1: turnaround compared to what we had seen, you know, in 201 00:10:06,920 --> 00:10:09,800 Speaker 1: the mid second mid second half of the year last year. 202 00:10:10,040 --> 00:10:12,079 Speaker 1: I hate to use the term, and everybody kicks around 203 00:10:12,120 --> 00:10:15,560 Speaker 1: that new normal. Look. Interested interest rates have gone from 204 00:10:15,679 --> 00:10:18,200 Speaker 1: zero to four and a half percent. Mortgage rates you know, 205 00:10:18,240 --> 00:10:21,040 Speaker 1: went from like two to six three to six percent 206 00:10:21,160 --> 00:10:24,640 Speaker 1: last year. We're in this six percent mortgage range right now, 207 00:10:25,000 --> 00:10:27,880 Speaker 1: and so I think people are accepting it. The problem 208 00:10:27,880 --> 00:10:29,520 Speaker 1: is that you know, hey, I get this great job 209 00:10:29,559 --> 00:10:32,080 Speaker 1: opportunity to move from Dallas, Texas to New York, and 210 00:10:32,120 --> 00:10:34,800 Speaker 1: I'm trading my two seven five mortgage for a six 211 00:10:34,840 --> 00:10:37,360 Speaker 1: and change mortgage in New York. I'm you know, I'm 212 00:10:37,360 --> 00:10:41,120 Speaker 1: basically locked in. I'm kind of geographically constrained at that point. 213 00:10:41,400 --> 00:10:43,880 Speaker 1: And so from the rental payment from the rental side, 214 00:10:44,080 --> 00:10:46,120 Speaker 1: you know, unless you're in the market to go out 215 00:10:46,120 --> 00:10:48,600 Speaker 1: and buy that house right now, you're really focused on 216 00:10:48,640 --> 00:10:51,240 Speaker 1: what's my end rent payment going to be next month? 217 00:10:51,880 --> 00:10:53,720 Speaker 1: Is it going up ten percent or is it going 218 00:10:53,800 --> 00:10:57,079 Speaker 1: up a hundred percent? Well, and I mean so many 219 00:10:57,320 --> 00:10:59,240 Speaker 1: people who haven't been able to buy have been and 220 00:10:59,240 --> 00:11:02,439 Speaker 1: put in that position. And in terms of the investment though, David, 221 00:11:02,520 --> 00:11:06,480 Speaker 1: for those listening who don't quite get the E t F, 222 00:11:06,640 --> 00:11:10,280 Speaker 1: you know, functionality, How does that work when when when 223 00:11:10,320 --> 00:11:12,800 Speaker 1: you get paid dividends by the public reads you invest in. 224 00:11:12,840 --> 00:11:15,360 Speaker 1: How does say Paul buys a share of house, how 225 00:11:15,400 --> 00:11:18,600 Speaker 1: does that come through to him? Uh, It's it's a 226 00:11:18,600 --> 00:11:21,760 Speaker 1: great question. And basically it's passed through directly to the 227 00:11:21,840 --> 00:11:26,240 Speaker 1: end shareholder. We pay a quarterly dividend and it's basically 228 00:11:26,240 --> 00:11:30,240 Speaker 1: a culmination of the income received from our underlying constituents. 229 00:11:30,240 --> 00:11:33,439 Speaker 1: Our fund owns twenty five publicly traded reefs. Those are 230 00:11:33,480 --> 00:11:38,360 Speaker 1: comprised of apartment reads, single family rental reads, manufactured housing, 231 00:11:38,440 --> 00:11:42,679 Speaker 1: senior housing. All these companies are reporting monthly and quarterly dividends. 232 00:11:42,720 --> 00:11:45,240 Speaker 1: That adds up and that basically event goes into your 233 00:11:45,280 --> 00:11:47,640 Speaker 1: pocket at the end of the day as a shareholder 234 00:11:47,679 --> 00:11:49,080 Speaker 1: on the phone of the dividends. So it's just like 235 00:11:49,120 --> 00:11:51,520 Speaker 1: any other stuff. So Paul calls this guy at pain 236 00:11:51,559 --> 00:11:55,400 Speaker 1: Weber or wherever and says around for a while and says, 237 00:11:55,600 --> 00:11:58,120 Speaker 1: you just reinvest those dividends or they just cut him 238 00:11:58,120 --> 00:12:00,880 Speaker 1: a check every quarter. That's right, right, And you know, 239 00:12:00,920 --> 00:12:03,839 Speaker 1: past seem probably more like a you know, day one 240 00:12:03,960 --> 00:12:06,640 Speaker 1: Robin Hood type of guy who is well ahead of there. 241 00:12:07,600 --> 00:12:10,880 Speaker 1: But yes, that is correct. Again. Ets are publicly traded vehicles. 242 00:12:10,880 --> 00:12:13,680 Speaker 1: They trade just like stocks. Bid ask spreads trade during 243 00:12:13,720 --> 00:12:16,959 Speaker 1: the market hours, you know, and we highlight that liquidity. 244 00:12:17,000 --> 00:12:18,920 Speaker 1: You know, Matt, you and I talked about the private 245 00:12:19,040 --> 00:12:20,880 Speaker 1: versus public and what we've been seeing in some of 246 00:12:20,920 --> 00:12:24,199 Speaker 1: the private resets out there, you know, talking about gaining redemptions, 247 00:12:24,200 --> 00:12:27,240 Speaker 1: investors having a hard time pulling their money out. You know, 248 00:12:27,280 --> 00:12:28,720 Speaker 1: they're never going to be able to get out of 249 00:12:28,720 --> 00:12:32,800 Speaker 1: this maze of you know, trying to capture their investment. 250 00:12:33,120 --> 00:12:36,000 Speaker 1: And so for us, we're highlighting the liquidity of publicly 251 00:12:36,000 --> 00:12:39,079 Speaker 1: traded reafs and ets. You want to put a million 252 00:12:39,120 --> 00:12:41,800 Speaker 1: dollars into house, thank you very much. You can pull 253 00:12:41,800 --> 00:12:44,439 Speaker 1: out a million dollars of house very quickly, just as 254 00:12:44,480 --> 00:12:46,560 Speaker 1: well versus you may have a harder time at some 255 00:12:46,600 --> 00:12:49,240 Speaker 1: of these private vehicles right now, So, David, talk about 256 00:12:49,240 --> 00:12:52,400 Speaker 1: mortgage rates up that six percent range, is the expectation 257 00:12:52,520 --> 00:12:53,960 Speaker 1: that you know, a lot of folks are saying if 258 00:12:53,960 --> 00:12:55,360 Speaker 1: it's going to be cutting rates at the end of 259 00:12:55,400 --> 00:12:58,360 Speaker 1: this year early next year, So is that Are the 260 00:12:58,400 --> 00:13:00,760 Speaker 1: mortgage folks you talked to saying, hey, the mortgage rates 261 00:13:00,760 --> 00:13:04,280 Speaker 1: will come back down along with the Fed. Yes, the 262 00:13:04,280 --> 00:13:07,720 Speaker 1: answer is yes. Mortgage rates staly traditionally do tend to 263 00:13:07,760 --> 00:13:10,520 Speaker 1: move hand in hand with interest rates. If we do 264 00:13:10,720 --> 00:13:13,600 Speaker 1: see that correction coming back in later in the back 265 00:13:13,600 --> 00:13:16,079 Speaker 1: half of the year, yes, I would expect to see that. However, 266 00:13:16,160 --> 00:13:18,200 Speaker 1: at the end of the day though, until we really 267 00:13:18,240 --> 00:13:20,720 Speaker 1: see the mortgage rates go back from let's say six percent, 268 00:13:20,800 --> 00:13:23,200 Speaker 1: so you know, a more manageable level of four percent. 269 00:13:23,480 --> 00:13:25,440 Speaker 1: I still think we're gonna see, you know, some popsy 270 00:13:25,480 --> 00:13:30,480 Speaker 1: turbunus in the housing market. What does this? What are 271 00:13:30,520 --> 00:13:33,079 Speaker 1: these big changes? And I mean I don't know when's 272 00:13:33,080 --> 00:13:35,959 Speaker 1: the last time the FED raised four fifty basis points 273 00:13:36,480 --> 00:13:40,120 Speaker 1: in a year? Um? What do they do to e 274 00:13:40,240 --> 00:13:43,040 Speaker 1: t F s and net asset values? I mean, they're 275 00:13:43,080 --> 00:13:48,760 Speaker 1: bigger and bigger divergences, right, how do those fix themselves? Well, 276 00:13:48,840 --> 00:13:50,880 Speaker 1: you know, for us again, we're looking for us at 277 00:13:50,880 --> 00:13:54,640 Speaker 1: the residential reefs and focusing on the underlying constituents themselves. 278 00:13:55,000 --> 00:13:58,359 Speaker 1: I will highlight that many of these reefs took advantage 279 00:13:58,440 --> 00:14:01,760 Speaker 1: during COVID to re capitalized, you know, their balance sheets, 280 00:14:01,800 --> 00:14:04,880 Speaker 1: and we're able to lock in very long term debt 281 00:14:04,920 --> 00:14:08,760 Speaker 1: at a very attractive rates. So unfortunately, you know, I 282 00:14:08,840 --> 00:14:11,080 Speaker 1: can't control as I as I tell people, I can't 283 00:14:11,080 --> 00:14:13,480 Speaker 1: control my et F stock price. I can't control my 284 00:14:13,520 --> 00:14:16,960 Speaker 1: constituent stock price. All I can focus is on the narrative, 285 00:14:17,240 --> 00:14:21,240 Speaker 1: highlighting how well capitalized these companies are, and I focus 286 00:14:21,280 --> 00:14:23,120 Speaker 1: on the fundamentals. And usually at the end of the day, 287 00:14:23,160 --> 00:14:25,480 Speaker 1: matters we talked about. I take, you know, pick your 288 00:14:25,520 --> 00:14:30,680 Speaker 1: favorite Wall Street stock reets, Apple, Microsoft, whoever, take your 289 00:14:30,680 --> 00:14:33,120 Speaker 1: fore fait, your favorite company, and I try to boil 290 00:14:33,120 --> 00:14:34,760 Speaker 1: it down to four bullet points. What do you want 291 00:14:34,760 --> 00:14:36,680 Speaker 1: a good company to do well? At the end of 292 00:14:36,680 --> 00:14:39,640 Speaker 1: the day, It's very simple. You want them to grow revenues, 293 00:14:40,120 --> 00:14:44,760 Speaker 1: grow profits, grow dividends, and grow guidance. And that's pretty 294 00:14:44,840 --> 00:14:47,600 Speaker 1: much what you have been seeing from the residential reads 295 00:14:47,640 --> 00:14:50,960 Speaker 1: across the board over the past year two years coming 296 00:14:50,960 --> 00:14:54,440 Speaker 1: out of COVID, and so from the fundamental perspective, the 297 00:14:54,480 --> 00:14:57,600 Speaker 1: bottom line is, these guys are in a pretty solid 298 00:14:57,640 --> 00:15:00,960 Speaker 1: position right now. Let's just CLEI really touch on malls 299 00:15:00,960 --> 00:15:03,120 Speaker 1: for a second, because I thought it was such a 300 00:15:03,120 --> 00:15:07,640 Speaker 1: cool conversation that we had um in an extended version 301 00:15:07,640 --> 00:15:12,440 Speaker 1: of Tweezer. It wasn't It wasn't really tweezer. What what? What? What? What? 302 00:15:12,440 --> 00:15:14,640 Speaker 1: What is up with that business? Like? Can it ever 303 00:15:14,760 --> 00:15:18,040 Speaker 1: come back? Um? What do they need to do? And 304 00:15:18,160 --> 00:15:21,320 Speaker 1: what do you think about it? Ecap Rates in the 305 00:15:21,360 --> 00:15:23,680 Speaker 1: mall sector have been going backwards down the number line. 306 00:15:23,720 --> 00:15:26,800 Speaker 1: To throw another reference at you, and when we look 307 00:15:26,840 --> 00:15:30,360 Speaker 1: at some of the high quality properties versus you know 308 00:15:30,440 --> 00:15:32,080 Speaker 1: you and I spent a lot of time talking about 309 00:15:32,080 --> 00:15:35,840 Speaker 1: American Dream and uh in fact. Bloomberg Opinion ran a 310 00:15:35,840 --> 00:15:39,800 Speaker 1: great piece yesterday talking about how mall landlords are spending 311 00:15:40,080 --> 00:15:44,680 Speaker 1: huge dollars to offer these exponential type experiences and indoor 312 00:15:44,800 --> 00:15:48,600 Speaker 1: ski malls and the retail location as an example. And 313 00:15:48,640 --> 00:15:51,000 Speaker 1: the question is if you if you build it, will 314 00:15:51,040 --> 00:15:54,520 Speaker 1: they come? And you know, at the end of the day, Look, 315 00:15:54,560 --> 00:15:57,560 Speaker 1: there is no place like the mall. I have fond 316 00:15:57,600 --> 00:16:00,840 Speaker 1: memories and going to the arcade, going to Mrs Fields 317 00:16:00,840 --> 00:16:03,320 Speaker 1: Cookies and you know that was where we spent our weekends. 318 00:16:03,480 --> 00:16:05,440 Speaker 1: And I know it's a different generation, but the mall 319 00:16:05,520 --> 00:16:08,120 Speaker 1: guys are trying to reach out towards that next generation, 320 00:16:08,160 --> 00:16:10,440 Speaker 1: whether it's through e sports venus. I do see the 321 00:16:10,480 --> 00:16:13,200 Speaker 1: mall isn't going away. I think we're going to see 322 00:16:13,200 --> 00:16:16,200 Speaker 1: an evolution of the mall space. I'm looking forward to it. 323 00:16:16,240 --> 00:16:18,560 Speaker 1: Good stuff. I hope they put in pickleball. Pickleball, you're 324 00:16:18,560 --> 00:16:20,920 Speaker 1: a big pickleball fan. Yeah, all on and whatever the 325 00:16:20,960 --> 00:16:24,080 Speaker 1: latest fat is. David auerback Managing Director Armada E. T 326 00:16:24,280 --> 00:16:26,840 Speaker 1: F S giving us his thoughts on the residential real 327 00:16:26,960 --> 00:16:30,920 Speaker 1: estate market in their Residential reet Um Income et F 328 00:16:31,600 --> 00:16:35,320 Speaker 1: H A U S House. Uh So we'll see how 329 00:16:35,320 --> 00:16:37,560 Speaker 1: that goes, but mortgage rates at six percent makes it 330 00:16:37,600 --> 00:16:45,360 Speaker 1: tough for some buyers. Now, let's talk about some industrial America, 331 00:16:45,560 --> 00:16:49,360 Speaker 1: agricultural equipment, turbine engines, all that kind of good stuff. 332 00:16:49,400 --> 00:16:51,440 Speaker 1: We can do that with Karen Herbal Hall Hubal Heart. 333 00:16:51,520 --> 00:16:55,640 Speaker 1: She covers all that industrial stuff for Bloomberg Intelligence. Uh, 334 00:16:55,800 --> 00:16:58,440 Speaker 1: Karen lots to talk about. Let's start with one of 335 00:16:58,440 --> 00:17:01,680 Speaker 1: your all time faves. You've been following this company for decades, Ge, 336 00:17:01,920 --> 00:17:04,080 Speaker 1: what do we learned today with their earnings and kind 337 00:17:04,080 --> 00:17:07,280 Speaker 1: of what's their story going forward? Uh, well, you know, 338 00:17:07,520 --> 00:17:10,560 Speaker 1: um on just briefly on the fourth quarter, I guess, uh, 339 00:17:10,800 --> 00:17:14,600 Speaker 1: there was positive surprises and negative surprises on aerospace. That 340 00:17:14,720 --> 00:17:17,200 Speaker 1: was kind of in line power, which is a big 341 00:17:17,200 --> 00:17:20,639 Speaker 1: turnaround story. They did much better than expected on margins 342 00:17:21,119 --> 00:17:25,440 Speaker 1: um double digit margins, which they haven't done in four years. UM. However, 343 00:17:25,480 --> 00:17:28,439 Speaker 1: they lost that in renewables, which is um uh you know, 344 00:17:28,480 --> 00:17:33,720 Speaker 1: an ongoing issue for them. UM. As far as the outlook, uh, 345 00:17:33,760 --> 00:17:36,200 Speaker 1: you know, again it's going to be driven by aerospace. 346 00:17:36,520 --> 00:17:39,680 Speaker 1: The outlook was lower than people expected on EPs spaces. 347 00:17:40,040 --> 00:17:43,160 Speaker 1: I think they're probably low bowling on air on aerospace, 348 00:17:43,560 --> 00:17:47,200 Speaker 1: and they're giving themselves the room for problems again in renewables, 349 00:17:47,200 --> 00:17:49,240 Speaker 1: although the long term out look is good for renewable, 350 00:17:49,280 --> 00:17:50,560 Speaker 1: so we might want to talk about that a bit. 351 00:17:50,720 --> 00:17:53,080 Speaker 1: So all right, let's talk about that, and let's talk 352 00:17:53,119 --> 00:17:56,159 Speaker 1: about the longer term outlook for General Electric for the stock. 353 00:17:56,160 --> 00:17:58,960 Speaker 1: What do you think? What do you think? You know? 354 00:18:00,119 --> 00:18:03,280 Speaker 1: I think is gonna be another wishy washy year because 355 00:18:03,359 --> 00:18:05,879 Speaker 1: A they've still got a spin off Power Power, the 356 00:18:06,280 --> 00:18:10,080 Speaker 1: energy business now called Veranova. That is a problem. It's 357 00:18:10,119 --> 00:18:12,560 Speaker 1: going to lose money again this year. They're gonna try 358 00:18:12,600 --> 00:18:14,480 Speaker 1: to get it out the door in the spin in 359 00:18:14,520 --> 00:18:17,760 Speaker 1: the first quarter. So that's gonna be hovering over while 360 00:18:17,840 --> 00:18:22,000 Speaker 1: we have the overlay of their ongoing business. Aerospace is 361 00:18:22,000 --> 00:18:25,560 Speaker 1: going to have you know, over growth, uh you know, uh, 362 00:18:25,600 --> 00:18:28,359 Speaker 1: you know, high double digit margins. And then the big 363 00:18:28,400 --> 00:18:30,399 Speaker 1: issue that came up in the quarter, it was probably 364 00:18:30,440 --> 00:18:32,840 Speaker 1: eight of the ten questions, was on what is free 365 00:18:32,840 --> 00:18:36,320 Speaker 1: cash we're gonna look like next year? Um? What is 366 00:18:37,400 --> 00:18:40,600 Speaker 1: look like? Okay, here we go, okay, um on that Okay, 367 00:18:40,640 --> 00:18:43,360 Speaker 1: on that front, um, free cash. So it's gonna look 368 00:18:43,359 --> 00:18:47,880 Speaker 1: good for airspace, but renewables and and powers since they 369 00:18:47,880 --> 00:18:50,480 Speaker 1: have it's a very long term business. When they get orders, 370 00:18:50,480 --> 00:18:52,960 Speaker 1: they have to disperse UM money up front on these 371 00:18:52,960 --> 00:18:55,720 Speaker 1: long term projects, and they're gonna pay out three to 372 00:18:55,760 --> 00:18:59,760 Speaker 1: four billion dollars in disbursements for projects in the renewable 373 00:18:59,800 --> 00:19:03,280 Speaker 1: busines this which is really going to significantly impact free 374 00:19:03,280 --> 00:19:06,480 Speaker 1: cash flow. They are gonna have positive free cash flow, 375 00:19:06,520 --> 00:19:09,200 Speaker 1: it will be up from this year, but there's a 376 00:19:09,200 --> 00:19:11,639 Speaker 1: lot of uncertainty about the timing and magnitude of the 377 00:19:11,960 --> 00:19:16,080 Speaker 1: renewable up from payments. They will get that money back. 378 00:19:16,560 --> 00:19:19,560 Speaker 1: But again, um, eight out of the ten questions were 379 00:19:19,640 --> 00:19:21,960 Speaker 1: on how does free cash flow look next year? So 380 00:19:22,000 --> 00:19:23,520 Speaker 1: I think that's what the focus is going to be 381 00:19:23,520 --> 00:19:25,960 Speaker 1: on this, Karen. I like to look at, especially with 382 00:19:26,320 --> 00:19:28,480 Speaker 1: big behemoths like this. I like to look at a 383 00:19:28,520 --> 00:19:31,840 Speaker 1: comp screen CEMP on the Bloomberg. It automatically pulls up 384 00:19:31,880 --> 00:19:34,679 Speaker 1: the stock over a five year window. And if I 385 00:19:34,720 --> 00:19:36,840 Speaker 1: pull up GE over a five year window, put them 386 00:19:36,880 --> 00:19:41,359 Speaker 1: up against Honeywell, Semens A, b B, what dogs, What 387 00:19:41,440 --> 00:19:46,480 Speaker 1: a horrible, horrible investment it's been. Um, is it is 388 00:19:46,520 --> 00:19:48,439 Speaker 1: that going to change? I mean, do I need to 389 00:19:49,119 --> 00:19:51,520 Speaker 1: start from square one, wipe out the last four years 390 00:19:51,560 --> 00:19:53,600 Speaker 1: and and and start my comp screen from you know 391 00:19:53,680 --> 00:19:58,199 Speaker 1: yesterday or this month's yeah, you know once this you know, 392 00:19:58,560 --> 00:20:01,800 Speaker 1: I think the long term picture for GE Aerospace is 393 00:20:01,800 --> 00:20:05,399 Speaker 1: tremendous and that is gonna be GE core once everything 394 00:20:05,440 --> 00:20:08,760 Speaker 1: else is gone. Um their market leader in engine in 395 00:20:08,760 --> 00:20:12,119 Speaker 1: in the commercial engine business. They have um, you know 396 00:20:12,160 --> 00:20:14,080 Speaker 1: a good position in military as well, but the focus 397 00:20:14,119 --> 00:20:17,200 Speaker 1: will be commercial airspace. That recovery is still in very 398 00:20:17,200 --> 00:20:20,359 Speaker 1: early phases. It's got a long way to go. Um, 399 00:20:20,400 --> 00:20:24,680 Speaker 1: that business can probably plus margins. It's at eighteen percent. Now, 400 00:20:25,080 --> 00:20:28,800 Speaker 1: that's story they're gonna when when they divest power the 401 00:20:28,840 --> 00:20:31,720 Speaker 1: problem business. I mean, um, you know, energy, the power business, 402 00:20:31,960 --> 00:20:35,600 Speaker 1: it's gonna be a high quality aerospace play and it's 403 00:20:35,600 --> 00:20:37,439 Speaker 1: going to be a very interesting story. All right. One 404 00:20:37,480 --> 00:20:42,040 Speaker 1: other stock that has done almost as poorly as GE, 405 00:20:42,480 --> 00:20:45,720 Speaker 1: well maybe even worse depending on the window you look, 406 00:20:46,160 --> 00:20:49,440 Speaker 1: UM is three M. I mean, over five years, three 407 00:20:49,560 --> 00:20:52,119 Speaker 1: M has managed to underperform g E. How do you 408 00:20:52,440 --> 00:20:55,880 Speaker 1: how do you do worse than General Electric? But they've 409 00:20:55,920 --> 00:20:59,199 Speaker 1: done it. Why is it so bad? When you know 410 00:20:59,280 --> 00:21:02,920 Speaker 1: other company is like that create that build big equipment 411 00:21:02,960 --> 00:21:06,120 Speaker 1: in America like Caterpillar and Deer have done so much better. 412 00:21:07,600 --> 00:21:11,800 Speaker 1: Three M has a huge overhang of UM litigation issues 413 00:21:11,840 --> 00:21:15,160 Speaker 1: with UM T fast and or they have and also 414 00:21:15,200 --> 00:21:19,480 Speaker 1: an air plug UM litigation T FAST is that forever chemicals. 415 00:21:19,480 --> 00:21:22,560 Speaker 1: It's also affecting DuPont, etcetera. And that could be our 416 00:21:22,600 --> 00:21:26,200 Speaker 1: litigation guys say that could be dollar overhang on the 417 00:21:26,240 --> 00:21:29,480 Speaker 1: start for a while. Um they'll be they'll be litigating 418 00:21:29,480 --> 00:21:31,400 Speaker 1: that for years and then they'll be paying it out 419 00:21:31,440 --> 00:21:33,479 Speaker 1: over a long period of time. They can't get out 420 00:21:33,520 --> 00:21:35,760 Speaker 1: from under that cloud. On top of that, the operating 421 00:21:35,760 --> 00:21:39,400 Speaker 1: performance has been disappointing. So every you know, everywhere you look, 422 00:21:39,400 --> 00:21:41,280 Speaker 1: it's not been great news for three MS. So I 423 00:21:41,280 --> 00:21:43,600 Speaker 1: mean there's stock looks as bad as buyer. You know, 424 00:21:43,600 --> 00:21:47,920 Speaker 1: the German chemical companies. Three M went public I p O. 425 00:21:48,720 --> 00:21:54,879 Speaker 1: January nineteen o one, just before the crash and just 426 00:21:55,000 --> 00:21:57,840 Speaker 1: before that, so that's when three M went public. So 427 00:21:57,960 --> 00:21:59,720 Speaker 1: Karen pulling back the lens a little bit when they're 428 00:21:59,720 --> 00:22:02,959 Speaker 1: firing and they're are we going to see those are 429 00:22:03,000 --> 00:22:06,280 Speaker 1: we gonna see those kind of headcount cuts at Caterpillar 430 00:22:06,400 --> 00:22:10,440 Speaker 1: at Deer Uh? Well, first, I think that's a signal 431 00:22:10,840 --> 00:22:14,240 Speaker 1: um to the broad industrial sector because three M, with 432 00:22:14,320 --> 00:22:17,119 Speaker 1: the breath of their product line in industrials and consumers, 433 00:22:17,119 --> 00:22:19,480 Speaker 1: they kind of are g d P and they're kind 434 00:22:19,480 --> 00:22:22,920 Speaker 1: of signaling that. And they did see they have expectations 435 00:22:22,920 --> 00:22:26,400 Speaker 1: of declines and organic growth in every business but healthcare 436 00:22:26,440 --> 00:22:28,359 Speaker 1: next year. So I think that's a signal to the 437 00:22:28,400 --> 00:22:33,600 Speaker 1: broader industrial sector. However, Deer and Caterpillar are driven have 438 00:22:33,600 --> 00:22:36,600 Speaker 1: a very good outlook in the commodity markets and they 439 00:22:36,680 --> 00:22:39,399 Speaker 1: are really going to distinguish themselves in twenty three. Like 440 00:22:39,520 --> 00:22:41,800 Speaker 1: you know, um, add equipment is going to be strong, 441 00:22:42,560 --> 00:22:45,040 Speaker 1: mining is going to be strong. Uh you know, So 442 00:22:45,240 --> 00:22:48,399 Speaker 1: that's why those docks are are are breaking away because 443 00:22:48,440 --> 00:22:52,119 Speaker 1: they're in a commodity cycle that uh is going to 444 00:22:52,200 --> 00:22:58,520 Speaker 1: continue to be strong. So there your industrial agricultural companies 445 00:22:58,520 --> 00:23:00,040 Speaker 1: that we've been talking about, what did they do in 446 00:23:00,080 --> 00:23:03,119 Speaker 1: a recession? Because it clearly boy All that they're going 447 00:23:03,160 --> 00:23:05,080 Speaker 1: to see it right away they probably have seen it. 448 00:23:05,320 --> 00:23:08,680 Speaker 1: Do they cut people? Do they cut they shut plants? 449 00:23:09,400 --> 00:23:12,320 Speaker 1: What do your companies do? Well? You know, if if 450 00:23:12,359 --> 00:23:15,359 Speaker 1: you're talking agg that's kind of a cycle of its own, 451 00:23:15,600 --> 00:23:18,919 Speaker 1: and um, you know, given what's gone gone on bring prices, 452 00:23:18,960 --> 00:23:21,720 Speaker 1: there's a good story there. Um. Chris Gilno covers that 453 00:23:21,840 --> 00:23:24,320 Speaker 1: and can do that in more detail. But but on 454 00:23:24,320 --> 00:23:26,560 Speaker 1: on the on Cat and Dear they're both in the 455 00:23:26,560 --> 00:23:29,840 Speaker 1: construction equipment business as well, and there will be some 456 00:23:30,000 --> 00:23:32,760 Speaker 1: minor hit to that business, but less than a normal 457 00:23:32,800 --> 00:23:35,600 Speaker 1: recession because all the money the government spending. So that's 458 00:23:35,600 --> 00:23:38,399 Speaker 1: the other thing. They have the Infrastructure Bill, the Inflation 459 00:23:38,480 --> 00:23:42,760 Speaker 1: Reduction ACTOM, the Infrastructure Bill, money is starting to flow. 460 00:23:43,080 --> 00:23:46,800 Speaker 1: Demand for that equipment is very very strong um and 461 00:23:46,840 --> 00:23:49,680 Speaker 1: then that will continue as the Inflation Reduction Act starts 462 00:23:49,680 --> 00:23:51,719 Speaker 1: to contribute later in the year. So they've got a 463 00:23:51,720 --> 00:23:54,600 Speaker 1: lot of wind behind their sales um in in the 464 00:23:54,640 --> 00:23:56,920 Speaker 1: construction side, and then the mining side looks good, and 465 00:23:56,960 --> 00:23:58,880 Speaker 1: then the agg side looks good, so that those two 466 00:23:58,960 --> 00:24:03,240 Speaker 1: companies that you've named, you know, have a very favorable album. Alright, 467 00:24:03,320 --> 00:24:07,280 Speaker 1: good stuff, coluber Heart. She follows all that industrial stuff 468 00:24:07,440 --> 00:24:11,359 Speaker 1: for that's medical America. That's it, dude. I mean, I reason, 469 00:24:11,760 --> 00:24:15,840 Speaker 1: you know enough of this, enough of this Twitter junk, 470 00:24:16,080 --> 00:24:21,920 Speaker 1: you know, enough of this cloud service exactly exactly. Even 471 00:24:21,920 --> 00:24:24,119 Speaker 1: a wheelbarrow I'd be happy with. You know, Yeah, you 472 00:24:24,200 --> 00:24:26,960 Speaker 1: got a Craftsman wheelbarrow. That's what you need, right, Well, 473 00:24:27,040 --> 00:24:29,480 Speaker 1: I don't know about Craftsman but you've got your own 474 00:24:29,520 --> 00:24:32,560 Speaker 1: brand loyalty and wheelbarrels. Does snap On make wheelbarrows? I 475 00:24:32,600 --> 00:24:37,119 Speaker 1: don't know Mac Tools and knows. That's Coluberhart from Bloomberg Intelligence. 476 00:24:40,960 --> 00:24:42,719 Speaker 1: It's kind of rough when you look under the foot 477 00:24:42,760 --> 00:24:44,639 Speaker 1: of the of the dow of the s and P 478 00:24:44,800 --> 00:24:48,320 Speaker 1: five three M is the biggest loser in percentage terms, 479 00:24:48,800 --> 00:24:50,760 Speaker 1: they're down five and a half percent. I wonder what 480 00:24:50,800 --> 00:24:52,640 Speaker 1: they thought, you know, when they said we're gonna cut 481 00:24:53,560 --> 00:24:56,960 Speaker 1: jobs and they started preparing the press release. Do we 482 00:24:57,000 --> 00:25:00,280 Speaker 1: buy these shares now because they're probably gonna pop tomorrow open. 483 00:25:01,160 --> 00:25:03,160 Speaker 1: You're not a tech company. When the tech company's report 484 00:25:03,280 --> 00:25:04,960 Speaker 1: job layoffs, the stock goes up. When you're just up 485 00:25:04,960 --> 00:25:09,280 Speaker 1: playing old American industrial company, that's not People worry about demand, Hey, 486 00:25:09,280 --> 00:25:11,080 Speaker 1: worry about demand, all right. A lot of folks like 487 00:25:11,119 --> 00:25:13,440 Speaker 1: to talk about private equity, but we like talking about 488 00:25:13,480 --> 00:25:16,400 Speaker 1: private credit. That's been an asset class, just really getting 489 00:25:16,400 --> 00:25:17,919 Speaker 1: a lot of assets, a lot of attention over the 490 00:25:17,960 --> 00:25:20,439 Speaker 1: last several years. It's been a really good business, particular 491 00:25:20,440 --> 00:25:22,639 Speaker 1: when rates were lower. Now with the rates going higher, 492 00:25:22,640 --> 00:25:25,800 Speaker 1: what's the outlook there for all things private credit? We 493 00:25:25,800 --> 00:25:28,320 Speaker 1: welcome our good friend Randy Schwimmer, he's go ahead of 494 00:25:28,480 --> 00:25:31,320 Speaker 1: senior lending and senior managing director over there at Churchill 495 00:25:31,440 --> 00:25:35,480 Speaker 1: Asset Management. So, Radio, what does this asset class look like? 496 00:25:35,560 --> 00:25:38,560 Speaker 1: What is your outlook for private credit in a world 497 00:25:38,640 --> 00:25:41,160 Speaker 1: that's no longer you know, zero percent interest rates? We'll 498 00:25:41,160 --> 00:25:44,119 Speaker 1: tell you if you liked private credit in two you 499 00:25:44,119 --> 00:25:47,920 Speaker 1: are gonna love it in because what's happening is essentially 500 00:25:47,960 --> 00:25:51,200 Speaker 1: the same thing that happened then, Rates going up, inflation 501 00:25:51,240 --> 00:25:53,440 Speaker 1: coming down in the second half of the year, seemingly 502 00:25:53,560 --> 00:25:58,440 Speaker 1: continue in the first quarter. UM strong economy, strong economy, 503 00:25:58,400 --> 00:26:02,200 Speaker 1: yields up, so we're at practically record yields in terms 504 00:26:02,200 --> 00:26:06,720 Speaker 1: of private credit for senior debt close to UM. Haven't 505 00:26:06,720 --> 00:26:08,960 Speaker 1: seen that in a long long time, and it doesn't 506 00:26:09,000 --> 00:26:10,800 Speaker 1: look like that's going away because the FED looks like 507 00:26:10,800 --> 00:26:13,040 Speaker 1: they're gonna stick around for a while. So what do 508 00:26:13,080 --> 00:26:15,800 Speaker 1: you expect from the Fed? And how key is that too? 509 00:26:16,359 --> 00:26:18,639 Speaker 1: UM the asset class. What we know is that we 510 00:26:18,680 --> 00:26:20,520 Speaker 1: don't really know where they're gonna end up because we 511 00:26:20,520 --> 00:26:23,840 Speaker 1: don't have the data yet. They're taking it seems like 512 00:26:23,960 --> 00:26:27,879 Speaker 1: a slower approach basis points. Looks like the outlook for 513 00:26:27,920 --> 00:26:31,840 Speaker 1: the next hike. Um. What the FED members are saying is, 514 00:26:32,000 --> 00:26:34,719 Speaker 1: let's see what the data brings. Let's get it up 515 00:26:34,720 --> 00:26:37,240 Speaker 1: to four seventy five, which would be the next hike, 516 00:26:37,560 --> 00:26:39,920 Speaker 1: get up to five percent and see what happens. Then 517 00:26:40,480 --> 00:26:43,159 Speaker 1: the question is will we continue to see a strong 518 00:26:43,240 --> 00:26:45,800 Speaker 1: economy which is bedeviling the FED right now because they're 519 00:26:45,800 --> 00:26:49,040 Speaker 1: trying to slow things down. They've started to take the 520 00:26:49,080 --> 00:26:51,800 Speaker 1: punch away from the punch bowl, away from the party, 521 00:26:51,880 --> 00:26:54,600 Speaker 1: where they have to start turney lights on, dismissing the 522 00:26:54,680 --> 00:26:58,160 Speaker 1: dj you know, telling people to leave the room. That 523 00:26:58,200 --> 00:27:00,399 Speaker 1: would happen if you get up to a six percent 524 00:27:00,480 --> 00:27:02,920 Speaker 1: FED funds rate, which would really slow things down. Paul, 525 00:27:02,960 --> 00:27:05,560 Speaker 1: have you looked at con lately? Yes, I, thanks to you, 526 00:27:05,600 --> 00:27:09,760 Speaker 1: I do. It's condition positive territory. It's it's looking good. 527 00:27:09,320 --> 00:27:12,800 Speaker 1: Are great. The economy seems to be humming along just fine, 528 00:27:13,040 --> 00:27:16,720 Speaker 1: and maybe that argues for a bigger push. How much 529 00:27:16,760 --> 00:27:18,960 Speaker 1: does it matter, Randy? I mean, when the FED peaks, 530 00:27:19,080 --> 00:27:21,000 Speaker 1: is that a problem for private credit because it's been 531 00:27:21,000 --> 00:27:23,480 Speaker 1: on fire as they've been raising rates. We'll think about 532 00:27:23,680 --> 00:27:27,600 Speaker 1: that level of interest rates. So the typical so first 533 00:27:27,600 --> 00:27:31,560 Speaker 1: spread on senior credit right now six six on top 534 00:27:31,600 --> 00:27:33,919 Speaker 1: of what let's say as a five to you know difference, 535 00:27:34,160 --> 00:27:36,560 Speaker 1: a five percent benchmark and at six percent, now you're 536 00:27:36,560 --> 00:27:40,920 Speaker 1: talking twelve percent cost twelve percent interest rates for senior debt. 537 00:27:41,400 --> 00:27:44,080 Speaker 1: You know that all of a sudden makes the calculus 538 00:27:44,119 --> 00:27:46,800 Speaker 1: tricky for private equity sponsors who are looking at their 539 00:27:46,920 --> 00:27:50,800 Speaker 1: equity investments and saying, well, I'm trying to get yield 540 00:27:50,800 --> 00:27:52,879 Speaker 1: on my equity, and now the senior dick guys are 541 00:27:52,880 --> 00:27:55,760 Speaker 1: costing me. You know, how does that? How does that 542 00:27:56,000 --> 00:27:59,080 Speaker 1: math work? So at some point that interest cost gets 543 00:27:59,080 --> 00:28:01,679 Speaker 1: to be a real burden on these borrowers UM, and 544 00:28:01,720 --> 00:28:04,760 Speaker 1: you're starting to see interest coverage shrink. We never paid 545 00:28:04,800 --> 00:28:08,800 Speaker 1: attention to that in one because interest was basically zero. 546 00:28:09,320 --> 00:28:13,720 Speaker 1: But now you're you're you've doubled interests, spreads and total costs. 547 00:28:14,040 --> 00:28:17,000 Speaker 1: Now the interest coverage is tightening, and particularly with the 548 00:28:17,080 --> 00:28:20,080 Speaker 1: have nots in the economy. So you've been talking about industrials, 549 00:28:20,080 --> 00:28:21,960 Speaker 1: which in many cases are the halves in this in 550 00:28:22,000 --> 00:28:24,760 Speaker 1: this economy right now doing very well, but in some 551 00:28:24,800 --> 00:28:29,439 Speaker 1: of the have nots, with retail, some retail businesses, UM energy, 552 00:28:29,760 --> 00:28:33,879 Speaker 1: some some heavy consumer facing businesses, those businesses are going 553 00:28:33,920 --> 00:28:37,000 Speaker 1: to have a challenging time with higher interest rates. All right, 554 00:28:37,080 --> 00:28:39,440 Speaker 1: So when a sponsor comes to you guys now with 555 00:28:39,520 --> 00:28:44,080 Speaker 1: the deal, Um, are the covenants tighter? Are the you know, 556 00:28:44,120 --> 00:28:47,680 Speaker 1: the leverage ration is different, the coverage races. Yeah, because 557 00:28:48,240 --> 00:28:51,640 Speaker 1: because because coverage is tighter than the amount of debt 558 00:28:51,680 --> 00:28:53,720 Speaker 1: that they can put on these companies is smaller. So 559 00:28:54,120 --> 00:28:56,480 Speaker 1: that's come down anywhere from half to a full turn 560 00:28:56,520 --> 00:28:59,880 Speaker 1: of leverage, which is really good for investors because lower leverage, 561 00:29:00,120 --> 00:29:04,040 Speaker 1: lower risk, higher yield is better returns um. But from 562 00:29:04,040 --> 00:29:07,000 Speaker 1: the issuer's perspective, it's going to be more costly. They're 563 00:29:07,000 --> 00:29:10,080 Speaker 1: gonna have to watch their margins. So the businesses we 564 00:29:10,160 --> 00:29:13,440 Speaker 1: like tend to be more high margin businesses, low capex, 565 00:29:13,720 --> 00:29:18,360 Speaker 1: more defensive like business services. So as you look at 566 00:29:18,360 --> 00:29:21,840 Speaker 1: your portfolio right now, I presume presume your credit guys 567 00:29:21,880 --> 00:29:24,240 Speaker 1: are really shopping in their pencils saying, how is our 568 00:29:24,280 --> 00:29:27,760 Speaker 1: portfolio set up right now for rising interest rates? What 569 00:29:27,880 --> 00:29:31,360 Speaker 1: maybe a recession kind of what are you seeing here? Well, 570 00:29:31,520 --> 00:29:34,480 Speaker 1: the way that our portfolio is constructed, it's mostly defensive 571 00:29:34,600 --> 00:29:38,520 Speaker 1: industries as I mentioned, with high free cash flow um ratios, 572 00:29:38,640 --> 00:29:41,040 Speaker 1: and so the business is generally speaking and doing quite well. 573 00:29:41,080 --> 00:29:43,000 Speaker 1: In fact, for the third quarter. We don't have fourth 574 00:29:43,040 --> 00:29:46,200 Speaker 1: quarter yet. Third quarter numbers for our portfolio, we call 575 00:29:46,240 --> 00:29:49,880 Speaker 1: it the Griffin Index after after our mascot Churchill Griffin 576 00:29:50,320 --> 00:29:54,040 Speaker 1: UM is up in revenues and cash flow over twenty 577 00:29:55,320 --> 00:29:57,800 Speaker 1: Now those include companies that are doing add on so 578 00:29:58,000 --> 00:30:00,000 Speaker 1: M and A is part of that. But these businesses 579 00:30:00,080 --> 00:30:02,840 Speaker 1: are growing UM. To your point when you started about 580 00:30:02,840 --> 00:30:06,520 Speaker 1: the economy, certainly in those areas that are more defensive, 581 00:30:06,760 --> 00:30:09,440 Speaker 1: those businesses are doing well. Our portfolio companies are doing well. 582 00:30:09,760 --> 00:30:12,960 Speaker 1: That seems to be the case in general in when 583 00:30:12,960 --> 00:30:17,080 Speaker 1: you look at the more business services arena UM. And 584 00:30:17,120 --> 00:30:19,960 Speaker 1: that's both the challenge and the opportunity that we have 585 00:30:20,080 --> 00:30:23,000 Speaker 1: because if our portfolio continues to perform, it means we 586 00:30:23,000 --> 00:30:26,400 Speaker 1: can continue to lend. So private equity firm comes to 587 00:30:26,440 --> 00:30:28,160 Speaker 1: us and says, hey, we got a deal. We look 588 00:30:28,200 --> 00:30:30,239 Speaker 1: at if it fits the kind of parameters that we 589 00:30:30,320 --> 00:30:33,760 Speaker 1: like for these businesses. We have the capital to invest 590 00:30:33,800 --> 00:30:36,600 Speaker 1: in and what is the deal flow like now you're 591 00:30:36,600 --> 00:30:39,959 Speaker 1: seeing So we had a good January, good first part 592 00:30:40,000 --> 00:30:41,960 Speaker 1: of January, some of its kind of leaked over from 593 00:30:41,960 --> 00:30:45,920 Speaker 1: the end of the year UM. But the forward pipeline 594 00:30:46,120 --> 00:30:49,120 Speaker 1: is slowed down, no question about it. What's helpful about 595 00:30:49,120 --> 00:30:52,600 Speaker 1: direct lending is that the ratio of deals that are 596 00:30:52,600 --> 00:30:55,320 Speaker 1: being done in the private credit space versus public is 597 00:30:55,360 --> 00:30:58,920 Speaker 1: now foward and one in favorite private because of long 598 00:30:59,040 --> 00:31:01,760 Speaker 1: term capital and the ability of folks like Churchill to 599 00:31:01,760 --> 00:31:04,760 Speaker 1: commit large dollars and get deals done typical term loan 600 00:31:04,840 --> 00:31:08,120 Speaker 1: from your typical deals like length. Yeah, so it's it's 601 00:31:08,160 --> 00:31:11,480 Speaker 1: basically five to seven years. Um. Now, they don't last 602 00:31:11,600 --> 00:31:14,280 Speaker 1: for that long because these companies tend to get reefinancier bought. 603 00:31:14,360 --> 00:31:17,400 Speaker 1: So the average you know, ten or is probably two 604 00:31:17,440 --> 00:31:18,760 Speaker 1: and a half to three years. You guys are doing 605 00:31:18,800 --> 00:31:21,600 Speaker 1: small and mid size. Maybe these are companies that are 606 00:31:21,640 --> 00:31:25,000 Speaker 1: between you know, fifty million revenues five million revenues. That's 607 00:31:25,040 --> 00:31:27,600 Speaker 1: not kk R type deal, is it? Whose sources? So 608 00:31:27,680 --> 00:31:31,320 Speaker 1: these are middle market private equity sponsors there. You know, 609 00:31:31,480 --> 00:31:34,560 Speaker 1: we have two fifty that are in our stable that 610 00:31:34,680 --> 00:31:36,440 Speaker 1: come to us all the time, and you know we're 611 00:31:36,920 --> 00:31:39,239 Speaker 1: top one of the top lenders in the space. All right, 612 00:31:39,400 --> 00:31:41,160 Speaker 1: A couple of things I want to ask about your 613 00:31:41,440 --> 00:31:45,360 Speaker 1: business specifically, Um, you have a wildly popular newsletter to 614 00:31:45,400 --> 00:31:48,040 Speaker 1: lead Left Left, and I feel like that could also 615 00:31:48,080 --> 00:31:51,840 Speaker 1: be um and and an indicator as to the interest 616 00:31:51,920 --> 00:31:54,640 Speaker 1: in the asset. Right, So what's it looks like? Well, 617 00:31:54,680 --> 00:31:56,880 Speaker 1: what's interesting is we had an M and A webinar 618 00:31:57,080 --> 00:32:00,400 Speaker 1: last week. We had seven hundred registrants. You know, not 619 00:32:00,520 --> 00:32:04,800 Speaker 1: quite the Bloomberg radio audience for Paul and Matt, but 620 00:32:04,800 --> 00:32:07,480 Speaker 1: but basically people going online and listening to what's going on. 621 00:32:07,560 --> 00:32:10,760 Speaker 1: The short story from five top middle market investment bankers 622 00:32:11,120 --> 00:32:13,320 Speaker 1: who came on this webinar to talk about business is 623 00:32:13,360 --> 00:32:15,520 Speaker 1: it's a world of the haves and have nots. The 624 00:32:15,600 --> 00:32:17,680 Speaker 1: haves being the companies that we talked about earlier, the 625 00:32:17,680 --> 00:32:21,040 Speaker 1: defensive businesses the have nots, or the businesses that are 626 00:32:21,080 --> 00:32:25,600 Speaker 1: more retail focused, higher capex and so forth. For those 627 00:32:25,720 --> 00:32:27,880 Speaker 1: have not so there's no bid. If you're a seller. 628 00:32:28,400 --> 00:32:30,920 Speaker 1: It's like if you you have a five dollar apartment, 629 00:32:31,120 --> 00:32:33,200 Speaker 1: you want to get your five d thousand, somebody offers 630 00:32:33,240 --> 00:32:35,360 Speaker 1: you four hundred. You know what, I'm gonna wait. So 631 00:32:35,400 --> 00:32:37,960 Speaker 1: a lot of those sellers are waiting for the good businesses. 632 00:32:38,200 --> 00:32:39,800 Speaker 1: And you know, you have an apartment to people like 633 00:32:39,880 --> 00:32:41,680 Speaker 1: it's a nice area in Manhattan, they say, you know what, 634 00:32:41,720 --> 00:32:44,200 Speaker 1: I'll give you that five I don't even need financing. 635 00:32:44,240 --> 00:32:47,280 Speaker 1: I can close tomorrow. You're gonna sell that business. So 636 00:32:47,400 --> 00:32:50,400 Speaker 1: we're seeing the haves getting traded, the haves not have 637 00:32:50,600 --> 00:32:53,720 Speaker 1: nods not And the big factor now is the wait 638 00:32:53,760 --> 00:32:55,440 Speaker 1: and see that we talked about with the Fed. What's 639 00:32:55,480 --> 00:32:57,960 Speaker 1: the Fed gonna do, What's gonna happen with interest rates? 640 00:32:58,120 --> 00:33:01,200 Speaker 1: And most importantly, what's gonna happen with valuations, Because for 641 00:33:01,240 --> 00:33:04,440 Speaker 1: the haves, evaluations are okay, we we only have a minute. 642 00:33:04,440 --> 00:33:06,640 Speaker 1: But I know one of the other questions, what's going 643 00:33:06,680 --> 00:33:08,880 Speaker 1: to happen with the debt ceiling? We're gonna start talking 644 00:33:08,920 --> 00:33:10,520 Speaker 1: about it every day and I'm already sick of it. 645 00:33:10,560 --> 00:33:12,200 Speaker 1: I can't wait. But what do you what do you 646 00:33:12,440 --> 00:33:14,840 Speaker 1: think about it? How does it impact Well, remember in 647 00:33:15,920 --> 00:33:17,680 Speaker 1: UM it was a big deal. I can't believe that 648 00:33:17,760 --> 00:33:20,440 Speaker 1: was twelve years ago. UM, and you know the mark 649 00:33:20,520 --> 00:33:24,280 Speaker 1: public markets, we had a real strong reaction. We lost 650 00:33:24,320 --> 00:33:26,840 Speaker 1: it a letter, we lost an A from the triple 651 00:33:26,920 --> 00:33:30,560 Speaker 1: A to a double A UM. And I think it 652 00:33:30,560 --> 00:33:34,360 Speaker 1: feels like government has become more fraught than it was then, 653 00:33:34,480 --> 00:33:36,360 Speaker 1: and so it's gonna be a Can you believe government 654 00:33:36,400 --> 00:33:40,080 Speaker 1: is more dysfunctional now than it was then. So here 655 00:33:40,120 --> 00:33:42,080 Speaker 1: we are and we're gonna be all hopeful that a 656 00:33:42,160 --> 00:33:44,440 Speaker 1: resolution is in place. I know we have till I 657 00:33:44,440 --> 00:33:46,720 Speaker 1: guess June to figure it out. So I can't wait 658 00:33:46,760 --> 00:33:49,800 Speaker 1: to listen and hear on Bloomberg Radio. All right, if 659 00:33:49,800 --> 00:33:52,120 Speaker 1: I was coming out of the Chase credit program today 660 00:33:52,600 --> 00:33:54,520 Speaker 1: like I did back in the day, I'd go work 661 00:33:54,560 --> 00:33:56,560 Speaker 1: for these guys. I think Private Church is a place 662 00:33:56,600 --> 00:34:00,880 Speaker 1: to go. Absolutely some of your resume and green sending 663 00:34:00,920 --> 00:34:04,560 Speaker 1: my resume from one. I think I'm not even fifties, 664 00:34:04,560 --> 00:34:08,880 Speaker 1: so I'll come over. Experience matters, Thank you, all right. 665 00:34:08,920 --> 00:34:11,480 Speaker 1: Randy Scharmmer, he's cohed of Senior Lending. He's a senior 666 00:34:11,480 --> 00:34:14,120 Speaker 1: managing director Churchill Asset Management. We love talking to Randy 667 00:34:14,160 --> 00:34:16,560 Speaker 1: a because he's nearby and he can come to the studio. 668 00:34:16,600 --> 00:34:19,520 Speaker 1: That's a plus. But we like just talking about private credit. 669 00:34:19,600 --> 00:34:21,960 Speaker 1: It's a growing asset class and it's just where a 670 00:34:21,960 --> 00:34:25,000 Speaker 1: lot of funds are going. Um it's where you know, 671 00:34:25,040 --> 00:34:27,480 Speaker 1: you get some of these deals in the small midsize 672 00:34:27,480 --> 00:34:29,960 Speaker 1: space on the M and A side, and it's a 673 00:34:30,000 --> 00:34:32,560 Speaker 1: great capital structure these guys can put on you. We 674 00:34:32,560 --> 00:34:34,600 Speaker 1: gotta get the lead left on the Bloomberg terminals where 675 00:34:34,600 --> 00:34:35,719 Speaker 1: we have to Oh, that would be a good idea. 676 00:34:35,800 --> 00:34:37,239 Speaker 1: Right now, you can go to lead Left dot com. 677 00:34:37,320 --> 00:34:40,279 Speaker 1: But maybe we can include it in your Bloomberg subscription. Yeah, 678 00:34:40,280 --> 00:34:41,720 Speaker 1: we'll take a look at that, all right. Randy Schremmer, 679 00:34:41,719 --> 00:34:44,240 Speaker 1: thanks so much for joining us. Love talking about that stuff. 680 00:34:46,880 --> 00:34:49,399 Speaker 1: Let's talk our c suite conversation of the day. Let's 681 00:34:49,400 --> 00:34:53,959 Speaker 1: talk online grocery shopping. We can do that with che Hwang, 682 00:34:54,200 --> 00:34:56,560 Speaker 1: CEO and co founder of a box that is a 683 00:34:56,560 --> 00:34:59,719 Speaker 1: New York Stock Exchange listed company the tickers b O 684 00:35:00,320 --> 00:35:03,840 Speaker 1: x D. Put that into your Bloomberg Professional terminal and 685 00:35:03,920 --> 00:35:06,359 Speaker 1: take a look at that. So Shae, thanks so much 686 00:35:06,360 --> 00:35:08,960 Speaker 1: for joining us here. Inflation is kind of the topic 687 00:35:09,000 --> 00:35:12,680 Speaker 1: of the day for all consumers. Um, and boy, I'll 688 00:35:12,719 --> 00:35:14,560 Speaker 1: tell you the place I feel it the most. I 689 00:35:14,600 --> 00:35:17,279 Speaker 1: think is in the supermarket, is in the grocery store. 690 00:35:17,640 --> 00:35:21,239 Speaker 1: Talk to us about how it's impacting your business. I 691 00:35:21,280 --> 00:35:22,880 Speaker 1: wish I could say I was immune from it, but 692 00:35:22,920 --> 00:35:25,680 Speaker 1: as a consumer, I feel it as well. And it's 693 00:35:25,719 --> 00:35:27,400 Speaker 1: not just the topic of the day, but probably the 694 00:35:27,440 --> 00:35:30,160 Speaker 1: topic of the year as well. Um. You know, it's 695 00:35:30,160 --> 00:35:33,160 Speaker 1: been rampant throughout the industry first we had supply chain. 696 00:35:33,960 --> 00:35:37,480 Speaker 1: Now we just have general inflation, uh kind of problems. 697 00:35:37,880 --> 00:35:41,360 Speaker 1: But overall, it's not an easy time being a consumer 698 00:35:41,760 --> 00:35:45,759 Speaker 1: in those grocery aisles, in store or online. So what 699 00:35:46,280 --> 00:35:49,680 Speaker 1: um kind of experiences boxed offering consumers? And is it 700 00:35:49,760 --> 00:35:52,000 Speaker 1: just consumers? I feel like you have a B to 701 00:35:52,120 --> 00:35:57,120 Speaker 1: B component as well. Yeah, absolutely so. Traditionally, um pre 702 00:35:57,200 --> 00:36:02,640 Speaker 1: covid O, our business was seventy beata see B two B. 703 00:36:02,840 --> 00:36:06,600 Speaker 1: So anyone who wants wholesale consumables delivered to their doorstep, 704 00:36:06,719 --> 00:36:09,399 Speaker 1: whether they live out in rural areas or they they're 705 00:36:09,400 --> 00:36:12,239 Speaker 1: in a city office, we can service them anywhere in 706 00:36:12,239 --> 00:36:15,480 Speaker 1: the lower forty eight states. But why, what's what's the 707 00:36:15,680 --> 00:36:18,799 Speaker 1: unique selling point here? I mean, do I pick a 708 00:36:18,920 --> 00:36:21,239 Speaker 1: box of stuff? Do I put all the stuff I 709 00:36:21,280 --> 00:36:24,680 Speaker 1: want in my box? Um? Do you deliver it quickly? 710 00:36:24,719 --> 00:36:28,680 Speaker 1: What's what separates you from other online grocers? Yeah? I 711 00:36:28,680 --> 00:36:31,160 Speaker 1: think the answer is yes to everything you just said. 712 00:36:31,239 --> 00:36:34,320 Speaker 1: So we've built a business on allowing folks to build 713 00:36:34,320 --> 00:36:36,919 Speaker 1: a basket of these goods. So the typical consumer buys 714 00:36:36,960 --> 00:36:39,320 Speaker 1: eight items and so we ship it to you generally 715 00:36:39,320 --> 00:36:42,000 Speaker 1: in two days or less. Many folks get it overnight 716 00:36:42,480 --> 00:36:44,200 Speaker 1: direct your doorsteps, so you don't have to lug all 717 00:36:44,239 --> 00:36:47,080 Speaker 1: this stuff all around and without a membership fee. You know. 718 00:36:47,120 --> 00:36:49,960 Speaker 1: On top of that, because folks generally buy so many 719 00:36:50,000 --> 00:36:53,360 Speaker 1: items at once, we can admortise that shipping price for 720 00:36:53,400 --> 00:36:56,440 Speaker 1: individual items over that giant box that you get. So 721 00:36:56,480 --> 00:36:59,360 Speaker 1: we actually offer pretty compelling prices compared to other online 722 00:36:59,400 --> 00:37:01,880 Speaker 1: folks when you compare the unit price. And if you 723 00:37:01,920 --> 00:37:05,200 Speaker 1: think about us not charging a membership so you talked 724 00:37:05,200 --> 00:37:07,640 Speaker 1: to us about the membership fee aspect, what's the strategy there, 725 00:37:07,640 --> 00:37:11,440 Speaker 1: How does it compare against others membership fee? Right? Right? Right? 726 00:37:11,480 --> 00:37:12,600 Speaker 1: So I just want to get a sense of kind 727 00:37:12,600 --> 00:37:16,080 Speaker 1: of what's the strategy behind that and how that, you know, 728 00:37:16,280 --> 00:37:19,680 Speaker 1: comparis to your competitors. Yeah, so a lot of competitors 729 00:37:19,680 --> 00:37:22,439 Speaker 1: out there do charge a membership fee, uh, in order 730 00:37:22,480 --> 00:37:24,880 Speaker 1: to shop, but we just decided not to do that. 731 00:37:24,920 --> 00:37:27,279 Speaker 1: I think when you look at other ways that we've 732 00:37:27,320 --> 00:37:29,640 Speaker 1: been able to lower prices, whether it's getting folks to 733 00:37:29,640 --> 00:37:31,840 Speaker 1: buy a lot in a single card as I just mentioned, 734 00:37:32,560 --> 00:37:36,319 Speaker 1: or partnering with manufacturers in order to get some advertising 735 00:37:36,360 --> 00:37:39,400 Speaker 1: on our site to subsidize those prices. Uh. You know, 736 00:37:39,440 --> 00:37:41,239 Speaker 1: we've been doing a pretty good job. I think, and 737 00:37:41,560 --> 00:37:44,160 Speaker 1: consumers time and time and again come to Box, whether 738 00:37:44,160 --> 00:37:46,799 Speaker 1: you're a business or consumer, not only for kind of 739 00:37:46,800 --> 00:37:50,040 Speaker 1: the fast shipping, the ease of use, but also pretty 740 00:37:50,080 --> 00:37:54,560 Speaker 1: sharp pricing as as well. So I've was living in 741 00:37:54,600 --> 00:37:57,759 Speaker 1: Berlin for the past few years, and over there, Uh, 742 00:37:57,840 --> 00:38:00,319 Speaker 1: you order online groceries, they get to you in like 743 00:38:00,480 --> 00:38:05,400 Speaker 1: ten to twelve minutes. Um. Guerrillas was one of the brands. 744 00:38:05,400 --> 00:38:08,600 Speaker 1: Flicker Flinker was another one. Is how come that isn't 745 00:38:08,600 --> 00:38:12,160 Speaker 1: picking up here in the US? UM? I think it 746 00:38:12,280 --> 00:38:15,720 Speaker 1: had quite a brief kind of flash in the pan moment. 747 00:38:16,200 --> 00:38:18,600 Speaker 1: I would say probably a year ago. Um, at least 748 00:38:18,600 --> 00:38:20,480 Speaker 1: here in New York where I'm standing right now. You know, 749 00:38:20,520 --> 00:38:23,600 Speaker 1: there were ads everywhere. UM. I think you know, for 750 00:38:23,680 --> 00:38:26,520 Speaker 1: what it's worth. UM, it does have its place sometimes 751 00:38:26,560 --> 00:38:30,200 Speaker 1: you just need something in the next ten minutes. But 752 00:38:30,320 --> 00:38:33,120 Speaker 1: for the most part, I think your general bigger shops 753 00:38:33,320 --> 00:38:35,840 Speaker 1: are probably taking place once a week, uh, and for 754 00:38:35,880 --> 00:38:38,680 Speaker 1: the wholesale stuff maybe once every other week. UM. So 755 00:38:38,719 --> 00:38:42,200 Speaker 1: I think the future really will be dominated by whoever 756 00:38:42,400 --> 00:38:44,640 Speaker 1: solves that end to end kind of experience. I I 757 00:38:44,719 --> 00:38:48,120 Speaker 1: need wholesale in a week, but I need Uh, something 758 00:38:48,239 --> 00:38:51,440 Speaker 1: an ingredient for my my recipe in thirty minutes, but 759 00:38:51,480 --> 00:38:54,640 Speaker 1: I need my weekly shop in two hours right now. 760 00:38:54,680 --> 00:38:57,600 Speaker 1: As simple as that sounds, no one has that end 761 00:38:57,600 --> 00:38:59,840 Speaker 1: to end, seamless experience, and I think that's what everyone 762 00:38:59,840 --> 00:39:03,640 Speaker 1: in grocery is trying to chase. So how has your 763 00:39:03,640 --> 00:39:08,799 Speaker 1: business evolved during the pandemic over the last several years. Oh, 764 00:39:09,000 --> 00:39:11,560 Speaker 1: it's it's involved quite a bit. So I know, we 765 00:39:11,680 --> 00:39:13,440 Speaker 1: just talked about B two B. So B two B. 766 00:39:13,680 --> 00:39:17,839 Speaker 1: I mean we saw major headwinds. Uh during the depth 767 00:39:17,880 --> 00:39:20,000 Speaker 1: of COVID. You can imagine we serve at small do 768 00:39:20,080 --> 00:39:24,080 Speaker 1: medium sized offices, transportation companies. Um, those folks just weren't 769 00:39:24,160 --> 00:39:28,839 Speaker 1: ordering UM. But we're seeing that rocket back. So UM 770 00:39:29,080 --> 00:39:32,160 Speaker 1: B two B. If we're gonna talk numbers, hard numbers. 771 00:39:32,480 --> 00:39:34,279 Speaker 1: Through Q three of last year, it was up a 772 00:39:34,320 --> 00:39:37,719 Speaker 1: blended over fift So folks are really coming back and 773 00:39:37,800 --> 00:39:41,880 Speaker 1: ordering more UM. And also all this technology that underpins 774 00:39:41,880 --> 00:39:44,200 Speaker 1: our whole business. We wrote it ourselves, whether it's the 775 00:39:44,239 --> 00:39:48,799 Speaker 1: middle where the automation hardware. We then extracted it and 776 00:39:48,880 --> 00:39:52,080 Speaker 1: now we began to license that technology to folks all 777 00:39:52,080 --> 00:39:54,400 Speaker 1: around the world. So we've evolved quite a bit throughout 778 00:39:54,400 --> 00:39:57,960 Speaker 1: that time as well. So UM one of the very 779 00:39:58,000 --> 00:40:05,160 Speaker 1: successful pieces of UM grocery business are private labels, right, 780 00:40:05,360 --> 00:40:11,840 Speaker 1: UM shop Rate has bowl and basket Costco has Kirkland. UM. 781 00:40:11,880 --> 00:40:14,480 Speaker 1: What do you what are you doing in in that uh? 782 00:40:15,280 --> 00:40:18,640 Speaker 1: In that regard at box. Yeah, you know, I love 783 00:40:18,719 --> 00:40:20,719 Speaker 1: the question because you guys have covered it so much 784 00:40:20,719 --> 00:40:23,600 Speaker 1: in terms of just the inflationary environment, how it affects 785 00:40:23,600 --> 00:40:26,799 Speaker 1: the consumer, how how it affects businesses. You know, one 786 00:40:26,840 --> 00:40:30,280 Speaker 1: of the things that I think UM hasn't been said 787 00:40:30,840 --> 00:40:32,560 Speaker 1: by by some of the previous guests that you guys 788 00:40:32,560 --> 00:40:35,520 Speaker 1: have been on is actually how people behave in previous 789 00:40:35,640 --> 00:40:39,520 Speaker 1: kind of recessionary or inflationary environments. And that's folks trading 790 00:40:39,560 --> 00:40:42,440 Speaker 1: up or trading down. So they generally trade down to 791 00:40:42,560 --> 00:40:46,160 Speaker 1: dollar stores, hard discounters if they're looking for just a 792 00:40:46,200 --> 00:40:49,839 Speaker 1: better deal on a whole dollar basket UM, or they 793 00:40:49,840 --> 00:40:52,480 Speaker 1: trade up. So I'm sure you know, folks at Bloomberg 794 00:40:52,560 --> 00:40:54,440 Speaker 1: Radio consume a lot of salts or water just like 795 00:40:54,480 --> 00:40:57,000 Speaker 1: I do. And if that's the case, then you know, 796 00:40:57,000 --> 00:40:59,200 Speaker 1: if you have the wherewithal, you're gonna buy that giant 797 00:41:00,000 --> 00:41:03,200 Speaker 1: hack instead of buying a single can every single day. Now, 798 00:41:03,239 --> 00:41:06,000 Speaker 1: once you go in the store, Um, you're also going 799 00:41:06,040 --> 00:41:09,160 Speaker 1: to trade up sometimes or trade down, you know, uh, 800 00:41:09,320 --> 00:41:12,200 Speaker 1: depending on the price point for certain items. And a 801 00:41:12,239 --> 00:41:13,960 Speaker 1: way you can trade down in terms of price but 802 00:41:14,000 --> 00:41:17,560 Speaker 1: not quality is private brand and private brand everyone out there, 803 00:41:17,560 --> 00:41:20,280 Speaker 1: if you haven't tried, not only us, but our others 804 00:41:20,320 --> 00:41:23,399 Speaker 1: out there. This is not the generic brands of like 805 00:41:23,440 --> 00:41:27,400 Speaker 1: ten years ago. There has been billions of dollars invested 806 00:41:27,440 --> 00:41:30,320 Speaker 1: into the manufacturing of these products, and their quality is 807 00:41:30,360 --> 00:41:32,840 Speaker 1: actually quite good these days. So I'm looking at the 808 00:41:33,120 --> 00:41:35,480 Speaker 1: f A function on the Bloomberg terminal, give me some um, 809 00:41:35,560 --> 00:41:37,239 Speaker 1: and it shows me some of the forecasts out there 810 00:41:37,239 --> 00:41:41,280 Speaker 1: from Wall Street here doesn't show you, guys turning EPs 811 00:41:41,320 --> 00:41:44,440 Speaker 1: positive anytime soon. What's what's kind of your financial outlook? 812 00:41:44,440 --> 00:41:46,160 Speaker 1: Has it released the profitability because that seems to be 813 00:41:46,640 --> 00:41:49,960 Speaker 1: what the market really wants these days. Yeah, yeah, Um. 814 00:41:50,239 --> 00:41:53,239 Speaker 1: So we've been trying our best and and pulling in 815 00:41:53,280 --> 00:41:56,440 Speaker 1: that profitability number. So in Q two, in our earnings 816 00:41:56,440 --> 00:42:00,879 Speaker 1: call last year, we told folks, hey, we get it. Um, 817 00:42:00,920 --> 00:42:03,480 Speaker 1: I think we could do a better job on fully 818 00:42:03,520 --> 00:42:07,600 Speaker 1: and profitability. We executed and as of our last earnings call. Um, 819 00:42:07,680 --> 00:42:10,160 Speaker 1: just in one short quarter, we announced an eight eight 820 00:42:10,200 --> 00:42:14,239 Speaker 1: percent rise uh in um uh in gross profit over 821 00:42:14,280 --> 00:42:17,200 Speaker 1: a five basis point rise and gross margin on our 822 00:42:17,200 --> 00:42:20,200 Speaker 1: retail business, and of course we have the software business, 823 00:42:20,200 --> 00:42:23,799 Speaker 1: which is traditionally gross margin. And as we begin to 824 00:42:23,840 --> 00:42:26,239 Speaker 1: recognize some of that revenue, I think you're just see 825 00:42:26,280 --> 00:42:28,239 Speaker 1: that flow through the p n L. So it's just 826 00:42:28,320 --> 00:42:30,799 Speaker 1: like every other technology company out there, we're really trying 827 00:42:30,840 --> 00:42:33,560 Speaker 1: to rein in profitability and costs. All right, A good stuff. 828 00:42:33,560 --> 00:42:36,640 Speaker 1: Appreciate that. Cha Huang, CEO and co founder of A 829 00:42:36,680 --> 00:42:40,239 Speaker 1: Box that's online retailer uh the New York Stock Change 830 00:42:40,239 --> 00:42:43,799 Speaker 1: symbols b o x D. At a banner day last 831 00:42:43,800 --> 00:42:47,280 Speaker 1: week they got funding I think uh ten or twenty 832 00:42:47,280 --> 00:42:50,279 Speaker 1: million dollars in funding and the shares went up. Um. 833 00:42:52,760 --> 00:42:55,720 Speaker 1: That was Monday. That was Monday. All right, good stuff. 834 00:42:55,760 --> 00:42:57,399 Speaker 1: Not a bad day. Not a bad day. If you're 835 00:42:57,400 --> 00:43:04,239 Speaker 1: a shareholder there. Thanks for listening to the Bloomberg Markets podcast. 836 00:43:04,640 --> 00:43:07,840 Speaker 1: You can subscribe and listen to interviews of Apple podcasts 837 00:43:07,960 --> 00:43:11,879 Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm 838 00:43:11,920 --> 00:43:15,960 Speaker 1: on Twitter at Matt Miller three pt on Fall Sweeney 839 00:43:15,960 --> 00:43:18,600 Speaker 1: I'm on Twitter at pt Sweeney before the podcast. You 840 00:43:18,640 --> 00:43:21,040 Speaker 1: can always catch us worldwide at Bloomberg Radio