WEBVTT - Housing Concerns Around the World 0:00:01.360 --> 0:00:05.680 This is Bloomberg Business Wait inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business finance and tech news. The Bloomberg Business Week 0:00:13.720 --> 0:00:18.760 Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio. 0:00:19.880 --> 0:00:21.599 All right, everybody, we just talked a little bit about 0:00:21.880 --> 0:00:24.320 the housing data. Certainly that we got here in the US, 0:00:24.440 --> 0:00:27.120 US housing starts unexpectedly surging in May by the most 0:00:27.120 --> 0:00:32.080 sins twenty sixteen. Applications to build increased, suggesting residential construction 0:00:32.159 --> 0:00:34.400 is on track to help fuel economic growth. In the UK, 0:00:34.520 --> 0:00:38.320 mat we've seen house prices fall about thirteen percent in 0:00:38.360 --> 0:00:41.440 real terms from March twenty twenty. Second that peak then, 0:00:41.560 --> 0:00:45.360 that's according to Bloomberg Economics our European economist nourrage Shaw. 0:00:45.440 --> 0:00:47.960 And then you certainly highlighted something about what's going on 0:00:48.000 --> 0:00:49.680 in Sweden specifically. 0:00:49.320 --> 0:00:52.800 Yeah, you're seeing real crisis there with real estate funds 0:00:52.800 --> 0:00:57.800 that are starting to fail, and we've had a couple 0:00:57.800 --> 0:01:01.800 of big failures there and in Chy also a real 0:01:01.960 --> 0:01:06.440 loss of confidence in owning property as a reliable or 0:01:06.520 --> 0:01:09.760 a safe asset. So globally, I think there's a real 0:01:09.880 --> 0:01:14.440 estate concern that made me wonder whether these housing starts 0:01:14.480 --> 0:01:17.240 aren't a little bit too speculative and it could mean 0:01:17.240 --> 0:01:19.120 maybe bad news down the road. But if you look 0:01:19.120 --> 0:01:23.200 at the share prices of you know, home builders, the homebuilders, 0:01:23.200 --> 0:01:26.000 they're doing incredibly well. So I guess investors aren't worried, all. 0:01:25.920 --> 0:01:27.479 Right, So let's get to it. Let's see what our 0:01:27.480 --> 0:01:29.760 team has to say. Bloomberg News Economics. That are Mollie 0:01:29.800 --> 0:01:32.560 Smith in our Interactive Brokers studio along with Bloomberg News 0:01:32.560 --> 0:01:35.360 reporter Simon and Foxman. So Molly kick it off for us. 0:01:35.440 --> 0:01:38.840 Talk about this housing data we got today. It seems 0:01:38.880 --> 0:01:41.080 really bullish. What does it really tell us? 0:01:41.400 --> 0:01:43.280 Yeah, and I think, you know, I can understand like 0:01:43.319 --> 0:01:45.319 a bit of like the hesitation on Matt's part there. 0:01:45.360 --> 0:01:47.360 But the thing is is, like when we're looking at 0:01:47.400 --> 0:01:51.040 housing sales data right now across the countries, that all 0:01:51.080 --> 0:01:53.160 the action has been with new home sales. So you 0:01:53.200 --> 0:01:55.480 can see that like builders are following that demand and 0:01:55.520 --> 0:01:59.720 breaking more ground on new construction because people who already 0:01:59.720 --> 0:02:02.280 are in their homes are so hesitant to lists. They've 0:02:02.280 --> 0:02:04.760 probably locked in low mortgage rates from a couple of 0:02:04.840 --> 0:02:07.160 years ago, and they have no interest in trying to 0:02:07.280 --> 0:02:09.440 back out of that right now. The lock in effects 0:02:09.440 --> 0:02:11.240 that we'd call it in the real estate world, So 0:02:11.680 --> 0:02:14.519 it makes a lot of sense from that perspective. Obviously, 0:02:14.840 --> 0:02:17.280 would want to see it more than on just one 0:02:17.360 --> 0:02:19.480 reading to see if this is a trend that would hold. 0:02:19.520 --> 0:02:21.480 But if it did, that'd be really positive for. 0:02:21.840 --> 0:02:25.400 Do we know how much of these starts are speculative? 0:02:25.400 --> 0:02:27.160 Do people still build on spec or is that a 0:02:27.200 --> 0:02:28.880 thing of two thousand and six. 0:02:30.040 --> 0:02:31.960 I can't tell that from this report at least, so 0:02:32.800 --> 0:02:34.880 I'm gonna stick quite on that one. 0:02:35.280 --> 0:02:37.600 No, it is interesting, right because we did talk about 0:02:37.639 --> 0:02:40.200 what Jay Powell had to say. Simone, come on in 0:02:40.240 --> 0:02:42.079 on it, because, first of all, on the US side 0:02:42.080 --> 0:02:44.160 of things, you cut up with I think the CEO 0:02:44.200 --> 0:02:45.360 of Lenar, is that correct. 0:02:45.280 --> 0:02:47.560 The chairman, Yeah, the executive chairman there, and he was 0:02:47.560 --> 0:02:51.040 talking about, you know, there is no desire by existing 0:02:51.560 --> 0:02:56.000 homeowners to leave the three four percent mortgage rates they have, 0:02:56.480 --> 0:02:58.520 But there are all these people that lived at home 0:02:58.560 --> 0:03:00.640 with their parents for a very long long time that 0:03:00.760 --> 0:03:04.000 are now finally getting around to having families. They want 0:03:04.000 --> 0:03:06.680 to move out, and there is simply no new stock 0:03:06.720 --> 0:03:08.680 and that is why you are seeing, particularly on the 0:03:08.680 --> 0:03:11.720 more affordable ends right of this piece, these new homes. 0:03:12.480 --> 0:03:15.000 There is a long term sort of generational shift here 0:03:15.000 --> 0:03:17.040 that we're likely to see in the next couple of years. 0:03:17.480 --> 0:03:19.920 Maybe we don't feel it for the next year or 0:03:19.919 --> 0:03:22.839 so as interest rates remain high, but you know when 0:03:22.880 --> 0:03:24.440 we move out of this, you know, there's a real 0:03:24.480 --> 0:03:26.079 affordability problem in US housing. 0:03:26.120 --> 0:03:29.960 And that's that son building starters, because every time I 0:03:30.000 --> 0:03:33.120 talk to somebody from a home building company, they're putting 0:03:33.240 --> 0:03:36.400 up McMansions, you know, because they say, yeah, we could 0:03:36.440 --> 0:03:38.640 do starters, but there's not as much of a profit 0:03:38.680 --> 0:03:42.000 margin in that as the bigger price tag homes. 0:03:42.600 --> 0:03:45.720 Yeah, I mean, look, it's a little bit on all sides. Right, 0:03:45.760 --> 0:03:48.080 you have this Barbelle effect of the people who want 0:03:48.120 --> 0:03:53.640 really expensive homes and the both millennials who are just 0:03:53.920 --> 0:03:57.920 starting out their first homes, as well as retirement aged people, 0:03:58.000 --> 0:04:00.920 the boomers who are now retiring who want the smaller stuff. 0:04:01.840 --> 0:04:04.080 And a lot of this is a zoning issue. It's 0:04:04.120 --> 0:04:06.920 not as much of a profit margin issue. They're just 0:04:06.960 --> 0:04:10.600 simply not allowed to build houses in so many places. 0:04:10.640 --> 0:04:12.160 And so you know, you hear Lenar. You hear a 0:04:12.200 --> 0:04:16.919 lot of the other home builders really appealing to cities 0:04:17.000 --> 0:04:17.600 and saying. 0:04:17.560 --> 0:04:19.360 This commodity land right right. 0:04:19.440 --> 0:04:22.200 Yes, these are small, these are maybe not these are 0:04:22.240 --> 0:04:25.720 affordable homes, yes, but these are strong buyers that are 0:04:25.720 --> 0:04:27.000 going to spend money in your town. 0:04:27.080 --> 0:04:29.000 So Molly come back in on, you know, in terms 0:04:29.000 --> 0:04:31.120 of housing data and how it applies to the to 0:04:31.240 --> 0:04:34.200 economic growth and how something like a housing starts number, 0:04:34.240 --> 0:04:36.359 we can think about it more broadly in terms of 0:04:36.400 --> 0:04:37.320 growth momentum. 0:04:37.360 --> 0:04:39.160 Sure, So this would be the part of GDP that 0:04:39.200 --> 0:04:42.479 we call residential investment. So when you look at some 0:04:42.520 --> 0:04:46.240 of the biggest drivers of GDP, obviously consumer spending is 0:04:46.279 --> 0:04:49.600 the biggest one by far, but residential investment not too 0:04:49.680 --> 0:04:52.599 far behind. And that's what's been a real drag on 0:04:52.640 --> 0:04:55.440 growth for the past two years, as we've seen home 0:04:55.480 --> 0:04:58.839 prices skyrocket and mortgage rates go up and just not 0:04:58.920 --> 0:05:01.600 a whole lot of moment menum in the housing market. 0:05:01.600 --> 0:05:05.360 But this would be if sustained right now. Obviously we're 0:05:05.360 --> 0:05:08.080 looking at for now the second quarter of growth, so 0:05:08.160 --> 0:05:10.159 this would be for the May data. We'd still have 0:05:10.240 --> 0:05:13.159 to incorporate April and June into that as well, but 0:05:13.240 --> 0:05:16.919 that would be if sustained the first positive contribution to 0:05:17.080 --> 0:05:20.279 from residential investment to GDP in two years. 0:05:20.440 --> 0:05:23.680 Why now, why do we see all these starts all 0:05:23.720 --> 0:05:26.839 of a sudden. I mean someone described it to me 0:05:26.880 --> 0:05:29.279 as an eleven sigma move, which I don't really know 0:05:29.320 --> 0:05:31.880 what that means, but I'm guessing it's like in terms 0:05:31.920 --> 0:05:34.839 of standard deviations, it's like amazing. I'm sure Tom Keane 0:05:34.880 --> 0:05:38.839 understands that. But it was higher than the new housing 0:05:38.839 --> 0:05:41.320 starts were higher than the highest estimate in our survey. 0:05:41.600 --> 0:05:43.359 So why all of a sudden this month? 0:05:43.880 --> 0:05:46.120 I think it takes time for some of these other 0:05:46.600 --> 0:05:49.080 data points to filter through. You know, home builder sentiment 0:05:49.160 --> 0:05:52.440 has slowly but surely been coming up, and it takes 0:05:52.480 --> 0:05:54.719 time to also break ground on projects, you know, to 0:05:54.720 --> 0:05:58.000 simone's point about the zoning concerns, and to find like 0:05:58.240 --> 0:06:00.240 where all of this land is going to come from. 0:06:00.279 --> 0:06:02.159 This doesn't just happen overnight. 0:06:02.320 --> 0:06:04.159 O Builders don't want to buy too if there's not 0:06:04.160 --> 0:06:06.120 going to be people to buy, they don't do that anymore. 0:06:06.120 --> 0:06:07.400 I think there was a lot of a too of 0:06:07.440 --> 0:06:09.279 waiting to see what was going to go on with 0:06:09.320 --> 0:06:11.400 mortgage rates and are they really going to stay this 0:06:11.560 --> 0:06:13.520 high all year? And are are we going to maybe 0:06:13.560 --> 0:06:16.239 start to see them come down as inflation is easing. 0:06:16.320 --> 0:06:18.080 And now that it's like all right, we're buckled in, 0:06:18.120 --> 0:06:21.359 we're maybe going to get to another two increases. People 0:06:21.440 --> 0:06:24.080 have kind of settled and realized that this rate is 0:06:24.120 --> 0:06:27.440 the new normal for now and or this might be better 0:06:27.400 --> 0:06:29.880 than this exactly. 0:06:30.200 --> 0:06:32.720 Yeah, new normal is certainly I think the phrase of 0:06:32.760 --> 0:06:34.440 the day. But if you want me to broaden this 0:06:34.480 --> 0:06:37.239 out a little bit to particularly Europe, which is feeling 0:06:37.320 --> 0:06:41.440 some of these same pains of interest rate increases, it's 0:06:41.600 --> 0:06:45.279 not every city that is seeing housing prices drop. You 0:06:45.279 --> 0:06:49.080 look at London, for example, home prices are actually up 0:06:49.240 --> 0:06:52.119 one point one percent year on year. There's simply, again 0:06:52.240 --> 0:06:55.440 as in the United States, some limited stock of housing. 0:06:55.480 --> 0:06:58.000 You have also the foreign buyer element that comes in 0:06:58.000 --> 0:07:01.240 in London. Madrid is the same way, up five percent 0:07:01.560 --> 0:07:04.080 year on year. At the same time, though, you're looking 0:07:04.080 --> 0:07:08.480 at places like Sweden where we've seen double digit drops 0:07:08.520 --> 0:07:11.600 in the home prices. So I think it's a really 0:07:11.640 --> 0:07:15.120 divergent story, you know, from city to city in Europe. 0:07:15.240 --> 0:07:18.040 Even though we're hearing all these you know, headlines about 0:07:18.080 --> 0:07:21.120 property woes. That's not consistent and state to the state 0:07:21.200 --> 0:07:22.000 in the US too. 0:07:22.040 --> 0:07:24.480 You know, you can't really speak about the US housing 0:07:24.520 --> 0:07:26.280 market as a whole country. You know, we look at 0:07:26.320 --> 0:07:29.720 San Francisco and that some location location location. Well you 0:07:29.760 --> 0:07:32.240 look at San Francisco and that's a much different picture 0:07:32.280 --> 0:07:36.320 from say Austin or Miami right now. So also tough 0:07:36.360 --> 0:07:38.280 to you know, paint it with a broadbrush. 0:07:38.320 --> 0:07:42.280 It's really interesting. I just wonder, you know, how sustainable 0:07:43.360 --> 0:07:46.440 the housing market here is, especially at these prices, with 0:07:46.520 --> 0:07:49.400 these rates. I know, Jay Powell said we hit a bottom, 0:07:49.600 --> 0:07:51.680 and if the Fed Chare says you hit a bottom, 0:07:51.680 --> 0:07:54.000 you might as well go ahead and buy. But it 0:07:54.160 --> 0:07:56.920 just seems like we could come sliding down. If those 0:07:56.960 --> 0:07:59.200 people are locked into their homes have to sell, they're 0:07:59.200 --> 0:08:02.240 going to have to expect accept much lower prices than 0:08:02.280 --> 0:08:03.160 they probably want. 0:08:03.320 --> 0:08:05.640 Sure, And yeah, and prices I mean have been coming 0:08:05.680 --> 0:08:07.960 down here at least, like you know, from the peak 0:08:08.000 --> 0:08:10.760 which was last year. So in that sense, like, yeah, 0:08:10.800 --> 0:08:13.160 that probably will happen. We'll get some more data on 0:08:13.200 --> 0:08:15.680 that this week, on the existing home sales data for 0:08:15.840 --> 0:08:18.720 May next week, so we'll get a new home sales data, 0:08:18.720 --> 0:08:20.880 and that's really, like I said, where more of the 0:08:20.960 --> 0:08:22.640 positive activity has been coming from. 0:08:23.360 --> 0:08:25.800 I think it feeds into this idea that there has 0:08:25.880 --> 0:08:30.160 to be something else in this economic downturn to really, 0:08:30.840 --> 0:08:34.200 you know, pull the floor out of housing, you either 0:08:34.240 --> 0:08:37.440 have to see a lot higher marchin interest rates or 0:08:37.520 --> 0:08:41.600 you have to see some commercial lending stress. I mean, 0:08:41.640 --> 0:08:44.240 that's kind of the concern we've seen in Sweden. You know, 0:08:44.320 --> 0:08:47.400 we were talking about SBB and these other they call 0:08:47.520 --> 0:08:50.080 fallen angels. A lot of them had a lot of 0:08:50.120 --> 0:08:55.240 exposure to the home market to rent to home rentals 0:08:55.280 --> 0:08:58.560 and that sort of thing and running these commercial real 0:08:58.679 --> 0:09:04.240 residential properties have been very impacted. But the concern there 0:09:04.320 --> 0:09:05.640 is that the banks have a lot of this on 0:09:05.679 --> 0:09:08.160 their books. And so then you know, if you have 0:09:08.240 --> 0:09:12.240 these fallen angels impacting the banking sector, then you see 0:09:12.240 --> 0:09:14.680 sort of another leg down and then you know where 0:09:14.720 --> 0:09:17.319 do we go from here? And you know there are 0:09:17.320 --> 0:09:21.640 green shoots in the Swedish housing market as well, are. 0:09:21.520 --> 0:09:25.080 The green shoots in China? What's your just kind of 0:09:25.520 --> 0:09:26.800 thirty second quip on that. 0:09:27.280 --> 0:09:30.840 I mean, it looks like and Bloomberg Intelligence has a 0:09:30.840 --> 0:09:35.920 great note about this cuts two interest rates aren't having 0:09:36.000 --> 0:09:39.319 the same bounce back factor in China that they used 0:09:39.360 --> 0:09:43.440 to have, and therefore, if home prices only go up 0:09:43.440 --> 0:09:46.080 five percent this year, that doesn't really isn't really helpful 0:09:46.120 --> 0:09:48.160 for all those people who have been betting that home 0:09:48.160 --> 0:09:50.200 prices would surge back. 0:09:50.280 --> 0:09:51.680 Well, it used to be a sure thing, right, like 0:09:51.679 --> 0:09:55.000 this whole idea of kind of creating some property wealth. 0:09:54.760 --> 0:09:57.720 And therefore you get this angsty consumer that doesn't want 0:09:57.720 --> 0:09:59.240 to spend because they've seen the value of they're at 0:09:59.320 --> 0:10:03.480 their you know, their assets, they're home, well, their wallets 0:10:03.760 --> 0:10:05.520 not increasing the way that they expected. 0:10:05.600 --> 0:10:07.400 I mean, I think the Chinese have to come in 0:10:07.400 --> 0:10:09.480 and do something about their property market, right, That's what 0:10:09.520 --> 0:10:12.520 everyone's waiting for, and they're not doing enough. 0:10:13.520 --> 0:10:15.520 So I think the assumption is right that that they 0:10:15.559 --> 0:10:17.680 will because that they always seem to come to the rescue. 0:10:17.840 --> 0:10:20.559 But but the things they used. 0:10:20.440 --> 0:10:22.600 Last night, the things they used last time, they're just 0:10:22.640 --> 0:10:24.280 not working as well. And how much more do you 0:10:24.320 --> 0:10:24.640 want to do? 0:10:24.760 --> 0:10:28.400 Molly thirty seconds FED Chairman J Powell up on Capitol 0:10:28.480 --> 0:10:30.880 Hill in terms of housing, are you watching out for 0:10:30.880 --> 0:10:31.800 anything just quickly? 0:10:32.400 --> 0:10:33.959 I don't know if that's so much the focus in 0:10:34.000 --> 0:10:36.160 the next two days. I think, you know, everyone was 0:10:36.200 --> 0:10:39.440 really still pretty surprised about the projections that we heard 0:10:39.520 --> 0:10:42.640 last week in the June in the new material that 0:10:42.679 --> 0:10:45.240 the FED released, So yeah, I would definitely want to 0:10:45.280 --> 0:10:47.560 hear like again, how do you kind of explain this 0:10:47.640 --> 0:10:50.959 message of why you paused at this meeting but you 0:10:51.000 --> 0:10:53.240 still see two more hikes for the year. I think 0:10:53.240 --> 0:10:55.680 that's still going to be the challenge in conveying that message. 0:10:55.679 --> 0:10:57.800 And did you mean skip? Come on, do you mean 0:10:57.920 --> 0:10:58.120 I mean? 0:10:58.520 --> 0:10:59.920 He said it's not a skip, so we can't call. 0:10:59.840 --> 0:11:02.000 It a We might finally get that answer on the 0:11:02.000 --> 0:11:03.080 Grateful Dead song too. 0:11:03.679 --> 0:11:05.920 I think, yeah, well, maybe I'll see him at the 0:11:05.920 --> 0:11:08.559 shows tomorrow and Thursday at Cityfield. 0:11:08.720 --> 0:11:11.720 Molly Smith, Simone Foxman of Bloomberg thank you guys so much. 0:11:11.760 --> 0:11:13.880 Bloomberg Business Week on Bloomberg Radio. 0:11:14.640 --> 0:11:18.200 You're listening to the Bloomberg Business Week podcast. Catch us 0:11:18.240 --> 0:11:21.600 live weekday afternoons from three to six Eastern Listen on 0:11:21.640 --> 0:11:25.679 Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, 0:11:25.960 --> 0:11:27.640 or watch us live on YouTube. 0:11:28.880 --> 0:11:32.280 Sign Steel Delivered. Yeah that you could say of FedEx 0:11:32.360 --> 0:11:35.520 earnings as we continue to track that one in the aftermarket. 0:11:35.520 --> 0:11:36.760 I just want to pull it up on my Bloomberg 0:11:36.760 --> 0:11:38.079 because we did see it down. 0:11:39.920 --> 0:11:40.880 Four point six percent. 0:11:42.120 --> 0:11:42.640 There was a bug. 0:11:42.679 --> 0:11:43.760 There was a bug on the stream. 0:11:43.800 --> 0:11:45.800 It's down four point six percent, okay, and it's dragging 0:11:45.880 --> 0:11:47.720 UPS down as well, which is down about one and 0:11:47.720 --> 0:11:49.720 a quarter percent. They're not apples to apples, which is 0:11:49.720 --> 0:11:52.160 always important to point out when we talk about these 0:11:52.160 --> 0:11:55.800 two companies. Let's get to it though, with our man 0:11:55.960 --> 0:11:58.640 on the job when it comes to FedEx. 0:11:58.160 --> 0:12:02.400 And also joins us senior transport Logistics and shipping analysts 0:12:02.400 --> 0:12:06.520 at Bloomberg Intelligence and Lee. For those who aren't you 0:12:06.559 --> 0:12:10.280 know deep into this, what are the important differences between 0:12:10.280 --> 0:12:11.559 FedEx and UPS? 0:12:13.240 --> 0:12:17.160 One's purple and one's brown. Thank you very much, talking 0:12:17.200 --> 0:12:17.920 to you, see you later. 0:12:18.160 --> 0:12:18.920 No different. 0:12:19.600 --> 0:12:23.560 You know that there's a lot of differences. Obviously, First 0:12:23.600 --> 0:12:27.120 and foremost is a UPS is as a union UP 0:12:27.840 --> 0:12:32.000 they have their employees are unionized. They're representative by the Teamsters, 0:12:32.040 --> 0:12:36.559 where FedEx has a mix of UH employees and third 0:12:36.600 --> 0:12:40.960 party contractors. A lot of the folks that deliver for 0:12:41.160 --> 0:12:45.320 their ground network are really employed by small businesses that 0:12:45.400 --> 0:12:50.360 are independent contractors. And that's really the biggest difference. In 0:12:50.400 --> 0:12:53.680 Another difference is UPS started as a ground network and 0:12:53.720 --> 0:12:56.600 grew an air fleet, and FedEx started as an air 0:12:56.640 --> 0:12:59.360 fleet and then grew a ground network. So there are 0:12:59.480 --> 0:13:03.120 a little nuances behind that. And then also I would 0:13:03.160 --> 0:13:05.920 say one of the biggest differences is UPS started its 0:13:05.920 --> 0:13:10.120 transformation about three years earlier than fed X, and FedEx 0:13:10.160 --> 0:13:13.920 has been playing catch up to UPS. Carol Tomey, the 0:13:14.160 --> 0:13:17.560 CEO of a UPS, has done a fantastic job of 0:13:17.679 --> 0:13:21.600 really focusing on what's important for UPS, getting rid of 0:13:22.040 --> 0:13:24.880 unprofitable businesses, getting rid of the fat if you will. 0:13:25.200 --> 0:13:28.040 They got rid of their less than truckload business, which 0:13:28.160 --> 0:13:32.480 was marginally profitable and during good years, and so that 0:13:32.600 --> 0:13:35.440 has freed them up not only freed up capital, but 0:13:35.520 --> 0:13:38.719 also freed them to focus on what they do, I 0:13:38.760 --> 0:13:41.679 guess better than the LTL business. 0:13:41.720 --> 0:13:43.520 A woman named Carol, what's not to love? I'm just 0:13:43.520 --> 0:13:45.400 going to say, no, Hey, let's go back to fed 0:13:45.600 --> 0:13:47.079 X in terms of their. 0:13:46.800 --> 0:13:49.679 You were on CFO just now, weren't we we're talking 0:13:49.720 --> 0:13:53.000 about while we're we were talking about you. Yeah, but 0:13:53.040 --> 0:13:55.280 while we're on CFO, let's get back to FedEx and 0:13:55.360 --> 0:13:57.320 ask what the deal is, like Lens, I mean, was 0:13:57.600 --> 0:14:01.280 he planning to retire? As Scarlett points out, he's fairly youthful, 0:14:02.320 --> 0:14:05.320 and we noticed that he's only been the CFO since 0:14:05.400 --> 0:14:07.080 June of twenty twenty, So what's the deal. 0:14:08.040 --> 0:14:10.000 Yeah, I'm not really too sure about that. You know, 0:14:10.040 --> 0:14:11.840 he's been in the role for under three years, like 0:14:11.920 --> 0:14:14.800 you mentioned. You know, I don't really know if it's 0:14:14.880 --> 0:14:18.000 really a shake up of the c suite or if 0:14:18.040 --> 0:14:20.240 it's just you know, he just like said, I don't 0:14:20.240 --> 0:14:22.440 want to go play golf. I really don't know what 0:14:23.240 --> 0:14:26.080 the rationale is there. I think the movement on the 0:14:26.080 --> 0:14:28.800 stock really has nothing to do with the CFO announcement. 0:14:28.840 --> 0:14:32.400 It's really about the guidance. You know. This fourth quarter 0:14:32.520 --> 0:14:35.800 was was fine, nothing, you know, nothing to get excited about, 0:14:35.840 --> 0:14:39.720 nothing to get depressed about either. But you know, I 0:14:39.760 --> 0:14:42.480 think that people were expecting maybe a little better outlook. 0:14:42.720 --> 0:14:44.880 I think you guys mentioned earlier that the low end 0:14:44.880 --> 0:14:49.000 of the range is pretty far from you know, the 0:14:49.600 --> 0:14:53.280 where consensus is, and I think that people were looking 0:14:53.280 --> 0:14:57.040 for maybe slightly better earnings. But what I would say, 0:14:57.200 --> 0:15:02.000 I'm assuming that management there being extremely conservative, Uh, they 0:15:02.200 --> 0:15:05.800 had a track record, shall we say, of not executing. 0:15:06.200 --> 0:15:08.400 Uh So, I think they don't want to disappoint. So 0:15:08.680 --> 0:15:12.080 my guess is that they're they're they're coming in, coming 0:15:12.080 --> 0:15:14.800 in low and hoping to move up from there. But 0:15:15.040 --> 0:15:18.040 you know, they're they're really you know, there's things that 0:15:17.680 --> 0:15:19.800 that are within their control and there's a lot of 0:15:19.840 --> 0:15:21.840 things that are not within their control. Obviously, on the 0:15:21.880 --> 0:15:24.640 demand side, they're doing all the right things when it 0:15:24.640 --> 0:15:28.400 comes to pricing, they're doing they're starting to do all 0:15:28.400 --> 0:15:31.320 the right things in terms of the restructuring of their 0:15:31.360 --> 0:15:34.600 networks into one. You know, they announced that they're combining 0:15:35.240 --> 0:15:38.800 the ground and express in Canada. Obviously, you know that 0:15:38.960 --> 0:15:41.360 is a step in the right direction. This is going 0:15:41.440 --> 0:15:43.120 to be you know, this is going to take time. 0:15:43.200 --> 0:15:45.240 It's it's it's gonna you know, take a lot of 0:15:45.240 --> 0:15:48.680 time for them to make inroads on that, especially to 0:15:48.720 --> 0:15:51.280 do that for their whole global network. But what we 0:15:51.320 --> 0:15:55.480 should see is more freight moving through its ground network 0:15:55.520 --> 0:15:58.080 when it makes sense for the company, and that should 0:15:58.160 --> 0:15:59.960 should should should do well for margin. 0:16:00.160 --> 0:16:03.320 When a company FedEx or other puts out a twenty 0:16:03.360 --> 0:16:07.040 twenty four just at EPs of sixteen dollars fifty cents 0:16:07.040 --> 0:16:09.720 a share to eighteen dollars fifty cents a share. I 0:16:09.720 --> 0:16:12.800 mean that seems like a huge gap. I mean, should 0:16:12.800 --> 0:16:14.840 we see it as a huge gap? And is it 0:16:14.960 --> 0:16:17.120 just that they're so uncertain or how do how do 0:16:17.200 --> 0:16:18.600 you kind of analyze that? 0:16:19.040 --> 0:16:20.840 I don't really think so. I mean it's you know, 0:16:20.880 --> 0:16:23.720 we're talking we listen, we're talking about earnings per share 0:16:23.720 --> 0:16:25.920 in the teams. We're not talking about twenty cents, right, 0:16:26.000 --> 0:16:29.160 So obviously the dollar amount is going to be a 0:16:29.200 --> 0:16:31.320 lot higher. The percentage I don't think really is so 0:16:31.400 --> 0:16:33.240 out of whack with what a lot of other companies 0:16:33.800 --> 0:16:37.800 provide in terms of guidance. You know, I think to 0:16:37.840 --> 0:16:40.320 your point, there's a lot of uncertainty out there. You know, 0:16:40.360 --> 0:16:42.840 there's still a risk of a US recession. There's still 0:16:43.080 --> 0:16:45.040 we don't really know what's going on with China. You know, 0:16:45.080 --> 0:16:47.840 are they going to increase stimulus? Is that going to 0:16:48.120 --> 0:16:51.560 you know, help that economy? You know China. I'm sorry, 0:16:51.600 --> 0:16:54.200 FedEx is pretty big in China, so you know that's 0:16:54.240 --> 0:16:56.440 been kind of a drag on the on their results, 0:16:56.520 --> 0:16:59.960 kind of the slow reopening of China and the related 0:17:00.080 --> 0:17:02.960 Asian markets. So, you know, I think there's just a 0:17:03.000 --> 0:17:05.239 lot of uncertainty for them. You know, they don't know, 0:17:05.359 --> 0:17:08.960 like you know, they're going to try to combine these 0:17:09.000 --> 0:17:13.000 networks in certain regions. It could happen faster, it could 0:17:13.000 --> 0:17:17.080 happen slower. You know, there's a lot of unknowns out there. 0:17:17.560 --> 0:17:19.760 And of course, you know, the US economy there's still 0:17:19.800 --> 0:17:24.440 sixty five percent probability of going to recession, according consensus 0:17:24.520 --> 0:17:27.280 on the Bloomberg terminals, so you know, there's still that 0:17:27.280 --> 0:17:29.040 that they might have to contend with. You know, we've 0:17:29.040 --> 0:17:31.439 been in a freight recession for quite some time, you know, 0:17:31.440 --> 0:17:35.680 whether if you're talking about parcels, trucking, railroads, and that's 0:17:35.720 --> 0:17:39.600 really just a renormalizing from the shocks of the pandemic. 0:17:39.960 --> 0:17:42.919 Supply chains are finally getting back to normal. You know, 0:17:43.040 --> 0:17:45.600 rates are coming down across the board, no matter what 0:17:45.640 --> 0:17:48.880 mode you're talking about. Some have fallen a lot, a lot, 0:17:49.000 --> 0:17:51.960 some have just slowly declined because maybe they're not getting 0:17:51.960 --> 0:17:57.360 search arges or assessasorial fees. But you know, we are 0:17:57.400 --> 0:18:02.119 seeing a more normalizing of and of demand. So I 0:18:02.160 --> 0:18:05.000 think that's something to consider as well is FedEx. 0:18:05.480 --> 0:18:09.080 You think a better bell weather for the US economy 0:18:09.119 --> 0:18:10.919 than UPS or vice versa. 0:18:12.200 --> 0:18:14.199 Now, I think they're both the same. You know, I 0:18:14.200 --> 0:18:17.159 think they you know, I think they all cut pretty 0:18:17.200 --> 0:18:20.840 similar customers. The biggest, one big difference at UPS is 0:18:21.240 --> 0:18:24.880 Amazon is still a sizeable customer of UPS, where FedEx 0:18:25.000 --> 0:18:28.199 is pretty much doesn't really deal with with Amazon, you know, 0:18:28.280 --> 0:18:32.120 maybe on the margin, but it's really you know, UPS 0:18:32.440 --> 0:18:36.240 has been a service provider for Amazon still and one 0:18:36.240 --> 0:18:39.080 would just assume that's lower margin business just because of 0:18:39.119 --> 0:18:42.000 the scale, and UPS has you know, said they're they're 0:18:42.040 --> 0:18:46.360 looking to you know, maybe walk back that that that concentration. 0:18:46.480 --> 0:18:48.800 They still want Amazon to be a customer, but maybe 0:18:48.840 --> 0:18:52.399 not such a large percentage, and you know, we should 0:18:52.440 --> 0:18:55.520 see that probably decline over time. So I think that's 0:18:55.560 --> 0:18:58.960 that's another difference, you know, when we started the segment. 0:18:59.280 --> 0:19:00.640 But the end of the day, you know, I think 0:19:00.640 --> 0:19:03.720 they're both bell Weathers. The only thing that I would 0:19:03.720 --> 0:19:06.480 say is FedEx might be a little bit more all 0:19:06.600 --> 0:19:10.200 inclusive because they still have that less than truckload business 0:19:10.200 --> 0:19:14.240 that I mentioned that UPS divested in, and that business 0:19:14.320 --> 0:19:18.120 is usually associated with manufacturing and industrial. They do other 0:19:18.160 --> 0:19:22.040 things like consumer retail, you know, e commerce as well. 0:19:22.040 --> 0:19:25.320 But the majority of its manufacturing and industrial. 0:19:24.920 --> 0:19:28.719 How come FedEx has been such an outperformer versus UPS 0:19:28.760 --> 0:19:31.600 this year? UPS is up just shy of two percent. 0:19:31.960 --> 0:19:33.479 FedEx is up thirty three percent. 0:19:34.160 --> 0:19:37.040