1 00:00:02,920 --> 00:00:10,840 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. You're listening to the 2 00:00:10,880 --> 00:00:15,040 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:15,080 --> 00:00:18,079 Speaker 1: Eastern on Apple Card playing Android Otto with the Bloomberg 4 00:00:18,120 --> 00:00:21,440 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:24,040 Speaker 1: or watch us live on YouTube. 6 00:00:24,880 --> 00:00:28,960 Speaker 2: Here is just the headline that just basically writes itself, 7 00:00:29,160 --> 00:00:33,200 Speaker 2: Golden Goldman boosts Solomon's paid twenty four percent after firm's 8 00:00:33,200 --> 00:00:38,320 Speaker 2: profits slumps twenty four percent. I meant beautiful pay for 9 00:00:38,440 --> 00:00:40,960 Speaker 2: performance When I saw that headline, I figured it has 10 00:00:41,000 --> 00:00:43,120 Speaker 2: to be the work of Schreieden on o Rogen because 11 00:00:43,120 --> 00:00:45,640 Speaker 2: he covers Goldman Sacks like no one else out there, 12 00:00:45,880 --> 00:00:47,479 Speaker 2: and we're kind of have to get a few minutes 13 00:00:48,080 --> 00:00:51,120 Speaker 2: from Shreeden, not a Rogen Bloomberg News. So Shree Goldman 14 00:00:51,200 --> 00:00:55,440 Speaker 2: Sacks boosted David Solomon CEO his compensation twenty four percent 15 00:00:55,480 --> 00:00:57,760 Speaker 2: to an even thirty one million dollars. Good for him 16 00:00:58,160 --> 00:01:00,640 Speaker 2: for a year when earning slumped at the Walls Tree Giant. 17 00:01:01,040 --> 00:01:01,960 Speaker 2: What's the story behind this? 18 00:01:02,680 --> 00:01:06,000 Speaker 3: It's interesting, right because for years we've always heard, and 19 00:01:06,040 --> 00:01:08,720 Speaker 3: we always keep hearing that it's a pay for performance 20 00:01:08,760 --> 00:01:11,640 Speaker 3: culture on Wall Street. But it is fascinating how some 21 00:01:11,720 --> 00:01:14,880 Speaker 3: of these numbers come together. It's not science. It's always hard, 22 00:01:15,880 --> 00:01:18,080 Speaker 3: you know. Sometimes you look at what happened in the year. 23 00:01:18,160 --> 00:01:22,560 Speaker 3: Sometimes you look at what happens in the forward. Goldman's 24 00:01:22,600 --> 00:01:25,520 Speaker 3: compensation committee, the board said there were a lot of 25 00:01:25,520 --> 00:01:28,039 Speaker 3: strategic changes that were made in twenty twenty three. That 26 00:01:28,160 --> 00:01:31,679 Speaker 3: is true. Solomon had initially leaned in on his retail 27 00:01:31,760 --> 00:01:35,080 Speaker 3: banking aspirations for the Wall Street Giant, then tried to 28 00:01:35,280 --> 00:01:37,880 Speaker 3: unwind it and spend much of the last day focused 29 00:01:37,920 --> 00:01:40,200 Speaker 3: on that so that they're well set up for twenty 30 00:01:40,240 --> 00:01:43,360 Speaker 3: twenty four and beyond on a strategy that resembles the 31 00:01:43,400 --> 00:01:46,400 Speaker 3: Goldman sacs we've known for the last twenty twenty five years. 32 00:01:46,680 --> 00:01:50,320 Speaker 3: The board is saying that means he deserves a big race. 33 00:01:51,240 --> 00:01:53,920 Speaker 3: The number is a bit poetic. A twenty four percent 34 00:01:54,000 --> 00:01:56,280 Speaker 3: jump when the profit is down twenty four percent to 35 00:01:56,400 --> 00:01:58,360 Speaker 3: just go with it that twenty. 36 00:01:58,200 --> 00:02:00,720 Speaker 4: Four years ago. If we just go to so it's 37 00:02:00,720 --> 00:02:02,920 Speaker 4: getting a twenty four percent increased to do what they 38 00:02:02,920 --> 00:02:05,840 Speaker 4: did decades ago. How do we think people inside the 39 00:02:05,880 --> 00:02:06,560 Speaker 4: bank feel about this? 40 00:02:08,000 --> 00:02:10,160 Speaker 3: I had been talking to a number of people even 41 00:02:10,200 --> 00:02:12,800 Speaker 3: before the filing hit, and everyone was laser focused on 42 00:02:12,840 --> 00:02:15,079 Speaker 3: what the number was likely to be. Remember, he took 43 00:02:15,120 --> 00:02:17,480 Speaker 3: a near thirty percent cut last year when his pay 44 00:02:17,560 --> 00:02:20,360 Speaker 3: was down to twenty five million dollars. That sounds like 45 00:02:20,800 --> 00:02:25,200 Speaker 3: severe punishment, but that year profit was also down significantly 46 00:02:25,480 --> 00:02:29,120 Speaker 3: in the forties. Everyone this year was focused and interested 47 00:02:29,160 --> 00:02:31,320 Speaker 3: to see if he actually hit the thirty million dollar 48 00:02:31,360 --> 00:02:34,520 Speaker 3: mark again, because it is fair to say, across the 49 00:02:34,520 --> 00:02:37,200 Speaker 3: top ranks of Goldman sacks, most people did not get 50 00:02:37,200 --> 00:02:39,520 Speaker 3: a twenty five percent jump. Their paid did not increase 51 00:02:39,600 --> 00:02:41,640 Speaker 3: by a quarter. So they were focused on this. And 52 00:02:41,680 --> 00:02:43,680 Speaker 3: one of the interesting parts is last year the pay 53 00:02:43,680 --> 00:02:46,120 Speaker 3: announcement was made in January. Goldman has this habit of 54 00:02:46,120 --> 00:02:48,839 Speaker 3: gathering it's roughly four hundred or so partners the top 55 00:02:48,880 --> 00:02:50,720 Speaker 3: rank of the firm for this annual offside. They've been 56 00:02:50,720 --> 00:02:52,440 Speaker 3: doing it in Miami for the last couple of years, 57 00:02:52,560 --> 00:02:54,919 Speaker 3: and last year it came out in January before the 58 00:02:54,960 --> 00:02:58,320 Speaker 3: pig disclosure came out before that meeting. This year, the 59 00:02:58,360 --> 00:03:01,160 Speaker 3: pay disclosure was made off to that animal off side, 60 00:03:01,200 --> 00:03:02,440 Speaker 3: which is interesting in itself. 61 00:03:02,840 --> 00:03:05,359 Speaker 2: You know, I'm just trying to look for a benchmark 62 00:03:05,400 --> 00:03:07,119 Speaker 2: comparison here, and I almost look at the Bloomberg terminal 63 00:03:07,200 --> 00:03:09,720 Speaker 2: for Jamie Diamond, and what we have disclosed is his 64 00:03:09,800 --> 00:03:13,400 Speaker 2: twenty twenty two compensation was a total of about thirty 65 00:03:13,639 --> 00:03:17,320 Speaker 2: two point eight cash and non cash. It the stock 66 00:03:17,360 --> 00:03:19,280 Speaker 2: has actually gone up since then, so the pay package 67 00:03:19,320 --> 00:03:21,440 Speaker 2: has gone up, but just on the march, just on 68 00:03:21,480 --> 00:03:24,919 Speaker 2: the margin for twenty twenty two, thirty two point eight. 69 00:03:25,040 --> 00:03:27,280 Speaker 2: So just to give you a benchmark of Solomons right 70 00:03:27,360 --> 00:03:29,600 Speaker 2: in line with what I would argue a peer. 71 00:03:30,200 --> 00:03:34,400 Speaker 4: Would be, or more even Morgan Stanley and James Gorman, and. 72 00:03:34,480 --> 00:03:36,560 Speaker 3: James Gorman comes and even higher at the forty seven 73 00:03:36,600 --> 00:03:39,160 Speaker 3: twenty seven million. It was James Gorman's last year, so 74 00:03:39,240 --> 00:03:41,640 Speaker 3: some of the boats thinking there was the follow us 75 00:03:41,680 --> 00:03:43,440 Speaker 3: for twenty twenty three, but also a little bit of 76 00:03:43,480 --> 00:03:45,920 Speaker 3: a go away package. But remember Morgan Stanley also had 77 00:03:45,920 --> 00:03:48,240 Speaker 3: a pretty tough year. The thing that does stand out 78 00:03:48,240 --> 00:03:51,200 Speaker 3: about Solomon's pay is that that jump in pay that 79 00:03:51,360 --> 00:03:54,320 Speaker 3: person't they jump is bigger than any other major US 80 00:03:54,400 --> 00:03:54,839 Speaker 3: bank peer. 81 00:03:55,480 --> 00:03:57,200 Speaker 2: Oh, I'm sorry, you actually have it in your reporting. 82 00:03:57,240 --> 00:03:59,080 Speaker 2: So we have the latest data. So last month JP 83 00:03:59,200 --> 00:04:02,040 Speaker 2: Morgan Chase said it award a longtime CEO, Jamie Dimond 84 00:04:02,120 --> 00:04:04,600 Speaker 2: thirty six million, dollars for the year of four point 85 00:04:04,640 --> 00:04:07,360 Speaker 2: three percent from the year earlier. Morgan Stanley increased James 86 00:04:07,400 --> 00:04:10,360 Speaker 2: Gormer's paid it seventeen percent to thirty seven million dollars, 87 00:04:10,360 --> 00:04:12,560 Speaker 2: So that you've got the most recent numbers. I guess 88 00:04:12,960 --> 00:04:16,080 Speaker 2: I don't know. I mean, what's the feeling for mister 89 00:04:16,200 --> 00:04:21,159 Speaker 2: Solomon his position within the firm. It seems more ten now. 90 00:04:21,360 --> 00:04:21,680 Speaker 5: I don't know. 91 00:04:21,920 --> 00:04:24,800 Speaker 2: It seems more tenuous than say, like at any time 92 00:04:24,880 --> 00:04:26,880 Speaker 2: for blank Fine, or any time before for some of 93 00:04:26,920 --> 00:04:27,600 Speaker 2: the processors. 94 00:04:27,760 --> 00:04:30,440 Speaker 3: Well, arguably, I don't know how comfortable Lloyd Blankfine would 95 00:04:30,480 --> 00:04:32,240 Speaker 3: have felt in twenty ten to twenty eleven when he 96 00:04:32,360 --> 00:04:36,039 Speaker 3: was facing those congressional inquisitions. That's much harder than any 97 00:04:36,120 --> 00:04:38,520 Speaker 3: palace intrig that David Solomon has to deal with. I 98 00:04:38,560 --> 00:04:43,400 Speaker 3: would argue his position, his standing, his quote unquote vibe 99 00:04:43,440 --> 00:04:45,960 Speaker 3: inside the firm right now is perhaps better than any 100 00:04:46,040 --> 00:04:49,240 Speaker 3: time in the last twelve months. Okay, it feels like 101 00:04:49,480 --> 00:04:52,160 Speaker 3: all the griping in the internal risks and everything that 102 00:04:52,320 --> 00:04:55,120 Speaker 3: was going public with the firm has quietened down a bit. 103 00:04:55,800 --> 00:04:58,520 Speaker 3: That doesn't mean that the path forward is going to 104 00:04:58,560 --> 00:05:01,080 Speaker 3: be exceptionally clean and easy for David Solomon, you will 105 00:05:01,120 --> 00:05:03,200 Speaker 3: still have to show performance, and you will still have 106 00:05:03,320 --> 00:05:06,440 Speaker 3: to show that after a couple of years when revenue 107 00:05:06,480 --> 00:05:08,800 Speaker 3: has been down because capital markets have been clogged up, 108 00:05:08,839 --> 00:05:11,520 Speaker 3: because you've had missus with your real estate investments. As 109 00:05:11,600 --> 00:05:14,359 Speaker 3: you get past that, you can now move towards actually 110 00:05:14,880 --> 00:05:17,839 Speaker 3: delivering on your financial targets. And that's important for Solomon. 111 00:05:17,880 --> 00:05:19,640 Speaker 2: All right, srenad Roger, thanks so much for joining A 112 00:05:19,720 --> 00:05:22,040 Speaker 2: short notice there Bloomberg News on that Golvi sas pay 113 00:05:22,680 --> 00:05:23,280 Speaker 2: just fascinating. 114 00:05:24,800 --> 00:05:28,640 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 115 00:05:28,760 --> 00:05:32,280 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 116 00:05:32,320 --> 00:05:35,040 Speaker 1: Otto with the Bloomberg Business App. You can also listen 117 00:05:35,200 --> 00:05:38,280 Speaker 1: live on Amazon Alexa from our flagship New York station, 118 00:05:38,680 --> 00:05:41,400 Speaker 1: Just say Alexa Play Bloomberg eleven thirty. 119 00:05:42,600 --> 00:05:46,279 Speaker 4: Punomboyle, senior US e commerce and retail analysts. She joins 120 00:05:46,360 --> 00:05:48,440 Speaker 4: us on Nike. Is it Nike or Nike? Do I 121 00:05:48,520 --> 00:05:49,200 Speaker 4: have to say Nike? 122 00:05:49,440 --> 00:05:49,480 Speaker 5: No? 123 00:05:49,880 --> 00:05:50,840 Speaker 4: Like okay, so we don't do that. 124 00:05:51,600 --> 00:05:52,120 Speaker 6: Where are you? 125 00:05:52,560 --> 00:05:52,960 Speaker 5: I don't know. 126 00:05:55,160 --> 00:05:57,840 Speaker 4: Adidas or ADDI does? I know it's a family name, 127 00:05:57,960 --> 00:06:01,839 Speaker 4: but anyway, okay, so Nike, thank you well. Slash about 128 00:06:01,920 --> 00:06:05,000 Speaker 4: a two percent of its global workforce. That stock is 129 00:06:05,120 --> 00:06:07,440 Speaker 4: down four percent. And typically if we see a company 130 00:06:07,480 --> 00:06:09,440 Speaker 4: get its house in order and cut costs, the stock 131 00:06:09,480 --> 00:06:11,960 Speaker 4: can go up on that. Not in the case of Nike. Punam, 132 00:06:12,520 --> 00:06:13,960 Speaker 4: what's Nike's problem? 133 00:06:15,200 --> 00:06:17,920 Speaker 7: I think the problem isn't just Nike's problem. We've seen 134 00:06:18,040 --> 00:06:20,800 Speaker 7: job cuts across the board in retail and a two 135 00:06:20,880 --> 00:06:24,280 Speaker 7: percent reduction. While it sounds daunting and that things are 136 00:06:24,320 --> 00:06:27,160 Speaker 7: getting weak, we think things are weak right. The top 137 00:06:27,279 --> 00:06:31,000 Speaker 7: line environment for retail sales is a little murky. We 138 00:06:31,200 --> 00:06:33,880 Speaker 7: expect them to be conservative in their guidance when they 139 00:06:33,920 --> 00:06:38,200 Speaker 7: do report results coming up, But remember that two percent 140 00:06:38,279 --> 00:06:42,680 Speaker 7: of their workforce compares to We had eBay identifying a 141 00:06:42,800 --> 00:06:45,200 Speaker 7: nine percent cut earlier this year, we had rent the 142 00:06:45,279 --> 00:06:48,640 Speaker 7: Runway with a ten percent cut. We had Amazon. Over 143 00:06:48,800 --> 00:06:51,920 Speaker 7: twenty seven thousand employees were cut in the last two years. 144 00:06:52,279 --> 00:06:54,840 Speaker 7: So this job cut news is, you know, while it 145 00:06:55,000 --> 00:06:57,760 Speaker 7: seems that, oh my gosh, things are getting materially worse, 146 00:06:57,880 --> 00:07:02,159 Speaker 7: I think it's just part of efficiencies in retail today. 147 00:07:02,600 --> 00:07:05,320 Speaker 7: As a top line environment really is a little weaker 148 00:07:05,400 --> 00:07:05,920 Speaker 7: than we think. 149 00:07:06,640 --> 00:07:09,600 Speaker 2: So what's the story for Nike? I kind of feel 150 00:07:09,640 --> 00:07:13,400 Speaker 2: like Nikes everywhere. I mean, how do you move the 151 00:07:13,520 --> 00:07:16,120 Speaker 2: needle for a company like Nike. 152 00:07:17,160 --> 00:07:19,920 Speaker 7: Yeah, so it's a fifty billion dollar brand, It's the 153 00:07:20,040 --> 00:07:22,800 Speaker 7: number one sports for a brand in the world, and 154 00:07:23,280 --> 00:07:25,720 Speaker 7: the bulk of its brand is footwear, which has given 155 00:07:25,760 --> 00:07:28,360 Speaker 7: it some protection. I think moving the needle on Nike 156 00:07:28,560 --> 00:07:31,080 Speaker 7: is really just about getting the supply chain right and 157 00:07:31,240 --> 00:07:34,520 Speaker 7: really getting consumer trends to pick up across the globe. 158 00:07:34,640 --> 00:07:36,880 Speaker 7: It is a global brand, so you can't have one 159 00:07:36,920 --> 00:07:39,559 Speaker 7: region doing well and the other. Now, we need China 160 00:07:39,640 --> 00:07:41,880 Speaker 7: to get better, we need Immia to get better, we 161 00:07:42,000 --> 00:07:44,920 Speaker 7: need things to turn around in North America. It's collective, 162 00:07:45,040 --> 00:07:48,360 Speaker 7: so we do need to see improvement in consumer spending 163 00:07:48,480 --> 00:07:52,360 Speaker 7: patterns to really drive material improvement here. They're controlling what 164 00:07:52,480 --> 00:07:54,360 Speaker 7: they can, which is costs, right. They had a two 165 00:07:54,440 --> 00:07:57,000 Speaker 7: billion dollar plan in place that they put in December, 166 00:07:57,080 --> 00:08:00,240 Speaker 7: which will unfold over the next three years. But on 167 00:08:00,320 --> 00:08:03,360 Speaker 7: the top line, we do need momentum in terms of 168 00:08:03,400 --> 00:08:06,000 Speaker 7: consumer spending to increase. The one thing that I'd say 169 00:08:06,080 --> 00:08:09,280 Speaker 7: that would help them this year is sporting events, right, 170 00:08:09,640 --> 00:08:12,120 Speaker 7: So I think as we see more sporting events come 171 00:08:12,680 --> 00:08:15,560 Speaker 7: back to life with the summer World Cup in Paris 172 00:08:15,640 --> 00:08:19,000 Speaker 7: this year, there is an opportunity to really create new 173 00:08:19,080 --> 00:08:22,880 Speaker 7: product and innovation around that to drive demand up. But 174 00:08:23,400 --> 00:08:25,600 Speaker 7: outside of that, you do need the broader macro to 175 00:08:25,680 --> 00:08:28,520 Speaker 7: improve in all the regions that it participates in. 176 00:08:29,040 --> 00:08:31,400 Speaker 4: So Nike, though, as you were mentioning from other brands, 177 00:08:31,800 --> 00:08:34,040 Speaker 4: it is the least bad, right, That's why they're only 178 00:08:34,080 --> 00:08:37,160 Speaker 4: cutting two percent versus more. Am I getting that roughly right? 179 00:08:37,880 --> 00:08:40,079 Speaker 7: I mean it's a much smaller cut than what some 180 00:08:40,200 --> 00:08:42,480 Speaker 7: of the other brands have done, though I wouldn't quantify 181 00:08:42,520 --> 00:08:46,200 Speaker 7: as least or more, because you know, these cuts start 182 00:08:46,320 --> 00:08:48,839 Speaker 7: and you don't know where they end. But we did 183 00:08:48,960 --> 00:08:52,160 Speaker 7: see hiring ramp up in the pandemic to support digital 184 00:08:52,320 --> 00:08:55,439 Speaker 7: orders from some of these online companies. So while their 185 00:08:55,559 --> 00:08:59,080 Speaker 7: numbers seem bigger, they also probably hired more during the pandemic, 186 00:08:59,320 --> 00:09:01,959 Speaker 7: which is just a reflection of things normalizing again. 187 00:09:02,280 --> 00:09:05,800 Speaker 2: I see, what's the competitive landscape for Nike kind of 188 00:09:06,120 --> 00:09:06,920 Speaker 2: just laid out for us. 189 00:09:07,720 --> 00:09:09,520 Speaker 7: Yeah, so it is a larger sports for a brand. 190 00:09:09,559 --> 00:09:12,440 Speaker 7: As you know, there is competition that is growing, whether 191 00:09:12,520 --> 00:09:16,080 Speaker 7: it's through on Hoka all Birds. You know, there are 192 00:09:16,160 --> 00:09:19,520 Speaker 7: other more niche, digitally native brands coming up the spectrum 193 00:09:19,640 --> 00:09:23,000 Speaker 7: Adidas is coming back. We have new management team there 194 00:09:23,120 --> 00:09:28,120 Speaker 7: and they're restepping and reaccelerating on the push for sports 195 00:09:28,280 --> 00:09:30,840 Speaker 7: across the globe. So we think, you know, that gap 196 00:09:30,880 --> 00:09:33,679 Speaker 7: that Nike had with Adidas had widened in the past 197 00:09:33,760 --> 00:09:37,000 Speaker 7: four or five years, but that could narrow. That said, 198 00:09:37,240 --> 00:09:41,160 Speaker 7: we do think Nike remains a very solid player in 199 00:09:41,320 --> 00:09:44,040 Speaker 7: the active or market and they will continue to maintain 200 00:09:44,120 --> 00:09:47,400 Speaker 7: their dominant hush, especially in footwear. The one thing that 201 00:09:47,440 --> 00:09:49,880 Speaker 7: I'd say that you know, where there's probably more room 202 00:09:49,960 --> 00:09:51,000 Speaker 7: for others to creep in. 203 00:09:53,040 --> 00:09:54,000 Speaker 5: To Nike would be. 204 00:09:54,080 --> 00:09:57,360 Speaker 7: On the apparel side. The apparel spectrum in active r 205 00:09:57,559 --> 00:10:03,400 Speaker 7: is open a little Lemon, All Birds on Even and Adidas, 206 00:10:03,520 --> 00:10:06,600 Speaker 7: under Armor, Puma. You know, they're all able to take 207 00:10:06,679 --> 00:10:10,000 Speaker 7: share in that market as no one player really dominates 208 00:10:10,080 --> 00:10:12,360 Speaker 7: it with a high margin like they do in footwear. 209 00:10:12,960 --> 00:10:16,640 Speaker 4: So what makes like a footwear apparel in sports like 210 00:10:16,679 --> 00:10:19,000 Speaker 4: a Nike or an Adidas or Puma, what makes that 211 00:10:19,280 --> 00:10:22,440 Speaker 4: not discretionary? Like what makes that the must have? If 212 00:10:22,480 --> 00:10:24,160 Speaker 4: I have the extra five bucks, I'm not going to 213 00:10:24,200 --> 00:10:26,600 Speaker 4: buy the eggs. I'm going to buy this because it's 214 00:10:26,600 --> 00:10:28,520 Speaker 4: not there yet, right, And that's kind of the problem. 215 00:10:29,679 --> 00:10:32,800 Speaker 7: Yeah, So I think the footwear is something it depends 216 00:10:32,800 --> 00:10:35,440 Speaker 7: if you're a sports person, right and you're playing sports. 217 00:10:35,920 --> 00:10:38,880 Speaker 7: Your basketball sneakers are going to wear out, your soccer 218 00:10:39,000 --> 00:10:41,400 Speaker 7: cleats will wear out. You will need to refresh and 219 00:10:41,440 --> 00:10:43,640 Speaker 7: get a new pair. But it's not even about the sports. 220 00:10:43,679 --> 00:10:46,320 Speaker 7: We learned through the pandemic that the wardrobe has changed. 221 00:10:46,400 --> 00:10:49,920 Speaker 7: It's become more casual and probably more balanced today than 222 00:10:49,960 --> 00:10:53,360 Speaker 7: it ever was before. So in that instance, you'll see 223 00:10:53,400 --> 00:10:58,120 Speaker 7: people walking at conferences with active worst sneakers. Right, let's 224 00:10:58,160 --> 00:11:00,720 Speaker 7: become a normal now, like you don't need those dress shoes. 225 00:11:00,760 --> 00:11:04,520 Speaker 7: So people are dressing more uncomfortable where And that's a catalyst. 226 00:11:04,120 --> 00:11:06,760 Speaker 2: For Nikash And that's actually an issue for me. The 227 00:11:07,160 --> 00:11:11,840 Speaker 2: men in suits with the the sneakers. Even even David Weston, 228 00:11:11,880 --> 00:11:15,840 Speaker 2: who I have tremendous respect for. He sports that look 229 00:11:16,000 --> 00:11:18,000 Speaker 2: and he does it looks pretty solid at to say, 230 00:11:18,040 --> 00:11:20,240 Speaker 2: but I'm like, David, I'm just not sure that's your brand, 231 00:11:20,320 --> 00:11:21,920 Speaker 2: and he says I can adapt. 232 00:11:22,240 --> 00:11:25,040 Speaker 4: He but like he would be the first one to 233 00:11:25,080 --> 00:11:28,120 Speaker 4: say that he is not like a fashion icon. So 234 00:11:28,640 --> 00:11:30,400 Speaker 4: I mean, let's let's put that out there. 235 00:11:30,480 --> 00:11:30,800 Speaker 5: For sure. 236 00:11:31,160 --> 00:11:33,400 Speaker 4: It's comfort, it's it's definitely a comfort. I'm looking at 237 00:11:33,400 --> 00:11:35,640 Speaker 4: these two guys here. They're not wearing sneakers though, although 238 00:11:35,720 --> 00:11:38,079 Speaker 4: John Tucker is wearing one of his shoes that aren't dressed. 239 00:11:38,080 --> 00:11:41,280 Speaker 4: He's apparently two pairs and this is the non dress shoe. Correct. 240 00:11:41,360 --> 00:11:42,400 Speaker 1: No, it's a sketcher. 241 00:11:42,920 --> 00:11:45,280 Speaker 4: So that's okay, there's a sneaker. Okay, it's Friday. 242 00:11:45,360 --> 00:11:47,760 Speaker 6: That's what Otherwise Paul would yell at me because he's 243 00:11:47,800 --> 00:11:49,240 Speaker 6: apparently the fashion ployee. 244 00:11:49,640 --> 00:11:51,959 Speaker 2: Exactly put him before. Before we let me go, we 245 00:11:52,080 --> 00:11:54,319 Speaker 2: got to ask about China. Boy, I think about Nike 246 00:11:54,440 --> 00:11:56,560 Speaker 2: is one of those names, that's boy. It's a supplier, 247 00:11:56,679 --> 00:11:58,880 Speaker 2: it's a you know, they make stuff there. Plus they 248 00:11:59,000 --> 00:12:01,240 Speaker 2: sell about fifteen send the revenues to China. What are 249 00:12:01,280 --> 00:12:02,200 Speaker 2: they saying about China? 250 00:12:03,000 --> 00:12:05,719 Speaker 7: China is a little weaker right now. We've heard from 251 00:12:05,760 --> 00:12:10,040 Speaker 7: our analysts in China that the economy is not as 252 00:12:10,160 --> 00:12:12,280 Speaker 7: robust as we would have expected, you know, coming out 253 00:12:12,320 --> 00:12:14,160 Speaker 7: of the pandemic and also coming out of just their 254 00:12:14,280 --> 00:12:18,000 Speaker 7: zero tolerance policy for COVID. It is one of the 255 00:12:18,120 --> 00:12:20,760 Speaker 7: biggest growth areas for not just Nike, but really for 256 00:12:20,840 --> 00:12:23,280 Speaker 7: a lot of US retailers. So we do need to 257 00:12:23,320 --> 00:12:26,319 Speaker 7: see some acceleration in China. That said, I do think 258 00:12:26,360 --> 00:12:29,000 Speaker 7: that you know, China is doing better for them today 259 00:12:29,080 --> 00:12:31,640 Speaker 7: than it was during the pandemic, So there is some 260 00:12:31,840 --> 00:12:33,640 Speaker 7: sign of hope, but we do need to see them 261 00:12:33,760 --> 00:12:36,560 Speaker 7: stepping up the pedal on China. There is a lot 262 00:12:36,600 --> 00:12:40,079 Speaker 7: of competition coming into China from other US brands, so 263 00:12:40,320 --> 00:12:43,640 Speaker 7: it's once again an area where they don't own the space. 264 00:12:43,720 --> 00:12:45,960 Speaker 7: They don't own the region in terms of sports where 265 00:12:46,120 --> 00:12:48,160 Speaker 7: they are competing with other players as well. 266 00:12:48,280 --> 00:12:50,080 Speaker 4: Should I be insulted? You guys didn't ask me about 267 00:12:50,120 --> 00:12:54,400 Speaker 4: my shoes? Well, we know way too much about your shoes. 268 00:12:54,960 --> 00:12:57,600 Speaker 4: You know, you're scratching the service, John Tecker, I hate 269 00:12:57,600 --> 00:12:59,160 Speaker 4: putt him. Thanks a lot, We really appreciate it. Put 270 00:12:59,240 --> 00:13:02,040 Speaker 4: them boil your US e commerce and retail analysts at 271 00:13:02,080 --> 00:13:03,000 Speaker 4: Bloomberg Intelligence. 272 00:13:04,440 --> 00:13:08,280 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 273 00:13:08,400 --> 00:13:11,720 Speaker 1: weekdays at ten am Eastern on Applecarplaying and Broud Auto 274 00:13:11,840 --> 00:13:14,679 Speaker 1: with the Bloomberg Business app. Listen on demand wherever you 275 00:13:14,800 --> 00:13:17,800 Speaker 1: get your podcasts, or watch us live on YouTube. 276 00:13:18,640 --> 00:13:21,360 Speaker 4: We've been talking a lot this week about commercial real estate. 277 00:13:21,440 --> 00:13:24,360 Speaker 4: We had that great piece out from Bloomberg finally about 278 00:13:24,400 --> 00:13:26,760 Speaker 4: talking about how some of that real estate loans were 279 00:13:26,800 --> 00:13:30,840 Speaker 4: starting to rerate and understand what the discount was really 280 00:13:30,880 --> 00:13:32,600 Speaker 4: going to be. So we wanted to get the view 281 00:13:32,720 --> 00:13:35,120 Speaker 4: from someone in a C suite at a very big bank. 282 00:13:35,160 --> 00:13:38,360 Speaker 4: It's Huntington Bank Shares. It has a market cap of 283 00:13:38,640 --> 00:13:41,679 Speaker 4: forty plus billion dollars. I think, if I just look there, 284 00:13:41,720 --> 00:13:44,800 Speaker 4: you go eighteen my bad, eighteen billion dollars. But it's 285 00:13:44,800 --> 00:13:47,480 Speaker 4: an one hundred and eighty nine billion dollars in assets. 286 00:13:48,080 --> 00:13:52,280 Speaker 4: Is headquartered in Columbus, Ohio. It serves consumers, small and 287 00:13:52,320 --> 00:13:57,360 Speaker 4: middle market businesses, corporations, municipalities, and lots of organizations with 288 00:13:57,520 --> 00:14:01,160 Speaker 4: many different things banking, payment, wealth management, management, and services. 289 00:14:01,400 --> 00:14:03,400 Speaker 4: So they kind of do it all and they're kind 290 00:14:03,400 --> 00:14:05,880 Speaker 4: of in the sweet spot of where their assets are 291 00:14:05,920 --> 00:14:08,280 Speaker 4: one hundred and eighty nine billion dollars worth. So let's 292 00:14:08,320 --> 00:14:11,439 Speaker 4: get now to the CEO and chairman, Steve Steinauer. He 293 00:14:11,640 --> 00:14:13,640 Speaker 4: joins us. Now, Hey, Steve, it's great to chat with you. 294 00:14:14,240 --> 00:14:14,960 Speaker 4: Thanks for joining us. 295 00:14:14,960 --> 00:14:16,920 Speaker 6: Thank you, Alex, and I hope your forecast to forty 296 00:14:16,960 --> 00:14:18,280 Speaker 6: billion dollars is absolutely right. 297 00:14:18,400 --> 00:14:21,000 Speaker 4: I doubled your market cap, so you're welcome. This is 298 00:14:21,000 --> 00:14:23,680 Speaker 4: what we do here. So, Steve, we've heard a lot 299 00:14:23,680 --> 00:14:25,840 Speaker 4: about the commercial real estate risks. Michael Barr was just 300 00:14:25,920 --> 00:14:28,720 Speaker 4: talking about that from the FED Supervision, talking about they're 301 00:14:28,720 --> 00:14:31,880 Speaker 4: really looking very closely at these loans. What is your exposure? 302 00:14:31,960 --> 00:14:35,280 Speaker 4: How do you manage it as a CEO, Well. 303 00:14:35,200 --> 00:14:38,400 Speaker 6: We manage it with limits, and we've had this discipline 304 00:14:38,440 --> 00:14:43,120 Speaker 6: for fifteen years. So our exposure is always constrained by 305 00:14:43,200 --> 00:14:46,200 Speaker 6: how much we are willing to do in any given category, 306 00:14:46,280 --> 00:14:50,640 Speaker 6: including commercial real estate. So for us, we've got less 307 00:14:50,640 --> 00:14:53,800 Speaker 6: than ten percent of our loan portfolio in commercial real estate. 308 00:14:53,880 --> 00:14:56,480 Speaker 6: That compares to about fifteen percent for our average peers, 309 00:14:56,960 --> 00:14:59,440 Speaker 6: and then we've tried to be very very conservative with it. 310 00:15:00,240 --> 00:15:04,960 Speaker 6: Our reserves against for loan losses against that portfolio is 311 00:15:05,160 --> 00:15:07,680 Speaker 6: a little over four percent four point two percent. Our 312 00:15:07,760 --> 00:15:11,520 Speaker 6: peers are at two percent. From what we see, we 313 00:15:11,640 --> 00:15:14,840 Speaker 6: think we're in great shape at this point, going and 314 00:15:15,000 --> 00:15:15,680 Speaker 6: going forward. 315 00:15:16,120 --> 00:15:19,240 Speaker 2: Steve described the kind of the character of your commercial 316 00:15:19,280 --> 00:15:21,560 Speaker 2: real estate portfolio. I'm assuming you don't have a lot 317 00:15:21,600 --> 00:15:24,920 Speaker 2: of exposure here to midtown Manhattan. Who's your customers? What's 318 00:15:24,920 --> 00:15:26,040 Speaker 2: a typical loan look like for you? 319 00:15:27,680 --> 00:15:30,240 Speaker 6: Our customers are usually going to be somebody who's been 320 00:15:30,320 --> 00:15:34,800 Speaker 6: at this business for decades and maybe intergenerationally, so a 321 00:15:34,880 --> 00:15:41,400 Speaker 6: multi generation family, a long long standing fund. And we're 322 00:15:41,480 --> 00:15:44,440 Speaker 6: very selective about who we do business with. That's part 323 00:15:44,480 --> 00:15:47,160 Speaker 6: of why we think we'll come through this in great shape. 324 00:15:48,240 --> 00:15:52,120 Speaker 6: You know, if customers who are with us in two 325 00:15:52,200 --> 00:15:55,920 Speaker 6: thousand and eight and nine and performed well during that 326 00:15:56,000 --> 00:15:58,440 Speaker 6: period of time, then you know, those are relationships we've 327 00:15:58,440 --> 00:16:01,360 Speaker 6: looked to build over the last fourteen or so and 328 00:16:02,160 --> 00:16:05,080 Speaker 6: have been again very disciplined on what we're looking for. 329 00:16:05,320 --> 00:16:07,960 Speaker 6: So in addition to that, there's global cash flow loan, 330 00:16:08,040 --> 00:16:11,760 Speaker 6: the value guarantee support, things, guarantory. 331 00:16:11,400 --> 00:16:14,120 Speaker 4: Support, things like that, and Steve, as other banks are 332 00:16:14,120 --> 00:16:16,560 Speaker 4: coming to terms with their losses, would you be buying 333 00:16:16,600 --> 00:16:17,800 Speaker 4: some of those loans from peers. 334 00:16:19,240 --> 00:16:21,280 Speaker 5: No, we're not a. 335 00:16:21,360 --> 00:16:25,160 Speaker 6: Bank that buys paper from other banks or or or 336 00:16:25,320 --> 00:16:30,680 Speaker 6: other sources. We're a customer oriented institution. So if now, 337 00:16:30,680 --> 00:16:33,920 Speaker 6: if one of our customers had a loan at another 338 00:16:34,280 --> 00:16:37,880 Speaker 6: bank and that bank was unwilling to go forward with 339 00:16:38,000 --> 00:16:40,880 Speaker 6: them for any reason or ask them to refinance that, 340 00:16:41,480 --> 00:16:44,040 Speaker 6: we would expect they'd come to us and we'd certainly 341 00:16:44,080 --> 00:16:46,520 Speaker 6: look at that. And if possible, we'd bank that loan. 342 00:16:46,960 --> 00:16:49,000 Speaker 6: We will support our customers. 343 00:16:49,880 --> 00:16:53,480 Speaker 2: Where what are your customers telling you these days? Are 344 00:16:53,560 --> 00:16:56,440 Speaker 2: they are they taking down capital? Are they sitting tight? 345 00:16:56,760 --> 00:16:58,760 Speaker 2: What are you seeing from both your retail and your 346 00:16:58,920 --> 00:16:59,720 Speaker 2: corporate customers? 347 00:17:00,760 --> 00:17:00,960 Speaker 5: Well? 348 00:17:01,760 --> 00:17:05,840 Speaker 6: Now, moving outside of commercial real estate, generally, our commercial 349 00:17:05,920 --> 00:17:10,080 Speaker 6: customers had an okay to good year in twenty three. 350 00:17:10,280 --> 00:17:13,480 Speaker 6: Generally there are some exceptions, and this year is starting 351 00:17:13,520 --> 00:17:18,040 Speaker 6: to shape up better with more certainty and more confidence. 352 00:17:18,160 --> 00:17:22,440 Speaker 6: Some of that is induced by the FED effectively capping 353 00:17:22,560 --> 00:17:25,200 Speaker 6: rates are what looks like to be capping rates and 354 00:17:25,400 --> 00:17:30,080 Speaker 6: reducing rates, so that's a better environment versus an uncertain 355 00:17:30,200 --> 00:17:33,960 Speaker 6: level of increasing interest rates. And additionally, there's been so 356 00:17:34,160 --> 00:17:37,560 Speaker 6: much benefit out of the various stimulus packages that have 357 00:17:37,640 --> 00:17:40,000 Speaker 6: come through the data, the last in the fourth quarter 358 00:17:40,080 --> 00:17:43,560 Speaker 6: and already this year, that there's just more optimism that's 359 00:17:43,640 --> 00:17:46,680 Speaker 6: generally in place. The consumer is doing well on the whole. 360 00:17:47,520 --> 00:17:50,879 Speaker 4: So is this an economy then that you think needs 361 00:17:51,480 --> 00:17:55,000 Speaker 4: rate cuts or is this an economy that needs normalization? 362 00:17:55,320 --> 00:17:56,480 Speaker 4: What's your lens telling you? 363 00:17:58,240 --> 00:18:01,359 Speaker 6: I think the forward mark get reset that just occurred 364 00:18:01,400 --> 00:18:04,480 Speaker 6: this week, going from six cuts to three or four 365 00:18:04,760 --> 00:18:06,800 Speaker 6: is now in line with what we think might happen. 366 00:18:07,200 --> 00:18:10,320 Speaker 6: I don't believe the FED has to cut rates. I 367 00:18:10,440 --> 00:18:13,359 Speaker 6: think just the fact that the outlook is not for 368 00:18:13,560 --> 00:18:17,600 Speaker 6: increasing rates provides a level of certainty and confidence. I 369 00:18:17,720 --> 00:18:21,280 Speaker 6: do believe as inflation continues to adjust downward that there 370 00:18:21,320 --> 00:18:24,280 Speaker 6: will be rate cuts later in the year. Whether it's two, three, 371 00:18:24,400 --> 00:18:28,719 Speaker 6: or four anybody's guests. But I think the market's now 372 00:18:28,920 --> 00:18:32,719 Speaker 6: much more calibrated tightly to what's a higher probability outcome. 373 00:18:33,240 --> 00:18:35,879 Speaker 2: Hey, Steve, When we had some of the weakness in 374 00:18:36,040 --> 00:18:38,920 Speaker 2: some of the regional banks early last year and then 375 00:18:39,200 --> 00:18:41,560 Speaker 2: this year at New York Community Bank, what I think 376 00:18:41,600 --> 00:18:43,880 Speaker 2: that brought to light for a lot of people is, boy, 377 00:18:43,960 --> 00:18:46,320 Speaker 2: there are a lot of regional banks around the United States. 378 00:18:46,400 --> 00:18:48,640 Speaker 2: You know, some four thousand of them, and I guess 379 00:18:48,680 --> 00:18:51,480 Speaker 2: that just banks. The question, you know, is that too many? 380 00:18:51,960 --> 00:18:55,440 Speaker 2: So as you think about the regional banking space, do 381 00:18:55,520 --> 00:18:57,480 Speaker 2: you think it's ripe for consolidation? Do you think it 382 00:18:57,560 --> 00:19:00,239 Speaker 2: needs consolidation? And if so, how do you guys view 383 00:19:00,280 --> 00:19:01,320 Speaker 2: that At Hunting Bank. 384 00:19:02,560 --> 00:19:05,080 Speaker 6: Well, typically when we hear the term regional banks, it's 385 00:19:05,119 --> 00:19:08,280 Speaker 6: usually banks one hundred billion up to the g SIPHY levels, 386 00:19:08,680 --> 00:19:10,359 Speaker 6: and then there's the mid size, and then they're the 387 00:19:10,400 --> 00:19:13,480 Speaker 6: community banks. The four thousand banks you reference would be 388 00:19:14,480 --> 00:19:17,720 Speaker 6: a one thousand several thousand community banks, you know, three 389 00:19:17,840 --> 00:19:22,040 Speaker 6: thousand plus community banks. And by that they find by that, 390 00:19:22,119 --> 00:19:26,159 Speaker 6: I mean they do they service a defined geographic area, 391 00:19:26,320 --> 00:19:29,200 Speaker 6: typically not multi state. Then you have sort of the 392 00:19:29,240 --> 00:19:31,679 Speaker 6: mid size that could be multi state, and then one 393 00:19:31,760 --> 00:19:34,359 Speaker 6: hundred billion or more you're going to be in multiple states. 394 00:19:34,640 --> 00:19:40,760 Speaker 6: And so you know, NYCB unfortunately has a real estate 395 00:19:40,800 --> 00:19:44,600 Speaker 6: concentration of very high con concentration. I think it's about 396 00:19:44,640 --> 00:19:47,160 Speaker 6: fifty six fifty eight percent of their total loan portfolio 397 00:19:47,600 --> 00:19:49,840 Speaker 6: in commercial real estate. It's one of the higher levels, 398 00:19:49,960 --> 00:19:53,920 Speaker 6: highest levels in the country. And you know there's a 399 00:19:54,320 --> 00:19:56,680 Speaker 6: there's a softness in New York and they're concentrated in 400 00:19:56,800 --> 00:20:00,480 Speaker 6: New York, so very unique characteristics. I think what we 401 00:20:00,600 --> 00:20:05,200 Speaker 6: saw from CBRE yesterday saying they believe office valuations have 402 00:20:05,280 --> 00:20:07,600 Speaker 6: generally bottomed out, it's a very encouraging sign. 403 00:20:08,119 --> 00:20:10,639 Speaker 4: But to that point, another part of what happened to 404 00:20:10,680 --> 00:20:12,840 Speaker 4: your community bank was that they got into a different 405 00:20:12,880 --> 00:20:15,680 Speaker 4: regulatory pier, a tier, and they had to put more 406 00:20:15,720 --> 00:20:18,879 Speaker 4: money away because of the assets they've bought from signature. 407 00:20:20,359 --> 00:20:21,800 Speaker 4: What do you think, like, has it happened to you? 408 00:20:23,040 --> 00:20:25,080 Speaker 4: Does that sort of change how you view growth in 409 00:20:25,119 --> 00:20:25,600 Speaker 4: the company. 410 00:20:26,880 --> 00:20:27,320 Speaker 5: Not at all. 411 00:20:27,400 --> 00:20:31,119 Speaker 6: We're very much front footed. We grew loans last year 412 00:20:31,200 --> 00:20:33,960 Speaker 6: and deposits core deposits, and we expect to do that 413 00:20:34,080 --> 00:20:36,440 Speaker 6: this year. We're investing in the businesses. We see this 414 00:20:37,040 --> 00:20:40,440 Speaker 6: as a moment where this uncertainty actually can be an advantage. 415 00:20:40,520 --> 00:20:44,520 Speaker 6: We've got very strong liquidity, core deposits, capital earnings, our 416 00:20:44,560 --> 00:20:49,400 Speaker 6: credit's bent outstanding, and so we're investing. We're expanding. We've 417 00:20:49,440 --> 00:20:53,560 Speaker 6: opened up in the Carolinas in the last quarter. We've 418 00:20:53,720 --> 00:20:56,840 Speaker 6: added especially banking business lines. There are a series of 419 00:20:56,920 --> 00:20:59,840 Speaker 6: other actions that we've taken that will create more and 420 00:21:00,040 --> 00:21:01,880 Speaker 6: a revenue for us. So we're in a growth dynamic. 421 00:21:02,280 --> 00:21:05,960 Speaker 2: Stephen Contra in terms of that growth plan, do acquisitions 422 00:21:06,080 --> 00:21:06,639 Speaker 2: figure into that? 423 00:21:07,000 --> 00:21:07,040 Speaker 5: Is? 424 00:21:07,200 --> 00:21:10,960 Speaker 2: Are you guys interested in maybe growing via acquisitions Now? 425 00:21:11,040 --> 00:21:13,760 Speaker 6: We're very focused on growing the core and we think 426 00:21:13,800 --> 00:21:15,879 Speaker 6: we have a lot of opportunities. We combined with a 427 00:21:15,960 --> 00:21:19,680 Speaker 6: bank called TCF just coming up on three years. We 428 00:21:19,840 --> 00:21:23,440 Speaker 6: see a lot of opportunity still in that combination. And 429 00:21:24,560 --> 00:21:28,000 Speaker 6: then those investments I mentioned a moment ago they're all 430 00:21:28,359 --> 00:21:31,080 Speaker 6: just starting. And so in addition to the core growth 431 00:21:31,160 --> 00:21:35,159 Speaker 6: we historically have had and we'll continue to have, we 432 00:21:35,320 --> 00:21:39,040 Speaker 6: have these new revenue streams that we've already invested in. 433 00:21:39,920 --> 00:21:42,359 Speaker 4: And before I let you go, can you rate the 434 00:21:42,400 --> 00:21:45,919 Speaker 4: health of the consumer for US ten being amazingly awesome, 435 00:21:46,080 --> 00:21:47,960 Speaker 4: zero being no one spending as all COVID. 436 00:21:49,880 --> 00:21:54,920 Speaker 6: I'd say we're somewhere around a seven plus percent. And 437 00:21:55,000 --> 00:21:59,119 Speaker 6: now you know, there's the inflation has impacted a lower 438 00:21:59,160 --> 00:22:03,159 Speaker 6: income here of our society unfortunately, but there's still a 439 00:22:03,240 --> 00:22:06,080 Speaker 6: lot of spending. And this January number I think will 440 00:22:06,160 --> 00:22:08,440 Speaker 6: prove to be a blip on the screen after a 441 00:22:08,560 --> 00:22:10,600 Speaker 6: fairly after a fairly strong fourth quarter. 442 00:22:11,680 --> 00:22:13,879 Speaker 4: Steve, so great to see you. Really appreciate thanks for 443 00:22:13,960 --> 00:22:16,840 Speaker 4: taking the time. It's a super valuable conversation to get 444 00:22:16,880 --> 00:22:19,879 Speaker 4: a reader from you. Steve Seinauer, Chairman, president and CEO 445 00:22:20,080 --> 00:22:23,480 Speaker 4: of Huntington Bank. Okay, seven plus yea, seven plus? All right? 446 00:22:23,880 --> 00:22:25,080 Speaker 2: I mean, and you think about it. I mean that 447 00:22:25,160 --> 00:22:27,440 Speaker 2: the markets, you know, they're based in Columbus, Ohio, of 448 00:22:27,520 --> 00:22:30,400 Speaker 2: the great state of Ohios. Matt Miller always makes us say, 449 00:22:30,760 --> 00:22:32,920 Speaker 2: and that part of the country, you know, we've heard 450 00:22:32,960 --> 00:22:36,000 Speaker 2: from others. You know, there's some innovation going on, there's 451 00:22:36,040 --> 00:22:39,280 Speaker 2: some decent economic growth there, and so if you're a 452 00:22:39,359 --> 00:22:41,600 Speaker 2: bank that serves that part of the world with some 453 00:22:41,680 --> 00:22:44,679 Speaker 2: good franchises, it sounds like it's a pretty good business. 454 00:22:44,680 --> 00:22:46,679 Speaker 2: And I was just you know, they have less than 455 00:22:46,720 --> 00:22:49,200 Speaker 2: ten percent of their portfolio in coercial real estate, so 456 00:22:49,280 --> 00:22:50,960 Speaker 2: that sounds pretty good relative to peers. 457 00:22:50,840 --> 00:22:52,560 Speaker 4: Right, and just highlights what we've been talking about sort 458 00:22:52,560 --> 00:22:55,680 Speaker 4: of all week that like, yes, certain loans will blow 459 00:22:55,760 --> 00:22:58,440 Speaker 4: up and be bad. Ye, it's just identifying them and 460 00:22:58,480 --> 00:23:02,080 Speaker 4: then the timing of when that becomes. But overall it's 461 00:23:02,119 --> 00:23:05,880 Speaker 4: a much different situation. Anyway, that was a fun conversation. 462 00:23:05,960 --> 00:23:06,359 Speaker 4: Enjoyed that. 463 00:23:07,840 --> 00:23:11,720 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 464 00:23:11,840 --> 00:23:15,360 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 465 00:23:15,400 --> 00:23:18,120 Speaker 1: Auto with the Bloomberg Business app. You can also listen 466 00:23:18,280 --> 00:23:21,320 Speaker 1: live on Amazon Alexa from our flagship New York station, 467 00:23:21,720 --> 00:23:24,760 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 468 00:23:25,800 --> 00:23:29,200 Speaker 4: One of my favorite indicators NFIB but also you Mish 469 00:23:29,760 --> 00:23:33,040 Speaker 4: University of Michigan sentiment for February. The preliminary read came 470 00:23:33,080 --> 00:23:35,720 Speaker 4: in a little and I mean a little lighter than 471 00:23:35,840 --> 00:23:39,480 Speaker 4: estimated seventy nine point six. Current conditions eighty one point 472 00:23:39,560 --> 00:23:42,639 Speaker 4: five a little lighter but still okay. Expectations coming in 473 00:23:42,680 --> 00:23:45,359 Speaker 4: seventy eight point four, that's better. And one year inflation 474 00:23:45,520 --> 00:23:48,199 Speaker 4: expectations take up to three percent. Five to ten year 475 00:23:48,240 --> 00:23:51,080 Speaker 4: inflation expectations take up to two point nine percent. This 476 00:23:51,240 --> 00:23:54,840 Speaker 4: all means something because FED Chair J. Powell has quoted 477 00:23:55,080 --> 00:23:58,480 Speaker 4: the expectation from you Mish in terms of inflation as 478 00:23:58,680 --> 00:24:01,359 Speaker 4: sometimes a real pivotal read for them in terms of 479 00:24:01,440 --> 00:24:03,760 Speaker 4: what inflation is actually doing. And that's why we go 480 00:24:03,840 --> 00:24:06,920 Speaker 4: to Joanne Too, University of Michigan, Surveys of Consumer and 481 00:24:07,000 --> 00:24:10,200 Speaker 4: director who runs all of this wonderful data for us. Joan, 482 00:24:10,840 --> 00:24:12,880 Speaker 4: I gotta say, I look at the numbers and I'm like, nah, okay, 483 00:24:12,960 --> 00:24:15,000 Speaker 4: kind of like a nothing burger. What's the something burger? 484 00:24:16,520 --> 00:24:19,359 Speaker 8: The main point to see is that we just followed 485 00:24:19,440 --> 00:24:23,160 Speaker 8: two months of tremendous improvements in sentiment. We're about thirty 486 00:24:23,200 --> 00:24:26,960 Speaker 8: percent higher than we were back in November, and I 487 00:24:27,000 --> 00:24:28,600 Speaker 8: think there were questions on whether or not this was 488 00:24:28,680 --> 00:24:31,720 Speaker 8: going to stick, and what we saw today is that 489 00:24:31,880 --> 00:24:35,080 Speaker 8: indeed we have solidified those games for the last two months, 490 00:24:35,760 --> 00:24:40,480 Speaker 8: they weren't a fluke whatsoever. Consumers are on an upper trajectory. 491 00:24:41,359 --> 00:24:45,359 Speaker 8: There isn't much room for improving after a thirty percent search, 492 00:24:45,440 --> 00:24:47,600 Speaker 8: So this doesn't come as too much of a surprise, 493 00:24:48,040 --> 00:24:49,440 Speaker 8: but it does solidify those games. 494 00:24:49,840 --> 00:24:53,639 Speaker 2: Yeah, that context certainly helps put the February numbers into context. 495 00:24:53,840 --> 00:24:55,520 Speaker 2: So Joanne, talk to us. Just remind us kind of 496 00:24:55,560 --> 00:24:58,959 Speaker 2: what are some of the main drivers of your survey. 497 00:25:01,080 --> 00:25:05,760 Speaker 8: So the survey covers various aspects of the economy, both 498 00:25:05,760 --> 00:25:08,760 Speaker 8: the personal finances as well as the macroeconomy, labor markets 499 00:25:08,760 --> 00:25:11,800 Speaker 8: as well as unemployment and business conditions, and the index 500 00:25:11,840 --> 00:25:15,879 Speaker 8: itself focuses on business conditions and personal finances. And what 501 00:25:16,000 --> 00:25:18,480 Speaker 8: we were seeing both in February as well as last month, 502 00:25:18,600 --> 00:25:21,399 Speaker 8: is that consumers really are feeling considerably more confident that 503 00:25:21,560 --> 00:25:24,439 Speaker 8: inflation has truly turned a corner, and they are starting 504 00:25:24,520 --> 00:25:28,200 Speaker 8: to internalize strong labor markets. For much of last year, 505 00:25:28,359 --> 00:25:33,080 Speaker 8: sentiment was quite low in spite of strong labor markets, 506 00:25:33,119 --> 00:25:35,920 Speaker 8: and now what we're seeing is that consumers are expecting 507 00:25:36,200 --> 00:25:38,480 Speaker 8: robust growth in their incomes in the year ahead, and 508 00:25:38,600 --> 00:25:41,800 Speaker 8: they are feeling much more confident about those labor markets 509 00:25:41,840 --> 00:25:42,160 Speaker 8: as well. 510 00:25:42,480 --> 00:25:45,200 Speaker 4: Rut roll, then we got the CPI, then we got 511 00:25:45,240 --> 00:25:50,160 Speaker 4: the PPI. What are your what are the respondents most 512 00:25:50,240 --> 00:25:52,360 Speaker 4: sensitive to you when it comes to the inflation outlook? 513 00:25:52,440 --> 00:25:54,480 Speaker 4: And will the data this week kind of change it 514 00:25:54,560 --> 00:25:55,359 Speaker 4: for your next read? 515 00:25:56,480 --> 00:25:58,600 Speaker 8: I don't expect things to change too much for our 516 00:25:58,680 --> 00:26:03,520 Speaker 8: next read because consumers not watching the CPIPPI prints. What 517 00:26:03,680 --> 00:26:07,439 Speaker 8: they are incorporating are their experiences in the world around them. 518 00:26:07,720 --> 00:26:10,440 Speaker 8: And you know, as an example, the most recent CPI print, 519 00:26:10,520 --> 00:26:12,840 Speaker 8: it was already reflected in the prices that people faced 520 00:26:13,480 --> 00:26:17,200 Speaker 8: in our earlier in the month. So you know, we 521 00:26:17,320 --> 00:26:21,000 Speaker 8: did see in our current, our current measurement of inflation 522 00:26:21,080 --> 00:26:24,320 Speaker 8: expectations that the year ahead inflation expectations inched up from 523 00:26:24,359 --> 00:26:26,840 Speaker 8: two point nine to three point zero. And I think 524 00:26:26,880 --> 00:26:30,520 Speaker 8: that's consistent with what consumers were noticing. So even though 525 00:26:31,280 --> 00:26:36,840 Speaker 8: we are seeing in inflation remaining a little bit elevated, 526 00:26:37,680 --> 00:26:39,959 Speaker 8: consumers are not concerned at this time that it's going 527 00:26:40,040 --> 00:26:41,000 Speaker 8: to come roaring back. 528 00:26:41,680 --> 00:26:43,399 Speaker 4: And at the same time, the long. 529 00:26:43,320 --> 00:26:46,840 Speaker 8: Run inflation expectations, which is followed most closely by policymakers, 530 00:26:46,880 --> 00:26:49,840 Speaker 8: including the FED that has not budged for three months, 531 00:26:49,960 --> 00:26:53,640 Speaker 8: we've been at two point nine percent for three months 532 00:26:53,640 --> 00:26:55,480 Speaker 8: in a row. We've been between two point nine and 533 00:26:55,520 --> 00:26:58,880 Speaker 8: three point one percent for almost three years, so that's 534 00:26:58,920 --> 00:27:05,840 Speaker 8: been pretty stubborn and hasn't come down and still remains 535 00:27:05,840 --> 00:27:09,240 Speaker 8: a little bit elevated pre pandemic, but again much lower 536 00:27:09,920 --> 00:27:12,720 Speaker 8: than we were seeing with current inflation. 537 00:27:13,400 --> 00:27:17,320 Speaker 2: Joan, the labor market remains, you know, pretty darn robust 538 00:27:17,359 --> 00:27:19,760 Speaker 2: and pretty darn resilient here. Most people who want a 539 00:27:19,880 --> 00:27:24,040 Speaker 2: job have a job, but they're getting some reasonable wage increases, 540 00:27:24,400 --> 00:27:27,639 Speaker 2: certainly in many cases better than the inflation rate. How 541 00:27:27,680 --> 00:27:30,320 Speaker 2: does the labor market factor into your survey? 542 00:27:31,920 --> 00:27:34,520 Speaker 8: So there was quite a bit of variation over the 543 00:27:34,600 --> 00:27:37,159 Speaker 8: last year about who was seeing the large wage gains, 544 00:27:37,600 --> 00:27:41,479 Speaker 8: whose wage gains were keeping up with inflation or exceeding inflation, 545 00:27:41,560 --> 00:27:44,560 Speaker 8: and who's were not. And I think it's taken several 546 00:27:44,680 --> 00:27:47,800 Speaker 8: months of sustained strength and labor markets for that to 547 00:27:47,920 --> 00:27:51,480 Speaker 8: really pass through to people's pocketbooks and through to their 548 00:27:51,640 --> 00:27:55,480 Speaker 8: expectations for the future. And so there is a growing 549 00:27:55,520 --> 00:27:58,000 Speaker 8: share of consumers who expect their income games to outstrip 550 00:27:58,040 --> 00:28:00,159 Speaker 8: inflation or at least keep up with inflation and in 551 00:28:00,240 --> 00:28:03,040 Speaker 8: the year ahead, and that's certainly going to provide additional 552 00:28:03,080 --> 00:28:07,800 Speaker 8: support for consumer spending. As we're on this upswinging sentiment, how. 553 00:28:07,680 --> 00:28:10,520 Speaker 4: Closely are we worried about gasoline prices? Like, I appreciate 554 00:28:10,560 --> 00:28:14,320 Speaker 4: the idea that the PPI and CPI, well, yeah, that 555 00:28:14,440 --> 00:28:19,920 Speaker 4: that reflected significantly. Yes, that's what I said. But so 556 00:28:20,680 --> 00:28:24,000 Speaker 4: the CPI was reflecting prices that they already felt like 557 00:28:24,040 --> 00:28:26,399 Speaker 4: in the store. But gasoline prices have really moved up, 558 00:28:26,600 --> 00:28:29,440 Speaker 4: and I'm just wondering what you sense the sensitivity is there. 559 00:28:30,800 --> 00:28:34,800 Speaker 8: Consumers are perfectly aware that gas prices are very volatile, 560 00:28:34,880 --> 00:28:36,879 Speaker 8: and they're actually quite unique in that they're really the 561 00:28:36,920 --> 00:28:39,440 Speaker 8: only prices that will go down as well as up. 562 00:28:39,800 --> 00:28:42,600 Speaker 8: And it is true that consumers are going to see 563 00:28:43,200 --> 00:28:47,960 Speaker 8: have seen the increase in prices at the pump recently, 564 00:28:49,120 --> 00:28:53,000 Speaker 8: but concerns over gas prices are much lower than they 565 00:28:53,080 --> 00:28:56,840 Speaker 8: have been in the past. Those for whom gas prices 566 00:28:56,920 --> 00:28:59,840 Speaker 8: really bite, they definitely they are mentioning it on the survey, 567 00:28:59,880 --> 00:29:03,320 Speaker 8: and they have lower levels of sentiment than than for others. 568 00:29:03,400 --> 00:29:05,840 Speaker 8: But the share of people for whom those gas prices 569 00:29:05,840 --> 00:29:10,040 Speaker 8: are biting is shrinking over time, and so this could 570 00:29:10,080 --> 00:29:13,880 Speaker 8: affect sentiment going going forward. But I do not expect 571 00:29:13,880 --> 00:29:16,000 Speaker 8: a large impact. 572 00:29:16,480 --> 00:29:19,560 Speaker 2: What's the biggest I guess concern of yours as you 573 00:29:19,640 --> 00:29:22,320 Speaker 2: look through your survey data or the concern of your 574 00:29:22,680 --> 00:29:23,840 Speaker 2: the folks who do take the survey. 575 00:29:25,560 --> 00:29:27,440 Speaker 8: I think the big thing to watch in the year 576 00:29:27,480 --> 00:29:31,400 Speaker 8: ahead is is the influence of the election. We ask 577 00:29:31,480 --> 00:29:34,680 Speaker 8: many questions on the survey about what people consumers expect 578 00:29:34,720 --> 00:29:37,120 Speaker 8: in the year ahead and as well as the long 579 00:29:37,200 --> 00:29:39,360 Speaker 8: term five to ten years ahead, and a growing share 580 00:29:39,400 --> 00:29:41,960 Speaker 8: consumers are telling us well, it really depends on what's 581 00:29:41,960 --> 00:29:44,040 Speaker 8: going to happen with the election. And of course we're 582 00:29:44,200 --> 00:29:47,520 Speaker 8: very early in election season. There's a tremendous amount of uncertainty, 583 00:29:49,200 --> 00:29:53,880 Speaker 8: and so as that uncertainty starts to unwind, the picture 584 00:29:53,920 --> 00:29:56,760 Speaker 8: could look very different depending on how people think the 585 00:29:56,880 --> 00:29:59,959 Speaker 8: projected results of the election will end up for the economy. 586 00:30:00,120 --> 00:30:03,720 Speaker 4: Well, but interesting point because normally doanne do you do 587 00:30:04,440 --> 00:30:07,200 Speaker 4: Democrat versus Republican on how they feel like? Is that 588 00:30:07,320 --> 00:30:09,280 Speaker 4: sentiment gap still really there? 589 00:30:10,000 --> 00:30:13,600 Speaker 8: Yes, it's been there. It's been there for the last 590 00:30:13,800 --> 00:30:19,280 Speaker 8: eight years, and that's when we started. That's when we 591 00:30:19,400 --> 00:30:24,360 Speaker 8: really started to measure political party affiliation on a monthly basis. 592 00:30:24,440 --> 00:30:27,320 Speaker 8: But we used to do it a few times per administration. 593 00:30:27,440 --> 00:30:29,480 Speaker 8: And we've always seen that consumers who belong to the 594 00:30:29,520 --> 00:30:31,400 Speaker 8: political party that's in the White House tend to have 595 00:30:31,480 --> 00:30:34,120 Speaker 8: higher level of the sentiment than people whose party is 596 00:30:34,160 --> 00:30:36,000 Speaker 8: not in the White House. So that's no different right now. 597 00:30:36,280 --> 00:30:38,480 Speaker 8: But what's really interesting is that even though you know, 598 00:30:38,880 --> 00:30:43,720 Speaker 8: Republicans have much lower levels of sentiment than Democrats and 599 00:30:43,760 --> 00:30:46,880 Speaker 8: Independence are right in the middle, all three political groups 600 00:30:46,920 --> 00:30:49,520 Speaker 8: saw tremendous gains and sentiment over the last three months. 601 00:30:49,760 --> 00:30:53,000 Speaker 8: So the fact that sentiment has made this thirty percent 602 00:30:53,120 --> 00:30:57,080 Speaker 8: search since November, that's not attributable to just one party 603 00:30:57,160 --> 00:30:58,880 Speaker 8: or the other. That's really nationwide. 604 00:30:59,320 --> 00:31:01,440 Speaker 4: Really interesting. Heyuan, thanks a lot. We always love the 605 00:31:01,480 --> 00:31:04,200 Speaker 4: incident analysis. Love this at a point. Thank you. We 606 00:31:04,240 --> 00:31:07,000 Speaker 4: will see you at the next read Joe in Shoe 607 00:31:07,080 --> 00:31:10,720 Speaker 4: joining US University of Michigan Surveys of Consumer Director. 608 00:31:12,400 --> 00:31:16,240 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 609 00:31:16,360 --> 00:31:19,880 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 610 00:31:19,920 --> 00:31:22,640 Speaker 1: Auto with the Bloomberg Business app. You can also listen 611 00:31:22,800 --> 00:31:25,880 Speaker 1: live on Amazon Alexa from our flagship New York station, 612 00:31:26,280 --> 00:31:28,880 Speaker 1: Just say Alexa Play Bloomberg eleven. 613 00:31:28,760 --> 00:31:33,520 Speaker 2: Thirty one of those economic data points today were housing 614 00:31:33,560 --> 00:31:37,440 Speaker 2: starts came in minus fourteen point eight percent month. The 615 00:31:37,480 --> 00:31:40,520 Speaker 2: month of consensus was for flat, so coming in kind 616 00:31:40,560 --> 00:31:42,640 Speaker 2: of higher than expected here. So maybe you know the 617 00:31:42,680 --> 00:31:44,400 Speaker 2: fact that we're not getting mortgage rates coming down as 618 00:31:44,440 --> 00:31:46,400 Speaker 2: fast as maybe some people like, maybe that's having an 619 00:31:46,440 --> 00:31:48,600 Speaker 2: impact on the market. Let's check in with Drew Reading. 620 00:31:48,840 --> 00:31:51,040 Speaker 2: He's with Bloomberg Intelligence. He covers all the home building 621 00:31:51,080 --> 00:31:53,640 Speaker 2: stocks here. Hey, Drew, talk to us about kind of 622 00:31:53,760 --> 00:31:56,480 Speaker 2: your reaction to this housing start number and kind of 623 00:31:56,640 --> 00:31:59,080 Speaker 2: what's happening out there in your world of building and 624 00:31:59,360 --> 00:31:59,920 Speaker 2: building house. 625 00:32:01,160 --> 00:32:03,480 Speaker 5: Sure, so, as you mentioned, it was a pretty big 626 00:32:03,840 --> 00:32:07,800 Speaker 5: headline miss, down fourteen point eight percent from last month. 627 00:32:08,240 --> 00:32:10,240 Speaker 5: A couple things to point out in this release. First, 628 00:32:10,640 --> 00:32:14,400 Speaker 5: there's a pretty pretty big revision to the December numbers, 629 00:32:14,440 --> 00:32:16,400 Speaker 5: so that's part of it. The second thing you have 630 00:32:16,520 --> 00:32:20,240 Speaker 5: to consider is that multifamily drove the biggest part of 631 00:32:20,280 --> 00:32:23,160 Speaker 5: this decline. So single family housing starts we're only down 632 00:32:23,160 --> 00:32:26,000 Speaker 5: about four and a half percent. Multi family was down 633 00:32:26,160 --> 00:32:29,800 Speaker 5: somewhere around thirty six percent. And then at the same time, 634 00:32:30,040 --> 00:32:32,400 Speaker 5: you know, we do have this ongoing rate volatility, so 635 00:32:32,520 --> 00:32:35,960 Speaker 5: it does likely reflect some caution by the builders, but 636 00:32:36,560 --> 00:32:38,400 Speaker 5: you know, when we look at this release monthly, the 637 00:32:38,680 --> 00:32:40,640 Speaker 5: data point that we tend to focus more on is 638 00:32:40,720 --> 00:32:43,400 Speaker 5: the building permit number. They tend to be more consistent, 639 00:32:44,720 --> 00:32:46,120 Speaker 5: you know. And in that regard, we actually saw a 640 00:32:46,160 --> 00:32:48,000 Speaker 5: two percent increase from last month and there are more 641 00:32:48,080 --> 00:32:51,360 Speaker 5: than forty percent from last year. So the trajectory for 642 00:32:51,560 --> 00:32:54,120 Speaker 5: single family housing is still positive. And this is kind 643 00:32:54,120 --> 00:32:56,360 Speaker 5: of the same dynamic that we expect to play out 644 00:32:56,960 --> 00:32:59,600 Speaker 5: through twenty twenty four. Is more strength in the single 645 00:32:59,640 --> 00:33:01,520 Speaker 5: family versus the multi family side. 646 00:33:01,760 --> 00:33:03,720 Speaker 4: I thought that permits were down by one and a 647 00:33:03,760 --> 00:33:05,600 Speaker 4: half percent. Am I What am I missing? 648 00:33:06,720 --> 00:33:08,720 Speaker 5: So we're looking at the single family piece. 649 00:33:09,240 --> 00:33:11,200 Speaker 4: Oh, I see, and then that was better. So what 650 00:33:11,400 --> 00:33:14,040 Speaker 4: do permits and starts to respond most too? 651 00:33:14,320 --> 00:33:14,360 Speaker 5: Like? 652 00:33:14,560 --> 00:33:17,640 Speaker 4: Is it time of year, is it weather, is it rates? 653 00:33:17,840 --> 00:33:19,200 Speaker 4: What's the trigger for these guys? 654 00:33:20,680 --> 00:33:24,120 Speaker 5: Yeah, So we tend to prefer permits because generally, if 655 00:33:24,200 --> 00:33:25,680 Speaker 5: a builder is going to pull a permit, they have 656 00:33:25,760 --> 00:33:28,920 Speaker 5: the intention to break around on a house. When you're 657 00:33:28,920 --> 00:33:31,440 Speaker 5: talking about starts, there's always a lot more volatility in 658 00:33:31,520 --> 00:33:34,720 Speaker 5: these numbers. You know, you could have on any given month, 659 00:33:35,120 --> 00:33:37,840 Speaker 5: maybe your access to labor wasn't good, maybe it's weather, 660 00:33:38,960 --> 00:33:40,720 Speaker 5: you know some of the trades, so it tends to 661 00:33:40,760 --> 00:33:42,560 Speaker 5: be a lot longer, which is why we prefer to 662 00:33:42,600 --> 00:33:43,240 Speaker 5: look at permits. 663 00:33:44,000 --> 00:33:46,920 Speaker 2: So, Drue, I mean, is it still a bullish call 664 00:33:47,080 --> 00:33:50,920 Speaker 2: for home building stocks here, because I guess the narrative 665 00:33:51,040 --> 00:33:54,840 Speaker 2: is nobody's selling their existing homes, so if people want 666 00:33:54,920 --> 00:33:56,360 Speaker 2: to buy it, you get a home, they got to 667 00:33:56,400 --> 00:33:58,000 Speaker 2: go get a new one. Is that still kind of 668 00:33:58,040 --> 00:33:59,040 Speaker 2: the long term narrative here? 669 00:34:00,600 --> 00:34:02,840 Speaker 5: Yeah, I think that theme is still in place for 670 00:34:02,960 --> 00:34:06,920 Speaker 5: twenty twenty four. Like you mentioned, resale supply still very low. 671 00:34:07,120 --> 00:34:10,040 Speaker 5: Builders are actually increasing their start So when we look 672 00:34:10,080 --> 00:34:12,960 Speaker 5: out the next year, we think that the broader new 673 00:34:13,000 --> 00:34:15,640 Speaker 5: construction market is up in the mid single digit range, 674 00:34:15,680 --> 00:34:18,120 Speaker 5: but we think that the larger publicly traded home builders 675 00:34:18,760 --> 00:34:21,800 Speaker 5: could be a ten percent. Part of the reason is 676 00:34:21,880 --> 00:34:23,840 Speaker 5: because they have the access to land, they have the 677 00:34:23,840 --> 00:34:27,000 Speaker 5: access to labor, they're well capitalized, and you can transt 678 00:34:27,040 --> 00:34:31,520 Speaker 5: that with their smaller private peers who typically rely on 679 00:34:31,760 --> 00:34:36,279 Speaker 5: regional bank financing to grow their business. So with the 680 00:34:36,400 --> 00:34:39,160 Speaker 5: cost of their capital increasing and the availability of that 681 00:34:39,280 --> 00:34:43,080 Speaker 5: capital increasing, it's harder for them to grow. So that's 682 00:34:43,080 --> 00:34:44,920 Speaker 5: why we think the advantage continues to rest with the 683 00:34:45,000 --> 00:34:45,640 Speaker 5: large builders. 684 00:34:46,080 --> 00:34:49,440 Speaker 4: So are those the builders that we're also offering like 685 00:34:49,600 --> 00:34:52,719 Speaker 4: discounts or sort of adding in some extra juice for 686 00:34:53,040 --> 00:34:55,240 Speaker 4: first time home buyers or home buyers and their property 687 00:34:55,280 --> 00:34:57,080 Speaker 4: so they could get them to sell. Are those are 688 00:34:57,320 --> 00:34:59,320 Speaker 4: those buyers? And do they stop that stuff? 689 00:35:00,800 --> 00:35:03,520 Speaker 5: Yeah, So a majority of the home builders are still 690 00:35:03,600 --> 00:35:09,279 Speaker 5: offering incentives. Most buyers will take a financing incentives and 691 00:35:09,400 --> 00:35:12,200 Speaker 5: you typically think of a rate buydown, and that's the 692 00:35:12,360 --> 00:35:14,680 Speaker 5: builders have had great success in pulling that lever to 693 00:35:14,719 --> 00:35:16,920 Speaker 5: get the get buyers through the door. And it's made 694 00:35:16,960 --> 00:35:20,600 Speaker 5: the monthly payments on a new home increasingly comparable to 695 00:35:20,640 --> 00:35:22,759 Speaker 5: what you would find in these existing home market, which 696 00:35:22,800 --> 00:35:26,120 Speaker 5: isn't something that you've seen historically. Now, one of the 697 00:35:26,480 --> 00:35:29,359 Speaker 5: themes that investors are looking out into twenty twenty four 698 00:35:29,520 --> 00:35:32,680 Speaker 5: is if rates pull back this year, can builders kind 699 00:35:32,680 --> 00:35:34,440 Speaker 5: of take their foot off the gas pedal from an 700 00:35:34,440 --> 00:35:38,399 Speaker 5: incentive perspective, you know, And it was starting to happen, 701 00:35:38,480 --> 00:35:40,520 Speaker 5: but we've had a we've had a hot CPI print, 702 00:35:40,520 --> 00:35:43,839 Speaker 5: we had a hot PPI print today and now we're 703 00:35:43,880 --> 00:35:46,520 Speaker 5: seeing the tenure up about one hundred and fifty basis points. 704 00:35:46,520 --> 00:35:48,840 Speaker 5: So some of the progress that we've made in mortgage 705 00:35:48,920 --> 00:35:51,239 Speaker 5: rates has kind of unwound and we're back up above 706 00:35:51,440 --> 00:35:53,880 Speaker 5: seven percent now. So that's something that we're going to 707 00:35:53,920 --> 00:35:56,319 Speaker 5: be watching. I mean, the trade on the builders has 708 00:35:56,440 --> 00:35:59,640 Speaker 5: really focused around what's happening with rates, and at least 709 00:35:59,640 --> 00:36:01,480 Speaker 5: in the new time, that's going to continue to be 710 00:36:01,560 --> 00:36:03,799 Speaker 5: the story pushing your refinancing. 711 00:36:03,280 --> 00:36:10,200 Speaker 2: Out my refinancing exactly. So drew along that front on 712 00:36:10,239 --> 00:36:12,240 Speaker 2: the mortgage fronts. You talk to people in the industry, 713 00:36:12,800 --> 00:36:16,160 Speaker 2: you know, real estate agents, is there a rate out 714 00:36:16,239 --> 00:36:19,719 Speaker 2: there that they think will kind of get people start 715 00:36:19,800 --> 00:36:22,799 Speaker 2: moving on this existing inventory of real estate, Like if 716 00:36:23,239 --> 00:36:26,640 Speaker 2: rates get below six or get you know, closer to five, 717 00:36:26,800 --> 00:36:28,040 Speaker 2: I mean, is there a clearing rate? 718 00:36:28,160 --> 00:36:31,239 Speaker 5: You think, yeah, good question. Then you know what we've 719 00:36:31,320 --> 00:36:33,359 Speaker 5: found and what we've heard from the people we've talked 720 00:36:33,400 --> 00:36:35,280 Speaker 5: to is it seems like five and a half percent. 721 00:36:35,400 --> 00:36:38,360 Speaker 5: It's kind of that magic number. So we're at about 722 00:36:38,840 --> 00:36:41,719 Speaker 5: right now this morning, about seven percent with the ten 723 00:36:41,760 --> 00:36:43,680 Speaker 5: year rids. We're probably going to be above that in 724 00:36:43,760 --> 00:36:47,560 Speaker 5: the in the coming days. So the cost of builders 725 00:36:47,600 --> 00:36:49,400 Speaker 5: having to buy down that rate to get to that 726 00:36:49,520 --> 00:36:52,040 Speaker 5: five and a half six percent rate, it's going to 727 00:36:52,080 --> 00:36:54,200 Speaker 5: cost a little bit more, but we do think that 728 00:36:54,560 --> 00:36:56,520 Speaker 5: if they can get there, it can it'll continue to 729 00:36:56,560 --> 00:36:57,360 Speaker 5: stoke some demand. 730 00:36:57,640 --> 00:37:00,239 Speaker 4: I was talking to a first home buyer's kind of 731 00:37:00,280 --> 00:37:02,319 Speaker 4: like buy a first house, just got married, blah blah blah, 732 00:37:02,560 --> 00:37:04,600 Speaker 4: and and the real estate agent was being like, it's 733 00:37:04,640 --> 00:37:07,239 Speaker 4: okay by it now and then just refinance, Like no, 734 00:37:07,320 --> 00:37:09,880 Speaker 4: you're going to refinance it. And it was like, but guys, like, 735 00:37:09,960 --> 00:37:11,520 Speaker 4: we don't know when that's going to look like. And 736 00:37:11,600 --> 00:37:13,600 Speaker 4: then I mean it was like really trying to bully 737 00:37:13,680 --> 00:37:14,080 Speaker 4: this guy. 738 00:37:14,680 --> 00:37:16,920 Speaker 2: I got bullied that way? You did, Yes, totally, But 739 00:37:17,000 --> 00:37:19,719 Speaker 2: I like the Jerry sure State comes on the market, 740 00:37:19,760 --> 00:37:20,440 Speaker 2: you got to pounce. 741 00:37:20,560 --> 00:37:25,280 Speaker 4: Yeah, you know, Paul got bullied. I don't know forget. 742 00:37:25,600 --> 00:37:27,319 Speaker 4: I think he willingly knew that. But when you were 743 00:37:27,320 --> 00:37:29,919 Speaker 4: a first home HomeBuyer, that's a totally different thing. Hey, Drew, 744 00:37:30,360 --> 00:37:32,600 Speaker 4: what's priced into these stocks? We're getting toll I think 745 00:37:32,680 --> 00:37:34,600 Speaker 4: Till Brothers next week? What are you looking for? 746 00:37:36,640 --> 00:37:38,440 Speaker 5: Yeah, So basically, what we want to hear is that 747 00:37:38,600 --> 00:37:42,359 Speaker 5: the man trends to begin the year have improved when 748 00:37:42,480 --> 00:37:44,719 Speaker 5: rates are eight percent. So so let me step back 749 00:37:44,760 --> 00:37:46,600 Speaker 5: the broader team that we've heard through earning so far 750 00:37:46,800 --> 00:37:50,120 Speaker 5: is relative weakness towards the end of the fourth quarter, 751 00:37:50,200 --> 00:37:53,879 Speaker 5: with modest improvements in January and into February. So that's 752 00:37:53,880 --> 00:37:55,360 Speaker 5: what we want to hear from Toll Brothers is that 753 00:37:55,760 --> 00:37:58,879 Speaker 5: the improvement in demand as rates have come off from 754 00:37:59,000 --> 00:38:02,360 Speaker 5: eight percent, we want to see that that persisted into February. 755 00:38:03,560 --> 00:38:07,080 Speaker 2: And another thing drew are the home builders are they 756 00:38:07,160 --> 00:38:09,680 Speaker 2: meeting what most people tell you is the biggest need 757 00:38:09,760 --> 00:38:11,960 Speaker 2: out there, which is entry level homes or were they 758 00:38:12,040 --> 00:38:15,200 Speaker 2: just building the high margin McMansions stuff. 759 00:38:16,600 --> 00:38:18,960 Speaker 5: Yeah, so there has been a decided shift in the 760 00:38:19,040 --> 00:38:22,279 Speaker 5: industry over the last couple of years to get down 761 00:38:22,320 --> 00:38:24,240 Speaker 5: to lower price points where a lot of the demand 762 00:38:24,360 --> 00:38:27,319 Speaker 5: is a lot of the demographic demand going forward will 763 00:38:27,400 --> 00:38:29,800 Speaker 5: be and builders have had extreme success. I mean some 764 00:38:29,880 --> 00:38:33,840 Speaker 5: of the names that stand out are deor Horton Lennar 765 00:38:34,400 --> 00:38:36,840 Speaker 5: is very focused on price. They're willing to meet the market. 766 00:38:37,239 --> 00:38:40,439 Speaker 5: A Meritage Homes who has completely shifted their business from 767 00:38:40,960 --> 00:38:42,839 Speaker 5: one that was heavy in the move upside of things 768 00:38:43,160 --> 00:38:47,120 Speaker 5: and now builds almost exclusively at the entry level. So 769 00:38:47,239 --> 00:38:49,200 Speaker 5: there has been an ongoing shift over the last couple 770 00:38:49,239 --> 00:38:51,759 Speaker 5: of years. We think that's going to continue, not only 771 00:38:51,840 --> 00:38:54,200 Speaker 5: because you know, that's where the demand is. But it's 772 00:38:54,239 --> 00:38:58,160 Speaker 5: another way to kind of help solve that affordability puzzle 773 00:38:58,200 --> 00:38:59,319 Speaker 5: that buyers are facing right now. 774 00:39:00,000 --> 00:39:03,200 Speaker 4: Actually, when how many people have mortgages under three or 775 00:39:03,280 --> 00:39:07,120 Speaker 4: under four, they're just never going to move Like me, Okay, 776 00:39:07,160 --> 00:39:09,839 Speaker 4: you any mortgage tucker that doesn't count you paid it off. 777 00:39:10,360 --> 00:39:16,359 Speaker 4: I didn't because it's yeah whatever, I got two point 778 00:39:16,400 --> 00:39:17,120 Speaker 4: seventy five beat that. 779 00:39:18,080 --> 00:39:20,360 Speaker 5: It's well well over fifty percent of the market. 780 00:39:20,600 --> 00:39:23,160 Speaker 4: Yeah, So like that inventory is not coming back, like 781 00:39:23,880 --> 00:39:25,279 Speaker 4: that hurdle is going to be super high. 782 00:39:26,760 --> 00:39:28,959 Speaker 5: Yeah, And that's one of the reasons why we've seen 783 00:39:30,120 --> 00:39:32,800 Speaker 5: resell inventories be so low. And I do think you know, 784 00:39:32,880 --> 00:39:35,200 Speaker 5: as you start to get I do think that buyers 785 00:39:35,400 --> 00:39:38,480 Speaker 5: and sellers perceptions have changed. I mean there's an adjustment period. 786 00:39:38,520 --> 00:39:40,279 Speaker 5: It's not just that you know, people are never going 787 00:39:40,360 --> 00:39:42,680 Speaker 5: to move again. There's certain reasons why you have to move. 788 00:39:42,719 --> 00:39:45,200 Speaker 5: But I think if freights start to get below six percent, 789 00:39:47,120 --> 00:39:48,959 Speaker 5: in that six percent range, I do think it'll start 790 00:39:48,960 --> 00:39:51,320 Speaker 5: to unlock some of those sellers. And what also have 791 00:39:51,440 --> 00:39:54,360 Speaker 5: to remember is we're that that mortgage rate lock and 792 00:39:54,400 --> 00:39:57,720 Speaker 5: effect that we've talked about is gradually starting to loosen 793 00:39:58,200 --> 00:40:00,520 Speaker 5: because you've had a lot of people are over the 794 00:40:00,640 --> 00:40:03,640 Speaker 5: last year and a half to two years transact at 795 00:40:03,680 --> 00:40:07,200 Speaker 5: higher rates, so as rates have fallen below peak levels, 796 00:40:07,280 --> 00:40:09,360 Speaker 5: that does loosen things up a little bit by itself. 797 00:40:09,800 --> 00:40:11,600 Speaker 2: All right, great stuff, Drew, Thanks so much for joining us, 798 00:40:11,640 --> 00:40:14,960 Speaker 2: Drew reading he's a homebuilder analyst for Bloomberg Intelligence. 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