1 00:00:02,920 --> 00:00:10,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,840 --> 00:00:15,000 Speaker 1: Bloomberg Intelligence Podcast. Catch us Live weekdays at ten am 3 00:00:15,040 --> 00:00:17,520 Speaker 1: Eastern on fo car Playing and broyd Otto with the 4 00:00:17,520 --> 00:00:21,400 Speaker 1: Bloomberg Business app. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:24,480 Speaker 1: or watch us live on YouTube. 6 00:00:25,480 --> 00:00:27,880 Speaker 2: The US House is passing the bill that would force 7 00:00:28,320 --> 00:00:31,320 Speaker 2: TikTok sale or face a band. We want to get 8 00:00:31,320 --> 00:00:33,720 Speaker 2: a little bit more on this with Daniel Flatley, Bloomberg 9 00:00:33,760 --> 00:00:38,240 Speaker 2: national security reporter, joining us on this. Daniel, what happens 10 00:00:38,240 --> 00:00:40,800 Speaker 2: now and kind of what is the victory here on 11 00:00:40,840 --> 00:00:42,160 Speaker 2: a national security level? 12 00:00:43,560 --> 00:00:45,839 Speaker 3: Yeah, I mean it's a it's a great question. So, 13 00:00:46,080 --> 00:00:48,640 Speaker 3: like you said, the House just voted a pretty big 14 00:00:49,960 --> 00:00:53,480 Speaker 3: vote in terms of support for the sale or band 15 00:00:53,520 --> 00:00:55,840 Speaker 3: of TikTok. That was a vote of three fifty two 16 00:00:56,600 --> 00:01:00,160 Speaker 3: in favor of sixty five against. So that gives it 17 00:01:00,240 --> 00:01:04,840 Speaker 3: some momentum heading into what might be a much murkier 18 00:01:04,920 --> 00:01:07,520 Speaker 3: pass forward in the Senate. You know, we've talked to 19 00:01:07,600 --> 00:01:11,160 Speaker 3: senators over the last couple of days and basically they 20 00:01:11,200 --> 00:01:14,760 Speaker 3: have some concerns as senators are wont to do about 21 00:01:14,760 --> 00:01:17,240 Speaker 3: the speed with which this has passed The House and 22 00:01:18,040 --> 00:01:20,360 Speaker 3: or moved through the House. And also is this the 23 00:01:20,440 --> 00:01:23,200 Speaker 3: right approach? Do we want to you know, target a 24 00:01:23,240 --> 00:01:26,720 Speaker 3: specific company. So we don't know yet. In the Senate's 25 00:01:26,760 --> 00:01:30,800 Speaker 3: out today inconveniently, so we don't know exactly what the 26 00:01:30,800 --> 00:01:32,720 Speaker 3: path forward will be in that chamber. But Biden has 27 00:01:32,760 --> 00:01:35,240 Speaker 3: said that he would sign this if it passes Congress. 28 00:01:35,280 --> 00:01:37,039 Speaker 3: So I think they're moving very quickly at the moment. 29 00:01:37,720 --> 00:01:39,679 Speaker 4: Can you you know, you made this interesting point that 30 00:01:39,800 --> 00:01:42,319 Speaker 4: the future of this looks a little bit murky, But 31 00:01:42,440 --> 00:01:46,240 Speaker 4: can you just remind us what's the national security risk 32 00:01:46,400 --> 00:01:49,320 Speaker 4: that we're facing, you know, such that we need to 33 00:01:49,360 --> 00:01:51,280 Speaker 4: have this bill in order for it to be solved. 34 00:01:52,640 --> 00:01:57,320 Speaker 3: Yeah, no, it's a great question. So critics of TikTok, 35 00:01:57,560 --> 00:02:01,840 Speaker 3: you know, national security officials, including most prominently probably the 36 00:02:01,880 --> 00:02:05,360 Speaker 3: FBI director Christopher Ray, have long sort of warned about 37 00:02:05,360 --> 00:02:09,680 Speaker 3: two primary vectors, if you will, of national security threats 38 00:02:09,720 --> 00:02:13,440 Speaker 3: that could come from TikTok. One is data. So you know, 39 00:02:13,560 --> 00:02:16,840 Speaker 3: the government of China several years ago now passed a 40 00:02:16,919 --> 00:02:20,440 Speaker 3: law that says any company that was within the Chinese 41 00:02:20,560 --> 00:02:23,400 Speaker 3: territory could be compelled to give data over to the 42 00:02:23,480 --> 00:02:26,760 Speaker 3: Chinese government. You know, if they ask for it. So 43 00:02:27,120 --> 00:02:29,919 Speaker 3: that's one big problem. And then the other big problem 44 00:02:29,960 --> 00:02:33,160 Speaker 3: is sort of could TikTok be used in an influence campaign, 45 00:02:33,200 --> 00:02:36,760 Speaker 3: could have used to spread propaganda, you know, all sorts 46 00:02:36,800 --> 00:02:39,160 Speaker 3: of things like that, could have been married potentially some 47 00:02:39,200 --> 00:02:41,880 Speaker 3: of the data that's collected through TikTok with some other 48 00:02:41,960 --> 00:02:44,120 Speaker 3: data that the Chinese government has gotten through hacks or 49 00:02:44,160 --> 00:02:49,399 Speaker 3: other sort of cyber security actions and used to blackmail 50 00:02:49,480 --> 00:02:51,200 Speaker 3: or bribe people. So that's all of that. 51 00:02:51,600 --> 00:02:53,720 Speaker 2: Yeah, that's the one that really makes me nervous. Ll right, 52 00:02:53,760 --> 00:02:55,679 Speaker 2: Daniel Thoughtley, We appreciate it when you're quite busy. A 53 00:02:55,680 --> 00:02:59,639 Speaker 2: Bloomberg National security reporter joining us. So the broader question 54 00:02:59,680 --> 00:03:01,600 Speaker 2: then is if TikTok is banned here in the US, 55 00:03:01,720 --> 00:03:04,240 Speaker 2: what do you do with your ad dollars? Like, where 56 00:03:04,280 --> 00:03:06,560 Speaker 2: do they wind up going? One person to go to 57 00:03:06,720 --> 00:03:09,480 Speaker 2: on this Siemashaw, vice president of Research and Insights at 58 00:03:09,520 --> 00:03:12,799 Speaker 2: Censor Tower. She joins us now to discuss Sema also 59 00:03:12,919 --> 00:03:15,680 Speaker 2: used to work here, and she's really fabulous. You So 60 00:03:15,680 --> 00:03:17,160 Speaker 2: we have I'm an advertiser. What do I do? Do 61 00:03:17,200 --> 00:03:19,799 Speaker 2: I just go pile all that money into Instagram? Well? 62 00:03:19,840 --> 00:03:21,480 Speaker 5: Okay, first, so the best way that we can go 63 00:03:21,480 --> 00:03:23,600 Speaker 5: about thinking about this is thinking about what happened in 64 00:03:23,600 --> 00:03:26,200 Speaker 5: India and June of twenty twenty when India band TikTok. 65 00:03:26,600 --> 00:03:30,040 Speaker 5: So essentially what we saw was huge gains for both 66 00:03:30,160 --> 00:03:33,880 Speaker 5: for Instagram in particular in terms of active users, but 67 00:03:34,000 --> 00:03:38,280 Speaker 5: also on an absolute basis for YouTube. And to step 68 00:03:38,400 --> 00:03:41,000 Speaker 5: up one step back, the reason is we've seen a 69 00:03:41,080 --> 00:03:44,560 Speaker 5: huge growth in the popularity of short form video. Based 70 00:03:44,600 --> 00:03:47,760 Speaker 5: on our data, users spend about three hundred and fifty 71 00:03:47,760 --> 00:03:50,840 Speaker 5: million hours per day on short form video versus one 72 00:03:50,920 --> 00:03:53,480 Speaker 5: hundred and fifty million for social media and less than 73 00:03:53,480 --> 00:03:57,400 Speaker 5: fifteen million for streaming. So it's the popularity of this 74 00:03:57,560 --> 00:04:00,440 Speaker 5: short form video and that's why you saw in Instagram 75 00:04:00,480 --> 00:04:03,840 Speaker 5: roll out reels right. So now about forty over forty 76 00:04:03,840 --> 00:04:06,360 Speaker 5: percent of peopil's time on Instagram is spent on the 77 00:04:06,360 --> 00:04:09,240 Speaker 5: reels portion. So when you're an advertiser, not only do 78 00:04:09,240 --> 00:04:11,880 Speaker 5: you want to be on the app where people have 79 00:04:11,920 --> 00:04:14,080 Speaker 5: the most engagement, but you also want to be on 80 00:04:14,120 --> 00:04:16,760 Speaker 5: the right place on the app. So in Instagram's case, 81 00:04:16,800 --> 00:04:20,000 Speaker 5: it would be in reels. And so to think about 82 00:04:20,080 --> 00:04:21,680 Speaker 5: so that's how much time people spend on short from 83 00:04:21,760 --> 00:04:25,400 Speaker 5: video for TikTok in particular, globally, people spend seventy eight 84 00:04:25,440 --> 00:04:28,600 Speaker 5: minutes per day on it compared to forty eight for Instagram, 85 00:04:28,680 --> 00:04:32,520 Speaker 5: and I think it's like twenty three sub thirty for Snapchat. 86 00:04:32,720 --> 00:04:36,000 Speaker 5: So Instagram has a highly engaged audience. It's become increasingly 87 00:04:36,040 --> 00:04:39,400 Speaker 5: popular with advertisers because it has a younger audience. Right, 88 00:04:39,480 --> 00:04:42,680 Speaker 5: So you see, we've seen ad dollars shift within the 89 00:04:42,800 --> 00:04:47,919 Speaker 5: United States to TikTok, but Instagram remains popular. So I 90 00:04:47,960 --> 00:04:51,320 Speaker 5: think that the short answer is you'll see gains in 91 00:04:51,440 --> 00:04:55,120 Speaker 5: share for Instagram in terms of ad dollars, and probably YouTube, 92 00:04:56,040 --> 00:04:59,839 Speaker 5: maybe less so Facebook because Instagram still has a younger 93 00:05:00,560 --> 00:05:04,960 Speaker 5: audience than Facebook. But I think that is the biggest repercussion. 94 00:05:04,960 --> 00:05:07,680 Speaker 5: But for TikTok itself, the US is ten percent of 95 00:05:07,680 --> 00:05:10,600 Speaker 5: their active users, twenty percent of their in app revenue, 96 00:05:11,720 --> 00:05:14,720 Speaker 5: and they've been growing their advertising business in the US 97 00:05:14,760 --> 00:05:18,400 Speaker 5: and probably globally, so on an absolute basis, this would 98 00:05:18,480 --> 00:05:23,200 Speaker 5: be a blow to them and symbolic because it's if 99 00:05:23,240 --> 00:05:25,240 Speaker 5: it happened in the US, it could be copied in 100 00:05:25,320 --> 00:05:26,599 Speaker 5: Western Europe as well. 101 00:05:27,080 --> 00:05:30,520 Speaker 4: I had absolutely no idea that the proportion of people 102 00:05:30,560 --> 00:05:34,160 Speaker 4: watching short form video versus social media was so skewed 103 00:05:34,240 --> 00:05:36,640 Speaker 4: that way. But let me ask you a question from 104 00:05:36,640 --> 00:05:39,280 Speaker 4: the point of view of an advertiser. So this is 105 00:05:39,320 --> 00:05:42,080 Speaker 4: all about, well, where advertisers is going to put their money. 106 00:05:42,240 --> 00:05:44,520 Speaker 4: But can you take a step back for me and 107 00:05:44,600 --> 00:05:49,799 Speaker 4: give me a picture of where how popular is social 108 00:05:49,880 --> 00:05:54,679 Speaker 4: media short form video spending versus other types of spending, billboards, whatever, 109 00:05:54,880 --> 00:05:55,640 Speaker 4: magazine ads. 110 00:05:56,680 --> 00:05:58,839 Speaker 5: So our data focuses on digital advertise. 111 00:05:59,080 --> 00:05:59,440 Speaker 4: Digital. 112 00:05:59,680 --> 00:06:02,800 Speaker 5: Digital is growing because that's where a greater portion of 113 00:06:02,839 --> 00:06:07,279 Speaker 5: people's attention is, and particularly within apps, right because time 114 00:06:07,320 --> 00:06:09,960 Speaker 5: on apps and you're kind of trapped you're looking at 115 00:06:09,960 --> 00:06:11,720 Speaker 5: the ad, right, so if they place it on your 116 00:06:11,720 --> 00:06:13,440 Speaker 5: feed or in your reels, you don't really have a 117 00:06:13,520 --> 00:06:17,960 Speaker 5: choice but to see it. And because apps like Instagram 118 00:06:18,080 --> 00:06:20,160 Speaker 5: and TikTok knows so much about the user, they can 119 00:06:20,200 --> 00:06:24,320 Speaker 5: target their ads, right, so they can tell their advertisers, look, 120 00:06:24,360 --> 00:06:26,680 Speaker 5: our audience is this, We're going to show your ad 121 00:06:26,720 --> 00:06:29,440 Speaker 5: here where these people will see it. So I don't 122 00:06:29,480 --> 00:06:32,240 Speaker 5: have the breakdown of digital versus traditional, but certainly digital 123 00:06:32,279 --> 00:06:35,520 Speaker 5: is growing at a much much faster rate, and particularly 124 00:06:35,720 --> 00:06:36,600 Speaker 5: in the mobile space. 125 00:06:36,640 --> 00:06:40,479 Speaker 2: I mean, this is a very appealing business model. With 126 00:06:40,560 --> 00:06:43,560 Speaker 2: a lot of growth, So yes, would it be easy 127 00:06:43,640 --> 00:06:46,680 Speaker 2: for another company to buy TikTok. Then, based on all 128 00:06:46,720 --> 00:06:49,760 Speaker 2: these users, all this AD revenue and the growing. 129 00:06:49,440 --> 00:06:53,479 Speaker 5: Platform, assuming they could just buy TikTok as is without 130 00:06:53,520 --> 00:06:57,039 Speaker 5: any other changes, it would be a huge gain for 131 00:06:57,120 --> 00:07:01,560 Speaker 5: somebody who's trying to grow in this space, right, because 132 00:07:01,680 --> 00:07:04,960 Speaker 5: it's really hard now to grow users. Instagram as growing users, 133 00:07:06,080 --> 00:07:08,680 Speaker 5: TikTok has seen a deceleration in the growth rate, it's 134 00:07:08,680 --> 00:07:14,120 Speaker 5: still positive. And then apps like Snapchat are seeing growth internationally, 135 00:07:14,600 --> 00:07:16,640 Speaker 5: but that's because they haven't been there before. But for 136 00:07:16,680 --> 00:07:21,040 Speaker 5: the most part, similar to streaming, it's the apps are 137 00:07:21,120 --> 00:07:23,480 Speaker 5: very saturated right in terms of downloads, so you have 138 00:07:23,560 --> 00:07:26,000 Speaker 5: to think of what can you do to drive that engagement, 139 00:07:26,480 --> 00:07:28,840 Speaker 5: right and so reels and then obviously TikTok have been 140 00:07:28,880 --> 00:07:31,680 Speaker 5: able to get that attention and drive that engagement. So 141 00:07:32,000 --> 00:07:34,000 Speaker 5: if you're somebody who wants to be in this space 142 00:07:34,240 --> 00:07:36,800 Speaker 5: and you're not owned by a Chinese company, this would 143 00:07:36,800 --> 00:07:38,320 Speaker 5: be a great opportunity for you. 144 00:07:39,840 --> 00:07:41,559 Speaker 2: So get into this real quick. 145 00:07:41,960 --> 00:07:44,440 Speaker 4: This is the trick question or the billion dollar question. Now, 146 00:07:44,640 --> 00:07:47,200 Speaker 4: who would be a potential buyer? Do you have any 147 00:07:47,240 --> 00:07:47,880 Speaker 4: thoughts on that? 148 00:07:49,400 --> 00:07:52,200 Speaker 5: I've heard news of a lot of different companies buying it. 149 00:07:52,320 --> 00:07:55,280 Speaker 5: I mean, I think you would depend also on a regulation. 150 00:07:55,480 --> 00:07:58,360 Speaker 5: I mean, clearly one of the existing social media platforms 151 00:07:58,360 --> 00:08:01,600 Speaker 5: may want to buy them. I don't think meta platforms 152 00:08:01,600 --> 00:08:03,560 Speaker 5: would be allowed to do so. But then you have 153 00:08:03,640 --> 00:08:08,960 Speaker 5: someone like a Snap or even smaller ones like Pinterest, 154 00:08:09,440 --> 00:08:11,480 Speaker 5: if they were able to finance such a purchase, that 155 00:08:11,520 --> 00:08:16,360 Speaker 5: would certainly push them way up in terms of active users, engagement, 156 00:08:16,480 --> 00:08:19,560 Speaker 5: and understanding the audience even better because they'd have that 157 00:08:19,600 --> 00:08:21,000 Speaker 5: many more users to analyze. 158 00:08:21,040 --> 00:08:23,600 Speaker 2: Semen, it's so great to see you, amazing analysis and 159 00:08:23,600 --> 00:08:27,440 Speaker 2: stat Semasheaw, vice president of Research Insights over at Sensor Tower, 160 00:08:27,680 --> 00:08:29,400 Speaker 2: giving us the lay of the land on what's up 161 00:08:29,400 --> 00:08:32,000 Speaker 2: next for TikTok. As the House does pass the bill 162 00:08:32,120 --> 00:08:34,200 Speaker 2: to either banon or spin an off, does it go 163 00:08:34,280 --> 00:08:36,280 Speaker 2: to the Senate? Is really now the question? 164 00:08:37,960 --> 00:08:41,839 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 165 00:08:41,920 --> 00:08:45,440 Speaker 1: weekdays at ten am Eastern on applecar Play and Android 166 00:08:45,480 --> 00:08:48,240 Speaker 1: Auto with the Bloomberg Business app. You can also listen 167 00:08:48,360 --> 00:08:51,440 Speaker 1: live on Amazon Alexa from our flagship New York station, 168 00:08:51,840 --> 00:08:54,880 Speaker 1: Just Say Alexa Play Bloomberg eleven thirty. 169 00:08:56,080 --> 00:08:57,920 Speaker 2: The other breaking news we had in the last half 170 00:08:58,000 --> 00:09:02,560 Speaker 2: hour is a jug dug in Georgia has dismissed some 171 00:09:02,840 --> 00:09:06,640 Speaker 2: of the counts against former President Trump. Trying to understand 172 00:09:06,679 --> 00:09:10,560 Speaker 2: what that means, particularly how that sets him up going forward. 173 00:09:10,600 --> 00:09:15,360 Speaker 2: Wendy Benjaminson is Washington Senior editor, and she joins us, Now, Wendy, 174 00:09:15,360 --> 00:09:16,120 Speaker 2: what does this mean. 175 00:09:17,080 --> 00:09:20,600 Speaker 6: Well, it is certainly good news for Donald Trump, and 176 00:09:20,679 --> 00:09:23,000 Speaker 6: I'm sure he will he will crow about it and 177 00:09:24,440 --> 00:09:28,000 Speaker 6: offer it up as proof that these are political persecutions. However, 178 00:09:28,080 --> 00:09:30,480 Speaker 6: it leaves some of the more serious charges in place. 179 00:09:30,800 --> 00:09:34,040 Speaker 6: The charges that were dismissed were the charges involving that 180 00:09:34,360 --> 00:09:37,480 Speaker 6: quote unquote perfect many one of his many perfect phone calls, 181 00:09:37,480 --> 00:09:41,160 Speaker 6: so quote unquote to the Secretary of State of Georgia, 182 00:09:41,200 --> 00:09:44,760 Speaker 6: the administer of the elections who you know who heard 183 00:09:44,840 --> 00:09:47,880 Speaker 6: Trump say to him, I just need you to find 184 00:09:47,880 --> 00:09:52,600 Speaker 6: me eleven thousand votes. So that the charge was interfering 185 00:09:52,679 --> 00:09:56,960 Speaker 6: with acted official or solicitation of you know, bad acts. 186 00:09:57,040 --> 00:09:59,800 Speaker 6: So those charges were dismissed. However, there are still these 187 00:10:00,080 --> 00:10:04,400 Speaker 6: rico charges. Those are the racketeering and influence corrupt organization 188 00:10:04,640 --> 00:10:08,760 Speaker 6: charges that prosecutor Fannie Willis has charged Trump with and 189 00:10:08,800 --> 00:10:12,880 Speaker 6: those charges remain, so he is still in jeopardy of 190 00:10:12,440 --> 00:10:16,400 Speaker 6: a felony conviction in the state of Georgia. However, this 191 00:10:16,520 --> 00:10:19,480 Speaker 6: is the same judge who is deciding whether Fannie Willis 192 00:10:19,480 --> 00:10:24,360 Speaker 6: can remain as the prosecutor who you know, over these 193 00:10:24,559 --> 00:10:28,240 Speaker 6: allegations of favoring a certain prosecutor that she was dating 194 00:10:28,960 --> 00:10:31,920 Speaker 6: the man whom she made special prosecutor, so that's still 195 00:10:31,960 --> 00:10:35,160 Speaker 6: hanging over her head. The other reason this may not 196 00:10:35,320 --> 00:10:39,160 Speaker 6: be as great news for Trump as he will undoubtedly 197 00:10:39,200 --> 00:10:45,800 Speaker 6: post or talk about later today is that the judge 198 00:10:45,840 --> 00:10:50,679 Speaker 6: said that Fannie Willis was free to refile charges in 199 00:10:50,720 --> 00:10:53,400 Speaker 6: a different way. So clearly there was some technicality we 200 00:10:53,440 --> 00:10:56,360 Speaker 6: don't know about that led him to dismiss the charges. 201 00:10:56,400 --> 00:10:57,520 Speaker 6: I'm sure we'll know more later. 202 00:11:00,440 --> 00:11:02,040 Speaker 4: Can you give us some sense of the timeline for 203 00:11:02,120 --> 00:11:04,720 Speaker 4: all of these charges in court cases getting resolved, not 204 00:11:04,760 --> 00:11:07,040 Speaker 4: just in Georgia but elsewhere well. 205 00:11:07,200 --> 00:11:11,640 Speaker 6: The hope of some, particularly Democrats, that this would be 206 00:11:11,679 --> 00:11:15,400 Speaker 6: resolved before the election are dimming now there is supposed 207 00:11:15,400 --> 00:11:18,520 Speaker 6: to be jury's election later this month. In the New 208 00:11:18,600 --> 00:11:22,840 Speaker 6: York case over his hush money payments to the porn 209 00:11:22,920 --> 00:11:25,320 Speaker 6: star of Stormy Daniels, whom we allegedly had an affair 210 00:11:25,360 --> 00:11:28,200 Speaker 6: with that's supposed to start later this month. Trump is 211 00:11:28,240 --> 00:11:31,760 Speaker 6: trying to delay it by arguing that they need to 212 00:11:31,800 --> 00:11:34,679 Speaker 6: wait till the Supreme Court rules on immunity. That may 213 00:11:34,720 --> 00:11:39,800 Speaker 6: not be till June. So, like I said, the chances 214 00:11:39,840 --> 00:11:43,320 Speaker 6: of these trials all coming to fruition before the election 215 00:11:43,520 --> 00:11:47,600 Speaker 6: are are slim, but they may be in progress on 216 00:11:47,640 --> 00:11:52,760 Speaker 6: election day, which would be just another unprecedented moment in 217 00:11:52,840 --> 00:11:53,760 Speaker 6: this crazy election. 218 00:11:53,880 --> 00:11:57,040 Speaker 2: Here talk about unprecedented. It is now official. The US 219 00:11:57,080 --> 00:12:00,320 Speaker 2: House passes the bill that would force TikTok sale or 220 00:12:00,360 --> 00:12:04,000 Speaker 2: potentially face a ban. We will talk about that in 221 00:12:04,040 --> 00:12:06,720 Speaker 2: just a moment, sort of what advertisers do in that 222 00:12:06,840 --> 00:12:09,199 Speaker 2: kind of situation. Again, the US passes bill that would 223 00:12:09,559 --> 00:12:13,320 Speaker 2: force TikTok sale or face a ban, as one hundred 224 00:12:13,360 --> 00:12:20,000 Speaker 2: and seventy million people cry, particularly teenagers, cry with pain. 225 00:12:21,080 --> 00:12:24,400 Speaker 2: I do want to get your understanding, Wendy, that what 226 00:12:24,600 --> 00:12:27,360 Speaker 2: is now the smoking gun case that President Trump is 227 00:12:27,440 --> 00:12:30,280 Speaker 2: up against? Right like in all the polling, there is 228 00:12:30,320 --> 00:12:32,960 Speaker 2: always that one thing. If he's convicted on that, I 229 00:12:33,000 --> 00:12:35,880 Speaker 2: won't vote for him. Is there a that still? 230 00:12:36,440 --> 00:12:39,720 Speaker 6: No? Actually, there isn't our Bloomberg News Morning Console poll 231 00:12:39,840 --> 00:12:42,839 Speaker 6: shows that the country the least swing staved voters, who 232 00:12:42,840 --> 00:12:46,040 Speaker 6: are the crucial voters were waiting for are evenly split 233 00:12:46,280 --> 00:12:48,559 Speaker 6: on whether they would still vote for Trump if he 234 00:12:48,640 --> 00:12:50,600 Speaker 6: were convicted on any of these charges. 235 00:12:51,640 --> 00:12:51,840 Speaker 7: There. 236 00:12:52,160 --> 00:12:54,240 Speaker 6: If you just asked the question, would you vote for 237 00:12:54,320 --> 00:12:57,320 Speaker 6: him if he were convicted felon, fifty three percent said 238 00:12:57,360 --> 00:13:00,000 Speaker 6: they would not. But when you divide the cases up 239 00:13:00,120 --> 00:13:02,199 Speaker 6: up into the hush money payments for a point star 240 00:13:02,320 --> 00:13:05,200 Speaker 6: or overthrowing the government, they feel the same way. They 241 00:13:05,440 --> 00:13:09,839 Speaker 6: they're not seeing these cases as one more important than 242 00:13:09,880 --> 00:13:10,160 Speaker 6: the other. 243 00:13:10,720 --> 00:13:13,000 Speaker 2: All right, Wendy, we appreciate it. Thank you very much 244 00:13:13,000 --> 00:13:17,360 Speaker 2: for jumping on with us, Wendy. Benjaminson is Washington Senior editor. 245 00:13:19,840 --> 00:13:23,720 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 246 00:13:23,800 --> 00:13:26,400 Speaker 1: weekdays at ten am Eastern on Apple car Play and 247 00:13:26,440 --> 00:13:29,040 Speaker 1: the Broyd Outo with the Bloomberg Business app. Listen on 248 00:13:29,160 --> 00:13:32,400 Speaker 1: demand wherever you get your podcasts, or watch us live 249 00:13:32,520 --> 00:13:33,880 Speaker 1: on YouTube. 250 00:13:34,600 --> 00:13:37,520 Speaker 2: Let's get Ben Emmons take here, you senior portfolio manager, 251 00:13:37,559 --> 00:13:39,920 Speaker 2: head of fixed income at you as well. He's standing 252 00:13:39,920 --> 00:13:42,720 Speaker 2: by here. So and also if you were in the market, 253 00:13:42,880 --> 00:13:45,120 Speaker 2: you read his notes. They are so great, they are 254 00:13:45,160 --> 00:13:47,600 Speaker 2: so sweeping. They come at least two to three times 255 00:13:47,640 --> 00:13:49,840 Speaker 2: a day. It's one of my go to things to read. Ben. 256 00:13:49,840 --> 00:13:51,960 Speaker 2: So I do want to say thank you for those notes. 257 00:13:52,880 --> 00:13:54,640 Speaker 2: Do you have a Tesla, Juba tesla or an EV? 258 00:13:56,080 --> 00:13:59,199 Speaker 8: I don't, Alix, by the way, fantastic to be with 259 00:13:59,280 --> 00:14:01,760 Speaker 8: you on the show. I think the last time you 260 00:14:01,800 --> 00:14:05,240 Speaker 8: and I spoke was more than five years ago, actually 261 00:14:05,240 --> 00:14:08,840 Speaker 8: were Yeah, it's true. It was right before the pandemic. 262 00:14:08,880 --> 00:14:10,480 Speaker 8: It was in it was in the studio of New 263 00:14:10,520 --> 00:14:13,960 Speaker 8: York with you. So great. Great to be back with you. Yeah, 264 00:14:14,120 --> 00:14:15,640 Speaker 8: so thank you by the way for the shadow on 265 00:14:15,679 --> 00:14:18,760 Speaker 8: the notes. I I don't have a Tesla. In fact, 266 00:14:18,760 --> 00:14:21,400 Speaker 8: I have a Volvo. That's uh, you know that's kind 267 00:14:21,400 --> 00:14:24,520 Speaker 8: of my favorite from my wife. Yeah, that's like European thing, right, 268 00:14:24,520 --> 00:14:27,800 Speaker 8: It's like, you know, it was stuck with that, yeah, 269 00:14:27,920 --> 00:14:30,600 Speaker 8: you know, but a normal gas car. But you know 270 00:14:30,720 --> 00:14:34,040 Speaker 8: to the EV discussion, you know I wrote about us 271 00:14:34,400 --> 00:14:36,960 Speaker 8: not that long ago, but these EV terrors right as in, 272 00:14:37,440 --> 00:14:39,720 Speaker 8: there's going to be I think part of that trade 273 00:14:39,720 --> 00:14:42,480 Speaker 8: war story coming back that the flood of evs from 274 00:14:42,520 --> 00:14:45,360 Speaker 8: out of China is so significant. I was just reading 275 00:14:45,360 --> 00:14:48,200 Speaker 8: the B y D Company, Right, they're putting out a 276 00:14:48,240 --> 00:14:51,600 Speaker 8: new car for twelve thousand dollars that you can buy. 277 00:14:51,800 --> 00:14:54,560 Speaker 8: And this is why these evs are flooding our markets. 278 00:14:54,560 --> 00:14:55,720 Speaker 8: And I think you're going to get a lot of 279 00:14:55,720 --> 00:14:59,440 Speaker 8: pushback from from from the US and Europe and trying 280 00:14:59,440 --> 00:15:02,120 Speaker 8: to you know, curb those those those cars coming into 281 00:15:02,120 --> 00:15:04,880 Speaker 8: countries because it's a major price competition to the likes 282 00:15:04,880 --> 00:15:05,800 Speaker 8: of Tesla and others. 283 00:15:06,360 --> 00:15:08,080 Speaker 4: Well, can you talk a little bit more about that, 284 00:15:08,120 --> 00:15:10,640 Speaker 4: because we've got all the major automakers got their have 285 00:15:10,720 --> 00:15:12,800 Speaker 4: their own EV plays and then we've seen some some 286 00:15:12,880 --> 00:15:15,360 Speaker 4: of them pulling back, and so where is this all 287 00:15:15,400 --> 00:15:16,040 Speaker 4: going to settle? 288 00:15:18,080 --> 00:15:20,120 Speaker 8: Yeah, I think it's going to settle at lower prices. 289 00:15:20,160 --> 00:15:24,480 Speaker 8: I'm afraid. Right, this is real price competition. And you know, 290 00:15:25,040 --> 00:15:27,440 Speaker 8: I think part of the reason why why Tesla is 291 00:15:27,480 --> 00:15:31,320 Speaker 8: losing its Magnificent seven status it was it had a 292 00:15:31,400 --> 00:15:33,800 Speaker 8: very smart tactic I think about a year two years ago, 293 00:15:34,400 --> 00:15:37,680 Speaker 8: lowering prices and thereforejuiceing the sales. And now you're seeing 294 00:15:37,720 --> 00:15:40,320 Speaker 8: the opposite sign of it, at least for now, right 295 00:15:40,320 --> 00:15:42,760 Speaker 8: there may have to cut more in prices to get 296 00:15:43,000 --> 00:15:47,200 Speaker 8: higher sales, right, So it's the competition aspect microeconomics as 297 00:15:47,240 --> 00:15:49,560 Speaker 8: you will. But I think this is what what what 298 00:15:49,600 --> 00:15:51,880 Speaker 8: the EV market is ultimately about, is going to be 299 00:15:51,920 --> 00:15:55,120 Speaker 8: even lower prices. And for China that doesn't matter, right, 300 00:15:55,200 --> 00:15:57,960 Speaker 8: They like to continue to produce at even lower prices, 301 00:15:57,960 --> 00:15:59,800 Speaker 8: So I expect more competition. 302 00:16:00,360 --> 00:16:02,200 Speaker 2: So, Ben, let's broad out for a second, because we've 303 00:16:02,240 --> 00:16:05,240 Speaker 2: been talking about how the NASDAC is selling off. I've 304 00:16:05,320 --> 00:16:08,040 Speaker 2: used that relative term, and you still have small caps 305 00:16:08,040 --> 00:16:12,320 Speaker 2: holding up. Is this a rotation that we think putting 306 00:16:12,480 --> 00:16:16,720 Speaker 2: yesterday aside, this rotation from tech to small caps has legs. 307 00:16:18,000 --> 00:16:21,400 Speaker 8: I think it does have sum legs alex because it 308 00:16:21,520 --> 00:16:25,400 Speaker 8: makes sense that if you have a specific group semiconductors 309 00:16:25,400 --> 00:16:28,400 Speaker 8: in this case in the video, maybe the star of it, 310 00:16:28,480 --> 00:16:31,119 Speaker 8: but there's other related ones if you think of Broadcom, 311 00:16:31,120 --> 00:16:35,040 Speaker 8: of IBM or any of those companies, that it expands 312 00:16:35,040 --> 00:16:37,760 Speaker 8: itself out to other sectors. Now, I thought what was 313 00:16:37,840 --> 00:16:41,680 Speaker 8: really interesting was the earnings from Navidia highlighting that their 314 00:16:41,760 --> 00:16:45,800 Speaker 8: technology is now being used in healthcare and financial services, 315 00:16:46,200 --> 00:16:49,880 Speaker 8: in automotive and I thought that was like, Okay, this 316 00:16:50,000 --> 00:16:55,080 Speaker 8: is actually along Gens's view about these AI agents, right, 317 00:16:55,080 --> 00:16:59,280 Speaker 8: they're spreading across the industries, and I think this is 318 00:16:59,360 --> 00:17:01,920 Speaker 8: part of that moddening aspect of the market. Like if 319 00:17:01,920 --> 00:17:05,399 Speaker 8: that's true the investment that the administration making in the 320 00:17:05,880 --> 00:17:09,240 Speaker 8: semis in the economy, plus in the VIA being such 321 00:17:09,280 --> 00:17:12,240 Speaker 8: a powerful force on the economy in itself by spreading 322 00:17:12,240 --> 00:17:14,920 Speaker 8: all this technology, then the other sectors are going to 323 00:17:14,960 --> 00:17:16,480 Speaker 8: lift up too. At least the market will try to 324 00:17:16,520 --> 00:17:18,800 Speaker 8: price it. You know what it means for the economy 325 00:17:18,840 --> 00:17:22,320 Speaker 8: for out companies. Of course, in the end of the day, 326 00:17:22,440 --> 00:17:25,320 Speaker 8: we do have to see AI truly pay off with sales, 327 00:17:25,960 --> 00:17:29,159 Speaker 8: meaning you use AI and it can actually generate more sales, 328 00:17:29,160 --> 00:17:32,640 Speaker 8: and say in healthcare of financial financial sector, say right, 329 00:17:33,480 --> 00:17:35,679 Speaker 8: we haven't seen that yet, But I think the market 330 00:17:35,720 --> 00:17:38,840 Speaker 8: wants to broaden out to discount that these sales will 331 00:17:38,920 --> 00:17:41,880 Speaker 8: increase over time as AI is more widely adopted. 332 00:17:42,720 --> 00:17:44,800 Speaker 4: I wonder if we could shift here just a little 333 00:17:44,840 --> 00:17:48,640 Speaker 4: bit and think about the yesterday's CPI print, because we've 334 00:17:48,680 --> 00:17:50,880 Speaker 4: got this broadening out in the equity market, but there's 335 00:17:50,920 --> 00:17:53,720 Speaker 4: also an enthusiasm there for the Fed to continue with 336 00:17:53,800 --> 00:17:56,560 Speaker 4: its easing message, and so I wondered if you thought 337 00:17:56,880 --> 00:18:00,760 Speaker 4: the CPI number yesterday should you know, give anyone some 338 00:18:00,800 --> 00:18:03,040 Speaker 4: confidence that there's still cuts coming, or are you more 339 00:18:03,080 --> 00:18:05,119 Speaker 4: of a mind that, hang on a minute, we might 340 00:18:05,160 --> 00:18:06,800 Speaker 4: see fewer cuts and people are expecting. 341 00:18:08,160 --> 00:18:11,200 Speaker 8: Yeah, I'm more on that on that camp fewer cuts, 342 00:18:11,520 --> 00:18:14,479 Speaker 8: because I think what this CPI data showed was that 343 00:18:14,960 --> 00:18:19,960 Speaker 8: one the disinflation is stalling out. That's clearly now happening. 344 00:18:21,280 --> 00:18:24,480 Speaker 8: Two we're certainly not going to go back to where 345 00:18:24,480 --> 00:18:28,160 Speaker 8: we came from pre pandemic. There's too much pricing pressure 346 00:18:28,280 --> 00:18:31,800 Speaker 8: building in the economy. Still, We're certainly not that the 347 00:18:31,840 --> 00:18:34,920 Speaker 8: disinflation is going to flip over into deflation, even though 348 00:18:34,920 --> 00:18:37,800 Speaker 8: I would know that. Bloomer Intelligence are a very nice 349 00:18:37,840 --> 00:18:41,360 Speaker 8: graph out on how the number of categories with prices 350 00:18:41,400 --> 00:18:44,359 Speaker 8: below zero has definitely increased. But if you look at 351 00:18:44,359 --> 00:18:46,800 Speaker 8: the percentage was about thirty five percent of CPI index. 352 00:18:47,119 --> 00:18:49,560 Speaker 8: That's not too significantly different from a few years ago, 353 00:18:49,640 --> 00:18:53,160 Speaker 8: but it has somewhat increased. I guess again, price competition 354 00:18:53,240 --> 00:18:56,880 Speaker 8: probably in the economy. So I think the feeds at 355 00:18:56,880 --> 00:19:00,879 Speaker 8: that moment to say this CPI data there underscores that 356 00:19:00,920 --> 00:19:04,399 Speaker 8: the economy stays above trend and until the economy truly 357 00:19:04,440 --> 00:19:07,479 Speaker 8: moves back to trend right, just to trend, you cannot 358 00:19:07,520 --> 00:19:10,640 Speaker 8: actually cut rates. I think that that is I think 359 00:19:10,640 --> 00:19:13,320 Speaker 8: the big challenge for the fat here why they probably 360 00:19:13,359 --> 00:19:14,840 Speaker 8: stay on hold for a little while. 361 00:19:15,080 --> 00:19:17,160 Speaker 2: Right, And first of all, if you shot ut Bloomberg 362 00:19:17,200 --> 00:19:19,560 Speaker 2: intelligence like you're coming back all the time, like that's 363 00:19:19,600 --> 00:19:23,280 Speaker 2: a definite plus one for ben Emmons. But if that's 364 00:19:23,320 --> 00:19:25,639 Speaker 2: the case, and I mentioned earlier that Jeffrey is starting 365 00:19:25,680 --> 00:19:28,440 Speaker 2: to talk about that also sort of following Torsten slockover 366 00:19:28,480 --> 00:19:30,719 Speaker 2: at Apollo, why buy small caps? 367 00:19:32,520 --> 00:19:35,880 Speaker 8: Yeah, I think you need to trade that differently. Ale said, 368 00:19:35,960 --> 00:19:38,800 Speaker 8: you know, people, if you traded too simplistically, like cut 369 00:19:38,880 --> 00:19:41,800 Speaker 8: rates and then buy small caps. There's a lot in 370 00:19:41,840 --> 00:19:44,879 Speaker 8: between there, right, you know one the small cup index. 371 00:19:45,119 --> 00:19:46,760 Speaker 8: You know a lot of people look at that like, Okay, 372 00:19:46,800 --> 00:19:48,960 Speaker 8: there's about I guess forty percent or so that our 373 00:19:49,200 --> 00:19:52,760 Speaker 8: companies are highly indebted, non profitable companies. I guess they 374 00:19:52,840 --> 00:19:57,160 Speaker 8: benefit from lower rates. But it's also just I think 375 00:19:57,200 --> 00:20:00,480 Speaker 8: it was of the economy in itself. I think small caps, 376 00:20:00,520 --> 00:20:02,720 Speaker 8: I think of small business, I think of you know, 377 00:20:02,800 --> 00:20:06,520 Speaker 8: what's all happening on the ground. So was I think 378 00:20:06,560 --> 00:20:09,040 Speaker 8: notable is what Bostic said that they went out and 379 00:20:09,040 --> 00:20:12,280 Speaker 8: did a survey among businesses, and as businesses said like, well, 380 00:20:12,840 --> 00:20:14,960 Speaker 8: we think that if you cut rates the economy is 381 00:20:14,960 --> 00:20:17,159 Speaker 8: only going to get stronger. We're actually waiting for you 382 00:20:17,240 --> 00:20:19,639 Speaker 8: to do that and then we'll re see even more activity. 383 00:20:20,160 --> 00:20:23,080 Speaker 8: So it is partly true that I think cutting rates 384 00:20:23,080 --> 00:20:26,520 Speaker 8: will benefit small caps, but there's also some micro aspects 385 00:20:26,520 --> 00:20:29,280 Speaker 8: to it, so I won't be all in our view 386 00:20:29,320 --> 00:20:31,320 Speaker 8: by the way the new edge is said, as Cameron 387 00:20:31,359 --> 00:20:33,600 Speaker 8: probably talked to you about it, is that we're taking 388 00:20:33,680 --> 00:20:36,879 Speaker 8: very selective approach to small caps because as you can 389 00:20:36,920 --> 00:20:38,879 Speaker 8: tell when we haven't set a new record higher small 390 00:20:38,920 --> 00:20:41,520 Speaker 8: caps really because they are downs about radcots. On the 391 00:20:41,520 --> 00:20:44,439 Speaker 8: other end, it's also about specific companies there. So it's 392 00:20:44,480 --> 00:20:46,199 Speaker 8: a bit of a mixed back I think, and it 393 00:20:46,240 --> 00:20:48,640 Speaker 8: probably will stay that way until we get a little 394 00:20:48,640 --> 00:20:51,600 Speaker 8: bit more clarity on if the economy is going to 395 00:20:51,680 --> 00:20:53,879 Speaker 8: keep tracking on the way we are doing right now. 396 00:20:54,160 --> 00:20:55,879 Speaker 4: What do you think is the biggest risk there for 397 00:20:55,920 --> 00:20:57,920 Speaker 4: the economy to keep tracking the way that we're going now? 398 00:20:59,680 --> 00:21:03,040 Speaker 8: Wow, One, it's that we are going to see a 399 00:21:03,200 --> 00:21:07,520 Speaker 8: change in fiscal spending. If that actually happens as in 400 00:21:08,200 --> 00:21:11,560 Speaker 8: more cuts, right then I think the economy could slow, 401 00:21:11,880 --> 00:21:13,800 Speaker 8: but this is clearing out of the story for this year. 402 00:21:14,080 --> 00:21:17,280 Speaker 8: As you can tell. You know, we'll keep rolling the 403 00:21:17,080 --> 00:21:20,440 Speaker 8: the shutdowns like rolling Black House. But it doesn't matter 404 00:21:20,440 --> 00:21:23,400 Speaker 8: for the market because they know, like nobody's gonna put 405 00:21:23,480 --> 00:21:27,280 Speaker 8: any type of significant cut into spending until there's a 406 00:21:27,280 --> 00:21:30,000 Speaker 8: new president in the White House. And and that's the 407 00:21:30,040 --> 00:21:35,400 Speaker 8: big big I'd saying uncertainty from here, you know, whomever 408 00:21:35,440 --> 00:21:38,200 Speaker 8: gets in there. My view on this is is not political. 409 00:21:38,359 --> 00:21:40,800 Speaker 8: Was more about you know, how much you're gonna cut 410 00:21:40,840 --> 00:21:43,040 Speaker 8: really right and still try to keep the economy on 411 00:21:43,119 --> 00:21:46,480 Speaker 8: track right and. 412 00:21:45,040 --> 00:21:47,040 Speaker 2: And also feels like fiscal is gonna come either way. 413 00:21:47,080 --> 00:21:49,560 Speaker 2: Ben Emmons joins US senior portfolio manager, head of fixed 414 00:21:49,560 --> 00:21:52,960 Speaker 2: Income a new Edge. Well, you will definitely becoming gret back. 415 00:21:53,040 --> 00:21:54,359 Speaker 2: It was really great to see your. 416 00:21:55,760 --> 00:21:59,639 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 417 00:22:00,320 --> 00:22:03,240 Speaker 1: at ten am Eastern on Apple car Play and Android 418 00:22:03,280 --> 00:22:06,080 Speaker 1: Auto with a Bloomberg Business Act. You can also listen 419 00:22:06,160 --> 00:22:09,280 Speaker 1: live on Amazon Alexa from our flagship New York station 420 00:22:09,640 --> 00:22:12,399 Speaker 1: Just Say Alexa playing Bloomberg eleven thirty. 421 00:22:13,800 --> 00:22:15,520 Speaker 2: This is going to be a segment that is near 422 00:22:15,560 --> 00:22:17,600 Speaker 2: and dear to gen Ryan's hard because you are looking 423 00:22:17,640 --> 00:22:18,800 Speaker 2: to buy at home right now. 424 00:22:18,960 --> 00:22:20,760 Speaker 4: I am, and it is very, very painful, and I'm 425 00:22:20,800 --> 00:22:22,840 Speaker 4: going to share that pain with you over the course 426 00:22:22,840 --> 00:22:23,600 Speaker 4: of the rest of the week. 427 00:22:23,680 --> 00:22:25,840 Speaker 2: Yes, I love housing pain. I mean not for you. 428 00:22:25,920 --> 00:22:27,479 Speaker 2: I hate that for you, but I love it as 429 00:22:27,480 --> 00:22:27,959 Speaker 2: a story. 430 00:22:28,520 --> 00:22:31,480 Speaker 4: Yeah, and it is just absolutely shocking. We're first time 431 00:22:31,520 --> 00:22:35,680 Speaker 4: buyers and we are amazed at how disorganized and opaque 432 00:22:35,720 --> 00:22:37,280 Speaker 4: this market is interesting. 433 00:22:37,359 --> 00:22:39,240 Speaker 2: Is it the price? Is it the mortgage? Is it 434 00:22:39,320 --> 00:22:41,200 Speaker 2: the supply? What was the hardest part? 435 00:22:41,520 --> 00:22:43,760 Speaker 4: It's all so hard. It's just hard to pick a 436 00:22:43,760 --> 00:22:44,640 Speaker 4: favorite child here. 437 00:22:44,840 --> 00:22:48,000 Speaker 2: Oh wow, Okay, well this leads us perfectly into our 438 00:22:48,000 --> 00:22:51,120 Speaker 2: next segment. So Lenar is reporting today after the closing bell. 439 00:22:51,200 --> 00:22:53,720 Speaker 2: You're looking at just an earnings estimate of about two 440 00:22:53,760 --> 00:22:57,040 Speaker 2: dollars and twenty one cents for the first quarter. You're 441 00:22:57,080 --> 00:22:59,280 Speaker 2: looking at revenue estimates about seven point four to two 442 00:23:00,000 --> 00:23:02,640 Speaker 2: billion dollars. So nobody else better to talk to than 443 00:23:02,680 --> 00:23:06,800 Speaker 2: Drew reading Bloomberg Intelligence at US home building analyst. Hey, Drew, 444 00:23:07,119 --> 00:23:09,760 Speaker 2: is Jen going to feel better after Lenar reports? I mean, 445 00:23:09,800 --> 00:23:12,280 Speaker 2: I appreciate that she's looking in queens, but still. 446 00:23:13,320 --> 00:23:15,639 Speaker 7: Well, if she's looking for a new home, she'll probably 447 00:23:15,720 --> 00:23:18,160 Speaker 7: fare a little bit better than something in the resale market. 448 00:23:18,400 --> 00:23:20,000 Speaker 7: And it goes back to some of those things we've 449 00:23:20,000 --> 00:23:21,960 Speaker 7: discussed in the past. There's not a whole lot of 450 00:23:22,000 --> 00:23:24,560 Speaker 7: inventory in the resale market, and at the same time, 451 00:23:24,680 --> 00:23:27,199 Speaker 7: builders have been able to buy down mortgage rates, so 452 00:23:27,240 --> 00:23:31,159 Speaker 7: they're making the financing calls a lot more attractive for homeshoppers, 453 00:23:31,160 --> 00:23:33,879 Speaker 7: which is just not able to get in the resale market. 454 00:23:34,160 --> 00:23:37,920 Speaker 4: Yeah, I mean talking about getting into the market, what's 455 00:23:37,960 --> 00:23:39,840 Speaker 4: the incentive for me at this point? Because I feel 456 00:23:39,840 --> 00:23:42,720 Speaker 4: like I'm sitting there. Rates are still pretty high, there's 457 00:23:42,800 --> 00:23:46,239 Speaker 4: not a lot of supplies shuffling around, like where's my inn. 458 00:23:48,200 --> 00:23:50,800 Speaker 7: Yeah, it's it's tough and as I mentioned, in the 459 00:23:50,800 --> 00:23:54,640 Speaker 7: resale market, things are particularly challenging. And we've been describing housing, 460 00:23:54,800 --> 00:23:56,399 Speaker 7: you know, for the better part of a year and 461 00:23:56,400 --> 00:23:58,160 Speaker 7: a half as a tail of two market. So you've 462 00:23:58,160 --> 00:24:02,080 Speaker 7: got the resale market where costs are higher, inventory is lower, 463 00:24:02,080 --> 00:24:04,000 Speaker 7: and you've got the new home market where builders have 464 00:24:04,080 --> 00:24:07,480 Speaker 7: been able to expand their community counts, they're purchasing land, 465 00:24:07,560 --> 00:24:10,600 Speaker 7: they're growing their inventory bases, and at the same time 466 00:24:10,640 --> 00:24:12,960 Speaker 7: they're making the finance and costs a lot more attractive. 467 00:24:12,960 --> 00:24:17,200 Speaker 7: So the competitive dynamics have favored the builders for the 468 00:24:17,280 --> 00:24:19,440 Speaker 7: last year and a half, and we think that continues 469 00:24:20,040 --> 00:24:21,040 Speaker 7: through twenty twenty four. 470 00:24:22,280 --> 00:24:25,240 Speaker 2: Has len our stock already run up enough that anything 471 00:24:25,320 --> 00:24:27,879 Speaker 2: is sort of like the law of good numbers, Like, 472 00:24:28,080 --> 00:24:30,040 Speaker 2: no way the stock is going to rally after earnings. 473 00:24:30,560 --> 00:24:33,520 Speaker 7: Yeah, good question. I mean, since since the beginning of November, 474 00:24:33,600 --> 00:24:35,600 Speaker 7: the builder stocks have been on a tear, you know, 475 00:24:35,640 --> 00:24:38,919 Speaker 7: along with much of the market, and I think it 476 00:24:38,960 --> 00:24:42,840 Speaker 7: speaks to that competitive dynamic that have favored the builders. Intuitively, 477 00:24:43,320 --> 00:24:47,000 Speaker 7: when mortgage rates arising, interest rates are higher, that's not 478 00:24:47,160 --> 00:24:49,479 Speaker 7: typically when you think about investing in the home builders. 479 00:24:49,480 --> 00:24:51,600 Speaker 7: But I think that the dynamics have changed so much 480 00:24:52,400 --> 00:24:54,320 Speaker 7: for them that there's been a lot more interest in 481 00:24:54,359 --> 00:24:57,200 Speaker 7: the group now. You know, if you look at where 482 00:24:57,200 --> 00:24:59,760 Speaker 7: they're trading relative to book values over the last couple 483 00:24:59,800 --> 00:25:02,520 Speaker 7: of month months, they've certainly come back more in line 484 00:25:02,560 --> 00:25:05,280 Speaker 7: with what you'd expect based on future returns on equity. 485 00:25:05,600 --> 00:25:07,000 Speaker 7: It's interesting, though, if you look at some of the 486 00:25:07,080 --> 00:25:10,119 Speaker 7: smaller and MidCap builders, there's still a little bit of 487 00:25:10,359 --> 00:25:14,080 Speaker 7: a disconnect between you know, expected earnings and what they're 488 00:25:14,119 --> 00:25:16,320 Speaker 7: currently trading at One of the things that I think 489 00:25:16,359 --> 00:25:19,879 Speaker 7: is really interesting within the group is kind of, you know, 490 00:25:19,960 --> 00:25:22,359 Speaker 7: the the drum beat has started to get a little 491 00:25:22,359 --> 00:25:25,199 Speaker 7: bit louder, and we've heard some CEOs come out and 492 00:25:25,240 --> 00:25:27,639 Speaker 7: speak in favor of this, as you would expect that 493 00:25:28,359 --> 00:25:31,399 Speaker 7: builders have made a case that their stocks should be 494 00:25:31,440 --> 00:25:36,760 Speaker 7: created higher and there, yeah, I mean there has there 495 00:25:36,920 --> 00:25:38,800 Speaker 7: has been a precedent for this in the past, in 496 00:25:38,840 --> 00:25:42,399 Speaker 7: the case of MVR, and the argument is that the 497 00:25:42,400 --> 00:25:45,760 Speaker 7: business models have changed so much. One, you know, you've 498 00:25:45,800 --> 00:25:49,639 Speaker 7: got businesses which are shifting to more asset lights, so 499 00:25:49,640 --> 00:25:51,880 Speaker 7: they're not holding as much land on their balance sheets, 500 00:25:52,200 --> 00:25:55,960 Speaker 7: they're operating with historically low leverage, and they're becoming more 501 00:25:56,000 --> 00:25:59,399 Speaker 7: systematic in their repurchase of shares because they're generating so 502 00:25:59,480 --> 00:26:02,679 Speaker 7: much cash. So it does bear watching, you know, as 503 00:26:02,720 --> 00:26:04,600 Speaker 7: we get through this year and in the next. If 504 00:26:04,680 --> 00:26:08,000 Speaker 7: investors are willing to underwrite these changes in the business 505 00:26:08,080 --> 00:26:09,600 Speaker 7: model is kind of a longer term thing. 506 00:26:10,280 --> 00:26:12,880 Speaker 4: Can you talk a little bit about how that willingness 507 00:26:12,960 --> 00:26:15,399 Speaker 4: is going to intersect with changes in what the ALOK 508 00:26:15,520 --> 00:26:18,240 Speaker 4: is for FED policy, because after yesterday's CPI print, we're 509 00:26:18,280 --> 00:26:19,920 Speaker 4: sort of wondering how many rate cuts we're going to 510 00:26:19,960 --> 00:26:20,440 Speaker 4: get this year. 511 00:26:21,920 --> 00:26:23,680 Speaker 7: Yeah, it's a good question, and you know, a lot 512 00:26:23,720 --> 00:26:26,000 Speaker 7: of the builder stock performance, and you look back to 513 00:26:26,440 --> 00:26:31,000 Speaker 7: late October early November has been predicated upon what's happening 514 00:26:31,280 --> 00:26:34,119 Speaker 7: with the FED. You know, when there's a lot of 515 00:26:34,240 --> 00:26:37,240 Speaker 7: enthusiasm that the FED was going to start cutting maybe 516 00:26:37,240 --> 00:26:38,920 Speaker 7: in one queue and there's going to be several cuts 517 00:26:38,960 --> 00:26:40,399 Speaker 7: throughout the year. I think that's when you saw the 518 00:26:40,440 --> 00:26:42,919 Speaker 7: stocks really start to take off. And I think what 519 00:26:42,960 --> 00:26:45,200 Speaker 7: you need to see now from the builders in terms 520 00:26:45,240 --> 00:26:49,439 Speaker 7: of terms of an investment, is are lower rates going 521 00:26:49,520 --> 00:26:53,119 Speaker 7: to actually show tangible benefits to the fundamental So one 522 00:26:53,160 --> 00:26:56,000 Speaker 7: of the things that we're looking at specifically is gross margins. 523 00:26:57,000 --> 00:26:59,720 Speaker 7: As we discussed, builders have been offering financing incentives and 524 00:27:00,000 --> 00:27:03,439 Speaker 7: obviously comes out of their profitability. But I think, you know, 525 00:27:03,480 --> 00:27:05,479 Speaker 7: a lot of the enthusiasm stems from the fact that 526 00:27:05,480 --> 00:27:07,960 Speaker 7: with lower rates, builders don't have to be as aggressive 527 00:27:08,119 --> 00:27:10,720 Speaker 7: in all for and incentive. So I think there's there's 528 00:27:10,760 --> 00:27:13,640 Speaker 7: a thought out there that margins should rise throughout the year. 529 00:27:13,720 --> 00:27:15,320 Speaker 7: So that's what we're going to be looking at, is 530 00:27:15,359 --> 00:27:18,399 Speaker 7: has this modest pullback in rates from eight to somewhere 531 00:27:18,400 --> 00:27:21,080 Speaker 7: around seven right now enabled them to kind of dial 532 00:27:21,160 --> 00:27:22,000 Speaker 7: back a little bit. 533 00:27:22,280 --> 00:27:24,199 Speaker 2: I mean, I gotta say this is totally anecdotal. Bit 534 00:27:24,280 --> 00:27:27,080 Speaker 2: like I am addicted to Zillow and I'm addicted to 535 00:27:27,160 --> 00:27:29,520 Speaker 2: Street Easy. I love it for fun. I'm not looking 536 00:27:29,520 --> 00:27:32,040 Speaker 2: to move, But I gotta say I'm noticing things getting 537 00:27:32,119 --> 00:27:35,679 Speaker 2: like snapped up in like thirty two days, thirty six days, 538 00:27:35,720 --> 00:27:38,560 Speaker 2: despite the fact that the thirty year is still pretty sticky. 539 00:27:38,600 --> 00:27:40,360 Speaker 2: I'm like, those are existing homes. 540 00:27:40,400 --> 00:27:43,440 Speaker 1: It's like, is there enough available land for the builders 541 00:27:43,440 --> 00:27:43,840 Speaker 1: out there? 542 00:27:43,960 --> 00:27:46,600 Speaker 2: Well, I mean they're building up a ton in downtown Brooklyn. 543 00:27:46,680 --> 00:27:48,960 Speaker 2: I mean, again purely anecdotal and just talking about well 544 00:27:49,040 --> 00:27:52,880 Speaker 2: like buying up housing and tearing it down and putting up. Yeah, 545 00:27:52,920 --> 00:27:56,280 Speaker 2: there's so many new complexes that are coming up. It's insane. 546 00:27:56,320 --> 00:27:59,080 Speaker 2: And things are going I mean it feels I actually 547 00:27:59,080 --> 00:28:01,879 Speaker 2: really wonder if that eight percent, seven percent, six percent 548 00:28:01,960 --> 00:28:04,200 Speaker 2: hurdle is as much of a hurdle as we thought. Drew. 549 00:28:04,920 --> 00:28:07,000 Speaker 7: Yeah, that's a great point, and I think so we've 550 00:28:07,000 --> 00:28:09,560 Speaker 7: been we've been dealing with mortgage rates that are above 551 00:28:09,600 --> 00:28:11,840 Speaker 7: six percent for more than a year and a half now, 552 00:28:12,280 --> 00:28:14,560 Speaker 7: So I think as we start to get through this year. 553 00:28:14,600 --> 00:28:16,840 Speaker 7: I think you have buyers coming into the market who 554 00:28:17,240 --> 00:28:19,840 Speaker 7: are coming in with a better understanding of what their 555 00:28:19,880 --> 00:28:20,400 Speaker 7: costs are. 556 00:28:20,400 --> 00:28:20,760 Speaker 9: Going to be. 557 00:28:21,600 --> 00:28:23,560 Speaker 7: You know, maybe they have to make an adjustment on 558 00:28:24,240 --> 00:28:27,720 Speaker 7: the particular house or buying, maybe they're making a concession 559 00:28:27,720 --> 00:28:29,560 Speaker 7: on the square footage of the home, but I think 560 00:28:29,880 --> 00:28:31,960 Speaker 7: they have a better understanding of what their costs are 561 00:28:31,960 --> 00:28:34,000 Speaker 7: going to be. And you have to remember, even though 562 00:28:34,119 --> 00:28:37,720 Speaker 7: home sales are down significantly from you know, twenty twenty one, 563 00:28:38,400 --> 00:28:42,240 Speaker 7: we're still selling about four million single family existing homes 564 00:28:42,240 --> 00:28:45,240 Speaker 7: on an annualized basis, so there are still transactions. And 565 00:28:45,280 --> 00:28:48,360 Speaker 7: as that continues, it starts to loosen up that mortgage 566 00:28:48,440 --> 00:28:50,480 Speaker 7: rate lock and effect because you've had people who are 567 00:28:50,480 --> 00:28:54,080 Speaker 7: buying at six seven eight percent rates who aren't going 568 00:28:54,120 --> 00:28:56,480 Speaker 7: to be impacted by that in the next couple of years. 569 00:28:56,720 --> 00:28:56,920 Speaker 7: You know. 570 00:28:56,960 --> 00:29:00,520 Speaker 4: Going back to the search for among homeworlder's for margins 571 00:29:00,560 --> 00:29:02,120 Speaker 4: to us, can you talk a little bit about what 572 00:29:02,120 --> 00:29:04,040 Speaker 4: their cost pressures are like, because what I really want 573 00:29:04,040 --> 00:29:06,720 Speaker 4: to know is ultimately, how is this feeding into the 574 00:29:06,720 --> 00:29:07,600 Speaker 4: inflation picture? 575 00:29:09,960 --> 00:29:13,640 Speaker 7: Yeah? So, and speaking to Lenar specifically, they mentioned during 576 00:29:13,640 --> 00:29:17,280 Speaker 7: their last quarter that their construction costs were down double 577 00:29:17,280 --> 00:29:20,120 Speaker 7: digits from the prior year, so there has been a 578 00:29:20,120 --> 00:29:22,400 Speaker 7: little bit of relief on the construction costs side. The 579 00:29:22,400 --> 00:29:25,560 Speaker 7: expectation is that things will stabilize as we get through 580 00:29:25,600 --> 00:29:28,040 Speaker 7: the remainder of the year. I think the one particular 581 00:29:28,120 --> 00:29:31,120 Speaker 7: challenge for the builders that you know has become more 582 00:29:31,120 --> 00:29:34,760 Speaker 7: of a concern is the cost of land. You know, 583 00:29:35,160 --> 00:29:37,840 Speaker 7: builders bought up bought up a lot of land during 584 00:29:37,880 --> 00:29:40,760 Speaker 7: the pandemic. A lot of it was lower priced, and 585 00:29:40,800 --> 00:29:43,320 Speaker 7: as we're doing higher volumes in the industry, builders are 586 00:29:43,320 --> 00:29:46,240 Speaker 7: starting to cycle through that lower cost land and now 587 00:29:46,280 --> 00:29:48,880 Speaker 7: the stuff that they're delivering now and you know through 588 00:29:48,920 --> 00:29:51,400 Speaker 7: twenty twenty four and into next year, is going to 589 00:29:51,400 --> 00:29:53,840 Speaker 7: carry a higher cost land based so there's going to 590 00:29:53,880 --> 00:29:55,760 Speaker 7: kind of be a give and take between higher cost 591 00:29:55,840 --> 00:29:58,400 Speaker 7: land and what they're able to do. From a pricing perspective, 592 00:29:58,920 --> 00:30:02,640 Speaker 7: what we've seen now, interestingly, is that builders have seen 593 00:30:02,680 --> 00:30:05,280 Speaker 7: a little bit of pricing power on alke for like basis, 594 00:30:05,280 --> 00:30:08,320 Speaker 7: so you will see average selling prices for many builders 595 00:30:08,320 --> 00:30:10,400 Speaker 7: in the group start to come down. A lot of 596 00:30:10,440 --> 00:30:12,120 Speaker 7: that has to do with where they're building or the 597 00:30:12,160 --> 00:30:14,240 Speaker 7: type of product they're building, So there's been a shift 598 00:30:14,240 --> 00:30:17,840 Speaker 7: to smaller square footage houses, but for that same square 599 00:30:17,840 --> 00:30:20,280 Speaker 7: footage house builders have been able to raise prices in 600 00:30:20,320 --> 00:30:21,280 Speaker 7: many of their communities. 601 00:30:21,840 --> 00:30:25,360 Speaker 2: So okay, so just to recap, we're watching concessions, we're 602 00:30:25,400 --> 00:30:29,480 Speaker 2: watching house prices, right, input costs and anything they say 603 00:30:29,520 --> 00:30:32,160 Speaker 2: about higher cost land am i ams summon you up? Right? 604 00:30:33,320 --> 00:30:35,840 Speaker 7: Yeah? The other thing specifically for Lenard's, they're going to 605 00:30:35,880 --> 00:30:38,800 Speaker 7: be the first builder to report with that the month 606 00:30:38,840 --> 00:30:41,880 Speaker 7: of February when we did see rates move up from 607 00:30:42,080 --> 00:30:43,880 Speaker 7: you know this called it six and a half percent 608 00:30:43,960 --> 00:30:46,520 Speaker 7: to seven percent range. So we wouldn't do want to 609 00:30:46,520 --> 00:30:49,320 Speaker 7: see kind of the cadence of orders throughout the quarter 610 00:30:49,440 --> 00:30:52,280 Speaker 7: and if that increase in rate did have an impact. 611 00:30:53,240 --> 00:30:55,400 Speaker 4: Real quickly, just about wrapping up here thirty seconds. Do 612 00:30:55,440 --> 00:30:58,120 Speaker 4: you see any election year issues that we should know 613 00:30:58,120 --> 00:30:59,240 Speaker 4: about for the home builders? 614 00:31:01,040 --> 00:31:03,120 Speaker 7: Well, you did have which was interesting during the State 615 00:31:03,160 --> 00:31:05,160 Speaker 7: of the Union. The administration came out and the kind 616 00:31:05,160 --> 00:31:08,640 Speaker 7: of emphasized housing as a key concern and something that 617 00:31:08,680 --> 00:31:10,960 Speaker 7: they wanted to focus on. I think I think you'll 618 00:31:11,000 --> 00:31:13,800 Speaker 7: you'll continue to see that kind of dialogue happening. But 619 00:31:13,880 --> 00:31:16,040 Speaker 7: I think you know, what they've discussed is kind of 620 00:31:16,040 --> 00:31:18,360 Speaker 7: throwing money at it from the demand side, which we think, 621 00:31:18,480 --> 00:31:21,680 Speaker 7: you know, ultimately ends up being inflationary. We think in 622 00:31:21,760 --> 00:31:24,160 Speaker 7: order from a policy perspective, you need to find a 623 00:31:24,160 --> 00:31:26,760 Speaker 7: way to address housing from the supply side. 624 00:31:26,920 --> 00:31:29,200 Speaker 2: One hundred percent. That makes such good sense. More supply 625 00:31:29,280 --> 00:31:31,040 Speaker 2: prices come down and end a story rather than make 626 00:31:31,080 --> 00:31:34,200 Speaker 2: it easier to buy. In essence, Hey Gray stuff really 627 00:31:34,240 --> 00:31:36,720 Speaker 2: appreciate Drew. Thank you think thank you. You're reading Bloomberg 628 00:31:36,760 --> 00:31:38,720 Speaker 2: Intelligence US home building analysts. 629 00:31:41,000 --> 00:31:44,880 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 630 00:31:44,960 --> 00:31:48,040 Speaker 1: week days at ten am Eastern on applecar Play and 631 00:31:48,040 --> 00:31:50,960 Speaker 1: Android Auto with the Bloomberg Business app. You can also 632 00:31:51,040 --> 00:31:54,200 Speaker 1: listen live on Amazon Alexa from our flagship New York 633 00:31:54,240 --> 00:31:58,600 Speaker 1: station just say Alexa playing Bloomberg eleven thirty. 634 00:31:59,120 --> 00:32:02,240 Speaker 2: Here's an amazing Big Take story that we wanted to 635 00:32:02,280 --> 00:32:05,720 Speaker 2: talk about. The title is how a physics whiz made 636 00:32:05,760 --> 00:32:09,520 Speaker 2: a fortune betting on Nature's catastrophes. And you can access 637 00:32:09,520 --> 00:32:12,240 Speaker 2: this story on the terminal on Bloomberg and also Bloomberg 638 00:32:12,280 --> 00:32:15,080 Speaker 2: dot com. Slash Big Take we do one every day, 639 00:32:15,120 --> 00:32:17,520 Speaker 2: and it's a chance to go deep into the headlines. 640 00:32:17,520 --> 00:32:20,520 Speaker 2: Here some of the underlying trends within the market. So 641 00:32:20,600 --> 00:32:24,240 Speaker 2: let's go to the author, now, Gautam Nick Bloomberg, Senior 642 00:32:24,320 --> 00:32:29,960 Speaker 2: Editor ESG Investing, joins us. Now, Gatum walk us through 643 00:32:30,000 --> 00:32:32,960 Speaker 2: what this article is. It basically feels like making money 644 00:32:32,960 --> 00:32:34,000 Speaker 2: off of disasters. 645 00:32:35,920 --> 00:32:38,520 Speaker 9: Well, yes, on the face of it, that's say, that's 646 00:32:38,560 --> 00:32:40,720 Speaker 9: probably what it is. But it's a bit more laid 647 00:32:40,800 --> 00:32:43,480 Speaker 9: than that. So it has to do with insurance. So 648 00:32:44,320 --> 00:32:47,560 Speaker 9: traditional insurance and reinsurance, you know, do a fairly good 649 00:32:47,680 --> 00:32:52,080 Speaker 9: job of covering modest and medium sized catastrophes, you know, 650 00:32:52,200 --> 00:32:56,120 Speaker 9: storms and hurricanes and earthquakes. But every thirty fifty one 651 00:32:56,160 --> 00:32:59,240 Speaker 9: hundred years you get a Hurricane Katrina like event which 652 00:32:59,280 --> 00:33:03,000 Speaker 9: is completely devastating in its scope. And that's a kind 653 00:33:03,040 --> 00:33:07,600 Speaker 9: of event that traditional traditional insurance company can't really handle. 654 00:33:08,280 --> 00:33:11,160 Speaker 9: So they've turned to a new type of asset class. 655 00:33:11,160 --> 00:33:13,200 Speaker 9: Well it's not new, it's been around for twenty five years, 656 00:33:13,200 --> 00:33:15,840 Speaker 9: but it's really coming into its own more and more now, 657 00:33:16,400 --> 00:33:19,520 Speaker 9: and it's called catastrophe bonds. And the way it works 658 00:33:19,560 --> 00:33:21,920 Speaker 9: is that instead of the insurance company taking the risk 659 00:33:22,000 --> 00:33:25,680 Speaker 9: should disaster happen, that risk has passed on to Wall 660 00:33:25,720 --> 00:33:29,760 Speaker 9: Street investors. So if the disaster does happen, the Wall 661 00:33:29,840 --> 00:33:32,200 Speaker 9: Street investors can lose some or all of their money, 662 00:33:32,280 --> 00:33:34,960 Speaker 9: so it's a pretty risky move. But if it doesn't happen, 663 00:33:35,000 --> 00:33:38,240 Speaker 9: and these bonds are only they run for only three 664 00:33:38,280 --> 00:33:41,440 Speaker 9: to five years, not for much longer. If the disaster 665 00:33:41,560 --> 00:33:45,440 Speaker 9: doesn't occur, then the investor gets to keep its original 666 00:33:45,440 --> 00:33:47,920 Speaker 9: capital plus gets a hefty return on top of that 667 00:33:47,960 --> 00:33:48,960 Speaker 9: for taking better risk. 668 00:33:49,760 --> 00:33:52,960 Speaker 4: So your story, it's fascinating and there's subage today to 669 00:33:53,000 --> 00:33:55,520 Speaker 4: dig into there. But you start off taking a look 670 00:33:55,560 --> 00:33:57,840 Speaker 4: at for Matt Capital Management, and this is the owner 671 00:33:57,880 --> 00:34:01,240 Speaker 4: of the world's biggest collection of astrophe bonds. Can you 672 00:34:01,320 --> 00:34:03,680 Speaker 4: talk a little bit about their strategy and in particular, 673 00:34:04,080 --> 00:34:05,720 Speaker 4: you know, I just want to circle back to a 674 00:34:05,760 --> 00:34:08,279 Speaker 4: comment that you may just now that in this current 675 00:34:08,440 --> 00:34:11,320 Speaker 4: environment these this market is very very interesting, and I 676 00:34:11,360 --> 00:34:13,920 Speaker 4: wonder if you could talk about about how a warming 677 00:34:13,960 --> 00:34:15,960 Speaker 4: planet is figuring into for Meat's strategy. 678 00:34:17,400 --> 00:34:20,600 Speaker 9: Sure, so you know there are always hurricanes and earthquakes, 679 00:34:20,640 --> 00:34:23,200 Speaker 9: but the problem is that more and more people are 680 00:34:23,280 --> 00:34:26,320 Speaker 9: moving to Florida and California and other parts of coastal 681 00:34:26,800 --> 00:34:28,759 Speaker 9: regions in the world where you know, they want to 682 00:34:28,760 --> 00:34:31,319 Speaker 9: have a nice view and a nice seaside experience. But 683 00:34:31,920 --> 00:34:34,719 Speaker 9: those expensive homes are building, when they get hit by 684 00:34:34,719 --> 00:34:37,319 Speaker 9: a storm, they you know, tend to lose a lot 685 00:34:37,320 --> 00:34:40,239 Speaker 9: of money. So that is the real problem. It's that 686 00:34:40,360 --> 00:34:43,000 Speaker 9: human beings are moving to these risky areas, and the 687 00:34:43,040 --> 00:34:46,640 Speaker 9: insurance industries either in some places like California and Florida 688 00:34:46,719 --> 00:34:49,000 Speaker 9: walking away from it. They're not going to ensure people 689 00:34:49,360 --> 00:34:52,040 Speaker 9: the risks are too high, or they're turning to kind 690 00:34:52,040 --> 00:34:54,960 Speaker 9: of instruments like a catastrophe bond to do so. So 691 00:34:55,080 --> 00:34:58,960 Speaker 9: firmat Capital is the world's biggest cat bond investor. Their 692 00:34:59,040 --> 00:35:03,200 Speaker 9: assets are about ten billion dollars and they have a 693 00:35:03,320 --> 00:35:07,440 Speaker 9: very interesting strategy. So like other cat bond investors, they 694 00:35:07,480 --> 00:35:10,760 Speaker 9: do buy these risk models which help you to predict 695 00:35:10,800 --> 00:35:15,879 Speaker 9: the likelihood of a hurricane occurring in a particular year 696 00:35:16,080 --> 00:35:18,840 Speaker 9: or over two three years. But what they do is 697 00:35:18,840 --> 00:35:22,880 Speaker 9: they add a magic source. Because the co founder of 698 00:35:23,040 --> 00:35:28,160 Speaker 9: this firm, John so has, you know, a physics background, 699 00:35:28,800 --> 00:35:33,920 Speaker 9: has a biophysics degree from Harvard. He's been able to 700 00:35:34,000 --> 00:35:38,960 Speaker 9: layer an extra in a sophistication in trying to predict 701 00:35:39,400 --> 00:35:42,000 Speaker 9: the likelihood of risk and return for each of these 702 00:35:42,000 --> 00:35:46,399 Speaker 9: potential catastrophes. So his buying approach is quite clever and sophisticated, 703 00:35:46,440 --> 00:35:48,799 Speaker 9: and he hopes to get an edge from that. So 704 00:35:48,880 --> 00:35:52,560 Speaker 9: that's where Fermat has really you know, they've been involved 705 00:35:52,600 --> 00:35:56,640 Speaker 9: in this market almost inception, and they use this extra 706 00:35:57,200 --> 00:36:00,440 Speaker 9: edge to try and beat the market and other catbord investors. 707 00:36:00,800 --> 00:36:02,759 Speaker 2: And has it worked. What are their returns like? 708 00:36:03,760 --> 00:36:06,200 Speaker 9: Yeah, so their returns last year, which is a very 709 00:36:06,200 --> 00:36:09,120 Speaker 9: good year for all investors, about twenty percent, and I 710 00:36:09,160 --> 00:36:11,080 Speaker 9: think a lot of other investors also came in at 711 00:36:11,080 --> 00:36:13,799 Speaker 9: that level. I should say that. The interesting thing about 712 00:36:13,880 --> 00:36:16,799 Speaker 9: cat bonds it's a really good diversifier. So you know, 713 00:36:16,920 --> 00:36:20,400 Speaker 9: unlike your regular you know, stocks of bonds that fluctuate 714 00:36:20,480 --> 00:36:24,399 Speaker 9: with market movements or the Federal Reserve decisions, a catastrophe 715 00:36:24,480 --> 00:36:28,960 Speaker 9: bonds outcome is down to mother nature. Either she's kind 716 00:36:29,040 --> 00:36:32,239 Speaker 9: or she's unkind. And if you diversify a portfolio with 717 00:36:32,360 --> 00:36:35,560 Speaker 9: cat bonds and you know, you get the benefits of that, 718 00:36:36,080 --> 00:36:38,920 Speaker 9: it's a really good, you know, diversifier that has no 719 00:36:39,000 --> 00:36:41,640 Speaker 9: correlation with the rest of the financial markets. 720 00:36:42,719 --> 00:36:45,440 Speaker 4: Can you talk a little bit about how the current 721 00:36:45,560 --> 00:36:49,360 Speaker 4: environment in the insurance market is affecting for Met's returns, 722 00:36:49,360 --> 00:36:50,880 Speaker 4: because you know, you make the point in the story 723 00:36:50,960 --> 00:36:53,240 Speaker 4: that a lot of insurers are charging more to protect 724 00:36:53,280 --> 00:36:54,640 Speaker 4: customers from devastating weather. 725 00:36:56,480 --> 00:36:59,520 Speaker 9: Well, you know, last year was a record year for 726 00:36:59,560 --> 00:37:04,240 Speaker 9: the issue of catastrophe bonds, and this year is looking 727 00:37:04,400 --> 00:37:07,319 Speaker 9: likely it's going to be again a pretty solid year, 728 00:37:07,800 --> 00:37:13,120 Speaker 9: and that reflects the insurance industry's desperate need to pass 729 00:37:13,160 --> 00:37:16,880 Speaker 9: on some of this risk beyond the traditional reinsurance industry. 730 00:37:17,239 --> 00:37:20,200 Speaker 9: To Wall Street, Wall Street is a huge, you know, 731 00:37:21,320 --> 00:37:25,080 Speaker 9: deep pocket with lots of trillions of dollars at its disposal, 732 00:37:25,400 --> 00:37:33,480 Speaker 9: a lot of you know, risk taking investors, unlike traditional insurance, 733 00:37:33,480 --> 00:37:37,160 Speaker 9: which is a lot more conservative. So as you can 734 00:37:37,200 --> 00:37:41,000 Speaker 9: see from just the number of new issuances that are 735 00:37:41,040 --> 00:37:44,960 Speaker 9: lined up for twenty twenty four that insurers are increasingly 736 00:37:45,040 --> 00:37:48,160 Speaker 9: turning to this market. So one of the issues a 737 00:37:48,200 --> 00:37:51,960 Speaker 9: problem is that secondary perils, as the industry likes to 738 00:37:51,960 --> 00:37:57,239 Speaker 9: call it, so floods, wildfires, and thunderstorms are causing more 739 00:37:57,280 --> 00:38:00,680 Speaker 9: and more insurance damage as opposed to you know, Hurricane 740 00:38:00,680 --> 00:38:04,840 Speaker 9: Ian a Hurricane Katrina like event, and insurers are trying 741 00:38:04,880 --> 00:38:09,879 Speaker 9: to figure out how can they protect their own portfolios, 742 00:38:09,880 --> 00:38:12,960 Speaker 9: their own balance sheets, but also provide insurance to people 743 00:38:13,000 --> 00:38:16,200 Speaker 9: When you have more of these type of events occurring, 744 00:38:16,280 --> 00:38:20,560 Speaker 9: this sort of medium size five ten billion dollar disasters 745 00:38:21,239 --> 00:38:23,640 Speaker 9: versus you know, the once sort a thirty year event, 746 00:38:24,280 --> 00:38:26,520 Speaker 9: and at the same time try to make sure that 747 00:38:26,560 --> 00:38:30,319 Speaker 9: you know their balance sheet is protected. That's not so 748 00:38:30,400 --> 00:38:32,920 Speaker 9: easy to do because we don't have much data on 749 00:38:32,960 --> 00:38:36,360 Speaker 9: these kind of secondary perils. And also the models that 750 00:38:36,440 --> 00:38:40,840 Speaker 9: are used that give an investor some certainty that okay, 751 00:38:40,920 --> 00:38:45,640 Speaker 9: they don't stand to lose. You know, typically rare hurricane, 752 00:38:45,680 --> 00:38:48,280 Speaker 9: the loss estimate is somewhere in the region of two percent. 753 00:38:48,440 --> 00:38:51,040 Speaker 9: It's fairly low. The return you can get is something 754 00:38:51,160 --> 00:38:54,719 Speaker 9: like eight nine percent. So as long as that clarity 755 00:38:54,840 --> 00:38:59,040 Speaker 9: isn't there for these tornadoes, thunderstorms, ice storms that you 756 00:38:59,080 --> 00:39:02,320 Speaker 9: see in Texas, as long as that's happening, the insurance 757 00:39:02,320 --> 00:39:04,759 Speaker 9: industry is going to find it difficult to access the 758 00:39:04,840 --> 00:39:08,040 Speaker 9: camp bond market to cover those kind of perils which 759 00:39:08,040 --> 00:39:09,240 Speaker 9: are becoming more common. 760 00:39:10,120 --> 00:39:16,160 Speaker 2: Gotam, what are the main risk events that now a 761 00:39:16,239 --> 00:39:19,719 Speaker 2: CEO is modeling that may or may not happen like 762 00:39:19,840 --> 00:39:22,120 Speaker 2: because he basically has a model what he thinks will happen, 763 00:39:22,239 --> 00:39:24,400 Speaker 2: and then either take a little bit more risk but 764 00:39:24,520 --> 00:39:27,680 Speaker 2: for more reward, or avoid that altogether. But what are 765 00:39:27,680 --> 00:39:30,080 Speaker 2: the things that he's seeing right now. 766 00:39:31,280 --> 00:39:34,359 Speaker 9: Well, you know, they own something like two hundred and 767 00:39:34,360 --> 00:39:38,120 Speaker 9: fifty or two hundred and eighty individual catastrophe bonds, and 768 00:39:38,160 --> 00:39:40,640 Speaker 9: the whole market maybe has three hundred and twenty or so. 769 00:39:40,719 --> 00:39:43,480 Speaker 9: These are rough figures, so they are very dominant. They 770 00:39:43,520 --> 00:39:47,200 Speaker 9: own a vast swath of this whole market. You know, 771 00:39:47,239 --> 00:39:53,120 Speaker 9: that could include a tsunami campbond for Japan, or typhoon 772 00:39:53,160 --> 00:39:57,280 Speaker 9: camp bond for the Philippines, a hurricane cat bond for Mexico, 773 00:39:57,719 --> 00:40:01,920 Speaker 9: all kinds of different events. So I think their modeling 774 00:40:02,200 --> 00:40:08,000 Speaker 9: is primarily focused still on the big potential disasters such 775 00:40:08,040 --> 00:40:13,160 Speaker 9: as hurricanes or an earthquake in California or wildfires in California, 776 00:40:13,680 --> 00:40:16,799 Speaker 9: unless so on things like thunderstorms, because again they don't 777 00:40:16,880 --> 00:40:20,640 Speaker 9: really have the data or the sophisticated models yet, but 778 00:40:20,719 --> 00:40:23,680 Speaker 9: they're building up that because that's where the catastrophe bond 779 00:40:23,680 --> 00:40:25,640 Speaker 9: market is going to grow. It's going to move away 780 00:40:25,680 --> 00:40:29,000 Speaker 9: from the kind of you know, Hurricane Katrina like events, 781 00:40:29,040 --> 00:40:32,960 Speaker 9: the rare of big, big disaster events, and more to 782 00:40:33,320 --> 00:40:37,040 Speaker 9: you know, Hurricane Sandy like event, which you know there 783 00:40:37,080 --> 00:40:39,760 Speaker 9: is a catbond for you know, the New York Subway 784 00:40:40,840 --> 00:40:43,440 Speaker 9: system has acquired one hundred million catborn I think they've 785 00:40:43,440 --> 00:40:46,840 Speaker 9: renewed perhaps the third time now to protect the subways 786 00:40:46,880 --> 00:40:50,319 Speaker 9: from going underwater should a hurricane Sandy like event hit 787 00:40:50,480 --> 00:40:51,680 Speaker 9: the city head on. 788 00:40:52,760 --> 00:40:55,440 Speaker 4: We have all very little time left, just in thirty seconds. 789 00:40:55,440 --> 00:40:57,319 Speaker 4: Can you tell us what's the next big move in 790 00:40:57,360 --> 00:40:58,320 Speaker 4: catastrophe bounds. 791 00:41:00,040 --> 00:41:01,960 Speaker 9: Well, I think it's just going to grow. There's a 792 00:41:02,040 --> 00:41:04,399 Speaker 9: lot more catastrophes are going to be covered. I think 793 00:41:04,440 --> 00:41:09,759 Speaker 9: some of the secondary perils like flood and wildfires in particular. 794 00:41:10,120 --> 00:41:15,760 Speaker 9: There's more sophisticated modeling available from certain modeling companies. Also, 795 00:41:15,840 --> 00:41:18,960 Speaker 9: there's more data, and so I think that's where the 796 00:41:19,040 --> 00:41:21,160 Speaker 9: cap bond market is going to grow, not to its 797 00:41:21,200 --> 00:41:25,840 Speaker 9: a huge rare disasters, but more of the commoner, medium 798 00:41:25,880 --> 00:41:27,960 Speaker 9: size disasters. 799 00:41:27,960 --> 00:41:31,080 Speaker 2: All right, Gautam, thanks a lot, Thank you so much. Gautam. 800 00:41:31,280 --> 00:41:35,200 Speaker 2: Nike joins Us Bloomberg, senior editor at ESG Investing again 801 00:41:35,280 --> 00:41:37,120 Speaker 2: a great big take, and you can check that on 802 00:41:37,160 --> 00:41:40,839 Speaker 2: the terminal or at Bloomberg dot com slash Big Take. 803 00:41:41,080 --> 00:41:45,560 Speaker 1: This is the Bloomberg Intelligence podcast, available on Apples, Spotify, 804 00:41:45,800 --> 00:41:49,000 Speaker 1: and anywhere else you get your podcasts. Listen live each 805 00:41:49,000 --> 00:41:52,360 Speaker 1: weekday ten am to noon Eastern on bloomberg dot Com, 806 00:41:52,920 --> 00:41:55,879 Speaker 1: R radio app, tune In, and the Bloomberg Business App. 807 00:41:56,000 --> 00:41:59,120 Speaker 1: You can also watch us live every weekday on YouTube 808 00:41:59,239 --> 00:42:01,000 Speaker 1: and always on the Bloomberg termin