WEBVTT - US Jobs Surge Reignites Fed Debate 0:00:02.920 --> 0:00:07.280 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.960 --> 0:00:13.840 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:00:13.920 --> 0:00:16.599 weekdays at ten am Eastern on Apple, card Play and 0:00:16.600 --> 0:00:19.600 Android Auto with the Bloomberg Business App. Listen on demand 0:00:19.680 --> 0:00:23.400 wherever you get your podcasts, or watch us live on YouTube. 0:00:25.000 --> 0:00:26.720 Let's get more on the jobs out of here. Jonny 0:00:26.760 --> 0:00:31.280 Biley is chief workforced Analyst over at employ Bridge. Employbridge 0:00:31.280 --> 0:00:34.120 is the largest industrial staffing firm in the United States. 0:00:34.440 --> 0:00:36.239 It's great to see you Joinny. We love having you 0:00:36.600 --> 0:00:38.680 every job day to get the perspective. What was your 0:00:38.680 --> 0:00:39.479 take on the numbers? 0:00:40.680 --> 0:00:43.640 Well, certainly a lot stronger than I expected to see, 0:00:44.560 --> 0:00:48.360 as many of us were surprised by the big number. 0:00:48.560 --> 0:00:53.840 But you know, overall, I think, just as your last guest, 0:00:53.920 --> 0:00:56.040 Vince was saying, you know, there is a little bit 0:00:56.040 --> 0:01:00.240 of a disconnect between the establishment survey and the household survey, 0:01:00.600 --> 0:01:03.880 you know, so overall, looking at the job growth, you know, 0:01:04.120 --> 0:01:05.520 again we've talked about. 0:01:05.280 --> 0:01:06.080 This in the past. 0:01:06.160 --> 0:01:10.360 We're seeing some strong growth, certainly coming from the healthcare sector, 0:01:11.000 --> 0:01:16.840 the government sector, leisure and hospitality. But in this report, 0:01:17.000 --> 0:01:20.640 we really did see that the establishment survey had many 0:01:20.760 --> 0:01:25.039 sectors across the board adding jobs, and I was very 0:01:25.080 --> 0:01:28.440 happy to see that the professional and business service sector 0:01:29.000 --> 0:01:29.399 kind of. 0:01:29.400 --> 0:01:32.160 Bounced back because that had been very weak. 0:01:32.240 --> 0:01:35.840 So we're seeing more of those white collar professional jobs 0:01:35.880 --> 0:01:40.200 come back, specifically in the in the technical and scientific area. 0:01:41.200 --> 0:01:43.679 Hey, Jonny Cute, I'd love to get your thoughts on 0:01:43.760 --> 0:01:46.520 just kind of the impact that immigration, both legal and 0:01:46.520 --> 0:01:49.440 more importantly illegal immigration, because that's where the numbers are. 0:01:50.000 --> 0:01:54.760 How about the immigrants are impacting the labor market? 0:01:56.280 --> 0:02:00.480 Well, you know, certainly we're seeing immigration over you know, 0:02:00.480 --> 0:02:02.960 if you look at even you know, the past ten 0:02:03.040 --> 0:02:07.480 to fifteen years, we're seeing an increasing percentage of our 0:02:07.640 --> 0:02:12.840 overall labor force, you know, from foreign born workers, and 0:02:12.919 --> 0:02:17.040 that is projected to certainly continue and it's actually helping 0:02:17.639 --> 0:02:22.040 the overall job market. So that of course is specific 0:02:22.200 --> 0:02:27.440 to the documented workers. You know, if we look at 0:02:27.600 --> 0:02:33.120 illegal immigration, you know, the government is certainly trying to 0:02:34.200 --> 0:02:38.000 work with the different states to get people documented so 0:02:38.040 --> 0:02:42.040 they can get to work. What we are seeing, you know, 0:02:42.120 --> 0:02:45.440 I know, in particular in New York, you know, there's 0:02:45.480 --> 0:02:49.040 a tremendous amount of processing for these workers to get 0:02:49.080 --> 0:02:52.000 them documented and then to get them to work. 0:02:52.639 --> 0:02:54.600 But they most of them will be looking. 0:02:54.320 --> 0:02:58.800 For those lower leveled, lower level jobs that don't really 0:02:58.840 --> 0:03:05.120 require as much much you know, skills and experience, and unfortunately, 0:03:05.480 --> 0:03:08.840 there's not a ton of those jobs out there, so 0:03:08.840 --> 0:03:11.880 so that could have a big impact on unemployment in 0:03:11.919 --> 0:03:12.440 the future. 0:03:13.520 --> 0:03:16.320 So I guess if we were to read between all 0:03:16.360 --> 0:03:19.800 of the lines, and if you're an economist looking at 0:03:20.040 --> 0:03:22.520 the data, what is your read like, are we as 0:03:22.560 --> 0:03:26.400 strong as a number say some survey datas? Uh say 0:03:26.680 --> 0:03:29.680 data say something different? What do you what do you 0:03:29.760 --> 0:03:31.960 believe like? What's your read on the ground. 0:03:33.200 --> 0:03:36.440 So, you know, I don't know if many people would 0:03:36.520 --> 0:03:40.600 like my answer, but I actually think that this headline 0:03:40.720 --> 0:03:45.440 number is a bit misleading. I don't believe the job 0:03:45.520 --> 0:03:51.560 market is as strong as the Establishment survey is saying. 0:03:51.680 --> 0:03:55.440 I actually think the numbers in the household survey are 0:03:55.840 --> 0:03:59.760 a bit more accurate. You know, we are seeing unemployment 0:04:00.080 --> 0:04:01.640 pick up for the first time. 0:04:02.000 --> 0:04:05.400 We saw four in front of the number. We also 0:04:05.560 --> 0:04:06.920 saw that, you. 0:04:06.880 --> 0:04:10.320 Know, not only are we seeing unemployment go up, but 0:04:10.320 --> 0:04:14.280 but people are leaving the labor force and opting out 0:04:14.400 --> 0:04:17.320 of the labor force. We saw some big, you know, 0:04:17.400 --> 0:04:20.880 big numbers there and I'm just not you know. 0:04:20.920 --> 0:04:22.640 On the front lines, I have to tell you. 0:04:22.680 --> 0:04:24.960 And you know employ Bridge, as you mentioned, you know, 0:04:25.000 --> 0:04:29.440 we focus on supply chain. We are certainly seeing more 0:04:29.600 --> 0:04:34.640 people looking for work and unfortunately there are less jobs 0:04:34.720 --> 0:04:37.760 to place them in. So I'm not saying it's a 0:04:37.920 --> 0:04:41.200 terrible job market. I mean, there are still jobs out there, 0:04:41.560 --> 0:04:46.279 but it certainly is a challenging and tough job market. 0:04:46.520 --> 0:04:49.560 How about for recent college graduates. I mean, so that's 0:04:49.560 --> 0:04:52.680 how a year when you ask me for a friend, No, yes, 0:04:52.760 --> 0:04:55.360 exactly asking for a friend. So how about what's that 0:04:55.640 --> 0:04:56.320 environment look like. 0:04:57.200 --> 0:05:02.240 Yeah, I worry about recent college graduate. There's less opportunities 0:05:03.160 --> 0:05:04.800 for them. We're seeing that. If you look at the 0:05:04.839 --> 0:05:09.000 overall jolts, you know, job data, we're seeing a decline. 0:05:09.000 --> 0:05:12.760 We're down to eight million you know jobs, job openings 0:05:12.800 --> 0:05:17.240 out there, So less opportunities for them this year even 0:05:17.279 --> 0:05:20.880 then last year. I will say, though, if they're going 0:05:20.960 --> 0:05:26.080 into healthcare, there's a tremendous amount of job opportunities in 0:05:26.120 --> 0:05:30.680 the healthcare sector, all different fields, all different types of positions. 0:05:31.200 --> 0:05:35.400 That is one of the strongest areas. So scientific healthcare 0:05:36.400 --> 0:05:40.000 continues to remain strong. But you know, We're seeing a lot, 0:05:40.560 --> 0:05:46.440 a lot less in the financial sector. Consulting, even software 0:05:47.279 --> 0:05:49.719 has declined. You know that used to be such a 0:05:49.839 --> 0:05:52.719 hot skill. It still is a hot skill, but less 0:05:52.839 --> 0:05:57.000 jobs available today than last year or the year prior. 0:05:57.880 --> 0:06:01.880 So based on that, what are the wages like than 0:06:01.920 --> 0:06:05.320 in the healthcare sector, Is that need for talent or 0:06:05.400 --> 0:06:08.840 just humans reflected in wages also, or we still look 0:06:08.880 --> 0:06:11.400 at like eight dollars people to get paid to take 0:06:11.440 --> 0:06:13.000 care of you in your home, which like is not 0:06:13.040 --> 0:06:14.599 a nice proposition for anybody. 0:06:15.720 --> 0:06:20.800 Wages have gone up significantly and almost doubled from the 0:06:20.880 --> 0:06:23.840 number of tites that you've quoted. So yeah, we've seen 0:06:24.360 --> 0:06:28.960 you know, certainly since the pandemic, we've seen a lot 0:06:29.000 --> 0:06:34.160 of movement in wages across the board, all sectors, you know, logistics, manufacturing, 0:06:34.760 --> 0:06:36.160 but particular in healthcare. 0:06:36.279 --> 0:06:38.839 They were some of the strongest. 0:06:39.480 --> 0:06:44.440 Wage gains in twenty one and twenty two and twenty three. 0:06:44.680 --> 0:06:46.400 But I would say right now we're seeing a little 0:06:46.400 --> 0:06:51.320 bit more of stabilization. I'm not expecting big wage gains 0:06:51.360 --> 0:06:55.320 moving forward. I think you'll see it just kind of stabilize. 0:06:56.040 --> 0:06:58.360 But the wages have improved a lot over the last 0:06:58.400 --> 0:06:59.360 few years. 0:06:59.320 --> 0:07:01.840 Jenny, what are your clients or corporate clients saying about 0:07:02.000 --> 0:07:04.600 kind of their policies for work from home, hybrid all 0:07:04.640 --> 0:07:06.719 that kind of stuff where we kind of settled out 0:07:06.720 --> 0:07:07.320 on that whole thing. 0:07:08.440 --> 0:07:10.600 Yeah, you know, that is such a hot topic. It's 0:07:10.640 --> 0:07:12.000 a it's a great question. 0:07:13.120 --> 0:07:13.520 Certainly. 0:07:13.560 --> 0:07:16.880 There are many jobs that it's it's not an option, right, 0:07:17.000 --> 0:07:19.040 like the logistics manufacturing. 0:07:19.160 --> 0:07:22.560 Oh, we know, we know, don't you know. 0:07:22.800 --> 0:07:24.400 You know, for you have to be there. 0:07:25.000 --> 0:07:28.920 So there's many jobs that really require you to be 0:07:29.520 --> 0:07:34.840 in the office or be on site. But employers that 0:07:35.800 --> 0:07:39.840 you know, have kind of taken the strategy of offering 0:07:39.920 --> 0:07:43.920 more flexibility where they can because they know that workers 0:07:44.000 --> 0:07:47.559 want that workers want flexibility in their schedules. They don't 0:07:47.640 --> 0:07:51.280 mind going into the office, but maybe having like a 0:07:51.360 --> 0:07:55.360 hybrid schedule is like the best, you know, where they 0:07:55.560 --> 0:07:59.240 still get to collaborate with their you know, co workers 0:08:00.560 --> 0:08:02.960 and then still have some flexibility maybe to work from 0:08:02.960 --> 0:08:04.720 home for a few days. So that's where I see 0:08:04.800 --> 0:08:08.920 kind of the trend as these hybrid schedules. But you know, 0:08:08.960 --> 0:08:11.400 for many people's that's not an option and you kind 0:08:11.400 --> 0:08:13.640 of have to come back to the office. 0:08:13.880 --> 0:08:16.920 All right, Jenny. We really appreciate you. It's such great insight. 0:08:17.000 --> 0:08:21.200 Jenny Bailey, chief workforce Analysts at employee Bridge. Again, they 0:08:21.400 --> 0:08:24.400 hire a lot of industrial employees, so they really have 0:08:24.440 --> 0:08:26.840 a pulse on what's happening within the US. Thank you 0:08:26.920 --> 0:08:28.440 so much for joining us. 0:08:30.080 --> 0:08:33.959 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:08:34.040 --> 0:08:37.560 weekdays at ten am Eastern on applecar Play and Android 0:08:37.600 --> 0:08:40.760 Auto with the Bloomberg Business. You can also listen live 0:08:40.840 --> 0:08:44.040 on Amazon Alexa from our flagship New York station Just 0:08:44.080 --> 0:08:46.720 say Alexa playing Bloomberg eleven thirty. 0:08:48.160 --> 0:08:50.400 I'm Alex ste alongside at Paul Sweeney. This at Bloomberg 0:08:50.400 --> 0:08:52.560 Intelligence Radio. We bring you all the top news and 0:08:52.600 --> 0:08:55.880 finance and business through a lens of our Bloomberg Intelligence folks. 0:08:55.920 --> 0:08:57.840 They cover two thousand companies and one hundred and thirty 0:08:57.880 --> 0:09:00.280 industries around the world. We want to take you outside 0:09:00.280 --> 0:09:02.880 Bloomberg Intelligence to get the read on the market and 0:09:03.200 --> 0:09:04.680 investment and what do you do when you have a 0:09:04.720 --> 0:09:07.640 day like today. David Deet's a senior investment strategist at 0:09:07.679 --> 0:09:11.680 Pepack Private and he joins us now. So clearly we're 0:09:11.679 --> 0:09:14.160 looking at a market reaction from the jobs that now 0:09:14.200 --> 0:09:16.880 we're looking at flat equities despite the bond sell off. 0:09:17.280 --> 0:09:19.400 What do you think about this market right now? 0:09:20.800 --> 0:09:21.960 Sure? So absolutely. 0:09:21.960 --> 0:09:26.080 We saw basically a divergent jobs report, and I think 0:09:26.200 --> 0:09:28.640 as we're looking at the market right now, is really 0:09:28.880 --> 0:09:32.160 better for the US worker, better for stocks, and it 0:09:32.200 --> 0:09:35.360 is for fixed income. On the positive side, of course, 0:09:35.640 --> 0:09:38.960 more jobs are created than expected, and ultimately, as we know, 0:09:39.600 --> 0:09:42.520 you know, seventy percent of that economy is a consumer. 0:09:43.360 --> 0:09:46.200 Not only are more jobs being created, but we saw 0:09:46.240 --> 0:09:50.000 a nice tickof in terms of wage growth in the 0:09:50.480 --> 0:09:54.200 last month. Indeed, a positive science in terms of real 0:09:54.240 --> 0:09:57.320 wage growth, and so that's all good for spending, that's 0:09:57.360 --> 0:10:02.480 good for corporate profits. Therefore, that's better than you would 0:10:02.480 --> 0:10:05.320 think for stocks. I think that's why stocks are shaking 0:10:05.360 --> 0:10:07.520 off some initial weakness there. 0:10:07.960 --> 0:10:10.160 Having said that from fixed income. 0:10:09.880 --> 0:10:13.120 Point of view, is not a positive because, of course, 0:10:13.520 --> 0:10:17.880 it continues the narrative that inflation is sticky. Remember, wages 0:10:17.920 --> 0:10:21.160 are such an important part of the overall inflation picture. 0:10:21.840 --> 0:10:24.720 This four point one percent year over year, our target 0:10:24.840 --> 0:10:28.000 is two. So that's unacceptable if you're a fixed income creator. 0:10:28.040 --> 0:10:31.000 That's not acceptable for the FED. And so that's why 0:10:31.000 --> 0:10:34.360 we're seeing bond sell off, stocks get back on their feet. 0:10:34.760 --> 0:10:38.079 David, if there's some that are suggesting that this job's 0:10:38.120 --> 0:10:41.120 report maybe even pushes out a rate cut till next year, 0:10:41.640 --> 0:10:44.240 If that's in fact the case, can stocks work in 0:10:44.280 --> 0:10:44.920 that environment? 0:10:45.840 --> 0:10:48.240 Well, so, you know, at the end of the day, 0:10:48.880 --> 0:10:51.960 as long as interest rates or the FED doesn't hike, 0:10:52.240 --> 0:10:54.800 I think we're all right with stocks. I mean, at 0:10:54.800 --> 0:10:57.240 the end of the day, you're buying stocks for earnings, 0:10:57.400 --> 0:11:00.640 and we just saw great earnings report in Q one. 0:11:00.920 --> 0:11:03.520 At the end of the quarter, the reports came in 0:11:03.559 --> 0:11:06.560 almost doubled in what had been expected, and we see 0:11:06.600 --> 0:11:10.840 that trend continuing for the rest of the year. So 0:11:11.400 --> 0:11:13.880 right now, Fed Fund Future's quite frankly saying, is a 0:11:13.960 --> 0:11:16.800 coin toss for what we see in September. The real 0:11:16.840 --> 0:11:18.439 debate is now we're going to get one or we're 0:11:18.480 --> 0:11:18.839 going to. 0:11:18.800 --> 0:11:22.760 Get two rate cuts. 0:11:22.880 --> 0:11:25.400 You know, from an investor's point of view, we urge 0:11:25.400 --> 0:11:29.040 our clients not to overreact to just one metric. I mean, 0:11:29.320 --> 0:11:31.640 jobs are great, but you know, we're talking about what 0:11:31.760 --> 0:11:35.280 happened last month in stocks, and stock investors should be 0:11:35.280 --> 0:11:37.920 focused on what's the outlook for the next six to 0:11:38.000 --> 0:11:41.520 twelve months, and of course when it comes time to 0:11:41.840 --> 0:11:44.520 the FED making decisions September, we're going to have several 0:11:44.559 --> 0:11:48.240 more months of data under our belt. From a stock investor, 0:11:48.600 --> 0:11:54.360 the worst situation is a recession. And of course there 0:11:54.400 --> 0:11:57.760 was really no evidence in the jobs report today to 0:11:57.840 --> 0:12:00.439 suggest that the overall economy was weakening. 0:12:00.760 --> 0:12:02.920 So what's your top sector pick then? Based on all 0:12:02.920 --> 0:12:04.800 that for the six to twelves. 0:12:04.800 --> 0:12:09.440 You know, we like everything other than those top three 0:12:09.520 --> 0:12:12.120 stocks which we're urging our clients to lighten up on, 0:12:12.160 --> 0:12:15.959 which would be Nvidia, Microsoft, and Apple. 0:12:16.400 --> 0:12:18.320 And is that just evaluation call though? 0:12:19.920 --> 0:12:20.880 Absolutely so. 0:12:21.160 --> 0:12:24.080 Small caps of course, if you strip out two small 0:12:24.120 --> 0:12:26.800 caps in the Wrestle two thousand, that are very much 0:12:27.320 --> 0:12:30.520 pushed forward because the AI height Wrestle two thousand is 0:12:30.600 --> 0:12:33.920 down for the year. Historically, if you look long term, 0:12:34.160 --> 0:12:39.200 small stocks have outperformed large caps. Is more room to grow. 0:12:39.520 --> 0:12:41.839 We think they're very much out of favor. We would 0:12:41.880 --> 0:12:45.120 just go with like an ETF that takes an index 0:12:45.160 --> 0:12:46.679 approach to the Wrestle two thousand. 0:12:46.840 --> 0:12:48.840 We think that might be the way to go. The 0:12:48.880 --> 0:12:50.000 only reason where all. 0:12:49.920 --> 0:12:53.080 Bets feet off if you see a very hard landing 0:12:53.120 --> 0:12:54.920 in the economy but you know, the fact of the 0:12:55.000 --> 0:12:56.199 matter is we. 0:12:56.120 --> 0:12:58.720 Have still a FED foot underneath us. 0:12:58.760 --> 0:13:02.160 So if we still weakening, if we do see further 0:13:02.240 --> 0:13:05.800 weakening in the economy, that Fed will rush to the rescue. 0:13:05.840 --> 0:13:08.679 So we think that the actually the small caps might 0:13:08.720 --> 0:13:11.080 be an area to take some of your winnings from 0:13:11.080 --> 0:13:14.120 those mag seven put them into the smaller fraud. 0:13:14.480 --> 0:13:16.880 Hey, David, a lot of folks are suggesting, if you 0:13:16.920 --> 0:13:20.080 want to get some value, that perhaps international is a 0:13:20.120 --> 0:13:22.640 way to go, less tech waiting in some of the 0:13:22.760 --> 0:13:28.280 European indexes, for example, how do you think that internationale. 0:13:26.960 --> 0:13:28.400 We think that makes a whole lot of sense. 0:13:28.440 --> 0:13:30.920 The dividend yields, for example, over in the continent are 0:13:30.920 --> 0:13:35.360 almost double what they are here, valuations are much lower. 0:13:35.440 --> 0:13:38.240 Yet their interest rates are even lower than they are here, 0:13:38.360 --> 0:13:41.360 and so the difference between what you get and fixed 0:13:41.360 --> 0:13:43.200 income and what you can get in terms of earning 0:13:43.360 --> 0:13:46.439 yields and dividends on stocks much greater. We think that's 0:13:46.480 --> 0:13:49.640 a nice opportunity. Of course, Japan has come back to 0:13:49.679 --> 0:13:51.920 where it was in the nineteen eighties, and of course 0:13:51.960 --> 0:13:54.880 the real sleeper could be China, which is, you know, 0:13:55.000 --> 0:13:57.199 at close to a four to five year low here, 0:13:57.240 --> 0:13:59.600 but we just saw a big tick up in exports 0:13:59.640 --> 0:14:02.880 coming from in China. Remember, China's doing almost the exact 0:14:02.920 --> 0:14:05.760 opposite of what our fed's doing here. We have restrictive 0:14:05.800 --> 0:14:08.800 policies at least on the monetary side. When China they're 0:14:08.800 --> 0:14:12.160 trying to press the accelerator down to lift the economy 0:14:12.240 --> 0:14:16.480 out of their kind of pandemic and post pandemic meles 0:14:16.760 --> 0:14:20.400 and so I think that could be a real tail 0:14:20.480 --> 0:14:23.359 when they're they could have some of the best technology 0:14:23.400 --> 0:14:25.800 in the world, but their tech companies are trading at 0:14:25.840 --> 0:14:28.840 about half the valuation of what US tech companies are 0:14:28.840 --> 0:14:29.200 training have. 0:14:30.080 --> 0:14:33.760 What's interesting too, You like real estate, and Moody's said 0:14:33.760 --> 0:14:36.680 at least six US regional banks have a substantial exposure 0:14:36.680 --> 0:14:39.120 to commercial real estate loans, and they're at risk of 0:14:39.160 --> 0:14:41.920 having their debt ratings downgraded. What do you like in 0:14:41.960 --> 0:14:44.120 real estate? What do you not like? And how do 0:14:44.120 --> 0:14:45.960 you kind of avoid this kind of headline? 0:14:46.880 --> 0:14:47.960 Yeah, absolutely so. 0:14:48.200 --> 0:14:50.680 In terms of real estate, what we're looking at is 0:14:50.960 --> 0:14:55.040 what has now already reflected the concerns there. So let 0:14:55.040 --> 0:14:57.240 me give you an example by virtue of Bunstock. We 0:14:57.400 --> 0:15:01.280 like Boston properties there they have the commercial exposure, but 0:15:01.320 --> 0:15:05.600 they're limiting themselves to the sixth cities in America where 0:15:05.600 --> 0:15:06.520 people still. 0:15:06.280 --> 0:15:07.240 Want to go there. 0:15:07.080 --> 0:15:10.200 You're in New York's Bosses, Washington's the high end, and 0:15:10.280 --> 0:15:12.680 then they have the high end properties there. The stock 0:15:12.800 --> 0:15:16.600 is down by two thirds of where it was, so 0:15:16.840 --> 0:15:20.720 obviously it's reflected a lot of damage there. But because 0:15:20.760 --> 0:15:23.440 their free cash flow has stayed strong, they have never 0:15:23.520 --> 0:15:25.640 cut that dividend. Now you've got a six point two 0:15:25.680 --> 0:15:28.320 percent dividend, so you know, at the end of the day, 0:15:28.360 --> 0:15:31.320 I don't think it's everyone loves commercial real estate. No, 0:15:31.440 --> 0:15:33.080 we'll ever go back to the office. It's going to 0:15:33.120 --> 0:15:35.600 be somewhere in between. So we're looking at those high 0:15:35.720 --> 0:15:40.000 quality landlords that are publicly traded where the prices have 0:15:40.080 --> 0:15:41.600 not reflected some bad news. 0:15:41.760 --> 0:15:42.680 And sometimes you do. 0:15:42.720 --> 0:15:46.080 Well by buying when things aren't rosy and then writing 0:15:46.200 --> 0:15:48.160 and then waiting for the situation to turn around. 0:15:49.000 --> 0:15:52.400 David, how about financials? People are still I think a 0:15:52.440 --> 0:15:55.080 little leery about some of the banks in particular. 0:15:56.640 --> 0:15:59.760 Yes, certainly that's what we heard from Moody's. I'm not 0:15:59.760 --> 0:16:02.480 sure new news that some of their debt is on 0:16:02.880 --> 0:16:06.800 credit watch for weakness in terms of commercial properties. A 0:16:06.840 --> 0:16:09.920 lot of that, of course, has been reflected in the 0:16:09.960 --> 0:16:10.640 stock prices. 0:16:10.680 --> 0:16:10.880 You know. 0:16:10.920 --> 0:16:12.960 At the end of the day, I do think that 0:16:13.000 --> 0:16:17.080 there is a strong policy coming from watching to make 0:16:17.120 --> 0:16:20.480 sure that this banking system stays strong. Remember, that's the 0:16:20.560 --> 0:16:24.120 lifeline for a lot of smaller businesses in main street USA. 0:16:24.480 --> 0:16:29.120 They can't tap publicly treated markets directly, and so I 0:16:29.160 --> 0:16:32.880 think if we want to you know, grow this economy 0:16:33.080 --> 0:16:36.400 and keep main street employed, we're going to have to 0:16:36.440 --> 0:16:39.960 make sure that those smaller banks get the lifelines they need. 0:16:40.080 --> 0:16:42.240 So that's going to be one reason why, of course 0:16:42.240 --> 0:16:44.880 the FED is going to be probably more devish than 0:16:45.000 --> 0:16:47.640 the inflation statistics might otherwise warnt. 0:16:47.960 --> 0:16:50.600 And just to wrap up, you also like three M. 0:16:50.800 --> 0:16:52.960 I'm kind of obsessed with three M. There's still a 0:16:52.960 --> 0:16:56.760 big conglomerate. They're changing CEOs and they've really just like 0:16:56.840 --> 0:16:59.520 stuck stuck in and said, like we're not spinning stuff off. Like, yes, 0:16:59.560 --> 0:17:01.480 they make the beck of posts as sticky stuff, but that 0:17:01.560 --> 0:17:04.919 sticky stuff goes everywhere in the world. Why do you 0:17:04.920 --> 0:17:05.840 like three M. 0:17:06.280 --> 0:17:09.760 Yeah, so this echoes general electric where you have an 0:17:09.760 --> 0:17:13.159 industrial conglomerate which is way out of favor. They have 0:17:13.200 --> 0:17:16.880 many different divisions. They were perhaps undermanaged, and of course 0:17:16.920 --> 0:17:18.600 they had all sorts of litigation woes. 0:17:18.920 --> 0:17:20.040 Now they've got. 0:17:19.760 --> 0:17:23.000 A new man in there, mister Brown, they've already spun 0:17:23.040 --> 0:17:26.800 off one of their divisions, Selventum. The stock is trading 0:17:26.880 --> 0:17:29.520 at a big discount to the market and way off 0:17:29.560 --> 0:17:32.520 where it was. We think that if the US dollar 0:17:32.640 --> 0:17:36.520 softens a little bit, because there's such a big international trader, 0:17:37.560 --> 0:17:38.800 that will benefit them. 0:17:39.040 --> 0:17:41.600 Of Course, you know, people talk about innovation. 0:17:41.880 --> 0:17:45.640 Six cents of every dollar that they generate goes back 0:17:45.640 --> 0:17:48.280 into research and development. They're coming up with all sorts 0:17:48.320 --> 0:17:51.000 of patents. So we think that, you know, here is 0:17:51.040 --> 0:17:54.760 a situation just like what happened in ge New management, 0:17:54.960 --> 0:17:59.240 rationalized things, perhaps do some corporate restructuring, and you could 0:17:59.280 --> 0:18:01.919 see a stock rice that could outpace the S and 0:18:01.920 --> 0:18:04.560 P five hundred going forward, and of course the dividend 0:18:04.640 --> 0:18:06.760 is still much higher than the S and P five hundred. 0:18:06.800 --> 0:18:08.320 All right, David, thank you so much for joining us. 0:18:08.320 --> 0:18:10.520 Always appreciate getting a few minutes of your time. David Deets, 0:18:10.520 --> 0:18:12.960 managing principle at pe PEC Private. 0:18:15.359 --> 0:18:19.240 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:18:19.320 --> 0:18:22.040 weekdays at ten am Eastern on Apple car Playing and 0:18:22.160 --> 0:18:25.000 Broun Auto with the Bloomberg Business App. Listen on demand 0:18:25.080 --> 0:18:29.400 wherever you get your podcasts, or watch us live on YouTube. 0:18:30.480 --> 0:18:32.240 You know, folks, how much we love these big take 0:18:32.280 --> 0:18:36.640 stories coming out of Bloomberg newsaser super in depth reported 0:18:36.720 --> 0:18:40.560 source stories at really some key key issues out there today. 0:18:40.600 --> 0:18:45.120 Is know a different headline Wall Street's cr the commercial 0:18:45.119 --> 0:18:49.560 real estate COLO machine is wiping out apartment investors. I 0:18:49.560 --> 0:18:52.440 thought that was the safe part of the real estate market. 0:18:52.480 --> 0:18:54.720 I thought we're all just worried about office but apartments 0:18:54.760 --> 0:18:58.639 also seeing some damage as well. One of the reporters 0:18:58.680 --> 0:19:00.480 on that story choices here in a bloom getteract to 0:19:00.480 --> 0:19:04.639 Broker Studio, Sam Scott's Carpenter Bond market reporter for Bloomberg News, 0:19:04.760 --> 0:19:07.119 Scott talk to us about what's going on in the 0:19:07.200 --> 0:19:09.320 apartment real estate market. 0:19:10.240 --> 0:19:15.280 Hi, good to be here, Thanks very much. So here's 0:19:15.320 --> 0:19:22.000 what's happening. You have retail investors, ordinary people with with 0:19:22.200 --> 0:19:24.879 the little they're you know, pretty wealthy people say you've 0:19:24.920 --> 0:19:27.880 got around one million dollars of net worth, you can 0:19:27.920 --> 0:19:33.280 take that money, you can invest in apartments. But this 0:19:33.400 --> 0:19:36.159 is this is risky. People don't realize how risky this 0:19:36.320 --> 0:19:39.240 is because when you put money into apartments in the 0:19:39.240 --> 0:19:42.800 way that they're doing, you're actually getting leveraged behind the 0:19:42.800 --> 0:19:48.080 scenes from Wall Street in the form of loans that 0:19:48.160 --> 0:19:54.639 are packaged into ceries, clos or collateralized loan obligations for 0:19:54.680 --> 0:19:57.840 a long time, for years, Actually this works really well. 0:19:57.920 --> 0:20:00.879 Retail investors will make you a lot of money. But 0:20:00.960 --> 0:20:07.000 that was because mainly apartment values were consistently climbing and 0:20:07.119 --> 0:20:09.479 interest rates were going down. This is very good for 0:20:09.600 --> 0:20:13.680 commercial real estate. Then that when the Fed started raising 0:20:13.720 --> 0:20:19.680 interest rates, it started to go badly. The loan all 0:20:19.800 --> 0:20:26.639 the leverage meant that the retail investors were exposed to 0:20:26.720 --> 0:20:31.359 really big losses. So we talked to a retail investor 0:20:32.480 --> 0:20:37.399 who lives in Yakima, Washington. She invested two hundred thousand 0:20:37.480 --> 0:20:40.359 dollars and most of that is now gone. 0:20:41.080 --> 0:20:46.240 So what is the problem? I mean, is it specifically 0:20:46.359 --> 0:20:51.080 rent controlled apartments, is its luxury apartments, is its mid apartments? 0:20:51.480 --> 0:20:53.840 Where is the issue in that? 0:20:54.520 --> 0:20:58.760 This is we're talking here about multifamily apartments. It is 0:20:58.840 --> 0:21:01.360 not you know, maybe some of it could be recontrolled. 0:21:01.400 --> 0:21:06.280 Mostly it's just plain old apartment complexes full of renters, 0:21:06.840 --> 0:21:10.760 and largely in the Sun Belt as well. The issue 0:21:10.960 --> 0:21:16.840 is that the valuations of these properties are very sensitive 0:21:16.840 --> 0:21:21.320 to interest rates, and when interest rates started going up, 0:21:21.359 --> 0:21:25.800 the property values started going down. And a lot of 0:21:25.920 --> 0:21:30.679 the companies that had bought this bought these things and 0:21:30.800 --> 0:21:35.040 into which the retail investors had contributed money, suddenly they 0:21:35.040 --> 0:21:40.840 couldn't afford their interest payments, and in some cases they 0:21:40.880 --> 0:21:42.919 had to sell the properties, and when they sold them, 0:21:42.920 --> 0:21:45.960 they sold them at a really big loss. I mean, 0:21:46.000 --> 0:21:48.399 we know that apartment values have gone down about thirty 0:21:48.440 --> 0:21:53.200 percent since their peak, and so when they had to sell, 0:21:53.240 --> 0:21:57.360 they were selling out these huge losses and passing those 0:21:57.359 --> 0:22:01.400 losses onto the retail investors. A lot of what made 0:22:01.480 --> 0:22:05.120 these investments possible in many cases is because they were 0:22:05.280 --> 0:22:10.760 borrowing money, taking out large loans from from mainly non 0:22:10.840 --> 0:22:15.200 bank specialists on a Wall Street, and that provided the leverage, 0:22:15.720 --> 0:22:18.120 and that is what exposed them to these big losses. 0:22:18.680 --> 0:22:21.399 What are the I guess the apartment owners. What did 0:22:21.440 --> 0:22:24.439 they do? I guess when when they have some I 0:22:24.440 --> 0:22:27.480