WEBVTT - EM Countries With Weaker Fundamentals See Repricing: BBH's Thin 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg P and L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg P M L 0:00:20.840 --> 0:00:33.760 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. When 0:00:33.880 --> 0:00:36.840 is the decline in the value of a currency a crisis, Well, 0:00:36.920 --> 0:00:39.440 we'll find out from Dr winn Thin, Global Head of 0:00:39.440 --> 0:00:43.520 Emerging Markets FX at Brown Brothers Harriman. Win Thin, Thanks 0:00:43.640 --> 0:00:45.720 very much for being with us. I want you to 0:00:45.720 --> 0:00:48.240 give us your thoughts about what's happening with Turkey after 0:00:48.280 --> 0:00:50.559 we see the Turkish lea or a slide more than 0:00:50.720 --> 0:00:54.080 three percent against the US dollar trading right now at 0:00:54.160 --> 0:00:59.880 four point eight six. Yes. Um, we've been seeing a 0:01:00.040 --> 0:01:03.320 broad based emerging market sell off really since the quarter 0:01:03.360 --> 0:01:08.080 began actually back in late March. UM. But what we've seen, uh, 0:01:08.319 --> 0:01:12.720 the selling presidents have intensified for certain countries. Argentina was 0:01:12.720 --> 0:01:14.080 was sort of the first to come under the gun, 0:01:14.720 --> 0:01:19.160 and now Turkey is is being sold. Now Here's the 0:01:19.160 --> 0:01:21.800 difference to me is a critical difference. Both both starffer 0:01:21.840 --> 0:01:25.920 from very weak fundamentals um politically consider etcetera. But Argentina 0:01:26.200 --> 0:01:28.679 made some bold moves over the last time of weeks 0:01:28.680 --> 0:01:32.319 to try and and stop throughout they hike grace, announce 0:01:32.319 --> 0:01:34.440 some fiscal tightening and they said they would go to 0:01:34.480 --> 0:01:38.120 the IRONMAF for standby agreement. You know, all very orthodox 0:01:38.560 --> 0:01:40.560 and that's what Mr mcweys President mcwew is known for. 0:01:40.680 --> 0:01:42.840 But Turkey's is really on the other end of spectrum. 0:01:42.920 --> 0:01:46.360 Mr Urdwan, President Urdwan has has very rocky relations with 0:01:46.400 --> 0:01:48.960 it with the West. Uh. He's always talking about the 0:01:49.400 --> 0:01:52.400 you know, Western efforts to stabilize this country. He wants 0:01:52.400 --> 0:01:54.680 a lower interest rate on hike them. So there's really 0:01:54.880 --> 0:01:57.800 to me a stark difference UM in the post response. 0:01:57.880 --> 0:02:00.240 And because the Central Mark has done nothing yet um, 0:02:00.800 --> 0:02:02.360 the markets that have really green light to sell the 0:02:02.400 --> 0:02:04.920 leer at this point. So uh, when thank you so 0:02:05.000 --> 0:02:07.680 much for being with us, because I'm struggling to understand 0:02:07.720 --> 0:02:10.600 the situation in Turkey because frankly, the economy has been 0:02:10.600 --> 0:02:14.519 growing at a pretty quick clip that seems to be 0:02:14.840 --> 0:02:17.880 a lot of strength. There is this just simply a 0:02:17.880 --> 0:02:22.240 political crisis with President urduan being opposite in the face 0:02:22.280 --> 0:02:25.560 of an election trying to in gender support somehow with 0:02:25.840 --> 0:02:29.519 mass inflation. Well, you know, it's a little bit of everything. UM. 0:02:29.919 --> 0:02:31.920 The one I think you are correct that the economy 0:02:31.960 --> 0:02:34.000 is doing well. In fact, the many investors I think 0:02:34.040 --> 0:02:36.119 is doing too well. It's overheating. The inflation is up 0:02:36.639 --> 0:02:39.679 close to eleven percent UM, the current account definite is 0:02:39.680 --> 0:02:43.560 blowing out UM, and the center markets is basically stating 0:02:43.560 --> 0:02:46.800 on its hands as its current is weaken again within 0:02:46.840 --> 0:02:49.880 the context of broad based e M weakness. You know, 0:02:49.919 --> 0:02:53.200 in a rising US interest rate environment, UM emerging market 0:02:53.240 --> 0:02:55.480 typically comes under stress, and it's avoided for much of 0:02:55.720 --> 0:02:57.680 this past year, but it's really come back with a vengeance. 0:02:58.240 --> 0:03:01.240 Countries that have high degree at donal financing need to 0:03:01.240 --> 0:03:03.639 either the current account or short term external debt. Those 0:03:03.680 --> 0:03:06.040 are countries like Turkey that are very, very vulnerable in 0:03:06.040 --> 0:03:08.960 this environment. Argentina is also there. So to me, the 0:03:09.000 --> 0:03:10.799 interesting thing is that if you look at a year 0:03:10.800 --> 0:03:12.880 to date UM performance I always do this on your 0:03:12.919 --> 0:03:15.560 w c RS page for emerging markets, you'll see a 0:03:15.600 --> 0:03:17.760 wide wide DIVERSIONCE you've got four or five currencies that 0:03:17.760 --> 0:03:20.440 are actually up on the air, Columbian pace, Soach, Chinese 0:03:20.520 --> 0:03:24.440 jun Masian ring gatt taiba um. And yet you've got 0:03:24.560 --> 0:03:27.079 some that are down well, I guess the argent past 0:03:28.440 --> 0:03:32.280 dictually down your date Brazilian realium of ten percent. So 0:03:32.360 --> 0:03:34.560 you see some real divergences and thinks the way it 0:03:34.560 --> 0:03:37.480 should work, that is, the countries with the stronger fundamentals 0:03:37.920 --> 0:03:39.960 are going to outperform. That they may come under some 0:03:40.000 --> 0:03:42.840 selling pressure, but they will do realtive, do relatively better 0:03:43.240 --> 0:03:45.280 than countries with weaker fundamentals. And that's what we've really 0:03:45.320 --> 0:03:49.320 have seen unfolding this higher dollar, higher US rate environment. 0:03:49.520 --> 0:03:52.520 I wonder at what point this dispersion will break down, 0:03:52.560 --> 0:03:54.600 because we've seen a lot of money go into emerging 0:03:54.680 --> 0:03:58.440 markets over the past five years, into indexed funds that 0:03:58.480 --> 0:04:01.280 don't delineate between one country and another. And now you 0:04:01.360 --> 0:04:05.480 have a growing chorus of academics and uh AN investment 0:04:05.520 --> 0:04:09.360 managers saying that they are concerned about an emerging markets crisis, 0:04:09.400 --> 0:04:12.520 the latest being Paul Krugman today tweeting it's become at 0:04:12.600 --> 0:04:18.960 least possible to envision the classic style reinforcing crisis emerging 0:04:19.000 --> 0:04:21.840 market currency falls causing corporate debt to blow up, causing 0:04:21.880 --> 0:04:25.200 stress on the economy, causing further fall in the currency. 0:04:25.560 --> 0:04:28.960 Do you agree, I'm not quite embarished, And there's one 0:04:29.000 --> 0:04:34.359 big reason for that. Unlike I would say, even um, 0:04:34.360 --> 0:04:38.160 most emerging Martin currencies are not floating or manage floats um. 0:04:38.480 --> 0:04:43.320 In the past, we saw Maxican Tekila crisis with the 0:04:43.360 --> 0:04:45.760 Asian crisis, or we had a right of pigs come 0:04:45.839 --> 0:04:48.960 under stress and then eventually break, and those are much 0:04:49.000 --> 0:04:51.480 more destabilizing, much more stressful on economy because you're going 0:04:51.520 --> 0:04:54.280 from a fixed exchange rate to you know, a fully 0:04:54.279 --> 0:04:57.039 floating I would say probably thinking exchange rates. To me, 0:04:57.160 --> 0:05:00.479 the floating exchange rates are are are have been doing 0:05:00.480 --> 0:05:04.200 a job's they worked in a shock absorber. External shocks 0:05:04.240 --> 0:05:06.960 are reflecting weaker currency and they allow over time, these 0:05:07.160 --> 0:05:10.360 these countries and emerging countries to adjust their behavior. They're 0:05:10.400 --> 0:05:13.279 barring their hedging, et cetera over a more extended amount 0:05:13.279 --> 0:05:16.000 of time. So you know, to me, the weaker currencies 0:05:16.000 --> 0:05:17.960 are doing their job. This is what it's supposed to happen. 0:05:18.600 --> 0:05:20.640 Of course, we'll see some bankruptcies. I'm sure we'll see 0:05:20.640 --> 0:05:23.359 some de fause in the corporate set. Uh, sphere. But 0:05:23.680 --> 0:05:26.560 that's just that's just part of the game. I think 0:05:26.560 --> 0:05:29.400 that's one of the problems that UM people were miss 0:05:29.400 --> 0:05:32.120 pricing EM during this whole secure rate environment and now 0:05:32.160 --> 0:05:35.240 were repricing e M and the ones that we had 0:05:35.279 --> 0:05:37.800 the worst fundamentals, where we're sort of the most miss 0:05:37.839 --> 0:05:39.560 priced and we have got we're sort of early in 0:05:39.560 --> 0:05:46.120 this game. Who gets repriced next? Indonesia, Brazil, Well, uh, Brazil, 0:05:46.240 --> 0:05:48.000 I would say Brazil in Mexico are are sort of 0:05:48.240 --> 0:05:50.599 in the sites because we've got heightened political risk for 0:05:50.680 --> 0:05:55.080 both elections coming up, as well as uh, somewhat weak fundamentals. 0:05:55.160 --> 0:05:57.640 So you know, again, you know, we're not talking about 0:05:57.839 --> 0:06:02.160 a huge um you know, devaluation, sort of default evaluations. 0:06:02.160 --> 0:06:04.600 So now we are seeing, you know, under this floating 0:06:04.680 --> 0:06:08.040 stange red regime, we're seeing these currencies with poor fundamentals 0:06:08.080 --> 0:06:12.480 come under pressure. So I would probably throw in South Africa, 0:06:13.240 --> 0:06:16.400 perhaps Russia as well. India. Indonesia are sort of the 0:06:16.440 --> 0:06:18.640 worst in Asia, but not as really not as bad 0:06:18.640 --> 0:06:21.240 as what we're talking about in our c Argentina and Turkey. 0:06:21.279 --> 0:06:24.240 But you know, again, the microscope was on all these countries. UM, 0:06:24.400 --> 0:06:26.560 you know, I would just uh tell our clients and 0:06:27.040 --> 0:06:30.039 invested in general to be discerning, to look at the 0:06:30.040 --> 0:06:33.320 fundamentals and realize that, you know, you can't tell everything 0:06:33.320 --> 0:06:36.120 on masks. Some some should do better than others, some 0:06:36.160 --> 0:06:38.120 should do worse than others. And that's that's really part 0:06:38.160 --> 0:06:41.160 of the fundamental story that's lost sometimes when there's a 0:06:41.160 --> 0:06:44.359 lot of liquidity being thrown around. Dr Winton, thank you 0:06:44.440 --> 0:06:47.000 so much for being with us. A really important day 0:06:47.040 --> 0:06:50.080 for you to be here giving us some insight. Dr Winton, 0:06:50.200 --> 0:06:53.680 Global Head of Emerging Markets f X for Brown Brothers 0:06:53.800 --> 0:06:56.920 Harriman in New York. I'm sure this is a very 0:06:57.000 --> 0:07:00.920 interesting time for Dr Wintin as well as all those 0:07:00.960 --> 0:07:04.160 dealing in emerging markets, considering the volatility that we've seen 0:07:04.680 --> 0:07:08.880 throughout the spectrum of currencies from Turkey to Argentina. This 0:07:09.080 --> 0:07:26.760 is Bloomberg Markets divisions, potential divisions among Federal Reserve officials 0:07:26.800 --> 0:07:29.120 over the yield curve and inflation that will be under 0:07:29.120 --> 0:07:32.040 the spotlight today when the U. S. Central Bank publishes 0:07:32.240 --> 0:07:36.120 minutes of its last policy meeting. Here to tell us 0:07:36.160 --> 0:07:39.520 more about this situation is Matt Miskin. He is a 0:07:39.560 --> 0:07:43.400 market strategist for John Hancock Investments. He's based in Boston, 0:07:43.440 --> 0:07:46.120 but he joins us here in our eleven three oh studios. Matt, 0:07:46.280 --> 0:07:48.560 A pleasure to have you with us one if you 0:07:48.600 --> 0:07:52.280 could offer your thoughts. Are are you having internal divisions 0:07:52.400 --> 0:07:56.480 about the yield curve and inflation? And you would I 0:07:56.520 --> 0:07:59.240 think you'd be accurate in describing that. A lot of 0:07:59.480 --> 0:08:03.160 invest just feel divided as well. Yeah, actually we have 0:08:03.280 --> 0:08:05.960 very little division. That we believe that of the biggest 0:08:06.040 --> 0:08:09.200 risks in the market today is if they get that 0:08:09.400 --> 0:08:11.960 third rate hike in from here, making it a fourth 0:08:12.040 --> 0:08:14.600 rate hike. If you do the math on that and 0:08:14.640 --> 0:08:16.520 where the Fed funds rate will stand and the two 0:08:16.600 --> 0:08:19.320 year yield will stand on that, we could be looking 0:08:19.360 --> 0:08:22.040 at a three point three percent to year yield by 0:08:22.120 --> 0:08:25.120 year end the tenure treasury standing at just over three 0:08:25.120 --> 0:08:28.640 percent today. That would represent an inverted yield curve to us, 0:08:29.000 --> 0:08:31.200 that risk could be minimized if the Fed does go 0:08:31.280 --> 0:08:34.000 slowly and pauses on one of those rate hikes throughout 0:08:34.000 --> 0:08:35.800 the course of the year. We're gonna hear about that 0:08:36.160 --> 0:08:38.120 when the minutes are released at two and try to 0:08:38.160 --> 0:08:40.360 get inside for that June meeting that is that is 0:08:40.400 --> 0:08:42.640 coming up very soon. So you think that it's really 0:08:42.720 --> 0:08:45.760 important with these meeting minutes. Say from that perspective, well, 0:08:45.760 --> 0:08:50.120 the symmetry around the inflation projection is critical. If they 0:08:50.160 --> 0:08:53.800 can let that inflation tick above that two percent target 0:08:54.200 --> 0:08:56.960 and be okay with that, then that kind of sets 0:08:57.000 --> 0:09:00.360 the pathway for taking one rate hike off that table. 0:09:01.000 --> 0:09:03.120 So it is a start of that. Now is there 0:09:03.160 --> 0:09:04.800 going to be market moving I mean, we're talking the 0:09:04.840 --> 0:09:08.120 main meeting, but what investors and analysts are gonna be 0:09:08.160 --> 0:09:10.559 doing is trying to extrapolate do they go in June 0:09:10.559 --> 0:09:13.560 and does the summary of economic projections in the June 0:09:14.160 --> 0:09:17.079 meeting set that up? Okay, I want to make sure 0:09:17.120 --> 0:09:19.000 I really understand this. In other words, you're saying, if 0:09:19.000 --> 0:09:21.760 the Federals are of hikes four times this year, we 0:09:21.800 --> 0:09:24.240 will be looking at an inverted yield curve in short 0:09:24.360 --> 0:09:27.880 order by your end. If you do the math of 0:09:28.200 --> 0:09:30.640 the eight basis points between the Fed funds rate in 0:09:30.679 --> 0:09:33.360 the two year, you put that on two and a half, 0:09:33.440 --> 0:09:35.440 which is what the Fed funds rate will be by 0:09:35.520 --> 0:09:38.000 your end. If they do four rate x for the year, 0:09:38.480 --> 0:09:40.760 that gets you three thirty. So does that mean that 0:09:40.800 --> 0:09:45.719 we head into recession next year? Typically going back over 0:09:45.760 --> 0:09:50.000 the last seven recessions, it has been a forewarning of 0:09:50.040 --> 0:09:53.120 a forthcoming recession. Usually there's a window. You know, in 0:09:53.320 --> 0:09:55.800 the mid two thousands it was twenty three months before 0:09:55.800 --> 0:09:59.600 the recession happened. Market peaked before that, but in the 0:09:59.600 --> 0:10:02.800 midnight the nineties it was about six months. So it's 0:10:02.800 --> 0:10:06.120 not a precise measurement, but we would look at it 0:10:06.120 --> 0:10:10.120 as an opportunity to look to de risk assets and 0:10:10.160 --> 0:10:12.600 think about risk management more so in the end of 0:10:12.600 --> 0:10:15.360 this year and into next year. So panic now and 0:10:15.400 --> 0:10:19.320 avoid the rush. No, because our base cases the FED 0:10:19.360 --> 0:10:22.120 takes went off went off the table, and that the 0:10:22.120 --> 0:10:25.280 FED is trying to communicate to the market that inflation 0:10:25.320 --> 0:10:28.479 going about their target is okay. This is a relatively 0:10:28.559 --> 0:10:31.560 new phenomenon in terms of the symmetry language that's been 0:10:31.559 --> 0:10:36.440 put into their communication. UM. So, you know, risk management 0:10:36.480 --> 0:10:38.720 is always a part of our process. It's it's critical. 0:10:39.200 --> 0:10:41.120 Um But as we look into the end of the year, 0:10:41.400 --> 0:10:44.160 you know, we we see if the FED does continue 0:10:44.200 --> 0:10:47.080 to raise rates uh to that fourth time, Yeah, then 0:10:47.120 --> 0:10:48.840 that would be time to kind of think about it 0:10:48.840 --> 0:10:51.280 even more so. What does that do to the dollar? 0:10:51.480 --> 0:10:53.880 I mean, the dollar strength is something that if you 0:10:53.920 --> 0:10:56.680 had said the had a reserve officials, you know, at 0:10:56.720 --> 0:10:58.160 the beginning of the year, that we'd be at one 0:10:58.240 --> 0:11:03.200 seventeen against the euro, it might not have have foreseen that. Yeah, 0:11:03.240 --> 0:11:05.280 you're absolutely right. And and to us that does mean 0:11:05.320 --> 0:11:08.400 dollar strengthening. That means US equities look better than international 0:11:08.720 --> 0:11:13.080 that's divergence of global growth instead of the synchronized global growth. 0:11:13.080 --> 0:11:14.920 I mean the p m I to date data today 0:11:15.320 --> 0:11:17.200 just Europe, right, yeah, out of Europe and then the 0:11:17.280 --> 0:11:19.880 US market pm I just came out down one t 0:11:20.760 --> 0:11:23.520 of a you know, one tick basically, well, the European 0:11:23.600 --> 0:11:27.160 data came in softer. You're starting to see desynchronization of 0:11:27.160 --> 0:11:31.439 of global growth here. So overnight or yesterday afternoon, Mark 0:11:31.480 --> 0:11:35.959 Quisel of PIMCO said that they're recommending that clients increase 0:11:36.000 --> 0:11:39.920 their allocation to cash to ten to fift from five 0:11:39.960 --> 0:11:43.120 to ten percent. They said that they should probably cycle 0:11:43.200 --> 0:11:47.600 out of credit, in particular longer dated corporate debt. Do 0:11:47.640 --> 0:11:50.120 you agree. You know, the short en of the curve 0:11:50.160 --> 0:11:53.839 is offering a pretty nice yield, So we get that 0:11:53.880 --> 0:11:55.720 because cash is yielding. You know, if you look at 0:11:55.840 --> 0:11:58.439 kind of the shorten the treasury curve to two and 0:11:58.480 --> 0:12:01.000 a half percent. Not bad. The problem is you're not 0:12:01.000 --> 0:12:03.160 going to get diversification from equities if you cut all 0:12:03.160 --> 0:12:05.800 your duration away. Durations what you want when we get 0:12:05.800 --> 0:12:08.680 into a recession, and you know that kind of strategy. 0:12:08.720 --> 0:12:11.199 If you're balancing that too to offset your equities in 0:12:11.240 --> 0:12:14.320 a downturn. You know, if you'd do collapse in the 0:12:14.400 --> 0:12:16.960 in the longer end of the curve, that's actually where 0:12:17.000 --> 0:12:18.800 you want to be. So I get it. You know 0:12:18.840 --> 0:12:20.920 in the next six months that you're gonna be, you know, 0:12:21.280 --> 0:12:24.160 mitigating the duration risk. As the short end goes up, 0:12:24.160 --> 0:12:26.600 you're gonna get some money there from from holding that. 0:12:26.960 --> 0:12:29.640 But when it goes to a recession time, you want duration. 0:12:30.240 --> 0:12:32.040 So it'll be interesting to see if he ends up 0:12:32.040 --> 0:12:34.760 putting that back on six months from tonight, if we're 0:12:34.840 --> 0:12:37.160 kind of seeing this recession or environment that might be 0:12:37.200 --> 0:12:43.800 happening in nineteen seconds. Is there something specific you want 0:12:43.800 --> 0:12:46.360 to be looking for in the release of today's f 0:12:46.440 --> 0:12:51.080 o MC meeting minutes symmetry, Do they really harp on 0:12:51.160 --> 0:12:53.760 it or not? All right, thank you so much for 0:12:53.800 --> 0:12:56.720 being with us. Really interesting ideas. Matt msk in, market 0:12:56.760 --> 0:13:00.240 strategist for John Hancock Investments based in boss In, but 0:13:00.280 --> 0:13:03.240 here in our eleven three studios today. Really interesting. I 0:13:03.240 --> 0:13:06.040 wonder if the focus will be back on the yield 0:13:06.040 --> 0:13:09.679 curve after the release of those meeting minutes, because, as 0:13:09.720 --> 0:13:12.920 Matt was saying, they're expecting the yeld curve to invert 0:13:13.200 --> 0:13:16.840 by year end. Should the federal reserve go four times? 0:13:16.880 --> 0:13:19.280 Not necessarily a consensus view. I should just point out 0:13:19.320 --> 0:13:21.599 there are other people who think that there's a significant 0:13:21.679 --> 0:13:25.079 more amount more room we have to go. But fascinating, 0:13:25.120 --> 0:13:28.320 Thank you so much. Right now we actually are looking 0:13:28.480 --> 0:13:34.240 at some strengthening of the lot of Yeah, look at 0:13:34.240 --> 0:13:38.400 that three percent. Now at the US ten year treasury yield. 0:13:54.640 --> 0:13:58.120 As mortgage rates rise to the highest in at least 0:13:58.280 --> 0:14:01.960 seven years of news, when will it start to crimp 0:14:02.120 --> 0:14:07.000 people's demand for mortgages. Data today suggests that it already is. 0:14:07.080 --> 0:14:08.680 To talk about this more, I want to bring in 0:14:08.720 --> 0:14:14.080 Logan Mota Shami. He is senior loan officer for AMC Lending. Logan, 0:14:14.120 --> 0:14:16.480 thank you so much for being with us. I'm talking 0:14:16.520 --> 0:14:19.720 about the data that showed that US purchases of new 0:14:19.760 --> 0:14:24.440 homes fell in April more than people had expected. Do 0:14:24.480 --> 0:14:26.920 you think this is an indication that higher mortgage rates 0:14:27.000 --> 0:14:31.080 is crimping into the home sales market at this point. No, 0:14:31.440 --> 0:14:35.560 for multiple reasons. Number one purchase application data is that 0:14:35.680 --> 0:14:40.160 cycle highs currently right now, and we've had year over 0:14:40.280 --> 0:14:44.720 year growth in every single week this year, even with 0:14:44.840 --> 0:14:49.400 higher home prices, even with higher mortgage rates UH and 0:14:49.440 --> 0:14:51.960 working from a higher base. This is not like what 0:14:52.000 --> 0:14:56.760 we saw in when rates were higher in a non 0:14:56.800 --> 0:15:00.880 seasonal timing. You saw that impacting demand. So as of now, 0:15:01.040 --> 0:15:04.520 absolutely not mortgage demanded. That cycle high. New home sales 0:15:04.760 --> 0:15:07.040 for me personally is trending much better than I even 0:15:07.080 --> 0:15:09.800 thought I was only looking for two to growth this year. 0:15:10.000 --> 0:15:12.840 We're looking at double digit sales growth this year for 0:15:12.920 --> 0:15:15.760 new home sales. The revisions were down, but they're not 0:15:15.880 --> 0:15:20.160 down big. So so far, we haven't seen mortgage rates 0:15:20.200 --> 0:15:24.920 impact demand at all. One bit. It's impacted the refinance market, 0:15:24.960 --> 0:15:27.880 but not the purchase market. We'll get two refinances in 0:15:27.960 --> 0:15:30.520 just a second. I'm curious, are you seeing people put 0:15:30.520 --> 0:15:35.800 more cash down? No, Typically when home prices rise, UH, 0:15:35.880 --> 0:15:39.600 the ability to UH put more down and gets limited. 0:15:39.640 --> 0:15:42.800 But again the markets are different. You know, UH c 0:15:43.000 --> 0:15:45.640 A home buyers typically tend to be the highest income 0:15:45.680 --> 0:15:49.000 highest net worth asset people. So you know, if you 0:15:49.000 --> 0:15:51.680 get some buyers who put down, but then you get 0:15:51.720 --> 0:15:54.120 the most of the other markets, you probably get a 0:15:54.160 --> 0:15:57.200 three to five percent down home buyer. So even new 0:15:57.240 --> 0:16:02.120 tax regulations affecting the deduction of mortgage interest, that is 0:16:02.480 --> 0:16:08.400 a beg pardon um. Property taxes not affecting home home sales. 0:16:08.840 --> 0:16:12.400 Absolutely not, and it shouldn't. That's that's a very marginal 0:16:12.440 --> 0:16:16.320 small number of perspective home buyers that would actually look 0:16:16.320 --> 0:16:19.680 at that and change their mind. I don't think that 0:16:19.920 --> 0:16:23.920 will will have any impact because the mortgage interest deduction 0:16:23.960 --> 0:16:27.480 is still up to seven fifty thousands. You know, the 0:16:27.520 --> 0:16:30.520 majority of homes are under that level, So I don't 0:16:30.520 --> 0:16:33.480 see that being any impact whatsoever. You know, Logan, we're 0:16:33.480 --> 0:16:37.160 talking in generalities and averages. Though the US is a monolith, 0:16:37.320 --> 0:16:40.520 and obviously it's a fragmented market when it comes to 0:16:40.720 --> 0:16:42.920 real estate. And I'm wondering, you know, can we break 0:16:43.000 --> 0:16:48.480 out which part of the US property sales market is 0:16:48.520 --> 0:16:51.120 actually driving the whole bus here? Because we know that 0:16:51.160 --> 0:16:54.440 there has been robust growth in the prices and the 0:16:54.480 --> 0:16:59.240 sales of the higher end houses. But you know, certainly 0:16:59.680 --> 0:17:02.760 there has been a dearth of affordable housing for people 0:17:02.800 --> 0:17:06.399 who are lower income, just the first time buyers, etcetera. 0:17:06.600 --> 0:17:09.240 Where are we on that, on that sort of dynamic 0:17:09.680 --> 0:17:11.359 that seems to have gotten a little bit out of whack. 0:17:11.920 --> 0:17:14.840 There is no such thing as affordable housing in America. 0:17:15.400 --> 0:17:19.119 We do not create the incentives or the backdrop to 0:17:19.200 --> 0:17:24.359 create affordable housing. And this is a post phenomenon where 0:17:24.440 --> 0:17:27.320 we've just been building bigger and bigger homes, and whenever 0:17:27.680 --> 0:17:30.600 the economy gets weak, we lower interest rates, which spur 0:17:30.760 --> 0:17:35.639 demand and the notion that there's anything affordable out there. 0:17:35.960 --> 0:17:38.879 For a long time now, it's just not feasible in 0:17:38.920 --> 0:17:43.080 my eyes, because we based affordability indexes on people who 0:17:43.160 --> 0:17:48.240 supposedly have down with low interest rates. So I don't 0:17:48.320 --> 0:17:51.480 even I don't even subscribe to that these I think 0:17:51.640 --> 0:17:55.440 if you want affordability, you move towards the middle of America, 0:17:55.760 --> 0:17:58.600 where home prices are much smaller than you know, the 0:17:58.680 --> 0:18:01.960 coastal areas. Again, that goes into the U. S economy. 0:18:01.960 --> 0:18:05.359 We've you know, more than the population are in five 0:18:05.440 --> 0:18:08.359 six different areas in the US, and that tends to 0:18:08.359 --> 0:18:11.639 be where the high overheating home prices are. But again 0:18:11.720 --> 0:18:14.440 those people make money as well, and this is why 0:18:14.680 --> 0:18:18.320 you see home sales still slow and steady. There's no 0:18:18.440 --> 0:18:20.520 record breaking demand. This is one of the reasons why 0:18:20.560 --> 0:18:23.520 you don't see housing starts get to fifty year moving average. 0:18:23.880 --> 0:18:26.400 But we don't build affordable housing. We gave that up 0:18:26.960 --> 0:18:30.160 decades ago when we've subsidized the housing market with low 0:18:30.200 --> 0:18:33.240 down payments, low FCO score loans. Interest rates were lower, 0:18:33.280 --> 0:18:35.560 they were rate of growths and falling for interest rates 0:18:35.560 --> 0:18:39.280 for decades. So to me, it's impossible to get affordable 0:18:39.280 --> 0:18:42.320 housing back based on what the builders need to do, 0:18:42.359 --> 0:18:44.000 because the builders have to make money and they have 0:18:44.040 --> 0:18:46.280 to build bigger and bigger homes to get that profit margin, 0:18:46.480 --> 0:18:49.119 especially now with lumber prices of the labor costs stuff 0:18:49.160 --> 0:18:51.639 as well. Well. Logan, you just described some of the 0:18:51.640 --> 0:18:54.439 headwinds that many of the home builders are facing. And 0:18:54.480 --> 0:18:57.160 we got the report from Toll Brothers this week. Obviously 0:18:57.200 --> 0:19:01.440 they produced luxury housing, but do you see any divergence 0:19:01.480 --> 0:19:06.760 between the health of your business and the somewhat lackluster 0:19:06.920 --> 0:19:10.320 fortunes of the home builders. Here's the thing with the builders. 0:19:10.320 --> 0:19:13.880 The builders were terribly expensive going into the year, and 0:19:13.960 --> 0:19:16.440 since new home sales if you actually look at adjusting 0:19:16.480 --> 0:19:19.440 to population used in a six month moving average, we're 0:19:19.440 --> 0:19:21.560 basically a little tat about what we would see in 0:19:21.600 --> 0:19:25.280 a recession. So they are dealing with low numbers and 0:19:25.280 --> 0:19:28.880 they have to make as much money as possible out there. 0:19:29.000 --> 0:19:31.440 So this is why they've been building bigger and bigger homes. 0:19:31.520 --> 0:19:35.760 I think it becomes an issue for them, Uh if 0:19:35.840 --> 0:19:39.520 interest rates go to six or six and a half percent, 0:19:39.600 --> 0:19:42.680 because these are mortgage buyers. It's not like existing homes 0:19:42.680 --> 0:19:46.240 that still has a record breaking cash buyer index out there. So, 0:19:46.960 --> 0:19:50.040 but the demographics for housing has been sought from two 0:19:50.040 --> 0:19:52.280 thousand and eight to two thousand. We're about to get 0:19:52.320 --> 0:19:56.600 into a demographic boom for homeownership. So because the numbers 0:19:56.640 --> 0:19:58.760 are still low for new home sales, they're going to 0:19:58.840 --> 0:20:01.040 run into a better demograp aftric passion on like two 0:20:01.119 --> 0:20:03.480 thousand and seven where we had a credit bubble. So 0:20:03.640 --> 0:20:06.760 I think the builders sales have legs to go higher. 0:20:06.800 --> 0:20:11.800 It just becomes a profit margin story. Lumber prices, labor cost, 0:20:12.040 --> 0:20:14.920 land cost. These things matter more now at this stage 0:20:14.920 --> 0:20:18.360 of the cycle because sales are starting to mature toward 0:20:18.480 --> 0:20:21.479 more of a fifty year average, and when people talk 0:20:21.480 --> 0:20:24.520 about a demographic boom. They talk about all the millennials, 0:20:24.840 --> 0:20:27.119 people who are going to be moving out of apartments 0:20:27.119 --> 0:20:30.520 and buying homes. Is there any evidence that this shift 0:20:30.600 --> 0:20:34.720 that we've seen accelerate toward renting rather than owning will 0:20:34.760 --> 0:20:39.359 reverse this is this is a really interesting topic. Millennials 0:20:39.359 --> 0:20:42.000 are the biggest home buyers in America today and have 0:20:42.119 --> 0:20:44.000 been for some time. They're the biggest home buyers in 0:20:44.040 --> 0:20:47.399 the world. But they buy homes aged thirty two and on. 0:20:47.720 --> 0:20:50.399 So that big demographic pitch right now that we have 0:20:50.440 --> 0:20:53.159 in America or ages twenty three to twenty nine. So 0:20:53.359 --> 0:20:55.600 this is why I've always stated for five years on 0:20:55.640 --> 0:20:59.800 Bloomber you have to wait till years four. Now, last 0:21:00.000 --> 0:21:02.800 it was the first year that we had more homeowners 0:21:02.800 --> 0:21:06.359 and renters, and that makes sense that these people are 0:21:06.400 --> 0:21:09.560 actually starting to live longer in their rents. Once they 0:21:09.560 --> 0:21:11.480 get up to the thirty two age they start to 0:21:11.520 --> 0:21:14.480 buy home. So we're still a few years away from 0:21:14.520 --> 0:21:18.040 having a better demographic patch. But but once they get 0:21:18.080 --> 0:21:20.439 to that age group, they if they if they do 0:21:20.560 --> 0:21:23.919 have that kind of the educated, skilled wage factor in 0:21:23.960 --> 0:21:26.960 their households, they tend to buy homes. So it's just 0:21:27.200 --> 0:21:29.679 it's just a makeshift of the demographics in the cycle. 0:21:29.760 --> 0:21:32.600 It's very unique. We're very old and we're very young. 0:21:33.160 --> 0:21:35.520 But once they get to that proper age group, they 0:21:35.520 --> 0:21:38.480 buy homes and that that data has been evident now 0:21:38.520 --> 0:21:41.240 for for years. Thank you very much for being with us. 0:21:41.400 --> 0:21:44.960 Logan Mata Shami he is a senior loan officer for 0:21:45.280 --> 0:21:49.200 a MC lending group. They are based in Irvine, California. 0:21:49.560 --> 0:21:53.439 You can follow Logan on Twitter at Logan Mata Shami. 0:21:53.520 --> 0:21:57.600 That's m O H T A s H A M. I. 0:21:57.680 --> 0:22:00.600 You're listening to Bloomberg. I'm pim file box along with 0:22:00.680 --> 0:22:04.000 Lisa Abramowitz. Coming up, we're going to be taking a 0:22:04.000 --> 0:22:08.639 look at what happens when Dodd Frank legislation is changed. 0:22:24.400 --> 0:22:27.679 The US currently imports most of the uranium that is 0:22:27.840 --> 0:22:31.240 used for fuel in nuclear power plants in order to 0:22:31.240 --> 0:22:36.320 generate electricity. About four of the uranium used in the 0:22:36.400 --> 0:22:41.400