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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller. Every business day we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Fund the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. So you were making

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Speaker 1: a making fun man, First Citizens five ticker. We have

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Speaker 1: five letter ticker we have if you're a good company, right,

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Speaker 1: if you're like a blue chip, then usually you get

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Speaker 1: like one letter like t no. But this is why

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Speaker 1: you know this is a good company because Bloomberg Intelligence

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Speaker 1: covers the stock. Herman Chen is the analyst here. He

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Speaker 1: actually covers the stock good because a lot of questions.

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Speaker 1: We got him here. He's in studio. He covers the

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Speaker 1: regional banks. Alison Williams joins us on the phone. She

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Speaker 1: covers all the big global banks as well. A swaying

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Speaker 1: a little bit of a financial roundtable here, Herman, let's

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Speaker 1: start with you tell Matt what he needs to know

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Speaker 1: about First Citizens and why First Citizen stock is up

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Speaker 1: a ga jillion percent here on this news. Sure, so

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Speaker 1: First Citizens. It's a regional bank based in Raleigh, North Carolina.

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Speaker 1: It has grown tremendously with the deal with C I T,

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Speaker 1: which also has offices of New Jersey. So you should

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Speaker 1: know c You should know, ye run wasn't it run

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Speaker 1: at one point by the former governor of New Jersey

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Speaker 1: John Cosign that had Manuchin owned. They own One West,

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Speaker 1: which was part of Indiemac, so that that banking operation

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Speaker 1: is part of the First Citizens, as well as the

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Speaker 1: specially landing operations and the CRI lending that they do

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Speaker 1: in the southeast. So it's a over one hundred billion

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Speaker 1: dollars bank prior to the SBB deal. It basically doubles

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Speaker 1: the size of the of the institution and the deal

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Speaker 1: is very lucrative. Hard to say what the tangion book

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Speaker 1: value accreciation accretion is, but it's probably around fifty percent.

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Speaker 1: So that's why the stock pops into PA. So I

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Speaker 1: was thinking about m Global, Yes you were, yeah, but

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Speaker 1: C I T was mister Cushner ran that right. In

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Speaker 1: any case, this is a bank that I guess has

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Speaker 1: made a number of First Citizens, has made a number

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Speaker 1: of distressed purchases. Basically still it's only an eight billion

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Speaker 1: dollar market cap, Right, how does it work out a deal? Like, Yeah,

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Speaker 1: it got a huge pop obviously because it's getting this

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Speaker 1: asset at such a big discount. Right. It was It

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Speaker 1: has traditionally been a distressed acquirer, and this is part

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Speaker 1: of the game plan for for the management team that

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Speaker 1: has been at the bank for decades. It's very unique,

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Speaker 1: family operated. The grandfather of the CEO was the founder,

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Speaker 1: so it's it's a unique operating success story. Yeah, and

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Speaker 1: it's very much insider owned. So it's a different type

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Speaker 1: of animal that we're used to. Go Alison, I want

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Speaker 1: to bring you in here, Alison Williams. She covers the

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Speaker 1: big global banks. How come I mean First Citizens Matt

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Speaker 1: and I are just learning about First Citizens bank shares.

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Speaker 1: This is not JP Morgan Chase. We didn't see much

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Speaker 1: interest from the big banks for any of these troubled

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Speaker 1: regional banks, did we. Well. I think first of all,

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Speaker 1: they're they're limited, Um, you know. JP Morgan by definition

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Speaker 1: is limited in terms of what it can acquire. And

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Speaker 1: I think that, um, you know, the presumption is that

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Speaker 1: the regulators would allow um something if needed. Um. But

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Speaker 1: clearly there was interest and clearly this is this is

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Speaker 1: a result that I think the government would much rather

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Speaker 1: see in terms of um, you know, a smaller bank

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Speaker 1: taking on this this deal and creating a competitor at

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Speaker 1: the at the at this end of the scale. I mean,

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Speaker 1: they were allowed to buy Barrastarns, right, So, but that

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Speaker 1: was the U regulation relates to deposits, and so bank

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Speaker 1: in the US cannot acquire if they're beyond a ten

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Speaker 1: percent market share of deposits, and they kind of grow organically,

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Speaker 1: but they can't do acquisitions. And at the time, so

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Speaker 1: Washington Mutual was the one that was sort of on

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Speaker 1: the edge for them. You know, there was also the

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Speaker 1: Wacovia and Wells Fargo deal, but I think that first

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Speaker 1: of all, there was the Wammoo had different righte glads,

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Speaker 1: so that's like a little bit getting into the weeds

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Speaker 1: of things, and the other deal is sort of add

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Speaker 1: ten percent. But I think the presumption is, you know,

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Speaker 1: if if needed, they would do it. And I think

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Speaker 1: you know, also Embarrasserns that was also a government supported deal.

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Speaker 1: So I think in times of crisis, obviously the government

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Speaker 1: gets involved. We've seen that globally and can sort of

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Speaker 1: change the rules. Herman, are we still in is this

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Speaker 1: still a time of crisis or you know, was there

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Speaker 1: was there a problem structurally or was this just a

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Speaker 1: couple of idiosyncratic issues that led to one bank run

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Speaker 1: or two bank runs and everything's okay Now. It definitely

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Speaker 1: feels like it's lowered to temperature a bit. And we've

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Speaker 1: written about how there's only a handful of banks that

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Speaker 1: seemed to be stressed, Pacquest, First Republic and the banks

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Speaker 1: that have already been folded SVB signature. If you look

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Speaker 1: at the discount window usage that the numbers that came

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Speaker 1: out last week, and the usage of the new bank

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Speaker 1: term liquidity program, things seem pretty stable. So it suggested

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Speaker 1: to us that you're not seeing some of the liquidity

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Speaker 1: risks that that felled some of these other institutions spread

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Speaker 1: to the broader regional bank space. So again you mentioned

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Speaker 1: pac West, It's up four and a half percent, First

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Speaker 1: Republics up seventeen percent here, So do you expect to

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Speaker 1: see some more deals happening to kind of, you know,

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Speaker 1: see more combinations occur for some of these other stress banks. Yeah,

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Speaker 1: I think that remains to be seen. I think the

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Speaker 1: regulators would ideally like a bank like First Republic to

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Speaker 1: continue operating as as first Republic without needing any any acquirer.

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Speaker 1: That remains to be seen if that can be feasible.

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Speaker 1: But but the hope is that the deposits have stabilized

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Speaker 1: and eventually, once there's more confidence in the system, they

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Speaker 1: can regain some of the deposits that they lost to

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Speaker 1: other institutions. Alison, what's the feeling just out there? I mean,

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Speaker 1: you talk to these institutional investors for all kinds of

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Speaker 1: you know, the financials, the asset managers, the big money

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Speaker 1: center banks, regionals, you kind of see it all. What's

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Speaker 1: your feeling about kind of just the banking system in general?

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Speaker 1: Do we need any more concern Do you think we

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Speaker 1: need any more regulatory review here? Where were are we today?

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Speaker 1: I mean, I think that the regulatory view and those

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Speaker 1: concerns are certainly being raised by politicians, I say, for banks,

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Speaker 1: for bank investors, they sort of recognize that there was

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Speaker 1: there was some mismanagement at a few institutions that um,

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Speaker 1: you know, sort of exacerbated some of the industry wide

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Speaker 1: issues in terms of the setup with Kewey and now QTUM.

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Speaker 1: But I think broadly in terms of investors, you know,

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Speaker 1: now the focus is turning towards the credit aspects, that's

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Speaker 1: turning towards recession, and we're starting to hear a lot

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Speaker 1: more about the concerns of related to commercial real estate.

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Speaker 1: M Herman actually has at out this morning in terms

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Speaker 1: of the regional banks on that. I'd love to get

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Speaker 1: that Alison and Herman. I keep hearing real estate, real estate,

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Speaker 1: real estate, that's the next bogey for banks. Alison. So wait,

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Speaker 1: it was hold to maturity portfolios. Yep, And and now

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Speaker 1: what a bunch of banks hold big commercial real estate portfolios? Right?

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Speaker 1: So yeah, I mean that that shouldn't be h So

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Speaker 1: that shouldn't be a surprise. I mean, I think that

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Speaker 1: the health to maturity portfolios were a surprise just because

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Speaker 1: we haven't seen that being an issue for banks in

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Speaker 1: many decades. I think that, you know, commercial real estate

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Speaker 1: is something that the you know, everyone's been focused on

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Speaker 1: since the beginning of the pandemic, especially office because there

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Speaker 1: were so many questions around that. And now you know,

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Speaker 1: as we think about getting closer to recession, that is

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Speaker 1: gaining focus, you know, not just for the banks, but

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Speaker 1: you know broadly from what we're seeing in the CMBs

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Speaker 1: market and regional banks do tend to have significant portfolios

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Speaker 1: in that area, and they'll turn it over to Herman

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Speaker 1: to talk a little bit about some of the work here.

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Speaker 1: So I mean Herman. The problem with the Hold to

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Speaker 1: Maturity's portfolios wasn't that they had them or that they

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Speaker 1: were you know, not marked to market, but that when

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Speaker 1: investors want to pull their money out, these banks had

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Speaker 1: to sell that stuff in, take huge losses and then

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Speaker 1: didn't have enough money. That's that's the that was the worry, right, correct.

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Speaker 1: So should we have the same concerns about commercial real estate?

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Speaker 1: Have they not marked those portfolios to market? Had they

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Speaker 1: not tried to unload them? As you know, everybody, even

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Speaker 1: Paul Sweeney, has gotten used to the idea that workers

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Speaker 1: are no longer coming to the office. Right, So let's

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Speaker 1: take a step back. The original issue with SBB was

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Speaker 1: the Health to Maturity portfolio, which was not marked to market.

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Speaker 1: The issue with First Republic is they have a big

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Speaker 1: chunk of residential mortgage loans that are not marked to market.

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Speaker 1: So now the focus has shifted a bit to other

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Speaker 1: areas within bank balance sheets that may you know, the

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Speaker 1: fair value of that asset may be less than the

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Speaker 1: carrying value So that's what we're looking at now in

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Speaker 1: terms of focus on commercial real estate, specifically office exposure

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Speaker 1: where people are working from home and the cash flows

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Speaker 1: are are down from where they were pre pandemic and

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Speaker 1: interest rates are rising. So how the bar or refinanced

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Speaker 1: that loan? When? When? When that loan comes due? You know,

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Speaker 1: this year, next year, in a few years. So it's

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Speaker 1: a longer term turn in the maturity profile of these loans,

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Speaker 1: but it's something that a lot of folks are looking

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Speaker 1: into more. And have you identified a number of banks

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Speaker 1: that are going to have the biggest problems? Sure? So,

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Speaker 1: I guess if you look at the banks that we

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Speaker 1: cover on the regional side, there are a few banks

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Speaker 1: that stand out in terms of their commercial real estate exposure.

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Speaker 1: Bank oz K is the one that stands out with

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Speaker 1: higher CRI concentration. OZK likes ozarks correct, So yeah, nice

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Speaker 1: pick up there, man. So it's it's a bank that

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Speaker 1: historically has been great in terms of managing their credit quality,

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Speaker 1: but they do screen high in terms of office content.

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Speaker 1: You know, in my town where I live, they're putting

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Speaker 1: up this big mixed use um, you know, office building,

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Speaker 1: and I don't know what's going to be in there.

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Speaker 1: I don't know where the traffic is going. I don't

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Speaker 1: think they thought about that at all, um, But it's

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Speaker 1: financed proudly, big sign by local bank. And I remember thinking, boy,

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Speaker 1: that's that's the way it works. That's what makes America great.

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Speaker 1: You got a local lender financing growth in a local market.

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Speaker 1: But now I'm thinking about, oh boy, if they can't

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Speaker 1: fill this thing, you know, you know, you think about that,

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Speaker 1: and you think about that, you'd drive around any town USA.

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Speaker 1: The office buildings, I don't know, are they have full?

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Speaker 1: Are they two thirds full? I don't know where I

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Speaker 1: would I would say that most of the cre and

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Speaker 1: office stress is really in San Francisco and New York. Right,

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Speaker 1: So if you're in a suburban market, you're probably going

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Speaker 1: to the office more than the folks in Silicon Valley,

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Speaker 1: where they're working from home in majority of their time.

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Speaker 1: So our view is that the regional banks probably have

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Speaker 1: headline risks because of the office exposure, but the actual

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Speaker 1: credit losses should be definitely manageable. All right, good stuff.

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Speaker 1: Alison Williams, she covers the big global banks. We're gonna

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Speaker 1: be talking to her a lot because we have a

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Speaker 1: couple of weeks time, we're gonna have the banks, the

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Speaker 1: big investment banks and the big money center banks reporting numbers.

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Speaker 1: We'll be talking to Alison a lot. She covers the

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Speaker 1: big global banks. Herman Chen senior analyst for Bloomberg Intelligence

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Speaker 1: covering the regional banks, and he has been the man

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Speaker 1: in the hot seat for the last few weeks because

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Speaker 1: nobody cares about regional banks until they have to, and

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Speaker 1: then it's you know, where's Herman Chan? Get him up here?

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Speaker 1: We need to know what's going on. But I'll tell

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Speaker 1: you what. At the very beginning of this, Herman taught

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Speaker 1: us Tom Matt and I how to look at a

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Speaker 1: bank balance sheet and to look at those hell to

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Speaker 1: maturity things versus the deposits. And after five minutes we

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Speaker 1: figured out that SVB was in trouble. How did the

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Speaker 1: regulators miss it? That's that's that's the question that I

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Speaker 1: think are not going to be delving into. In fact,

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Speaker 1: I think the Senate looks into that starting tomorrow, and

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Speaker 1: then Congress looks into it on Wednesday. This is Bloombergen.

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Speaker 1: You're listening to the Team Cancer Line program Bloomberg Markets

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Speaker 1: weekdays at ten am Eastern on Bloomberg dot Com, the

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Speaker 1: I Heard radio app and the Bloomberg Business app. We're

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Speaker 1: listening on to mand wherever you get your podcast. All right,

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Speaker 1: we were just talking real estate and maybe the risk

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Speaker 1: that may you know, point for some of the regional

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Speaker 1: lenders out there. Let's just talk about it right from

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Speaker 1: the primary perspective. Let'stuck real estate. We can do that

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Speaker 1: with Lisa n She does all that stuff. She's a

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Speaker 1: real estate lead at Eisener Amper. Joins us here in

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Speaker 1: our Bloomberg and Advisory Group. I know it is Is

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Speaker 1: it that is courage? Sorry I will say that and

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Speaker 1: thank you for having me this. But they got the big,

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Speaker 1: the big building on. She was at Burden and she

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Speaker 1: was at Eisener Amper. Now she is at Eisener Advisory Group.

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Speaker 1: Is that right? Okay, very good, I think. But the

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Speaker 1: most important thing is she's here in a Bloomberg Interactor

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Speaker 1: Broker studio, so she gets a gold star. She's also

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Speaker 1: a lawyer and a CPA. All right, that's enough enough education,

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Speaker 1: enough education, Let's get back to it, all right. I

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Speaker 1: walk through mid ten Manhattan. I see empty building after

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Speaker 1: empty building after empty building. What do you real estate.

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Speaker 1: People say about commercial real estate these days, I think

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Speaker 1: it's a disaster. Am I overreacting? So we're cautiously optimistic.

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Speaker 1: That is the mood, So people are that's my favorite phrase,

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Speaker 1: but that is the mood for where we are this

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Speaker 1: year and where we are in the cycle. And so

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Speaker 1: we know what's going on with the interest rates. Feds

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Speaker 1: increase the seven times in twenty twenty two, and they're expected,

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Speaker 1: you know, to continue. But are we at the peak?

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Speaker 1: And we're hoping that we are at the peak? And

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Speaker 1: so the problem with commercial real estate right now is pricing.

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Speaker 1: Because there isn't a lot of transaction volume. People don't

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Speaker 1: know where the pricing is and so that's really where

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Speaker 1: we're hoping that this year we can get a pricing stability.

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Speaker 1: Is the lack of transaction volume, like what we hear

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Speaker 1: about in residential where sellers don't want to let go

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Speaker 1: of their holdings at a low price, so buyers can't

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Speaker 1: pick up bargains or has everyone who wants to sell

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Speaker 1: already let go of what they've got now. I think

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Speaker 1: it's a combination. And when you look at interest rates,

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Speaker 1: that's going to change your cash flow and what your

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Speaker 1: yield is in your return right, So whether it's personal

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Speaker 1: real estate, investing your own home or commercial real estate,

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Speaker 1: that interest rate is going to change your bottom line

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Speaker 1: and cash flow. And so when interest rates go up

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Speaker 1: and valuations go up, your returns go down essentially. And

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Speaker 1: so that's really where that combination is, and it's making

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Speaker 1: more difficult for people to find out where that happy

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Speaker 1: median is. I was just wondering if there are any

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Speaker 1: distressed bargains out there. You know, if there's some commercial

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Speaker 1: real estate holder that has buildings on Third Avenue and

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Speaker 1: they've decided, okay, we can't do anything with this. No

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Speaker 1: one wants to have an office on Third Avenue because

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Speaker 1: it's kind of gross, and nobody wants to live there

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Speaker 1: because they can't, you know, they can't renovate the commercial

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Speaker 1: space into a residential space, so they get rid of

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Speaker 1: it for fire sale prices or are you seeing any

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Speaker 1: of that? So there's two key points in what you said.

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Speaker 1: There is just stress opportunity, and where that's coming in

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Speaker 1: is on the lending side. So if you're a little

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Speaker 1: bit of a riskier investor or you want to get

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Speaker 1: in on a preferred or mezzotine lending that's where your

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Speaker 1: opportunities are going to come in because people have to

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Speaker 1: come in to make those As we've said before, those

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Speaker 1: cash flows work, and so you're going to get a

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Speaker 1: higher yield and a higher return if you're willing to

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Speaker 1: be a riskier investor, right, And so that's going to

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Speaker 1: be very helpful for that. Paul, you were just talking

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Speaker 1: about you want to take some risk risks. I just

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Speaker 1: went along some New Jersey, Jersey shore real estate, but

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Speaker 1: I got a mortgage that is brutal um. Can I

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Speaker 1: refinance my mortgage in like twelve to eighteen months and

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Speaker 1: maybe get a four handle on it? What do I

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Speaker 1: wish I could be able to different business? Different business?

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Speaker 1: Maybe real estate? Is it just New York and San

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Speaker 1: Francisco where it's really challenged in other parts of the

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Speaker 1: country are better or we just kind of warped kind

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Speaker 1: of given where what market we live in. So when

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Speaker 1: you look at the gateway, everyone always focuses on these

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Speaker 1: gateway cities. But when you look at the US and

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Speaker 1: you look at global real estate, a report came out

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Speaker 1: where Florida the transaction value is high right now, and

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Speaker 1: people are looking still at those Sunshine States or the

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Speaker 1: smile states where you want to do it an opportunity,

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Speaker 1: but you also I hate to throw this in there,

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Speaker 1: but when you look at climate change, there could be

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Speaker 1: a demigration, migration back up north depending on what's going

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Speaker 1: on in climate and insurance costs and overhead down in

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Speaker 1: some of these more states that are more affected by climate. Right,

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Speaker 1: and so when you're looking at it, it's hard to

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Speaker 1: sort of say, right now is where we are with

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Speaker 1: New York and San Francisco. People want to still live,

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Speaker 1: work and play here. It's still New York. I'm with you,

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Speaker 1: so we're still optimistic. Shaking his head. No, it's shaking

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Speaker 1: his head. No, that's good thing. It's well, I just

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Speaker 1: don't know. I just don't know. The commercial I honestly,

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Speaker 1: honestly don't know what's going to happen with these commercial

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Speaker 1: real estate, office real estate in New York City. I

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Speaker 1: really don't know. If I'm Billy Ruden, what am I

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Speaker 1: doing with my port? Not just office real estate? Dude?

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Speaker 1: Look downstairs, right, we used to have like an H

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Speaker 1: and M container store. There was a Victoria's Secret across

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Speaker 1: the street, like a Jay Crew or Banana Republic or

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Speaker 1: something like that. Though those are all gone. The only

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Speaker 1: thing we have is like some high end chocolate tier,

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Speaker 1: which I'm sure is a front for something else. No,

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Speaker 1: it was awesome. It was packed, even though in a

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Speaker 1: pandemic they had people in there. But again, what's the

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Speaker 1: what is the smart money saying about New York office

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Speaker 1: real estate and San Francisco for that matter. Right, So

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Speaker 1: when you're looking at the smart money that those A buildings, right,

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Speaker 1: the ones that are beautiful fifteen percent, that makes up

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Speaker 1: fifteen percent of the real estate they're they're occupied, Yes,

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Speaker 1: that fifteen percent. So the yards is Hudson Yards occupied.

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Speaker 1: I wouldn't go into on their vacancy, and I wouldn't

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Speaker 1: dare to do that on the radio. But any class

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Speaker 1: A building that's going to have the prime amenities is

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Speaker 1: going to have an easier time of being able to

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Speaker 1: lease it up. That middle sector, which is sixty percent

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Speaker 1: of real estate for office and for retail, that's going

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Speaker 1: to need some capital. Those those buildings are going to

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Speaker 1: need to have either the rescue capital coming in there

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Speaker 1: or somebody really doing an infusion. It's the bottom twenty

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Speaker 1: five percent that's really what you need to worry about.

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Speaker 1: And this is USY not just New York, not just

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Speaker 1: San Francisco. So it's that twenty five percent of the

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Speaker 1: bottom of the that's going to have to be reconfigured

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Speaker 1: and how do you put that in and what do

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Speaker 1: you do with that? And that's the real challenge. So

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Speaker 1: the top seventy five percent is going to be able

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Speaker 1: to be usable, but you think that's sixty percent in

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Speaker 1: the middle. I wouldn't put money into that thing. I

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Speaker 1: wouldn't put it like a gym or a coffee machine,

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Speaker 1: thinking that's going to workers back. But dude, your risk

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Speaker 1: tolerance doesn't go on Muni's that's true. That's true. So

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Speaker 1: that's where your opportunity is. And when I said to

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Speaker 1: you before, a real opportunistic investor or somebody who's willing

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Speaker 1: to you're gonna get a higher yield. By the way,

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Speaker 1: if you're willing to put that money up, that's the

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Speaker 1: higher yield. And that's where the you can make a

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Speaker 1: lot of money in that exact space. What are you

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Speaker 1: hearing about people actually going back to the office. I mean,

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Speaker 1: for a while it was forget about it. The kids

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Speaker 1: were telling potential employers, no way, Jose. But as we

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Speaker 1: get closer to a recession, I would imagine that resolve

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Speaker 1: breaks a little bit, right. I mean, if you need

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Speaker 1: to find a job, you're probably going to be willing

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Speaker 1: to go in like at least three days a week.

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Speaker 1: I think it's the same thing everyone's been saying. It's

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Speaker 1: that teamwork, camaraderie, and when people are in offices and

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Speaker 1: they're able to be around each other, you're gonna be

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Speaker 1: able to create a career for yourself versus sitting at

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Speaker 1: home in front of your computer or watching TV. This

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Speaker 1: is really where you're going to create your life. And

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Speaker 1: I think you mentioned you just mentioned it that when

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Speaker 1: we head into a little bit more challenging time, the

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Speaker 1: job market's going to change. And so what really makes

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Speaker 1: a difference is how you've created a work life balance

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Speaker 1: for yourself and how you're going to start working with

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Speaker 1: your employers. Also, what we're demanding as employers. You know,

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Speaker 1: we're allowing for that work life balance in that three

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Speaker 1: days a week, and so you know at some point,

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Speaker 1: where where's that going to break and where are we

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Speaker 1: going to say, come back to work. It's much more fun.

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Speaker 1: We miss you. So at Eisner Advisory Group, I'm guessing

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Speaker 1: you guys like transactions. You like the fees associate or transactions.

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Speaker 1: What's your outlook for the next twelve months. I mean

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Speaker 1: we're going to get some more transactions or is these

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Speaker 1: higher interest rates just kind of keeping everybody on the sideline.

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Speaker 1: So when you think of transactions, you can also look

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Speaker 1: at there's going to be a lot of refinancings that

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Speaker 1: have to come up. Where we are in the cycle,

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Speaker 1: some of the data is due and so we're going

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Speaker 1: to have to go in there and talk to lenders

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Speaker 1: make sure we do some workouts. That's where mes lending

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Speaker 1: comes in. A preferred equity position can come in. So

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Speaker 1: any of the times that you're at some point in

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Speaker 1: the cycle, you're going to have to do some conversation

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Speaker 1: in speaking to the banks and figuring out where you

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Speaker 1: are and making sure that the cash flow is still

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Speaker 1: the right yield for your investors. So in times of

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Speaker 1: good and bad in real estate, transaction markets can still

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Speaker 1: be very We're still excited to see what could happen

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Speaker 1: because as we say that, you know, real estate is

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Speaker 1: still a nice investment for a part of a portfolio.

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Speaker 1: Any tax changes coming into view, or is there any

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Speaker 1: possibility of that, I'm not asking about all things I'm

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Speaker 1: asking about salt because all I care about a salt, right,

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Speaker 1: But I know that you're kind the commercial side that

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Speaker 1: doesn't matter. However, I would imagine that legislatures, you know,

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Speaker 1: local and state, are looking at making changes that they

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Speaker 1: can to attract investors. So there's two different things. I

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Speaker 1: think people saw Biden put some real estate proposals that

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Speaker 1: he had that we're in the last bill that didn't

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Speaker 1: go through. He brought them back in things with ten

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Speaker 1: thirty one exchanges that we're a little nervous about. Aggressive. Yes,

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Speaker 1: and we do care about salt because we do care

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Speaker 1: about those state taxes and wanting to make sure which

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Speaker 1: are supposed to sunset out. So there's a lot of

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Speaker 1: things that we're keeping our eye on, but not to

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Speaker 1: it's depending on where we are in the political cycle.

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Speaker 1: So what's going to go through not going political here

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Speaker 1: by sunset Paul in twenty five, I know, so the

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Speaker 1: big sun shotting provision. We need to all right, be

428
00:22:11,240 --> 00:22:13,720
Speaker 1: mindful of good stuff. Lisa Knee, thank you so much

429
00:22:13,720 --> 00:22:15,760
Speaker 1: for joining us. Thank you for coming into our Bloomberg

430
00:22:15,800 --> 00:22:18,840
Speaker 1: in Actor Broker Studio. Really good stuff. We'll have you back. Lisa,

431
00:22:18,920 --> 00:22:21,680
Speaker 1: Ni's a partner, National tax leader for real Estate practice

432
00:22:21,760 --> 00:22:25,800
Speaker 1: at Eisner Advisory Group. Thank you very much. We got

433
00:22:25,800 --> 00:22:29,639
Speaker 1: that so good stuff on the commercial real estate side.

434
00:22:29,920 --> 00:22:32,399
Speaker 1: Need some deals to happen here, get some big prints

435
00:22:32,440 --> 00:22:35,200
Speaker 1: on the tape. You're listening to the tape cancer our

436
00:22:35,200 --> 00:22:38,960
Speaker 1: live program Bloomberg Markets weekdays at ten am Eastern on

437
00:22:39,000 --> 00:22:42,040
Speaker 1: Bloomberg Radio, the tune in app, Bloomberg dot Com, and

438
00:22:42,080 --> 00:22:44,879
Speaker 1: the Bloomberg Business App. You can also listen live on

439
00:22:44,960 --> 00:22:48,240
Speaker 1: Amazon Alexa from our flagship New York station. Just say

440
00:22:48,280 --> 00:22:52,119
Speaker 1: Alexa play Bloomberg eleven thirty. We have four seats in

441
00:22:52,160 --> 00:22:54,680
Speaker 1: this beautiful Bloomberg Inactor Brooker studio, but they are full

442
00:22:54,840 --> 00:22:56,320
Speaker 1: right here. We got Matt and Eye and then we're

443
00:22:56,359 --> 00:22:59,800
Speaker 1: joined by Anne Hunter. Van Kirk, bi senior industry analyst,

444
00:23:00,160 --> 00:23:03,080
Speaker 1: was a bio Pharmaceuticals and Diana were set open bi

445
00:23:03,200 --> 00:23:06,160
Speaker 1: industry analysts covering the consumer staples. Why are they in here?

446
00:23:06,160 --> 00:23:08,399
Speaker 1: Why are they talking to us? Because apparently during the

447
00:23:08,400 --> 00:23:10,959
Speaker 1: pandemic amount a lot of people got a lot of pets,

448
00:23:11,440 --> 00:23:14,399
Speaker 1: and apparently that's like a big business. How big is

449
00:23:14,440 --> 00:23:16,960
Speaker 1: it will? These two analysts project that it will be

450
00:23:17,000 --> 00:23:21,119
Speaker 1: a five hundred billion dollar business by twenty thirty. I

451
00:23:21,160 --> 00:23:22,720
Speaker 1: just don't get it. I'll tell you. I'll tell you

452
00:23:22,760 --> 00:23:25,760
Speaker 1: a quick anecdote. Right, My wife, as you know, is

453
00:23:25,800 --> 00:23:28,960
Speaker 1: from Spain. They were not allowed out, they were not

454
00:23:29,080 --> 00:23:32,720
Speaker 1: allowed out of their homes unless they had to walk

455
00:23:32,760 --> 00:23:35,600
Speaker 1: a dog. Really, so a lot of people who didn't

456
00:23:35,680 --> 00:23:39,160
Speaker 1: have dogs would start renting dogs from their neighbors. That's

457
00:23:39,160 --> 00:23:42,520
Speaker 1: not a joke. They were renting dogs so that they

458
00:23:42,560 --> 00:23:45,359
Speaker 1: could go out on a walk with their dogs. And

459
00:23:45,440 --> 00:23:49,080
Speaker 1: I'm sure they were exhausted. The dogs were dogs. They

460
00:23:49,080 --> 00:23:51,880
Speaker 1: were hiding the hiding the leash. All right, Diana, let's

461
00:23:51,880 --> 00:23:55,160
Speaker 1: start with you on the consumer side here, five hundred

462
00:23:55,200 --> 00:23:57,439
Speaker 1: billion dollars. That's a lot of cash. That gets my

463
00:23:57,480 --> 00:24:01,880
Speaker 1: attention at least. What's driving that. It's basically the humanization

464
00:24:01,960 --> 00:24:07,480
Speaker 1: of pets, um boy, Yes, we are starting to treat

465
00:24:07,600 --> 00:24:11,960
Speaker 1: our pets the same as we would treat children, you know,

466
00:24:12,080 --> 00:24:16,640
Speaker 1: part of our family. And also on the food side,

467
00:24:16,840 --> 00:24:24,520
Speaker 1: there is the you know, you have to put more

468
00:24:24,560 --> 00:24:28,080
Speaker 1: attention to the ingredients that going food, and that allows

469
00:24:28,119 --> 00:24:32,320
Speaker 1: the premunization of food that includes um, you know, the

470
00:24:32,320 --> 00:24:35,560
Speaker 1: premunization of pet food as well. I mean for a

471
00:24:35,600 --> 00:24:38,600
Speaker 1: long time, so I've had three dogs. The first couple

472
00:24:38,640 --> 00:24:42,280
Speaker 1: I just fed normal food. But for Steve he got

473
00:24:42,640 --> 00:24:47,719
Speaker 1: organically grown goat meat or I would even get you know,

474
00:24:48,200 --> 00:24:52,440
Speaker 1: organic cage free chicken and make it for him. No, no, no,

475
00:24:52,440 --> 00:24:55,639
Speaker 1: no, no no, you have to if you care about the

476
00:24:55,680 --> 00:24:57,679
Speaker 1: pet like you do about a family member, which is

477
00:24:57,680 --> 00:24:59,840
Speaker 1: I think it's your point, then you want that pet

478
00:25:00,119 --> 00:25:02,080
Speaker 1: as healthy as possible. Well, the big I think, the

479
00:25:02,080 --> 00:25:03,480
Speaker 1: big ticket item, so I hear from a lot of

480
00:25:03,480 --> 00:25:07,120
Speaker 1: people is healthcare. So Anne Hunter van Kurt jump in here,

481
00:25:07,240 --> 00:25:09,720
Speaker 1: talk to us about like what are people spending healthcare

482
00:25:09,760 --> 00:25:13,640
Speaker 1: wise for their pets? Absolutely, Paul, and actually to pull

483
00:25:13,680 --> 00:25:16,960
Speaker 1: it back, it's actually from that increased spending on goat

484
00:25:17,880 --> 00:25:20,720
Speaker 1: goat products for your pets that's driving the higher healthcare

485
00:25:20,880 --> 00:25:24,439
Speaker 1: needs because pets are living longer. But the we are

486
00:25:24,480 --> 00:25:28,960
Speaker 1: now seeing monoclonal antibodies for pain, for dermatitis. People are

487
00:25:29,000 --> 00:25:32,040
Speaker 1: making healthcare decisions as they would for a human because

488
00:25:32,080 --> 00:25:35,160
Speaker 1: they are humanizing their pets. So rather than perhaps putting

489
00:25:35,200 --> 00:25:37,439
Speaker 1: a pet down, you're you're going to get that cancer

490
00:25:37,520 --> 00:25:40,239
Speaker 1: therapy for them now. So orget like Steve, I had

491
00:25:40,240 --> 00:25:43,480
Speaker 1: his knees done twice, right, And I know somebody else.

492
00:25:43,920 --> 00:25:45,760
Speaker 1: His dog had a knee problem and he just put

493
00:25:45,760 --> 00:25:47,080
Speaker 1: the dog to sleep because he was like, I'm not

494
00:25:47,080 --> 00:25:49,800
Speaker 1: going to spend five grand was seeing his knees done.

495
00:25:49,960 --> 00:25:52,720
Speaker 1: But that's what I had to do at at at

496
00:25:52,760 --> 00:25:55,440
Speaker 1: at a vet in Tuckahoe. They were very good. They

497
00:25:55,480 --> 00:25:59,000
Speaker 1: redid the whole thing with like pig ligaments, and more

498
00:25:59,000 --> 00:26:02,159
Speaker 1: people are making that. Yeah. But is there insurance? I mean,

499
00:26:02,160 --> 00:26:05,359
Speaker 1: there is absolutely insurance. The insurance market is a small

500
00:26:05,400 --> 00:26:08,399
Speaker 1: penetration right now, we think only about two percent, but

501
00:26:08,440 --> 00:26:11,320
Speaker 1: it is definitely growing. You have it from a lot

502
00:26:11,359 --> 00:26:14,960
Speaker 1: of the traditional insurers out there, you know, your your

503
00:26:15,000 --> 00:26:17,600
Speaker 1: state farm or whatever else. But you are also seeing

504
00:26:17,600 --> 00:26:20,960
Speaker 1: it from a lot of the pharmaceutical companies are getting

505
00:26:21,000 --> 00:26:23,400
Speaker 1: involved in it. So let us now has pumpkin insurance.

506
00:26:24,160 --> 00:26:26,720
Speaker 1: It's not something that we think will go to the

507
00:26:26,800 --> 00:26:30,320
Speaker 1: government level. It's like a pumpkin insurance Pumpkin is there

508
00:26:30,520 --> 00:26:33,919
Speaker 1: is there insurance brand? Oh? I see, So not insuring

509
00:26:34,160 --> 00:26:36,920
Speaker 1: a squad, not insuring a squash, now insuring a dog

510
00:26:37,119 --> 00:26:41,359
Speaker 1: or a cat called pumpkin. So Diana talking about like

511
00:26:41,400 --> 00:26:44,159
Speaker 1: companies like Chewy, Like in my building, we have a

512
00:26:44,280 --> 00:26:47,320
Speaker 1: very maladjusted, very angry pitbull by the name of Harry,

513
00:26:47,560 --> 00:26:49,120
Speaker 1: and he and I don't we're not on the same

514
00:26:49,119 --> 00:26:50,680
Speaker 1: page or I need to work on that a little bit.

515
00:26:50,680 --> 00:26:54,800
Speaker 1: But he gets his Chewy delivery like every couple of weeks.

516
00:26:54,960 --> 00:26:57,000
Speaker 1: I mean talk to us about like just the food

517
00:26:57,119 --> 00:27:00,879
Speaker 1: the toy. Does Chewy dominate? I mean, is Chewy? That

518
00:27:01,160 --> 00:27:05,119
Speaker 1: is there any number two after Chewi? Well, actually, Chewie

519
00:27:05,160 --> 00:27:08,240
Speaker 1: has thirty six percent of the pet e commerce market

520
00:27:08,440 --> 00:27:11,360
Speaker 1: in the United States. The second one is Amazon, which

521
00:27:11,480 --> 00:27:16,040
Speaker 1: thirty four percent, and then you have your retail store

522
00:27:16,160 --> 00:27:20,240
Speaker 1: such as Petco, pet Smart, Walmart that each have less

523
00:27:20,240 --> 00:27:23,560
Speaker 1: than ten percent. All right, well they're doing that poorly. Yes,

524
00:27:23,680 --> 00:27:27,760
Speaker 1: that's pretty amazing that they're doing so badly. Well, I mean,

525
00:27:27,920 --> 00:27:30,080
Speaker 1: look at Chewie. I mean it's a fourteen point five

526
00:27:30,160 --> 00:27:32,640
Speaker 1: billion dollar market out of nothing, right, I mean this

527
00:27:32,680 --> 00:27:37,600
Speaker 1: has started I think long after petc and it's just

528
00:27:37,800 --> 00:27:42,320
Speaker 1: completely dominated this market. It seems to me that there

529
00:27:42,320 --> 00:27:44,880
Speaker 1: would be room for someone else to come in because Amazon.

530
00:27:44,920 --> 00:27:47,880
Speaker 1: I get people everyone orders everything from Amazon, but when

531
00:27:47,920 --> 00:27:50,160
Speaker 1: you really care about your pet, you want to order

532
00:27:50,640 --> 00:27:56,399
Speaker 1: something from a brand that's specifically four And also another

533
00:27:56,440 --> 00:27:59,040
Speaker 1: thing that Chewie has is pretty much. It gives you

534
00:27:59,119 --> 00:28:02,680
Speaker 1: this specialty or experience at the comfort of your home.

535
00:28:03,680 --> 00:28:07,159
Speaker 1: We estimate that pet Ecommers has about twenty two the

536
00:28:07,160 --> 00:28:10,439
Speaker 1: pet industry market in the United States, and they will double.

537
00:28:10,840 --> 00:28:15,000
Speaker 1: The industry will double to fifty eight billion, or thirty

538
00:28:15,000 --> 00:28:17,720
Speaker 1: percent of the market by twenty thirty. So there's a

539
00:28:17,760 --> 00:28:20,919
Speaker 1: lot of growth in that part of the market, and

540
00:28:21,320 --> 00:28:24,040
Speaker 1: Chewi has a big percentage of that. What about medical care?

541
00:28:24,080 --> 00:28:26,600
Speaker 1: I noticed when I moved back to New York from

542
00:28:26,600 --> 00:28:31,880
Speaker 1: Berlin that there are a lot of highly priced, but

543
00:28:32,720 --> 00:28:36,680
Speaker 1: well staffed and fast service vets all over the place.

544
00:28:36,720 --> 00:28:40,680
Speaker 1: I think Bond Street is one of the veterinarian chains

545
00:28:40,720 --> 00:28:43,040
Speaker 1: that we have around here. But every couple of blocks

546
00:28:43,040 --> 00:28:46,320
Speaker 1: on the Upper east Side you see these vets springing up.

547
00:28:47,640 --> 00:28:50,720
Speaker 1: How is that? How is that working? How is that structured?

548
00:28:50,920 --> 00:28:53,880
Speaker 1: The vet channel is huge, and it's actually right now

549
00:28:53,920 --> 00:28:57,280
Speaker 1: facing pressures for staffing just because they can't get enough

550
00:28:57,320 --> 00:28:59,400
Speaker 1: people in to keep up with the demand to meet

551
00:28:59,440 --> 00:29:03,480
Speaker 1: with the pets. We cover IDx, which is a diagnostic company,

552
00:29:03,640 --> 00:29:07,200
Speaker 1: and we're seeing increasing rates of diagnostic usage for pets,

553
00:29:07,200 --> 00:29:11,880
Speaker 1: So that's doing fecal tests, urine tests, blood tests, and

554
00:29:12,040 --> 00:29:14,800
Speaker 1: again older pets need need more tests, and they need

555
00:29:14,880 --> 00:29:17,960
Speaker 1: more follow up from those tests. Um, and that's really

556
00:29:18,040 --> 00:29:20,800
Speaker 1: driving a lot of the of the healthcare usage. What's

557
00:29:20,840 --> 00:29:23,840
Speaker 1: the average age of it? I know a dog depends

558
00:29:23,880 --> 00:29:27,200
Speaker 1: on depends on the breed, right because yeah, I mean

559
00:29:27,240 --> 00:29:30,080
Speaker 1: if you smaller dogs live longer. Yeah, exactly. So if

560
00:29:30,160 --> 00:29:32,320
Speaker 1: you have a little mutt, it could live to twenty

561
00:29:32,400 --> 00:29:35,520
Speaker 1: years old. If you have a big cane corso that's

562
00:29:35,560 --> 00:29:39,240
Speaker 1: a pure bread you know, from a line of probably inbread,

563
00:29:39,480 --> 00:29:41,840
Speaker 1: pure bread cane corsos, he's going to live to eight

564
00:29:41,880 --> 00:29:45,040
Speaker 1: or nine. What was Steve? Steve was a rottweiler. Uh,

565
00:29:45,400 --> 00:29:49,360
Speaker 1: he comes from a line of champions and uh, yeah,

566
00:29:49,360 --> 00:29:52,720
Speaker 1: he lived till he was eleven. Unfortunately not longer, right,

567
00:29:52,960 --> 00:29:57,320
Speaker 1: but those lifespans are increasing as an average, and it's

568
00:29:57,320 --> 00:30:00,520
Speaker 1: still like a dog years like seven years to a human.

569
00:30:00,800 --> 00:30:04,360
Speaker 1: I think that's that's still still commonly held, right, Yeah,

570
00:30:04,400 --> 00:30:07,360
Speaker 1: I believe so do Diana real quick. Just on the

571
00:30:07,400 --> 00:30:09,680
Speaker 1: consumer side, what's the what's the growth story there, Like,

572
00:30:09,760 --> 00:30:12,720
Speaker 1: what's the big growth area within like for pets, Well,

573
00:30:12,800 --> 00:30:16,400
Speaker 1: definitely we estimate that pood that food will remain the

574
00:30:16,440 --> 00:30:20,600
Speaker 1: biggest expenditure for pet owners um in terms of what

575
00:30:20,880 --> 00:30:23,760
Speaker 1: is driving that, Like I just said, the humanization of

576
00:30:23,800 --> 00:30:28,320
Speaker 1: pets is driving the premiumization of food. You want, like Steve,

577
00:30:28,480 --> 00:30:31,080
Speaker 1: you want to give Steve or like the Steeves of

578
00:30:31,080 --> 00:30:33,280
Speaker 1: the world, you want to give them the best of

579
00:30:33,320 --> 00:30:37,120
Speaker 1: what you can afford. Um On a subsegment of that

580
00:30:37,280 --> 00:30:40,560
Speaker 1: you have we have fresh frozen, which is pretty much

581
00:30:40,760 --> 00:30:45,000
Speaker 1: you know, a cooked meal that is distributed frozen. So

582
00:30:45,240 --> 00:30:48,840
Speaker 1: we estimate that the growth of that market will be exponential.

583
00:30:48,960 --> 00:30:51,440
Speaker 1: And actually fresh pet has ninety percent of that right,

584
00:30:51,520 --> 00:30:53,800
Speaker 1: gazing stuff. And you guys have a great report out

585
00:30:53,880 --> 00:30:56,560
Speaker 1: on this whole industry. Uh go check it out a

586
00:30:56,560 --> 00:30:58,600
Speaker 1: bi go on the Bloomberg terminal. Diana or set up

587
00:30:58,920 --> 00:31:02,960
Speaker 1: equity research channels and Anne Hunter van Kirk also senior

588
00:31:02,960 --> 00:31:06,160
Speaker 1: annols there at Bloomberg Intelligence talking about the pet food biz.

589
00:31:07,480 --> 00:31:11,360
Speaker 1: You're listening to the Team Cancer Line program Bloomberg Markets

590
00:31:11,400 --> 00:31:14,520
Speaker 1: weekdays at ten am Eastern on Bloomberg dot com, the

591
00:31:14,640 --> 00:31:17,320
Speaker 1: r Heard Radio app and the Bloomberg Business App. We're

592
00:31:17,320 --> 00:31:21,320
Speaker 1: listening on demand wherever you get your podcast. Let's start

593
00:31:21,320 --> 00:31:23,320
Speaker 1: bonds here. We want to talk fix it income. We

594
00:31:23,320 --> 00:31:26,240
Speaker 1: talk to R. J. Gallows, Senior portfolio manager with Federator

595
00:31:26,320 --> 00:31:30,240
Speaker 1: Hermes m r J. Give us a kind of the

596
00:31:30,320 --> 00:31:32,800
Speaker 1: lay of the land here we are coming to the

597
00:31:32,880 --> 00:31:35,000
Speaker 1: end of the first quarter in twenty twenty three. Give

598
00:31:35,040 --> 00:31:36,200
Speaker 1: us a lay of the land. What we've seen in

599
00:31:36,240 --> 00:31:39,040
Speaker 1: the bond market this year versus twenty twenty two, which

600
00:31:39,160 --> 00:31:41,720
Speaker 1: is just there was just no place to hide. Last year,

601
00:31:43,000 --> 00:31:45,680
Speaker 1: well there was there was no place to hide. You know.

602
00:31:45,720 --> 00:31:48,720
Speaker 1: The bond market instead of being a flatliner, was a

603
00:31:48,800 --> 00:31:51,360
Speaker 1: downward sloping line and a very sharp one last year.

604
00:31:52,920 --> 00:31:54,920
Speaker 1: That was a reference to the movie you guys were mentioned.

605
00:31:55,240 --> 00:31:58,440
Speaker 1: I didn't miss it. I did not miss that. But

606
00:31:59,800 --> 00:32:03,880
Speaker 1: the spirit in the bond market it's pretty much the

607
00:32:03,920 --> 00:32:06,400
Speaker 1: opposite of what we saw last year. So, you know,

608
00:32:07,000 --> 00:32:10,040
Speaker 1: the Treasury index was down. I think it was twelve

609
00:32:10,040 --> 00:32:12,240
Speaker 1: and a half percent if I recall last year. The

610
00:32:12,360 --> 00:32:15,560
Speaker 1: US Treasury index right now as of Friday's closes up

611
00:32:15,560 --> 00:32:20,720
Speaker 1: three point five seven percent. Much of the rally has

612
00:32:20,760 --> 00:32:23,000
Speaker 1: been just in the month of March. It's been in

613
00:32:23,040 --> 00:32:26,120
Speaker 1: a very turbulent March month. You mentioned the move index

614
00:32:26,160 --> 00:32:31,600
Speaker 1: has massively surged. You know, the confluence of prior bond

615
00:32:31,640 --> 00:32:35,920
Speaker 1: losses and deposit instability in the sort of second tier

616
00:32:36,000 --> 00:32:39,360
Speaker 1: size of banks was not something that was I think,

617
00:32:39,400 --> 00:32:42,440
Speaker 1: on the market's radar until SDB came along pretty much

618
00:32:42,440 --> 00:32:46,240
Speaker 1: on March ninth. You know, on the month two, five

619
00:32:46,280 --> 00:32:49,360
Speaker 1: and ten year treasury yields are lowered by eighty seven,

620
00:32:49,560 --> 00:32:53,000
Speaker 1: sixty two and forty three basis points. Now interesting, the

621
00:32:53,040 --> 00:32:56,280
Speaker 1: long end is thirty years only down eighteen And the

622
00:32:56,320 --> 00:32:58,160
Speaker 1: reason for that greater voltility the short end of the

623
00:32:58,200 --> 00:33:02,640
Speaker 1: curve is because the nexus of banking stress and FED

624
00:33:02,800 --> 00:33:07,280
Speaker 1: policy has been fundamental. As the banking stresses have emerged,

625
00:33:07,720 --> 00:33:10,680
Speaker 1: the expectations of FED tightening have completely reversed, and the

626
00:33:10,720 --> 00:33:12,880
Speaker 1: FED has sort of blessed that in their own words.

627
00:33:13,800 --> 00:33:16,760
Speaker 1: So it's been a very eventful month in bonds, which

628
00:33:16,960 --> 00:33:19,320
Speaker 1: we said to start the year. Our back are posting

629
00:33:19,440 --> 00:33:22,120
Speaker 1: nice mid single digits total returns in a more uncertain

630
00:33:22,200 --> 00:33:24,880
Speaker 1: world as inflation still high. But the banks are rickety.

631
00:33:25,000 --> 00:33:27,400
Speaker 1: So r J, what has the FED base? I was,

632
00:33:27,880 --> 00:33:30,440
Speaker 1: I was down in Mexico on the beach last week,

633
00:33:30,600 --> 00:33:34,680
Speaker 1: paying zero attention. I saw something from Bullard and then

634
00:33:34,720 --> 00:33:37,400
Speaker 1: I saw cash Car yesterday on TV. But what have

635
00:33:37,520 --> 00:33:41,680
Speaker 1: they kind of implicitly told us about the path this

636
00:33:41,760 --> 00:33:45,280
Speaker 1: year that that they're done, or that you know they're

637
00:33:45,320 --> 00:33:49,080
Speaker 1: almost done. They're certainly not going to cut right. I

638
00:33:49,160 --> 00:33:52,120
Speaker 1: think to the first question, I think they've told us

639
00:33:52,200 --> 00:33:57,600
Speaker 1: that when banking stresses emerge, I think the phrase the

640
00:33:57,640 --> 00:34:01,880
Speaker 1: Sharon pale U's the literature, namely the economics research literature,

641
00:34:02,560 --> 00:34:05,640
Speaker 1: is abundantly clear that when when the bank channel of

642
00:34:05,680 --> 00:34:10,640
Speaker 1: monetary transmission starts to feel pain, then that transmission becomes

643
00:34:10,640 --> 00:34:14,799
Speaker 1: more intense. Credit creations should slow. Banks will probably pull

644
00:34:14,840 --> 00:34:17,440
Speaker 1: back on making loans. The cost of deposits is going

645
00:34:17,440 --> 00:34:19,960
Speaker 1: to go up, bank profits go down, which is why,

646
00:34:20,880 --> 00:34:23,040
Speaker 1: in part why some of these banking stocks have struggled.

647
00:34:23,320 --> 00:34:26,640
Speaker 1: So when banks are feeling the strain of monetary policy,

648
00:34:27,040 --> 00:34:30,279
Speaker 1: the bank transmission channel starts to bite, and that will

649
00:34:30,360 --> 00:34:35,120
Speaker 1: intensify the real economic effects and the anti inflationary effects

650
00:34:35,160 --> 00:34:37,560
Speaker 1: of the monetary policy moves that are already in place.

651
00:34:37,880 --> 00:34:39,760
Speaker 1: We've been waiting for a long time for the lags

652
00:34:39,800 --> 00:34:42,640
Speaker 1: to sort of you know, you know, be worked through.

653
00:34:43,040 --> 00:34:46,680
Speaker 1: Well they got worked through rather rapidly with this banking stress.

654
00:34:46,880 --> 00:34:50,120
Speaker 1: So I think what the FED says, uncertainties high chair

655
00:34:50,200 --> 00:34:53,040
Speaker 1: power comment that the banking stress is like one tightening,

656
00:34:53,080 --> 00:34:55,800
Speaker 1: maybe more you know, alluding to that literature. I was

657
00:34:55,880 --> 00:34:59,120
Speaker 1: just mentioning, and I think that the Feds signaled that

658
00:34:59,160 --> 00:35:02,360
Speaker 1: they're close to The dot plot is not a promise,

659
00:35:02,440 --> 00:35:06,120
Speaker 1: but it is a projection. It's the summary of economic projections,

660
00:35:06,320 --> 00:35:09,920
Speaker 1: and those projections move because they're inherently uncertain. But they

661
00:35:10,040 --> 00:35:13,120
Speaker 1: projected that they will that they will still be easing

662
00:35:13,160 --> 00:35:16,080
Speaker 1: in twenty twenty four. I don't think they'll be easing

663
00:35:16,080 --> 00:35:18,719
Speaker 1: this year. They projected that the FED funds rate on

664
00:35:18,800 --> 00:35:22,160
Speaker 1: a median dot will be five and eighth, you know,

665
00:35:22,200 --> 00:35:24,640
Speaker 1: which is basically maybe one more tightening. But if you

666
00:35:24,680 --> 00:35:26,920
Speaker 1: go out a year from now, the median dot is

667
00:35:26,920 --> 00:35:28,680
Speaker 1: now four and a quarter. It was four and eighth

668
00:35:28,719 --> 00:35:32,839
Speaker 1: at the last meeting. So they they I think, had

669
00:35:32,880 --> 00:35:35,920
Speaker 1: the banking stresses not shown up on our doorstep, might

670
00:35:35,960 --> 00:35:38,640
Speaker 1: have flattened mount the dots trajectory, raising them all closer

671
00:35:38,680 --> 00:35:42,200
Speaker 1: to five for this year and next. Instead, the twenty

672
00:35:42,239 --> 00:35:44,680
Speaker 1: twenty four dot is still in the low four range,

673
00:35:45,000 --> 00:35:47,239
Speaker 1: and even easier in twenty twenty five. I think the

674
00:35:47,280 --> 00:35:50,360
Speaker 1: Fed feels like we're getting closer to a recessionary like outcome.

675
00:35:50,600 --> 00:35:53,799
Speaker 1: They're getting closer to being done. That's friendly for high

676
00:35:53,880 --> 00:35:59,400
Speaker 1: quality bond returns. So done is almost stubbish in itself.

677
00:35:59,480 --> 00:36:02,759
Speaker 1: But it's a cut seems like something that they would

678
00:36:02,760 --> 00:36:07,319
Speaker 1: only do if we saw real stresses. What would happen,

679
00:36:07,560 --> 00:36:10,520
Speaker 1: What would have to happen for them to cut? Um?

680
00:36:10,600 --> 00:36:12,680
Speaker 1: I think? So how also is clear that he doesn't

681
00:36:12,719 --> 00:36:15,040
Speaker 1: see a cut this year, that's not in the cards,

682
00:36:15,040 --> 00:36:18,600
Speaker 1: but uncertainties high, So we'll see how things unfold. Um.

683
00:36:19,040 --> 00:36:21,120
Speaker 1: I think that the FED has gone and the ECP

684
00:36:21,200 --> 00:36:24,120
Speaker 1: has under same. They've tried to separate their UH, their

685
00:36:24,160 --> 00:36:30,480
Speaker 1: financial stability, their macropudential controls and and and tools from

686
00:36:30,840 --> 00:36:33,920
Speaker 1: monetary policy. But there's I think there was a great

687
00:36:34,000 --> 00:36:36,480
Speaker 1: article on Bloomberg about how that's it's hard to do

688
00:36:36,520 --> 00:36:41,000
Speaker 1: that forever. When the financial crisis hit, Ben Bernanke was

689
00:36:41,000 --> 00:36:44,800
Speaker 1: was making loans. That's you know, financial stability, using the

690
00:36:44,840 --> 00:36:47,319
Speaker 1: balance sheet in that way, and then cutting rates and

691
00:36:47,440 --> 00:36:50,879
Speaker 1: ultimately doing QWE and that's monetary policy. So these two

692
00:36:50,920 --> 00:36:54,160
Speaker 1: tools do compliment each other at times. The Fed right

693
00:36:54,200 --> 00:36:56,680
Speaker 1: now is trying to separate them. Why because we still

694
00:36:56,719 --> 00:36:59,759
Speaker 1: have a high inflation problem. If inflation was low, I

695
00:36:59,760 --> 00:37:01,680
Speaker 1: don't they'd be sweating this out very much. Maybe they

696
00:37:01,680 --> 00:37:04,080
Speaker 1: would have eased a little bit, but inflation is still

697
00:37:04,080 --> 00:37:06,640
Speaker 1: way too high. They are making loans, but they aren't

698
00:37:06,640 --> 00:37:09,040
Speaker 1: making loans. The balance sheet has grown rapidly because the

699
00:37:09,040 --> 00:37:12,040
Speaker 1: banks are availing themselves of these support mechanisms that the

700
00:37:12,080 --> 00:37:16,439
Speaker 1: FED has has expanded and motivated people to do because

701
00:37:16,480 --> 00:37:18,520
Speaker 1: they need to help. But I do think that the

702
00:37:18,600 --> 00:37:21,520
Speaker 1: FED still faces an inflation problem. That's why they're sort

703
00:37:21,520 --> 00:37:22,880
Speaker 1: of between a rock and a hard place. And at

704
00:37:22,880 --> 00:37:25,879
Speaker 1: the last week's meeting they were They did the rational things.

705
00:37:26,120 --> 00:37:29,400
Speaker 1: Twenty five basis points is a nod to the inflation

706
00:37:29,480 --> 00:37:32,279
Speaker 1: that is still too high, but all the language that

707
00:37:32,320 --> 00:37:34,640
Speaker 1: it came with, and the dot plot that's still downward

708
00:37:34,680 --> 00:37:37,400
Speaker 1: sloping sort of softens the blow that the FED is

709
00:37:37,760 --> 00:37:39,680
Speaker 1: telling the markets. The FED is not toned death. They

710
00:37:39,680 --> 00:37:42,719
Speaker 1: get it. There are banking stresses in the system, and

711
00:37:42,880 --> 00:37:44,480
Speaker 1: you know they're going to come under some scrutiny as

712
00:37:44,480 --> 00:37:47,320
Speaker 1: to how these banking stresses emerged. The FED doesn't manage

713
00:37:47,400 --> 00:37:50,600
Speaker 1: the banks. They supervise them. There's a difference. So the

714
00:37:50,640 --> 00:37:53,400
Speaker 1: managers should be the ones in trouble for the bank's problems,

715
00:37:53,600 --> 00:37:56,360
Speaker 1: but the supervisors also get called to task about what

716
00:37:56,520 --> 00:38:00,120
Speaker 1: did you see how come you weren't contemplating this your

717
00:38:00,160 --> 00:38:01,880
Speaker 1: stress test, for example. So the Fed's going to get

718
00:38:01,920 --> 00:38:04,680
Speaker 1: some heat from this too. So they're interested in trying

719
00:38:04,680 --> 00:38:07,680
Speaker 1: to balance these objectives of ease the bank stress but

720
00:38:07,800 --> 00:38:11,200
Speaker 1: still allow inflation to hopefully renew its downward path. That's

721
00:38:11,200 --> 00:38:14,319
Speaker 1: the uncertainty event the markets all phase now, J just

722
00:38:14,480 --> 00:38:19,600
Speaker 1: thirty seconds quick, what is your recession call? So from

723
00:38:19,600 --> 00:38:22,480
Speaker 1: a firm wide basis, sederated Hermy's, we've been arguing that

724
00:38:22,520 --> 00:38:25,279
Speaker 1: the recession risk was getting higher and higher as the

725
00:38:25,320 --> 00:38:29,480
Speaker 1: FED got tighter and tighter. Pretty much. If you are

726
00:38:29,520 --> 00:38:31,799
Speaker 1: our macro committee, of which I remember, we have a

727
00:38:31,840 --> 00:38:34,799
Speaker 1: recession emerging in the second half of the year. Our

728
00:38:34,880 --> 00:38:37,600
Speaker 1: view is it will be a somewhat mild recession. It's not,

729
00:38:38,040 --> 00:38:40,200
Speaker 1: you know, not every recession has to be two thousand

730
00:38:40,200 --> 00:38:43,239
Speaker 1: and eight or the onset of COVID. This might might

731
00:38:43,280 --> 00:38:45,840
Speaker 1: be a recession that looks a lot more like the

732
00:38:45,880 --> 00:38:49,600
Speaker 1: early two thousands, for example, And so you have a

733
00:38:49,680 --> 00:38:54,200
Speaker 1: modest diminished, diminished economic activity and it helps to the

734
00:38:54,239 --> 00:38:57,319
Speaker 1: disinflation that the FED needs to take hold. All right,

735
00:38:57,320 --> 00:39:00,000
Speaker 1: great stuff, Thank you very much. R. J. Gallo, Senior

736
00:39:00,040 --> 00:39:03,360
Speaker 1: portfolio manager at Federated Hermes giving us his call on

737
00:39:03,440 --> 00:39:06,239
Speaker 1: all things fixed income. We'll have more coming up. This

738
00:39:06,600 --> 00:39:10,840
Speaker 1: is Bloomberg. You're listening to the tape cancerre Live program

739
00:39:10,880 --> 00:39:14,839
Speaker 1: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,

740
00:39:14,960 --> 00:39:17,719
Speaker 1: the tune in app, Bloomberg dot Com, and the Bloomberg

741
00:39:17,760 --> 00:39:20,840
Speaker 1: Business App. You can also listen live on Amazon Alexa

742
00:39:20,960 --> 00:39:24,239
Speaker 1: from our flagship New York station. Just say Alexa play

743
00:39:24,320 --> 00:39:27,600
Speaker 1: Bloomberg eleven thirty. I mean telling Matt, I'm ready to

744
00:39:27,640 --> 00:39:30,879
Speaker 1: take some risk there in my investment portfolio. But everybody's saying,

745
00:39:30,920 --> 00:39:36,000
Speaker 1: you know, the fund manager strategists gotta stay defensive. What's

746
00:39:36,000 --> 00:39:39,000
Speaker 1: the fun in that? Though? Boring? Boring? I agree, but

747
00:39:39,080 --> 00:39:41,239
Speaker 1: let's see what why why do you want to take risk? Now?

748
00:39:41,600 --> 00:39:44,080
Speaker 1: Just a lot of house At the stage of my life,

749
00:39:44,080 --> 00:39:46,600
Speaker 1: I'm ready to let a couple of show live once. Yeah,

750
00:39:46,640 --> 00:39:49,319
Speaker 1: you know, go on the table here. Uh. Katteriita Simon Eddie.

751
00:39:49,360 --> 00:39:51,719
Speaker 1: She's a professional, she does this for a living. She's

752
00:39:51,719 --> 00:39:55,120
Speaker 1: a senior vice president Private Wealth Management of work and Stanley. So, Katerina,

753
00:39:55,160 --> 00:39:57,080
Speaker 1: I'm your client. I call you up, I say, hey,

754
00:39:57,120 --> 00:39:59,040
Speaker 1: I want to go out on the risk profile. Here.

755
00:39:59,520 --> 00:40:03,120
Speaker 1: What would you tell me, Paul, I'll tell you there's

756
00:40:03,200 --> 00:40:10,839
Speaker 1: absolutely nothing wrong with boring, and sometimes sometimes it's good

757
00:40:10,880 --> 00:40:13,920
Speaker 1: to be strategic. Let's replace the work worring web strategic.

758
00:40:14,040 --> 00:40:15,840
Speaker 1: And this is where you know, we kind of just

759
00:40:16,120 --> 00:40:18,880
Speaker 1: you know, see where the market is at and the

760
00:40:19,080 --> 00:40:23,040
Speaker 1: staid and inflation story is still unraveling. We're not quite

761
00:40:23,080 --> 00:40:25,640
Speaker 1: done with that yet. But now this whole regional bank

762
00:40:25,719 --> 00:40:29,560
Speaker 1: situation added another data point, and you know, we're now

763
00:40:29,640 --> 00:40:32,920
Speaker 1: looking at the credit availability and how that is going

764
00:40:33,000 --> 00:40:36,120
Speaker 1: to affect the market. And so while we're waiting for

765
00:40:36,200 --> 00:40:41,320
Speaker 1: the market to normalize, we have to see what's ahead

766
00:40:41,360 --> 00:40:44,279
Speaker 1: of us. And the part that is troubling us the

767
00:40:44,360 --> 00:40:47,840
Speaker 1: most is the fact that earnings still remain below the

768
00:40:47,920 --> 00:40:51,320
Speaker 1: current market values and we're still seeing the earnings revisions,

769
00:40:51,640 --> 00:40:55,160
Speaker 1: you know, which might negatively affect the market. You know,

770
00:40:55,280 --> 00:40:57,680
Speaker 1: as we go on throughout this year, and we are

771
00:40:57,800 --> 00:41:01,040
Speaker 1: our longer term outlook is positive, but we believe that

772
00:41:01,200 --> 00:41:04,880
Speaker 1: we still remain in the bear market. And usually if

773
00:41:04,960 --> 00:41:08,520
Speaker 1: we look back at history with bear markets before the end,

774
00:41:08,680 --> 00:41:12,279
Speaker 1: things sometimes get worse before they get better. As the

775
00:41:12,400 --> 00:41:17,440
Speaker 1: market goes to this normalization process, which absolutely presents buying opportunities,

776
00:41:17,760 --> 00:41:20,839
Speaker 1: but we might want to stay defensive and not quite

777
00:41:21,040 --> 00:41:23,480
Speaker 1: you know, go in, go in on the risk. I'll

778
00:41:23,480 --> 00:41:25,560
Speaker 1: tell you what if a drop in earnings and a

779
00:41:25,680 --> 00:41:27,360
Speaker 1: hawk ish FED is all we have to deal with,

780
00:41:28,560 --> 00:41:31,080
Speaker 1: that makes me feel a lot better. Are we passed?

781
00:41:32,880 --> 00:41:37,240
Speaker 1: Are we are we passed? The bank turmoil? Are we passed?

782
00:41:37,560 --> 00:41:42,360
Speaker 1: Concerns of a systemic failure? Well, in our review, systemic

783
00:41:42,440 --> 00:41:45,880
Speaker 1: failure was not really in the in the mix, but

784
00:41:46,200 --> 00:41:48,040
Speaker 1: we think that, you know, this is definitely a very

785
00:41:48,080 --> 00:41:50,960
Speaker 1: serious situation. But you know, in our review it wasn't

786
00:41:51,000 --> 00:41:56,000
Speaker 1: affecting our entire banking system. With that, there are definitely concerns,

787
00:41:56,040 --> 00:41:58,680
Speaker 1: and this is another thame for FED to focus on,

788
00:41:59,080 --> 00:42:02,080
Speaker 1: you know, while they're really trying to get this this

789
00:42:02,360 --> 00:42:06,440
Speaker 1: inflation numbered down to two percent, you know. But the

790
00:42:06,600 --> 00:42:09,480
Speaker 1: exciting part of this market is that this remains to

791
00:42:09,680 --> 00:42:12,799
Speaker 1: be a stock pickers market. And while we're seeing if

792
00:42:12,840 --> 00:42:15,520
Speaker 1: we're going to get recession and dealing with that slowing

793
00:42:15,560 --> 00:42:19,520
Speaker 1: earnings growth, the question is which sectors are going to

794
00:42:19,680 --> 00:42:23,000
Speaker 1: hold up. And this is where, of course, some people

795
00:42:23,040 --> 00:42:25,640
Speaker 1: are looking already at cyclicals and our review this just

796
00:42:25,920 --> 00:42:29,200
Speaker 1: just a little bit too premature. And we're looking at

797
00:42:29,280 --> 00:42:35,120
Speaker 1: consumer staples, at utilities, and specifically for companies with strong

798
00:42:35,920 --> 00:42:40,359
Speaker 1: earnings growth, with strong balance sheets, with competitive positioning at

799
00:42:40,480 --> 00:42:42,560
Speaker 1: every sector of the market. You know, there are a

800
00:42:42,600 --> 00:42:45,359
Speaker 1: lot of buys out there. We're just not too enthusiastic

801
00:42:45,480 --> 00:42:48,960
Speaker 1: about the index investing at the moment. So what's it

802
00:42:50,040 --> 00:42:51,920
Speaker 1: We've heard a lot about, you know, this being the

803
00:42:52,000 --> 00:42:54,640
Speaker 1: decade of the dividend, you really want to start paying

804
00:42:54,640 --> 00:42:58,040
Speaker 1: attention to good quality dividend paying stocks as opposed to maybe,

805
00:42:58,560 --> 00:43:00,839
Speaker 1: you know, just great growth or how do you think

806
00:43:00,840 --> 00:43:04,960
Speaker 1: about that? Well, dividend always plays the role in the

807
00:43:05,520 --> 00:43:09,560
Speaker 1: overlast allocation. And you know, I generally tell our clients is,

808
00:43:09,800 --> 00:43:11,960
Speaker 1: let's say you wake up on January first, and you

809
00:43:12,120 --> 00:43:14,719
Speaker 1: absolutely have no idea what the market is going to do.

810
00:43:15,080 --> 00:43:17,800
Speaker 1: But if you look at the estimated dividend payments of

811
00:43:18,000 --> 00:43:21,520
Speaker 1: your high dividend stocks, that's your starting point. At that moment.

812
00:43:21,640 --> 00:43:24,480
Speaker 1: You know that at the very least your portfolio is

813
00:43:24,520 --> 00:43:27,320
Speaker 1: going to earn something. So this takes an element of

814
00:43:27,480 --> 00:43:30,320
Speaker 1: risk out of it. And of course for the clients

815
00:43:30,360 --> 00:43:33,320
Speaker 1: that are using their investment portfolios for income, that's a

816
00:43:33,400 --> 00:43:36,319
Speaker 1: really important fact as well. So when we look at

817
00:43:36,360 --> 00:43:40,120
Speaker 1: dividend paying stocks. We look at the sectors that are defensive.

818
00:43:40,440 --> 00:43:42,960
Speaker 1: You know, we are not positioning them as the sectors

819
00:43:43,000 --> 00:43:45,200
Speaker 1: that we want to own right now. We view this

820
00:43:45,360 --> 00:43:48,080
Speaker 1: weakness in the market and we view the volatility as

821
00:43:48,120 --> 00:43:51,600
Speaker 1: the opportunity to rebalance, as the opportunity to improve the

822
00:43:52,040 --> 00:43:55,720
Speaker 1: quality of the holdings, but also to increase the dividend

823
00:43:55,800 --> 00:43:59,400
Speaker 1: yield because it's a very important overall component over the

824
00:43:59,520 --> 00:44:02,759
Speaker 1: long term positive investment results. So do you use the

825
00:44:02,880 --> 00:44:05,640
Speaker 1: term sell the rip? I mean, are you selling on rallies?

826
00:44:07,440 --> 00:44:09,960
Speaker 1: We use a different term. The terms that we use

827
00:44:10,080 --> 00:44:13,520
Speaker 1: is profit taking, because when you have an investment that

828
00:44:13,760 --> 00:44:17,080
Speaker 1: did very well, there's absolutely nothing wrong with taking some

829
00:44:17,239 --> 00:44:19,320
Speaker 1: profits to off the table. But this is not to

830
00:44:19,400 --> 00:44:23,040
Speaker 1: be confused with market timing, where we're absolutely abandoning the sector.

831
00:44:23,400 --> 00:44:27,080
Speaker 1: We might like. Certain market sectors like consumer staples right now,

832
00:44:27,520 --> 00:44:31,160
Speaker 1: of financials present a lot of interesting buying opportunities right now,

833
00:44:31,239 --> 00:44:33,680
Speaker 1: So we would be strategic and pivot from one sector

834
00:44:33,760 --> 00:44:37,440
Speaker 1: to another, but more so as an overweight and underweight

835
00:44:37,640 --> 00:44:41,480
Speaker 1: element versus abandoning a sector like you know, there's a

836
00:44:41,520 --> 00:44:44,359
Speaker 1: lot of conversation right now of technology, and we think

837
00:44:44,400 --> 00:44:47,640
Speaker 1: while we have to be extremely selective in our security selection.

838
00:44:47,760 --> 00:44:52,960
Speaker 1: Technology still presents a lot of interesting buying opportunities. Katarina's

839
00:44:53,040 --> 00:44:55,359
Speaker 1: what's the view of kind of you know, the Morgan

840
00:44:55,440 --> 00:44:59,320
Speaker 1: Stanley Private Wealth Management about crypto because I'm guessing you

841
00:44:59,400 --> 00:45:02,719
Speaker 1: get some inbound calls from clients saying, Hey, do I

842
00:45:02,800 --> 00:45:06,600
Speaker 1: need to have exposure here? Um? If so, how do

843
00:45:06,719 --> 00:45:11,200
Speaker 1: I do it? What's what's kind of the Morgan Stanley call. Well,

844
00:45:11,239 --> 00:45:13,759
Speaker 1: it's very hard to comment on something like this because

845
00:45:13,800 --> 00:45:16,560
Speaker 1: we still don't know what we don't know, but we

846
00:45:16,920 --> 00:45:20,320
Speaker 1: absolutely are aware that the volatility exposure in that space

847
00:45:20,640 --> 00:45:23,920
Speaker 1: is significantly higher than the broad equity markets, and so

848
00:45:24,239 --> 00:45:27,479
Speaker 1: we we tell our clients to proceed cautiously. And while

849
00:45:27,520 --> 00:45:30,240
Speaker 1: we can our advice that we can operate, they're limited

850
00:45:30,280 --> 00:45:32,360
Speaker 1: in this space. We just tell them to, you know,

851
00:45:32,520 --> 00:45:35,560
Speaker 1: just just just manage the risk there and not to

852
00:45:35,680 --> 00:45:39,239
Speaker 1: be exposed more than they're willing to to risk, because

853
00:45:39,280 --> 00:45:41,960
Speaker 1: the risk factor is significantly higher than anywhere else in

854
00:45:42,040 --> 00:45:50,080
Speaker 1: the market. Understood in terms of what you're watching for, um,

855
00:45:50,840 --> 00:45:53,600
Speaker 1: you know, for the end of this rate hike cycle

856
00:45:53,960 --> 00:45:57,320
Speaker 1: and for uh, you know, the end of the earnings downturn.

857
00:45:57,440 --> 00:45:59,880
Speaker 1: What are the signs. I know people don't want to

858
00:45:59,880 --> 00:46:03,120
Speaker 1: go and catch falling knives, love that phrase, but at

859
00:46:03,200 --> 00:46:05,440
Speaker 1: some point you do want to be ahead of the

860
00:46:05,480 --> 00:46:08,880
Speaker 1: pack in terms of buying right well, of course, and

861
00:46:09,040 --> 00:46:11,680
Speaker 1: so what we tell clients is that instead of thinking

862
00:46:11,760 --> 00:46:14,239
Speaker 1: two months out or six months out, which seems to

863
00:46:14,360 --> 00:46:17,240
Speaker 1: be the latest strength, we should go back to thinking

864
00:46:17,239 --> 00:46:20,040
Speaker 1: a couple of years out and focus on good quality

865
00:46:20,120 --> 00:46:23,319
Speaker 1: stocks and understand that what makes this market difference from

866
00:46:23,440 --> 00:46:26,760
Speaker 1: let's say last year, is that we have attractive yields.

867
00:46:26,840 --> 00:46:29,160
Speaker 1: We have attractive interest rate that we can earn on

868
00:46:29,360 --> 00:46:32,240
Speaker 1: everything across the board, from our cash to high quality

869
00:46:32,320 --> 00:46:36,000
Speaker 1: fixed income. And this is where the strategy really comes

870
00:46:36,040 --> 00:46:40,320
Speaker 1: into place because recoveries, they are not always all the same,

871
00:46:40,440 --> 00:46:43,880
Speaker 1: and the last bear market will not the last bloemarket.

872
00:46:43,920 --> 00:46:46,040
Speaker 1: I meant to say, it's not necessarily going to be

873
00:46:46,280 --> 00:46:48,719
Speaker 1: as the same as the bloom market ahead of us.

874
00:46:48,960 --> 00:46:53,319
Speaker 1: So positioning the portfolio insectors that have that competitive advantage,

875
00:46:53,560 --> 00:46:56,520
Speaker 1: that have the benefit of stable earnings in this post

876
00:46:56,640 --> 00:47:00,560
Speaker 1: COVID economy, defining the new normal, what is going to

877
00:47:00,640 --> 00:47:03,080
Speaker 1: be earning s going for and the profect margins are

878
00:47:03,120 --> 00:47:08,360
Speaker 1: squeezed but not every area you know is experiencing the

879
00:47:08,480 --> 00:47:12,160
Speaker 1: same type of effect. Katerina, thanks so much for joining us.

880
00:47:12,160 --> 00:47:15,160
Speaker 1: Really appreciate getting your thoughts there. Katarina Simonetti, Senior vice president,

881
00:47:15,239 --> 00:47:19,440
Speaker 1: Private Wealth Advisor at Morgan Stanley. You're listening to the

882
00:47:19,520 --> 00:47:23,439
Speaker 1: Team Cancer Line program Bloomberg Markets weekdays at ten am

883
00:47:23,520 --> 00:47:26,600
Speaker 1: easting on Bloomberg dot com, the I Heard Radio app

884
00:47:26,719 --> 00:47:29,600
Speaker 1: and the Bloomberg Business app. We're listening on demand wherever

885
00:47:29,680 --> 00:47:34,320
Speaker 1: you get your podcast. Over the last three years, supply

886
00:47:34,520 --> 00:47:36,920
Speaker 1: chain is a topic that we probably didn't know a

887
00:47:37,000 --> 00:47:40,240
Speaker 1: whole lot about, but we've all gotten a lot smarter

888
00:47:40,480 --> 00:47:43,640
Speaker 1: about it. As you know, we hear company after company

889
00:47:44,000 --> 00:47:46,919
Speaker 1: talk about supply chain challenges. Can't get the products, can't

890
00:47:46,920 --> 00:47:50,440
Speaker 1: get the raw materials, lots of cogs in the machine,

891
00:47:50,440 --> 00:47:52,360
Speaker 1: and we've all gotten a lot smarter about how the

892
00:47:52,400 --> 00:47:55,759
Speaker 1: global supply chain works. Nobody is more on the front

893
00:47:55,800 --> 00:47:58,839
Speaker 1: lines of the global supply chain than Gene Siroca. He's

894
00:47:58,840 --> 00:48:01,719
Speaker 1: the executive director of the Port of Los Angeles, which

895
00:48:01,840 --> 00:48:05,440
Speaker 1: is the busiest container support in North America. Joints is

896
00:48:05,480 --> 00:48:09,000
Speaker 1: from our DC studio. Gene, thanks so much for joining

897
00:48:09,080 --> 00:48:11,120
Speaker 1: us again. You've been just so helpful to us as

898
00:48:11,160 --> 00:48:14,040
Speaker 1: we try to figure out what is the global supply chain,

899
00:48:14,120 --> 00:48:16,120
Speaker 1: how does it work, and where are the bugs in

900
00:48:16,160 --> 00:48:19,320
Speaker 1: this system? So it feels like, you know, we're on

901
00:48:19,480 --> 00:48:21,560
Speaker 1: the back end of this in a big way. I'm

902
00:48:21,560 --> 00:48:24,000
Speaker 1: not sure if we're back to normal, but give us

903
00:48:24,040 --> 00:48:26,520
Speaker 1: an update from your perspective of kind of what you're

904
00:48:26,520 --> 00:48:28,239
Speaker 1: seeing at the Port of Los Angeles and kind of

905
00:48:28,480 --> 00:48:31,200
Speaker 1: where you're seeing it just in a supply chain in general. Paul,

906
00:48:31,280 --> 00:48:34,120
Speaker 1: Good afternoon. Great to be here from DC talking to

907
00:48:34,200 --> 00:48:39,040
Speaker 1: you guys again. Global supply chain is witnessing a slowdown

908
00:48:39,120 --> 00:48:41,920
Speaker 1: in demand worldwide, not just us in Los Angeles, but

909
00:48:41,960 --> 00:48:45,160
Speaker 1: across the country and across the globe. We've seen that

910
00:48:45,280 --> 00:48:49,040
Speaker 1: over the past three years, the global supply chain's weaknesses

911
00:48:49,160 --> 00:48:51,759
Speaker 1: have been spotlighted. And that's why I'm here in DC

912
00:48:52,000 --> 00:48:56,160
Speaker 1: this week talking about infrastructure, a ground truth update and

913
00:48:56,200 --> 00:48:59,520
Speaker 1: what's happening operationally, and a little bit about our labor

914
00:48:59,600 --> 00:49:05,680
Speaker 1: contract negotiations. Talk to us about those labor contract contract negotiations.

915
00:49:06,560 --> 00:49:08,719
Speaker 1: You have gone through it or you're going through it now,

916
00:49:08,920 --> 00:49:11,440
Speaker 1: and I think the East Coast goes through it a

917
00:49:11,480 --> 00:49:14,960
Speaker 1: little bit later on. Yeah, we're in about our tenth months,

918
00:49:15,000 --> 00:49:18,120
Speaker 1: which is usually the outer edge of how long it

919
00:49:18,280 --> 00:49:21,400
Speaker 1: takes for the bargaining to really culminate in a contract.

920
00:49:21,440 --> 00:49:24,600
Speaker 1: But we're not quite there yet. The Pacific Maritime Association,

921
00:49:24,719 --> 00:49:28,680
Speaker 1: the Employers Group, and the International Longshore and Warehouse Union.

922
00:49:28,719 --> 00:49:31,960
Speaker 1: The dock workers remain at the table. They're talking on

923
00:49:32,040 --> 00:49:35,880
Speaker 1: a regular basis, and equally is important the rank and

924
00:49:36,080 --> 00:49:39,920
Speaker 1: file dock worker is out on the job everyday moving cargo.

925
00:49:39,960 --> 00:49:43,879
Speaker 1: The productivity numbers are elite there where they're at. There's

926
00:49:43,920 --> 00:49:46,120
Speaker 1: just not a lot of cargo moving right now, So

927
00:49:46,239 --> 00:49:50,840
Speaker 1: would you say the cargo volume is gene versus perhaps

928
00:49:50,880 --> 00:49:53,680
Speaker 1: a normalized time A couple of pieces here. For the

929
00:49:53,719 --> 00:49:57,239
Speaker 1: month of February, with a longer than normal lunar New

930
00:49:57,320 --> 00:50:01,239
Speaker 1: Year break in Asia, we're at about fifty percent capacity

931
00:50:01,360 --> 00:50:03,879
Speaker 1: five zero. It looks like the month of March will

932
00:50:03,920 --> 00:50:06,360
Speaker 1: be a little bit better, an uptick of about twenty

933
00:50:06,440 --> 00:50:09,919
Speaker 1: percentage points in cargo volume for that month, but still

934
00:50:10,160 --> 00:50:13,280
Speaker 1: much lighter than we witnessed in recent years. In fact,

935
00:50:13,440 --> 00:50:15,200
Speaker 1: by the end of the first quarter will be down

936
00:50:15,320 --> 00:50:18,760
Speaker 1: by about a third compared to an all time record

937
00:50:18,960 --> 00:50:22,880
Speaker 1: Q one of twenty twenty two. So in terms of

938
00:50:23,120 --> 00:50:26,880
Speaker 1: the kinks in the system. Are the backups? Where are

939
00:50:26,960 --> 00:50:30,280
Speaker 1: they right now? The backup on ships in Los Angeles

940
00:50:30,320 --> 00:50:33,319
Speaker 1: and Long Beach, the Southern California twin ports was effectively

941
00:50:33,480 --> 00:50:36,880
Speaker 1: gone last August. We set records in five of the

942
00:50:37,000 --> 00:50:40,080
Speaker 1: first seven months last year, while bringing the number of

943
00:50:40,160 --> 00:50:43,320
Speaker 1: ships at anchor from one hundred and nine down to

944
00:50:43,440 --> 00:50:46,200
Speaker 1: single digits by the first week in August. Then there

945
00:50:46,360 --> 00:50:49,000
Speaker 1: was a purposeful shift and cargo to the East and

946
00:50:49,080 --> 00:50:53,960
Speaker 1: Gulf Coast importers exporters weary of these contract negotiations and

947
00:50:54,160 --> 00:50:58,800
Speaker 1: possible work stoppages. Even though both sides have publicly stated

948
00:50:59,120 --> 00:51:01,719
Speaker 1: through the media and other channels that they're not going

949
00:51:01,760 --> 00:51:04,040
Speaker 1: to lock out labor and labor guys are not going

950
00:51:04,120 --> 00:51:07,120
Speaker 1: to go on strike. President met with both sides along

951
00:51:07,200 --> 00:51:10,399
Speaker 1: with then Secretary Marty Walsh of Labor on June tenth,

952
00:51:10,719 --> 00:51:13,960
Speaker 1: first sitting president to my knowledge in history, to meet

953
00:51:14,000 --> 00:51:17,560
Speaker 1: with both sides during an active negotiation. Still not enough

954
00:51:18,160 --> 00:51:20,960
Speaker 1: to convince importers and exporters to keep their cargo in LA.

955
00:51:21,680 --> 00:51:24,160
Speaker 1: So how do you think this plays out? Gene? I'm

956
00:51:24,200 --> 00:51:26,400
Speaker 1: not sure how many of these work issues you've been

957
00:51:26,440 --> 00:51:28,160
Speaker 1: through doing in your career. I'm guessing this isn't your

958
00:51:28,200 --> 00:51:30,920
Speaker 1: first but how do you think this kind of plays out?

959
00:51:31,920 --> 00:51:33,799
Speaker 1: I think we probably need a little more time. As

960
00:51:33,840 --> 00:51:37,279
Speaker 1: I've shared with you guys before, it's not only a

961
00:51:37,400 --> 00:51:41,160
Speaker 1: coastal framework that needs to get done within the collective

962
00:51:41,320 --> 00:51:44,440
Speaker 1: bargaining agreement itself, but there are twenty nine ports on

963
00:51:44,480 --> 00:51:47,600
Speaker 1: the West Coast, each with its own local agreement. Those

964
00:51:47,640 --> 00:51:50,320
Speaker 1: are being sure it up. We probably need just a

965
00:51:50,360 --> 00:51:52,680
Speaker 1: little bit more time to get this done. Again, I

966
00:51:52,800 --> 00:51:56,800
Speaker 1: don't see anything disrupting the supply chain based on the workforce,

967
00:51:57,200 --> 00:52:01,200
Speaker 1: and we'll let these experts continue to chip away at this. Unfortunately,

968
00:52:01,600 --> 00:52:03,839
Speaker 1: last Friday, the White House got a letter signed by

969
00:52:03,880 --> 00:52:07,640
Speaker 1: two hundred and thirty eight organizations imploring the President to

970
00:52:07,680 --> 00:52:10,879
Speaker 1: get involved and bring these negotiations to closure. So we'll

971
00:52:10,920 --> 00:52:12,680
Speaker 1: be talking with folks at the White House again this

972
00:52:12,800 --> 00:52:14,440
Speaker 1: afternoon to give them a lay of the land of

973
00:52:14,520 --> 00:52:18,200
Speaker 1: what's happening on the ground and try to ease anyone's fears.

974
00:52:18,280 --> 00:52:20,759
Speaker 1: There's not going to be disruption from the workforce. Hey,

975
00:52:20,800 --> 00:52:23,440
Speaker 1: you're out there on the West Coast and I know

976
00:52:24,440 --> 00:52:30,400
Speaker 1: significantly south of Sandhill Road. But the collapse of SVB,

977
00:52:30,800 --> 00:52:33,680
Speaker 1: does that have any effect on your organization. Are you

978
00:52:33,800 --> 00:52:37,320
Speaker 1: just too darn big to notice that kind of that

979
00:52:37,440 --> 00:52:40,879
Speaker 1: kind of ripple. Well, as an amateur economist that I've

980
00:52:40,920 --> 00:52:44,640
Speaker 1: talked with you guys about before, this economic equation is

981
00:52:44,800 --> 00:52:48,560
Speaker 1: just so complex. From a jobs market that is still

982
00:52:49,280 --> 00:52:52,640
Speaker 1: towards the employee ten point seven million jobs open, lowest

983
00:52:52,719 --> 00:52:56,880
Speaker 1: unemployment rate since the late nineteen sixties, and even in

984
00:52:56,960 --> 00:53:00,000
Speaker 1: the phase of inflation, although it's come down eight consecutive

985
00:53:00,040 --> 00:53:03,920
Speaker 1: of months, the American consumer still buys SVB. Because we've

986
00:53:03,960 --> 00:53:07,080
Speaker 1: been talking all along a great concern. Some companies couldn't

987
00:53:07,080 --> 00:53:09,719
Speaker 1: even make payroll because that's where their money was. So

988
00:53:10,000 --> 00:53:12,719
Speaker 1: anything that hits the banking system is a shock. We

989
00:53:12,840 --> 00:53:14,960
Speaker 1: all remember what happened in O eight and O nine,

990
00:53:15,280 --> 00:53:19,320
Speaker 1: But to see the administration jump forward so quickly, Treasury

991
00:53:19,360 --> 00:53:23,759
Speaker 1: Secretary yelling backstopping those bank accounts and that of signature

992
00:53:23,800 --> 00:53:26,839
Speaker 1: in New York here we are. Hopefully it's no more

993
00:53:26,960 --> 00:53:32,400
Speaker 1: widespread than what we've seen here the credit Swiss European

994
00:53:32,520 --> 00:53:37,040
Speaker 1: transaction coming over that weekend. Hopefully these are isolated cases.

995
00:53:37,160 --> 00:53:40,640
Speaker 1: But watching this very closely, like every other variable in

996
00:53:40,760 --> 00:53:43,560
Speaker 1: the economic equation. Yeah, the root of that problem I

997
00:53:43,640 --> 00:53:47,800
Speaker 1: guess was specific to SVB and very bad risk management.

998
00:53:48,200 --> 00:53:53,759
Speaker 1: But driven by rates that rose four fifty now five

999
00:53:53,840 --> 00:53:56,520
Speaker 1: hundred basis points in a year and a half. Does

1000
00:53:56,640 --> 00:53:58,879
Speaker 1: that have any effect to these high rates have any

1001
00:53:58,960 --> 00:54:02,320
Speaker 1: effect on your ports business? Sure it does. And I

1002
00:54:02,719 --> 00:54:05,160
Speaker 1: think what folks look at is what are their inventory

1003
00:54:05,280 --> 00:54:08,759
Speaker 1: carrying costs most close to home? Right Purchase orders are

1004
00:54:08,960 --> 00:54:11,960
Speaker 1: at a low EBB right now for a couple of reasons.

1005
00:54:12,320 --> 00:54:15,279
Speaker 1: Obviously the inflation, the concern over the strength of the

1006
00:54:15,360 --> 00:54:19,160
Speaker 1: consumer in the intermediate term, although proven to be pretty resilient.

1007
00:54:19,640 --> 00:54:22,279
Speaker 1: The interest rates on the cost of those goods that

1008
00:54:22,440 --> 00:54:26,479
Speaker 1: importers purchase and exporters finance, that weighs heavily. Folks trying

1009
00:54:26,480 --> 00:54:30,400
Speaker 1: to get inventories right sized because the inventory sales ratio

1010
00:54:30,560 --> 00:54:33,799
Speaker 1: is still elevated here in the United States, and while

1011
00:54:33,840 --> 00:54:36,960
Speaker 1: we're getting emails and text messages on deep discounts from

1012
00:54:37,000 --> 00:54:40,600
Speaker 1: our retailers to get older inventory out, the new products

1013
00:54:40,640 --> 00:54:43,520
Speaker 1: won't start coming in until there's a bleed down of

1014
00:54:43,960 --> 00:54:47,840
Speaker 1: that warehousing inventory across the nation. Again, not just in

1015
00:54:47,960 --> 00:54:52,040
Speaker 1: Los Angeles but nationally. Gee. Another global issue that I

1016
00:54:52,200 --> 00:54:55,040
Speaker 1: know you have a lot of familiarity with it is

1017
00:54:55,160 --> 00:54:58,640
Speaker 1: China given your port and your customers in the trade.

1018
00:54:59,200 --> 00:55:02,040
Speaker 1: China reopening maybe a little bit faster than people thought.

1019
00:55:02,560 --> 00:55:04,400
Speaker 1: How are you seeing that in your business? What are

1020
00:55:04,400 --> 00:55:07,359
Speaker 1: you hearing from your shippers? It's been interesting, and having

1021
00:55:07,520 --> 00:55:10,880
Speaker 1: lived in China during Stars, I had a view of

1022
00:55:11,000 --> 00:55:14,080
Speaker 1: what a global pandemic might have looked like. This was

1023
00:55:14,120 --> 00:55:17,920
Speaker 1: a ten thousand times greater. Obviously now with the benefit

1024
00:55:18,000 --> 00:55:20,680
Speaker 1: of hindsight, but with the reopening, we're starting to see

1025
00:55:20,760 --> 00:55:25,440
Speaker 1: some stabilization, whether it's land transport, barge traffic, factories and

1026
00:55:25,560 --> 00:55:29,840
Speaker 1: their subassembly suppliers getting really back to one hundred percent capacity.

1027
00:55:30,239 --> 00:55:33,200
Speaker 1: We never really lost a lot of steam because the

1028
00:55:33,320 --> 00:55:36,800
Speaker 1: central government in Beijing and the ports, especially the Shanghai

1029
00:55:36,880 --> 00:55:40,480
Speaker 1: Young Shan Deep Seaport, kept us in focus and made

1030
00:55:40,600 --> 00:55:43,800
Speaker 1: that long haul traffic, that long haul container shipping business

1031
00:55:44,120 --> 00:55:48,200
Speaker 1: a priority. So even while some a pine that shutdowns,

1032
00:55:48,239 --> 00:55:51,680
Speaker 1: we're going to hurt international transportation for this container business

1033
00:55:51,760 --> 00:55:54,919
Speaker 1: between mainland China in La it stayed strong. We'll see

1034
00:55:54,920 --> 00:55:57,120
Speaker 1: a little more steady cadence as we go forward. But

1035
00:55:57,160 --> 00:55:59,880
Speaker 1: it all comes down now to the purchase orders that

1036
00:56:00,040 --> 00:56:04,080
Speaker 1: are going in from American manufacturers and retailers that usually

1037
00:56:04,200 --> 00:56:06,960
Speaker 1: have a window of ninety to one hundred and twenty

1038
00:56:07,040 --> 00:56:09,960
Speaker 1: days before ship sailing, so we're seeing all that activity

1039
00:56:10,080 --> 00:56:12,719
Speaker 1: right now. It's my belief we'll get on a more

1040
00:56:12,800 --> 00:56:16,520
Speaker 1: normal calendar after the fourth of July holiday. You'll start

1041
00:56:16,560 --> 00:56:21,840
Speaker 1: seeing seasonal products, year end holidays, and those specialty items

1042
00:56:22,120 --> 00:56:25,080
Speaker 1: start coming through as they used to based on the

1043
00:56:25,200 --> 00:56:29,760
Speaker 1: timing factors. So you'll see the summer goods, fall fashion, Halloween,

1044
00:56:29,800 --> 00:56:32,160
Speaker 1: back to school, and then the year end holiday products

1045
00:56:32,480 --> 00:56:35,040
Speaker 1: lining up a little bit more distinctively than they have

1046
00:56:35,120 --> 00:56:37,080
Speaker 1: in the recent past. All Right, Jane, thanks so much

1047
00:56:37,080 --> 00:56:39,640
Speaker 1: for joining us. Really appreciate getting your perspective. You're insight there.

1048
00:56:39,719 --> 00:56:43,080
Speaker 1: Jean Siroka, Executive director of the Port of Los Angeles,

1049
00:56:43,280 --> 00:56:46,279
Speaker 1: Thanks for listening to the Bloomberg Markets podcast. You can

1050
00:56:46,320 --> 00:56:50,080
Speaker 1: subscribe and listen to interviews with Apple Podcasts or whatever

1051
00:56:50,200 --> 00:56:53,840
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

1052
00:56:54,120 --> 00:56:57,320
Speaker 1: at Matt Miller nineteen seventy three and on fall swee

1053
00:56:57,440 --> 00:57:00,080
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you

1054
00:57:00,120 --> 00:57:02,479
Speaker 1: can always catch us worldwide at Bloomberg Radio.