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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. Find 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. I have to say,

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Speaker 1: this is a segment. I can't believe we haven't done already. Well,

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Speaker 1: we haven't had a MBS analyst at b I. Well

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Speaker 1: now we do. Now we do absolutely, Erica Aidelberg. She

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Speaker 1: is the mbent strategist for Bloomberg Intelligence. He joins us

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Speaker 1: here in our Bloomberg Interactor Broker studio, Adelberger Aidelberg. Is

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Speaker 1: there a difference, Well, there's an a So if there

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Speaker 1: are two different German words adel and ood li and um,

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Speaker 1: but they're both spuilt either a d e L or

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Speaker 1: E d e l and they both kind of mean

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Speaker 1: noble or royal. So okay, anyway, we are today by

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Speaker 1: your President, Yes we are, Eric, We have a federal

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Speaker 1: reserve that's going to start selling mortgage backed securities. Is

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Speaker 1: that something you're looking for? So? How does that impact

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Speaker 1: your market, the mortgage back securities market, It's got to

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Speaker 1: be a tectonic shift. Well. Yeah, Traditionally, the FED just

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Speaker 1: allowed the portfolio to actually, you know, decrease the size

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Speaker 1: of its portfolio, of its FED footprint, by letting the

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Speaker 1: principal paydounds run off as prepais came in and as

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Speaker 1: scheduled deamorgiztations came in. But they've put in a lot

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Speaker 1: of language recently into their speeches that says that they're

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Speaker 1: seriously considering selling because the size of the NBAS portfolio

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Speaker 1: has gotten so large at two point seven trillion and

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Speaker 1: about a third of the mortgage index. So they're actually

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Speaker 1: talking about selling. They've said they'll give a lot of

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Speaker 1: lead time if they do so, but I think a

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Speaker 1: lot of people are now actually taking them at their

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Speaker 1: word and saying, even though it will involve some write

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Speaker 1: down losses, perhaps that they may actually start selling as

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Speaker 1: early as late two thousand or early uh two three.

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Speaker 1: So So what is this like for them? I mean

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Speaker 1: I imagine this must be like, um, you know, a

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Speaker 1: nine pound guerilla gets out of the pool, right, that's

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Speaker 1: very accurate. Yeah, there there's gonna be a lot of

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Speaker 1: water that has to be absorbed by the rest of

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Speaker 1: the market, if you will, or mortgage backed securities in

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Speaker 1: this case. So we've already seen a lot of spread widening. UM.

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Speaker 1: The mortgage spreads are definitely wider than they were before

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Speaker 1: this uh QUE four before this round of quantitative easing.

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Speaker 1: So the big question is is that going to be

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Speaker 1: enough and who's going to absorb the rest? So, you know,

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Speaker 1: it's interesting here. The first quarter was really tough for

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Speaker 1: fixing come investors, really tough and return perspective. How's the

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Speaker 1: MBS market, how's that been trading? The NBS market is

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Speaker 1: definitely on tap for one of its years on record already.

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Speaker 1: We're calling for probably the first ever consecutive year of

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Speaker 1: negative absolute returns and probably very very likely the third

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Speaker 1: ever consecutive year of negative excess returns that has returns

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Speaker 1: versus their hedges. So yeah, it's it's not looking like

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Speaker 1: a great year from morgas backed securities. UM. On the

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Speaker 1: bright side, we've widened so much that we think the

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Speaker 1: rest of the year could be a lot better. Uh

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Speaker 1: you know, do the Wall Street trading firms have big

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Speaker 1: MBS trading operations still on these days? Relatively small. Actually, Um,

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Speaker 1: nobody has a big trading operation compared to the FED

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Speaker 1: right now. But uh, no that the the they haven't Actually,

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Speaker 1: if you will, they're not actually probably going to provide

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Speaker 1: that much intermediation unless spreads get really cheap. So uh,

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Speaker 1: for better for worse? Did they before the financial crisis? Um,

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Speaker 1: they were a little bit more involved, But you know,

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Speaker 1: I think I think for years now the bigger holders

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Speaker 1: have been banks, the FED into some degree money managers.

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Speaker 1: But are we back to um, you know, people wrapping

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Speaker 1: mortgages in big collateralized debt instruments. We're not. No, almost

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Speaker 1: everything is currently just an agency NBS and again held

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Speaker 1: by uh combination of other investors taking up about a

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Speaker 1: third of the market, banks holding about a third of

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Speaker 1: the market, and the FED holding about a third of

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Speaker 1: the market. Just an agency NBS pools. I just asked

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Speaker 1: because I went to a dinner. I went to a

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Speaker 1: passover sater on Saturday. Good and uh it was great fun. Um.

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Speaker 1: But one of the things people were talking about was

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Speaker 1: the relentless rise in housing prices and the fact that

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Speaker 1: you know, everyone that we we were talking to at

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Speaker 1: the table had just sort of stretched as far as

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Speaker 1: possible financially to buy a house, and if prices come down,

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Speaker 1: it's bad. But I guess what I hear from people

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Speaker 1: in in the industry is that nobody's leveraged up the

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Speaker 1: way they were in two thousand seven. Right. The big

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Speaker 1: difference UM right now is that both household leverage and

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Speaker 1: mortgage finance leverage are much much lower than they were

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Speaker 1: in two thousand eight. So not only that, but I

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Speaker 1: think very few people are actually calling for a housing downturn.

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Speaker 1: They weren't in two thousand and eight either, to be fair,

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Speaker 1: but they because of the fact that the amount of

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Speaker 1: supply currently is so much lower and there's a real

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Speaker 1: inventory crunch, so they think that's going to keep. They

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Speaker 1: think housing prices will stop going up as as dramatically

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Speaker 1: as they've been going up. You can't sustain year, especially

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Speaker 1: at five plus mortgage rates. But they do think that, um,

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Speaker 1: you know, the housing market probably will just slow. Housing

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Speaker 1: starts are picking up to try to alleviate some of

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Speaker 1: that supply. UM. Home prices never go down. Never. Yeah,

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Speaker 1: we had good housing start numbers out this morning. Erica Aidelberger,

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Speaker 1: thank you so much for the bad confidence. But bad confidence.

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Speaker 1: Remember yesterday, John Tucker was telling us homebuilder was confidence

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Speaker 1: in a seven month low's still it's still pretty good.

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Speaker 1: I'm geting more stuff coming ry. Eric Adibor, thank you

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Speaker 1: so much for joining us. She's an NBA strategist Bloomberg Intelligence,

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Speaker 1: joining us here on our Bloomberg Interactive Broker studio. Alright,

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Speaker 1: let's talk markets here and we do that with Mark Smith.

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Speaker 1: He's a senior vice president for investments at Wells Fargo Advisors. Mark,

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Speaker 1: We've got a FED that's talking about, you know, and

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Speaker 1: in a big way, raising interest rates. Yet I've got

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Speaker 1: I've got a market that's still feels pretty risk onto me.

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Speaker 1: What are you telling your clients? Well, I'm telling my

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Speaker 1: clients right now that you've got to be nimble. Well,

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Speaker 1: we're in an environment right now where you have a St.

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Speaker 1: Louis FED member James Bullard saying that we could possibly

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Speaker 1: see a seventy basis point rate hike. Um, you know

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Speaker 1: that should cause pause for anybody. Look to anyone looking

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Speaker 1: for some stability in the markets, because you know, traditionally,

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Speaker 1: you know, we've seen small incremental moves twenty basis points. Um.

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Speaker 1: You know, over you know, a year and a year

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Speaker 1: and a half period. If you're talking about moving rates

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Speaker 1: of seventy five basis points, of course, that's going to

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Speaker 1: affect the market. That's going to affect everything from buying

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Speaker 1: a home. You know, I'm already seeing clients of mine

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Speaker 1: who are going and putting offers in and the and

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Speaker 1: they're getting bit out by all cash buyers. And so

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Speaker 1: in that environment, you've got to slow it down. But

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Speaker 1: at the same point, that's gonna that's going to definitely

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Speaker 1: have an effect on the real estate and you're gonna

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Speaker 1: see that prices will have to go down because my

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Speaker 1: clients are buying homes based upon their cash in cash

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Speaker 1: out every single month, and that's how many Americans buy home.

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Speaker 1: It's based upon what they could afford. If you're raising

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Speaker 1: rates double what it was a year ago, that's going

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Speaker 1: to have to affect the price of real estate. I

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Speaker 1: was the only one freaked out by the Bulleard story.

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Speaker 1: Everyone's taking it so calmly today, I know, look at

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Speaker 1: the market. Uh all right, so, um, Mark, what do

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Speaker 1: you think about this housing market? I mean, we were

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Speaker 1: talking with an MBS specialist previously. You said nobody's worried

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Speaker 1: about a return of two thousand seven, two thousand eight,

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Speaker 1: And it's true. I haven't heard a lot of people

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Speaker 1: voice concerns about it, but we've had prices go so

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Speaker 1: far up so fast. It's it's gotta be people are

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Speaker 1: stretching to buy the houses that they are. Yeah. Yeah,

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Speaker 1: the housing market right now is going to be a

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Speaker 1: conundrum for anyone and for anyone to guess office is

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Speaker 1: all going to play out. You know, you really do

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Speaker 1: need a crystal ball. Um what what what? What's happening

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Speaker 1: right now is you're seeing some of the lowest inventory

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Speaker 1: in the last forty years in housing. Um, you're seeing

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Speaker 1: rates still historically at all time lows. I mean, people

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Speaker 1: are talking about rates going up, but my mom bought

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Speaker 1: a more had a house in her rate was nine

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Speaker 1: and a half. So when you're you're talking about right now,

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Speaker 1: if you've got an the asset to the bank, you're

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Speaker 1: looking at still right now four percent rates still not

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Speaker 1: horrible complaints and historical averages. And so you've got a

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Speaker 1: lot of demanders, more cash in Americans pockets than ever

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Speaker 1: in American history. Ever, that's an underlying that's not a

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Speaker 1: ten year, twenty years than ever, and that's because a

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Speaker 1: lot of people were locked down for two years, stays

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Speaker 1: up a ton of money, UM, didn't lose their jobs,

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Speaker 1: stayed at home. You know, watch Netflix, And now they're

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Speaker 1: coming out and they're saying, Okay, we want to buy

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Speaker 1: a home because we were a flush. And so that

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Speaker 1: is the environment. You're seeing low inventory, folks that have

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Speaker 1: a ton of cash and so right now, that's keeping

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Speaker 1: the markets up. But I do think that if rates

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Speaker 1: start to be effected and you're seeing a race right

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Speaker 1: now five plus on a thirty year fixed mortgage, Okay,

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Speaker 1: if that continues to go up into the sixes and sevens,

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Speaker 1: you've got a completely different UH consumer was going out

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Speaker 1: there and saying, wait, maybe I can't afford is three

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Speaker 1: million dollar home UM when rates are double what they

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Speaker 1: were a year ago. Good stuff, Hey, Mark, thanks so

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Speaker 1: much for joining us. Always appreciate getting your perspective. Mark Smith,

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Speaker 1: he's a seen your vice president for investments at Wells

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Speaker 1: Fargo Advisers. Before that, he spent fourteen years at UBS

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Speaker 1: UH in a similar role, so lots of experience. They're

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Speaker 1: giving us his thoughts on UH investments and financial markets. Right.

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Speaker 1: Matt Miller and I are in the office every day

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Speaker 1: because that's how it works in radio and TV here

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Speaker 1: at Bloomberg. But we are certainly the exception here and

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Speaker 1: I think companies across the border globally are thinking about

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Speaker 1: what the new work environment means. Are we coming back

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Speaker 1: five days a week? Mark Dixon, founder and CEO of

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Speaker 1: i w G formerly Regius. So those are the folks

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Speaker 1: that rent out office space. Presumably these guys are great

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Speaker 1: position to kind of meet the changing needs of business. Mark,

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Speaker 1: thanks so much for joining us here. Um, give us

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Speaker 1: a sense of what you're hearing from your clients, your

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Speaker 1: customers about the new work environment. Yeah, we'll look. Essentially,

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Speaker 1: we are the market leader globally and providing for this

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Speaker 1: new way of companies working, which is not much less

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Speaker 1: space on a fixed basis I long term leases and

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Speaker 1: companies that want to use space in a much more

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Speaker 1: fluid way. They want to take it when they need

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Speaker 1: it and take it more importantly where they need it.

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Speaker 1: So we're seeing a lot of companies changing. We're seeing

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Speaker 1: a huge uptick in in particularly larger corporations that are

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Speaker 1: moving to hybrid work and becoming our customers and using

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Speaker 1: space across the country rather than having space sort of

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Speaker 1: concentrated in individual cities. So I mean, as more people

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Speaker 1: work from home, I would expect companies to need less space.

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Speaker 1: On the other hand, just anecdotally when we talked to managers,

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Speaker 1: it seems like for some reason they're getting there, They're

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Speaker 1: they're leasing more space. Why is it? What's what's a

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Speaker 1: hybrid workspace look like? Well, a hybrid workspaces then we

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Speaker 1: answer that question personally, I come to the sort of

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Speaker 1: misinformation that's out there in a in a in a second,

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Speaker 1: but hyprid workspaces space that's already set up, ready to work.

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Speaker 1: It's officers that all built, all the services are there.

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Speaker 1: They're already staffed with support staff. You can use them

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Speaker 1: for an hour a day, a month, a week. And

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Speaker 1: they're all over the country. We're in in the United States,

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Speaker 1: were in about eleven hundred over eleven hundred locations throughout

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Speaker 1: the country. UM, and we're opening lots more because this

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Speaker 1: huge demand for this work locally. Mantra. It's not necessarily

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Speaker 1: people working from home. It's people that don't want to

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Speaker 1: waste an hour two hours a day commuting. They want

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Speaker 1: to work down the road. Some of them work from home.

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Speaker 1: A lot of them will want to work locally. So

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Speaker 1: UM when you know there's a lot of common commentators

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Speaker 1: talking about, yes, there's a lot of space being leased up,

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Speaker 1: that's not true. UM research out by Jones Lane this

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Speaker 1: week that talked about the Great Leak lease resignation, where

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Speaker 1: you've got people giving up leases on an unprecedented basis

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Speaker 1: and and this is long term leases they're giving up

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Speaker 1: in order to either have people work from home or

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Speaker 1: have people work locally. They are finding it difficult to

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Speaker 1: persuade people to spend time and money commuting when it's

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Speaker 1: unnecessary in a digital world. But it could be homework,

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Speaker 1: but for most it is local work that is what

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Speaker 1: they're looking for. Mark, are you sensing UM regional differences

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Speaker 1: for examples? Is the United States more of a hybrid

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Speaker 1: model than say Europe or the UK? Well, i'd the

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Speaker 1: US is much more. It's much more of a higher

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Speaker 1: adoption model. And what we know, we've been in business

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Speaker 1: in those states for thirty years. The US is really

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Speaker 1: at the forefront of adopting new practices. If something works,

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Speaker 1: US companies adopt it, and this one is one that works.

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Speaker 1: It saves companies money, it's what their workers want, and

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Speaker 1: it's good for the environment. It takes those three boxes

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Speaker 1: um and and and therefore companies are adopting it on

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Speaker 1: mass um. In the United States, they're much quicker to move.

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Speaker 1: In Europe you get more traditional. Some countries that are

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Speaker 1: much more traditional much less likely to move. And clearly

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Speaker 1: countries like the UK you mentioned, leases are much longer

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Speaker 1: in the UK. Therefore, companies, you know, in order to

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Speaker 1: move to hybrid, they've got to be able to give

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Speaker 1: up the space they already have. They need a lease

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Speaker 1: end at least termination that they can do. Um and

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Speaker 1: So the movie is slower in the UK, faster in Europe,

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Speaker 1: very fast in the US. What about mark the technology.

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Speaker 1: I've noticed that since we started this whole journey about

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Speaker 1: two and a half years ago, we have used very

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Speaker 1: different technology or there's been at least one big change

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Speaker 1: in terms of our providers at this company. Are are

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Speaker 1: you do you see technology is changing rapidly? Do companies

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Speaker 1: need to quickly adapt to keep up and spend to

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Speaker 1: keep up with new technologies? The answer to that is

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Speaker 1: absolutely they do and they are. I mean, this is

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Speaker 1: relatively cheap technology. It's mostly streaming technology. So look, you

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Speaker 1: just look at the two most commonly used platforms Microsoft

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Speaker 1: Teams and Zoom. They have hugely improved. They're offer the

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Speaker 1: quality of service that's available today and the functionality available

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Speaker 1: today is nothing like you would have found even six

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Speaker 1: months ago. UM and that, and there's lots of other

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Speaker 1: software platforms that allow better management of people that are

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Speaker 1: working in a decentralized way. So you know, your people

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Speaker 1: could be all over the country, all over the world,

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Speaker 1: you can manage their output's better with new technology basically

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Speaker 1: new software. All of that's coming together to make this

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Speaker 1: hybrid way of working something that's absolutely mainstream and prime

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Speaker 1: for adoption. Yep, but it certainly appears to be the

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Speaker 1: new trend here. Mark Dixon, founder and CEO of i

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Speaker 1: W GPSC that's formerly Regius. You'll see those Regious offices

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Speaker 1: all over the US and the world. Travel stories that

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Speaker 1: perfect Seguius Tunking would say into our next guest, Alicia Kapor,

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Speaker 1: Senior industry manager for Similar Web, Alicia, we just heard

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Speaker 1: from a report about business travel still not back. So

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Speaker 1: I guess my understanding of the global travel business right

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Speaker 1: now is that leisure travel is close to being back

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Speaker 1: to pre pandemic levels. Maybe we'll get there this summer,

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Speaker 1: but business is not. What's your takeaway, how do you

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Speaker 1: think this is going to develop? Yes, the great analysis,

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Speaker 1: major travel is definitely picked up, and consumer demand is

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Speaker 1: very very high, especially given that we have so much

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Speaker 1: tense of demand. So many restrictions are lifting across the

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Speaker 1: board UM just recently the mass mandate being listed on

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Speaker 1: planes and public transportation. UM. With business travel, I think

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Speaker 1: many experts in the industry expected that there would be

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Speaker 1: a slower rebound, so the numbers that were mentioned earlier

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Speaker 1: don't surprise me. That being said, when you look at

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Speaker 1: traffic to the top business travel sites, so ex some

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Speaker 1: sites like concur and then just actual sites to facilitate

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Speaker 1: bookings for corporations, we're seeing a steady increase, especially over

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Speaker 1: the past few months. We're seeing that businesses are dipping

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Speaker 1: their toes back in UM. Anecdotally, I've been to a

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Speaker 1: few conferences. I know a bunch of my colleagues are

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Speaker 1: preparing to go to conferences both within the US and

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Speaker 1: outside as well. So I think that there is a

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Speaker 1: positive trajectory and when we get into three I do

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Speaker 1: expect to see recovery UM, hopefully full fred pledged recovery

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Speaker 1: for corporate travel, But at this point, I think we

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Speaker 1: just still need a little bit of time, especially with

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Speaker 1: the return to office. I think as that process comes

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Speaker 1: into play, and as most businesses bring people back to offices,

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Speaker 1: will see the return of corporate travel will probably seamlessly

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Speaker 1: follow that. But so you expect us to get back

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Speaker 1: to pre pandemic levels because my understanding was, you know,

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Speaker 1: a lot of business practices have changed for good. You

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Speaker 1: don't really need to travel as much as we had

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Speaker 1: been in the past. Yeah. I think that's been the

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Speaker 1: huge debate across the industry. I do expect us to

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Speaker 1: get back to pre pandemic levels. That being said, I

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Speaker 1: don't expect the nature of business travel to be the

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Speaker 1: same right the pre pandemic. For example, I was traveling

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Speaker 1: for almost every client meeting I had, right, I'd go

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Speaker 1: to Data Florida, Data Vegas, etcetera, etcetera. Now Zoom has

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Speaker 1: made that so much easier that in exchange, I think

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Speaker 1: what we're seeing is that corporations are putting a lot

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Speaker 1: more money into conferences, um to bringing maybe remote employees

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Speaker 1: to the office for a week span or a month span. Uh,

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Speaker 1: team retreats are going to be huge, So I think

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Speaker 1: that corporate travel itself will recover, but the nature of

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Speaker 1: corporate travel will be very different post pandemic than it

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Speaker 1: was pre pandemic. You know, at Licia, when we talked

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Speaker 1: to the you know, big hotel operators, maybe even the

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Speaker 1: hotel casino operators in Las Vegas, for example, one of

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Speaker 1: the areas that is key for their corporate business is

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Speaker 1: the conference business. I mean, you think about some big

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Speaker 1: hotel cousinos in Vegas. They have such huge conference space

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Speaker 1: out there, and I guess the question is, will that

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Speaker 1: conference business continue to be a driver for some of

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Speaker 1: these big destination markets. Yeah, I believe it will. I

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Speaker 1: think that conferences are going to be to have a

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Speaker 1: huge resurgence this year into next year. I mean we're

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Speaker 1: already seeing it across many different industries. I think people

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Speaker 1: are really dying for that in person um kind of networking, right.

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Speaker 1: So I think the more that we're able to convinced

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Speaker 1: consumers or convinced corporations that that is the safe bet

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Speaker 1: and that they can kind of send their employees to

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Speaker 1: a conference without worrying about other risks um, the better

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Speaker 1: off the industry will be. And I do believe that

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Speaker 1: a lot of those large conferences or large scale conferences

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Speaker 1: that we saw pre pandemic will return, UM, but that

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Speaker 1: timeline is just a little bit more uncertain with some

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Speaker 1: of the headwinds facing the industry. I'm excited for flying

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Speaker 1: to get more enjoyable. It's I mean, it's never been

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Speaker 1: an incredibly fantastic experience, certainly not if you're flying you know,

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Speaker 1: economy class. But recently I feel like, uh, it's it

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Speaker 1: seems like a lot of the airline personnel UM are

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Speaker 1: in a police role, right, always reminding you to put

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Speaker 1: your mask back on between SIPs and um, you know,

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Speaker 1: getting very defensive about any kind of criticism like anger management.

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Speaker 1: But in real life, is that going to change? You think?

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Speaker 1: Is our airline is gonna have to make flying an

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Speaker 1: enjoyable experience for us again. You know, that's a good question.

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Speaker 1: I think there's opinions on either side of the aisle

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Speaker 1: with regards to this topic as well. UM. I think

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Speaker 1: on one hand, especially as mass mandates are being listed,

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Speaker 1: as consumers are flying again, UM, and as airlines are

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Speaker 1: really kind of pushing for that business from the leisure sector, UM,

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Speaker 1: there will be considerations that certain airlines will most definitely

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Speaker 1: take to make sure that their consumers are happy. On

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Speaker 1: the flip side, I think that some airlines have kind

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Speaker 1: of used this time to maybe condense their operations. UM.

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Speaker 1: We are seeing some mergers across the industry, and I

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Speaker 1: think that at the end of the day, UM, I

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Speaker 1: don't necessarily know if I have that crystal ball that

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Speaker 1: can tell you what flying will look like in the

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Speaker 1: next five to ten years. I think that flying will

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Speaker 1: be a lot more sustainable. You we've already seen a

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Speaker 1: lot of efforts from major airlines to really put a

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Speaker 1: lot of kind of thought and work into their sustainability pages. UM.

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Speaker 1: And then we're seeing, for example, on Google Flights there's

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Speaker 1: the carbon emissions feature which shows you, Okay, this Ryanair

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Speaker 1: flight for example, might have less or more carbon emissions,

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Speaker 1: and this easy Jet flight UM if you're in Europe.

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Speaker 1: But at the end of the day, I think the

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Speaker 1: the industry itself UM is really just focused on recovery

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Speaker 1: at the moment, and some of those some of those

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Speaker 1: perks that may come from for consumers UM or that

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Speaker 1: may have happened during the pandemic may not be as

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Speaker 1: common UM as we go forward. All right, Alicia, thank

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Speaker 1: you so much. For sharing your thoughts. Alicia Kapoor, Senior

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Speaker 1: industry manager for Similar Web joining us. Thanks for listening

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Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen

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Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer.

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Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three.

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Speaker 1: Put on false Sweeney I'm on Twitter at pt Sweeney

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Speaker 1: before the podcast. You can always catch us worldwide at

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Speaker 1: Bloomberg Radio