Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. I have to say,
Speaker 1: this is a segment. I can't believe we haven't done already. Well,
Speaker 1: we haven't had a MBS analyst at b I. Well
Speaker 1: now we do. Now we do absolutely, Erica Aidelberg. She
Speaker 1: is the mbent strategist for Bloomberg Intelligence. He joins us
Speaker 1: here in our Bloomberg Interactor Broker studio, Adelberger Aidelberg. Is
Speaker 1: there a difference, Well, there's an a So if there
Speaker 1: are two different German words adel and ood li and um,
Speaker 1: but they're both spuilt either a d e L or
Speaker 1: E d e l and they both kind of mean
Speaker 1: noble or royal. So okay, anyway, we are today by
Speaker 1: your President, Yes we are, Eric, We have a federal
Speaker 1: reserve that's going to start selling mortgage backed securities. Is
Speaker 1: that something you're looking for? So? How does that impact
Speaker 1: your market, the mortgage back securities market, It's got to
Speaker 1: be a tectonic shift. Well. Yeah, Traditionally, the FED just
Speaker 1: allowed the portfolio to actually, you know, decrease the size
Speaker 1: of its portfolio, of its FED footprint, by letting the
Speaker 1: principal paydounds run off as prepais came in and as
Speaker 1: scheduled deamorgiztations came in. But they've put in a lot
Speaker 1: of language recently into their speeches that says that they're
Speaker 1: seriously considering selling because the size of the NBAS portfolio
Speaker 1: has gotten so large at two point seven trillion and
Speaker 1: about a third of the mortgage index. So they're actually
Speaker 1: talking about selling. They've said they'll give a lot of
Speaker 1: lead time if they do so, but I think a
Speaker 1: lot of people are now actually taking them at their
Speaker 1: word and saying, even though it will involve some write
Speaker 1: down losses, perhaps that they may actually start selling as
Speaker 1: early as late two thousand or early uh two three.
Speaker 1: So So what is this like for them? I mean
Speaker 1: I imagine this must be like, um, you know, a
Speaker 1: nine pound guerilla gets out of the pool, right, that's
Speaker 1: very accurate. Yeah, there there's gonna be a lot of
Speaker 1: water that has to be absorbed by the rest of
Speaker 1: the market, if you will, or mortgage backed securities in
Speaker 1: this case. So we've already seen a lot of spread widening. UM.
Speaker 1: The mortgage spreads are definitely wider than they were before
Speaker 1: this uh QUE four before this round of quantitative easing.
Speaker 1: So the big question is is that going to be
Speaker 1: enough and who's going to absorb the rest? So, you know,
Speaker 1: it's interesting here. The first quarter was really tough for
Speaker 1: fixing come investors, really tough and return perspective. How's the
Speaker 1: MBS market, how's that been trading? The NBS market is
Speaker 1: definitely on tap for one of its years on record already.
Speaker 1: We're calling for probably the first ever consecutive year of
Speaker 1: negative absolute returns and probably very very likely the third
Speaker 1: ever consecutive year of negative excess returns that has returns
Speaker 1: versus their hedges. So yeah, it's it's not looking like
Speaker 1: a great year from morgas backed securities. UM. On the
Speaker 1: bright side, we've widened so much that we think the
Speaker 1: rest of the year could be a lot better. Uh
Speaker 1: you know, do the Wall Street trading firms have big
Speaker 1: MBS trading operations still on these days? Relatively small. Actually, Um,
Speaker 1: nobody has a big trading operation compared to the FED
Speaker 1: right now. But uh, no that the the they haven't Actually,
Speaker 1: if you will, they're not actually probably going to provide
Speaker 1: that much intermediation unless spreads get really cheap. So uh,
Speaker 1: for better for worse? Did they before the financial crisis? Um,
Speaker 1: they were a little bit more involved, But you know,
Speaker 1: I think I think for years now the bigger holders
Speaker 1: have been banks, the FED into some degree money managers.
Speaker 1: But are we back to um, you know, people wrapping
Speaker 1: mortgages in big collateralized debt instruments. We're not. No, almost
Speaker 1: everything is currently just an agency NBS and again held
Speaker 1: by uh combination of other investors taking up about a
Speaker 1: third of the market, banks holding about a third of
Speaker 1: the market, and the FED holding about a third of
Speaker 1: the market. Just an agency NBS pools. I just asked
Speaker 1: because I went to a dinner. I went to a
Speaker 1: passover sater on Saturday. Good and uh it was great fun. Um.
Speaker 1: But one of the things people were talking about was
Speaker 1: the relentless rise in housing prices and the fact that
Speaker 1: you know, everyone that we we were talking to at
Speaker 1: the table had just sort of stretched as far as
Speaker 1: possible financially to buy a house, and if prices come down,
Speaker 1: it's bad. But I guess what I hear from people
Speaker 1: in in the industry is that nobody's leveraged up the
Speaker 1: way they were in two thousand seven. Right. The big
Speaker 1: difference UM right now is that both household leverage and
Speaker 1: mortgage finance leverage are much much lower than they were
Speaker 1: in two thousand eight. So not only that, but I
Speaker 1: think very few people are actually calling for a housing downturn.
Speaker 1: They weren't in two thousand and eight either, to be fair,
Speaker 1: but they because of the fact that the amount of
Speaker 1: supply currently is so much lower and there's a real
Speaker 1: inventory crunch, so they think that's going to keep. They
Speaker 1: think housing prices will stop going up as as dramatically
Speaker 1: as they've been going up. You can't sustain year, especially
Speaker 1: at five plus mortgage rates. But they do think that, um,
Speaker 1: you know, the housing market probably will just slow. Housing
Speaker 1: starts are picking up to try to alleviate some of
Speaker 1: that supply. UM. Home prices never go down. Never. Yeah,
Speaker 1: we had good housing start numbers out this morning. Erica Aidelberger,
Speaker 1: thank you so much for the bad confidence. But bad confidence.
Speaker 1: Remember yesterday, John Tucker was telling us homebuilder was confidence
Speaker 1: in a seven month low's still it's still pretty good.
Speaker 1: I'm geting more stuff coming ry. Eric Adibor, thank you
Speaker 1: so much for joining us. She's an NBA strategist Bloomberg Intelligence,
Speaker 1: joining us here on our Bloomberg Interactive Broker studio. Alright,
Speaker 1: let's talk markets here and we do that with Mark Smith.
Speaker 1: He's a senior vice president for investments at Wells Fargo Advisors. Mark,
Speaker 1: We've got a FED that's talking about, you know, and
Speaker 1: in a big way, raising interest rates. Yet I've got
Speaker 1: I've got a market that's still feels pretty risk onto me.
Speaker 1: What are you telling your clients? Well, I'm telling my
Speaker 1: clients right now that you've got to be nimble. Well,
Speaker 1: we're in an environment right now where you have a St.
Speaker 1: Louis FED member James Bullard saying that we could possibly
Speaker 1: see a seventy basis point rate hike. Um, you know
Speaker 1: that should cause pause for anybody. Look to anyone looking
Speaker 1: for some stability in the markets, because you know, traditionally,
Speaker 1: you know, we've seen small incremental moves twenty basis points. Um.
Speaker 1: You know, over you know, a year and a year
Speaker 1: and a half period. If you're talking about moving rates
Speaker 1: of seventy five basis points, of course, that's going to
Speaker 1: affect the market. That's going to affect everything from buying
Speaker 1: a home. You know, I'm already seeing clients of mine
Speaker 1: who are going and putting offers in and the and
Speaker 1: they're getting bit out by all cash buyers. And so
Speaker 1: in that environment, you've got to slow it down. But
Speaker 1: at the same point, that's gonna that's going to definitely
Speaker 1: have an effect on the real estate and you're gonna
Speaker 1: see that prices will have to go down because my
Speaker 1: clients are buying homes based upon their cash in cash
Speaker 1: out every single month, and that's how many Americans buy home.
Speaker 1: It's based upon what they could afford. If you're raising
Speaker 1: rates double what it was a year ago, that's going
Speaker 1: to have to affect the price of real estate. I
Speaker 1: was the only one freaked out by the Bulleard story.
Speaker 1: Everyone's taking it so calmly today, I know, look at
Speaker 1: the market. Uh all right, so, um, Mark, what do
Speaker 1: you think about this housing market? I mean, we were
Speaker 1: talking with an MBS specialist previously. You said nobody's worried
Speaker 1: about a return of two thousand seven, two thousand eight,
Speaker 1: And it's true. I haven't heard a lot of people
Speaker 1: voice concerns about it, but we've had prices go so
Speaker 1: far up so fast. It's it's gotta be people are
Speaker 1: stretching to buy the houses that they are. Yeah. Yeah,
Speaker 1: the housing market right now is going to be a
Speaker 1: conundrum for anyone and for anyone to guess office is
Speaker 1: all going to play out. You know, you really do
Speaker 1: need a crystal ball. Um what what what? What's happening
Speaker 1: right now is you're seeing some of the lowest inventory
Speaker 1: in the last forty years in housing. Um, you're seeing
Speaker 1: rates still historically at all time lows. I mean, people
Speaker 1: are talking about rates going up, but my mom bought
Speaker 1: a more had a house in her rate was nine
Speaker 1: and a half. So when you're you're talking about right now,
Speaker 1: if you've got an the asset to the bank, you're
Speaker 1: looking at still right now four percent rates still not
Speaker 1: horrible complaints and historical averages. And so you've got a
Speaker 1: lot of demanders, more cash in Americans pockets than ever
Speaker 1: in American history. Ever, that's an underlying that's not a
Speaker 1: ten year, twenty years than ever, and that's because a
Speaker 1: lot of people were locked down for two years, stays
Speaker 1: up a ton of money, UM, didn't lose their jobs,
Speaker 1: stayed at home. You know, watch Netflix, And now they're
Speaker 1: coming out and they're saying, Okay, we want to buy
Speaker 1: a home because we were a flush. And so that
Speaker 1: is the environment. You're seeing low inventory, folks that have
Speaker 1: a ton of cash and so right now, that's keeping
Speaker 1: the markets up. But I do think that if rates
Speaker 1: start to be effected and you're seeing a race right
Speaker 1: now five plus on a thirty year fixed mortgage, Okay,
Speaker 1: if that continues to go up into the sixes and sevens,
Speaker 1: you've got a completely different UH consumer was going out
Speaker 1: there and saying, wait, maybe I can't afford is three
Speaker 1: million dollar home UM when rates are double what they
Speaker 1: were a year ago. Good stuff, Hey, Mark, thanks so
Speaker 1: much for joining us. Always appreciate getting your perspective. Mark Smith,
Speaker 1: he's a seen your vice president for investments at Wells
Speaker 1: Fargo Advisers. Before that, he spent fourteen years at UBS
Speaker 1: UH in a similar role, so lots of experience. They're
Speaker 1: giving us his thoughts on UH investments and financial markets. Right.
Speaker 1: Matt Miller and I are in the office every day
Speaker 1: because that's how it works in radio and TV here
Speaker 1: at Bloomberg. But we are certainly the exception here and
Speaker 1: I think companies across the border globally are thinking about
Speaker 1: what the new work environment means. Are we coming back
Speaker 1: five days a week? Mark Dixon, founder and CEO of
Speaker 1: i w G formerly Regius. So those are the folks
Speaker 1: that rent out office space. Presumably these guys are great
Speaker 1: position to kind of meet the changing needs of business. Mark,
Speaker 1: thanks so much for joining us here. Um, give us
Speaker 1: a sense of what you're hearing from your clients, your
Speaker 1: customers about the new work environment. Yeah, we'll look. Essentially,
Speaker 1: we are the market leader globally and providing for this
Speaker 1: new way of companies working, which is not much less
Speaker 1: space on a fixed basis I long term leases and
Speaker 1: companies that want to use space in a much more
Speaker 1: fluid way. They want to take it when they need
Speaker 1: it and take it more importantly where they need it.
Speaker 1: So we're seeing a lot of companies changing. We're seeing
Speaker 1: a huge uptick in in particularly larger corporations that are
Speaker 1: moving to hybrid work and becoming our customers and using
Speaker 1: space across the country rather than having space sort of
Speaker 1: concentrated in individual cities. So I mean, as more people
Speaker 1: work from home, I would expect companies to need less space.
Speaker 1: On the other hand, just anecdotally when we talked to managers,
Speaker 1: it seems like for some reason they're getting there, They're
Speaker 1: they're leasing more space. Why is it? What's what's a
Speaker 1: hybrid workspace look like? Well, a hybrid workspaces then we
Speaker 1: answer that question personally, I come to the sort of
Speaker 1: misinformation that's out there in a in a in a second,
Speaker 1: but hyprid workspaces space that's already set up, ready to work.
Speaker 1: It's officers that all built, all the services are there.
Speaker 1: They're already staffed with support staff. You can use them
Speaker 1: for an hour a day, a month, a week. And
Speaker 1: they're all over the country. We're in in the United States,
Speaker 1: were in about eleven hundred over eleven hundred locations throughout
Speaker 1: the country. UM, and we're opening lots more because this
Speaker 1: huge demand for this work locally. Mantra. It's not necessarily
Speaker 1: people working from home. It's people that don't want to
Speaker 1: waste an hour two hours a day commuting. They want
Speaker 1: to work down the road. Some of them work from home.
Speaker 1: A lot of them will want to work locally. So
Speaker 1: UM when you know there's a lot of common commentators
Speaker 1: talking about, yes, there's a lot of space being leased up,
Speaker 1: that's not true. UM research out by Jones Lane this
Speaker 1: week that talked about the Great Leak lease resignation, where
Speaker 1: you've got people giving up leases on an unprecedented basis
Speaker 1: and and this is long term leases they're giving up
Speaker 1: in order to either have people work from home or
Speaker 1: have people work locally. They are finding it difficult to
Speaker 1: persuade people to spend time and money commuting when it's
Speaker 1: unnecessary in a digital world. But it could be homework,
Speaker 1: but for most it is local work that is what
Speaker 1: they're looking for. Mark, are you sensing UM regional differences
Speaker 1: for examples? Is the United States more of a hybrid
Speaker 1: model than say Europe or the UK? Well, i'd the
Speaker 1: US is much more. It's much more of a higher
Speaker 1: adoption model. And what we know, we've been in business
Speaker 1: in those states for thirty years. The US is really
Speaker 1: at the forefront of adopting new practices. If something works,
Speaker 1: US companies adopt it, and this one is one that works.
Speaker 1: It saves companies money, it's what their workers want, and
Speaker 1: it's good for the environment. It takes those three boxes
Speaker 1: um and and and therefore companies are adopting it on
Speaker 1: mass um. In the United States, they're much quicker to move.
Speaker 1: In Europe you get more traditional. Some countries that are
Speaker 1: much more traditional much less likely to move. And clearly
Speaker 1: countries like the UK you mentioned, leases are much longer
Speaker 1: in the UK. Therefore, companies, you know, in order to
Speaker 1: move to hybrid, they've got to be able to give
Speaker 1: up the space they already have. They need a lease
Speaker 1: end at least termination that they can do. Um and
Speaker 1: So the movie is slower in the UK, faster in Europe,
Speaker 1: very fast in the US. What about mark the technology.
Speaker 1: I've noticed that since we started this whole journey about
Speaker 1: two and a half years ago, we have used very
Speaker 1: different technology or there's been at least one big change
Speaker 1: in terms of our providers at this company. Are are
Speaker 1: you do you see technology is changing rapidly? Do companies
Speaker 1: need to quickly adapt to keep up and spend to
Speaker 1: keep up with new technologies? The answer to that is
Speaker 1: absolutely they do and they are. I mean, this is
Speaker 1: relatively cheap technology. It's mostly streaming technology. So look, you
Speaker 1: just look at the two most commonly used platforms Microsoft
Speaker 1: Teams and Zoom. They have hugely improved. They're offer the
Speaker 1: quality of service that's available today and the functionality available
Speaker 1: today is nothing like you would have found even six
Speaker 1: months ago. UM and that, and there's lots of other
Speaker 1: software platforms that allow better management of people that are
Speaker 1: working in a decentralized way. So you know, your people
Speaker 1: could be all over the country, all over the world,
Speaker 1: you can manage their output's better with new technology basically
Speaker 1: new software. All of that's coming together to make this
Speaker 1: hybrid way of working something that's absolutely mainstream and prime
Speaker 1: for adoption. Yep, but it certainly appears to be the
Speaker 1: new trend here. Mark Dixon, founder and CEO of i
Speaker 1: W GPSC that's formerly Regius. You'll see those Regious offices
Speaker 1: all over the US and the world. Travel stories that
Speaker 1: perfect Seguius Tunking would say into our next guest, Alicia Kapor,
Speaker 1: Senior industry manager for Similar Web, Alicia, we just heard
Speaker 1: from a report about business travel still not back. So
Speaker 1: I guess my understanding of the global travel business right
Speaker 1: now is that leisure travel is close to being back
Speaker 1: to pre pandemic levels. Maybe we'll get there this summer,
Speaker 1: but business is not. What's your takeaway, how do you
Speaker 1: think this is going to develop? Yes, the great analysis,
Speaker 1: major travel is definitely picked up, and consumer demand is
Speaker 1: very very high, especially given that we have so much
Speaker 1: tense of demand. So many restrictions are lifting across the
Speaker 1: board UM just recently the mass mandate being listed on
Speaker 1: planes and public transportation. UM. With business travel, I think
Speaker 1: many experts in the industry expected that there would be
Speaker 1: a slower rebound, so the numbers that were mentioned earlier
Speaker 1: don't surprise me. That being said, when you look at
Speaker 1: traffic to the top business travel sites, so ex some
Speaker 1: sites like concur and then just actual sites to facilitate
Speaker 1: bookings for corporations, we're seeing a steady increase, especially over
Speaker 1: the past few months. We're seeing that businesses are dipping
Speaker 1: their toes back in UM. Anecdotally, I've been to a
Speaker 1: few conferences. I know a bunch of my colleagues are
Speaker 1: preparing to go to conferences both within the US and
Speaker 1: outside as well. So I think that there is a
Speaker 1: positive trajectory and when we get into three I do
Speaker 1: expect to see recovery UM, hopefully full fred pledged recovery
Speaker 1: for corporate travel, But at this point, I think we
Speaker 1: just still need a little bit of time, especially with
Speaker 1: the return to office. I think as that process comes
Speaker 1: into play, and as most businesses bring people back to offices,
Speaker 1: will see the return of corporate travel will probably seamlessly
Speaker 1: follow that. But so you expect us to get back
Speaker 1: to pre pandemic levels because my understanding was, you know,
Speaker 1: a lot of business practices have changed for good. You
Speaker 1: don't really need to travel as much as we had
Speaker 1: been in the past. Yeah. I think that's been the
Speaker 1: huge debate across the industry. I do expect us to
Speaker 1: get back to pre pandemic levels. That being said, I
Speaker 1: don't expect the nature of business travel to be the
Speaker 1: same right the pre pandemic. For example, I was traveling
Speaker 1: for almost every client meeting I had, right, I'd go
Speaker 1: to Data Florida, Data Vegas, etcetera, etcetera. Now Zoom has
Speaker 1: made that so much easier that in exchange, I think
Speaker 1: what we're seeing is that corporations are putting a lot
Speaker 1: more money into conferences, um to bringing maybe remote employees
Speaker 1: to the office for a week span or a month span. Uh,
Speaker 1: team retreats are going to be huge, So I think
Speaker 1: that corporate travel itself will recover, but the nature of
Speaker 1: corporate travel will be very different post pandemic than it
Speaker 1: was pre pandemic. You know, at Licia, when we talked
Speaker 1: to the you know, big hotel operators, maybe even the
Speaker 1: hotel casino operators in Las Vegas, for example, one of
Speaker 1: the areas that is key for their corporate business is
Speaker 1: the conference business. I mean, you think about some big
Speaker 1: hotel cousinos in Vegas. They have such huge conference space
Speaker 1: out there, and I guess the question is, will that
Speaker 1: conference business continue to be a driver for some of
Speaker 1: these big destination markets. Yeah, I believe it will. I
Speaker 1: think that conferences are going to be to have a
Speaker 1: huge resurgence this year into next year. I mean we're
Speaker 1: already seeing it across many different industries. I think people
Speaker 1: are really dying for that in person um kind of networking, right.
Speaker 1: So I think the more that we're able to convinced
Speaker 1: consumers or convinced corporations that that is the safe bet
Speaker 1: and that they can kind of send their employees to
Speaker 1: a conference without worrying about other risks um, the better
Speaker 1: off the industry will be. And I do believe that
Speaker 1: a lot of those large conferences or large scale conferences
Speaker 1: that we saw pre pandemic will return, UM, but that
Speaker 1: timeline is just a little bit more uncertain with some
Speaker 1: of the headwinds facing the industry. I'm excited for flying
Speaker 1: to get more enjoyable. It's I mean, it's never been
Speaker 1: an incredibly fantastic experience, certainly not if you're flying you know,
Speaker 1: economy class. But recently I feel like, uh, it's it
Speaker 1: seems like a lot of the airline personnel UM are
Speaker 1: in a police role, right, always reminding you to put
Speaker 1: your mask back on between SIPs and um, you know,
Speaker 1: getting very defensive about any kind of criticism like anger management.
Speaker 1: But in real life, is that going to change? You think?
Speaker 1: Is our airline is gonna have to make flying an
Speaker 1: enjoyable experience for us again. You know, that's a good question.
Speaker 1: I think there's opinions on either side of the aisle
Speaker 1: with regards to this topic as well. UM. I think
Speaker 1: on one hand, especially as mass mandates are being listed,
Speaker 1: as consumers are flying again, UM, and as airlines are
Speaker 1: really kind of pushing for that business from the leisure sector, UM,
Speaker 1: there will be considerations that certain airlines will most definitely
Speaker 1: take to make sure that their consumers are happy. On
Speaker 1: the flip side, I think that some airlines have kind
Speaker 1: of used this time to maybe condense their operations. UM.
Speaker 1: We are seeing some mergers across the industry, and I
Speaker 1: think that at the end of the day, UM, I
Speaker 1: don't necessarily know if I have that crystal ball that
Speaker 1: can tell you what flying will look like in the
Speaker 1: next five to ten years. I think that flying will
Speaker 1: be a lot more sustainable. You we've already seen a
Speaker 1: lot of efforts from major airlines to really put a
Speaker 1: lot of kind of thought and work into their sustainability pages. UM.
Speaker 1: And then we're seeing, for example, on Google Flights there's
Speaker 1: the carbon emissions feature which shows you, Okay, this Ryanair
Speaker 1: flight for example, might have less or more carbon emissions,
Speaker 1: and this easy Jet flight UM if you're in Europe.
Speaker 1: But at the end of the day, I think the
Speaker 1: the industry itself UM is really just focused on recovery
Speaker 1: at the moment, and some of those some of those
Speaker 1: perks that may come from for consumers UM or that
Speaker 1: may have happened during the pandemic may not be as
Speaker 1: common UM as we go forward. All right, Alicia, thank
Speaker 1: you so much. For sharing your thoughts. Alicia Kapoor, Senior
Speaker 1: industry manager for Similar Web joining us. Thanks for listening
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller three.
Speaker 1: Put on false Sweeney I'm on Twitter at pt Sweeney
Speaker 1: before the podcast. You can always catch us worldwide at
Speaker 1: Bloomberg Radio