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Speaker 2: Malex you alongside Paulsweenian. Finally back John Tucker. This is
Speaker 2: Bloomberg Intelligence Radio. We're broadcasting to live from the Interactive
Speaker 2: Brooker Studio right here in midtown Manhattan. But maybe one
Speaker 2: day we should actually broadcast from Industry City in Brooklyn.
Speaker 3: Paul's never been there.
Speaker 4: I don't do Brooklyn.
Speaker 2: He doesn't do He's going to do Brooklyn. So I
Speaker 2: live in Park Slow. Industry City is a go to place.
Speaker 2: It's good for adults, it's good for kids. They have games,
Speaker 2: they have free things on the weekends. They got salsa classes,
Speaker 2: they got concerts, they have ice skating in the winter.
Speaker 2: They have a lot of stuff. It is a very
Speaker 2: popular place to go when you have kids. Joining us
Speaker 2: now is Jim Simosa. He's managing director of Industry City
Speaker 2: and he joined us there right now. Hey, Jim, are
Speaker 2: you are you surprised? It just how successful industry city
Speaker 2: has become.
Speaker 5: I'm not surprised.
Speaker 6: I think that, you know, we have a lot of
Speaker 6: history doing adaptive reuse projects like this, like Insery City,
Speaker 6: like Chelsea Market, which at one time, just like this project,
Speaker 6: was you know a number of older buildings that were
Speaker 6: past their prime. But people really like classic old buildings
Speaker 6: that you take and redevelop into offices and retail and
Speaker 6: things that are fun. So we've seen this before, and
Speaker 6: we've done it other locations. So look, I'm surprised we
Speaker 6: took on something as large if you really want to know,
Speaker 6: that's six million square feet. But we've been able to
Speaker 6: do it so as far. But from a success standpoint,
Speaker 6: I'm not surprised.
Speaker 4: Jim talked to us about how you're thinking about real estate,
Speaker 4: mixed use, real estate, office, real state in the context
Speaker 4: of what appears to be a post pandemic, you know,
Speaker 4: different way people work and live and go to the
Speaker 4: office and all that kind of stuff.
Speaker 6: Sure, you know we've been doing We've been at this
Speaker 6: since doing exactly what we do, which is adaptive reuse
Speaker 6: and activation and fun place, you know, creating a fun
Speaker 6: place to work.
Speaker 5: For a long time, we didn't know a pandemic was coming.
Speaker 6: It just so happens that it came and what we
Speaker 6: do was more attractive to people. So what we do
Speaker 6: here is create a place that people like to come
Speaker 6: and work. And so we've actually been at eighty percent
Speaker 6: of the employees that work I see have been back
Speaker 6: in the office regularly for several years now, and so
Speaker 6: you know, that's kind of what we do is create
Speaker 6: fun places to work that are not commodity real estate.
Speaker 6: I worked and by the way, I worked in many
Speaker 6: classes steal office buildings in my career, and these are
Speaker 6: just more fun places to work.
Speaker 5: And people like coming to work and when they come
Speaker 5: to places like this.
Speaker 3: So how do you keep how do you know when
Speaker 3: a project's going to work?
Speaker 2: Right? Like you mentioned Chelsea Market and then Entry City, Like,
Speaker 2: what's the secret, Sauce.
Speaker 5: I will tell you the secret, Sauce is.
Speaker 6: So what you first do is you start with the
Speaker 6: ground floor and the place making. And for us, when
Speaker 6: you do something like this, when you have a project,
Speaker 6: you need retail, you need food and beverage, you need shopping,
Speaker 6: you need things like that. But how do you do
Speaker 6: that without any foot traffic? Nobody wants to come and
Speaker 6: do retail with you when you do that. So what
Speaker 6: we did at Chelsea Market and the same thing here
Speaker 6: is we went to wholesalers and commissaries and bakeries and
Speaker 6: things like that, people that really were interested in the
Speaker 6: production space more than retail.
Speaker 5: But they had to retail with us.
Speaker 6: That was part of the deal, you know, and we
Speaker 6: gave them a favorable rate in the beginning to do that.
Speaker 6: But they needed ground floor space. They needed space that
Speaker 6: had plenty of loading. Getting priced out of New York
Speaker 6: City was something that they didn't want. They wanted to
Speaker 6: be near their customers. So we would go to those
Speaker 6: and you go back to Chelsea Market. Lobster Place was
Speaker 6: a classic example wholesale fish a seafood place for us.
Speaker 6: It was other bakeries such as Colson's and Lilac Chocolates
Speaker 6: and things like that, companies that really were interested in
Speaker 6: production space, but we wanted them to do retail.
Speaker 5: So that way there are two businesses.
Speaker 6: You don't have to worry about the foot traffic in
Speaker 6: the beginning while you're getting this going. But you're starting,
Speaker 6: what you do is you start to get retail and
Speaker 6: amenity type tenants on the ground floor and placemaking, and
Speaker 6: that's how you start to lease the upper floors. Once
Speaker 6: you start to do that, then you have tenants in
Speaker 6: the building that are just happy to be right next
Speaker 6: door to those retailers, and then the retail takes off.
Speaker 6: And if you're to answer your specific question, how.
Speaker 1: Do you know?
Speaker 7: You know when those folks who, by the way, didn't
Speaker 7: really want to do retail with you in the beginning
Speaker 7: because you didn't have foot traffic. You know, when those
Speaker 7: folks come to you and say, can you do more
Speaker 7: marketing for me? And can you get me more foot traffic?
Speaker 6: This is fantastic because they're doing you know, retail margins
Speaker 6: instead of wholesale margins in their space.
Speaker 5: As soon as that happens, that's when you know you
Speaker 5: got something.
Speaker 4: So, Jim, how about on the on like the corporate
Speaker 4: tenant side, what type of companies want to be in
Speaker 4: a space like yours?
Speaker 6: So we tend to have more creative type companies, lots
Speaker 6: of designers, architects, marketing firms, things like that. You know
Speaker 6: that that's kind of very consistent with the Brooklyn market.
Speaker 5: And Paul, we're going to have to get you out here.
Speaker 6: So I grew up By the way, I grew up
Speaker 6: in Manhattan and I now live in Brooklyn, and if
Speaker 6: you told me back when I was in high school,
Speaker 6: I'd be.
Speaker 3: Living you see me.
Speaker 5: Okay, okay, But so anyway, but we have a lot
Speaker 5: of that.
Speaker 6: We are starting to see some more traditional type of
Speaker 6: companies like finance firms and law firms and things like that,
Speaker 6: which we we we did not see in the beginning,
Speaker 6: but we have a lot of that. We have a
Speaker 6: lot of industrial. We're six million square feet first of all,
Speaker 6: so that's a lot of space to fill up with,
Speaker 6: you know, with just one or two types of industries.
Speaker 6: So we have a lot of distribution and warehouse still.
Speaker 6: But but our office itself focuses more on creative companies.
Speaker 6: And then we have people like the Brooklyn Nets, you know,
Speaker 6: so the Brooklyn Nets there headquarters and players, players, player personnel,
Speaker 6: and back office are all here. So it's really it's
Speaker 6: a much wider range of types of companies than you
Speaker 6: would normally see in a project, partially because we are
Speaker 6: sick million square feet and sixteen buildings, so we have
Speaker 6: the ability to do things differently building by building that
Speaker 6: you may not be able to do if you were
Speaker 6: one or two buildings.
Speaker 2: Okay, so what are you going to do next? Like
Speaker 2: what's on the gym's list of.
Speaker 3: Things to do?
Speaker 6: We are looking at a lot more retail. We One
Speaker 6: of the things that we've been very successful with is
Speaker 6: our home furnishings. So we've got ABC Carpet and Design
Speaker 6: within reach and restoration hardware and places like that, and
Speaker 6: we have city foundry or antiquelace, so we've we've really
Speaker 6: done very in West Elm, we've done very well. And
Speaker 6: Cohler see I keep I keep I'm going to keep
Speaker 6: remembering as we keep going along. But we've done very
Speaker 6: well with the home furnishings and and home goods sector.
Speaker 6: So we've become known as the place where if you
Speaker 6: want to come and shop for furniture and things like
Speaker 6: that in Brooklyn, this is where you come because you
Speaker 6: can you can go to six different places. So we
Speaker 6: are continuing with that. That's very interesting to us. We
Speaker 6: are are very design centric type of property. If you
Speaker 6: walk around, you'll notice that we do specific design elements
Speaker 6: that you may not see elsewhere. So that's kind of
Speaker 6: who we are and it kind of makes us happy
Speaker 6: and we enjoy doing that. That's what gets us, you know,
Speaker 6: sort of out of the bed in the morning, So
Speaker 6: we're going to continue to do that. We're going to
Speaker 6: continue to do more retail food and beverage. We are
Speaker 6: continuing to grow japan Village, which everybody which is one
Speaker 6: of the things that we are known for, which is
Speaker 6: a large Japanese eating, drinking, but now hard goods and
Speaker 6: cultural center. We started with them at twenty thousand square feet.
Speaker 6: We've now gone to sixty thousand square feet. We've got
Speaker 6: karaoke and Japanese barbecue and Japanese cooking school, Japanese bakery coming,
Speaker 6: so we're.
Speaker 5: Going to continue to do that. We continue to.
Speaker 6: Use our courtyards, which is one of our best assets,
Speaker 6: and that is just large outdoor space to kind of
Speaker 6: function like city parks, but they are not city parks.
Speaker 5: We own and operate them, so we do a lot
Speaker 5: of concerts and things like that. So I think that.
Speaker 6: Nothing really that different than what we've been doing from
Speaker 6: an activation standpoint. We are also very much getting into
Speaker 6: renewable energy. We have Equinor as a major tenant and
Speaker 6: a large piece of property just adjacent to us, which
Speaker 6: is the staging area for a large wind farm. That's
Speaker 6: going on in the south coast of Long Island. So
Speaker 6: that is really sort of charged us up and made
Speaker 6: us attractive to other renewable energy companies and industries, and
Speaker 6: we're very interested in doing that as.
Speaker 5: Well as biotech.
Speaker 6: You know, biotech is something that we are very interested in,
Speaker 6: you know, I think, and we're hearing this from a
Speaker 6: lot of people. You know, some folks that when they
Speaker 6: get out of school, they're not that interested in working
Speaker 6: in an office park the middle of New Jersey.
Speaker 5: Nothing wrong with New Jersey. I go there a lot.
Speaker 3: But disclaimer, Jim, we appreciate.
Speaker 5: The disclaimer, right.
Speaker 6: I actually have a house there on the Jersey Shore,
Speaker 6: just to be clear. So, but but you know what
Speaker 6: we're hearing a lot of and we we knew this.
Speaker 6: This is how we started doing this years even before
Speaker 6: the pandemic. Is people want to work in places where
Speaker 6: they enjoy and they have fun and they meet people
Speaker 6: and there's a social life to it as well. And
Speaker 6: it turns out people, highly educated people coming out of
Speaker 6: school that are going into biotech want the same thing.
Speaker 6: And so we are looking into a lot of industries
Speaker 6: like that, which frankly was not originally something that we
Speaker 6: really thought about that much when we first started it.
Speaker 5: But that's how projects like this evolve.
Speaker 4: All right, Jim, great stuff really interesting. You have to
Speaker 4: head over.
Speaker 3: There, so you're never going to come.
Speaker 4: My daughter lives in Brooklyn, so I've been.
Speaker 3: There, but just begrudgingly coming out.
Speaker 5: In the eighties.
Speaker 3: Well, nobody very different stories. But the best part for
Speaker 3: those of you who like.
Speaker 2: To things in the design within reach the super expensive
Speaker 2: mid century Modern furniture as an outlet store there, and
Speaker 2: if you go on Friday Saturday, there's like an extra
Speaker 2: twenty percent discount.
Speaker 3: Like you can get an Eames chair for like six
Speaker 3: gram five grams for a chair, a cheer Eames chair,
Speaker 3: EMS chair? What's an EMS chair?
Speaker 5: Yeah?
Speaker 8: What?
Speaker 3: Look what I'm dealing with you guys?
Speaker 2: Eight twelve thousand dollars. Like they're right, they're really really comfortable. Anyway,
Speaker 2: it's super fun.
Speaker 3: You get to go.
Speaker 2: It's like a scavenger hunt, ABC car Fish. I'm like
Speaker 2: basically shilling for industry City Emes E A M.
Speaker 3: E S chair c h A.
Speaker 5: I R got it.
Speaker 3: Those chairs. Don't know what Eames chair is? Is this
Speaker 3: a Jersey thing? I don't understand?
Speaker 2: Okay, anyway, you're listening to the Bloomberg Intelligence podcast.
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Speaker 4: All right, I've got interest rates coming down. I don't
Speaker 4: know if it's twenty five or fifty basis points this week,
Speaker 4: but I know they're going down. I got an earnings
Speaker 4: backed up. That seems pretty good to me. We had
Speaker 4: a good quarterly earnings. Geena Martin Adams from Bloomberg Intelligence
Speaker 4: tells me that, So isn't that constructive for stocks? Brian
Speaker 4: Levit joins is here. He's a professional. He does this
Speaker 4: stuff for a living, global market strategist for Investco. Dudes
Speaker 4: on the road all the time. We got him in
Speaker 4: our studio here today, so that's a good thing. Brian,
Speaker 4: What are you telling your clients these days about kind
Speaker 4: of where to be in this market?
Speaker 8: It's interesting because the leading indicators of the economy are
Speaker 8: pointing lower, so they're pointing towards below trend weaker growth,
Speaker 8: which is when, of course, you then need to follow
Speaker 8: through on the policy side. So in the short term,
Speaker 8: you're getting more of a signal to be a little
Speaker 8: bit more defensive, a little bit more higher quality in
Speaker 8: your investments. And you've seen that in government bonds, not
Speaker 8: necessarily as much in stocks, given how overvalued some of
Speaker 8: the biggest high quality names were. But we are getting
Speaker 8: more of a defensive signal in here. What you hope
Speaker 8: for and what you're alluding to is as the FED
Speaker 8: starts to normalize rates, do you get the proverbial soft
Speaker 8: landing and markets doing well over the next couple of years.
Speaker 8: And I'm in that camp. I think the markets will
Speaker 8: do well over the next year's intermediate term, given that
Speaker 8: we're past peak inflation and peak tightening.
Speaker 2: So there's a great chart on Bloomberg that showed if
Speaker 2: you go back to the top that we saw I
Speaker 2: think in June, what's led since then has been anything
Speaker 2: but tech. Yeah, and which is quite interesting, And I'm
Speaker 2: just wondering which area of anything but tech can continue
Speaker 2: to lead.
Speaker 8: Yeah, it's nice to see the equo weight. It's nice
Speaker 8: to see some broadening out in these markets. Look, if
Speaker 8: you're defensive in the short term like we are, than
Speaker 8: the type of sectors that tend to do well, or
Speaker 8: things that are a bit more rate sensitive, like real estate,
Speaker 8: healthcare has done well, staples when you start to think
Speaker 8: about the recovery. So I want to be clear here,
Speaker 8: our tactical indicator says more defensive. We would expect as
Speaker 8: you move into twenty twenty five to see more of
Speaker 8: a recovery feel, meaning that growth is below trend but
Speaker 8: starting to pick up on the back of easing. That's
Speaker 8: when you want to be more exposed to cyclical sectors.
Speaker 8: That's when you want to be more exposed to you know,
Speaker 8: international markets, full risk on in the portfolios. I think
Speaker 8: we're going to get there right now. Though again our
Speaker 8: tactical indicators suggesting to be a little bit cautious here.
Speaker 2: Well, when you take cautious, how then do you manage that,
Speaker 2: Like what's the best kind of allocation?
Speaker 8: Well, we would we would increase duration in the portfolio,
Speaker 8: which has certainly worked. Right, So we've seen rates come
Speaker 8: down pretty significantly higher quality bonds and within equities. Not
Speaker 8: that we're saying you need to eliminate your equity exposure,
Speaker 8: not at all. It's just where inequities do you position
Speaker 8: and typically in a growth slowdown, you will see more
Speaker 8: defense sectors outperform. You'll see higher quality, low volatility tends
Speaker 8: to win. It's more recovery phase again, as we either
Speaker 8: get this soft landing or come out of an economic downturn,
Speaker 8: where you tend to see more cyclical parts of the
Speaker 8: market outperform.
Speaker 4: How do you feel about valuation broadly defined here, Doo,
Speaker 4: I have to pull out those MAC seven and then
Speaker 4: just the market for valuation. How do you think about it?
Speaker 8: The first thing I always say about valuations is they're
Speaker 8: not timing tools, and I think too many people get
Speaker 8: caught up thinking that markets can't do well because stocks
Speaker 8: are trading above average. So that would be point one.
Speaker 8: I don't view it as a timing tool. Point two.
Speaker 8: You're right the S and P five hundred and aggregate
Speaker 8: is trading above valuations, but the average stock is not
Speaker 8: all that excessive, and the valuations on the equal way
Speaker 8: compared to its average is about fair. So I wouldn't
Speaker 8: view this as an environment where stocks are particularly expensive.
Speaker 8: And I'm also looking at it from an environment where
Speaker 8: rates are going to come down, and as rates come
Speaker 8: down down, that should be supportive evaluations.
Speaker 3: What do you do with, Well.
Speaker 2: What do you think will be done with all the
Speaker 2: money and money market funds? As in like first cut, zoom,
Speaker 2: they come out and go to other things. Or is
Speaker 2: it like once we get the cycle going, is there
Speaker 2: a threshold rate where that money finally starts to move.
Speaker 8: Some of that money came out of bank deposits, so
Speaker 8: it was money down no one of them, right, yeah,
Speaker 8: So if you're getting zero in the big money center banks,
Speaker 8: going to money markets at you know, five and a
Speaker 8: quarter makes sense even at three, even at three, right,
Speaker 8: So does all of that find its way into the
Speaker 8: equity market or the high yeald bomb market? Probably not.
Speaker 8: Some of that is still going to be considered a
Speaker 8: cash like instrument. But I would advise investors to think
Speaker 8: about quickly, and we've been saying it for a while,
Speaker 8: how you're going to take advantage of the yields that
Speaker 8: presented themselves, you know as well as I knew as
Speaker 8: I do. In twenty nineteen, people were begging for four percent.
Speaker 8: They used to ask me, how do I get four percent?
Speaker 8: I would say, you either have to put it all
Speaker 8: in high yield or you have to lend money to
Speaker 8: the Russian government. So that was a difficult conversation. Today
Speaker 8: you could get close to four percent in or you
Speaker 8: can get four percent municipal bonds in high quality corporate bonds.
Speaker 8: So I would advise investors to take advantage of it. Unfortunately,
Speaker 8: I think a lot of that money still sitting there
Speaker 8: with the reinvestment risk that it's had for a while.
Speaker 4: Small and mid cap, what do you think about looking
Speaker 4: there for value?
Speaker 8: It's interesting, so I mean small So small cap has
Speaker 8: become four percent of total market cap. I think it
Speaker 8: used to be ten. So over the next number of years,
Speaker 8: small cap should see performance, should see good performance as
Speaker 8: that reverts to some type of mean. What's interesting is
Speaker 8: in a growth slowdown, which we're forecasting, small cap tends
Speaker 8: to not do well. Small cap has performed well on
Speaker 8: the expectation of lower rates, and you know, lower rates
Speaker 8: across the yeal curve. So I'd be a little bit
Speaker 8: cautious on small cap while we're maintaining a defe posture.
Speaker 8: But again, the recovery phase of this, the recovery phase
Speaker 8: of this should benefit small and I would think over
Speaker 8: the next few years benefits small again just because of
Speaker 8: how undervalued it is to the to the megacap names.
Speaker 4: This Saturday, USC comes into the Big House. How you're
Speaker 4: feeling about you Wolverines this year?
Speaker 8: Well, it's a little bit mixed. I think we're playing
Speaker 8: a little bit with house money. After winning a national
Speaker 8: championship last year, new coach, new quarterback, a nice win
Speaker 8: against Arkansas, but the Texas overhang is still there, so
Speaker 8: we'll see. I don't know if if my confidence is
Speaker 8: anywhere near what it was in the twenty twenty three seasons.
Speaker 4: USC. Are they in Big ten?
Speaker 8: Now they are in the Big ten.
Speaker 5: This is ridiculous.
Speaker 1: It's hard to follow it.
Speaker 5: It's silly. Okay, all right?
Speaker 4: Well I got Stanford coming in to play my dookies
Speaker 4: at some point this year, so we'll see how that goes.
Speaker 4: You're going to send you the field hockey team from Piscatowy,
Speaker 4: New Jersey, Rutgers all the way to like Los Angeles
Speaker 4: to play field hockey.
Speaker 3: It feels out long?
Speaker 4: Is that what we're doing? Brian had Brian Leviy, global
Speaker 4: market strategist for Invesco, joining us here in our studio today,
Speaker 4: given us his thoughts.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: All right within the markets, there was some really interesting
Speaker 2: commodity positioning. And I don't just say that because I'm
Speaker 2: a commodity's nerd, but oil has seen such a strong rerating,
Speaker 2: and it's so interesting because hedge funds are net short
Speaker 2: on oil for the first time since the data started
Speaker 2: being collected back in twenty eleven. Oils up by about
Speaker 2: two to three percent today. Joining us now is Mike mcgloon.
Speaker 2: He is Bloomberg Intelligence senior commodity strategist from London.
Speaker 3: This is a new background.
Speaker 4: I can't believe they took us passport. He got into
Speaker 4: London amazing after all the last they put him on
Speaker 4: where we're doing good.
Speaker 3: Well, good to see you.
Speaker 2: Let's just start with oil for a second. I mean,
Speaker 2: at this point, are we so short sort of the
Speaker 2: market that there's no way we're not going to get
Speaker 2: some kind of snapback.
Speaker 9: I think that's a good response. The first way you
Speaker 9: look at it as a commodity trader, yes, it's mostly
Speaker 9: it's really prent that's short, twelve thousand contracts. It's never
Speaker 9: been short, and that's most ever, as you mentioned, since
Speaker 9: twenty eleven. Like WG, I still somewhat long, but I
Speaker 9: think Brent's more reflective. But everybody sees what's going on
Speaker 9: with China excess supply and the fact that you need
Speaker 9: Opec to stay to keep oil off the market, or
Speaker 9: market's going to do what it usually does and get cheap.
Speaker 9: And it just kind of hit tilting the words there.
Speaker 9: But to me this is indicative overall commodity is a
Speaker 9: bearer sentiment, and I think it has good reason. Just
Speaker 9: look at that ten note yield in China two point
Speaker 9: zero seven percent. It's the lowest ever. I mean, compare
Speaker 9: that to US at three sixty six. At the moment.
Speaker 9: To me, it's just yeah, you said, I have a
Speaker 9: bounce from here. But I think the responsive traders are
Speaker 9: going to be looking for rallies to sell, which I
Speaker 9: put for good resistance WTA around seventy five, and I'm
Speaker 9: still expecting to do what it has been since two
Speaker 9: thousand and eight, get really cheap, which Rowbury means around
Speaker 9: forty dollars a arrow.
Speaker 4: My favorite indexes is BCom are you guys celebrating a
Speaker 4: BCom kind of anniversary or something coming up?
Speaker 9: Exactly what. I'm glad you mentioned. That's why I'm in London.
Speaker 9: We having the becom indict Advisory Committee. I think I've
Speaker 9: been going to these for about twenty years, particularly when
Speaker 9: the Become was at F and P and I managed
Speaker 9: it there. But now it's a get a better place
Speaker 9: at Bloomberg. But it's a bit of an anniversary. It's
Speaker 9: also where everbody gets together and we talk about how
Speaker 9: the properly managed and boundary bouncy index.
Speaker 3: So how do you do that?
Speaker 9: Yeah, well it's off of the methodology, but you have
Speaker 9: to take advice and council from the people who are
Speaker 9: involved in actually tracking it. I used to actually do
Speaker 9: that math, but it's very systematic. It's mostly based on
Speaker 9: the becomes, based on total volume, and it's broken up
Speaker 9: between the three sectors energy, metals and agriculture, keeps them
Speaker 9: somewhat equal rather than having too much of a weight
Speaker 9: and energy.
Speaker 4: All right, I want to go right to one of
Speaker 4: my favorite commodities. Corn. It's thirteen today, people.
Speaker 3: I love.
Speaker 5: You don't need corn?
Speaker 1: I love.
Speaker 3: I can see that and like, so it can be
Speaker 3: hard to digest like some of those guys. Okay, I
Speaker 3: will go into detail.
Speaker 4: All right, give us a smart call on corn here.
Speaker 9: Mike, you do, but you don't know it. Corn is
Speaker 9: the most significant global agricultural commodity in terms of dollar
Speaker 9: value metric production. That's part of the methodology we'll be
Speaker 9: talking about on Wednesday. But it's in everything, and actually
Speaker 9: it's animal feed, corn syrup and everything. But the key
Speaker 9: thing is corn got way too expensive in twenty and
Speaker 9: twenty two. Now it's getting towards really cheap. It got
Speaker 9: down below four The last two contracts closed around three
Speaker 9: eighty or so, which is right around the US cost
Speaker 9: of production. And to me, the significance of corn is
Speaker 9: that's what all commodities are doing. They have to get
Speaker 9: below that cost of production. I have to shut down
Speaker 9: those accesses supply and reinvigorate that demand. And corns is elite.
Speaker 9: It's the most elastic of the commodities because you can
Speaker 9: bring on that supply in about a year. So to me,
Speaker 9: that's part of the reason I'm still bearish Crudel. And
Speaker 9: actually one of those indicators in middle space was natural gas.
Speaker 9: Why because natural gas is a top form of fertilizer.
Speaker 3: For corny See it all comes back.
Speaker 2: What about coffee, so on the flip side, corns low
Speaker 2: of four dollars a barrel a bushel. At one point
Speaker 2: coffee is just crushing to the upside, I mean Robusta
Speaker 2: or Arabica.
Speaker 3: Talk to us about it.
Speaker 9: Yeah, we don't track it too much. I think is
Speaker 9: significance of coffee and cocoa's they're both born right around
Speaker 9: are grown sown right around the equator. And climate change,
Speaker 9: I think it's directly affecting those commodities, despite things like
Speaker 9: corn and soybeans and wheat which are more born in
Speaker 9: the northern country, potentially in Brazil and US where's the
Speaker 9: weather's still been quite productive for production.
Speaker 4: All right, let's go over to the metals here. Copper
Speaker 4: up about ten percent year to day. What's the call
Speaker 4: here on copper?
Speaker 9: I think the risk of copper goes down partly because
Speaker 9: just look at bonio, so one good way to look
Speaker 9: at copper. The price of copper on the screen right
Speaker 9: now is about four dollars and thirty cents a pound.
Speaker 9: If you overlay the pounds of copper with the percentage yield.
Speaker 9: The tenure note that's usually where they've been traded almost
Speaker 9: the last ten years. So I pointed out China's tenure
Speaker 9: notes two point zero seven percent US is three point
Speaker 9: sixty five. I think copper is just on the custom
Speaker 9: breaking lower with most other commodities. Last few weeks it's
Speaker 9: been crudel just kind of catching up to the grains.
Speaker 9: And the key thing for copper to state to stay
Speaker 9: resilient is US stock market has to stay strong. But
Speaker 9: yet we've priced in so much by the rumor into
Speaker 9: the studies. To me, the risk is sell the fact
Speaker 9: and copper to have to mention the same sentences China.
Speaker 9: China is in a pretty severe deflationary trajectory at the moment.
Speaker 2: Yeah, I have somely was reading City put out like
Speaker 2: a quarterly note on commodity outlook, and then for copper,
Speaker 2: like longer term they still see that structural shift, energy
Speaker 2: transition and all that demand. But then in the near
Speaker 2: term you just can't escape sort of the downdraft in
Speaker 2: China there and then how you kind of manage that.
Speaker 2: But there's still broad growth in like the trough maybe
Speaker 2: being like eight to nine thousand versus four to five thousand,
Speaker 2: which it might have been in different cycles.
Speaker 3: All right, what else you got? What else you're looking at?
Speaker 9: Well, the number one commodity that's going up on the planet,
Speaker 9: it was more of the store of he was gold.
Speaker 9: I got to stick with something to my space that's
Speaker 9: going up on a year today. Well, there you go.
Speaker 9: On a year today, Basis golds up about thirty four percent.
Speaker 9: To compare that to the total return of the S
Speaker 9: and P five hundred and twenty eight percent three years now,
Speaker 9: the rock is beating stocks. The risk is it continues.
Speaker 9: I think it will. And the thing is you have
Speaker 9: to just look at the macro one thing and manage
Speaker 9: money net positions. We pointed out early hedgephones are quite long,
Speaker 9: but etf have been in significant outpows. They're really just
Speaker 9: starting to turn the inflows. So I think that's going
Speaker 9: to continue. You could should get some bucking of that bowl.
Speaker 9: But overall, to me, that's the market that's heading towards
Speaker 9: three thousand dollars an ounce and it's probably backing up.
Speaker 9: Maybe you'll see good supporter on twenty four hundred.
Speaker 4: All right, Mike, thanks so much for joining us. Hey, Mike,
Speaker 4: you go across the street from the Bloomberg headquarters, the
Speaker 4: old Wattling pub mention my name. They'll take care of
Speaker 4: you over there. Okay, thank god. Mike mcglohane, senior commodity
Speaker 4: strategist for Bloomberg Intel. It's a great pub.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Joining us now in studio is Uma Moriarty, senior investment
Speaker 2: strategist and Global ESG lead over at Center Square, and
Speaker 2: she joins us for her outlook on the market.
Speaker 3: Uma, the moment is here.
Speaker 2: We're like twenty four hours away from that first rate cut,
Speaker 2: whether it's twenty five or fifty.
Speaker 3: How does that impact the space you cover?
Speaker 10: Yeah, I think this is probably going to be the
Speaker 10: most widely anticipated rate cut of all time, definitely in
Speaker 10: the space that we cover here at Center Square, in
Speaker 10: real estate across the red market. I think this has
Speaker 10: been a big catalyst that we've been waiting for. If
Speaker 10: you look at just where the rates are trading compared
Speaker 10: to broader equities. In terms of multiples, we're trading a
Speaker 10: lot cheaper than we typically do compared to historical averages.
Speaker 10: And I think this has been the catalyst that we've
Speaker 10: been waiting for in the red market to really see
Speaker 10: some good momentum. We've been seeing it so far this year.
Speaker 10: Reads have had a bit of a bid and I
Speaker 10: think that's going to really continue as we see further
Speaker 10: further rate cuts on the horizon from the FED.
Speaker 4: So we're in the rebusiness, do you guys prefer to
Speaker 4: play commercial residential? Where within? I know there's a lot
Speaker 4: of subsectors even within those two broad categories, where do
Speaker 4: you guys typically like to play?
Speaker 10: You know, what we're really focused on right now is
Speaker 10: looking at not only the things that are going to
Speaker 10: be benefiting from rate cuts, but also things that are
Speaker 10: going to be winners in a secular way. Right, So,
Speaker 10: there are a lot of different opportunities within the REP
Speaker 10: market to find secular growth. One of those areas is
Speaker 10: in healthcare seniors housing. For example, you have aging demographics
Speaker 10: that are really going to create an insane amount of
Speaker 10: demand I think for the senior housing space, and couple
Speaker 10: that with the fact that you see you just put it.
Speaker 3: He just read in his bathroom. He doesn't need senior
Speaker 3: living space anyway, Go ahead anyway.
Speaker 10: Yeah, So we've got some great demographic tailwinds here for
Speaker 10: the senior housing space. Kind of couple that with a
Speaker 10: few other things, right, So during COVID, we saw margins
Speaker 10: really being impacted because of labor costs in the senior
Speaker 10: housing space. You're seeing recovery from that. Plus you're seeing
Speaker 10: that space being institutionalized, right, and so there is a
Speaker 10: massive opportunity from an acquisition perspective there as well. So
Speaker 10: all of those things playing into senior housing data centers,
Speaker 10: I mean, another great play within the commercial real estate sector.
Speaker 10: So those are the types of things that we're looking at.
Speaker 10: We're not only benefiting from the rate cut environment, but
Speaker 10: also really benefiting from secular tailwinds.
Speaker 2: So based on that, okay, but the senior housing, the
Speaker 2: data center, et cetera. I hear that a lot from
Speaker 2: read people. So is the market really crowded?
Speaker 10: There is still be a little bit of crowding in
Speaker 10: some of those areas. The other thing we were just
Speaker 10: talking about here, right, A couple tactical opportunities within the
Speaker 10: office sector. I think could be really interesting here for investors.
Speaker 10: I think within the broader commercial, rural state world, office
Speaker 10: is a part of the real estate world that is
Speaker 10: really troubled, especially on the private market side. Whereas the
Speaker 10: rates have top tier assets. When you think about the
Speaker 10: best assets here in New York City, they're really owned
Speaker 10: by the reads. The reads have great balance sheets, low leverage,
Speaker 10: access to capital from the unsecured bond market, from the
Speaker 10: equity market that you just don't have across the private market.
Speaker 10: So I think in some areas, the office market within
Speaker 10: the read space is going to benefit here and be
Speaker 10: a capital solution for what's happening on the private market side.
Speaker 4: Because we really haven't seen that much activity in the
Speaker 4: office space to really get a sense of where value
Speaker 4: is have we We just haven't had a lot of
Speaker 4: transactions to say, hey, is the discount fifty seventy percent?
Speaker 4: We really don't know that. Are the reads going to
Speaker 4: be the ones that set those levels?
Speaker 11: Do you think?
Speaker 3: I think they could be?
Speaker 10: And I think the reason you really haven't seen that
Speaker 10: is because there's been such a bifurcation between the haves
Speaker 10: and have nots in the office market. Right One Vanderbilt
Speaker 10: here in New York City leasing up at really really
Speaker 10: topy rental rates, whereas if you try to go lease
Speaker 10: a commodity office space, it's probably sitting vacant. You're going
Speaker 10: to continue to lose vacancy. So I think there is
Speaker 10: a big differentiation between quality, and so you'll see the
Speaker 10: reads in it. In general, the market really open up
Speaker 10: as we see a bit more stability on the rate side,
Speaker 10: as we try to figure out what happens from the
Speaker 10: debt perspective here as well.
Speaker 2: Is it like one rate cut that makes a difference,
Speaker 2: or is it just the cycle that we're starting, or
Speaker 2: is it how many cuts we're expecting is going to
Speaker 2: be a catalyst for the market.
Speaker 10: I think just the fact that we're getting rate cuts
Speaker 10: and we're kind of out of this potential type situation
Speaker 10: right exactly, and you get a little bit more clarity
Speaker 10: in terms of where things are going. So I think
Speaker 10: this week, when we get some economic projections from the Fed,
Speaker 10: will be important to see where that dot plot sits
Speaker 10: in the end of this year at the end of
Speaker 10: next year, to see where they're going from a rate perspective.
Speaker 10: That being said, a lot of real estate also really
Speaker 10: prices off of the long end of the old curve right,
Speaker 10: and we've seen that kind of a little bit range
Speaker 10: bound around the three and a half to four and
Speaker 10: a half percent range, and so you'll see a bit
Speaker 10: more price discovery as we kind of accept that that's
Speaker 10: where long rates end up staying versus where we have
Speaker 10: been seeing those rates kind of POSTGFC through COVID at
Speaker 10: significantly lower levels.
Speaker 4: All right, Let's say I'm a real estate investor. I've
Speaker 4: got some equity behind me. I'd strike a deal to
Speaker 4: buy one of these office towers on Third Avenue forty
Speaker 4: sixth Street at maybe fifty cents on the dollar. Can
Speaker 4: I go to a bank and get money to do this?
Speaker 4: Will they lend me money for that type of transaction?
Speaker 10: Currently, I think the banks are really relationship driven. It's
Speaker 10: based on whether you have an existing relationship.
Speaker 3: For you TVD. Yeah, they'd probably definitely lend a Paul.
Speaker 10: But I think a lot of where the debt capital
Speaker 10: is coming from currently within the marketplace is a lot
Speaker 10: of alternative providers of debt, private lenders. Banks in general
Speaker 10: are still a little bit over exposed in the real
Speaker 10: estate space. As you're going to continue to see banks
Speaker 10: needing to pull down their real estate exposure. Office definitely
Speaker 10: is not one of their top priorities in terms of
Speaker 10: increasing exposure at this point. Right, So it's not really
Speaker 10: clear in terms of whether bank lending might exist for
Speaker 10: something like that without a relationship, But I think the
Speaker 10: private markets are starting to get a little bit more
Speaker 10: interested in opportunities within the office space at the right price.
Speaker 2: All right, Uma, thanks a lot. We really appreciate thanks
Speaker 2: for coming in. Umer Moriarty joining us, Senior investment strategist
Speaker 2: at Global ESG lead at Center Square, joining us on
Speaker 2: the remarket, thank you very much.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Okay, this is Monday, and usually around this time we
Speaker 2: check in with our folks at Bloomberg BNEF. They cover
Speaker 2: all the data, They have all the analysis on everything
Speaker 2: from transport, industry, commodities, power buildings, AG sectors, anything that
Speaker 2: you need in the energy transition they do. So joining
Speaker 2: us now for more is bo Chin, lead US carbon
Speaker 2: analyst at Bloomberg b n EF and she joins us
Speaker 2: now in the interactive Brooker Studio in midtown Manhattan. Okay,
Speaker 2: so first of all, what is the carbon market in
Speaker 2: the US right now?
Speaker 3: What does that mean? Let's done this down.
Speaker 11: Yeah, carbon markets is one of the most exciting markets
Speaker 11: right now because it quantifies energy transition, which could be
Speaker 11: quite fluffy, and having a carbon price, it basically shows
Speaker 11: to you where are the opportunities and risks for industries,
Speaker 11: lawmakers as well as investors.
Speaker 2: So we say carbon market like it means the price
Speaker 2: of IMIg a smet maker and I am a one
Speaker 2: ton of carbon. What that price of that carbon is?
Speaker 11: Yeah, exactly. So there are two kinds of carbon markets.
Speaker 11: So there's compliance carbon markets and voluntary carbon markets. You
Speaker 11: probably heard quite a lot of news about forestry at
Speaker 11: carbon offsets this year, but there's also that compliance carbon market,
Speaker 11: particularly in US that has been a rising star this year,
Speaker 11: the compliance carbon mark. So what it is, it's basically
Speaker 11: regulators setting a scope and a target for the carbonization
Speaker 11: and this market decides the price and it decides who
Speaker 11: are the cheapest to abate, And what is the We
Speaker 11: call it a marrit order, but what is the order
Speaker 11: in which the polluters would reduce their emissions and the
Speaker 11: chiapist would reduce first and the most expensive work first
Speaker 11: buy the allowances and later reduce their emissions.
Speaker 4: So California, I just I don't know that much about
Speaker 4: this market, but I know California is kind of out
Speaker 4: in front. And number two, I know it's a kind
Speaker 4: of a big state. So what's happening in the price
Speaker 4: of carbon in California.
Speaker 11: Yeah, the California has been really in the news right
Speaker 11: now because of the reforms that are going on in
Speaker 11: California carbon market. So California carbon market is just one
Speaker 11: of the pieces that California, one of the tools that
Speaker 11: California uses to direct their energy transition. And this whole
Speaker 11: story really started from the Scoping Plan of twenty twenty two,
Speaker 11: where the new target of net zero by twenty five
Speaker 11: it has been set and the California carbon market has
Speaker 11: been selected to guide this transition amidst other policy tools.
Speaker 3: So yeah, good, Okay.
Speaker 11: Yeah, So there has been it's been kind of we
Speaker 11: have been watching us open here, so it's kind of
Speaker 11: been watching a long set of that tennis game where
Speaker 11: we have been seeing how this target been translated into
Speaker 11: a cap trajectory. So what cap means for compliance market
Speaker 11: is basically supply complace. Carbon market is very commodity based,
Speaker 11: so you would look at supply which is the allowances,
Speaker 11: and then demand which is emissions, and the supply has
Speaker 11: been in this reform process that has been given a
Speaker 11: lot of different guidances which have been kind of exciting
Speaker 11: the market but also confusing the market. So looking at
Speaker 11: just the prices, the price have gone up since from
Speaker 11: nineteen dollars per metric down in twenty twenty one and
Speaker 11: shooting up to this year in February hitting a four
Speaker 11: four dollars per metric ton, So investing in this asset
Speaker 11: has been a massive rally. However, the prices have come
Speaker 11: down now, so we're now around thirty five point six.
Speaker 2: Is it better for the energy transition to have higher
Speaker 2: prices or lower prices as in like if it's higher,
Speaker 2: companies are gonna be like ACT, I don't want to
Speaker 2: pay that, I'm going to go upset my emissions or lower,
Speaker 2: meaning that it can be a more robust market.
Speaker 11: Yeah, exactly, that's a good question. We typically want a
Speaker 11: gradually increasing price so it shows an incentive for industrials
Speaker 11: and compliance entities or just entity in stents in general
Speaker 11: to decarbonise. But we don't want big price volatility because
Speaker 11: that could make it difficult to direct strategy and make
Speaker 11: those big investments to killan tech. And this is why
Speaker 11: also we do think like in US, it's important to
Speaker 11: make sure that we have big enough carbon markets. So
Speaker 11: we mentioned California. California is the biggest carbon market right
Speaker 11: now and it's linked with Quebec Quebec in Canada, and
Speaker 11: there is actually another carbon market that started last year
Speaker 11: which was very exciting for US. It was Washington State
Speaker 11: and it hit a carbon price of seventy three dollars
Speaker 11: per metric tile in the futures market, which was very
Speaker 11: exciting for US. This is the record price ever in
Speaker 11: US and it's right next to California, which there has
Speaker 11: been also bills proposed to link these carbon markets together.
Speaker 11: And we do see that this would be great for
Speaker 11: both of this carbon markets. One is because it would
Speaker 11: reduce that price volatility, okay we mentioned, but also bring
Speaker 11: the carbon leakage down as.
Speaker 2: Well as but we gotta leave it there, Robings to break,
Speaker 2: but Butch and thank you Bloomberg the any f carbon
Speaker 2: analysts joining us there.
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