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Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside
Speaker 2: my co host Matt Miller.
Speaker 1: Every business day we bring you interviews from CEOs, market pros,
Speaker 1: and Bloomberg experts, along with essential market movin news.
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Speaker 3: All right, let's get down.
Speaker 2: To Washington, DC, only because we have to where it's
Speaker 2: all happening.
Speaker 3: Nathan Dean joins us.
Speaker 2: He's a senior policy onis with Bloomberg Intelligence, and Jordan
Speaker 2: Fabian White House reporter with Bloomberg News, Nathan, I just
Speaker 2: want to start with you, are you going to shut
Speaker 2: down our government again?
Speaker 3: What's going on down down there?
Speaker 4: So you know, I may be a little bit out
Speaker 4: of consensus on this, we're still telling folks forty percent
Speaker 4: chance of a shutdown unless you have this like temporary
Speaker 4: shutdown that bleeds over to the weekend. The reason being
Speaker 4: is is that you know, there are so many different
Speaker 4: ideas that being thrown around by House Republicans, by the Senate,
Speaker 4: by Ukraine and Israel and so forth, and none of
Speaker 4: these political cakes are baked. And you know, there's really
Speaker 4: no strategy of why you would have a shutdown at
Speaker 4: this point other than just we want to shut it down.
Speaker 4: And so we Speaker Johnson still and you know what
Speaker 4: you would call the the infancy of his speakership. And
Speaker 4: obviously he made some statements over the weekend that he's
Speaker 4: seeking for more time as he does his letter at
Speaker 4: see our idea and so forth. We're telling folks, you know,
Speaker 4: he may be able to get that, So don't be
Speaker 4: surprised that this goes in the December fifteenth or even
Speaker 4: January February. But ultimately what people should know as they
Speaker 4: approach it from the market perspective is that there really
Speaker 4: isn't all that impact outside of just trying to just
Speaker 4: keep your eye on it. Even the defense contractors aren't
Speaker 4: all that exposed. I mean, we really would have to
Speaker 4: see a two months shutdown, if not longer, for those
Speaker 4: economic impacts to be leading into the market. So unfortunately
Speaker 4: for a lot of the folks just watching, it's one
Speaker 4: of those political popcorn watch events again.
Speaker 1: All right, So the White House has said that Johnson's
Speaker 1: plan would only lead to future shutdowns, and President Biden
Speaker 1: could issue a formal veto threat today. Jordan Fabian, you
Speaker 1: cover the White House for us. What do we expect
Speaker 1: from President Biden and what's the what are their problems
Speaker 1: with this plan?
Speaker 5: I think we could see a veto threat today or
Speaker 5: something a little short of that, which is basically an
Speaker 5: advisor's recommendation that he not signed. It's these Washington terms
Speaker 5: of craft. But we'll be watching closer to see what
Speaker 5: they say. Look, the White House is frustrated with this
Speaker 5: dragged out process that you know, they thought should have
Speaker 5: been resolved with the debt ceiling agreement back in the spring,
Speaker 5: which sets spending levels. Republicans through that out the window,
Speaker 5: and so they're frustrated over that and the fact that
Speaker 5: there's no Ukraine aid in this package, and the White
Speaker 5: House is getting anxious that maybe this is the last
Speaker 5: bite of the apple, and so they want to exert
Speaker 5: whatever leverage they can to try to get that included.
Speaker 5: And thus you're seeing these statements that are highly critical
Speaker 5: of Speaker Johnson's approach.
Speaker 3: But they would be.
Speaker 1: I mean, if if Biden veto's it shutting down the government,
Speaker 1: then the Democrats get the blame for something that the
Speaker 1: whole country is angry with the Republicans for right now.
Speaker 1: You know, they're in a great situation because the country
Speaker 1: blames all of this on the other party.
Speaker 3: Do they risk that?
Speaker 6: Yeah?
Speaker 5: That's why I think Nathan raises a good point, which
Speaker 5: is that you know, I think you may and you
Speaker 5: raise valid points too, which is Democrats absolutely don't want
Speaker 5: any share of the blame for a government shutdown. So
Speaker 5: my suspicion is if a cr were to reach the
Speaker 5: President's desk, he would sign it and you know, kick
Speaker 5: the can down the road for a couple of months
Speaker 5: and try again in January to get his priorities funded.
Speaker 5: But it's still an open question of whether this laddered
Speaker 5: CR gets through the House. There's still this faction of
Speaker 5: hell no fiscal hawk House Republicans who you don't want
Speaker 5: to take guess for an answer, and Johnson can only
Speaker 5: afford to lose three votes.
Speaker 3: That's not a lot.
Speaker 5: So we'll be watching closely. There's some test votes coming
Speaker 5: up in the next twenty four hours to see what
Speaker 5: level of support there is for this package.
Speaker 2: So Nathan and I guess in the interim, what legislation
Speaker 2: is not getting worked on, it's not getting passed.
Speaker 3: What are we missing here?
Speaker 4: Well, I mean there's a lot of stuff that are
Speaker 4: it's more of the sector level. I mean, obviously we've
Speaker 4: talked about pot banking before. You know, there are a
Speaker 4: lot of people would love to see that move forward.
Speaker 4: There's really no work that's being done on it. Crypto
Speaker 4: the NDAA. You know, there's a lot of legislation out
Speaker 4: there that needs to get done and you know, we're
Speaker 4: just talking about c and so ultimately there's still going
Speaker 4: to be enough time to get that stuff done. But
Speaker 4: you know, time's going to run out before we get
Speaker 4: into this election cycle where folks are just going to
Speaker 4: be more paying attention to their districts. I still think
Speaker 4: that a shutdown is coming. I honestly do think that
Speaker 4: we're going to have a multi week shutdown. I just
Speaker 4: think it's going to be in the beginning of next year,
Speaker 4: because there will come a point in which Speaker Johnson
Speaker 4: and the Democrats just will not agree and both sides
Speaker 4: will say, Okay, I think politically it's best for us
Speaker 4: to just you know, have this fight out and let's
Speaker 4: let the chips lie. But ultimately, for the Republicans right now,
Speaker 4: as you recall, you know, last week, they had a
Speaker 4: very bad week in Virginia where I am in Kentucky
Speaker 4: and Ohio and so forth like that, they don't want
Speaker 4: to have that happen twice in the span of two weeks.
Speaker 4: So I think right now that all this uncertainty is
Speaker 4: just going to get pushed into January and we'll be
Speaker 4: talking about it then.
Speaker 3: Jordan.
Speaker 1: Let's talk about, you know, the the upcoming election. We're
Speaker 1: already seeing ads from the Biden administration trying to convince
Speaker 1: Americans that his age isn't a problem, although many people
Speaker 1: polled are concerned about his ability to get through another
Speaker 1: four years. You know, what's their tactic and what do
Speaker 1: they say about I always wonder about Kamala Harris, because
Speaker 1: if you're really worried about the president's age, you should
Speaker 1: be doubly focused on the vice presidential candidate.
Speaker 5: Right Well, the Biding campaign has a lot of money
Speaker 5: right now. They have about ninety one million dollars in
Speaker 5: cash in hand, So they're spending some money now to
Speaker 5: try and get those concerns alaied and try to lay
Speaker 5: the groundwork for a broader and more aggressive pitch later
Speaker 5: next year for reelection. So they're trying to address the
Speaker 5: age question. They're trying to address the Americans' concerns with
Speaker 5: the cost of living. So if you look listen to
Speaker 5: their messaging, there's ads showing Biden walking through Kiev with
Speaker 5: the sunglasses on and talking about these things in the
Speaker 5: Inflation Reduction Act that we're supposed to lower prices. But look,
Speaker 5: it's I think their best hope is not necessarily convincing
Speaker 5: Americans that you know, Biden is this spry young man,
Speaker 5: but that they're going to be possibly running against Donald Trump,
Speaker 5: someone who's very unpopular and someone you know who's also
Speaker 5: up there in age and has shown some propensity for
Speaker 5: gaffs and the like. So you know, it's like Biden
Speaker 5: always says, don't compare me to the almighty, compare me
Speaker 5: to the alternative.
Speaker 2: Hey, Jordan, it's going to be a big week for
Speaker 2: President Biden out in San Francisco, who'll be meeting with
Speaker 2: Chinese President Jijiping. What's the White House? What's a kind
Speaker 2: of the game plan? Here's what's the goal? What would
Speaker 2: be a success?
Speaker 3: What are you hearing.
Speaker 5: They want to set a floor under this US China relationship.
Speaker 5: I don't think you're going to see a bunch of
Speaker 5: major deliverables coming out of this meeting, like some sort
Speaker 5: of agreement on Taiwan or broader economic rules of the road.
Speaker 5: Those are the two obviously main concerns in the relationship.
Speaker 5: But you could see things like resumption of military to
Speaker 5: military communication, some incremental things on climate, fentanyl trafficking cutting
Speaker 5: out of this meeting. And I think that again, the
Speaker 5: meaning itself is almost a deliverable for President Biden, who
Speaker 5: wants to reset this relationship in a way that puts
Speaker 5: up guardrails, make sure that tensions don't escalate out of
Speaker 5: control like they did earlier. This year with a spibulin incident.
Speaker 2: So perspective of just greater d C, I mean, what's
Speaker 2: the concern level here just about US China relations?
Speaker 4: Well, I mean, first I want my pandas back. I mean,
Speaker 4: obviously we lost our pandas you know, I'm joking there,
Speaker 4: but you know, obviously, you know, when it comes to
Speaker 4: the US China relations, it comes down to clarity. That's
Speaker 4: what investors want, is they want to know what the
Speaker 4: clarity is and what's going to happen. I mean there's
Speaker 4: you know, all these questions with Taiwan and so forth
Speaker 4: like that, and so I think anytimes you get this
Speaker 4: type of communication between the presidents in the premiere and
Speaker 4: so forth like that, that you get this at least
Speaker 4: get something that you can work with. So I don't
Speaker 4: think Washington in particular, and you know, Jordan can correct
Speaker 4: me if I'm wrong. You know, I don't think Washington
Speaker 4: in particular has any real hopes for this meeting. But
Speaker 4: it's just something that we'd like to see so that
Speaker 4: we can see the communication, we can get information, we
Speaker 4: can get transparency, and at least have a better idea
Speaker 4: of what's happening down the road. Because if anytimes they're
Speaker 4: not talking, then you just get what's happening. Nobody knows, right, all.
Speaker 3: Right, Nathan Hagger, Nathan Dean, thank you so much. We
Speaker 3: appreciate it.
Speaker 2: Nathan Dean, He's a senior policy analyst with Bloomberg Intelligence,
Speaker 2: and Jordan Famian, a White House reporter with Bloomberg News,
Speaker 2: both of them down in DC.
Speaker 7: You're listening to the team Ken's are Live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot Com,
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Speaker 7: on demand wherever you get your podcasts.
Speaker 2: Looking at the stock of Boeing up four percent, looks
Speaker 2: like they sold a bunch of aircraft to the Emirates Airlines.
Speaker 3: That sounds like a good deal. Let's break that down
Speaker 3: in Everything.
Speaker 2: Aerospace with George Ferguson, senior aerospace, defense and airline analysts
Speaker 2: for Bloomberg Intelligence. Former militi sorry intelligence officer in the
Speaker 2: US Army. So we think mister Ferguson for his service here. George,
Speaker 2: talk us first about this Emirates deal. The number got
Speaker 2: my attention, like a lot of billions of dollars.
Speaker 8: Yeah, no, it's a big order, right, So there's about
Speaker 8: ninety five airplanes, nine of them Triple sevens. But that
Speaker 8: triple seven, yeah, they already had the largest order.
Speaker 6: In the book for that airplane.
Speaker 8: Emirates likes to refresh their fleet sort of every fifteen years.
Speaker 8: They don't like to go much further than a fifteen
Speaker 8: year old airplane. They've been waiting for this Triple seven
Speaker 8: to show up, so they're adding more to that backlog.
Speaker 6: I don't know that that.
Speaker 8: Significantly boosts Bowing profit because my guess is that airplane
Speaker 8: comes out the door in the mid twenty twenties once
Speaker 8: it gets certified at low rates, you know, at threes or.
Speaker 6: Fives kind of per month.
Speaker 8: So I mean, every order is a great order, but
Speaker 8: that order probably takes a fair amount of time to fulfill.
Speaker 8: Seventy eight seven was interesting to see them order as well.
Speaker 6: They would have five.
Speaker 8: More, not a lot. They already had an order on
Speaker 8: the book for some seven eight sevens. They have orders
Speaker 8: in the books for seventy sevens and eight three fifties,
Speaker 8: which you know, I see is sort of two competing airplanes,
Speaker 8: the Boeing and the Airbus version of that smaller long
Speaker 8: haul airplane. Typically Emirates tries to run a cleaner fleet.
Speaker 8: They run a fleet of usually two types, so I'm
Speaker 8: a little surprised to see them keep that airplane on
Speaker 8: the order books. I thought they might have placed an
Speaker 8: order for triple seven and rationalized that because I think
Speaker 8: that when they're done, they're going to want to go
Speaker 8: back to again a sort of a two airplane fleet,
Speaker 8: and I thought it was going to be a three
Speaker 8: point fifty triple seven. So that was pretty interesting to
Speaker 8: see them go back for five more seven eight sevens.
Speaker 8: Not a lot splashy order long period of time before
Speaker 8: we deliver all those.
Speaker 1: Airport George walk us through. The difference is, you know,
Speaker 1: people who don't cover Boeing for a living may not
Speaker 1: and people don't fly as much as Paul Sweeney might
Speaker 1: not know what all these aircraft are. We we know
Speaker 1: the seven three seven and the A three twenties. They're
Speaker 1: the narrow body single aisle aircraft that really blow to
Speaker 1: actually be a passenger on because there's no room at all.
Speaker 1: But is the seven seven seven Is that a bigger airplane?
Speaker 6: Yeah?
Speaker 8: So you know, since the pandemic, we saw the eight
Speaker 8: three eighty and the seven four seven, the big four
Speaker 8: engine airplanes. We see them, We got to see them
Speaker 8: taken out of production. And so after those airplanes come
Speaker 8: out of production, Triple seven will be the largest airplane
Speaker 8: in the skies. Really, you know, the sizes of that
Speaker 8: Triple seven are starting to actually not even starting.
Speaker 6: They're rivaling the seven four to seven.
Speaker 8: You can get four hundred mid four hundred kind of
Speaker 8: numbers of people on that airplane, depending on how you
Speaker 8: can figure it.
Speaker 3: There is big is the Triple seven?
Speaker 1: I'm sorry? Is the Triple seven as big as the
Speaker 1: seven eighty seven? I thought the seven eighty seven, the
Speaker 1: Dreamliner was like the biggest one.
Speaker 8: No, sorry, seventy seven is smaller. Seventy seven and A
Speaker 8: three fifty are both smaller. A three fifty nine hundred
Speaker 8: are both smaller than Triple seven, and they fit between
Speaker 8: that narrow body class that you seem to love so much,
Speaker 8: you know, the three twenty and seven three seven and
Speaker 8: that Triple seven. Really, those are the most in favor
Speaker 8: airplanes right now. Right they're at three hundred ish seed
Speaker 8: you know, kind of twin aisles, and the ranges are great.
Speaker 8: On the three fifteen to seven eighty seven, they can
Speaker 8: get you, you know, really far around the world, so
Speaker 8: you could do a lot of non stops, try to
Speaker 8: pull in the best kind of firs, you know, fairs
Speaker 8: possible from those business travelers that don't want to connect anywhere.
Speaker 8: Triple seven has pretty good range as well, But that's
Speaker 8: going to be the largest airplane in the sky when
Speaker 8: seven four seven and eight three eighty are gone.
Speaker 1: Nice, I want to fly that Triple seven. Where are
Speaker 1: the routes? Where can I get on one of those things?
Speaker 6: I think if you go to Dubai, they got a
Speaker 6: lot of them in the fleet. If you go to
Speaker 6: kat Tar you find a lot of them too. United
Speaker 6: flies them.
Speaker 8: I mean they're really you know, they're a component of
Speaker 8: most of the major, big full service airlines around the world.
Speaker 2: All Right, the seven three seven Max, it was so
Speaker 2: in the news for the bad.
Speaker 1: Reasons, patches all the time.
Speaker 3: They fixed that. Now I feel like it's the same
Speaker 3: as plane on the planet. Sure they did. They fixed it,
Speaker 3: so just a little software fixed.
Speaker 2: But the big thing is China. I mean, I got
Speaker 2: to start selling some of these planes to China.
Speaker 3: Where are we there?
Speaker 8: Yeah, so nothing has been shipped into China. We keep
Speaker 8: waiting eminently to see the Chinese take the airplanes that
Speaker 8: have already been built for them and you know, are
Speaker 8: awaiting sort of delivery. Going has been remarketing.
Speaker 6: Some of those airplanes, So it kind of tells.
Speaker 8: You that whatever discussions they're happening with the Chinese about
Speaker 8: taking those airplanes was kind of stalling lately. It feels
Speaker 8: like there might be a thawing up coming. I think
Speaker 8: if you're China, China pre pandemic took almost three hundred
Speaker 8: or about three hundred hour bodies a year, and it
Speaker 8: was something not one company could do, not just Airbus,
Speaker 8: not just Boeing. Now post pandemic, as they have reutilized
Speaker 8: their fleets and such, they just haven't needed deliveries in
Speaker 8: that of that size.
Speaker 6: Last year. I think it was about one hundred narrow
Speaker 6: bodies they took. But if the Chinese look down the
Speaker 6: road and they think they're a three hundred plus narrow
Speaker 6: body delivery kind of market in the future and their
Speaker 6: COMACC nine one nine is not going to be ready
Speaker 6: to backfill or to supplant some of that Airbus and
Speaker 6: Boeing deliveries, they need to start thinking about having a
Speaker 6: better relationship with Boeing because Airbus won't be able to
Speaker 6: fill all of their needs. Plus, if you're going to
Speaker 6: negotiate with Airbus and you're not buying Boeing airplanes, you're
Speaker 6: not really in a very good negotiating space, right, and
Speaker 6: so I think they need to start to thaw that relationship.
Speaker 6: We'll see how big an order comes out. These order
Speaker 6: books are long right now, They're six, seven, eight years long.
Speaker 6: So they got to start to get in the back
Speaker 6: of the queue if they want some airplanes.
Speaker 2: I'm Boeing take to build a triple seven planes start
Speaker 2: to finish, Like if I put my order in now,
Speaker 2: when am I getting this plane?
Speaker 8: Well, I mean the challenge, like I said, is this
Speaker 8: airplane's not certified yet. We've got to get the FA
Speaker 8: to certify it. We think it's sort of twenty twenty
Speaker 8: five ish, right. I think there's two hundred and fifty
Speaker 8: three hundred ish kind of orders on the books right now,
Speaker 8: a bunch of them emirates. If they what if they
Speaker 8: build five a month, you'd be getting sixty out the door,
Speaker 8: you know, per year. We got five years of backlog.
Speaker 8: Golling will want to increase that if they see orders
Speaker 8: build and if you know, if they get enough of
Speaker 8: a backlog, nobody wants to ramp up production and ramp
Speaker 8: back down production.
Speaker 6: So they like to see a couple of years or
Speaker 6: more before they start thinking about increasing those rates.
Speaker 8: But you're still talking, you know, four or five years
Speaker 8: of backlog in the airplane.
Speaker 2: And then here's my long held opinion, which I express
Speaker 2: every time we talk about Boeing. They never should have
Speaker 2: left Seattle. Yeah, lost their engineering chops and the left Seattle.
Speaker 2: This is my personal opinion.
Speaker 1: Sure, hurt the culture.
Speaker 8: Yeah, you could argue though they're now in Virginia. I
Speaker 8: know they're close to one of their biggest customers.
Speaker 2: Yeah, I mean people come out to Seattle to see tech.
Speaker 2: That's a great part of the world. And then go
Speaker 2: down that highway that takes you back down to Seattle.
Speaker 2: From the airport. On the left hand side of the highway,
Speaker 2: it's all Boeing as far as I can see plane
Speaker 2: stack up.
Speaker 7: You're listening to the tape Cat's are live program Bloomberg
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Speaker 2: Let's talk commercial real estate. Where are we in the
Speaker 2: cycle here? Margaret McKnight joins us here. She's a partner
Speaker 2: and head of real Estate Portfolio Solutions at Stepstone Group
Speaker 2: and Nasdak created stock symbil step to put into your
Speaker 2: Bloomberg terminal. She joins us live here in our New
Speaker 2: York studio. So, Margaret, this is how I frame out
Speaker 2: questions about our discussions about commercial real estate. The Lipstick Building,
Speaker 2: Third Avenue, I'm gonna call it fifty fourth Street or something.
Speaker 2: I don't know where it is iconic building, but it's
Speaker 2: third Avenue. It's not Park Avenue, it's not Fifth Avenue.
Speaker 2: When not Thing Trades, is it going to be a
Speaker 2: twenty percent discount, a forty percent discount, a sixty percent
Speaker 2: discount to pre pandemic levels?
Speaker 3: How bad is it out there for commercial real estate?
Speaker 9: So the first thing I want to do is say
Speaker 9: that there's office and all other office is getting hit
Speaker 9: by a cyclic pullback, especially the tech tenants pulling back
Speaker 9: and bi secular problems because of work from home, so
Speaker 9: it is materially worse than any other property type. The
Speaker 9: other property types, while dealing with the cycle, also have
Speaker 9: secular lift and we can talk about that, Okay. Right now,
Speaker 9: office is really struggling and the capital markets have pulled back,
Speaker 9: and most of what's going on in real estate is
Speaker 9: a capital market pullback.
Speaker 1: So but also retail, right, I mean, we've heard a
Speaker 1: few cases of malls and you're from San Francisco, where
Speaker 1: you know, the owner just says we're out, We're done,
Speaker 1: like Westfield did out out at that retail center.
Speaker 7: Right.
Speaker 9: So, just like office is getting hit by technology change
Speaker 9: because zoom and teams let us work from home a
Speaker 9: ten or fifteen years ago, real estate got hit by
Speaker 9: e commerce. That was a while ago. Since then, the
Speaker 9: tenants have figured it out. We've all figured out what
Speaker 9: formats work and don't work, and the formats that work
Speaker 9: have repriced and are really interesting to investors. Some of
Speaker 9: these malls are the ones that don't and are largely
Speaker 9: pushed out of the institutional portfolios and not really where
Speaker 9: the focus is. The focus is on things like industrial
Speaker 9: and multifamily that have a lot of lyft right now
Speaker 9: that are pretty interesting and you can use this period
Speaker 9: of turmoil to find good entry points and opportunity.
Speaker 2: All right, So for the areas are just broadly defined,
Speaker 2: you know, commercial real estate, given where rates have moved
Speaker 2: this year, how does that impact your businesses? Like on
Speaker 2: a residential side, nothing's trading, Nobody wants to sell their house.
Speaker 2: What's it like on the commercial side.
Speaker 9: Homes are not trading. That means more people are pushed
Speaker 9: and capped back in the rental market. So if you
Speaker 9: own rental properties, it's actually a pretty good time. It's
Speaker 9: slowing because it's vulnerable to the cycle, but the outlook
Speaker 9: is good. And similarly for industrial, which is benefiting from
Speaker 9: e commerce and it's benefiting from globalization. So what we
Speaker 9: really have is a capital markets correction, so prices are
Speaker 9: going down, balance sheets are restructuring. People New loans are
Speaker 9: smaller than old loans, so people need recapitalization money. What
Speaker 9: we call gp led secondaries is one way to do
Speaker 9: it to actually keep their assets, and they're desperate for
Speaker 9: that money because the difference is a goose egg. So
Speaker 9: there's a really good time to deploy capital into some
Speaker 9: of these interesting strategies.
Speaker 1: Really, which puts Stepstone I guess in a good position, right,
Speaker 1: Or what do you do at Stepstone? You offer private
Speaker 1: investors access to markets that the public doesn't see or Yes.
Speaker 9: We design portfolios for institutional, large institutional and high private
Speaker 9: wealth clients that are designed to improve the odds of
Speaker 9: meeting their specific portfolio goals. And that's what I focus
Speaker 9: on particularly. And then that includes taking advantage of market opportunities,
Speaker 9: and then we also execute we help them find in
Speaker 9: that transactions.
Speaker 3: So where are you guys putting capital to work these days?
Speaker 9: Our favorite strategy right now is this gp LED this
Speaker 9: recapitalization where you've got an owner who needs to buy
Speaker 9: down his existing loan and is desperate for money to
Speaker 9: keep his asset so that they will pay a lot
Speaker 9: for that transitional money and not everything savable. So over
Speaker 9: time a lot, there will be motivated sales and distress
Speaker 9: sales that are also going to be a we're the
Speaker 9: leading edge. We're definitely seeing in our book transactions that
Speaker 9: look like the immediate post GFC period which ended up
Speaker 9: yielding very attractive.
Speaker 2: So what are some what are properties trading at today? Again,
Speaker 2: if that lifstick building trades today, what discount do you
Speaker 2: think that trade's at so Rules State on Third Avenue
Speaker 2: in Midtown.
Speaker 9: Every property is different. That's that's the tricky part of
Speaker 9: commercial real estate. The property pricing indexes are down a
Speaker 9: little over twenty percent and trading is down about forty percent,
Speaker 9: so it's a little bit slower and not full price discovery.
Speaker 9: Office is completely different though. Office is what's really not
Speaker 9: trading and it's really broken.
Speaker 1: So you like, where are you finding the distressed what
Speaker 1: will look like distressed opportunities? I mean you're not looking
Speaker 1: in office. I'm guessing or do or will you if
Speaker 1: they say, hey, this is seventy percent off.
Speaker 9: Right now, we're not seeing that. Pricing is interesting enough
Speaker 9: because there's too much uncertainty. Employers and employees are in
Speaker 9: a big experiment on hybrid work and we don't know
Speaker 9: what that means for demand or for leases yet.
Speaker 1: So it is so for office, it's just a falling
Speaker 1: knife that no one almost no one's willing to catch
Speaker 1: right now.
Speaker 9: Institutional buyers are not going into office right now in
Speaker 9: any numbers.
Speaker 3: I can't wait to see that. At some point it's
Speaker 3: going to be a just huge haircut. Yeah, But what
Speaker 3: you're saying is go.
Speaker 2: By the lipstick building it no idea, what like, at
Speaker 2: thirty cents on a dollar, it's got to be a
Speaker 2: great deal, right.
Speaker 1: Yeah, I mean at some point, but what's that number.
Speaker 3: That's why I'm not in that business.
Speaker 1: It's the same as any asset when there are no buyers, right,
Speaker 1: it's in free fall and you've got to have the
Speaker 1: I guess, the courage or the stupidity to go in
Speaker 1: there and try and catch it. But what you're saying,
Speaker 1: Margaret is that you're there's a shift in capital interest, right,
Speaker 1: They're more interested in multi family, they're more interested and
Speaker 1: I'm guessing like server farms.
Speaker 9: Industrial warehouse is a big part of it because there's
Speaker 9: a huge shift in how people are using space right now.
Speaker 9: Instead of working at the office, we're working from home,
Speaker 9: We're shopping from home, we're playing at home. So that
Speaker 9: creates more demand on the residential side. And then also
Speaker 9: the warehouses you know, holds all the goods that come
Speaker 9: in for the shopping and are really winning on the
Speaker 9: deglobalization front, which, like you said, server farms, data centers
Speaker 9: and whatnot are also big. So there's sectors in the
Speaker 9: market that have really interesting fundamentals and if you could
Speaker 9: use this moment to buy at a discount it. You know,
Speaker 9: good opportunities have now.
Speaker 2: But can I get a Can I get capital to
Speaker 2: do that? Can I get a loan to do that? Well,
Speaker 2: banks lend to.
Speaker 9: Me, so yes, banks are lending to their best customers.
Speaker 9: You can also restructure your existing loans. And again that's
Speaker 9: where this recap strategy comes in that we think is
Speaker 9: so interesting. As I said, trading value is down forty percent,
Speaker 9: it's not down one hundred percent, and it's way higher
Speaker 9: than it was during the GFC period. So there is
Speaker 9: still movement. There is a lot of especially if you're
Speaker 9: trying to sell office, it needs to be seller finance
Speaker 9: because there's no debt for office.
Speaker 3: No debt for office.
Speaker 1: Wow, seller finance.
Speaker 3: Yeah, I don't like that. That's scary.
Speaker 1: You know, I want to sell you this thing so
Speaker 1: badly that I'm going to lend you the money to
Speaker 1: buy it from me.
Speaker 2: Yes, exactly, I've seen that before in other businesses.
Speaker 3: So again, do you feel like where do you feel
Speaker 3: like we are just in I.
Speaker 2: Guess it's really by the asset class, right, I mean,
Speaker 2: like I was gonna say, are we at the bottom here?
Speaker 2: But in certain sectors we've already bottom dinner trading higher,
Speaker 2: but for office maybe not there yet.
Speaker 9: For non office where at the beginning, and probably a
Speaker 9: two to three restructuring period that should yield some very interesting,
Speaker 9: as I said, opportunities to help people restructure as we
Speaker 9: move through the business cycle and we come out the
Speaker 9: other side. You know, the motto now is stay alive
Speaker 9: till twenty five.
Speaker 3: Stay alive till twenty.
Speaker 9: That's not true for office. And I think the office
Speaker 9: is more like I alluded to retail was a ton
Speaker 9: of fifteen year correction. I think office is more like
Speaker 9: a ten year because tonants have to figure out their demands.
Speaker 9: There's long term leases that need to roll off, and
Speaker 9: it's going to take a while.
Speaker 7: Wow.
Speaker 1: Let's talk quickly about San Francisco. That's where you live,
Speaker 1: Paul and I think both love the city. I think
Speaker 1: it's beautiful. I love the Humphrey and Slocum ice cream place.
Speaker 1: I'm a deadhead, so I like to go around hate Ashbury,
Speaker 1: you know, and check out the scene there. I never
Speaker 1: really hung out in the industrial commercial center very much,
Speaker 1: but apparently it's dead. What do you think it is?
Speaker 1: The you know, are the death stories about San Francisco overblown, overwritten.
Speaker 9: The Bay area is a center to the Vegas and
Speaker 9: most important tact ecosystems in the world. I am not
Speaker 9: going to beat against San Francisco at all. And it's
Speaker 9: a fabulous place to live.
Speaker 1: Still, you still enjoy living there.
Speaker 9: Yes, and remember we don't all live we don't live downtown.
Speaker 9: That's part of the problem. Office key card use says
Speaker 9: use office Houston, New York is fifty percent, office US
Speaker 9: in San Francisco is forty five percent. You just feel
Speaker 9: it because there's it's more concentrated, and the tourism is
Speaker 9: not back there, and here you have integrated uses, so
Speaker 9: it feels lively.
Speaker 1: Yeap, when I hear tourism isn't back, that makes me
Speaker 1: want to go to that place.
Speaker 2: Yes, you know, I love it, and I just I
Speaker 2: always tell people that are coming from Europe, Hey, I've
Speaker 2: got I'm gonna be hearing the stage for three or
Speaker 2: four weeks.
Speaker 3: Where do I go to say?
Speaker 2: One stop has to be San Francis. Yeah, do your Vegas,
Speaker 2: do your New York, but one stop has to be
Speaker 2: San Francisco. I'm just not sure if you can do
Speaker 2: that say that anymore. But I still think that's the case,
Speaker 2: so don't bet against the Bay Area.
Speaker 3: Thank you very much. Margaret McKnight.
Speaker 2: She's a partner and head of real estate Portfolio Solutions.
Speaker 2: The company's name is Stepstone Group. It is a NASTAC
Speaker 2: traded company.
Speaker 3: St e EP is the ticker.
Speaker 7: You're listening to the tape. Cat's are live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 2: All right, Matt, I'm taking my year to day gains.
Speaker 2: I'm going to the two year treasure.
Speaker 3: I'm giving them my money at the window and we
Speaker 3: get five point zero four percent. It's not bad.
Speaker 1: You've got a lot of reinvestment risk ahead.
Speaker 3: That's not good. Then all right, let's talk to somebodyho
Speaker 3: does this stuff for a living.
Speaker 2: Ted Oakley, founder and managing partner at Oxbow Advisors, joining
Speaker 2: us live in our Bloomberg Interactive Brokers studio.
Speaker 3: You shoot, you're based where are you based? Down in Texas?
Speaker 3: Austin Austin. Okay, all right, so.
Speaker 2: You didn't your school, you're a Texas tech. You didn't
Speaker 2: fire your coach and guarantee the seventy six million dollars,
Speaker 2: did you?
Speaker 10: We did not. We don't have that kind of money.
Speaker 2: Okay, very good. Want to see what's going on down
Speaker 2: there in Texas. Everything's bigger in Texas. I know, I
Speaker 2: get that, all right, Ted here again, I can be
Speaker 2: just fine. In my two year treasury of five point
Speaker 2: zero four percent, Matt says, I have reinvestment risk.
Speaker 3: What do you guys do in these days?
Speaker 10: Well, we own a lot of that. Actually, we have
Speaker 10: probably the highest level of treasures we've had since two thousand. Really, yeah,
Speaker 10: we're very high in the treasuries. We have a lot
Speaker 10: of the floating rate treasury, which is even shorter. It's
Speaker 10: based on a ninety day reset every Monday, and it's
Speaker 10: about five and a half. And then you know, we
Speaker 10: own some one year or two year and we own
Speaker 10: some long paper. But right now, that's that's where we
Speaker 10: have a lot of liquidity stashed.
Speaker 3: What do do you have?
Speaker 2: What are you looking for to maybe get more exposure
Speaker 2: to the equity markets? Is that evaluation thing is that
Speaker 2: or an earning thing. Is it a federal reserve thing?
Speaker 2: What is a catalyst that you guys are looking for?
Speaker 10: You know, most of the companies we look at are
Speaker 10: guiding somewhat lower, you know, in the in the coming quarters.
Speaker 10: We don't look at whether they beat or not, because
Speaker 10: that's a game they all play, but we look at
Speaker 10: the guidance on it, and the guidance is going down
Speaker 10: for a lot of companies, and a lot of companies
Speaker 10: are just not cheap enough for us. We have companies
Speaker 10: we like, we've been buying some of the consumer staples
Speaker 10: because they've gone back down to a level that we liked. Okay,
Speaker 10: but we've been you know, we still own legacy growth companies,
Speaker 10: but we cut back on them quite a bit.
Speaker 1: So does that mean you're out of the market for
Speaker 1: the foreseeable future in terms of equities.
Speaker 10: No, man, it means that we're about half in. You
Speaker 10: can look at it that way, I suppose. But you know,
Speaker 10: we really feel like that we'll have a better spot
Speaker 10: here in the next two or three quarters than we
Speaker 10: have right now. We really see weakness coming. We see
Speaker 10: a lot in a lot of industries across the country.
Speaker 10: We see transportation, retail, trucking. So many things are starting
Speaker 10: to weaken now, and so for us, we just don't
Speaker 10: think it's over yet. So that's why we're a bit cautious.
Speaker 3: So do you have a recession built into your forecast here? Well,
Speaker 3: you could.
Speaker 10: I think it'll go so slow that it will feel
Speaker 10: like one at least. You know, if you go to
Speaker 10: zero growth, Paul or one, you know, that will probably
Speaker 10: feel like a recession to some people because some industries
Speaker 10: will be very, very slow. And then you have to
Speaker 10: deal with this debt situation with the Fed too. I
Speaker 10: think that's a problem.
Speaker 3: Ah, that's your rid of your belly.
Speaker 1: Yeah, absolutely, I mean do you see any kind of
Speaker 1: fiscal discipline coming to this government anytime soon?
Speaker 10: I don't. I haven't seen it before. Now maybe they
Speaker 10: come around, but you know, it takes both sides of
Speaker 10: the of the eyele to do it.
Speaker 1: And does it matter to you?
Speaker 6: Do you?
Speaker 1: Are you concerned when you look at the debts and
Speaker 1: deficit or some people say we've been doing this since Reagan,
Speaker 1: we can keep doing it.
Speaker 10: It matters to me in this respect. If you go
Speaker 10: back and look at countries where they get to a
Speaker 10: certain breaking point, and we're about three quarters there. And
Speaker 10: people don't realize that the average debt that we're paying
Speaker 10: right now is about two point six percent on all
Speaker 10: the federal debts. Well, guess what fifty percent of it
Speaker 10: rolls over in two years. At five you're gonna almost
Speaker 10: double it. And people, I don't think people realize what
Speaker 10: happens when you when you get so much debt and
Speaker 10: then they monitor debation monetary system and I know it
Speaker 10: hasn't happened in the past, but now it's getting to
Speaker 10: a breaking point. You can follow it with countries over
Speaker 10: time and see what happens.
Speaker 2: On the equity side here, I know you mentioned look
Speaker 2: looking for income, So oil and gas pipelines.
Speaker 10: We still have those. We rarely sell the oil and
Speaker 10: gas pipelines. They're steady producers. They usually increase the income
Speaker 10: a little bit each year. If you wanted something to
Speaker 10: compete with your real estate on a private basis, you
Speaker 10: put on the oil and gas pipeline because half of
Speaker 10: them file on a K one just like real estate,
Speaker 10: so you don't have any current income tax on it.
Speaker 10: And secondly, they all pay between seven and nine so
Speaker 10: you get a.
Speaker 3: Yeah, and you're not building pipelines anymore?
Speaker 10: Are they You hit the nail on the head. It's
Speaker 10: like it's like I tell people, be like trying to
Speaker 10: get an easement for a for a railroad track, right,
Speaker 10: you think about that today you can't do that, and
Speaker 10: then you have environmental concerns and it's hard to get
Speaker 10: these days.
Speaker 2: I tell people, when I was pitching the billboard companies
Speaker 2: back in the day, I say, they're not making any
Speaker 2: more billboards.
Speaker 3: Can't get them up. Yeah, you gotta by the ones
Speaker 3: that are out.
Speaker 1: There, and how's that business going?
Speaker 3: Awesome? Yeah, awesome.
Speaker 2: You can't You can't click through a billboard ad. You know,
Speaker 2: that's true, can't block it?
Speaker 1: That's true. What about other real estate plays? For example,
Speaker 1: in Texas, I know there are a lot of big
Speaker 1: data centers, there's a lot of big factory sorry, big
Speaker 1: warehouse businesses. You got a lot of land down there, right,
Speaker 1: So there's even green energy is a huge industry in Texas,
Speaker 1: despite what we may all think about Texans attitudes towards that.
Speaker 10: Well, that's true. But what we see and I'm I'm
Speaker 10: involved quite a quite heavily in a community bank, and
Speaker 10: so I see a lot what's going on on the
Speaker 10: real estate side. What we're seeing, Matt is really we're
Speaker 10: starting to see even some industrial properties come up for
Speaker 10: least because they're not full. And now we're starting to
Speaker 10: see some commercial buildings actually go back to the banks.
Speaker 10: I mean they're giving the keys back, and so it's
Speaker 10: starting to show. It's starting to show it's where and
Speaker 10: tear there too.
Speaker 2: So do you guys at the bank you're involved with,
Speaker 2: you have commercial real estate exposure very very little fortunately, okay,
Speaker 2: But so are your customers. I mean, what are you
Speaker 2: seeing at that regional bank level. Is there loan demand
Speaker 2: there at these interest rates?
Speaker 10: You know, in most community banks, Paul, the loan aman
Speaker 10: is about steady. It really is not going up or down.
Speaker 10: All the banks are fighting to try to get the loans.
Speaker 10: And so while you've got an eight and a half
Speaker 10: percent prime, they're having to come in at six and
Speaker 10: a half or six and three quarters and to get
Speaker 10: that business. That's what we're seeing. I think they're really
Speaker 10: the banks are really concerned about it because most of
Speaker 10: them have a situation where they have bond portfolios that
Speaker 10: are not all that great. And then the other problem
Speaker 10: is they can get a lot of new you know
Speaker 10: see and nine new business loans.
Speaker 3: That's hard for them.
Speaker 2: So broadly defined, I mean, Texas is so big you
Speaker 2: can't talk about the state, But I mean, what are
Speaker 2: some of the driving forces down there for the economy.
Speaker 2: Is it still just people or people and businesses are
Speaker 2: coming into the state because of maybe favorable tax situation,
Speaker 2: good labor forces.
Speaker 3: That's still the story there.
Speaker 10: Well, that's what we see now at Oxbode. We do
Speaker 10: business in forty states, so we do business all over
Speaker 10: the country. But in Texas we have a lot of
Speaker 10: new business that came in just from people that moved
Speaker 10: from other states at high tax states. They just got
Speaker 10: tired of what was going on in some of their states.
Speaker 10: On the business side, portsol and gas is still a
Speaker 10: big business in Texas, but we have a lot of manufacturing,
Speaker 10: We have a lot of tech. We have a lot
Speaker 10: of things that happen in the state. You know, the
Speaker 10: state's it's still a place where you can go and
Speaker 10: sort of be a bit of a maverick. And I
Speaker 10: think why people come there.
Speaker 3: Yeah, I'm telling you like freedom, I know exactly.
Speaker 2: It's in short supply some taxes, man, Yeah, can crush here.
Speaker 3: Tell me about telling you about it all right? So
Speaker 3: what's your over the next twelve months?
Speaker 2: Ted, what do you do you think you guys will
Speaker 2: get more into the equity market, increase your exposure. What
Speaker 2: do you think you'll be making some changes to your
Speaker 2: portfolio of the next twelve months.
Speaker 3: What do you anticipate?
Speaker 10: It would not surprise me to see us at least
Speaker 10: get a lot more if we have a break in
Speaker 10: the market that we feel like things are cheap enough,
Speaker 10: You'll see, let's get almost fully invested. We'll find companies
Speaker 10: we usually will. We really run about two hundred hundred
Speaker 10: and fifty companies that we would want to own that
Speaker 10: we look at quite a bit. Most of those are
Speaker 10: not hitting the screens we want to to buy right now.
Speaker 3: And is that a valuation screen?
Speaker 10: There's a valuation screen we like companies with. We find
Speaker 10: in the long run you need own companies that don't
Speaker 10: have a lot of debt. I mean, you know, debt
Speaker 10: really for us is not working in the long run
Speaker 10: for companies, and we just feel like we'll get a
Speaker 10: shot at better valuations we have right now.
Speaker 3: What's your latest book? Stay rich with a balance portfolio?
Speaker 7: Right?
Speaker 3: So what am I doing there?
Speaker 2: Am I just rish reward, making sure I don't get
Speaker 2: too far too skewed one way or the other.
Speaker 7: You know.
Speaker 10: One of the things I've noticed really since the pandemic particularly,
Speaker 10: is that people are really they're all in one or
Speaker 10: two things, like maybe they go all into crypt currency,
Speaker 10: all into real estate, all into the Magnificent seven, all
Speaker 10: in something, you know, and they don't have any balance.
Speaker 10: And one of the things I've found, and I've really
Speaker 10: interviewed in my life quite a few billionaires, and one
Speaker 10: of the things I've noticed about them is they usually
Speaker 10: have balance. May not think it, but they have quite
Speaker 10: a bit of balance, have quite a bit of liquidity.
Speaker 10: And I see people today that are sort of complacent
Speaker 10: because nothing real bad has happened so far, and so
Speaker 10: they're all chocked full of one thing. And I just
Speaker 10: think that's not a good way to go. If you
Speaker 10: want to, I'll just give you a note. If you
Speaker 10: take a million dollar person nineteen hundred, they'd be a
Speaker 10: billion a day.
Speaker 3: Yep, there you go. I could do that.
Speaker 2: Man, Ted Oakley, thank you so much for joining us
Speaker 2: at Ted Oakley. He's a founder and managing partner in
Speaker 2: Oxbow Advisors. You should get him on the phone, but
Speaker 2: he's up here in the big Apple today, so we
Speaker 2: got him in the studio.
Speaker 1: Thanks for listening to the Bloomberg Markets podcasts. You can
Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller nineteen seventy three.
Speaker 3: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.
Speaker 2: Before the podcast, you can always catch us worldwide at
Speaker 2: Bloomberg Radio.