1 00:00:00,840 --> 00:00:04,000 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 2 00:00:04,040 --> 00:00:05,280 Speaker 1: my co host Matt Miller. 3 00:00:05,640 --> 00:00:09,600 Speaker 2: Every business day we bring you interviews from CEOs, market pros, 4 00:00:09,720 --> 00:00:13,640 Speaker 2: and Bloomberg experts, along with essential market moving news. 5 00:00:14,160 --> 00:00:17,279 Speaker 1: Find the Bloomberg Markets Podcast called Apple Podcasts or wherever 6 00:00:17,400 --> 00:00:20,480 Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast. 7 00:00:20,760 --> 00:00:23,000 Speaker 1: For joining us here in our Bloomberg Interactive Broker studio 8 00:00:23,360 --> 00:00:26,000 Speaker 1: is Erica Adelberg. Does not phone it in, does not 9 00:00:26,079 --> 00:00:28,360 Speaker 1: meld in. She shows up in the studio, and we 10 00:00:28,400 --> 00:00:31,720 Speaker 1: appreciate that. She's a mortgage backed security strategist for Bloomberg Intelligence, 11 00:00:31,920 --> 00:00:34,159 Speaker 1: has been on the street for a number of years. 12 00:00:34,200 --> 00:00:36,879 Speaker 1: We appreciate getting your time. I don't know, Erica, we 13 00:00:36,880 --> 00:00:40,080 Speaker 1: got a mortgage rate north of seven percent. What's going 14 00:00:40,120 --> 00:00:41,760 Speaker 1: on in the NBS market these days? 15 00:00:42,600 --> 00:00:46,320 Speaker 3: Hi, good morning, Thanks for having me on. We actually 16 00:00:46,360 --> 00:00:50,640 Speaker 3: are seeing a huge decline in mortgage demand, which is 17 00:00:50,760 --> 00:00:53,600 Speaker 3: just you know, symbolica, the fact that the housing market's 18 00:00:53,640 --> 00:00:56,920 Speaker 3: really freezing up. New homes are still doing okay, there's 19 00:00:57,320 --> 00:01:02,160 Speaker 3: a way to for homebuilders to offer lower rates, and frankly, 20 00:01:02,200 --> 00:01:04,440 Speaker 3: there's more inventory right now. I mean it's about a 21 00:01:04,440 --> 00:01:06,840 Speaker 3: third of the existing inventory. Because you can build a 22 00:01:06,840 --> 00:01:09,440 Speaker 3: new home, you can't get somebody to necessarily sell their 23 00:01:09,440 --> 00:01:11,760 Speaker 3: home if they're sitting on a three percent mortgage and 24 00:01:11,800 --> 00:01:13,560 Speaker 3: they'd have to take out a new eight percent one 25 00:01:13,600 --> 00:01:18,639 Speaker 3: like Matt Yeah, not selling. Yeah, So the housing market's 26 00:01:18,640 --> 00:01:22,280 Speaker 3: pretty frozen, and on a seasonally adjusted basis, the mortgage 27 00:01:22,319 --> 00:01:26,839 Speaker 3: back security loan application index that the Mortgage Banker Association 28 00:01:26,880 --> 00:01:29,360 Speaker 3: puts out just hit the lowest levels since nineteen ninety 29 00:01:29,360 --> 00:01:32,039 Speaker 3: five or nineteen ninety six, So I. 30 00:01:31,959 --> 00:01:35,040 Speaker 2: Think, so, wait, does this mean for the mortgage back 31 00:01:35,720 --> 00:01:40,720 Speaker 2: bond market that those are scarce and thus rising in price. 32 00:01:41,760 --> 00:01:45,160 Speaker 3: Yeah, it's an interesting a number of interesting dynamics. I 33 00:01:45,200 --> 00:01:48,120 Speaker 3: actually just sent out a little commentary today. It does 34 00:01:48,320 --> 00:01:51,480 Speaker 3: mean that new issue supplies going to be very low, 35 00:01:51,800 --> 00:01:54,760 Speaker 3: which should be a positive for the mortgage backed securities market. 36 00:01:55,240 --> 00:01:57,800 Speaker 3: But even so, even though you know a lot of 37 00:01:57,800 --> 00:01:59,800 Speaker 3: these homeowners are well out of the money and they're 38 00:01:59,840 --> 00:02:04,520 Speaker 3: not going to refinance, you know, anytime soon, mortgage backed 39 00:02:04,520 --> 00:02:08,080 Speaker 3: security still sensitive to volatility, and they're still sensitive to 40 00:02:08,120 --> 00:02:11,280 Speaker 3: what the Fed's going to do. So as a result, 41 00:02:11,480 --> 00:02:12,840 Speaker 3: you know, we kind of thought this would be a 42 00:02:12,880 --> 00:02:14,880 Speaker 3: pretty good year for mortgage back security. Not a lot 43 00:02:14,880 --> 00:02:17,400 Speaker 3: of supply. We thought maybe the treasury market would rally, 44 00:02:17,520 --> 00:02:19,560 Speaker 3: you know, once the FED was done tightening, but that 45 00:02:19,639 --> 00:02:20,360 Speaker 3: hasn't happened. 46 00:02:20,680 --> 00:02:23,080 Speaker 2: How many does the FED own Do they have a 47 00:02:23,120 --> 00:02:24,680 Speaker 2: stack of mortgage back bonds? 48 00:02:24,919 --> 00:02:28,160 Speaker 3: They said the FED owns about two point six trillion 49 00:02:28,280 --> 00:02:31,679 Speaker 3: mortgage backed securities. For the past two years, during the pandemic, 50 00:02:31,720 --> 00:02:35,280 Speaker 3: I should say, in twenty twenty twenty one, they were 51 00:02:35,320 --> 00:02:37,639 Speaker 3: waving them in hand of or fist to help support 52 00:02:37,680 --> 00:02:40,639 Speaker 3: the mortgage market and help support bonds overall. And they've 53 00:02:40,639 --> 00:02:43,080 Speaker 3: stopped doing that because they want rates to rise now 54 00:02:43,080 --> 00:02:45,880 Speaker 3: they want to slow down the economy and that's been 55 00:02:45,919 --> 00:02:48,959 Speaker 3: a negative drag on the mortgage backed securities market as well, 56 00:02:49,120 --> 00:02:51,200 Speaker 3: just not having them in there as a bus. 57 00:02:51,240 --> 00:02:54,080 Speaker 2: They're not going to sell them, right in quantitative tightening, 58 00:02:54,120 --> 00:02:57,720 Speaker 2: they let the bonds they hold off run off, and 59 00:02:57,760 --> 00:03:00,000 Speaker 2: they don't. But they're not going to sell mortgage back security. 60 00:03:00,240 --> 00:03:02,880 Speaker 3: I mean never say never, no guarantees, but they've said 61 00:03:02,919 --> 00:03:05,320 Speaker 3: if that's happening, it's a long ways in the future, 62 00:03:05,360 --> 00:03:08,560 Speaker 3: and they'll let the market have plenty of advanced warnings, 63 00:03:08,600 --> 00:03:11,520 Speaker 3: so you know they're not making any noises towards it. 64 00:03:11,520 --> 00:03:14,200 Speaker 3: About a year ago, some of the FED governors were 65 00:03:14,200 --> 00:03:16,880 Speaker 3: at least maybe they're trying to job own mortgage rates higher, 66 00:03:16,880 --> 00:03:19,440 Speaker 3: who knows, So they were saying, oh, we really don't 67 00:03:19,440 --> 00:03:22,120 Speaker 3: want to own this many mortgage backed securities. But you know, 68 00:03:22,160 --> 00:03:24,639 Speaker 3: there's also not been any move in that direction, so 69 00:03:24,680 --> 00:03:26,480 Speaker 3: I don't think that's that's certainly not the base case 70 00:03:26,480 --> 00:03:27,440 Speaker 3: of anybody's expectations. 71 00:03:27,440 --> 00:03:29,760 Speaker 2: Okay, what's your take on the long and variable lags, 72 00:03:30,120 --> 00:03:34,840 Speaker 2: because I've heard an interesting debate. Some people say, because 73 00:03:35,200 --> 00:03:39,440 Speaker 2: there are no more adjustable rate mortgages except for Paul's, 74 00:03:40,520 --> 00:03:44,119 Speaker 2: and everybody has locked in a thirty year rate, they're 75 00:03:44,160 --> 00:03:48,360 Speaker 2: going to be even longer variable lags, you know. But 76 00:03:48,600 --> 00:03:51,720 Speaker 2: others like Jan Hati has came out yesterday and said 77 00:03:52,440 --> 00:03:56,560 Speaker 2: he thinks it's shorter, you know, because the FED telegraphs 78 00:03:56,600 --> 00:03:58,560 Speaker 2: everything they're going to do so far in advance. 79 00:03:58,600 --> 00:04:00,600 Speaker 4: And what do you what do you think? 80 00:04:01,320 --> 00:04:01,880 Speaker 5: I think? 81 00:04:01,920 --> 00:04:04,640 Speaker 3: You know, I can't really compare it to history. I 82 00:04:04,720 --> 00:04:09,920 Speaker 3: think that you know, if you look at traditionally movements 83 00:04:09,920 --> 00:04:14,440 Speaker 3: and mortgage rates slash, you know, housing market prices and rents, 84 00:04:14,480 --> 00:04:17,839 Speaker 3: there's a pretty long and variable lag. But one of 85 00:04:17,880 --> 00:04:22,039 Speaker 3: the things, you know, aside from you know, perhaps the telegraphing, 86 00:04:22,440 --> 00:04:24,960 Speaker 3: home prices are actually holding up very well. And I 87 00:04:24,960 --> 00:04:29,080 Speaker 3: think that's a very key source both of rental incomes 88 00:04:29,360 --> 00:04:32,960 Speaker 3: as well as you know, people's wealth effect. So I 89 00:04:32,960 --> 00:04:35,200 Speaker 3: think to the extent that home prices are kind of 90 00:04:35,240 --> 00:04:37,840 Speaker 3: failing to fall at this point, I think that does 91 00:04:38,000 --> 00:04:40,680 Speaker 3: actually make the lags relatively long. 92 00:04:41,279 --> 00:04:43,960 Speaker 1: So what's the mortgage backed security market telling you about 93 00:04:44,000 --> 00:04:46,960 Speaker 1: interest rates? I mean, people are talking about a FED 94 00:04:47,160 --> 00:04:50,120 Speaker 1: maybe in twenty twenty four cutting rates, but you don't 95 00:04:50,120 --> 00:04:51,719 Speaker 1: see that in the mortgage rate at all. Seven point 96 00:04:51,800 --> 00:04:54,480 Speaker 1: five nine percent on the bank rate dot com US 97 00:04:54,480 --> 00:04:57,960 Speaker 1: home mortgage thirty or fixed seven point five nine percent. 98 00:04:58,320 --> 00:05:00,920 Speaker 3: I mean, that's obviously a very current r right. It's 99 00:05:01,000 --> 00:05:03,760 Speaker 3: it's it's not a forecasting rate, it's not really forward rate, 100 00:05:03,880 --> 00:05:06,280 Speaker 3: but it is based on to some degree the ten 101 00:05:06,320 --> 00:05:10,279 Speaker 3: year treasury you know, plus some spread. And what that's 102 00:05:10,320 --> 00:05:12,800 Speaker 3: telling you is that we've had you know, that the 103 00:05:12,880 --> 00:05:16,520 Speaker 3: curve is uninverted a little bit because the markets are 104 00:05:16,560 --> 00:05:19,159 Speaker 3: telling you that that eields are going to have to 105 00:05:19,200 --> 00:05:22,680 Speaker 3: stay higher for longer while the FED continues to try 106 00:05:22,680 --> 00:05:25,360 Speaker 3: to get inflation under control and you know, slow down 107 00:05:25,400 --> 00:05:26,320 Speaker 3: the economy a little bit. 108 00:05:26,920 --> 00:05:28,760 Speaker 1: Can I get any return in your market? I mean, 109 00:05:28,800 --> 00:05:30,880 Speaker 1: I'm looking at the Is it kind of flat year 110 00:05:30,880 --> 00:05:33,000 Speaker 1: to date in terms of the works backed security return? 111 00:05:33,360 --> 00:05:36,359 Speaker 3: Yeah, it's flat so far, which reminds me there's upside 112 00:05:36,360 --> 00:05:39,760 Speaker 3: going forward. You know, spreads are very wide, you know, 113 00:05:39,800 --> 00:05:41,960 Speaker 3: they're they're kind of you know, near ten year wides. 114 00:05:42,160 --> 00:05:45,640 Speaker 3: They're actually not as wide if you look before the 115 00:05:45,680 --> 00:05:47,360 Speaker 3: FED started buying in two thousand and eight, you know, 116 00:05:47,560 --> 00:05:49,120 Speaker 3: and the post financial crisis. 117 00:05:48,880 --> 00:05:50,039 Speaker 5: World, they're very wide. 118 00:05:51,000 --> 00:05:52,480 Speaker 3: And you know, the Fed's probably not going to come 119 00:05:52,480 --> 00:05:56,279 Speaker 3: in and save the mortgage market anytime soon. As you said, 120 00:05:56,320 --> 00:05:58,800 Speaker 3: they're more inclined to sell though I don't think they will. 121 00:05:59,279 --> 00:06:03,640 Speaker 3: So as there is result, yeah, there's there's a better buffer, 122 00:06:03,680 --> 00:06:05,040 Speaker 3: you have a lot more yield, you have a lot 123 00:06:05,120 --> 00:06:07,560 Speaker 3: more spread, But you have to have a little bit 124 00:06:07,839 --> 00:06:11,160 Speaker 3: stronger stomach too, because you know, maybe the federal continue 125 00:06:11,160 --> 00:06:13,320 Speaker 3: pushing re hire or at least job runing them higher. 126 00:06:13,400 --> 00:06:15,880 Speaker 3: So that's what cuts into mortgage out security returns. 127 00:06:16,000 --> 00:06:19,560 Speaker 1: So again today we had the NBA mortgage applications decline 128 00:06:19,600 --> 00:06:22,320 Speaker 1: of two point nine percent versus a prior period of 129 00:06:22,320 --> 00:06:25,680 Speaker 1: a positive two point three percent. How unusual is that 130 00:06:25,760 --> 00:06:27,840 Speaker 1: kind of swing period to period. 131 00:06:28,320 --> 00:06:30,000 Speaker 3: I think the best thing to think about when you're 132 00:06:30,000 --> 00:06:33,080 Speaker 3: looking at something like the NBA Purchase Index being right 133 00:06:33,120 --> 00:06:36,800 Speaker 3: now at the lowest rate since nineteen ninety five, these 134 00:06:36,839 --> 00:06:41,120 Speaker 3: are percentage changes off extremely low numbers. Okay, so you know, 135 00:06:41,440 --> 00:06:43,800 Speaker 3: if one more person takes out a mortgage purchase, it's 136 00:06:43,839 --> 00:06:44,680 Speaker 3: going to influence the. 137 00:06:46,240 --> 00:06:46,560 Speaker 5: Number. 138 00:06:46,640 --> 00:06:49,600 Speaker 3: So yeah, I think, you know, the direction has to 139 00:06:49,680 --> 00:06:51,359 Speaker 3: be looked at over a longer period of time. And 140 00:06:51,400 --> 00:06:54,600 Speaker 3: we're down thirty percent relative to a year ago, and 141 00:06:54,680 --> 00:06:56,719 Speaker 3: even a year ago rates had already started rising. 142 00:06:56,839 --> 00:06:58,960 Speaker 1: Is there a rate where I don't know, the market 143 00:06:59,000 --> 00:07:01,200 Speaker 1: opens up, people start buying and selling houses again. I mean, 144 00:07:01,240 --> 00:07:03,360 Speaker 1: at one point I heard somebody say like, yeah, five 145 00:07:03,480 --> 00:07:05,400 Speaker 1: five and a half percent for mortgage rates, get back 146 00:07:05,440 --> 00:07:06,000 Speaker 1: down to there. 147 00:07:06,320 --> 00:07:07,640 Speaker 4: But boy, we're a long way from that. 148 00:07:08,320 --> 00:07:10,400 Speaker 3: Yeah we are. We're currently, as you said, at seven 149 00:07:10,400 --> 00:07:13,600 Speaker 3: point five percent on the bank rate. You know, it's 150 00:07:13,920 --> 00:07:15,920 Speaker 3: hard to put a number on something like that. I 151 00:07:15,920 --> 00:07:18,480 Speaker 3: think part of it will be time as well, because 152 00:07:18,560 --> 00:07:22,679 Speaker 3: just over time, people have to upsize their homes, you know, death, 153 00:07:22,720 --> 00:07:26,160 Speaker 3: divorce taxes, defaults, we're it's certainly not facing defaults anytime, 154 00:07:26,240 --> 00:07:29,200 Speaker 3: staying with unemployment you know, pretty much all time lows. 155 00:07:29,520 --> 00:07:33,680 Speaker 3: But you know that being said, time will help. More 156 00:07:33,720 --> 00:07:37,520 Speaker 3: mortgages are getting originated, albeit slowly at these higher rates, 157 00:07:38,320 --> 00:07:40,200 Speaker 3: and those people, of course aren't quite as locked in. 158 00:07:40,840 --> 00:07:43,800 Speaker 3: But I think the mortgage market structure is going to stay, 159 00:07:44,040 --> 00:07:46,480 Speaker 3: you know, in the very low coupon range for a 160 00:07:46,680 --> 00:07:49,040 Speaker 3: very long time. So I don't think we'll have the 161 00:07:49,160 --> 00:07:51,400 Speaker 3: kind of turnover we're used to seeing the housing market 162 00:07:51,480 --> 00:07:52,720 Speaker 3: for a decade. 163 00:07:52,760 --> 00:07:53,600 Speaker 4: You know, it's a great thing. 164 00:07:54,240 --> 00:07:59,440 Speaker 1: Downsizing, Yeah, nice that no tax, then cash burns a 165 00:07:59,520 --> 00:08:01,080 Speaker 1: fraction what it was back in the day. 166 00:08:01,200 --> 00:08:04,000 Speaker 2: I'm excited for that to happen to me in twenty 167 00:08:04,560 --> 00:08:05,360 Speaker 2: twenty years or so. 168 00:08:05,520 --> 00:08:07,440 Speaker 3: And when you downsize you can sometimes take out the 169 00:08:07,520 --> 00:08:09,520 Speaker 3: entire equity of your home and not have to take 170 00:08:09,520 --> 00:08:11,520 Speaker 3: out a mortgage at all. So those types of things 171 00:08:11,560 --> 00:08:13,400 Speaker 3: will keep the housing market. And there is a whole 172 00:08:13,400 --> 00:08:15,680 Speaker 3: bunch of people that are you know, in the next 173 00:08:15,720 --> 00:08:18,880 Speaker 3: generation that are kind of ready to downsize, you know. 174 00:08:19,960 --> 00:08:22,080 Speaker 1: So so those then you got people like John Tucker, 175 00:08:22,120 --> 00:08:25,600 Speaker 1: who actually does the repairs to his own home right well, 176 00:08:25,600 --> 00:08:26,640 Speaker 1: he's never downsized. 177 00:08:26,680 --> 00:08:28,960 Speaker 4: He still lives in the mansion, still in the sea, 178 00:08:29,680 --> 00:08:32,400 Speaker 4: but there is a there's a guest cottage on the 179 00:08:32,720 --> 00:08:35,719 Speaker 4: on the estate. So at some point that's. 180 00:08:35,559 --> 00:08:36,319 Speaker 1: What you need to do. 181 00:08:36,520 --> 00:08:36,880 Speaker 6: Yeah. 182 00:08:37,000 --> 00:08:38,280 Speaker 2: I thought he was going to say I could move 183 00:08:38,320 --> 00:08:42,040 Speaker 2: in or at least stay there for the weekend. 184 00:08:42,160 --> 00:08:44,960 Speaker 1: Yeah, you know, exactly, down to sure. All right, Erica, 185 00:08:45,000 --> 00:08:46,920 Speaker 1: thank you so much for joining us. Erica Adelberg, she's 186 00:08:46,960 --> 00:08:49,640 Speaker 1: a mortgage backed security strategist for Bloomberg Intelligence. 187 00:08:49,640 --> 00:08:51,640 Speaker 2: At some point we got to talk about porting mortgages, 188 00:08:52,679 --> 00:08:54,640 Speaker 2: you know, because I locked in a three percent rate, 189 00:08:54,920 --> 00:08:58,680 Speaker 2: and if I wanted I love my house, I'm not 190 00:08:58,679 --> 00:09:00,720 Speaker 2: going to sell it. My wife's listening, don't freak out. 191 00:09:00,760 --> 00:09:04,080 Speaker 2: But if I did want to, I'd like to take 192 00:09:04,160 --> 00:09:06,440 Speaker 2: my three percent mortgage with me and use it to 193 00:09:06,440 --> 00:09:07,160 Speaker 2: buy another house. 194 00:09:07,200 --> 00:09:08,640 Speaker 4: You can in some cases. 195 00:09:08,679 --> 00:09:12,120 Speaker 2: I don't know the exact details, but some mortgages can 196 00:09:12,160 --> 00:09:14,240 Speaker 2: be ported in some ways. 197 00:09:14,640 --> 00:09:17,600 Speaker 3: So in other countries that's definitely true, like in Canada, 198 00:09:17,800 --> 00:09:19,800 Speaker 3: but I haven't really heard of that being a thing here. 199 00:09:19,640 --> 00:09:20,440 Speaker 4: As much Canada. 200 00:09:20,679 --> 00:09:22,719 Speaker 3: All right, so you move to Canada, you can't take 201 00:09:22,720 --> 00:09:23,480 Speaker 3: your mortgage with you. 202 00:09:23,920 --> 00:09:24,800 Speaker 4: Take your mortgage with you. 203 00:09:25,000 --> 00:09:29,480 Speaker 7: Thanks again, you're listening to the Team Kenser Live program 204 00:09:29,600 --> 00:09:33,520 Speaker 7: Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, 205 00:09:33,600 --> 00:09:36,760 Speaker 7: the iHeartRadio app and the Bloomberg Business App, or listen 206 00:09:36,840 --> 00:09:39,080 Speaker 7: on demand wherever you get your podcasts. 207 00:09:41,040 --> 00:09:42,760 Speaker 1: Let's go across upon and take a look at what's 208 00:09:42,800 --> 00:09:46,559 Speaker 1: happening the economies of our good friends in Europe and 209 00:09:46,600 --> 00:09:50,200 Speaker 1: the UK. Doctor Vaniet Estavakava joins us. She's professor of 210 00:09:50,240 --> 00:09:51,920 Speaker 1: economics at the London Business School. 211 00:09:53,360 --> 00:09:54,960 Speaker 4: Professor, seems like the. 212 00:09:54,960 --> 00:09:57,120 Speaker 1: US economy is doing pretty well to the point where 213 00:09:57,160 --> 00:09:59,040 Speaker 1: this FED doesn't need to really do anything to kind 214 00:09:59,080 --> 00:10:02,840 Speaker 1: of maybe you know, we've got inflation kind of running okay, 215 00:10:02,880 --> 00:10:05,120 Speaker 1: we've got the economy kind of running okay. Just give 216 00:10:05,160 --> 00:10:08,920 Speaker 1: us the thirty thousand foot view of Europe in general 217 00:10:08,960 --> 00:10:10,520 Speaker 1: and then we'll take down a little deeper. 218 00:10:11,600 --> 00:10:13,640 Speaker 8: So thank you very much for having me. Always a 219 00:10:13,640 --> 00:10:16,000 Speaker 8: pleasure to be here. So indeed, there is quite a 220 00:10:16,000 --> 00:10:18,560 Speaker 8: bit of divergence between the US and Europe and definitely 221 00:10:18,720 --> 00:10:22,640 Speaker 8: UK as well, which is due to structural reasons. So 222 00:10:22,920 --> 00:10:24,960 Speaker 8: the German economy, for example, if you take the biggest 223 00:10:24,960 --> 00:10:28,200 Speaker 8: country in the Eurozone, is significantly different from the US economy, 224 00:10:29,080 --> 00:10:31,640 Speaker 8: we would expect that inflation will be high in Germany, 225 00:10:31,679 --> 00:10:34,040 Speaker 8: and would expect the inflation from the worse in Germany 226 00:10:34,160 --> 00:10:37,480 Speaker 8: and to see stagnation or even decreasing growth, which is 227 00:10:37,480 --> 00:10:40,920 Speaker 8: what the recent numbers show based on a few observations. 228 00:10:41,240 --> 00:10:44,200 Speaker 8: So first, the euro Zone and Germany in general in 229 00:10:44,240 --> 00:10:47,480 Speaker 8: general just much more open relative to the US. So 230 00:10:47,559 --> 00:10:50,000 Speaker 8: if you take one measure of openness which is expert 231 00:10:50,120 --> 00:10:52,960 Speaker 8: relative to GDP, and just take China, which of course, 232 00:10:53,000 --> 00:10:56,400 Speaker 8: as we know, has decreased its demand for imports due 233 00:10:56,440 --> 00:10:59,600 Speaker 8: to the slow in growth in China. So the connection 234 00:10:59,679 --> 00:11:03,120 Speaker 8: between in Germany and China is two point five percent 235 00:11:03,320 --> 00:11:06,520 Speaker 8: of the German GDP. So Germany exports two point five 236 00:11:06,559 --> 00:11:09,120 Speaker 8: percent of its GDP to China. So an external shock 237 00:11:09,160 --> 00:11:11,760 Speaker 8: from China is going to impact the German economy, for example, 238 00:11:11,920 --> 00:11:14,760 Speaker 8: a lot. The difference is with the US the number 239 00:11:14,840 --> 00:11:17,520 Speaker 8: is zero point six percent, so of course it's not 240 00:11:17,679 --> 00:11:20,360 Speaker 8: just China. Actually, over the last year, the euro has 241 00:11:20,600 --> 00:11:23,520 Speaker 8: appreciated against the door by more than ten percent, close 242 00:11:23,559 --> 00:11:24,199 Speaker 8: to twelve percent. 243 00:11:24,480 --> 00:11:26,360 Speaker 2: Thennie, can I just jump in here and ask about 244 00:11:26,640 --> 00:11:30,600 Speaker 2: quickly about China. I keep hearing that the slump in 245 00:11:30,720 --> 00:11:34,520 Speaker 2: China is affecting other economies badly, and everyone's kind of 246 00:11:34,559 --> 00:11:38,080 Speaker 2: writing off the economy there. But aren't they pulling out 247 00:11:38,160 --> 00:11:41,280 Speaker 2: some real stimulus now? Isn't it possible that the Chinese 248 00:11:41,360 --> 00:11:44,000 Speaker 2: economy does start to pick up? 249 00:11:45,240 --> 00:11:46,960 Speaker 8: Well, they've been kind of trying to do it for 250 00:11:46,960 --> 00:11:49,520 Speaker 8: a while. I don't think they're proposing anything new. I 251 00:11:49,559 --> 00:11:52,080 Speaker 8: believe the China is on a downward trend. We're talking 252 00:11:52,080 --> 00:11:54,560 Speaker 8: about a trend here at and a temporary, essentially one 253 00:11:54,600 --> 00:11:58,320 Speaker 8: blip deviation from growth. China cannot grow the way it's 254 00:11:58,360 --> 00:12:00,520 Speaker 8: used for a number of reasons which are quite long 255 00:12:00,559 --> 00:12:04,120 Speaker 8: to discuss. So I do believe that actually the trend 256 00:12:04,160 --> 00:12:05,280 Speaker 8: will perceift in China. 257 00:12:05,360 --> 00:12:08,360 Speaker 4: Okay, I just wanted to get that straight. I believe you. 258 00:12:08,520 --> 00:12:11,120 Speaker 2: I just have been a little bit confused because we 259 00:12:11,200 --> 00:12:14,560 Speaker 2: report on every stimulus move like it's a huge deal, 260 00:12:14,640 --> 00:12:16,520 Speaker 2: you know, like, oh man, they're cutting the triple R 261 00:12:17,360 --> 00:12:20,920 Speaker 2: reserve ratio, and they're they're they're funding you know, little 262 00:12:21,000 --> 00:12:22,800 Speaker 2: kids and old parents and so. 263 00:12:23,040 --> 00:12:25,280 Speaker 4: But but I think I hear you. 264 00:12:25,640 --> 00:12:28,480 Speaker 8: I think it's important actually to zoom out and look 265 00:12:28,520 --> 00:12:31,720 Speaker 8: at not just the recent news, but a compilation of 266 00:12:31,760 --> 00:12:33,720 Speaker 8: news and trends. I mean, that's kind of what we 267 00:12:33,840 --> 00:12:36,880 Speaker 8: do usually in Nicoon, not just focusing on single news. 268 00:12:37,040 --> 00:12:40,800 Speaker 8: Speaking of trends, going back to the euro on appreciation 269 00:12:40,880 --> 00:12:43,560 Speaker 8: of the euro, twelve percent is massive. This is going 270 00:12:43,600 --> 00:12:47,120 Speaker 8: to impact the eurosone economy in Germany the most. Now, 271 00:12:47,160 --> 00:12:49,080 Speaker 8: what else is different for Germany? So there are the 272 00:12:49,080 --> 00:12:51,240 Speaker 8: major differences between Germany and the US coming from the 273 00:12:51,240 --> 00:12:55,600 Speaker 8: fact that Germany is primarily dominated by manufacturing. So manufacturing 274 00:12:55,720 --> 00:12:58,080 Speaker 8: is still much more important in Germany than the US. 275 00:12:58,360 --> 00:13:00,679 Speaker 8: So then the shocks are so sated with the high 276 00:13:00,720 --> 00:13:04,920 Speaker 8: oil price, oil and gas prices impacting the marginal cost 277 00:13:04,960 --> 00:13:08,000 Speaker 8: of production. The margin for the manufacturing sector is another 278 00:13:08,040 --> 00:13:10,240 Speaker 8: big problem, right, so those costs had to be passed 279 00:13:10,280 --> 00:13:14,000 Speaker 8: forward to the final consumer for the manufacturing sector, so 280 00:13:14,080 --> 00:13:17,200 Speaker 8: the prices of manufacturing goals had to increase more so 281 00:13:17,280 --> 00:13:20,959 Speaker 8: high inflation in Germany. Similarly, the labor tightness. So Germany 282 00:13:20,960 --> 00:13:24,160 Speaker 8: has demographic problems. They have aging population much more than 283 00:13:24,200 --> 00:13:26,800 Speaker 8: the US. So you have seen the articles that the 284 00:13:26,840 --> 00:13:30,599 Speaker 8: manufacturing sector is struggling to hire employees aage inflation is 285 00:13:30,640 --> 00:13:33,160 Speaker 8: going to be higher. So these are structural differences that 286 00:13:33,200 --> 00:13:35,840 Speaker 8: are here to stay. They're not going to disappear overnight. 287 00:13:36,760 --> 00:13:39,000 Speaker 8: That are putting the US and Germany in a very 288 00:13:39,000 --> 00:13:42,360 Speaker 8: different position. Now, this creates a lot of challenges for SB, 289 00:13:43,840 --> 00:13:46,480 Speaker 8: of course, because Germany is one of many countries in 290 00:13:46,520 --> 00:13:48,880 Speaker 8: the Eurozone, and the German economy is also different from 291 00:13:48,920 --> 00:13:51,880 Speaker 8: Southern Europe and from other countries. So then the question 292 00:13:52,040 --> 00:13:54,240 Speaker 8: is what is easy to be going to do. I 293 00:13:54,280 --> 00:13:56,840 Speaker 8: do believe that in general easy it tends to put 294 00:13:56,840 --> 00:13:59,640 Speaker 8: a high way on the German economy highweight. That's what 295 00:13:59,679 --> 00:14:02,680 Speaker 8: we saw in the global financial crisis, for example. Probably 296 00:14:02,679 --> 00:14:05,280 Speaker 8: it will be the same in this case. Having said that, 297 00:14:05,600 --> 00:14:09,240 Speaker 8: given that the news are high, inflation above target and 298 00:14:09,280 --> 00:14:12,600 Speaker 8: actually significantly about target, so more than five percent coinflation 299 00:14:12,679 --> 00:14:16,880 Speaker 8: is very uncomfortable situation for CB, even if the German 300 00:14:16,880 --> 00:14:18,880 Speaker 8: economy is so down, even if there is aerization, I 301 00:14:18,920 --> 00:14:21,200 Speaker 8: do not see how they're not going to keep increasing 302 00:14:21,240 --> 00:14:24,280 Speaker 8: interest rates. We're not talking about inflation getting to three 303 00:14:24,360 --> 00:14:26,720 Speaker 8: three point five percent and then having the theory that 304 00:14:26,760 --> 00:14:29,000 Speaker 8: maybe they're targeting a bit high inflation. We're talking about 305 00:14:29,040 --> 00:14:30,120 Speaker 8: till five percent colinflation. 306 00:14:30,840 --> 00:14:33,080 Speaker 4: All right, How about the United Kingdom? 307 00:14:33,320 --> 00:14:34,880 Speaker 1: What are we seeing in terms of the economy there 308 00:14:34,880 --> 00:14:37,080 Speaker 1: and what do we expect the Bank of England to 309 00:14:37,160 --> 00:14:37,960 Speaker 1: do in response? 310 00:14:38,920 --> 00:14:42,400 Speaker 8: So for the UK, it seems that there's some evidence 311 00:14:42,600 --> 00:14:46,040 Speaker 8: that the high interest rates are starting to bite. Having 312 00:14:46,080 --> 00:14:48,560 Speaker 8: said that the UK has the worst numbers in terms 313 00:14:48,600 --> 00:14:52,880 Speaker 8: of inflation, in terms of private sector wage growth, I 314 00:14:53,000 --> 00:14:56,400 Speaker 8: don't see them posing for the time being. I mean, 315 00:14:56,440 --> 00:15:01,680 Speaker 8: they cannot pose this inflation rate. However, I do expect 316 00:15:01,720 --> 00:15:04,680 Speaker 8: a recession coming the soon, as probably in the UK. 317 00:15:04,800 --> 00:15:10,000 Speaker 8: Relative to the ide Eurozone and UK, it's it's it's 318 00:15:10,080 --> 00:15:11,960 Speaker 8: unclear which one is going to come first. But definitely 319 00:15:12,040 --> 00:15:13,720 Speaker 8: we will have a recesion in the UK because they 320 00:15:13,720 --> 00:15:15,800 Speaker 8: will have to keep hiking and even if current interest 321 00:15:15,880 --> 00:15:18,080 Speaker 8: rates is going to bite, already starting to buy. 322 00:15:19,320 --> 00:15:23,120 Speaker 2: What do you think about the the the release of 323 00:15:23,160 --> 00:15:27,520 Speaker 2: strategic the strategic petroleum reserve last year didn't really affect 324 00:15:27,880 --> 00:15:29,760 Speaker 2: the price of oil so much. 325 00:15:30,200 --> 00:15:31,800 Speaker 4: Now we're heading back up there. 326 00:15:32,680 --> 00:15:37,440 Speaker 2: Even as these problems you know of economic slowdowns hit 327 00:15:38,040 --> 00:15:41,360 Speaker 2: whole continents like Europe. How does the how does the 328 00:15:41,360 --> 00:15:45,640 Speaker 2: oil price work into your forecasts for economic growth or 329 00:15:45,760 --> 00:15:47,600 Speaker 2: contraction tributing. 330 00:15:47,240 --> 00:15:50,520 Speaker 8: Too slow slow down? So we saw that gas prices 331 00:15:50,800 --> 00:15:53,040 Speaker 8: starting to increase again, So let's see what happens with 332 00:15:53,160 --> 00:15:54,840 Speaker 8: the winter. If we have a mouth winter, it might 333 00:15:54,880 --> 00:15:57,800 Speaker 8: not be as bad. If global demands loans down, this 334 00:15:57,960 --> 00:16:02,280 Speaker 8: might offset efforts by all producing economies to decrease the supply, 335 00:16:02,320 --> 00:16:04,200 Speaker 8: which of course Opek has been trying to do that. 336 00:16:04,440 --> 00:16:06,560 Speaker 8: So it is a function of both supplying demand. So 337 00:16:06,600 --> 00:16:08,920 Speaker 8: it is a function also for although when gas producers 338 00:16:08,960 --> 00:16:12,520 Speaker 8: do in addition to what happens to demand, I don't 339 00:16:12,560 --> 00:16:15,520 Speaker 8: expect them to reach the levels of course of last winter, 340 00:16:15,640 --> 00:16:20,360 Speaker 8: unless there is another massive shock. But definitely are going 341 00:16:20,400 --> 00:16:23,320 Speaker 8: to put a downward pressure on the growth in the 342 00:16:23,400 --> 00:16:26,120 Speaker 8: Eurozone and in the UK as we enter the winter months, 343 00:16:26,120 --> 00:16:27,600 Speaker 8: where we expect prices to increase a bit. 344 00:16:27,640 --> 00:16:28,160 Speaker 2: It least. 345 00:16:29,760 --> 00:16:32,320 Speaker 1: How about in southern Europe and thing in Italy Spain, 346 00:16:32,400 --> 00:16:34,840 Speaker 1: those are areas attend Those are economies that tend to 347 00:16:34,840 --> 00:16:37,280 Speaker 1: be more fragile, and at least here in the US 348 00:16:37,480 --> 00:16:41,520 Speaker 1: we hear more about that from a weakness perspective. How 349 00:16:41,520 --> 00:16:43,160 Speaker 1: are they faring in this environment? 350 00:16:43,680 --> 00:16:45,840 Speaker 8: Well, it is a special case. I wouldn't put it 351 00:16:45,880 --> 00:16:49,360 Speaker 8: together an essay. Little with Spain these days besides Italy, 352 00:16:49,400 --> 00:16:52,640 Speaker 8: other soudthern European economy is actually having better numbers than Germany. 353 00:16:52,680 --> 00:16:56,960 Speaker 8: They have lower inflation and better growth, so overall, actually 354 00:16:56,960 --> 00:16:59,320 Speaker 8: they're doing better. But if the CP keeps hiking, of 355 00:16:59,360 --> 00:17:01,000 Speaker 8: course this is going to have an impact on those 356 00:17:01,040 --> 00:17:05,440 Speaker 8: economies as well. Yeah, the numbers fitally do not look great. 357 00:17:05,480 --> 00:17:08,439 Speaker 8: So definitely Italy for number of it's an outlier at 358 00:17:08,440 --> 00:17:11,680 Speaker 8: the moment. So that's where there'll be also political conflict 359 00:17:11,760 --> 00:17:16,200 Speaker 8: because for the hikes are going to potentially upset politicians 360 00:17:16,240 --> 00:17:18,320 Speaker 8: in certain Southern European countries if they feel they don't 361 00:17:18,320 --> 00:17:21,639 Speaker 8: need these hikes. So this has always been the problem 362 00:17:21,640 --> 00:17:23,960 Speaker 8: with the CB. Right, we have a single central bank, 363 00:17:23,960 --> 00:17:29,159 Speaker 8: many business cycles, no common fiscal policy, so usually the 364 00:17:29,200 --> 00:17:30,080 Speaker 8: way it is in Germany. 365 00:17:31,119 --> 00:17:31,720 Speaker 4: Yeah, that's tough. 366 00:17:31,760 --> 00:17:33,600 Speaker 1: If I mean if your biggest economy is your weakest 367 00:17:33,680 --> 00:17:35,520 Speaker 1: or one of your weakest links, that's tough. 368 00:17:35,800 --> 00:17:43,520 Speaker 2: Well, i mean, let's define weakest link. Surely the Spain, Portugal, Italy, Greece. 369 00:17:44,080 --> 00:17:46,880 Speaker 2: You know those are going to be weaker economies over 370 00:17:46,880 --> 00:17:48,439 Speaker 2: the longer term, don't you think, doctor? 371 00:17:49,160 --> 00:17:50,720 Speaker 8: Oh yeah, of course, I mean there is the trends 372 00:17:50,760 --> 00:17:52,960 Speaker 8: and there are business cycles, fluctuations. So when we talk 373 00:17:52,960 --> 00:17:55,320 Speaker 8: about multipolicy, of course, of course the focus is on 374 00:17:55,359 --> 00:17:58,639 Speaker 8: business cycle fuctuations, and that's where currently the divergence is 375 00:17:58,640 --> 00:18:01,280 Speaker 8: such that Saturn you're is doing better than Germany in 376 00:18:01,320 --> 00:18:03,960 Speaker 8: state of state of course, the fundamentals. You can say 377 00:18:03,960 --> 00:18:06,720 Speaker 8: a better ford, you know, countries like Germany than Greece 378 00:18:07,280 --> 00:18:08,920 Speaker 8: or Italy for sure. 379 00:18:10,280 --> 00:18:16,680 Speaker 4: So you noticed I didn't use the term pigs. Why 380 00:18:16,680 --> 00:18:16,960 Speaker 4: would you? 381 00:18:17,119 --> 00:18:20,399 Speaker 8: Yes, I do not like this term. It's a veryly Greece. 382 00:18:20,600 --> 00:18:25,479 Speaker 2: Yes, oh yeah, I mean it's actually I think Portugal, Italy, Ireland, Greece. 383 00:18:25,640 --> 00:18:29,920 Speaker 1: Easy, easy on Ireland. Sorry, sorry, all right, doctor, thank 384 00:18:29,960 --> 00:18:33,200 Speaker 1: you so much for joining us. Doctor Vania Starkeeva, Professor 385 00:18:33,240 --> 00:18:36,399 Speaker 1: of Economics at the London Business School, I appreciate gatting 386 00:18:36,400 --> 00:18:37,640 Speaker 1: the view what's happening in Europe. 387 00:18:37,920 --> 00:18:41,520 Speaker 7: You're listening to the tape cancer Live program Bloomberg Markets 388 00:18:41,600 --> 00:18:44,960 Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune 389 00:18:45,000 --> 00:18:47,960 Speaker 7: in app, Bloomberg dot Com, and the Bloomberg Business App. 390 00:18:48,000 --> 00:18:50,840 Speaker 7: You can also listen live on Amazon Alexa from our 391 00:18:50,840 --> 00:18:55,960 Speaker 7: flagship New York station. Just say Alexa, play Bloomberg eleven thirty. 392 00:18:56,760 --> 00:19:00,840 Speaker 1: Let's talk reads real estate investment Trust. Steve Brown, he 393 00:19:00,840 --> 00:19:02,920 Speaker 1: can do that for Steve Brown is a senior portfolio 394 00:19:02,920 --> 00:19:07,240 Speaker 1: manager of Global real Estate at American Century Investments. He 395 00:19:07,320 --> 00:19:10,080 Speaker 1: joined his live here in our Bloomberg Interactive Broker studio. 396 00:19:10,359 --> 00:19:13,920 Speaker 1: See what happens to the re market when the FED 397 00:19:14,000 --> 00:19:18,040 Speaker 1: has eleven rate increases. There's a banking crisis that can't 398 00:19:18,080 --> 00:19:19,720 Speaker 1: be a good backdrop for reads. 399 00:19:20,119 --> 00:19:22,720 Speaker 9: Sure, thank you for having me on. Yeah, reads have 400 00:19:22,720 --> 00:19:24,880 Speaker 9: been under pressure this year and part of the last 401 00:19:24,920 --> 00:19:28,240 Speaker 9: year because of the FED raid hiking cycle, and as 402 00:19:28,280 --> 00:19:30,640 Speaker 9: you mentioned, it's going on for over twelve months. They've 403 00:19:30,720 --> 00:19:34,320 Speaker 9: raised short term rates basically from zero percent to five percent, 404 00:19:34,359 --> 00:19:38,400 Speaker 9: so very materially higher rates, and it's impacted basically cap 405 00:19:38,480 --> 00:19:39,399 Speaker 9: rates and barring. 406 00:19:39,119 --> 00:19:40,000 Speaker 4: Costs for real estate. 407 00:19:40,080 --> 00:19:42,879 Speaker 9: So reads in general have been under pressure for the 408 00:19:42,960 --> 00:19:45,440 Speaker 9: last we'll call it eighteen months or so. And we're 409 00:19:45,480 --> 00:19:48,720 Speaker 9: really looking to an environment when the FED is done 410 00:19:48,800 --> 00:19:51,520 Speaker 9: raising rates, and that would be a much more constructive 411 00:19:51,600 --> 00:19:53,440 Speaker 9: environment to own publicly traded real estate. 412 00:19:54,320 --> 00:19:57,920 Speaker 2: So you think rates are just going to stay here 413 00:19:58,359 --> 00:19:59,480 Speaker 2: or we're going to get. 414 00:19:59,320 --> 00:20:02,080 Speaker 4: A new dot plot this month? Do you think they're 415 00:20:02,119 --> 00:20:03,920 Speaker 4: gonna take out some of the cuts? 416 00:20:05,240 --> 00:20:05,440 Speaker 3: Right? 417 00:20:05,880 --> 00:20:09,040 Speaker 9: I think our basic thinking is the FED is either 418 00:20:09,080 --> 00:20:11,600 Speaker 9: done or just about done. They could be done because 419 00:20:11,600 --> 00:20:14,239 Speaker 9: they haven't raised rates since July, and as we move 420 00:20:14,280 --> 00:20:16,720 Speaker 9: into twenty four, then the next conversation will be when 421 00:20:16,840 --> 00:20:21,080 Speaker 9: the cuts start. We think that when the Fed's done, 422 00:20:21,119 --> 00:20:24,240 Speaker 9: that's a much more constructive environment for real estate values 423 00:20:24,520 --> 00:20:27,679 Speaker 9: in public real estate. And we think that, you know, 424 00:20:27,920 --> 00:20:30,160 Speaker 9: we don't necessarily need the FED to start cutting rates, 425 00:20:30,160 --> 00:20:32,920 Speaker 9: but just having no more rate increases in some stabilization 426 00:20:32,960 --> 00:20:35,080 Speaker 9: in the bond market, and there'll be a much more 427 00:20:35,640 --> 00:20:37,440 Speaker 9: pricing efficient market for real estate. 428 00:20:37,480 --> 00:20:39,760 Speaker 4: So we're optimistic that the FED. 429 00:20:39,560 --> 00:20:42,840 Speaker 9: Is either done or just about done raising rates, and 430 00:20:42,880 --> 00:20:46,399 Speaker 9: whether they start cutting in June of next year or 431 00:20:46,440 --> 00:20:48,639 Speaker 9: September of next year, it really is just a more 432 00:20:48,680 --> 00:20:50,960 Speaker 9: constructive environment when the Fed's done raising rates. 433 00:20:51,560 --> 00:20:53,760 Speaker 1: All right, So, I know that there are lots of 434 00:20:53,800 --> 00:20:57,879 Speaker 1: different sectors within the space, you know, data centers versus 435 00:20:57,960 --> 00:21:02,080 Speaker 1: you know, housing and things like that versus student housing. 436 00:21:02,200 --> 00:21:05,680 Speaker 1: Exactly what are the ones that you guys are going 437 00:21:05,720 --> 00:21:08,000 Speaker 1: to be positioned in for if we are in fact 438 00:21:08,040 --> 00:21:11,160 Speaker 1: heading into time when rates are no longer increasing, where 439 00:21:11,160 --> 00:21:13,280 Speaker 1: are you guys kind of placing your bets. 440 00:21:13,400 --> 00:21:17,679 Speaker 9: Sure, it's a great question, and you reachs are up 441 00:21:17,680 --> 00:21:19,600 Speaker 9: about two percenters of this year, so not much going on, 442 00:21:19,680 --> 00:21:23,760 Speaker 9: but certain sectors like data, center, reads, industrial have done 443 00:21:23,800 --> 00:21:26,720 Speaker 9: well this year because they have pricing power, and other 444 00:21:26,760 --> 00:21:29,840 Speaker 9: property sectors have really, you know, performed poorly. You mentioned 445 00:21:29,880 --> 00:21:32,880 Speaker 9: office that's certainly one of the weaker performing sectors, as 446 00:21:32,920 --> 00:21:36,840 Speaker 9: well as at least and to a certain extent, retail. 447 00:21:37,080 --> 00:21:39,280 Speaker 9: I think we think that if when the Fed's done, 448 00:21:39,359 --> 00:21:42,000 Speaker 9: you know, the acid class in general should perform better 449 00:21:42,119 --> 00:21:45,960 Speaker 9: because of more effective debt financing for real estate values, 450 00:21:46,440 --> 00:21:48,440 Speaker 9: and will the more bombed out sectors perform well. 451 00:21:48,480 --> 00:21:50,480 Speaker 4: I think retail is probably going. 452 00:21:50,400 --> 00:21:54,280 Speaker 9: To continue to perform better because of lower rates and 453 00:21:54,320 --> 00:21:57,119 Speaker 9: they have lower valuations a little benefit from that. But 454 00:21:57,160 --> 00:21:59,680 Speaker 9: some of the other sectors that are haven't performed well 455 00:21:59,680 --> 00:22:01,200 Speaker 9: this year, such as towers. 456 00:22:01,960 --> 00:22:04,560 Speaker 4: Tower reets are love. Towers are big component of the index. 457 00:22:04,600 --> 00:22:06,560 Speaker 4: They haven't done well for a couple of reasons. 458 00:22:06,600 --> 00:22:12,000 Speaker 9: One is the the growth characteristics have been modest exactly 459 00:22:12,080 --> 00:22:16,760 Speaker 9: because they have sort of very strong pricing power characteristics. 460 00:22:17,080 --> 00:22:19,800 Speaker 9: They had high multiples, but high multiples and high rates 461 00:22:19,840 --> 00:22:22,280 Speaker 9: don't go well together. So if the raids start to 462 00:22:22,720 --> 00:22:25,200 Speaker 9: roll over, tower reach should perform well over the next 463 00:22:25,200 --> 00:22:25,680 Speaker 9: twelve months. 464 00:22:25,840 --> 00:22:28,440 Speaker 2: Paul Paul loves towers, because I'm gonna guess he took 465 00:22:28,480 --> 00:22:31,439 Speaker 2: somebody's towers, American tower, the public. 466 00:22:31,800 --> 00:22:33,639 Speaker 1: We made the fees we made off of those things, 467 00:22:33,960 --> 00:22:36,600 Speaker 1: gold mines, gold mines, and we rolled the whole for 468 00:22:36,640 --> 00:22:37,240 Speaker 1: the bankers. 469 00:22:37,400 --> 00:22:40,800 Speaker 2: Oh yeah, well, good for those for the sellers, right, 470 00:22:41,040 --> 00:22:43,920 Speaker 2: I mean, I remember when Deutsche Telecoms took all their towers, 471 00:22:44,040 --> 00:22:45,240 Speaker 2: they sold them and least them back. 472 00:22:45,359 --> 00:22:47,520 Speaker 1: They thought that those assets were worthless, and they were 473 00:22:47,520 --> 00:22:49,679 Speaker 1: worth seven eight nine times cash low we got them 474 00:22:49,680 --> 00:22:52,440 Speaker 1: for so anyway, so we made money on the tower 475 00:22:52,440 --> 00:22:56,520 Speaker 1: of business back in the day. So here in New 476 00:22:56,600 --> 00:22:59,640 Speaker 1: York City, you're a rika, You're a real sticky. When 477 00:22:59,680 --> 00:23:06,240 Speaker 1: I yet true, a high quality third Avenue, forty eighth 478 00:23:06,240 --> 00:23:09,720 Speaker 1: Street tower, when that gets sold in the next year 479 00:23:09,760 --> 00:23:11,920 Speaker 1: or two, is it going to be ten percent below 480 00:23:12,480 --> 00:23:16,600 Speaker 1: where it was? Fifty percent more than that? How bad 481 00:23:16,640 --> 00:23:18,600 Speaker 1: do you think the office market is in a market 482 00:23:18,720 --> 00:23:21,399 Speaker 1: like New York Because we haven't seen stuff really trade, 483 00:23:21,440 --> 00:23:23,560 Speaker 1: so we don't know what the discount really is. 484 00:23:24,160 --> 00:23:27,480 Speaker 9: Right, It's it's bad in the sense that we've seen trades, 485 00:23:28,040 --> 00:23:30,800 Speaker 9: whether they're New York, San Francisco, or other major cities. 486 00:23:31,200 --> 00:23:34,000 Speaker 4: What we've seen is some funds. 487 00:23:34,000 --> 00:23:37,240 Speaker 9: Some private equity funds give back the office properties to 488 00:23:37,240 --> 00:23:41,280 Speaker 9: the lenders and then the so the asset is worth 489 00:23:41,320 --> 00:23:43,880 Speaker 9: less than the loan. So we've seen property declines over 490 00:23:43,920 --> 00:23:46,680 Speaker 9: the last twelve months in the office sector of anywhere 491 00:23:46,680 --> 00:23:50,920 Speaker 9: from twenty to forty five percent of transactions that have happened. 492 00:23:51,080 --> 00:23:52,960 Speaker 4: So that's what we're seeing. 493 00:23:53,000 --> 00:23:55,240 Speaker 9: And I would we would believe that, you know, office 494 00:23:55,320 --> 00:23:58,359 Speaker 9: values are down anywhere from twenty to thirty to forty percent. 495 00:23:58,720 --> 00:24:00,800 Speaker 4: So if a property that you just made hasn't. 496 00:24:00,600 --> 00:24:03,040 Speaker 9: Traded and say three or four years, you can probably 497 00:24:03,760 --> 00:24:05,840 Speaker 9: see a pricing that's you know, thirty or forty percent 498 00:24:05,960 --> 00:24:09,520 Speaker 9: lower than we're last traded at because of higher cap 499 00:24:09,600 --> 00:24:13,159 Speaker 9: rates for office and concerns about NLI of the office 500 00:24:13,160 --> 00:24:17,639 Speaker 9: buildings because of less tenant demand and the continuation of 501 00:24:17,680 --> 00:24:18,280 Speaker 9: work from home. 502 00:24:19,560 --> 00:24:23,600 Speaker 2: What's the best way, I mean reads, You can go 503 00:24:23,640 --> 00:24:27,000 Speaker 2: and buy them individually. There are also ETFs of reats. 504 00:24:27,560 --> 00:24:29,199 Speaker 2: There are a number of ways to get at the product. 505 00:24:29,240 --> 00:24:32,920 Speaker 2: Does the rapper matter or what's your view on that right? 506 00:24:33,600 --> 00:24:36,119 Speaker 9: I'd say, you know, certainly from where we stay, we 507 00:24:36,200 --> 00:24:40,720 Speaker 9: run an active actually managed long only strategy, and I 508 00:24:40,760 --> 00:24:45,480 Speaker 9: think that the diversity helps total returns, certainly for us 509 00:24:45,520 --> 00:24:50,080 Speaker 9: and our clients. I think that the you know, there 510 00:24:50,080 --> 00:24:52,320 Speaker 9: were no even though I mentioned that reads were up 511 00:24:52,400 --> 00:24:54,040 Speaker 9: only two or three percent this year, there are a 512 00:24:54,119 --> 00:24:56,840 Speaker 9: number of property sectors that have done quite well, whether 513 00:24:56,840 --> 00:25:00,399 Speaker 9: it's data centers up twenty twenty five percent, through up 514 00:25:00,440 --> 00:25:03,119 Speaker 9: ten or twelve percent, multi family up seven percent. So 515 00:25:03,160 --> 00:25:06,320 Speaker 9: there's been some real winners. So active management does matter. 516 00:25:06,880 --> 00:25:09,320 Speaker 9: And I think as we move into twenty twenty four, 517 00:25:09,760 --> 00:25:12,680 Speaker 9: and as we sort of get into the get past 518 00:25:12,720 --> 00:25:15,680 Speaker 9: the FED rate hiking cycle and the environment changes somewhat, 519 00:25:15,920 --> 00:25:20,000 Speaker 9: I think there'll be some continued strong differential and performance 520 00:25:20,000 --> 00:25:21,280 Speaker 9: of the various property sectors. 521 00:25:21,359 --> 00:25:22,360 Speaker 4: Are there to twenty four? 522 00:25:22,480 --> 00:25:22,840 Speaker 1: Are there? 523 00:25:22,880 --> 00:25:25,879 Speaker 2: I mean the big losers, Steve, I'm guessing like office 524 00:25:25,880 --> 00:25:28,879 Speaker 2: space here long third Avenue, right, Yeah? Have they lost 525 00:25:29,119 --> 00:25:33,280 Speaker 2: enough so that they become interesting in terms of you 526 00:25:33,320 --> 00:25:34,199 Speaker 2: know the multiples. 527 00:25:34,359 --> 00:25:37,879 Speaker 9: Sure, in the public sector, I mean the office reachs. 528 00:25:37,920 --> 00:25:40,320 Speaker 9: At one point this year, we're down forty percent. So 529 00:25:40,440 --> 00:25:44,880 Speaker 9: publicly traded real estate reflected higher registrates reflective concerns about 530 00:25:44,880 --> 00:25:46,879 Speaker 9: an economic slowdown, et cetera, et cetera. 531 00:25:46,960 --> 00:25:48,480 Speaker 4: So they really had real. 532 00:25:48,359 --> 00:25:51,040 Speaker 9: Time pricing and they would be the first to recover 533 00:25:51,200 --> 00:25:53,919 Speaker 9: of in terms of a recovery in the economy or 534 00:25:54,080 --> 00:25:57,400 Speaker 9: a slowdown in the rays of rates in the private market, 535 00:25:57,680 --> 00:26:01,080 Speaker 9: the pricing has not adjusted so quickly. So it's clear 536 00:26:01,160 --> 00:26:02,879 Speaker 9: today and that's why you reads are training at a 537 00:26:02,880 --> 00:26:03,439 Speaker 9: twenty percent. 538 00:26:03,320 --> 00:26:04,400 Speaker 4: Discount and net asset value. 539 00:26:04,400 --> 00:26:07,120 Speaker 9: They're training to get a big discount to property prices, 540 00:26:07,520 --> 00:26:11,359 Speaker 9: and they reflect both the higher rates in the impact 541 00:26:12,000 --> 00:26:14,679 Speaker 9: of It's just a modest slow down in demand for 542 00:26:14,720 --> 00:26:16,080 Speaker 9: certain property sectors like office. 543 00:26:16,200 --> 00:26:17,040 Speaker 8: What you mentioned all. 544 00:26:16,960 --> 00:26:19,840 Speaker 1: Right, interesting stuff real estate Real Estate Investment Trust. Steve 545 00:26:19,840 --> 00:26:22,560 Speaker 1: Brown is our go to guy, senior portfolio manager Global 546 00:26:22,560 --> 00:26:24,520 Speaker 1: real Estate for American Century Investors. 547 00:26:24,520 --> 00:26:25,080 Speaker 4: We didn't get to. 548 00:26:25,040 --> 00:26:27,960 Speaker 1: Talk about my favorite rate, which is Lamar Advertising billboards. 549 00:26:28,280 --> 00:26:29,639 Speaker 1: Also did that company public. 550 00:26:30,520 --> 00:26:33,960 Speaker 7: You're listening to the Team Ken's are Live program Bloomberg 551 00:26:34,000 --> 00:26:37,359 Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot com, 552 00:26:37,440 --> 00:26:40,600 Speaker 7: the iHeartRadio app and the Bloomberg Business app, or listen 553 00:26:40,680 --> 00:26:42,919 Speaker 7: on demand wherever you get your podcasts. 554 00:26:45,800 --> 00:26:48,399 Speaker 1: I want to talk about one of the stories crossing 555 00:26:48,440 --> 00:26:52,439 Speaker 1: the tape. We work to renegotiate nearly all leases exit 556 00:26:52,600 --> 00:26:55,280 Speaker 1: unfit sites, so we work is still a thing and 557 00:26:55,320 --> 00:26:57,159 Speaker 1: we talk real estate. We talked at Jeff Langbaum. He 558 00:26:57,200 --> 00:26:59,040 Speaker 1: covers all the reads and all the real estate stuff 559 00:26:59,040 --> 00:27:03,360 Speaker 1: for Bloomberg Intelligence Agency joins us via zoom from the Princeton, 560 00:27:03,520 --> 00:27:05,560 Speaker 1: New Jersey campus of Bloomberg. 561 00:27:06,040 --> 00:27:07,760 Speaker 4: Jeff, let's start with you. 562 00:27:07,800 --> 00:27:10,960 Speaker 1: Where is we work these days in the marketplace? What's 563 00:27:11,000 --> 00:27:13,879 Speaker 1: happening with their portfolio of properties? 564 00:27:14,160 --> 00:27:14,919 Speaker 4: What's the latest? 565 00:27:16,400 --> 00:27:17,919 Speaker 10: So I like the way you put it, Paul, we 566 00:27:18,000 --> 00:27:21,800 Speaker 10: work is still a thing, although although I mean, you know, 567 00:27:22,560 --> 00:27:25,080 Speaker 10: it seems like they're hanging on, you know, by a 568 00:27:25,119 --> 00:27:28,000 Speaker 10: thread at this point. The news out today that they're 569 00:27:28,040 --> 00:27:31,560 Speaker 10: planning to renegotiate all their leases. I mean, you know, 570 00:27:31,920 --> 00:27:36,320 Speaker 10: a renegotiation or a negotiation by definition, requires two parties. 571 00:27:37,600 --> 00:27:41,600 Speaker 10: It's going to be a wide range of outcomes in 572 00:27:41,680 --> 00:27:45,320 Speaker 10: terms of what their landlords want to do and are 573 00:27:45,320 --> 00:27:48,840 Speaker 10: willing to do. Obviously, you've got a market where office 574 00:27:48,840 --> 00:27:51,320 Speaker 10: demand is light, and so if you've got a tenant 575 00:27:51,359 --> 00:27:53,359 Speaker 10: that wants to stay in your building, maybe you'd be 576 00:27:53,400 --> 00:27:55,440 Speaker 10: willing to give them a break. But at the same time, 577 00:27:55,880 --> 00:27:58,159 Speaker 10: if they're saying they want to stay in their best properties, 578 00:27:59,040 --> 00:28:02,159 Speaker 10: maybe those are property is where you're not eager to 579 00:28:02,160 --> 00:28:04,439 Speaker 10: give them a break. Because those may be properties that 580 00:28:04,480 --> 00:28:08,359 Speaker 10: you could fill with a tenant on perhaps better financial footing. 581 00:28:08,440 --> 00:28:12,560 Speaker 10: So it's going to be a long workout, just like 582 00:28:12,600 --> 00:28:14,760 Speaker 10: the commercial real estate industry broadly is in the middle 583 00:28:14,800 --> 00:28:17,320 Speaker 10: of right now, and it will be kind of interesting 584 00:28:17,320 --> 00:28:18,479 Speaker 10: to see how it plays out. 585 00:28:18,760 --> 00:28:22,919 Speaker 2: So in terms of we work clients, how many of 586 00:28:22,960 --> 00:28:26,000 Speaker 2: them have said, you know what this is, this is 587 00:28:26,000 --> 00:28:28,080 Speaker 2: getting a little sketchy for us. We're going to go 588 00:28:28,320 --> 00:28:31,560 Speaker 2: over and get some office space with Regis or another competitor. 589 00:28:32,280 --> 00:28:36,200 Speaker 10: Well, their occupancy rate has fallen, and so clearly the 590 00:28:36,800 --> 00:28:39,400 Speaker 10: demand for their space is not nearly as strong as 591 00:28:39,440 --> 00:28:42,520 Speaker 10: it was. And some cone of that is probably tenants 592 00:28:42,560 --> 00:28:45,920 Speaker 10: moving to someplace a little bit you know, stronger in 593 00:28:45,960 --> 00:28:49,040 Speaker 10: a stronger position. Some may be getting permanent office space, 594 00:28:49,480 --> 00:28:51,840 Speaker 10: some may be just sitting and waiting, but some is 595 00:28:51,880 --> 00:28:54,680 Speaker 10: just you know, because the market is soft and there's 596 00:28:54,760 --> 00:28:57,880 Speaker 10: not nearly as much office demand. And you know, obviously 597 00:28:57,920 --> 00:29:01,120 Speaker 10: that's the underlying problem for them is they've got these 598 00:29:01,320 --> 00:29:06,240 Speaker 10: you know, long term fixed lease payments and the revenue's 599 00:29:06,240 --> 00:29:08,680 Speaker 10: not coming in at the level that they expected it 600 00:29:08,720 --> 00:29:11,840 Speaker 10: to be. So that's what's triggering the need for them 601 00:29:11,880 --> 00:29:14,719 Speaker 10: to scale back. But without a bankruptcy, you know, they 602 00:29:14,760 --> 00:29:17,080 Speaker 10: don't have the ability to just walk away from leases, 603 00:29:17,120 --> 00:29:20,840 Speaker 10: and clearly seems like they're trying to avoid going that route. 604 00:29:21,160 --> 00:29:23,560 Speaker 4: Hey, Jeff, you're the expert on this stuff. 605 00:29:23,600 --> 00:29:27,040 Speaker 1: When we see an office trade office building trade on 606 00:29:27,120 --> 00:29:30,040 Speaker 1: let's say, on Third Avenue in Midtown Manhattan, what kind 607 00:29:30,040 --> 00:29:33,200 Speaker 1: of haircut is it going to trade at fifty from 608 00:29:33,240 --> 00:29:35,440 Speaker 1: where it was before? Something less than that, something more 609 00:29:35,440 --> 00:29:35,800 Speaker 1: than that? 610 00:29:36,520 --> 00:29:39,640 Speaker 10: This is going to be ugly, Well, it really depends 611 00:29:39,680 --> 00:29:44,440 Speaker 10: on what the where it was before is how that's measured, right, 612 00:29:44,480 --> 00:29:48,320 Speaker 10: I mean, if if you're talking about where values paper 613 00:29:48,440 --> 00:29:51,640 Speaker 10: values were at their peaks, you know you might see 614 00:29:52,240 --> 00:29:56,120 Speaker 10: pretty significant haircuts in the in the range that you're 615 00:29:56,120 --> 00:30:01,280 Speaker 10: talking about. You know, if you're talking about trades relative 616 00:30:01,320 --> 00:30:03,680 Speaker 10: to the last time of building traded, which may be 617 00:30:04,000 --> 00:30:06,400 Speaker 10: you know, a decade or more ago, it might not 618 00:30:06,640 --> 00:30:08,960 Speaker 10: be as bad. The issue really is going to be 619 00:30:09,040 --> 00:30:13,200 Speaker 10: where are these where are values now relative to where 620 00:30:14,200 --> 00:30:17,000 Speaker 10: you know debt can be underwritten, because that's what's going 621 00:30:17,080 --> 00:30:20,600 Speaker 10: to trigger the need for properties to trade is a 622 00:30:20,640 --> 00:30:24,920 Speaker 10: financing situation. And you know, we really just haven't seen 623 00:30:25,080 --> 00:30:29,520 Speaker 10: enough data points yet to know because while there's clearly 624 00:30:29,560 --> 00:30:32,080 Speaker 10: distress in the market. It hasn't yet gotten to the 625 00:30:32,120 --> 00:30:36,280 Speaker 10: point where distressed trades enough distress trades are happening to 626 00:30:36,320 --> 00:30:38,640 Speaker 10: really know what prices are going to look like. 627 00:30:38,720 --> 00:30:40,520 Speaker 1: Yeah, it's gonna be fascinating to see kind of where 628 00:30:40,520 --> 00:30:42,560 Speaker 1: those values are in some of these big cities New York, 629 00:30:42,600 --> 00:30:43,200 Speaker 1: San Francisco. 630 00:30:43,320 --> 00:30:44,880 Speaker 4: All right, Jeff, thanks so much for joining us. We 631 00:30:44,880 --> 00:30:46,200 Speaker 4: appreciate you hopping on in short notice. 632 00:30:46,280 --> 00:30:49,880 Speaker 1: Jeff Lang BOUNDI covers all the reads for a Bloomberg Intelligence. 633 00:30:50,120 --> 00:30:53,240 Speaker 7: You're listening to the tape catcher, our live program Bloomberg 634 00:30:53,280 --> 00:30:56,840 Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the 635 00:30:56,920 --> 00:30:59,800 Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business. 636 00:31:00,200 --> 00:31:03,040 Speaker 7: You can also listen live on Amazon Alexa from our 637 00:31:03,040 --> 00:31:07,400 Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty. 638 00:31:09,320 --> 00:31:12,680 Speaker 1: All right, let's talk global energy here. We got Brent crude. 639 00:31:12,680 --> 00:31:14,800 Speaker 1: I'll just quote Brent crude since we hit ninety dollars 640 00:31:14,840 --> 00:31:17,480 Speaker 1: a barrel today. That got people's attention. Currently in eighty 641 00:31:17,800 --> 00:31:18,440 Speaker 1: nine dollars in c. 642 00:31:18,640 --> 00:31:21,680 Speaker 2: U cl one for that is it cl one c 643 00:31:22,200 --> 00:31:25,120 Speaker 2: one is Brent crude. Cl one is imts. 644 00:31:25,200 --> 00:31:27,920 Speaker 1: Yeah, I usuld quote name X because like my guy, 645 00:31:28,080 --> 00:31:29,000 Speaker 1: you know, the. 646 00:31:28,640 --> 00:31:31,680 Speaker 2: Wildcatters down in Texas cl one commodity A right, let's 647 00:31:31,680 --> 00:31:35,640 Speaker 2: talk able commodity. What I'm looking to see because last 648 00:31:35,840 --> 00:31:40,480 Speaker 2: year in March, the Biden administration started issuing barrels from 649 00:31:40,560 --> 00:31:45,239 Speaker 2: the Strategic Petroleum Reserve. And so what I'm looking to 650 00:31:45,240 --> 00:31:47,720 Speaker 2: see is are we getting back to those levels because 651 00:31:47,720 --> 00:31:51,680 Speaker 2: at the pump, you know, we're there pretty much. 652 00:31:51,760 --> 00:31:53,960 Speaker 4: And if the Biden administration. 653 00:31:53,520 --> 00:31:56,520 Speaker 2: Thought it was too high the price so they needed 654 00:31:56,560 --> 00:31:59,000 Speaker 2: to release those reserves for the good of the American 655 00:31:59,040 --> 00:32:02,040 Speaker 2: people at that time, they must think the same thing 656 00:32:02,080 --> 00:32:03,120 Speaker 2: again now right. 657 00:32:03,040 --> 00:32:04,440 Speaker 1: I don't know. Let's check in with a couple of 658 00:32:04,440 --> 00:32:06,719 Speaker 1: experts people do this stuff for living. Mike McLoone and 659 00:32:06,760 --> 00:32:11,520 Speaker 1: Fernando Valley. They cover the Energy Space Force for Bloomberg 660 00:32:11,560 --> 00:32:15,840 Speaker 1: Intelligence Miami. Mike is zooming in from Miami, and Fernando's 661 00:32:15,840 --> 00:32:18,000 Speaker 1: here in our Bloomberg in Arctic Broker studio. Hey, Mike, 662 00:32:18,040 --> 00:32:20,800 Speaker 1: I'll start with you big move higher here in oil. 663 00:32:20,880 --> 00:32:23,120 Speaker 1: Let's catch on a lot of folks. By surprise, we 664 00:32:23,160 --> 00:32:26,040 Speaker 1: had some of the airlines today call out higher fuel costs. 665 00:32:26,080 --> 00:32:26,320 Speaker 11: Here. 666 00:32:26,960 --> 00:32:28,880 Speaker 1: What do you make of it. 667 00:32:28,880 --> 00:32:31,320 Speaker 11: It's a balance that will fail. I mean I did this, 668 00:32:31,400 --> 00:32:33,920 Speaker 11: said the same thing last year when Kroile's got above 669 00:32:33,920 --> 00:32:35,600 Speaker 11: one hundred. My call as it's going to get to 670 00:32:35,720 --> 00:32:38,600 Speaker 11: forty and the low this year is sixty three. Okay, 671 00:32:38,760 --> 00:32:40,280 Speaker 11: didn't get all the way there. But to me, it's 672 00:32:40,280 --> 00:32:42,800 Speaker 11: just a matter of time. That's what Croil always does. 673 00:32:43,280 --> 00:32:47,040 Speaker 11: It fluctuates his most autocorrelated acid commodity there is. When 674 00:32:47,040 --> 00:32:50,680 Speaker 11: it jumps up, it squashes that demand increases the supply. 675 00:32:50,800 --> 00:32:52,760 Speaker 11: When it pumps and drops down, it's the opposite. The 676 00:32:52,840 --> 00:32:55,360 Speaker 11: key thing is what's changed, that's what does Technically, what's 677 00:32:55,440 --> 00:32:59,280 Speaker 11: changed is this significant excess of supply out the US. 678 00:32:59,280 --> 00:33:04,480 Speaker 11: So I'm just looking data lately. The net exports from 679 00:33:04,560 --> 00:33:06,520 Speaker 11: US and Canada liquid fuels this year is going to 680 00:33:06,560 --> 00:33:09,000 Speaker 11: reach five million barrels a day. Just to put that 681 00:33:09,040 --> 00:33:11,880 Speaker 11: in context. That's enough. That's liquid fuel, so it includes 682 00:33:11,920 --> 00:33:13,480 Speaker 11: ath and all everything. That's enough to fill up the 683 00:33:13,760 --> 00:33:16,240 Speaker 11: the spr what we took out of it in about 684 00:33:16,280 --> 00:33:18,680 Speaker 11: seventy days. So this is a problem for the rest 685 00:33:18,680 --> 00:33:20,920 Speaker 11: of the world, not for the US, particularly what OPEC's doing. 686 00:33:21,000 --> 00:33:23,240 Speaker 11: I'm sure Fernando can comment on that. But I look 687 00:33:23,280 --> 00:33:24,680 Speaker 11: at what you're seeing the screen now is what I 688 00:33:24,680 --> 00:33:27,840 Speaker 11: expect Crudeyle to do is it's got a major problem 689 00:33:27,840 --> 00:33:31,160 Speaker 11: with the will tilting towards recession. Our model, the economics model, 690 00:33:31,200 --> 00:33:35,200 Speaker 11: is one hundred percent for the US declining out of China, pmizing, 691 00:33:35,240 --> 00:33:38,560 Speaker 11: everything declining in Europe and central banks still tighty. That's 692 00:33:38,600 --> 00:33:41,160 Speaker 11: the macro and the micros that use you flecate fluctuates, 693 00:33:41,160 --> 00:33:43,120 Speaker 11: and right now I think it's really very much near 694 00:33:43,120 --> 00:33:44,120 Speaker 11: the upper end of its range. 695 00:33:44,160 --> 00:33:48,600 Speaker 2: I mean, our model, Bloomberg Economics model has a one 696 00:33:48,640 --> 00:33:50,960 Speaker 2: hundred percent chance for a recession. But it's fair to 697 00:33:50,960 --> 00:33:55,120 Speaker 2: say the consensus on the street is for a soft landing. 698 00:33:55,160 --> 00:33:58,640 Speaker 2: I mean, Goldman Sachs is fifteen percent chance of a recession. 699 00:33:58,640 --> 00:34:00,840 Speaker 2: I guess his models slightly different than ours. 700 00:34:01,120 --> 00:34:03,120 Speaker 1: I guess so, Fernanda, what do you know from from 701 00:34:03,120 --> 00:34:05,200 Speaker 1: the fundamental perspective? What are you seeing at there? Looks 702 00:34:05,200 --> 00:34:07,840 Speaker 1: like go peck if they want to higher prices that 703 00:34:07,880 --> 00:34:08,680 Speaker 1: they're they're getting it. 704 00:34:09,120 --> 00:34:11,399 Speaker 6: They're getting some of it. But you know, I think 705 00:34:11,560 --> 00:34:14,759 Speaker 6: when you look at just again Asia, as Mike was 706 00:34:14,760 --> 00:34:17,919 Speaker 6: mentioning that Germany's number is eleven percent down month over 707 00:34:18,000 --> 00:34:21,640 Speaker 6: month today on the industrial orders, who's their biggest trading 708 00:34:21,680 --> 00:34:24,479 Speaker 6: partner China. I think the demand side, as Mike was saying, 709 00:34:24,560 --> 00:34:27,080 Speaker 6: is really the biggest concern, and if we do have 710 00:34:27,160 --> 00:34:31,320 Speaker 6: a recession, it's you can't keep ninety dollars a barrel. 711 00:34:31,600 --> 00:34:35,479 Speaker 6: I think what there's a discrepancy here on our views 712 00:34:35,560 --> 00:34:39,240 Speaker 6: versus the street that when Assaudi and Russia agree to cut, 713 00:34:39,520 --> 00:34:41,120 Speaker 6: to extend the cuts to the end of the year, 714 00:34:41,320 --> 00:34:45,160 Speaker 6: they're basically saying demand looks soft to us. Not we're 715 00:34:45,160 --> 00:34:47,239 Speaker 6: going to keep pushing prices higher. They're saying, we don't 716 00:34:47,239 --> 00:34:49,960 Speaker 6: have a market in Asia, and so that's not a 717 00:34:50,080 --> 00:34:53,319 Speaker 6: great news for anyone who knows bullish oil. We just 718 00:34:53,480 --> 00:34:57,760 Speaker 6: extended that because we're not finding that supply balance yet. 719 00:34:57,800 --> 00:35:00,040 Speaker 6: And as Mike was saying, will continue to grow. I 720 00:35:00,040 --> 00:35:02,680 Speaker 6: think that growth is going to moderate. We're going to 721 00:35:02,719 --> 00:35:06,280 Speaker 6: miss expectations on USHL just because the pace of drilling 722 00:35:06,360 --> 00:35:09,800 Speaker 6: is lower, the cost of financing is lower. Remember, shale 723 00:35:09,960 --> 00:35:13,960 Speaker 6: is an ever going treadmill. You're always reinvesting because you 724 00:35:13,960 --> 00:35:16,799 Speaker 6: have ninety percent declines in the first year. So the 725 00:35:16,840 --> 00:35:20,040 Speaker 6: shale producers will feel higher interest rates right away, higher 726 00:35:20,040 --> 00:35:23,520 Speaker 6: inflation right away. Because they're constantly drilling and drilling again 727 00:35:23,600 --> 00:35:24,920 Speaker 6: to maintain their production. 728 00:35:25,080 --> 00:35:26,520 Speaker 2: Well, it's hard enough to get them out there to 729 00:35:26,640 --> 00:35:29,400 Speaker 2: drill to put new holes in the ground, right, because 730 00:35:29,520 --> 00:35:32,799 Speaker 2: not only our interest rates rising, but they're afraid of regulation, 731 00:35:33,520 --> 00:35:34,680 Speaker 2: certainly in this administration. 732 00:35:34,960 --> 00:35:35,720 Speaker 4: What do you think. 733 00:35:35,560 --> 00:35:39,399 Speaker 2: About the SPR release and its effects, Mike, I mean, 734 00:35:39,600 --> 00:35:43,319 Speaker 2: I'm looking at the chart for IMAX crude. We didn't 735 00:35:43,360 --> 00:35:46,200 Speaker 2: go to one hundred until March first of last year. 736 00:35:46,640 --> 00:35:51,520 Speaker 2: We stayed there until July twentieth, and the crude releases, 737 00:35:51,760 --> 00:35:54,279 Speaker 2: the SPR releases began at the end of March. Did 738 00:35:54,280 --> 00:35:56,560 Speaker 2: they have a significant effect. 739 00:35:57,360 --> 00:36:00,799 Speaker 11: Well, I still think President Biden, to go down in history, 740 00:36:00,880 --> 00:36:02,400 Speaker 11: is one of the best crude oil traders ever. He 741 00:36:02,440 --> 00:36:04,320 Speaker 11: actually did the right thing. What you're supposed to do 742 00:36:04,400 --> 00:36:06,640 Speaker 11: in backgradation. You sell the liquid and you buy the 743 00:36:06,680 --> 00:36:09,279 Speaker 11: futures contract. Obviously I haven't bought them back yet. But 744 00:36:09,360 --> 00:36:11,680 Speaker 11: we just don't need it anymore. We have an excess 745 00:36:11,719 --> 00:36:14,799 Speaker 11: supply of krugeff. We shut off our exports. We're gonna 746 00:36:14,800 --> 00:36:17,200 Speaker 11: have way too much of it. So I think it's 747 00:36:17,239 --> 00:36:19,440 Speaker 11: just the matter of time it gets refilled. But we 748 00:36:19,480 --> 00:36:21,120 Speaker 11: don't have to do it anymore. And there's one thing 749 00:36:21,160 --> 00:36:23,200 Speaker 11: I wanted to kee you off on, Matt is when 750 00:36:23,200 --> 00:36:24,960 Speaker 11: you go to Europe in twelve years from now, you 751 00:36:25,000 --> 00:36:27,520 Speaker 11: will not be able to purchase an internal combustion vehicle. 752 00:36:27,560 --> 00:36:28,319 Speaker 11: This is where we're going. 753 00:36:29,080 --> 00:36:34,359 Speaker 2: That's he's trying to He's trying to go. And what 754 00:36:34,400 --> 00:36:38,000 Speaker 2: I'm doing right now is I have this strategic internal 755 00:36:38,000 --> 00:36:39,480 Speaker 2: combustion engine reserve. 756 00:36:39,520 --> 00:36:43,360 Speaker 4: As I'm cockpiling gas, you'll. 757 00:36:43,200 --> 00:36:45,200 Speaker 6: Take the other side, and then I'll say, if you're 758 00:36:45,840 --> 00:36:47,840 Speaker 6: does that, you'll be able to buy Europe for that. 759 00:36:47,840 --> 00:36:49,680 Speaker 6: At that point it's for the price of an internal 760 00:36:49,719 --> 00:36:50,640 Speaker 6: combustion engine car. 761 00:36:51,600 --> 00:36:51,960 Speaker 4: All right. 762 00:36:51,960 --> 00:36:55,440 Speaker 1: So, Fernanda, what are your companies telling you about where 763 00:36:55,480 --> 00:36:57,560 Speaker 1: they think oil is going. 764 00:36:58,120 --> 00:37:00,919 Speaker 6: I mean, they have not cut in back at all, 765 00:37:01,080 --> 00:37:04,080 Speaker 6: so they are seeing the undersupply long term, but in 766 00:37:04,120 --> 00:37:07,719 Speaker 6: the short term they just want to, as Chevron says, 767 00:37:07,719 --> 00:37:12,839 Speaker 6: winning any environment. I think they have continued buybacks and 768 00:37:12,960 --> 00:37:15,520 Speaker 6: that is the biggest difference in big oil today versus 769 00:37:15,520 --> 00:37:17,839 Speaker 6: big Oil in twenty nineteen is they cleaned up their 770 00:37:17,880 --> 00:37:20,720 Speaker 6: balance sheets so they can afford to continue that share 771 00:37:20,920 --> 00:37:24,400 Speaker 6: repurchase program even at much lower oil prices. And I 772 00:37:24,440 --> 00:37:26,839 Speaker 6: think if you ask Mike Worth of Chevron or Darren 773 00:37:26,840 --> 00:37:30,640 Speaker 6: Woods of Exxon. They would say, yeah, give me, give us, 774 00:37:30,640 --> 00:37:32,320 Speaker 6: give us a dip on our stock price, because we 775 00:37:32,320 --> 00:37:34,880 Speaker 6: would love to improve our returns on capitol by repurchasing 776 00:37:34,880 --> 00:37:37,040 Speaker 6: some of our shares rather than going out and buying 777 00:37:37,040 --> 00:37:39,480 Speaker 6: more more small e and ps. 778 00:37:40,440 --> 00:37:40,799 Speaker 4: I don't know. 779 00:37:41,239 --> 00:37:43,640 Speaker 1: I mean, can I go down to Texas and start drilling? 780 00:37:43,760 --> 00:37:45,319 Speaker 1: I mean I think I can make money at ninety 781 00:37:45,360 --> 00:37:46,200 Speaker 1: dollars a barrow. 782 00:37:46,440 --> 00:37:49,919 Speaker 6: You would think, But you can't find the Tuobler goods. 783 00:37:49,960 --> 00:37:52,600 Speaker 6: You can't find the labor, and you're sure not going 784 00:37:52,640 --> 00:37:54,600 Speaker 6: to get permits to drill a lot of those wells. 785 00:37:55,000 --> 00:37:57,280 Speaker 1: That's no fun, all right, Mike from the commodity space, 786 00:37:57,360 --> 00:37:59,319 Speaker 1: just right away here, what's your number one call? 787 00:38:00,800 --> 00:38:03,000 Speaker 11: Gold? The average price of gold this year, at nineteen 788 00:38:03,080 --> 00:38:05,200 Speaker 11: thirty three, is the highest ever. You can't say that 789 00:38:05,280 --> 00:38:08,920 Speaker 11: about virtually any other commodity or asset so far. Expected 790 00:38:08,960 --> 00:38:11,239 Speaker 11: continue in this deepest pockets on the planet. Our buying 791 00:38:11,280 --> 00:38:12,800 Speaker 11: goal that's Central Banks. 792 00:38:13,440 --> 00:38:16,040 Speaker 1: And for now, just real quick, what are your clients? 793 00:38:16,080 --> 00:38:18,920 Speaker 1: What's like the most in vogue trade you hear from 794 00:38:18,920 --> 00:38:20,080 Speaker 1: your clients. 795 00:38:19,719 --> 00:38:22,759 Speaker 6: Well, people are going for the soft landing movement, and 796 00:38:22,840 --> 00:38:25,200 Speaker 6: we think that's not quite going to play out well 797 00:38:25,200 --> 00:38:27,279 Speaker 6: for them. So they're still buying some of the petrochemical 798 00:38:27,360 --> 00:38:30,920 Speaker 6: names that are exposed to housing some of the e andps, 799 00:38:30,960 --> 00:38:33,200 Speaker 6: the more lever dnps that are now getting a rise 800 00:38:33,200 --> 00:38:35,920 Speaker 6: out of the higher oil prices. And we think safeties, 801 00:38:36,719 --> 00:38:39,520 Speaker 6: especially when you're getting a huge payout from Excellent and Chevron, 802 00:38:39,880 --> 00:38:42,400 Speaker 6: is a more attractive proposition. 803 00:38:42,480 --> 00:38:45,920 Speaker 1: All right, good stuff, Felms appreciate it. Fernando Valley, Mike mcgloane. 804 00:38:46,000 --> 00:38:49,200 Speaker 1: They cover the energy space for Bloomberg Intelligence. Mike more 805 00:38:49,239 --> 00:38:51,160 Speaker 1: from a commodityesprespect perspective. 806 00:38:51,200 --> 00:38:51,759 Speaker 4: He carvers all. 807 00:38:51,719 --> 00:38:55,200 Speaker 1: Commodities for BI and Fernando from the fundamentals the equity 808 00:38:55,239 --> 00:38:57,760 Speaker 1: side for a lot of the big oil producing companies. 809 00:38:57,800 --> 00:38:59,560 Speaker 1: It's great to get both of their views when we're 810 00:38:59,560 --> 00:39:02,080 Speaker 1: talking about the global energy space. 811 00:39:02,400 --> 00:39:05,960 Speaker 7: You're listening to the tape Cansur live program Bloomberg Markets 812 00:39:06,040 --> 00:39:09,399 Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune 813 00:39:09,480 --> 00:39:12,439 Speaker 7: in app, Bloomberg dot Com, and the Bloomberg Business App. 814 00:39:12,480 --> 00:39:15,279 Speaker 7: You can also listen live on Amazon Alexa from our 815 00:39:15,320 --> 00:39:21,240 Speaker 7: flagship New York station, Just Say Alexa Play Bloomberg eleven thirty. 816 00:39:21,200 --> 00:39:24,680 Speaker 2: Let's talk about that right now, because Comments, famous for 817 00:39:24,760 --> 00:39:28,040 Speaker 2: its diesel engines, is going to build a three billion 818 00:39:28,120 --> 00:39:31,960 Speaker 2: dollar battery plant with help from the Chinese. And there's 819 00:39:32,000 --> 00:39:36,160 Speaker 2: a lot of skepticism at these kind of partnerships concerning 820 00:39:36,200 --> 00:39:40,520 Speaker 2: these kinds of partnerships, including sketchesm that Ford faced building 821 00:39:40,560 --> 00:39:45,840 Speaker 2: a battery plant in Detroit recently. Let's bring in Elizabeth Bermont. 822 00:39:46,640 --> 00:39:49,640 Speaker 2: She wrote the Comments story for us. She's out of 823 00:39:49,719 --> 00:39:51,040 Speaker 2: Munich right now, are you? 824 00:39:51,080 --> 00:39:52,759 Speaker 4: Are you in the office? You're not at the at 825 00:39:52,800 --> 00:39:54,560 Speaker 4: the show? Right? Did you go to the show? 826 00:39:55,800 --> 00:39:59,320 Speaker 12: I was at the Munich car size from at Monday 827 00:39:59,360 --> 00:40:02,400 Speaker 12: through two yesterday and already having lots of fun with 828 00:40:02,440 --> 00:40:03,240 Speaker 12: it over the weekend. 829 00:40:03,400 --> 00:40:04,960 Speaker 5: It's been a great experience. 830 00:40:04,560 --> 00:40:04,920 Speaker 4: All right. 831 00:40:04,960 --> 00:40:09,759 Speaker 2: So what do we know about this plant that Indiana 832 00:40:09,920 --> 00:40:14,360 Speaker 2: based engine manufacturer Cummins is gonna is gonna build with 833 00:40:14,600 --> 00:40:17,840 Speaker 2: China's Eve Energy Company. 834 00:40:18,960 --> 00:40:20,600 Speaker 5: Yeah, such an interesting development. 835 00:40:20,880 --> 00:40:23,920 Speaker 12: And so, as you were just saying in your intro, 836 00:40:24,280 --> 00:40:27,960 Speaker 12: come in as a diesel engine maker, and they're having 837 00:40:28,000 --> 00:40:32,600 Speaker 12: to get ready for what's up next. They're picking Diamad 838 00:40:32,640 --> 00:40:35,239 Speaker 12: Truck as one of the partners in that venture. The 839 00:40:35,239 --> 00:40:39,560 Speaker 12: world's biggest commercial vehicle maker and then also packer, and 840 00:40:39,600 --> 00:40:43,120 Speaker 12: I think that's absolutely the right way to go to partners, 841 00:40:43,160 --> 00:40:46,520 Speaker 12: strong partners to share the load and gain scale to 842 00:40:46,600 --> 00:40:48,880 Speaker 12: drive down the cost of switching over to batteries. 843 00:40:49,520 --> 00:40:52,600 Speaker 1: Its surprised me given all the rhetoric we see out 844 00:40:52,640 --> 00:40:57,080 Speaker 1: there on the geopolitical stage, why is China's Eve Energy 845 00:40:57,080 --> 00:40:59,520 Speaker 1: company the part of this transaction? 846 00:41:02,440 --> 00:41:05,120 Speaker 12: Well, because they have the technology. I mean, Eve is 847 00:41:05,120 --> 00:41:07,640 Speaker 12: not exactly a company that's coming out of nowhere. They 848 00:41:07,680 --> 00:41:11,000 Speaker 12: are a partner with BMW, and obviously there are these 849 00:41:11,040 --> 00:41:14,400 Speaker 12: geopolitical tensions with the US and China. 850 00:41:14,520 --> 00:41:17,319 Speaker 5: It hasn't stopped other companies from teaming up with them. 851 00:41:17,320 --> 00:41:20,439 Speaker 12: You were just don't mentioning Ford and you know, there's 852 00:41:20,480 --> 00:41:23,359 Speaker 12: absolutely no way around the fact that out of the 853 00:41:23,400 --> 00:41:27,960 Speaker 12: top ten global battery supplies, seven of them are Chinese. So, 854 00:41:28,760 --> 00:41:31,840 Speaker 12: whether you like it or not, there's kind of nowhere 855 00:41:31,880 --> 00:41:32,879 Speaker 12: around working with them. 856 00:41:33,200 --> 00:41:39,080 Speaker 2: Does everybody have enough battery capacity, Elizabeth, or are they 857 00:41:39,120 --> 00:41:41,960 Speaker 2: building these factories quickly to try and get the capacity 858 00:41:42,000 --> 00:41:44,640 Speaker 2: they think they're going to need five years, ten years out. 859 00:41:47,360 --> 00:41:49,880 Speaker 12: You know, it's really interesting when you're comparing where the 860 00:41:49,880 --> 00:41:53,160 Speaker 12: truck makers are and where the carmakers are. The carmakers 861 00:41:53,200 --> 00:41:54,960 Speaker 12: are a lot further down the line as we know, 862 00:41:55,600 --> 00:41:58,239 Speaker 12: and just coming into this conversation, I was just having 863 00:41:58,280 --> 00:42:01,359 Speaker 12: a look around. You know, is this first of this 864 00:42:01,520 --> 00:42:05,080 Speaker 12: kind in the US, you know, supplying batteries for trucks. 865 00:42:05,280 --> 00:42:06,040 Speaker 5: I think it is. 866 00:42:06,640 --> 00:42:09,760 Speaker 12: We've got one announcement from Volvo over here in Europe. 867 00:42:09,760 --> 00:42:12,160 Speaker 5: So they're at this much earlier. 868 00:42:11,800 --> 00:42:17,440 Speaker 12: Stage of moving into this shift, and hopefully they can 869 00:42:17,560 --> 00:42:20,360 Speaker 12: learn from some of the mistakes that the car makers 870 00:42:20,440 --> 00:42:23,600 Speaker 12: have been making, which is to partner up much earlier 871 00:42:23,600 --> 00:42:24,840 Speaker 12: than they did in order. 872 00:42:24,680 --> 00:42:25,600 Speaker 5: To save costs. 873 00:42:25,640 --> 00:42:29,160 Speaker 12: Because unlike with cars, obviously, truck makers need to make 874 00:42:29,200 --> 00:42:32,879 Speaker 12: a profit from their vehicles. So from the get go, 875 00:42:33,440 --> 00:42:37,080 Speaker 12: commercial vehicle makers they need to offer products where logistics 876 00:42:37,120 --> 00:42:40,680 Speaker 12: companies stand to stand to stand to make a profit. 877 00:42:40,920 --> 00:42:45,760 Speaker 2: I wonder though about the actual materials. So this folk, 878 00:42:45,880 --> 00:42:49,640 Speaker 2: this factory is going to focus on lithium iron phosphate batteries. Initially, 879 00:42:50,760 --> 00:42:53,080 Speaker 2: I've heard, you know, Mark Royce from GM tells me 880 00:42:53,920 --> 00:42:55,360 Speaker 2: the chemistry is going to. 881 00:42:55,480 --> 00:42:56,560 Speaker 4: Change every year. 882 00:42:56,680 --> 00:42:58,600 Speaker 2: Right, we don't know what it's going to look like 883 00:42:58,800 --> 00:43:01,440 Speaker 2: in terms of the chem needed in ten years or 884 00:43:01,520 --> 00:43:06,320 Speaker 2: twenty years, but lithium is already in short supply, right, 885 00:43:06,600 --> 00:43:09,240 Speaker 2: are they scrambling to get contracts for the minds? 886 00:43:12,760 --> 00:43:15,640 Speaker 12: I'm not really sure in terms of that where they 887 00:43:15,680 --> 00:43:18,160 Speaker 12: stand on that engagement. I mean, the LFP batteries you 888 00:43:18,280 --> 00:43:20,960 Speaker 12: mentioned that, I think they're a smart initial move because 889 00:43:20,960 --> 00:43:27,480 Speaker 12: they're cheaper than comparable other chemra chemistries, which will help 890 00:43:27,480 --> 00:43:29,520 Speaker 12: them from the get go. In the statements from the companies, 891 00:43:29,520 --> 00:43:31,960 Speaker 12: they were also saying that this is the initial chemistry 892 00:43:31,960 --> 00:43:34,040 Speaker 12: that they're going to be working with. So the way 893 00:43:34,080 --> 00:43:35,680 Speaker 12: that indicates that the way they're going to set this 894 00:43:35,800 --> 00:43:38,440 Speaker 12: up is that they can switch over to other chemistry 895 00:43:38,560 --> 00:43:39,800 Speaker 12: and chemistries as. 896 00:43:39,600 --> 00:43:40,719 Speaker 5: They become available. 897 00:43:41,280 --> 00:43:45,480 Speaker 12: And just on your point about availability of resources to 898 00:43:45,520 --> 00:43:47,879 Speaker 12: make these batteries, I mean, it's a huge question mark 899 00:43:48,239 --> 00:43:52,960 Speaker 12: and arguably there will be bottlenecks along the way. These 900 00:43:53,000 --> 00:43:57,239 Speaker 12: bottlenecks we've seen historically have been able to be resolved, 901 00:43:57,280 --> 00:44:00,200 Speaker 12: you know, not necessarily battery raw materials, but usually when 902 00:44:00,200 --> 00:44:03,399 Speaker 12: there is a bottleneck that we you know, humans find 903 00:44:03,440 --> 00:44:08,120 Speaker 12: a way around them. In terms of the supply again, 904 00:44:08,160 --> 00:44:10,520 Speaker 12: that was also a big topic at the Communika show 905 00:44:10,680 --> 00:44:14,640 Speaker 12: just now. The Chinese have been building their grip on 906 00:44:14,719 --> 00:44:18,359 Speaker 12: the supply chain like no other nation. And while there 907 00:44:18,400 --> 00:44:20,560 Speaker 12: is a lot of lithium coming out of the US 908 00:44:20,680 --> 00:44:24,560 Speaker 12: or Australia as well, for example, eighty percent of lithium 909 00:44:24,800 --> 00:44:28,399 Speaker 12: refining capacity is currently located in China. So it comes 910 00:44:28,440 --> 00:44:31,040 Speaker 12: back to the geopolitics that we were talking about earlier on. 911 00:44:31,400 --> 00:44:34,799 Speaker 12: There's currently nowhere around working with Chinese partners if you 912 00:44:34,840 --> 00:44:37,319 Speaker 12: want to make battery vehicles and those. 913 00:44:37,560 --> 00:44:39,640 Speaker 1: There's also some news coming out of Germany on the 914 00:44:39,719 --> 00:44:43,400 Speaker 1: China front. Again, Mercedes CEO kind of changes his tune 915 00:44:43,520 --> 00:44:46,160 Speaker 1: on China as you know, maybe that's not going to 916 00:44:46,200 --> 00:44:48,160 Speaker 1: be such a great growth market in the next ten 917 00:44:48,239 --> 00:44:50,000 Speaker 1: years as maybe they thought as recently as a couple 918 00:44:50,040 --> 00:44:50,760 Speaker 1: of years ago. 919 00:44:51,080 --> 00:44:52,080 Speaker 4: What's the background there. 920 00:44:55,360 --> 00:44:57,080 Speaker 5: Yeah, he's really changed too, and hasn't he. 921 00:44:57,160 --> 00:44:59,800 Speaker 12: We were looking back over his comments from two years ago, 922 00:45:00,239 --> 00:45:02,640 Speaker 12: and back then he was just saying how the market 923 00:45:02,840 --> 00:45:07,480 Speaker 12: was still looking awesome basically, and people not being able to. 924 00:45:07,400 --> 00:45:10,800 Speaker 5: Get enough from their luxury vehicles. 925 00:45:11,080 --> 00:45:13,680 Speaker 12: If the Chinese market really slows, that's a really big 926 00:45:13,680 --> 00:45:16,680 Speaker 12: problem for the German car makers because even if VW 927 00:45:16,760 --> 00:45:19,640 Speaker 12: has been losing market share there, for all of the 928 00:45:19,680 --> 00:45:22,840 Speaker 12: three German car makers, China remains the biggest market, So 929 00:45:23,160 --> 00:45:26,000 Speaker 12: if people there are no longer or in far fewer 930 00:45:26,320 --> 00:45:28,800 Speaker 12: numbers buying their cars, that's going to be a big problem. 931 00:45:29,320 --> 00:45:31,520 Speaker 5: There are, of course, other markets that they can move to. 932 00:45:32,320 --> 00:45:35,279 Speaker 12: We've had some speculation just talking two people at the 933 00:45:35,320 --> 00:45:38,360 Speaker 12: show that for some of the products from the Mercedes, 934 00:45:38,400 --> 00:45:40,560 Speaker 12: like I know you love that car, the g Wagon, 935 00:45:40,640 --> 00:45:43,719 Speaker 12: that they could focus more on Middle Eastern customers, but 936 00:45:43,760 --> 00:45:46,440 Speaker 12: obviously there are far fewer Middle Eastern customers than there 937 00:45:46,440 --> 00:45:50,439 Speaker 12: are Chinese customers. Again, though, the US could be another 938 00:45:50,480 --> 00:45:54,279 Speaker 12: market where they could refocus their marketing efforts or the 939 00:45:54,320 --> 00:45:56,800 Speaker 12: styling of their cars to see if they can unearth 940 00:45:56,840 --> 00:45:59,000 Speaker 12: a few more people to buy their cars. 941 00:45:59,160 --> 00:46:02,360 Speaker 2: I have always is thought, so I love the G Wagon. 942 00:46:02,560 --> 00:46:04,720 Speaker 2: I've been a fan since I was nine. I bought 943 00:46:04,719 --> 00:46:11,000 Speaker 2: one in twenty twenty, which made my pandemic awesome. And 944 00:46:11,880 --> 00:46:14,920 Speaker 2: I've always thought, you know, they only make like a 945 00:46:14,960 --> 00:46:18,000 Speaker 2: few thousand at one factory in Grots. Mercedes doesn't even 946 00:46:18,000 --> 00:46:20,799 Speaker 2: build themselves. They outsource it to Magnus Styre right, and 947 00:46:20,840 --> 00:46:23,960 Speaker 2: they can't make more, so there's a long waiting list 948 00:46:24,000 --> 00:46:27,080 Speaker 2: and they're incredibly expensive. I've always thought Mercedes should try 949 00:46:27,080 --> 00:46:30,200 Speaker 2: and make like a Volkswagen Bug version of the g 950 00:46:30,360 --> 00:46:33,840 Speaker 2: Wagon that everyone can buy and everyone would buy, but 951 00:46:33,920 --> 00:46:38,919 Speaker 2: they don't want to go I guess down market, right, Elizabeth, Well. 952 00:46:38,840 --> 00:46:41,600 Speaker 12: They weren't talking about a baby g Wagon, weren't they 953 00:46:41,719 --> 00:46:46,239 Speaker 12: at the show, which seatellite TikTok. So yeah, I mean 954 00:46:46,400 --> 00:46:49,120 Speaker 12: I think they. I think even Mercedes is surprised just 955 00:46:49,200 --> 00:46:50,720 Speaker 12: how many g Wagons. 956 00:46:50,320 --> 00:46:50,960 Speaker 5: They can shift. 957 00:46:52,239 --> 00:46:56,440 Speaker 12: So if they're adding more derivatives, which does fit the 958 00:46:56,520 --> 00:46:58,840 Speaker 12: narratives that we're getting from Mercedes that they want to 959 00:46:58,840 --> 00:47:02,600 Speaker 12: focus on that top performing cars, the top end vehicles 960 00:47:02,640 --> 00:47:06,719 Speaker 12: within their portfolio, you know, who knows where you know 961 00:47:06,960 --> 00:47:09,360 Speaker 12: they could go to make the baby do wagon. 962 00:47:10,480 --> 00:47:13,840 Speaker 2: I wonder what you think about the new BMW concept. 963 00:47:14,120 --> 00:47:19,160 Speaker 2: I thought it was horrible, horribly ugly, and I'm a 964 00:47:19,280 --> 00:47:22,680 Speaker 2: huge fan of the cars the carmaker's history, but I 965 00:47:22,680 --> 00:47:24,680 Speaker 2: don't know what they're doing with their future vehicles like 966 00:47:24,719 --> 00:47:26,920 Speaker 2: the XM confuses me completely. 967 00:47:26,960 --> 00:47:28,239 Speaker 4: What do you think about BMW? 968 00:47:31,719 --> 00:47:31,839 Speaker 5: Well? 969 00:47:31,920 --> 00:47:34,960 Speaker 12: I think, you know, car styling is so subjective and 970 00:47:35,000 --> 00:47:37,279 Speaker 12: you can you can talk to no end about it. 971 00:47:38,120 --> 00:47:40,439 Speaker 12: I think you really have to take off your sort 972 00:47:40,440 --> 00:47:44,920 Speaker 12: of Western glasses or even sometimes German glasses in my case, 973 00:47:45,239 --> 00:47:49,400 Speaker 12: what appeals to me doesn't appeal to Chinese customers, and 974 00:47:49,400 --> 00:47:53,239 Speaker 12: that's where they want to sell these cars. You know, 975 00:47:53,280 --> 00:47:55,319 Speaker 12: whether you like the styling or not, I don't think 976 00:47:55,320 --> 00:47:58,879 Speaker 12: it really matters. They were going for some a bit 977 00:47:58,880 --> 00:48:02,560 Speaker 12: of a retro design, you know, we're sort of harks 978 00:48:02,600 --> 00:48:06,560 Speaker 12: back to their heyday of making these really stylish cars. 979 00:48:06,600 --> 00:48:08,400 Speaker 5: So whether that's a bad idea or. 980 00:48:08,400 --> 00:48:10,640 Speaker 12: Not, I'm not really sure. I didn't think the car 981 00:48:10,800 --> 00:48:13,759 Speaker 12: looked terrible. What concerned me a bit more was that 982 00:48:14,200 --> 00:48:18,600 Speaker 12: this vehicle, alongside the Mercedes CLA prototype that they were showing. 983 00:48:18,640 --> 00:48:20,880 Speaker 12: Both of these cars are come on the new generation 984 00:48:21,400 --> 00:48:22,640 Speaker 12: platform for the EVS. 985 00:48:22,840 --> 00:48:24,080 Speaker 5: It's not going to be on. 986 00:48:24,120 --> 00:48:27,040 Speaker 12: Sale until the first half of twenty to twenty five 987 00:48:27,120 --> 00:48:27,600 Speaker 12: or thereabout. 988 00:48:28,600 --> 00:48:30,040 Speaker 4: We're coming out to your LA petition. 989 00:48:30,040 --> 00:48:32,799 Speaker 1: All right, Elizabeth, thank you so much. Elizabeth Barman, team leader, 990 00:48:32,840 --> 00:48:33,880 Speaker 1: Bloomberg News. 991 00:48:35,840 --> 00:48:38,920 Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can 992 00:48:38,960 --> 00:48:42,720 Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever 993 00:48:42,840 --> 00:48:44,320 Speaker 2: podcast platform you prefer. 994 00:48:44,719 --> 00:48:45,520 Speaker 4: I'm Matt Miller. 995 00:48:45,760 --> 00:48:48,680 Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three. 996 00:48:49,160 --> 00:48:50,000 Speaker 4: And I'm fall Sweeney. 997 00:48:50,040 --> 00:48:52,640 Speaker 1: I'm on Twitter at pt Sweeney before the podcast. You 998 00:48:52,680 --> 00:48:56,080 Speaker 1: can always catch us worldwide at Bloomberg Radio