WEBVTT - Mortgages, Germany, Oil, Daimler, and Childcare (Podcast) 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.640 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast called Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.480 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:20.760 --> 0:00:23.000 For joining us here in our Bloomberg Interactive Broker studio 0:00:23.360 --> 0:00:26.000 is Erica Adelberg. Does not phone it in, does not 0:00:26.079 --> 0:00:28.360 meld in. She shows up in the studio, and we 0:00:28.400 --> 0:00:31.720 appreciate that. She's a mortgage backed security strategist for Bloomberg Intelligence, 0:00:31.920 --> 0:00:34.159 has been on the street for a number of years. 0:00:34.200 --> 0:00:36.879 We appreciate getting your time. I don't know, Erica, we 0:00:36.880 --> 0:00:40.080 got a mortgage rate north of seven percent. What's going 0:00:40.120 --> 0:00:41.760 on in the NBS market these days? 0:00:42.600 --> 0:00:46.320 Hi, good morning, Thanks for having me on. We actually 0:00:46.360 --> 0:00:50.640 are seeing a huge decline in mortgage demand, which is 0:00:50.760 --> 0:00:53.600 just you know, symbolica, the fact that the housing market's 0:00:53.640 --> 0:00:56.920 really freezing up. New homes are still doing okay, there's 0:00:57.320 --> 0:01:02.160 a way to for homebuilders to offer lower rates, and frankly, 0:01:02.200 --> 0:01:04.440 there's more inventory right now. I mean it's about a 0:01:04.440 --> 0:01:06.840 third of the existing inventory. Because you can build a 0:01:06.840 --> 0:01:09.440 new home, you can't get somebody to necessarily sell their 0:01:09.440 --> 0:01:11.760 home if they're sitting on a three percent mortgage and 0:01:11.800 --> 0:01:13.560 they'd have to take out a new eight percent one 0:01:13.600 --> 0:01:18.639 like Matt Yeah, not selling. Yeah, So the housing market's 0:01:18.640 --> 0:01:22.280 pretty frozen, and on a seasonally adjusted basis, the mortgage 0:01:22.319 --> 0:01:26.839 back security loan application index that the Mortgage Banker Association 0:01:26.880 --> 0:01:29.360 puts out just hit the lowest levels since nineteen ninety 0:01:29.360 --> 0:01:32.039 five or nineteen ninety six, So I. 0:01:31.959 --> 0:01:35.040 Think, so, wait, does this mean for the mortgage back 0:01:35.720 --> 0:01:40.720 bond market that those are scarce and thus rising in price. 0:01:41.760 --> 0:01:45.160 Yeah, it's an interesting a number of interesting dynamics. I 0:01:45.200 --> 0:01:48.120 actually just sent out a little commentary today. It does 0:01:48.320 --> 0:01:51.480 mean that new issue supplies going to be very low, 0:01:51.800 --> 0:01:54.760 which should be a positive for the mortgage backed securities market. 0:01:55.240 --> 0:01:57.800 But even so, even though you know a lot of 0:01:57.800 --> 0:01:59.800 these homeowners are well out of the money and they're 0:01:59.840 --> 0:02:04.520 not going to refinance, you know, anytime soon, mortgage backed 0:02:04.520 --> 0:02:08.080 security still sensitive to volatility, and they're still sensitive to 0:02:08.120 --> 0:02:11.280 what the Fed's going to do. So as a result, 0:02:11.480 --> 0:02:12.840 you know, we kind of thought this would be a 0:02:12.880 --> 0:02:14.880 pretty good year for mortgage back security. Not a lot 0:02:14.880 --> 0:02:17.400 of supply. We thought maybe the treasury market would rally, 0:02:17.520 --> 0:02:19.560 you know, once the FED was done tightening, but that 0:02:19.639 --> 0:02:20.360 hasn't happened. 0:02:20.680 --> 0:02:23.080 How many does the FED own Do they have a 0:02:23.120 --> 0:02:24.680 stack of mortgage back bonds? 0:02:24.919 --> 0:02:28.160 They said the FED owns about two point six trillion 0:02:28.280 --> 0:02:31.679 mortgage backed securities. For the past two years, during the pandemic, 0:02:31.720 --> 0:02:35.280 I should say, in twenty twenty twenty one, they were 0:02:35.320 --> 0:02:37.639 waving them in hand of or fist to help support 0:02:37.680 --> 0:02:40.639 the mortgage market and help support bonds overall. And they've 0:02:40.639 --> 0:02:43.080 stopped doing that because they want rates to rise now 0:02:43.080 --> 0:02:45.880 they want to slow down the economy and that's been 0:02:45.919 --> 0:02:48.959 a negative drag on the mortgage backed securities market as well, 0:02:49.120 --> 0:02:51.200 just not having them in there as a bus. 0:02:51.240 --> 0:02:54.080 They're not going to sell them, right in quantitative tightening, 0:02:54.120 --> 0:02:57.720 they let the bonds they hold off run off, and 0:02:57.760 --> 0:03:00.000 they don't. But they're not going to sell mortgage back security. 0:03:00.240 --> 0:03:02.880 I mean never say never, no guarantees, but they've said 0:03:02.919 --> 0:03:05.320 if that's happening, it's a long ways in the future, 0:03:05.360 --> 0:03:08.560 and they'll let the market have plenty of advanced warnings, 0:03:08.600 --> 0:03:11.520 so you know they're not making any noises towards it. 0:03:11.520 --> 0:03:14.200 About a year ago, some of the FED governors were 0:03:14.200 --> 0:03:16.880 at least maybe they're trying to job own mortgage rates higher, 0:03:16.880 --> 0:03:19.440 who knows, So they were saying, oh, we really don't 0:03:19.440 --> 0:03:22.120 want to own this many mortgage backed securities. But you know, 0:03:22.160 --> 0:03:24.639 there's also not been any move in that direction, so 0:03:24.680 --> 0:03:26.480 I don't think that's that's certainly not the base case 0:03:26.480 --> 0:03:27.440 of anybody's expectations. 0:03:27.440 --> 0:03:29.760 Okay, what's your take on the long and variable lags, 0:03:30.120 --> 0:03:34.840 because I've heard an interesting debate. Some people say, because 0:03:35.200 --> 0:03:39.440 there are no more adjustable rate mortgages except for Paul's, 0:03:40.520 --> 0:03:44.119 and everybody has locked in a thirty year rate, they're 0:03:44.160 --> 0:03:48.360 going to be even longer variable lags, you know. But 0:03:48.600 --> 0:03:51.720 others like Jan Hati has came out yesterday and said 0:03:52.440 --> 0:03:56.560 he thinks it's shorter, you know, because the FED telegraphs 0:03:56.600 --> 0:03:58.560 everything they're going to do so far in advance. 0:03:58.600 --> 0:04:00.600 And what do you what do you think? 0:04:01.320 --> 0:04:01.880 I think? 0:04:01.920 --> 0:04:04.640 You know, I can't really compare it to history. I 0:04:04.720 --> 0:04:09.920 think that you know, if you look at traditionally movements 0:04:09.920 --> 0:04:14.440 and mortgage rates slash, you know, housing market prices and rents, 0:04:14.480 --> 0:04:17.839 there's a pretty long and variable lag. But one of 0:04:17.880 --> 0:04:22.039 the things, you know, aside from you know, perhaps the telegraphing, 0:04:22.440 --> 0:04:24.960 home prices are actually holding up very well. And I 0:04:24.960 --> 0:04:29.080 think that's a very key source both of rental incomes 0:04:29.360 --> 0:04:32.960 as well as you know, people's wealth effect. So I 0:04:32.960 --> 0:04:35.200 think to the extent that home prices are kind of 0:04:35.240 --> 0:04:37.840 failing to fall at this point, I think that does 0:04:38.000 --> 0:04:40.680 actually make the lags relatively long. 0:04:41.279 --> 0:04:43.960 So what's the mortgage backed security market telling you about 0:04:44.000 --> 0:04:46.960 interest rates? I mean, people are talking about a FED 0:04:47.160 --> 0:04:50.120 maybe in twenty twenty four cutting rates, but you don't 0:04:50.120 --> 0:04:51.719 see that in the mortgage rate at all. Seven point 0:04:51.800 --> 0:04:54.480 five nine percent on the bank rate dot com US 0:04:54.480 --> 0:04:57.960 home mortgage thirty or fixed seven point five nine percent. 0:04:58.320 --> 0:05:00.920 I mean, that's obviously a very current r right. It's 0:05:01.000 --> 0:05:03.760 it's it's not a forecasting rate, it's not really forward rate, 0:05:03.880 --> 0:05:06.280 but it is based on to some degree the ten 0:05:06.320 --> 0:05:10.279 year treasury you know, plus some spread. And what that's 0:05:10.320 --> 0:05:12.800 telling you is that we've had you know, that the 0:05:12.880 --> 0:05:16.520 curve is uninverted a little bit because the markets are 0:05:16.560 --> 0:05:19.159 telling you that that eields are going to have to 0:05:19.200 --> 0:05:22.680 stay higher for longer while the FED continues to try 0:05:22.680 --> 0:05:25.360 to get inflation under control and you know, slow down 0:05:25.400 --> 0:05:26.320 the economy a little bit. 0:05:26.920 --> 0:05:28.760 Can I get any return in your market? I mean, 0:05:28.800 --> 0:05:30.880 I'm looking at the Is it kind of flat year 0:05:30.880 --> 0:05:33.000 to date in terms of the works backed security return? 0:05:33.360 --> 0:05:36.359 Yeah, it's flat so far, which reminds me there's upside 0:05:36.360 --> 0:05:39.760 going forward. You know, spreads are very wide, you know, 0:05:39.800 --> 0:05:41.960 they're they're kind of you know, near ten year wides. 0:05:42.160 --> 0:05:45.640 They're actually not as wide if you look before the 0:05:45.680 --> 0:05:47.360 FED started buying in two thousand and eight, you know, 0:05:47.560 --> 0:05:49.120 and the post financial crisis. 0:05:48.880 --> 0:05:50.039 World, they're very wide. 0:05:51.000 --> 0:05:52.480 And you know, the Fed's probably not going to come 0:05:52.480 --> 0:05:56.279 in and save the mortgage market anytime soon. As you said, 0:05:56.320 --> 0:05:58.800 they're more inclined to sell though I don't think they will. 0:05:59.279 --> 0:06:03.640 So as there is result, yeah, there's there's a better buffer, 0:06:03.680 --> 0:06:05.040 you have a lot more yield, you have a lot 0:06:05.120 --> 0:06:07.560 more spread, But you have to have a little bit 0:06:07.839 --> 0:06:11.160 stronger stomach too, because you know, maybe the federal continue 0:06:11.160 --> 0:06:13.320 pushing re hire or at least job runing them higher. 0:06:13.400 --> 0:06:15.880 So that's what cuts into mortgage out security returns. 0:06:16.000 --> 0:06:19.560 So again today we had the NBA mortgage applications decline 0:06:19.600 --> 0:06:22.320 of two point nine percent versus a prior period of 0:06:22.320 --> 0:06:25.680 a positive two point three percent. How unusual is that 0:06:25.760 --> 0:06:27.840 kind of swing period to period. 0:06:28.320 --> 0:06:30.000 I think the best thing to think about when you're 0:06:30.000 --> 0:06:33.080 looking at something like the NBA Purchase Index being right 0:06:33.120 --> 0:06:36.800 now at the lowest rate since nineteen ninety five, these 0:06:36.839 --> 0:06:41.120 are percentage changes off extremely low numbers. Okay, so you know, 0:06:41.440 --> 0:06:43.800 if one more person takes out a mortgage purchase, it's 0:06:43.839 --> 0:06:44.680 going to influence the. 0:06:46.240 --> 0:06:46.560 Number. 0:06:46.640 --> 0:06:49.600 So yeah, I think, you know, the direction has to 0:06:49.680 --> 0:06:51.359 be looked at over a longer period of time. And 0:06:51.400 --> 0:06:54.600 we're down thirty percent relative to a year ago, and 0:06:54.680 --> 0:06:56.719 even a year ago rates had already started rising. 0:06:56.839 --> 0:06:58.960 Is there a rate where I don't know, the market 0:06:59.000 --> 0:07:01.200 opens up, people start buying and selling houses again. I mean, 0:07:01.240 --> 0:07:03.360 at one point I heard somebody say like, yeah, five 0:07:03.480 --> 0:07:05.400 five and a half percent for mortgage rates, get back 0:07:05.440 --> 0:07:06.000 down to there. 0:07:06.320 --> 0:07:07.640 But boy, we're a long way from that. 0:07:08.320 --> 0:07:10.400 Yeah we are. We're currently, as you said, at seven 0:07:10.400 --> 0:07:13.600 point five percent on the bank rate. You know, it's 0:07:13.920 --> 0:07:15.920 hard to put a number on something like that. I 0:07:15.920 --> 0:07:18.480 think part of it will be time as well, because 0:07:18.560 --> 0:07:22.679 just over time, people have to upsize their homes, you know, death, 0:07:22.720 --> 0:07:26.160 divorce taxes, defaults, we're it's certainly not facing defaults anytime, 0:07:26.240 --> 0:07:29.200 staying with unemployment you know, pretty much all time lows. 0:07:29.520 --> 0:07:33.680 But you know that being said, time will help. More 0:07:33.720 --> 0:07:37.520 mortgages are getting originated, albeit slowly at these higher rates, 0:07:38.320 --> 0:07:40.200 and those people, of course aren't quite as locked in. 0:07:40.840 --> 0:07:43.800 But I think the mortgage market structure is going to stay, 0:07:44.040 --> 0:07:46.480 you know, in the very low coupon range for a 0:07:46.680 --> 0:07:49.040 very long time. So I don't think we'll have the 0:07:49.160 --> 0:07:51.400 kind of turnover we're used to seeing the housing market 0:07:51.480 --> 0:07:52.720 for a decade. 0:07:52.760 --> 0:07:53.600 You know, it's a great thing. 0:07:54.240 --> 0:07:59.440 Downsizing, Yeah, nice that no tax, then cash burns a 0:07:59.520 --> 0:08:01.080 fraction what it was back in the day. 0:08:01.200 --> 0:08:04.000 I'm excited for that to happen to me in twenty 0:08:04.560 --> 0:08:05.360 twenty years or so. 0:08:05.520 --> 0:08:07.440 And when you downsize you can sometimes take out the 0:08:07.520 --> 0:08:09.520 entire equity of your home and not have to take 0:08:09.520 --> 0:08:11.520 out a mortgage at all. So those types of things 0:08:11.560 --> 0:08:13.400 will keep the housing market. And there is a whole 0:08:13.400 --> 0:08:15.680 bunch of people that are you know, in the next 0:08:15.720 --> 0:08:18.880 generation that are kind of ready to downsize, you know. 0:08:19.960 --> 0:08:22.080 So so those then you got people like John Tucker, 0:08:22.120 --> 0:08:25.600 who actually does the repairs to his own home right well, 0:08:25.600 --> 0:08:26.640 he's never downsized. 0:08:26.680 --> 0:08:28.960 He still lives in the mansion, still in the sea, 0:08:29.680 --> 0:08:32.400 but there is a there's a guest cottage on the 0:08:32.720 --> 0:08:35.719 on the estate. So at some point that's. 0:08:35.559 --> 0:08:36.319 What you need to do. 0:08:36.520 --> 0:08:36.880 Yeah. 0:08:37.000 --> 0:08:38.280 I thought he was going to say I could move 0:08:38.320 --> 0:08:42.040 in or at least stay there for the weekend. 0:08:42.160 --> 0:08:44.960 Yeah, you know, exactly, down to sure. All right, Erica, 0:08:45.000 --> 0:08:46.920 thank you so much for joining us. Erica Adelberg, she's 0:08:46.960 --> 0:08:49.640 a mortgage backed security strategist for Bloomberg Intelligence. 0:08:49.640 --> 0:08:51.640 At some point we got to talk about porting mortgages, 0:08:52.679 --> 0:08:54.640 you know, because I locked in a three percent rate, 0:08:54.920 --> 0:08:58.680 and if I wanted I love my house, I'm not 0:08:58.679 --> 0:09:00.720 going to sell it. My wife's listening, don't freak out. 0:09:00.760 --> 0:09:04.080 But if I did want to, I'd like to take 0:09:04.160 --> 0:09:06.440 my three percent mortgage with me and use it to 0:09:06.440 --> 0:09:07.160 buy another house. 0:09:07.200 --> 0:09:08.640 You can in some cases. 0:09:08.679 --> 0:09:12.120 I don't know the exact details, but some mortgages can 0:09:12.160 --> 0:09:14.240 be ported in some ways. 0:09:14.640 --> 0:09:17.600 So in other countries that's definitely true, like in Canada, 0:09:17.800 --> 0:09:19.800 but I haven't really heard of that being a thing here. 0:09:19.640 --> 0:09:20.440 As much Canada. 0:09:20.679 --> 0:09:22.719 All right, so you move to Canada, you can't take 0:09:22.720 --> 0:09:23.480 your mortgage with you. 0:09:23.920 --> 0:09:24.800 Take your mortgage with you. 0:09:25.000 --> 0:09:29.480 Thanks again, you're listening to the Team Kenser Live program 0:09:29.600 --> 0:09:33.520 Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, 0:09:33.600 --> 0:09:36.760 the iHeartRadio app and the Bloomberg Business App, or listen 0:09:36.840 --> 0:09:39.080 on demand wherever you get your podcasts. 0:09:41.040 --> 0:09:42.760 Let's go across upon and take a look at what's 0:09:42.800 --> 0:09:46.559 happening the economies of our good friends in Europe and 0:09:46.600 --> 0:09:50.200 the UK. Doctor Vaniet Estavakava joins us. She's professor of 0:09:50.240 --> 0:09:51.920 economics at the London Business School. 0:09:53.360 --> 0:09:54.960 Professor, seems like the. 0:09:54.960 --> 0:09:57.120 US economy is doing pretty well to the point where 0:09:57.160 --> 0:09:59.040 this FED doesn't need to really do anything to kind 0:09:59.080 --> 0:10:02.840 of maybe you know, we've got inflation kind of running okay, 0:10:02.880 --> 0:10:05.120 we've got the economy kind of running okay. Just give 0:10:05.160 --> 0:10:08.920 us the thirty thousand foot view of Europe in general 0:10:08.960 --> 0:10:10.520 and then we'll take down a little deeper. 0:10:11.600 --> 0:10:13.640 So thank you very much for having me. Always a 0:10:13.640 --> 0:10:16.000 pleasure to be here. So indeed, there is quite a 0:10:16.000 --> 0:10:18.560 bit of divergence between the US and Europe and definitely 0:10:18.720 --> 0:10:22.640 UK as well, which is due to structural reasons. So 0:10:22.920 --> 0:10:24.960 the German economy, for example, if you take the biggest 0:10:24.960 --> 0:10:28.200 country in the Eurozone, is significantly different from the US economy, 0:10:29.080 --> 0:10:31.640 we would expect that inflation will be high in Germany, 0:10:31.679 --> 0:10:34.040 and would expect the inflation from the worse in Germany 0:10:34.160 --> 0:10:37.480 and to see stagnation or even decreasing growth, which is 0:10:37.480 --> 0:10:40.920 what the recent numbers show based on a few observations. 0:10:41.240 --> 0:10:44.200 So first, the euro Zone and Germany in general in 0:10:44.240 --> 0:10:47.480 general just much more open relative to the US. So 0:10:47.559 --> 0:10:50.000 if you take one measure of openness which is expert 0:10:50.120 --> 0:10:52.960 relative to GDP, and just take China, which of course, 0:10:53.000 --> 0:10:56.400 as we know, has decreased its demand for imports due 0:10:56.440 --> 0:10:59.600 to the slow in growth in China. So the connection 0:10:59.679 --> 0:11:03.120 between in Germany and China is two point five percent 0:11:03.320 --> 0:11:06.520 of the German GDP. So Germany exports two point five 0:11:06.559 --> 0:11:09.120 percent of its GDP to China. So an external shock 0:11:09.160 --> 0:11:11.760 from China is going to impact the German economy, for example, 0:11:11.920 --> 0:11:14.760 a lot. The difference is with the US the number 0:11:14.840 --> 0:11:17.520 is zero point six percent, so of course it's not 0:11:17.679 --> 0:11:20.360 just China. Actually, over the last year, the euro has 0:11:20.600 --> 0:11:23.520 appreciated against the door by more than ten percent, close 0:11:23.559 --> 0:11:24.199 to twelve percent. 0:11:24.480 --> 0:11:26.360 Thennie, can I just jump in here and ask about 0:11:26.640 --> 0:11:30.600 quickly about China. I keep hearing that the slump in 0:11:30.720 --> 0:11:34.520 China is affecting other economies badly, and everyone's kind of 0:11:34.559 --> 0:11:38.080 writing off the economy there. But aren't they pulling out 0:11:38.160 --> 0:11:41.280 some real stimulus now? Isn't it possible that the Chinese 0:11:41.360 --> 0:11:44.000 economy does start to pick up? 0:11:45.240 --> 0:11:46.960 Well, they've been kind of trying to do it for 0:11:46.960 --> 0:11:49.520 a while. I don't think they're proposing anything new. I 0:11:49.559 --> 0:11:52.080 believe the China is on a downward trend. We're talking 0:11:52.080 --> 0:11:54.560 about a trend here at and a temporary, essentially one 0:11:54.600 --> 0:11:58.320 blip deviation from growth. China cannot grow the way it's 0:11:58.360 --> 0:12:00.520 used for a number of reasons which are quite long 0:12:00.559 --> 0:12:04.120 to discuss. So I do believe that actually the trend 0:12:04.160 --> 0:12:05.280 will perceift in China. 0:12:05.360 --> 0:12:08.360 Okay, I just wanted to get that straight. I believe you. 0:12:08.520 --> 0:12:11.120 I just have been a little bit confused because we 0:12:11.200 --> 0:12:14.560 report on every stimulus move like it's a huge deal, 0:12:14.640 --> 0:12:16.520 you know, like, oh man, they're cutting the triple R 0:12:17.360 --> 0:12:20.920 reserve ratio, and they're they're they're funding you know, little 0:12:21.000 --> 0:12:22.800 kids and old parents and so. 0:12:23.040 --> 0:12:25.280 But but I think I hear you. 0:12:25.640 --> 0:12:28.480 I think it's important actually to zoom out and look 0:12:28.520 --> 0:12:31.720 at not just the recent news, but a compilation of 0:12:31.760 --> 0:12:33.720 news and trends. I mean, that's kind of what we 0:12:33.840 --> 0:12:36.880 do usually in Nicoon, not just focusing on single news. 0:12:37.040 --> 0:12:40.800 Speaking of trends, going back to the euro on appreciation 0:12:40.880 --> 0:12:43.560 of the euro, twelve percent is massive. This is going 0:12:43.600 --> 0:12:47.120 to impact the eurosone economy in Germany the most. Now, 0:12:47.160 --> 0:12:49.080 what else is different for Germany? So there are the 0:12:49.080 --> 0:12:51.240 major differences between Germany and the US coming from the 0:12:51.240 --> 0:12:55.600 fact that Germany is primarily dominated by manufacturing. So manufacturing 0:12:55.720 --> 0:12:58.080 is still much more important in Germany than the US. 0:12:58.360 --> 0:13:00.679 So then the shocks are so sated with the high 0:13:00.720 --> 0:13:04.920 oil price, oil and gas prices impacting the marginal cost 0:13:04.960 --> 0:13:08.000 of production. The margin for the manufacturing sector is another 0:13:08.040 --> 0:13:10.240 big problem, right, so those costs had to be passed 0:13:10.280 --> 0:13:14.000 forward to the final consumer for the manufacturing sector, so 0:13:14.080 --> 0:13:17.200 the prices of manufacturing goals had to increase more so 0:13:17.280 --> 0:13:20.959 high inflation in Germany. Similarly, the labor tightness. So Germany 0:13:20.960 --> 0:13:24.160 has demographic problems. They have aging population much more than 0:13:24.200 --> 0:13:26.800 the US. So you have seen the articles that the 0:13:26.840 --> 0:13:30.599 manufacturing sector is struggling to hire employees aage inflation is 0:13:30.640 --> 0:13:33.160 going to be higher. So these are structural differences that 0:13:33.200 --> 0:13:35.840 are here to stay. They're not going to disappear overnight. 0:13:36.760 --> 0:13:39.000 That are putting the US and Germany in a very 0:13:39.000 --> 0:13:42.360 different position. Now, this creates a lot of challenges for SB, 0:13:43.840 --> 0:13:46.480 of course, because Germany is one of many countries in 0:13:46.520 --> 0:13:48.880 the Eurozone, and the German economy is also different from 0:13:48.920 --> 0:13:51.880 Southern Europe and from other countries. So then the question 0:13:52.040 --> 0:13:54.240 is what is easy to be going to do. I 0:13:54.280 --> 0:13:56.840 do believe that in general easy it tends to put 0:13:56.840 --> 0:13:59.640 a high way on the German economy highweight. That's what 0:13:59.679 --> 0:14:02.680 we saw in the global financial crisis, for example. Probably 0:14:02.679 --> 0:14:05.280 it will be the same in this case. Having said that, 0:14:05.600 --> 0:14:09.240 given that the news are high, inflation above target and 0:14:09.280 --> 0:14:12.600 actually significantly about target, so more than five percent coinflation 0:14:12.679 --> 0:14:16.880 is very uncomfortable situation for CB, even if the German 0:14:16.880 --> 0:14:18.880 economy is so down, even if there is aerization, I 0:14:18.920 --> 0:14:21.200 do not see how they're not going to keep increasing 0:14:21.240 --> 0:14:24.280 interest rates. We're not talking about inflation getting to three 0:14:24.360 --> 0:14:26.720 three point five percent and then having the theory that 0:14:26.760 --> 0:14:29.000 maybe they're targeting a bit high inflation. We're talking about 0:14:29.040 --> 0:14:30.120 till five percent colinflation. 0:14:30.840 --> 0:14:33.080 All right, How about the United Kingdom? 0:14:33.320 --> 0:14:34.880 What are we seeing in terms of the economy there 0:14:34.880 --> 0:14:37.080 and what do we expect the Bank of England to 0:14:37.160 --> 0:14:37.960 do in response? 0:14:38.920 --> 0:14:42.400 So for the UK, it seems that there's some evidence 0:14:42.600 --> 0:14:46.040 that the high interest rates are starting to bite. Having 0:14:46.080 --> 0:14:48.560 said that the UK has the worst numbers in terms 0:14:48.600 --> 0:14:52.880 of inflation, in terms of private sector wage growth, I 0:14:53.000 --> 0:14:56.400 don't see them posing for the time being. I mean, 0:14:56.440 --> 0:15:01.680 they cannot pose this inflation rate. However, I do expect 0:15:01.720 --> 0:15:04.680 a recession coming the soon, as probably in the UK. 0:15:04.800 --> 0:15:10.000 Relative to the ide Eurozone and UK, it's it's it's 0:15:10.080 --> 0:15:11.960 unclear which one is going to come first. But definitely 0:15:12.040 --> 0:15:13.720 we will have a recesion in the UK because they 0:15:13.720 --> 0:15:15.800 will have to keep hiking and even if current interest 0:15:15.880 --> 0:15:18.080 rates is going to bite, already starting to buy. 0:15:19.320 --> 0:15:23.120 What do you think about the the the release of 0:15:23.160 --> 0:15:27.520 strategic the strategic petroleum reserve last year didn't really affect 0:15:27.880 --> 0:15:29.760 the price of oil so much. 0:15:30.200 --> 0:15:31.800 Now we're heading back up there. 0:15:32.680 --> 0:15:37.440 Even as these problems you know of economic slowdowns hit 0:15:38.040 --> 0:15:41.360 whole continents like Europe. How does the how does the 0:15:41.360 --> 0:15:45.640 oil price work into your forecasts for economic growth or 0:15:45.760 --> 0:15:47.600 contraction tributing. 0:15:47.240 --> 0:15:50.520 Too slow slow down? So we saw that gas prices 0:15:50.800 --> 0:15:53.040 starting to increase again, So let's see what happens with 0:15:53.160 --> 0:15:54.840 the winter. If we have a mouth winter, it might 0:15:54.880 --> 0:15:57.800 not be as bad. If global demands loans down, this 0:15:57.960 --> 0:16:02.280 might offset efforts by all producing economies to decrease the supply, 0:16:02.320 --> 0:16:04.200 which of course Opek has been trying to do that. 0:16:04.440 --> 0:16:06.560 So it is a function of both supplying demand. So 0:16:06.600 --> 0:16:08.920 it is a function also for although when gas producers 0:16:08.960 --> 0:16:12.520 do in addition to what happens to demand, I don't 0:16:12.560 --> 0:16:15.520 expect them to reach the levels of course of last winter, 0:16:15.640 --> 0:16:20.360 unless there is another massive shock. But definitely are going 0:16:20.400 --> 0:16:23.320 to put a downward pressure on the growth in the 0:16:23.400 --> 0:16:26.120 Eurozone and in the UK as we enter the winter months, 0:16:26.120 --> 0:16:27.600 where we expect prices to increase a bit. 0:16:27.640 --> 0:16:28.160 It least. 0:16:29.760 --> 0:16:32.320 How about in southern Europe and thing in Italy Spain, 0:16:32.400 --> 0:16:34.840 those are areas attend Those are economies that tend to 0:16:34.840 --> 0:16:37.280 be more fragile, and at least here in the US 0:16:37.480 --> 0:16:41.520 we hear more about that from a weakness perspective. How 0:16:41.520 --> 0:16:43.160 are they faring in this environment? 0:16:43.680 --> 0:16:45.840 Well, it is a special case. I wouldn't put it 0:16:45.880 --> 0:16:49.360 together an essay. Little with Spain these days besides Italy, 0:16:49.400 --> 0:16:52.640 other soudthern European economy is actually having better numbers than Germany. 0:16:52.680 --> 0:16:56.960 They have lower inflation and better growth, so overall, actually 0:16:56.960 --> 0:16:59.320 they're doing better. But if the CP keeps hiking, of 0:16:59.360 --> 0:17:01.000 course this is going to have an impact on those 0:17:01.040 --> 0:17:05.440 economies as well. Yeah, the numbers fitally do not look great. 0:17:05.480 --> 0:17:08.439 So definitely Italy for number of it's an outlier at 0:17:08.440 --> 0:17:11.680 the moment. So that's where there'll be also political conflict 0:17:11.760 --> 0:17:16.200 because for the hikes are going to potentially upset politicians 0:17:16.240 --> 0:17:18.320 in certain Southern European countries if they feel they don't 0:17:18.320 --> 0:17:21.639 need these hikes. So this has always been the problem 0:17:21.640 --> 0:17:23.960 with the CB. Right, we have a single central bank, 0:17:23.960 --> 0:17:29.159 many business cycles, no common fiscal policy, so usually the 0:17:29.200 --> 0:17:30.080 way it is in Germany. 0:17:31.119 --> 0:17:31.720 Yeah, that's tough. 0:17:31.760 --> 0:17:33.600 If I mean if your biggest economy is your weakest 0:17:33.680 --> 0:17:35.520 or one of your weakest links, that's tough. 0:17:35.800 --> 0:17:43.520 Well, i mean, let's define weakest link. Surely the Spain, Portugal, Italy, Greece. 0:17:44.080 --> 0:17:46.880 You know those are going to be weaker economies over 0:17:46.880 --> 0:17:48.439 the longer term, don't you think, doctor? 0:17:49.160 --> 0:17:50.720 Oh yeah, of course, I mean there is the trends 0:17:50.760 --> 0:17:52.960 and there are business cycles, fluctuations. So when we talk 0:17:52.960 --> 0:17:55.320 about multipolicy, of course, of course the focus is on 0:17:55.359 --> 0:17:58.639 business cycle fuctuations, and that's where currently the divergence is 0:17:58.640 --> 0:18:01.280 such that Saturn you're is doing better than Germany in 0:18:01.320 --> 0:18:03.960 state of state of course, the fundamentals. You can say 0:18:03.960 --> 0:18:06.720 a better ford, you know, countries like Germany than Greece 0:18:07.280 --> 0:18:08.920 or Italy for sure. 0:18:10.280 --> 0:18:16.680 So you noticed I didn't use the term pigs. Why 0:18:16.680 --> 0:18:16.960 would you? 0:18:17.119 --> 0:18:20.399 Yes, I do not like this term. It's a veryly Greece. 0:18:20.600 --> 0:18:25.479 Yes, oh yeah, I mean it's actually I think Portugal, Italy, Ireland, Greece. 0:18:25.640 --> 0:18:29.920 Easy, easy on Ireland. Sorry, sorry, all right, doctor, thank 0:18:29.960 --> 0:18:33.200 you so much for joining us. Doctor Vania Starkeeva, Professor 0:18:33.240 --> 0:18:36.399 of Economics at the London Business School, I appreciate gatting 0:18:36.400 --> 0:18:37.640 the view what's happening in Europe. 0:18:37.920 --> 0:18:41.520 You're listening to the tape cancer Live program Bloomberg Markets 0:18:41.600 --> 0:18:44.960 weekdays at ten am Eastern on Bloomberg Radio, the tune 0:18:45.000 --> 0:18:47.960 in app, Bloomberg dot Com, and the Bloomberg Business App. 0:18:48.000 --> 0:18:50.840 You can also listen live on Amazon Alexa from our 0:18:50.840 --> 0:18:55.960 flagship New York station. Just say Alexa, play Bloomberg eleven thirty. 0:18:56.760 --> 0:19:00.840 Let's talk reads real estate investment Trust. Steve Brown, he 0:19:00.840 --> 0:19:02.920 can do that for Steve Brown is a senior portfolio 0:19:02.920 --> 0:19:07.240 manager of Global real Estate at American Century Investments. He 0:19:07.320 --> 0:19:10.080 joined his live here in our Bloomberg Interactive Broker studio. 0:19:10.359 --> 0:19:13.920 See what happens to the re market when the FED 0:19:14.000 --> 0:19:18.040 has eleven rate increases. There's a banking crisis that can't 0:19:18.080 --> 0:19:19.720 be a good backdrop for reads. 0:19:20.119 --> 0:19:22.720 Sure, thank you for having me on. Yeah, reads have 0:19:22.720 --> 0:19:24.880 been under pressure this year and part of the last 0:19:24.920 --> 0:19:28.240 year because of the FED raid hiking cycle, and as 0:19:28.280 --> 0:19:30.640 you mentioned, it's going on for over twelve months. They've 0:19:30.720 --> 0:19:34.320 raised short term rates basically from zero percent to five percent, 0:19:34.359 --> 0:19:38.400 so very materially higher rates, and it's impacted basically cap 0:19:38.480 --> 0:19:39.399 rates and barring. 0:19:39.119 --> 0:19:40.000 Costs for real estate. 0:19:40.080 --> 0:19:42.879 So reads in general have been under pressure for the 0:19:42.960 --> 0:19:45.440 last we'll call it eighteen months or so. And we're 0:19:45.480 --> 0:19:48.720 really looking to an environment when the FED is done 0:19:48.800 --> 0:19:51.520 raising rates, and that would be a much more constructive 0:19:51.600 --> 0:19:53.440 environment to own publicly traded real estate. 0:19:54.320 --> 0:19:57.920 So you think rates are just going to stay here 0:19:58.359 --> 0:19:59.480 or we're going to get. 0:19:59.320 --> 0:20:02.080 A new dot plot this month? Do you think they're 0:20:02.119 --> 0:20:03.920 gonna take out some of the cuts? 0:20:05.240 --> 0:20:05.440 Right? 0:20:05.880 --> 0:20:09.040 I think our basic thinking is the FED is either 0:20:09.080 --> 0:20:11.600 done or just about done. They could be done because 0:20:11.600 --> 0:20:14.239 they haven't raised rates since July, and as we move 0:20:14.280 --> 0:20:16.720 into twenty four, then the next conversation will be when 0:20:16.840 --> 0:20:21.080 the cuts start. We think that when the Fed's done, 0:20:21.119 --> 0:20:24.240 that's a much more constructive environment for real estate values 0:20:24.520 --> 0:20:27.679 in public real estate. And we think that, you know, 0:20:27.920 --> 0:20:30.160 we don't necessarily need the FED to start cutting rates, 0:20:30.160 --> 0:20:32.920 but just having no more rate increases in some stabilization 0:20:32.960 --> 0:20:35.080 in the bond market, and there'll be a much more 0:20:35.640 --> 0:20:37.440 pricing efficient market for real estate. 0:20:37.480 --> 0:20:39.760 So we're optimistic that the FED. 0:20:39.560 --> 0:20:42.840 Is either done or just about done raising rates, and 0:20:42.880 --> 0:20:46.399 whether they start cutting in June of next year or 0:20:46.440 --> 0:20:48.639 September of next year, it really is just a more 0:20:48.680 --> 0:20:50.960 constructive environment when the Fed's done raising rates. 0:20:51.560 --> 0:20:53.760 All right, So, I know that there are lots of 0:20:53.800 --> 0:20:57.879 different sectors within the space, you know, data centers versus 0:20:57.960 --> 0:21:02.080 you know, housing and things like that versus student housing. 0:21:02.200 --> 0:21:05.680 Exactly what are the ones that you guys are going 0:21:05.720 --> 0:21:08.000 to be positioned in for if we are in fact 0:21:08.040 --> 0:21:11.160 heading into time when rates are no longer increasing, where 0:21:11.160 --> 0:21:13.280 are you guys kind of placing your bets. 0:21:13.400 --> 0:21:17.679 Sure, it's a great question, and you reachs are up 0:21:17.680 --> 0:21:19.600 about two percenters of this year, so not much going on, 0:21:19.680 --> 0:21:23.760 but certain sectors like data, center, reads, industrial have done 0:21:23.800 --> 0:21:26.720 well this year because they have pricing power, and other 0:21:26.760 --> 0:21:29.840 property sectors have really, you know, performed poorly. You mentioned 0:21:29.880 --> 0:21:32.880 office that's certainly one of the weaker performing sectors, as 0:21:32.920 --> 0:21:36.840 well as at least and to a certain extent, retail. 0:21:37.080 --> 0:21:39.280 I think we think that if when the Fed's done, 0:21:39.359 --> 0:21:42.000 you know, the acid class in general should perform better 0:21:42.119 --> 0:21:45.960 because of more effective debt financing for real estate values, 0:21:46.440 --> 0:21:48.440 and will the more bombed out sectors perform well. 0:21:48.480 --> 0:21:50.480 I think retail is probably going. 0:21:50.400 --> 0:21:54.280 To continue to perform better because of lower rates and 0:21:54.320 --> 0:21:57.119 they have lower valuations a little benefit from that. But 0:21:57.160 --> 0:21:59.680 some of the other sectors that are haven't performed well 0:21:59.680 --> 0:22:01.200 this year, such as towers. 0:22:01.960 --> 0:22:04.560 Tower reets are love. Towers are big component of the index. 0:22:04.600 --> 0:22:06.560 They haven't done well for a couple of reasons. 0:22:06.600 --> 0:22:12.000 One is the the growth characteristics have been modest exactly 0:22:12.080 --> 0:22:16.760 because they have sort of very strong pricing power characteristics. 0:22:17.080 --> 0:22:19.800 They had high multiples, but high multiples and high rates 0:22:19.840 --> 0:22:22.280 don't go well together. So if the raids start to 0:22:22.720 --> 0:22:25.200 roll over, tower reach should perform well over the next 0:22:25.200 --> 0:22:25.680 twelve months. 0:22:25.840 --> 0:22:28.440 Paul Paul loves towers, because I'm gonna guess he took 0:22:28.480 --> 0:22:31.439 somebody's towers, American tower, the public. 0:22:31.800 --> 0:22:33.639 We made the fees we made off of those things, 0:22:33.960 --> 0:22:36.600 gold mines, gold mines, and we rolled the whole for 0:22:36.640 --> 0:22:37.240 the bankers. 0:22:37.400 --> 0:22:40.800 Oh yeah, well, good for those for the sellers, right, 0:22:41.040 --> 0:22:43.920 I mean, I remember when Deutsche Telecoms took all their towers, 0:22:44.040 --> 0:22:45.240 they sold them and least them back. 0:22:45.359 --> 0:22:47.520 They thought that those assets were worthless, and they were 0:22:47.520 --> 0:22:49.679 worth seven eight nine times cash low we got them 0:22:49.680 --> 0:22:52.440 for so anyway, so we made money on the tower 0:22:52.440 --> 0:22:56.520 of business back in the day. So here in New 0:22:56.600 --> 0:22:59.640 York City, you're a rika, You're a real sticky. When 0:22:59.680 --> 0:23:06.240 I yet true, a high quality third Avenue, forty eighth 0:23:06.240 --> 0:23:09.720 Street tower, when that gets sold in the next year 0:23:09.760 --> 0:23:11.920 or two, is it going to be ten percent below 0:23:12.480 --> 0:23:16.600 where it was? Fifty percent more than that? How bad 0:23:16.640 --> 0:23:18.600 do you think the office market is in a market 0:23:18.720 --> 0:23:21.399 like New York Because we haven't seen stuff really trade, 0:23:21.440 --> 0:23:23.560 so we don't know what the discount really is. 0:23:24.160 --> 0:23:27.480 Right, It's it's bad in the sense that we've seen trades, 0:23:28.040 --> 0:23:30.800 whether they're New York, San Francisco, or other major cities. 0:23:31.200 --> 0:23:34.000 What we've seen is some funds. 0:23:34.000 --> 0:23:37.240 Some private equity funds give back the office properties to 0:23:37.240 --> 0:23:41.280 the lenders and then the so the asset is worth 0:23:41.320 --> 0:23:43.880 less than the loan. So we've seen property declines over 0:23:43.920 --> 0:23:46.680 the last twelve months in the office sector of anywhere 0:23:46.680 --> 0:23:50.920 from twenty to forty five percent of transactions that have happened. 0:23:51.080 --> 0:23:52.960 So that's what we're seeing. 0:23:53.000 --> 0:23:55.240 And I would we would believe that, you know, office 0:23:55.320 --> 0:23:58.359 values are down anywhere from twenty to thirty to forty percent. 0:23:58.720 --> 0:24:00.800 So if a property that you just made hasn't. 0:24:00.600 --> 0:24:03.040 Traded and say three or four years, you can probably 0:24:03.760 --> 0:24:05.840 see a pricing that's you know, thirty or forty percent 0:24:05.960 --> 0:24:09.520 lower than we're last traded at because of higher cap 0:24:09.600 --> 0:24:13.159 rates for office and concerns about NLI of the office 0:24:13.160 --> 0:24:17.639 buildings because of less tenant demand and the continuation of 0:24:17.680 --> 0:24:18.280 work from home. 0:24:19.560 --> 0:24:23.600 What's the best way, I mean reads, You can go 0:24:23.640 --> 0:24:27.000 and buy them individually. There are also ETFs of reats. 0:24:27.560 --> 0:24:29.199 There are a number of ways to get at the product. 0:24:29.240 --> 0:24:32.920 Does the rapper matter or what's your view on that right? 0:24:33.600 --> 0:24:36.119 I'd say, you know, certainly from where we stay, we 0:24:36.200 --> 0:24:40.720 run an active actually managed long only strategy, and I 0:24:40.760 --> 0:24:45.480 think that the diversity helps total returns, certainly for us 0:24:45.520 --> 0:24:50.080 and our clients. I think that the you know, there 0:24:50.080 --> 0:24:52.320 were no even though I mentioned that reads were up 0:24:52.400 --> 0:24:54.040 only two or three percent this year, there are a 0:24:54.119 --> 0:24:56.840 number of property sectors that have done quite well, whether 0:24:56.840 --> 0:25:00.399 it's data centers up twenty twenty five percent, through up 0:25:00.440 --> 0:25:03.119 ten or twelve percent, multi family up seven percent. So 0:25:03.160 --> 0:25:06.320 there's been some real winners. So active management does matter. 0:25:06.880 --> 0:25:09.320 And I think as we move into twenty twenty four, 0:25:09.760 --> 0:25:12.680 and as we sort of get into the get past 0:25:12.720 --> 0:25:15.680 the FED rate hiking cycle and the environment changes somewhat, 0:25:15.920 --> 0:25:20.000 I think there'll be some continued strong differential and performance 0:25:20.000 --> 0:25:21.280 of the various property sectors. 0:25:21.359 --> 0:25:22.360 Are there to twenty four? 0:25:22.480 --> 0:25:22.840 Are there? 0:25:22.880 --> 0:25:25.879 I mean the big losers, Steve, I'm guessing like office 0:25:25.880 --> 0:25:28.879 space here long third Avenue, right, Yeah? Have they lost 0:25:29.119 --> 0:25:33.280 enough so that they become interesting in terms of you 0:25:33.320 --> 0:25:34.199 know the multiples. 0:25:34.359 --> 0:25:37.879 Sure, in the public sector, I mean the office reachs. 0:25:37.920 --> 0:25:40.320 At one point this year, we're down forty percent. So 0:25:40.440 --> 0:25:44.880 publicly traded real estate reflected higher registrates reflective concerns about 0:25:44.880 --> 0:25:46.879 an economic slowdown, et cetera, et cetera. 0:25:46.960 --> 0:25:48.480 So they really had real. 0:25:48.359 --> 0:25:51.040 Time pricing and they would be the first to recover 0:25:51.200 --> 0:25:53.919 of in terms of a recovery in the economy or 0:25:54.080 --> 0:25:57.400 a slowdown in the rays of rates in the private market, 0:25:57.680 --> 0:26:01.080 the pricing has not adjusted so quickly. So it's clear 0:26:01.160 --> 0:26:02.879 today and that's why you reads are training at a 0:26:02.880 --> 0:26:03.439 twenty percent. 0:26:03.320 --> 0:26:04.400 Discount and net asset value. 0:26:04.400 --> 0:26:07.120 They're training to get a big discount to property prices, 0:26:07.520 --> 0:26:11.359 and they reflect both the higher rates in the impact 0:26:12.000 --> 0:26:14.679 of It's just a modest slow down in demand for 0:26:14.720 --> 0:26:16.080 certain property sectors like office. 0:26:16.200 --> 0:26:17.040 What you mentioned all. 0:26:16.960 --> 0:26:19.840 Right, interesting stuff real estate Real Estate Investment Trust. Steve 0:26:19.840 --> 0:26:22.560 Brown is our go to guy, senior portfolio manager Global 0:26:22.560 --> 0:26:24.520 real Estate for American Century Investors. 0:26:24.520 --> 0:26:25.080 We didn't get to. 0:26:25.040 --> 0:26:27.960 Talk about my favorite rate, which is Lamar Advertising billboards. 0:26:28.280 --> 0:26:29.639 Also did that company public. 0:26:30.520 --> 0:26:33.960 You're listening to the Team Ken's are Live program Bloomberg 0:26:34.000 --> 0:26:37.359 Markets weekdays at ten am Eastern on Bloomberg dot com, 0:26:37.440 --> 0:26:40.600 the iHeartRadio app and the Bloomberg Business app, or listen 0:26:40.680 --> 0:26:42.919 on demand wherever you get your podcasts. 0:26:45.800 --> 0:26:48.399 I want to talk about one of the stories crossing 0:26:48.440 --> 0:26:52.439 the tape. We work to renegotiate nearly all leases exit 0:26:52.600 --> 0:26:55.280 unfit sites, so we work is still a thing and 0:26:55.320 --> 0:26:57.159 we talk real estate. We talked at Jeff Langbaum. He 0:26:57.200 --> 0:26:59.040 covers all the reads and all the real estate stuff 0:26:59.040 --> 0:27:03.360 for Bloomberg Intelligence Agency joins us via zoom from the Princeton, 0:27:03.520 --> 0:27:05.560 New Jersey campus of Bloomberg. 0:27:06.040 --> 0:27:07.760 Jeff, let's start with you. 0:27:07.800 --> 0:27:10.960 Where is we work these days in the marketplace? What's 0:27:11.000 --> 0:27:13.879 happening with their portfolio of properties? 0:27:14.160 --> 0:27:14.919 What's the latest? 0:27:16.400 --> 0:27:17.919 So I like the way you put it, Paul, we 0:27:18.000 --> 0:27:21.800 work is still a thing, although although I mean, you know, 0:27:22.560 --> 0:27:25.080 it seems like they're hanging on, you know, by a 0:27:25.119 --> 0:27:28.000 thread at this point. The news out today that they're 0:27:28.040 --> 0:27:31.560 planning to renegotiate all their leases. I mean, you know, 0:27:31.920 --> 0:27:36.320 a renegotiation or a negotiation by definition, requires two parties. 0:27:37.600 --> 0:27:41.600 It's going to be a wide range of outcomes in 0:27:41.680 --> 0:27:45.320 terms of what their landlords want to do and are 0:27:45.320 --> 0:27:48.840 willing to do. Obviously, you've got a market where office 0:27:48.840 --> 0:27:51.320 demand is light, and so if you've got a tenant 0:27:51.359 --> 0:27:53.359 that wants to stay in your building, maybe you'd be 0:27:53.400 --> 0:27:55.440 willing to give them a break. But at the same time, 0:27:55.880 --> 0:27:58.159 if they're saying they want to stay in their best properties, 0:27:59.040 --> 0:28:02.159 maybe those are property is where you're not eager to 0:28:02.160 --> 0:28:04.439 give them a break. Because those may be properties that 0:28:04.480 --> 0:28:08.359 you could fill with a tenant on perhaps better financial footing. 0:28:08.440 --> 0:28:12.560 So it's going to be a long workout, just like 0:28:12.600 --> 0:28:14.760 the commercial real estate industry broadly is in the middle 0:28:14.800 --> 0:28:17.320 of right now, and it will be kind of interesting 0:28:17.320 --> 0:28:18.479 to see how it plays out. 0:28:18.760 --> 0:28:22.919 So in terms of we work clients, how many of 0:28:22.960 --> 0:28:26.000 them have said, you know what this is, this is 0:28:26.000 --> 0:28:28.080 getting a little sketchy for us. We're going to go 0:28:28.320 --> 0:28:31.560 over and get some office space with Regis or another competitor. 0:28:32.280 --> 0:28:36.200 Well, their occupancy rate has fallen, and so clearly the 0:28:36.800 --> 0:28:39.400 demand for their space is not nearly as strong as 0:28:39.440 --> 0:28:42.520 it was. And some cone of that is probably tenants 0:28:42.560 --> 0:28:45.920 moving to someplace a little bit you know, stronger in 0:28:45.960 --> 0:28:49.040 a stronger position. Some may be getting permanent office space, 0:28:49.480 --> 0:28:51.840 some may be just sitting and waiting, but some is 0:28:51.880 --> 0:28:54.680 just you know, because the market is soft and there's 0:28:54.760 --> 0:28:57.880 not nearly as much office demand. And you know, obviously 0:28:57.920 --> 0:29:01.120 that's the underlying problem for them is they've got these 0:29:01.320 --> 0:29:06.240 you know, long term fixed lease payments and the revenue's 0:29:06.240 --> 0:29:08.680 not coming in at the level that they expected it 0:29:08.720 --> 0:29:11.840 to be. So that's what's triggering the need for them 0:29:11.880 --> 0:29:14.719 to scale back. But without a bankruptcy, you know, they 0:29:14.760 --> 0:29:17.080 don't have the ability to just walk away from leases, 0:29:17.120 --> 0:29:20.840 and clearly seems like they're trying to avoid going that route. 0:29:21.160 --> 0:29:23.560 Hey, Jeff, you're the expert on this stuff. 0:29:23.600 --> 0:29:27.040 When we see an office trade office building trade on 0:29:27.120 --> 0:29:30.040 let's say, on Third Avenue in Midtown Manhattan, what kind 0:29:30.040 --> 0:29:33.200 of haircut is it going to trade at fifty from 0:29:33.240 --> 0:29:35.440 where it was before? Something less than that, something more 0:29:35.440 --> 0:29:35.800 than that? 0:29:36.520 --> 0:29:39.640 This is going to be ugly, Well, it really depends 0:29:39.680 --> 0:29:44.440 on what the where it was before is how that's measured, right, 0:29:44.480 --> 0:29:48.320 I mean, if if you're talking about where values paper 0:29:48.440 --> 0:29:51.640 values were at their peaks, you know you might see 0:29:52.240 --> 0:29:56.120 pretty significant haircuts in the in the range that you're 0:29:56.120 --> 0:30:01.280 talking about. You know, if you're talking about trades relative 0:30:01.320 --> 0:30:03.680 to the last time of building traded, which may be 0:30:04.000 --> 0:30:06.400 you know, a decade or more ago, it might not 0:30:06.640 --> 0:30:08.960 be as bad. The issue really is going to be 0:30:09.040 --> 0:30:13.200 where are these where are values now relative to where 0:30:14.200 --> 0:30:17.000 you know debt can be underwritten, because that's what's going 0:30:17.080 --> 0:30:20.600 to trigger the need for properties to trade is a 0:30:20.640 --> 0:30:24.920 financing situation. And you know, we really just haven't seen 0:30:25.080 --> 0:30:29.520 enough data points yet to know because while there's clearly 0:30:29.560 --> 0:30:32.080 distress in the market. It hasn't yet gotten to the 0:30:32.120 --> 0:30:36.280 point where distressed trades enough distress trades are happening to 0:30:36.320 --> 0:30:38.640 really know what prices are going to look like. 0:30:38.720 --> 0:30:40.520 Yeah, it's gonna be fascinating to see kind of where 0:30:40.520 --> 0:30:42.560 those values are in some of these big cities New York, 0:30:42.600 --> 0:30:43.200 San Francisco. 0:30:43.320 --> 0:30:44.880 All right, Jeff, thanks so much for joining us. We 0:30:44.880 --> 0:30:46.200 appreciate you hopping on in short notice. 0:30:46.280 --> 0:30:49.880 Jeff Lang BOUNDI covers all the reads for a Bloomberg Intelligence. 0:30:50.120 --> 0:30:53.240 You're listening to the tape catcher, our live program Bloomberg 0:30:53.280 --> 0:30:56.840 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:30:56.920 --> 0:30:59.800 tune in app, Bloomberg dot Com, and the Bloomberg Business. 0:31:00.200 --> 0:31:03.040 You can also listen live on Amazon Alexa from our 0:31:03.040 --> 0:31:07.400 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:31:09.320 --> 0:31:12.680 All right, let's talk global energy here. We got Brent crude. 0:31:12.680 --> 0:31:14.800 I'll just quote Brent crude since we hit ninety dollars 0:31:14.840 --> 0:31:17.480 a barrel today. That got people's attention. Currently in eighty 0:31:17.800 --> 0:31:18.440 nine dollars in c. 0:31:18.640 --> 0:31:21.680 U cl one for that is it cl one c 0:31:22.200 --> 0:31:25.120 one is Brent crude. Cl one is imts. 0:31:25.200 --> 0:31:27.920 Yeah, I usuld quote name X because like my guy, 0:31:28.080 --> 0:31:29.000 you know, the. 0:31:28.640 --> 0:31:31.680 Wildcatters down in Texas cl one commodity A right, let's 0:31:31.680 --> 0:31:35.640 talk able commodity. What I'm looking to see because last 0:31:35.840 --> 0:31:40.480 year in March, the Biden administration started issuing barrels from 0:31:40.560 --> 0:31:45.239 the Strategic Petroleum Reserve. And so what I'm looking to 0:31:45.240 --> 0:31:47.720 see is are we getting back to those levels because 0:31:47.720 --> 0:31:51.680 at the pump, you know, we're there pretty much. 0:31:51.760 --> 0:31:53.960 And if the Biden administration. 0:31:53.520 --> 0:31:56.520 Thought it was too high the price so they needed 0:31:56.560 --> 0:31:59.000 to release those reserves for the good of the American 0:31:59.040 --> 0:32:02.040 people at that time, they must think the same thing 0:32:02.080 --> 0:32:03.120 again now right. 0:32:03.040 --> 0:32:04.440 I don't know. Let's check in with a couple of 0:32:04.440 --> 0:32:06.719 experts people do this stuff for living. Mike McLoone and 0:32:06.760 --> 0:32:11.520 Fernando Valley. They cover the Energy Space Force for Bloomberg 0:32:11.560 --> 0:32:15.840 Intelligence Miami. Mike is zooming in from Miami, and Fernando's 0:32:15.840 --> 0:32:18.000 here in our Bloomberg in Arctic Broker studio. Hey, Mike, 0:32:18.040 --> 0:32:20.800 I'll start with you big move higher here in oil. 0:32:20.880 --> 0:32:23.120 Let's catch on a lot of folks. By surprise, we 0:32:23.160 --> 0:32:26.040 had some of the airlines today call out higher fuel costs. 0:32:26.080 --> 0:32:26.320 Here. 0:32:26.960 --> 0:32:28.880 What do you make of it. 0:32:28.880 --> 0:32:31.320 It's a balance that will fail. I mean I did this, 0:32:31.400 --> 0:32:33.920 said the same thing last year when Kroile's got above 0:32:33.920 --> 0:32:35.600 one hundred. My call as it's going to get to 0:32:35.720 --> 0:32:38.600 forty and the low this year is sixty three. Okay, 0:32:38.760 --> 0:32:40.280 didn't get all the way there. But to me, it's 0:32:40.280 --> 0:32:42.800 just a matter of time. That's what Croil always does. 0:32:43.280 --> 0:32:47.040 It fluctuates his most autocorrelated acid commodity there is. When 0:32:47.040 --> 0:32:50.680 it jumps up, it squashes that demand increases the supply. 0:32:50.800 --> 0:32:52.760 When it pumps and drops down, it's the opposite. The 0:32:52.840 --> 0:32:55.360 key thing is what's changed, that's what does Technically, what's 0:32:55.440 --> 0:32:59.280 changed is this significant excess of supply out the US. 0:32:59.280 --> 0:33:04.480 So I'm just looking data lately. The net exports from 0:33:04.560 --> 0:33:06.520 US and Canada liquid fuels this year is going to 0:33:06.560 --> 0:33:09.000 reach five million barrels a day. Just to put that 0:33:09.040 --> 0:33:11.880 in context. That's enough. That's liquid fuel, so it includes 0:33:11.920 --> 0:33:13.480 ath and all everything. That's enough to fill up the 0:33:13.760 --> 0:33:16.240 the spr what we took out of it in about 0:33:16.280 --> 0:33:18.680 seventy days. So this is a problem for the rest 0:33:18.680 --> 0:33:20.920 of the world, not for the US, particularly what OPEC's doing. 0:33:21.000 --> 0:33:23.240 I'm sure Fernando can comment on that. But I look 0:33:23.280 --> 0:33:24.680 at what you're seeing the screen now is what I 0:33:24.680 --> 0:33:27.840 expect Crudeyle to do is it's got a major problem 0:33:27.840 --> 0:33:31.160 with the will tilting towards recession. Our model, the economics model, 0:33:31.200 --> 0:33:35.200 is one hundred percent for the US declining out of China, pmizing, 0:33:35.240 --> 0:33:38.560 everything declining in Europe and central banks still tighty. That's 0:33:38.600 --> 0:33:41.160 the macro and the micros that use you flecate fluctuates, 0:33:41.160 --> 0:33:43.120 and right now I think it's really very much near 0:33:43.120 --> 0:33:44.120 the upper end of its range. 0:33:44.160 --> 0:33:48.600 I mean, our model, Bloomberg Economics model has a one 0:33:48.640 --> 0:33:50.960 hundred percent chance for a recession. But it's fair to 0:33:50.960 --> 0:33:55.120 say the consensus on the street is for a soft landing. 0:33:55.160 --> 0:33:58.640 I mean, Goldman Sachs is fifteen percent chance of a recession. 0:33:58.640 --> 0:34:00.840 I guess his models slightly different than ours. 0:34:01.120 --> 0:34:03.120 I guess so, Fernanda, what do you know from from 0:34:03.120 --> 0:34:05.200 the fundamental perspective? What are you seeing at there? Looks 0:34:05.200 --> 0:34:07.840 like go peck if they want to higher prices that 0:34:07.880 --> 0:34:08.680 they're they're getting it. 0:34:09.120 --> 0:34:11.399 They're getting some of it. But you know, I think 0:34:11.560 --> 0:34:14.759 when you look at just again Asia, as Mike was 0:34:14.760 --> 0:34:17.919 mentioning that Germany's number is eleven percent down month over 0:34:18.000 --> 0:34:21.640 month today on the industrial orders, who's their biggest trading 0:34:21.680 --> 0:34:24.479 partner China. I think the demand side, as Mike was saying, 0:34:24.560 --> 0:34:27.080 is really the biggest concern, and if we do have 0:34:27.160 --> 0:34:31.320 a recession, it's you can't keep ninety dollars a barrel. 0:34:31.600 --> 0:34:35.479 I think what there's a discrepancy here on our views 0:34:35.560 --> 0:34:39.240 versus the street that when Assaudi and Russia agree to cut, 0:34:39.520 --> 0:34:41.120 to extend the cuts to the end of the year, 0:34:41.320 --> 0:34:45.160 they're basically saying demand looks soft to us. Not we're 0:34:45.160 --> 0:34:47.239 going to keep pushing prices higher. They're saying, we don't 0:34:47.239 --> 0:34:49.960 have a market in Asia, and so that's not a 0:34:50.080 --> 0:34:53.319 great news for anyone who knows bullish oil. We just 0:34:53.480 --> 0:34:57.760 extended that because we're not finding that supply balance yet. 0:34:57.800 --> 0:35:00.040 And as Mike was saying, will continue to grow. I 0:35:00.040 --> 0:35:02.680 think that growth is going to moderate. We're going to 0:35:02.719 --> 0:35:06.280 miss expectations on USHL just because the pace of drilling 0:35:06.360 --> 0:35:09.800 is lower, the cost of financing is lower. Remember, shale 0:35:09.960 --> 0:35:13.960 is an ever going treadmill. You're always reinvesting because you 0:35:13.960 --> 0:35:16.799 have ninety percent declines in the first year. So the 0:35:16.840 --> 0:35:20.040 shale producers will feel higher interest rates right away, higher 0:35:20.040 --> 0:35:23.520 inflation right away. Because they're constantly drilling and drilling again 0:35:23.600 --> 0:35:24.920 to maintain their production. 0:35:25.080 --> 0:35:26.520 Well, it's hard enough to get them out there to 0:35:26.640 --> 0:35:29.400 drill to put new holes in the ground, right, because 0:35:29.520 --> 0:35:32.799 not only our interest rates rising, but they're afraid of regulation, 0:35:33.520 --> 0:35:34.680 certainly in this administration. 0:35:34.960 --> 0:35:35.720 What do you think. 0:35:35.560 --> 0:35:39.399 About the SPR release and its effects, Mike, I mean, 0:35:39.600 --> 0:35:43.319 I'm looking at the chart for IMAX crude. We didn't 0:35:43.360 --> 0:35:46.200 go to one hundred until March first of last year. 0:35:46.640 --> 0:35:51.520 We stayed there until July twentieth, and the crude releases, 0:35:51.760 --> 0:35:54.279 the SPR releases began at the end of March. Did 0:35:54.280 --> 0:35:56.560 they have a significant effect. 0:35:57.360 --> 0:36:00.799 Well, I still think President Biden, to go down in history, 0:36:00.880 --> 0:36:02.400 is one of the best crude oil traders ever. He 0:36:02.440 --> 0:36:04.320 actually did the right thing. What you're supposed to do 0:36:04.400 --> 0:36:06.640 in backgradation. You sell the liquid and you buy the 0:36:06.680 --> 0:36:09.279 futures contract. Obviously I haven't bought them back yet. But 0:36:09.360 --> 0:36:11.680 we just don't need it anymore. We have an excess 0:36:11.719 --> 0:36:14.799 supply of krugeff. We shut off our exports. We're gonna 0:36:14.800 --> 0:36:17.200 have way too much of it. So I think it's 0:36:17.239 --> 0:36:19.440 just the matter of time it gets refilled. But we 0:36:19.480 --> 0:36:21.120 don't have to do it anymore. And there's one thing 0:36:21.160 --> 0:36:23.200 I wanted to kee you off on, Matt is when 0:36:23.200 --> 0:36:24.960 you go to Europe in twelve years from now, you 0:36:25.000 --> 0:36:27.520 will not be able to purchase an internal combustion vehicle. 0:36:27.560 --> 0:36:28.319 This is where we're going. 0:36:29.080 --> 0:36:34.359 That's he's trying to He's trying to go. And what 0:36:34.400 --> 0:36:38.000 I'm doing right now is I have this strategic internal 0:36:38.000 --> 0:36:39.480 combustion engine reserve. 0:36:39.520 --> 0:36:43.360 As I'm cockpiling gas, you'll. 0:36:43.200 --> 0:36:45.200 Take the other side, and then I'll say, if you're 0:36:45.840 --> 0:36:47.840 does that, you'll be able to buy Europe for that. 0:36:47.840 --> 0:36:49.680 At that point it's for the price of an internal 0:36:49.719 --> 0:36:50.640 combustion engine car. 0:36:51.600 --> 0:36:51.960 All right. 0:36:51.960 --> 0:36:55.440 So, Fernanda, what are your companies telling you about where 0:36:55.480 --> 0:36:57.560 they think oil is going. 0:36:58.120 --> 0:37:00.919 I mean, they have not cut in back at all, 0:37:01.080 --> 0:37:04.080 so they are seeing the undersupply long term, but in 0:37:04.120 --> 0:37:07.719 the short term they just want to, as Chevron says, 0:37:07.719 --> 0:37:12.839 winning any environment. I think they have continued buybacks and 0:37:12.960 --> 0:37:15.520 that is the biggest difference in big oil today versus 0:37:15.520 --> 0:37:17.839 big Oil in twenty nineteen is they cleaned up their 0:37:17.880 --> 0:37:20.720 balance sheets so they can afford to continue that share 0:37:20.920 --> 0:37:24.400 repurchase program even at much lower oil prices. And I 0:37:24.440 --> 0:37:26.839 think if you ask Mike Worth of Chevron or Darren 0:37:26.840 --> 0:37:30.640 Woods of Exxon. They would say, yeah, give me, give us, 0:37:30.640 --> 0:37:32.320 give us a dip on our stock price, because we 0:37:32.320 --> 0:37:34.880 would love to improve our returns on capitol by repurchasing 0:37:34.880 --> 0:37:37.040 some of our shares rather than going out and buying 0:37:37.040 --> 0:37:39.480 more more small e and ps. 0:37:40.440 --> 0:37:40.799 I don't know. 0:37:41.239 --> 0:37:43.640 I mean, can I go down to Texas and start drilling? 0:37:43.760 --> 0:37:45.319 I mean I think I can make money at ninety 0:37:45.360 --> 0:37:46.200 dollars a barrow. 0:37:46.440 --> 0:37:49.919 You would think, But you can't find the Tuobler goods. 0:37:49.960 --> 0:37:52.600 You can't find the labor, and you're sure not going 0:37:52.640 --> 0:37:54.600 to get permits to drill a lot of those wells. 0:37:55.000 --> 0:37:57.280 That's no fun, all right, Mike from the commodity space, 0:37:57.360 --> 0:37:59.319 just right away here, what's your number one call? 0:38:00.800 --> 0:38:03.000 Gold? The average price of gold this year, at nineteen 0:38:03.080 --> 0:38:05.200 thirty three, is the highest ever. You can't say that 0:38:05.280 --> 0:38:08.920 about virtually any other commodity or asset so far. Expected 0:38:08.960 --> 0:38:11.239 continue in this deepest pockets on the planet. Our buying 0:38:11.280 --> 0:38:12.800 goal that's Central Banks. 0:38:13.440 --> 0:38:16.040 And for now, just real quick, what are your clients? 0:38:16.080 --> 0:38:18.920 What's like the most in vogue trade you hear from 0:38:18.920 --> 0:38:20.080 your clients. 0:38:19.719 --> 0:38:22.759 Well, people are going for the soft landing movement, and 0:38:22.840 --> 0:38:25.200 we think that's not quite going to play out well 0:38:25.200 --> 0:38:27.279 for them. So they're still buying some of the petrochemical 0:38:27.360 --> 0:38:30.920 names that are exposed to housing some of the e andps, 0:38:30.960 --> 0:38:33.200 the more lever dnps that are now getting a rise 0:38:33.200 --> 0:38:35.920 out of the higher oil prices. And we think safeties, 0:38:36.719 --> 0:38:39.520 especially when you're getting a huge payout from Excellent and Chevron, 0:38:39.880 --> 0:38:42.400 is a more attractive proposition. 0:38:42.480 --> 0:38:45.920 All right, good stuff, Felms appreciate it. Fernando Valley, Mike mcgloane. 0:38:46.000 --> 0:38:49.200 They cover the energy space for Bloomberg Intelligence. Mike more 0:38:49.239 --> 0:38:51.160 from a commodityesprespect perspective. 0:38:51.200 --> 0:38:51.759 He carvers all. 0:38:51.719 --> 0:38:55.200 Commodities for BI and Fernando from the fundamentals the equity 0:38:55.239 --> 0:38:57.760 side for a lot of the big oil producing companies. 0:38:57.800 --> 0:38:59.560 It's great to get both of their views when we're 0:38:59.560 --> 0:39:02.080 talking about the global energy space. 0:39:02.400 --> 0:39:05.960 You're listening to the tape Cansur live program Bloomberg Markets 0:39:06.040 --> 0:39:09.399 weekdays at ten am Eastern on Bloomberg Radio, the tune 0:39:09.480 --> 0:39:12.439 in app, Bloomberg dot Com, and the Bloomberg Business App. 0:39:12.480 --> 0:39:15.279 You can also listen live on Amazon Alexa from our 0:39:15.320 --> 0:39:21.240 flagship New York station, Just Say Alexa Play Bloomberg eleven thirty. 0:39:21.200 --> 0:39:24.680 Let's talk about that right now, because Comments, famous for 0:39:24.760 --> 0:39:28.040 its diesel engines, is going to build a three billion 0:39:28.120 --> 0:39:31.960 dollar battery plant with help from the Chinese. And there's 0:39:32.000 --> 0:39:36.160 a lot of skepticism at these kind of partnerships concerning 0:39:36.200 --> 0:39:40.520 these kinds of partnerships, including sketchesm that Ford faced building 0:39:40.560 --> 0:39:45.840 a battery plant in Detroit recently. Let's bring in Elizabeth Bermont. 0:39:46.640 --> 0:39:49.640 She wrote the Comments story for us. She's out of 0:39:49.719 --> 0:39:51.040 Munich right now, are you? 0:39:51.080 --> 0:39:52.759 Are you in the office? You're not at the at 0:39:52.800 --> 0:39:54.560 the show? Right? Did you go to the show? 0:39:55.800 --> 0:39:59.320 I was at the Munich car size from at Monday 0:39:59.360 --> 0:40:02.400 through two yesterday and already having lots of fun with 0:40:02.440 --> 0:40:03.240 it over the weekend. 0:40:03.400 --> 0:40:04.960 It's been a great experience. 0:40:04.560 --> 0:40:04.920 All right. 0:40:04.960 --> 0:40:09.759 So what do we know about this plant that Indiana 0:40:09.920 --> 0:40:14.360 based engine manufacturer Cummins is gonna is gonna build with 0:40:14.600 --> 0:40:17.840 China's Eve Energy Company. 0:40:18.960 --> 0:40:20.600 Yeah, such an interesting development. 0:40:20.880 --> 0:40:23.920 And so, as you were just saying in your intro, 0:40:24.280 --> 0:40:27.960 come in as a diesel engine maker, and they're having 0:40:28.000 --> 0:40:32.600 to get ready for what's up next. They're picking Diamad 0:40:32.640 --> 0:40:35.239 Truck as one of the partners in that venture. The 0:40:35.239 --> 0:40:39.560 world's biggest commercial vehicle maker and then also packer, and 0:40:39.600 --> 0:40:43.120 I think that's absolutely the right way to go to partners, 0:40:43.160 --> 0:40:46.520 strong partners to share the load and gain scale to 0:40:46.600 --> 0:40:48.880 drive down the cost of switching over to batteries. 0:40:49.520 --> 0:40:52.600 Its surprised me given all the rhetoric we see out 0:40:52.640 --> 0:40:57.080 there on the geopolitical stage, why is China's Eve Energy 0:40:57.080 --> 0:40:59.520 company the part of this transaction? 0:41:02.440 --> 0:41:05.120 Well, because they have the technology. I mean, Eve is 0:41:05.120 --> 0:41:07.640 not exactly a company that's coming out of nowhere. They 0:41:07.680 --> 0:41:11.000 are a partner with BMW, and obviously there are these 0:41:11.040 --> 0:41:14.400 geopolitical tensions with the US and China. 0:41:14.520 --> 0:41:17.319 It hasn't stopped other companies from teaming up with them. 0:41:17.320 --> 0:41:20.439 You were just don't mentioning Ford and you know, there's 0:41:20.480 --> 0:41:23.359 absolutely no way around the fact that out of the 0:41:23.400 --> 0:41:27.960 top ten global battery supplies, seven of them are Chinese. So, 0:41:28.760 --> 0:41:31.840 whether you like it or not, there's kind of nowhere 0:41:31.880 --> 0:41:32.879 around working with them. 0:41:33.200 --> 0:41:39.080 Does everybody have enough battery capacity, Elizabeth, or are they 0:41:39.120 --> 0:41:41.960 building these factories quickly to try and get the capacity 0:41:42.000 --> 0:41:44.640 they think they're going to need five years, ten years out. 0:41:47.360 --> 0:41:49.880 You know, it's really interesting when you're comparing where the 0:41:49.880 --> 0:41:53.160 truck makers are and where the carmakers are. The carmakers 0:41:53.200 --> 0:41:54.960 are a lot further down the line as we know, 0:41:55.600 --> 0:41:58.239 and just coming into this conversation, I was just having 0:41:58.280 --> 0:42:01.359 a look around. You know, is this first of this 0:42:01.520 --> 0:42:05.080 kind in the US, you know, supplying batteries for trucks. 0:42:05.280 --> 0:42:06.040 I think it is. 0:42:06.640 --> 0:42:09.760 We've got one announcement from Volvo over here in Europe. 0:42:09.760 --> 0:42:12.160 So they're at this much earlier. 0:42:11.800 --> 0:42:17.440 Stage of moving into this shift, and hopefully they can 0:42:17.560 --> 0:42:20.360 learn from some of the mistakes that the car makers 0:42:20.440 --> 0:42:23.600 have been making, which is to partner up much earlier 0:42:23.600 --> 0:42:24.840 than they did in order. 0:42:24.680 --> 0:42:25.600 To save costs. 0:42:25.640 --> 0:42:29.160 Because unlike with cars, obviously, truck makers need to make 0:42:29.200 --> 0:42:32.879 a profit from their vehicles. So from the get go, 0:42:33.440 --> 0:42:37.080 commercial vehicle makers they need to offer products where logistics 0:42:37.120 --> 0:42:40.680 companies stand to stand to stand to make a profit. 0:42:40.920 --> 0:42:45.760 I wonder though about the actual materials. So this folk, 0:42:45.880 --> 0:42:49.640 this factory is going to focus on lithium iron phosphate batteries. Initially, 0:42:50.760 --> 0:42:53.080 I've heard, you know, Mark Royce from GM tells me 0:42:53.920 --> 0:42:55.360 the chemistry is going to. 0:42:55.480 --> 0:42:56.560 Change every year. 0:42:56.680 --> 0:42:58.600 Right, we don't know what it's going to look like 0:42:58.800 --> 0:43:01.440 in terms of the chem needed in ten years or 0:43:01.520 --> 0:43:06.320 twenty years, but lithium is already in short supply, right, 0:43:06.600 --> 0:43:09.240 are they scrambling to get contracts for the minds? 0:43:12.760 --> 0:43:15.640 I'm not really sure in terms of that where they 0:43:15.680 --> 0:43:18.160 stand on that engagement. I mean, the LFP batteries you 0:43:18.280 --> 0:43:20.960 mentioned that, I think they're a smart initial move because 0:43:20.960 --> 0:43:27.480 they're cheaper than comparable other chemra chemistries, which will help 0:43:27.480 --> 0:43:29.520 them from the get go. In the statements from the companies, 0:43:29.520 --> 0:43:31.960 they were also saying that this is the initial chemistry 0:43:31.960 --> 0:43:34.040 that they're going to be working with. So the way 0:43:34.080 --> 0:43:35.680 that indicates that the way they're going to set this 0:43:35.800 --> 0:43:38.440 up is that they can switch over to other chemistry 0:43:38.560 --> 0:43:39.800 and chemistries as. 0:43:39.600 --> 0:43:40.719 They become available. 0:43:41.280 --> 0:43:45.480 And just on your point about availability of resources to 0:43:45.520 --> 0:43:47.879 make these batteries, I mean, it's a huge question mark 0:43:48.239 --> 0:43:52.960 and arguably there will be bottlenecks along the way. These 0:43:53.000 --> 0:43:57.239 bottlenecks we've seen historically have been able to be resolved, 0:43:57.280 --> 0:44:00.200 you know, not necessarily battery raw materials, but usually when 0:44:00.200 --> 0:44:03.399 there is a bottleneck that we you know, humans find 0:44:03.440 --> 0:44:08.120 a way around them. In terms of the supply again, 0:44:08.160 --> 0:44:10.520 that was also a big topic at the Communika show 0:44:10.680 --> 0:44:14.640 just now. The Chinese have been building their grip on 0:44:14.719 --> 0:44:18.359 the supply chain like no other nation. And while there 0:44:18.400 --> 0:44:20.560 is a lot of lithium coming out of the US 0:44:20.680 --> 0:44:24.560 or Australia as well, for example, eighty percent of lithium 0:44:24.800 --> 0:44:28.399 refining capacity is currently located in China. So it comes 0:44:28.440 --> 0:44:31.040 back to the geopolitics that we were talking about earlier on. 0:44:31.400 --> 0:44:34.799 There's currently nowhere around working with Chinese partners if you 0:44:34.840 --> 0:44:37.319 want to make battery vehicles and those. 0:44:37.560 --> 0:44:39.640 There's also some news coming out of Germany on the 0:44:39.719 --> 0:44:43.400 China front. Again, Mercedes CEO kind of changes his tune 0:44:43.520 --> 0:44:46.160 on China as you know, maybe that's not going to 0:44:46.200 --> 0:44:48.160 be such a great growth market in the next ten 0:44:48.239 --> 0:44:50.000 years as maybe they thought as recently as a couple 0:44:50.040 --> 0:44:50.760 of years ago. 0:44:51.080 --> 0:44:52.080 What's the background there. 0:44:55.360 --> 0:44:57.080 Yeah, he's really changed too, and hasn't he. 0:44:57.160 --> 0:44:59.800 We were looking back over his comments from two years ago, 0:45:00.239 --> 0:45:02.640 and back then he was just saying how the market 0:45:02.840 --> 0:45:07.480 was still looking awesome basically, and people not being able to. 0:45:07.400 --> 0:45:10.800 Get enough from their luxury vehicles. 0:45:11.080 --> 0:45:13.680 If the Chinese market really slows, that's a really big 0:45:13.680 --> 0:45:16.680 problem for the German car makers because even if VW 0:45:16.760 --> 0:45:19.640 has been losing market share there, for all of the 0:45:19.680 --> 0:45:22.840 three German car makers, China remains the biggest market, So 0:45:23.160 --> 0:45:26.000 if people there are no longer or in far fewer 0:45:26.320 --> 0:45:28.800 numbers buying their cars, that's going to be a big problem. 0:45:29.320 --> 0:45:31.520 There are, of course, other markets that they can move to. 0:45:32.320 --> 0:45:35.279 We've had some speculation just talking two people at the 0:45:35.320 --> 0:45:38.360 show that for some of the products from the Mercedes, 0:45:38.400 --> 0:45:40.560 like I know you love that car, the g Wagon, 0:45:40.640 --> 0:45:43.719 that they could focus more on Middle Eastern customers, but 0:45:43.760 --> 0:45:46.440 obviously there are far fewer Middle Eastern customers than there 0:45:46.440 --> 0:45:50.439 are Chinese customers. Again, though, the US could be another 0:45:50.480 --> 0:45:54.279 market where they could refocus their marketing efforts or the 0:45:54.320 --> 0:45:56.800 styling of their cars to see if they can unearth 0:45:56.840 --> 0:45:59.000 a few more people to buy their cars. 0:45:59.160 --> 0:46:02.360 I have always is thought, so I love the G Wagon. 0:46:02.560 --> 0:46:04.720 I've been a fan since I was nine. I bought 0:46:04.719 --> 0:46:11.000 one in twenty twenty, which made my pandemic awesome. And 0:46:11.880 --> 0:46:14.920 I've always thought, you know, they only make like a 0:46:14.960 --> 0:46:18.000 few thousand at one factory in Grots. Mercedes doesn't even 0:46:18.000 --> 0:46:20.799 build themselves. They outsource it to Magnus Styre right, and 0:46:20.840 --> 0:46:23.960 they can't make more, so there's a long waiting list 0:46:24.000 --> 0:46:27.080 and they're incredibly expensive. I've always thought Mercedes should try 0:46:27.080 --> 0:46:30.200 and make like a Volkswagen Bug version of the g 0:46:30.360 --> 0:46:33.840 Wagon that everyone can buy and everyone would buy, but 0:46:33.920 --> 0:46:38.919 they don't want to go I guess down market, right, Elizabeth, Well. 0:46:38.840 --> 0:46:41.600 They weren't talking about a baby g Wagon, weren't they 0:46:41.719 --> 0:46:46.239 at the show, which seatellite TikTok. So yeah, I mean 0:46:46.400 --> 0:46:49.120 I think they. I think even Mercedes is surprised just 0:46:49.200 --> 0:46:50.720 how many g Wagons. 0:46:50.320 --> 0:46:50.960 They can shift. 0:46:52.239 --> 0:46:56.440 So if they're adding more derivatives, which does fit the 0:46:56.520 --> 0:46:58.840 narratives that we're getting from Mercedes that they want to 0:46:58.840 --> 0:47:02.600 focus on that top performing cars, the top end vehicles 0:47:02.640 --> 0:47:06.719 within their portfolio, you know, who knows where you know 0:47:06.960 --> 0:47:09.360 they could go to make the baby do wagon. 0:47:10.480 --> 0:47:13.840 I wonder what you think about the new BMW concept. 0:47:14.120 --> 0:47:19.160 I thought it was horrible, horribly ugly, and I'm a 0:47:19.280 --> 0:47:22.680 huge fan of the cars the carmaker's history, but I 0:47:22.680 --> 0:47:24.680 don't know what they're doing with their future vehicles like 0:47:24.719 --> 0:47:26.920 the XM confuses me completely. 0:47:26.960 --> 0:47:28.239 What do you think about BMW? 0:47:31.719 --> 0:47:31.839 Well? 0:47:31.920 --> 0:47:34.960 I think, you know, car styling is so subjective and 0:47:35.000 --> 0:47:37.279 you can you can talk to no end about it. 0:47:38.120 --> 0:47:40.439 I think you really have to take off your sort 0:47:40.440 --> 0:47:44.920 of Western glasses or even sometimes German glasses in my case, 0:47:45.239 --> 0:47:49.400 what appeals to me doesn't appeal to Chinese customers, and 0:47:49.400 --> 0:47:53.239 that's where they want to sell these cars. You know, 0:47:53.280 --> 0:47:55.319 whether you like the styling or not, I don't think 0:47:55.320 --> 0:47:58.879 it really matters. They were going for some a bit 0:47:58.880 --> 0:48:02.560 of a retro design, you know, we're sort of harks 0:48:02.600 --> 0:48:06.560 back to their heyday of making these really stylish cars. 0:48:06.600 --> 0:48:08.400 So whether that's a bad idea or. 0:48:08.400 --> 0:48:10.640 Not, I'm not really sure. I didn't think the car 0:48:10.800 --> 0:48:13.759 looked terrible. What concerned me a bit more was that 0:48:14.200 --> 0:48:18.600 this vehicle, alongside the Mercedes CLA prototype that they were showing. 0:48:18.640 --> 0:48:20.880 Both of these cars are come on the new generation 0:48:21.400 --> 0:48:22.640 platform for the EVS. 0:48:22.840 --> 0:48:24.080 It's not going to be on. 0:48:24.120 --> 0:48:27.040 Sale until the first half of twenty to twenty five 0:48:27.120 --> 0:48:27.600 or thereabout. 0:48:28.600 --> 0:48:30.040 We're coming out to your LA petition. 0:48:30.040 --> 0:48:32.799 All right, Elizabeth, thank you so much. Elizabeth Barman, team leader, 0:48:32.840 --> 0:48:33.880 Bloomberg News. 0:48:35.840 --> 0:48:38.920 Thanks for listening to the Bloomberg Markets podcast. You can 0:48:38.960 --> 0:48:42.720 subscribe and listen to interviews at Apple Podcasts or whatever 0:48:42.840 --> 0:48:44.320 podcast platform you prefer. 0:48:44.719 --> 0:48:45.520 I'm Matt Miller. 0:48:45.760 --> 0:48:48.680 I'm on Twitter at Matt Miller nineteen seventy three. 0:48:49.160 --> 0:48:50.000 And I'm fall Sweeney. 0:48:50.040 --> 0:48:52.640 I'm on Twitter at pt Sweeney before the podcast. You 0:48:52.680 --> 0:48:56.080 can always catch us worldwide at Bloomberg Radio