Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: For joining us here in our Bloomberg Interactive Broker studio
Speaker 1: is Erica Adelberg. Does not phone it in, does not
Speaker 1: meld in. She shows up in the studio, and we
Speaker 1: appreciate that. She's a mortgage backed security strategist for Bloomberg Intelligence,
Speaker 1: has been on the street for a number of years.
Speaker 1: We appreciate getting your time. I don't know, Erica, we
Speaker 1: got a mortgage rate north of seven percent. What's going
Speaker 1: on in the NBS market these days?
Speaker 3: Hi, good morning, Thanks for having me on. We actually
Speaker 3: are seeing a huge decline in mortgage demand, which is
Speaker 3: just you know, symbolica, the fact that the housing market's
Speaker 3: really freezing up. New homes are still doing okay, there's
Speaker 3: a way to for homebuilders to offer lower rates, and frankly,
Speaker 3: there's more inventory right now. I mean it's about a
Speaker 3: third of the existing inventory. Because you can build a
Speaker 3: new home, you can't get somebody to necessarily sell their
Speaker 3: home if they're sitting on a three percent mortgage and
Speaker 3: they'd have to take out a new eight percent one
Speaker 3: like Matt Yeah, not selling. Yeah, So the housing market's
Speaker 3: pretty frozen, and on a seasonally adjusted basis, the mortgage
Speaker 3: back security loan application index that the Mortgage Banker Association
Speaker 3: puts out just hit the lowest levels since nineteen ninety
Speaker 3: five or nineteen ninety six, So I.
Speaker 2: Think, so, wait, does this mean for the mortgage back
Speaker 2: bond market that those are scarce and thus rising in price.
Speaker 3: Yeah, it's an interesting a number of interesting dynamics. I
Speaker 3: actually just sent out a little commentary today. It does
Speaker 3: mean that new issue supplies going to be very low,
Speaker 3: which should be a positive for the mortgage backed securities market.
Speaker 3: But even so, even though you know a lot of
Speaker 3: these homeowners are well out of the money and they're
Speaker 3: not going to refinance, you know, anytime soon, mortgage backed
Speaker 3: security still sensitive to volatility, and they're still sensitive to
Speaker 3: what the Fed's going to do. So as a result,
Speaker 3: you know, we kind of thought this would be a
Speaker 3: pretty good year for mortgage back security. Not a lot
Speaker 3: of supply. We thought maybe the treasury market would rally,
Speaker 3: you know, once the FED was done tightening, but that
Speaker 3: hasn't happened.
Speaker 2: How many does the FED own Do they have a
Speaker 2: stack of mortgage back bonds?
Speaker 3: They said the FED owns about two point six trillion
Speaker 3: mortgage backed securities. For the past two years, during the pandemic,
Speaker 3: I should say, in twenty twenty twenty one, they were
Speaker 3: waving them in hand of or fist to help support
Speaker 3: the mortgage market and help support bonds overall. And they've
Speaker 3: stopped doing that because they want rates to rise now
Speaker 3: they want to slow down the economy and that's been
Speaker 3: a negative drag on the mortgage backed securities market as well,
Speaker 3: just not having them in there as a bus.
Speaker 2: They're not going to sell them, right in quantitative tightening,
Speaker 2: they let the bonds they hold off run off, and
Speaker 2: they don't. But they're not going to sell mortgage back security.
Speaker 3: I mean never say never, no guarantees, but they've said
Speaker 3: if that's happening, it's a long ways in the future,
Speaker 3: and they'll let the market have plenty of advanced warnings,
Speaker 3: so you know they're not making any noises towards it.
Speaker 3: About a year ago, some of the FED governors were
Speaker 3: at least maybe they're trying to job own mortgage rates higher,
Speaker 3: who knows, So they were saying, oh, we really don't
Speaker 3: want to own this many mortgage backed securities. But you know,
Speaker 3: there's also not been any move in that direction, so
Speaker 3: I don't think that's that's certainly not the base case
Speaker 3: of anybody's expectations.
Speaker 2: Okay, what's your take on the long and variable lags,
Speaker 2: because I've heard an interesting debate. Some people say, because
Speaker 2: there are no more adjustable rate mortgages except for Paul's,
Speaker 2: and everybody has locked in a thirty year rate, they're
Speaker 2: going to be even longer variable lags, you know. But
Speaker 2: others like Jan Hati has came out yesterday and said
Speaker 2: he thinks it's shorter, you know, because the FED telegraphs
Speaker 2: everything they're going to do so far in advance.
Speaker 4: And what do you what do you think?
Speaker 5: I think?
Speaker 3: You know, I can't really compare it to history. I
Speaker 3: think that you know, if you look at traditionally movements
Speaker 3: and mortgage rates slash, you know, housing market prices and rents,
Speaker 3: there's a pretty long and variable lag. But one of
Speaker 3: the things, you know, aside from you know, perhaps the telegraphing,
Speaker 3: home prices are actually holding up very well. And I
Speaker 3: think that's a very key source both of rental incomes
Speaker 3: as well as you know, people's wealth effect. So I
Speaker 3: think to the extent that home prices are kind of
Speaker 3: failing to fall at this point, I think that does
Speaker 3: actually make the lags relatively long.
Speaker 1: So what's the mortgage backed security market telling you about
Speaker 1: interest rates? I mean, people are talking about a FED
Speaker 1: maybe in twenty twenty four cutting rates, but you don't
Speaker 1: see that in the mortgage rate at all. Seven point
Speaker 1: five nine percent on the bank rate dot com US
Speaker 1: home mortgage thirty or fixed seven point five nine percent.
Speaker 3: I mean, that's obviously a very current r right. It's
Speaker 3: it's it's not a forecasting rate, it's not really forward rate,
Speaker 3: but it is based on to some degree the ten
Speaker 3: year treasury you know, plus some spread. And what that's
Speaker 3: telling you is that we've had you know, that the
Speaker 3: curve is uninverted a little bit because the markets are
Speaker 3: telling you that that eields are going to have to
Speaker 3: stay higher for longer while the FED continues to try
Speaker 3: to get inflation under control and you know, slow down
Speaker 3: the economy a little bit.
Speaker 1: Can I get any return in your market? I mean,
Speaker 1: I'm looking at the Is it kind of flat year
Speaker 1: to date in terms of the works backed security return?
Speaker 3: Yeah, it's flat so far, which reminds me there's upside
Speaker 3: going forward. You know, spreads are very wide, you know,
Speaker 3: they're they're kind of you know, near ten year wides.
Speaker 3: They're actually not as wide if you look before the
Speaker 3: FED started buying in two thousand and eight, you know,
Speaker 3: and the post financial crisis.
Speaker 5: World, they're very wide.
Speaker 3: And you know, the Fed's probably not going to come
Speaker 3: in and save the mortgage market anytime soon. As you said,
Speaker 3: they're more inclined to sell though I don't think they will.
Speaker 3: So as there is result, yeah, there's there's a better buffer,
Speaker 3: you have a lot more yield, you have a lot
Speaker 3: more spread, But you have to have a little bit
Speaker 3: stronger stomach too, because you know, maybe the federal continue
Speaker 3: pushing re hire or at least job runing them higher.
Speaker 3: So that's what cuts into mortgage out security returns.
Speaker 1: So again today we had the NBA mortgage applications decline
Speaker 1: of two point nine percent versus a prior period of
Speaker 1: a positive two point three percent. How unusual is that
Speaker 1: kind of swing period to period.
Speaker 3: I think the best thing to think about when you're
Speaker 3: looking at something like the NBA Purchase Index being right
Speaker 3: now at the lowest rate since nineteen ninety five, these
Speaker 3: are percentage changes off extremely low numbers. Okay, so you know,
Speaker 3: if one more person takes out a mortgage purchase, it's
Speaker 3: going to influence the.
Speaker 5: Number.
Speaker 3: So yeah, I think, you know, the direction has to
Speaker 3: be looked at over a longer period of time. And
Speaker 3: we're down thirty percent relative to a year ago, and
Speaker 3: even a year ago rates had already started rising.
Speaker 1: Is there a rate where I don't know, the market
Speaker 1: opens up, people start buying and selling houses again. I mean,
Speaker 1: at one point I heard somebody say like, yeah, five
Speaker 1: five and a half percent for mortgage rates, get back
Speaker 1: down to there.
Speaker 4: But boy, we're a long way from that.
Speaker 3: Yeah we are. We're currently, as you said, at seven
Speaker 3: point five percent on the bank rate. You know, it's
Speaker 3: hard to put a number on something like that. I
Speaker 3: think part of it will be time as well, because
Speaker 3: just over time, people have to upsize their homes, you know, death,
Speaker 3: divorce taxes, defaults, we're it's certainly not facing defaults anytime,
Speaker 3: staying with unemployment you know, pretty much all time lows.
Speaker 3: But you know that being said, time will help. More
Speaker 3: mortgages are getting originated, albeit slowly at these higher rates,
Speaker 3: and those people, of course aren't quite as locked in.
Speaker 3: But I think the mortgage market structure is going to stay,
Speaker 3: you know, in the very low coupon range for a
Speaker 3: very long time. So I don't think we'll have the
Speaker 3: kind of turnover we're used to seeing the housing market
Speaker 3: for a decade.
Speaker 4: You know, it's a great thing.
Speaker 1: Downsizing, Yeah, nice that no tax, then cash burns a
Speaker 1: fraction what it was back in the day.
Speaker 2: I'm excited for that to happen to me in twenty
Speaker 2: twenty years or so.
Speaker 3: And when you downsize you can sometimes take out the
Speaker 3: entire equity of your home and not have to take
Speaker 3: out a mortgage at all. So those types of things
Speaker 3: will keep the housing market. And there is a whole
Speaker 3: bunch of people that are you know, in the next
Speaker 3: generation that are kind of ready to downsize, you know.
Speaker 1: So so those then you got people like John Tucker,
Speaker 1: who actually does the repairs to his own home right well,
Speaker 1: he's never downsized.
Speaker 4: He still lives in the mansion, still in the sea,
Speaker 4: but there is a there's a guest cottage on the
Speaker 4: on the estate. So at some point that's.
Speaker 1: What you need to do.
Speaker 6: Yeah.
Speaker 2: I thought he was going to say I could move
Speaker 2: in or at least stay there for the weekend.
Speaker 1: Yeah, you know, exactly, down to sure. All right, Erica,
Speaker 1: thank you so much for joining us. Erica Adelberg, she's
Speaker 1: a mortgage backed security strategist for Bloomberg Intelligence.
Speaker 2: At some point we got to talk about porting mortgages,
Speaker 2: you know, because I locked in a three percent rate,
Speaker 2: and if I wanted I love my house, I'm not
Speaker 2: going to sell it. My wife's listening, don't freak out.
Speaker 2: But if I did want to, I'd like to take
Speaker 2: my three percent mortgage with me and use it to
Speaker 2: buy another house.
Speaker 4: You can in some cases.
Speaker 2: I don't know the exact details, but some mortgages can
Speaker 2: be ported in some ways.
Speaker 3: So in other countries that's definitely true, like in Canada,
Speaker 3: but I haven't really heard of that being a thing here.
Speaker 4: As much Canada.
Speaker 3: All right, so you move to Canada, you can't take
Speaker 3: your mortgage with you.
Speaker 4: Take your mortgage with you.
Speaker 7: Thanks again, you're listening to the Team Kenser Live program
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Speaker 1: Let's go across upon and take a look at what's
Speaker 1: happening the economies of our good friends in Europe and
Speaker 1: the UK. Doctor Vaniet Estavakava joins us. She's professor of
Speaker 1: economics at the London Business School.
Speaker 4: Professor, seems like the.
Speaker 1: US economy is doing pretty well to the point where
Speaker 1: this FED doesn't need to really do anything to kind
Speaker 1: of maybe you know, we've got inflation kind of running okay,
Speaker 1: we've got the economy kind of running okay. Just give
Speaker 1: us the thirty thousand foot view of Europe in general
Speaker 1: and then we'll take down a little deeper.
Speaker 8: So thank you very much for having me. Always a
Speaker 8: pleasure to be here. So indeed, there is quite a
Speaker 8: bit of divergence between the US and Europe and definitely
Speaker 8: UK as well, which is due to structural reasons. So
Speaker 8: the German economy, for example, if you take the biggest
Speaker 8: country in the Eurozone, is significantly different from the US economy,
Speaker 8: we would expect that inflation will be high in Germany,
Speaker 8: and would expect the inflation from the worse in Germany
Speaker 8: and to see stagnation or even decreasing growth, which is
Speaker 8: what the recent numbers show based on a few observations.
Speaker 8: So first, the euro Zone and Germany in general in
Speaker 8: general just much more open relative to the US. So
Speaker 8: if you take one measure of openness which is expert
Speaker 8: relative to GDP, and just take China, which of course,
Speaker 8: as we know, has decreased its demand for imports due
Speaker 8: to the slow in growth in China. So the connection
Speaker 8: between in Germany and China is two point five percent
Speaker 8: of the German GDP. So Germany exports two point five
Speaker 8: percent of its GDP to China. So an external shock
Speaker 8: from China is going to impact the German economy, for example,
Speaker 8: a lot. The difference is with the US the number
Speaker 8: is zero point six percent, so of course it's not
Speaker 8: just China. Actually, over the last year, the euro has
Speaker 8: appreciated against the door by more than ten percent, close
Speaker 8: to twelve percent.
Speaker 2: Thennie, can I just jump in here and ask about
Speaker 2: quickly about China. I keep hearing that the slump in
Speaker 2: China is affecting other economies badly, and everyone's kind of
Speaker 2: writing off the economy there. But aren't they pulling out
Speaker 2: some real stimulus now? Isn't it possible that the Chinese
Speaker 2: economy does start to pick up?
Speaker 8: Well, they've been kind of trying to do it for
Speaker 8: a while. I don't think they're proposing anything new. I
Speaker 8: believe the China is on a downward trend. We're talking
Speaker 8: about a trend here at and a temporary, essentially one
Speaker 8: blip deviation from growth. China cannot grow the way it's
Speaker 8: used for a number of reasons which are quite long
Speaker 8: to discuss. So I do believe that actually the trend
Speaker 8: will perceift in China.
Speaker 4: Okay, I just wanted to get that straight. I believe you.
Speaker 2: I just have been a little bit confused because we
Speaker 2: report on every stimulus move like it's a huge deal,
Speaker 2: you know, like, oh man, they're cutting the triple R
Speaker 2: reserve ratio, and they're they're they're funding you know, little
Speaker 2: kids and old parents and so.
Speaker 4: But but I think I hear you.
Speaker 8: I think it's important actually to zoom out and look
Speaker 8: at not just the recent news, but a compilation of
Speaker 8: news and trends. I mean, that's kind of what we
Speaker 8: do usually in Nicoon, not just focusing on single news.
Speaker 8: Speaking of trends, going back to the euro on appreciation
Speaker 8: of the euro, twelve percent is massive. This is going
Speaker 8: to impact the eurosone economy in Germany the most. Now,
Speaker 8: what else is different for Germany? So there are the
Speaker 8: major differences between Germany and the US coming from the
Speaker 8: fact that Germany is primarily dominated by manufacturing. So manufacturing
Speaker 8: is still much more important in Germany than the US.
Speaker 8: So then the shocks are so sated with the high
Speaker 8: oil price, oil and gas prices impacting the marginal cost
Speaker 8: of production. The margin for the manufacturing sector is another
Speaker 8: big problem, right, so those costs had to be passed
Speaker 8: forward to the final consumer for the manufacturing sector, so
Speaker 8: the prices of manufacturing goals had to increase more so
Speaker 8: high inflation in Germany. Similarly, the labor tightness. So Germany
Speaker 8: has demographic problems. They have aging population much more than
Speaker 8: the US. So you have seen the articles that the
Speaker 8: manufacturing sector is struggling to hire employees aage inflation is
Speaker 8: going to be higher. So these are structural differences that
Speaker 8: are here to stay. They're not going to disappear overnight.
Speaker 8: That are putting the US and Germany in a very
Speaker 8: different position. Now, this creates a lot of challenges for SB,
Speaker 8: of course, because Germany is one of many countries in
Speaker 8: the Eurozone, and the German economy is also different from
Speaker 8: Southern Europe and from other countries. So then the question
Speaker 8: is what is easy to be going to do. I
Speaker 8: do believe that in general easy it tends to put
Speaker 8: a high way on the German economy highweight. That's what
Speaker 8: we saw in the global financial crisis, for example. Probably
Speaker 8: it will be the same in this case. Having said that,
Speaker 8: given that the news are high, inflation above target and
Speaker 8: actually significantly about target, so more than five percent coinflation
Speaker 8: is very uncomfortable situation for CB, even if the German
Speaker 8: economy is so down, even if there is aerization, I
Speaker 8: do not see how they're not going to keep increasing
Speaker 8: interest rates. We're not talking about inflation getting to three
Speaker 8: three point five percent and then having the theory that
Speaker 8: maybe they're targeting a bit high inflation. We're talking about
Speaker 8: till five percent colinflation.
Speaker 4: All right, How about the United Kingdom?
Speaker 1: What are we seeing in terms of the economy there
Speaker 1: and what do we expect the Bank of England to
Speaker 1: do in response?
Speaker 8: So for the UK, it seems that there's some evidence
Speaker 8: that the high interest rates are starting to bite. Having
Speaker 8: said that the UK has the worst numbers in terms
Speaker 8: of inflation, in terms of private sector wage growth, I
Speaker 8: don't see them posing for the time being. I mean,
Speaker 8: they cannot pose this inflation rate. However, I do expect
Speaker 8: a recession coming the soon, as probably in the UK.
Speaker 8: Relative to the ide Eurozone and UK, it's it's it's
Speaker 8: unclear which one is going to come first. But definitely
Speaker 8: we will have a recesion in the UK because they
Speaker 8: will have to keep hiking and even if current interest
Speaker 8: rates is going to bite, already starting to buy.
Speaker 2: What do you think about the the the release of
Speaker 2: strategic the strategic petroleum reserve last year didn't really affect
Speaker 2: the price of oil so much.
Speaker 4: Now we're heading back up there.
Speaker 2: Even as these problems you know of economic slowdowns hit
Speaker 2: whole continents like Europe. How does the how does the
Speaker 2: oil price work into your forecasts for economic growth or
Speaker 2: contraction tributing.
Speaker 8: Too slow slow down? So we saw that gas prices
Speaker 8: starting to increase again, So let's see what happens with
Speaker 8: the winter. If we have a mouth winter, it might
Speaker 8: not be as bad. If global demands loans down, this
Speaker 8: might offset efforts by all producing economies to decrease the supply,
Speaker 8: which of course Opek has been trying to do that.
Speaker 8: So it is a function of both supplying demand. So
Speaker 8: it is a function also for although when gas producers
Speaker 8: do in addition to what happens to demand, I don't
Speaker 8: expect them to reach the levels of course of last winter,
Speaker 8: unless there is another massive shock. But definitely are going
Speaker 8: to put a downward pressure on the growth in the
Speaker 8: Eurozone and in the UK as we enter the winter months,
Speaker 8: where we expect prices to increase a bit.
Speaker 2: It least.
Speaker 1: How about in southern Europe and thing in Italy Spain,
Speaker 1: those are areas attend Those are economies that tend to
Speaker 1: be more fragile, and at least here in the US
Speaker 1: we hear more about that from a weakness perspective. How
Speaker 1: are they faring in this environment?
Speaker 8: Well, it is a special case. I wouldn't put it
Speaker 8: together an essay. Little with Spain these days besides Italy,
Speaker 8: other soudthern European economy is actually having better numbers than Germany.
Speaker 8: They have lower inflation and better growth, so overall, actually
Speaker 8: they're doing better. But if the CP keeps hiking, of
Speaker 8: course this is going to have an impact on those
Speaker 8: economies as well. Yeah, the numbers fitally do not look great.
Speaker 8: So definitely Italy for number of it's an outlier at
Speaker 8: the moment. So that's where there'll be also political conflict
Speaker 8: because for the hikes are going to potentially upset politicians
Speaker 8: in certain Southern European countries if they feel they don't
Speaker 8: need these hikes. So this has always been the problem
Speaker 8: with the CB. Right, we have a single central bank,
Speaker 8: many business cycles, no common fiscal policy, so usually the
Speaker 8: way it is in Germany.
Speaker 4: Yeah, that's tough.
Speaker 1: If I mean if your biggest economy is your weakest
Speaker 1: or one of your weakest links, that's tough.
Speaker 2: Well, i mean, let's define weakest link. Surely the Spain, Portugal, Italy, Greece.
Speaker 2: You know those are going to be weaker economies over
Speaker 2: the longer term, don't you think, doctor?
Speaker 8: Oh yeah, of course, I mean there is the trends
Speaker 8: and there are business cycles, fluctuations. So when we talk
Speaker 8: about multipolicy, of course, of course the focus is on
Speaker 8: business cycle fuctuations, and that's where currently the divergence is
Speaker 8: such that Saturn you're is doing better than Germany in
Speaker 8: state of state of course, the fundamentals. You can say
Speaker 8: a better ford, you know, countries like Germany than Greece
Speaker 8: or Italy for sure.
Speaker 4: So you noticed I didn't use the term pigs. Why
Speaker 4: would you?
Speaker 8: Yes, I do not like this term. It's a veryly Greece.
Speaker 2: Yes, oh yeah, I mean it's actually I think Portugal, Italy, Ireland, Greece.
Speaker 1: Easy, easy on Ireland. Sorry, sorry, all right, doctor, thank
Speaker 1: you so much for joining us. Doctor Vania Starkeeva, Professor
Speaker 1: of Economics at the London Business School, I appreciate gatting
Speaker 1: the view what's happening in Europe.
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Speaker 1: Let's talk reads real estate investment Trust. Steve Brown, he
Speaker 1: can do that for Steve Brown is a senior portfolio
Speaker 1: manager of Global real Estate at American Century Investments. He
Speaker 1: joined his live here in our Bloomberg Interactive Broker studio.
Speaker 1: See what happens to the re market when the FED
Speaker 1: has eleven rate increases. There's a banking crisis that can't
Speaker 1: be a good backdrop for reads.
Speaker 9: Sure, thank you for having me on. Yeah, reads have
Speaker 9: been under pressure this year and part of the last
Speaker 9: year because of the FED raid hiking cycle, and as
Speaker 9: you mentioned, it's going on for over twelve months. They've
Speaker 9: raised short term rates basically from zero percent to five percent,
Speaker 9: so very materially higher rates, and it's impacted basically cap
Speaker 9: rates and barring.
Speaker 4: Costs for real estate.
Speaker 9: So reads in general have been under pressure for the
Speaker 9: last we'll call it eighteen months or so. And we're
Speaker 9: really looking to an environment when the FED is done
Speaker 9: raising rates, and that would be a much more constructive
Speaker 9: environment to own publicly traded real estate.
Speaker 2: So you think rates are just going to stay here
Speaker 2: or we're going to get.
Speaker 4: A new dot plot this month? Do you think they're
Speaker 4: gonna take out some of the cuts?
Speaker 3: Right?
Speaker 9: I think our basic thinking is the FED is either
Speaker 9: done or just about done. They could be done because
Speaker 9: they haven't raised rates since July, and as we move
Speaker 9: into twenty four, then the next conversation will be when
Speaker 9: the cuts start. We think that when the Fed's done,
Speaker 9: that's a much more constructive environment for real estate values
Speaker 9: in public real estate. And we think that, you know,
Speaker 9: we don't necessarily need the FED to start cutting rates,
Speaker 9: but just having no more rate increases in some stabilization
Speaker 9: in the bond market, and there'll be a much more
Speaker 9: pricing efficient market for real estate.
Speaker 4: So we're optimistic that the FED.
Speaker 9: Is either done or just about done raising rates, and
Speaker 9: whether they start cutting in June of next year or
Speaker 9: September of next year, it really is just a more
Speaker 9: constructive environment when the Fed's done raising rates.
Speaker 1: All right, So, I know that there are lots of
Speaker 1: different sectors within the space, you know, data centers versus
Speaker 1: you know, housing and things like that versus student housing.
Speaker 1: Exactly what are the ones that you guys are going
Speaker 1: to be positioned in for if we are in fact
Speaker 1: heading into time when rates are no longer increasing, where
Speaker 1: are you guys kind of placing your bets.
Speaker 9: Sure, it's a great question, and you reachs are up
Speaker 9: about two percenters of this year, so not much going on,
Speaker 9: but certain sectors like data, center, reads, industrial have done
Speaker 9: well this year because they have pricing power, and other
Speaker 9: property sectors have really, you know, performed poorly. You mentioned
Speaker 9: office that's certainly one of the weaker performing sectors, as
Speaker 9: well as at least and to a certain extent, retail.
Speaker 9: I think we think that if when the Fed's done,
Speaker 9: you know, the acid class in general should perform better
Speaker 9: because of more effective debt financing for real estate values,
Speaker 9: and will the more bombed out sectors perform well.
Speaker 4: I think retail is probably going.
Speaker 9: To continue to perform better because of lower rates and
Speaker 9: they have lower valuations a little benefit from that. But
Speaker 9: some of the other sectors that are haven't performed well
Speaker 9: this year, such as towers.
Speaker 4: Tower reets are love. Towers are big component of the index.
Speaker 4: They haven't done well for a couple of reasons.
Speaker 9: One is the the growth characteristics have been modest exactly
Speaker 9: because they have sort of very strong pricing power characteristics.
Speaker 9: They had high multiples, but high multiples and high rates
Speaker 9: don't go well together. So if the raids start to
Speaker 9: roll over, tower reach should perform well over the next
Speaker 9: twelve months.
Speaker 2: Paul Paul loves towers, because I'm gonna guess he took
Speaker 2: somebody's towers, American tower, the public.
Speaker 1: We made the fees we made off of those things,
Speaker 1: gold mines, gold mines, and we rolled the whole for
Speaker 1: the bankers.
Speaker 2: Oh yeah, well, good for those for the sellers, right,
Speaker 2: I mean, I remember when Deutsche Telecoms took all their towers,
Speaker 2: they sold them and least them back.
Speaker 1: They thought that those assets were worthless, and they were
Speaker 1: worth seven eight nine times cash low we got them
Speaker 1: for so anyway, so we made money on the tower
Speaker 1: of business back in the day. So here in New
Speaker 1: York City, you're a rika, You're a real sticky. When
Speaker 1: I yet true, a high quality third Avenue, forty eighth
Speaker 1: Street tower, when that gets sold in the next year
Speaker 1: or two, is it going to be ten percent below
Speaker 1: where it was? Fifty percent more than that? How bad
Speaker 1: do you think the office market is in a market
Speaker 1: like New York Because we haven't seen stuff really trade,
Speaker 1: so we don't know what the discount really is.
Speaker 9: Right, It's it's bad in the sense that we've seen trades,
Speaker 9: whether they're New York, San Francisco, or other major cities.
Speaker 4: What we've seen is some funds.
Speaker 9: Some private equity funds give back the office properties to
Speaker 9: the lenders and then the so the asset is worth
Speaker 9: less than the loan. So we've seen property declines over
Speaker 9: the last twelve months in the office sector of anywhere
Speaker 9: from twenty to forty five percent of transactions that have happened.
Speaker 4: So that's what we're seeing.
Speaker 9: And I would we would believe that, you know, office
Speaker 9: values are down anywhere from twenty to thirty to forty percent.
Speaker 4: So if a property that you just made hasn't.
Speaker 9: Traded and say three or four years, you can probably
Speaker 9: see a pricing that's you know, thirty or forty percent
Speaker 9: lower than we're last traded at because of higher cap
Speaker 9: rates for office and concerns about NLI of the office
Speaker 9: buildings because of less tenant demand and the continuation of
Speaker 9: work from home.
Speaker 2: What's the best way, I mean reads, You can go
Speaker 2: and buy them individually. There are also ETFs of reats.
Speaker 2: There are a number of ways to get at the product.
Speaker 2: Does the rapper matter or what's your view on that right?
Speaker 9: I'd say, you know, certainly from where we stay, we
Speaker 9: run an active actually managed long only strategy, and I
Speaker 9: think that the diversity helps total returns, certainly for us
Speaker 9: and our clients. I think that the you know, there
Speaker 9: were no even though I mentioned that reads were up
Speaker 9: only two or three percent this year, there are a
Speaker 9: number of property sectors that have done quite well, whether
Speaker 9: it's data centers up twenty twenty five percent, through up
Speaker 9: ten or twelve percent, multi family up seven percent. So
Speaker 9: there's been some real winners. So active management does matter.
Speaker 9: And I think as we move into twenty twenty four,
Speaker 9: and as we sort of get into the get past
Speaker 9: the FED rate hiking cycle and the environment changes somewhat,
Speaker 9: I think there'll be some continued strong differential and performance
Speaker 9: of the various property sectors.
Speaker 4: Are there to twenty four?
Speaker 1: Are there?
Speaker 2: I mean the big losers, Steve, I'm guessing like office
Speaker 2: space here long third Avenue, right, Yeah? Have they lost
Speaker 2: enough so that they become interesting in terms of you
Speaker 2: know the multiples.
Speaker 9: Sure, in the public sector, I mean the office reachs.
Speaker 9: At one point this year, we're down forty percent. So
Speaker 9: publicly traded real estate reflected higher registrates reflective concerns about
Speaker 9: an economic slowdown, et cetera, et cetera.
Speaker 4: So they really had real.
Speaker 9: Time pricing and they would be the first to recover
Speaker 9: of in terms of a recovery in the economy or
Speaker 9: a slowdown in the rays of rates in the private market,
Speaker 9: the pricing has not adjusted so quickly. So it's clear
Speaker 9: today and that's why you reads are training at a
Speaker 9: twenty percent.
Speaker 4: Discount and net asset value.
Speaker 9: They're training to get a big discount to property prices,
Speaker 9: and they reflect both the higher rates in the impact
Speaker 9: of It's just a modest slow down in demand for
Speaker 9: certain property sectors like office.
Speaker 8: What you mentioned all.
Speaker 1: Right, interesting stuff real estate Real Estate Investment Trust. Steve
Speaker 1: Brown is our go to guy, senior portfolio manager Global
Speaker 1: real Estate for American Century Investors.
Speaker 4: We didn't get to.
Speaker 1: Talk about my favorite rate, which is Lamar Advertising billboards.
Speaker 1: Also did that company public.
Speaker 7: You're listening to the Team Ken's are Live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot com,
Speaker 7: the iHeartRadio app and the Bloomberg Business app, or listen
Speaker 7: on demand wherever you get your podcasts.
Speaker 1: I want to talk about one of the stories crossing
Speaker 1: the tape. We work to renegotiate nearly all leases exit
Speaker 1: unfit sites, so we work is still a thing and
Speaker 1: we talk real estate. We talked at Jeff Langbaum. He
Speaker 1: covers all the reads and all the real estate stuff
Speaker 1: for Bloomberg Intelligence Agency joins us via zoom from the Princeton,
Speaker 1: New Jersey campus of Bloomberg.
Speaker 4: Jeff, let's start with you.
Speaker 1: Where is we work these days in the marketplace? What's
Speaker 1: happening with their portfolio of properties?
Speaker 4: What's the latest?
Speaker 10: So I like the way you put it, Paul, we
Speaker 10: work is still a thing, although although I mean, you know,
Speaker 10: it seems like they're hanging on, you know, by a
Speaker 10: thread at this point. The news out today that they're
Speaker 10: planning to renegotiate all their leases. I mean, you know,
Speaker 10: a renegotiation or a negotiation by definition, requires two parties.
Speaker 10: It's going to be a wide range of outcomes in
Speaker 10: terms of what their landlords want to do and are
Speaker 10: willing to do. Obviously, you've got a market where office
Speaker 10: demand is light, and so if you've got a tenant
Speaker 10: that wants to stay in your building, maybe you'd be
Speaker 10: willing to give them a break. But at the same time,
Speaker 10: if they're saying they want to stay in their best properties,
Speaker 10: maybe those are property is where you're not eager to
Speaker 10: give them a break. Because those may be properties that
Speaker 10: you could fill with a tenant on perhaps better financial footing.
Speaker 10: So it's going to be a long workout, just like
Speaker 10: the commercial real estate industry broadly is in the middle
Speaker 10: of right now, and it will be kind of interesting
Speaker 10: to see how it plays out.
Speaker 2: So in terms of we work clients, how many of
Speaker 2: them have said, you know what this is, this is
Speaker 2: getting a little sketchy for us. We're going to go
Speaker 2: over and get some office space with Regis or another competitor.
Speaker 10: Well, their occupancy rate has fallen, and so clearly the
Speaker 10: demand for their space is not nearly as strong as
Speaker 10: it was. And some cone of that is probably tenants
Speaker 10: moving to someplace a little bit you know, stronger in
Speaker 10: a stronger position. Some may be getting permanent office space,
Speaker 10: some may be just sitting and waiting, but some is
Speaker 10: just you know, because the market is soft and there's
Speaker 10: not nearly as much office demand. And you know, obviously
Speaker 10: that's the underlying problem for them is they've got these
Speaker 10: you know, long term fixed lease payments and the revenue's
Speaker 10: not coming in at the level that they expected it
Speaker 10: to be. So that's what's triggering the need for them
Speaker 10: to scale back. But without a bankruptcy, you know, they
Speaker 10: don't have the ability to just walk away from leases,
Speaker 10: and clearly seems like they're trying to avoid going that route.
Speaker 4: Hey, Jeff, you're the expert on this stuff.
Speaker 1: When we see an office trade office building trade on
Speaker 1: let's say, on Third Avenue in Midtown Manhattan, what kind
Speaker 1: of haircut is it going to trade at fifty from
Speaker 1: where it was before? Something less than that, something more
Speaker 1: than that?
Speaker 10: This is going to be ugly, Well, it really depends
Speaker 10: on what the where it was before is how that's measured, right,
Speaker 10: I mean, if if you're talking about where values paper
Speaker 10: values were at their peaks, you know you might see
Speaker 10: pretty significant haircuts in the in the range that you're
Speaker 10: talking about. You know, if you're talking about trades relative
Speaker 10: to the last time of building traded, which may be
Speaker 10: you know, a decade or more ago, it might not
Speaker 10: be as bad. The issue really is going to be
Speaker 10: where are these where are values now relative to where
Speaker 10: you know debt can be underwritten, because that's what's going
Speaker 10: to trigger the need for properties to trade is a
Speaker 10: financing situation. And you know, we really just haven't seen
Speaker 10: enough data points yet to know because while there's clearly
Speaker 10: distress in the market. It hasn't yet gotten to the
Speaker 10: point where distressed trades enough distress trades are happening to
Speaker 10: really know what prices are going to look like.
Speaker 1: Yeah, it's gonna be fascinating to see kind of where
Speaker 1: those values are in some of these big cities New York,
Speaker 1: San Francisco.
Speaker 4: All right, Jeff, thanks so much for joining us. We
Speaker 4: appreciate you hopping on in short notice.
Speaker 1: Jeff Lang BOUNDI covers all the reads for a Bloomberg Intelligence.
Speaker 7: You're listening to the tape catcher, our live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Speaker 1: All right, let's talk global energy here. We got Brent crude.
Speaker 1: I'll just quote Brent crude since we hit ninety dollars
Speaker 1: a barrel today. That got people's attention. Currently in eighty
Speaker 1: nine dollars in c.
Speaker 2: U cl one for that is it cl one c
Speaker 2: one is Brent crude. Cl one is imts.
Speaker 1: Yeah, I usuld quote name X because like my guy,
Speaker 1: you know, the.
Speaker 2: Wildcatters down in Texas cl one commodity A right, let's
Speaker 2: talk able commodity. What I'm looking to see because last
Speaker 2: year in March, the Biden administration started issuing barrels from
Speaker 2: the Strategic Petroleum Reserve. And so what I'm looking to
Speaker 2: see is are we getting back to those levels because
Speaker 2: at the pump, you know, we're there pretty much.
Speaker 4: And if the Biden administration.
Speaker 2: Thought it was too high the price so they needed
Speaker 2: to release those reserves for the good of the American
Speaker 2: people at that time, they must think the same thing
Speaker 2: again now right.
Speaker 1: I don't know. Let's check in with a couple of
Speaker 1: experts people do this stuff for living. Mike McLoone and
Speaker 1: Fernando Valley. They cover the Energy Space Force for Bloomberg
Speaker 1: Intelligence Miami. Mike is zooming in from Miami, and Fernando's
Speaker 1: here in our Bloomberg in Arctic Broker studio. Hey, Mike,
Speaker 1: I'll start with you big move higher here in oil.
Speaker 1: Let's catch on a lot of folks. By surprise, we
Speaker 1: had some of the airlines today call out higher fuel costs.
Speaker 11: Here.
Speaker 1: What do you make of it.
Speaker 11: It's a balance that will fail. I mean I did this,
Speaker 11: said the same thing last year when Kroile's got above
Speaker 11: one hundred. My call as it's going to get to
Speaker 11: forty and the low this year is sixty three. Okay,
Speaker 11: didn't get all the way there. But to me, it's
Speaker 11: just a matter of time. That's what Croil always does.
Speaker 11: It fluctuates his most autocorrelated acid commodity there is. When
Speaker 11: it jumps up, it squashes that demand increases the supply.
Speaker 11: When it pumps and drops down, it's the opposite. The
Speaker 11: key thing is what's changed, that's what does Technically, what's
Speaker 11: changed is this significant excess of supply out the US.
Speaker 11: So I'm just looking data lately. The net exports from
Speaker 11: US and Canada liquid fuels this year is going to
Speaker 11: reach five million barrels a day. Just to put that
Speaker 11: in context. That's enough. That's liquid fuel, so it includes
Speaker 11: ath and all everything. That's enough to fill up the
Speaker 11: the spr what we took out of it in about
Speaker 11: seventy days. So this is a problem for the rest
Speaker 11: of the world, not for the US, particularly what OPEC's doing.
Speaker 11: I'm sure Fernando can comment on that. But I look
Speaker 11: at what you're seeing the screen now is what I
Speaker 11: expect Crudeyle to do is it's got a major problem
Speaker 11: with the will tilting towards recession. Our model, the economics model,
Speaker 11: is one hundred percent for the US declining out of China, pmizing,
Speaker 11: everything declining in Europe and central banks still tighty. That's
Speaker 11: the macro and the micros that use you flecate fluctuates,
Speaker 11: and right now I think it's really very much near
Speaker 11: the upper end of its range.
Speaker 2: I mean, our model, Bloomberg Economics model has a one
Speaker 2: hundred percent chance for a recession. But it's fair to
Speaker 2: say the consensus on the street is for a soft landing.
Speaker 2: I mean, Goldman Sachs is fifteen percent chance of a recession.
Speaker 2: I guess his models slightly different than ours.
Speaker 1: I guess so, Fernanda, what do you know from from
Speaker 1: the fundamental perspective? What are you seeing at there? Looks
Speaker 1: like go peck if they want to higher prices that
Speaker 1: they're they're getting it.
Speaker 6: They're getting some of it. But you know, I think
Speaker 6: when you look at just again Asia, as Mike was
Speaker 6: mentioning that Germany's number is eleven percent down month over
Speaker 6: month today on the industrial orders, who's their biggest trading
Speaker 6: partner China. I think the demand side, as Mike was saying,
Speaker 6: is really the biggest concern, and if we do have
Speaker 6: a recession, it's you can't keep ninety dollars a barrel.
Speaker 6: I think what there's a discrepancy here on our views
Speaker 6: versus the street that when Assaudi and Russia agree to cut,
Speaker 6: to extend the cuts to the end of the year,
Speaker 6: they're basically saying demand looks soft to us. Not we're
Speaker 6: going to keep pushing prices higher. They're saying, we don't
Speaker 6: have a market in Asia, and so that's not a
Speaker 6: great news for anyone who knows bullish oil. We just
Speaker 6: extended that because we're not finding that supply balance yet.
Speaker 6: And as Mike was saying, will continue to grow. I
Speaker 6: think that growth is going to moderate. We're going to
Speaker 6: miss expectations on USHL just because the pace of drilling
Speaker 6: is lower, the cost of financing is lower. Remember, shale
Speaker 6: is an ever going treadmill. You're always reinvesting because you
Speaker 6: have ninety percent declines in the first year. So the
Speaker 6: shale producers will feel higher interest rates right away, higher
Speaker 6: inflation right away. Because they're constantly drilling and drilling again
Speaker 6: to maintain their production.
Speaker 2: Well, it's hard enough to get them out there to
Speaker 2: drill to put new holes in the ground, right, because
Speaker 2: not only our interest rates rising, but they're afraid of regulation,
Speaker 2: certainly in this administration.
Speaker 4: What do you think.
Speaker 2: About the SPR release and its effects, Mike, I mean,
Speaker 2: I'm looking at the chart for IMAX crude. We didn't
Speaker 2: go to one hundred until March first of last year.
Speaker 2: We stayed there until July twentieth, and the crude releases,
Speaker 2: the SPR releases began at the end of March. Did
Speaker 2: they have a significant effect.
Speaker 11: Well, I still think President Biden, to go down in history,
Speaker 11: is one of the best crude oil traders ever. He
Speaker 11: actually did the right thing. What you're supposed to do
Speaker 11: in backgradation. You sell the liquid and you buy the
Speaker 11: futures contract. Obviously I haven't bought them back yet. But
Speaker 11: we just don't need it anymore. We have an excess
Speaker 11: supply of krugeff. We shut off our exports. We're gonna
Speaker 11: have way too much of it. So I think it's
Speaker 11: just the matter of time it gets refilled. But we
Speaker 11: don't have to do it anymore. And there's one thing
Speaker 11: I wanted to kee you off on, Matt is when
Speaker 11: you go to Europe in twelve years from now, you
Speaker 11: will not be able to purchase an internal combustion vehicle.
Speaker 11: This is where we're going.
Speaker 2: That's he's trying to He's trying to go. And what
Speaker 2: I'm doing right now is I have this strategic internal
Speaker 2: combustion engine reserve.
Speaker 4: As I'm cockpiling gas, you'll.
Speaker 6: Take the other side, and then I'll say, if you're
Speaker 6: does that, you'll be able to buy Europe for that.
Speaker 6: At that point it's for the price of an internal
Speaker 6: combustion engine car.
Speaker 4: All right.
Speaker 1: So, Fernanda, what are your companies telling you about where
Speaker 1: they think oil is going.
Speaker 6: I mean, they have not cut in back at all,
Speaker 6: so they are seeing the undersupply long term, but in
Speaker 6: the short term they just want to, as Chevron says,
Speaker 6: winning any environment. I think they have continued buybacks and
Speaker 6: that is the biggest difference in big oil today versus
Speaker 6: big Oil in twenty nineteen is they cleaned up their
Speaker 6: balance sheets so they can afford to continue that share
Speaker 6: repurchase program even at much lower oil prices. And I
Speaker 6: think if you ask Mike Worth of Chevron or Darren
Speaker 6: Woods of Exxon. They would say, yeah, give me, give us,
Speaker 6: give us a dip on our stock price, because we
Speaker 6: would love to improve our returns on capitol by repurchasing
Speaker 6: some of our shares rather than going out and buying
Speaker 6: more more small e and ps.
Speaker 4: I don't know.
Speaker 1: I mean, can I go down to Texas and start drilling?
Speaker 1: I mean I think I can make money at ninety
Speaker 1: dollars a barrow.
Speaker 6: You would think, But you can't find the Tuobler goods.
Speaker 6: You can't find the labor, and you're sure not going
Speaker 6: to get permits to drill a lot of those wells.
Speaker 1: That's no fun, all right, Mike from the commodity space,
Speaker 1: just right away here, what's your number one call?
Speaker 11: Gold? The average price of gold this year, at nineteen
Speaker 11: thirty three, is the highest ever. You can't say that
Speaker 11: about virtually any other commodity or asset so far. Expected
Speaker 11: continue in this deepest pockets on the planet. Our buying
Speaker 11: goal that's Central Banks.
Speaker 1: And for now, just real quick, what are your clients?
Speaker 1: What's like the most in vogue trade you hear from
Speaker 1: your clients.
Speaker 6: Well, people are going for the soft landing movement, and
Speaker 6: we think that's not quite going to play out well
Speaker 6: for them. So they're still buying some of the petrochemical
Speaker 6: names that are exposed to housing some of the e andps,
Speaker 6: the more lever dnps that are now getting a rise
Speaker 6: out of the higher oil prices. And we think safeties,
Speaker 6: especially when you're getting a huge payout from Excellent and Chevron,
Speaker 6: is a more attractive proposition.
Speaker 1: All right, good stuff, Felms appreciate it. Fernando Valley, Mike mcgloane.
Speaker 1: They cover the energy space for Bloomberg Intelligence. Mike more
Speaker 1: from a commodityesprespect perspective.
Speaker 4: He carvers all.
Speaker 1: Commodities for BI and Fernando from the fundamentals the equity
Speaker 1: side for a lot of the big oil producing companies.
Speaker 1: It's great to get both of their views when we're
Speaker 1: talking about the global energy space.
Speaker 7: You're listening to the tape Cansur live program Bloomberg Markets
Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune
Speaker 7: in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 7: You can also listen live on Amazon Alexa from our
Speaker 7: flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
Speaker 2: Let's talk about that right now, because Comments, famous for
Speaker 2: its diesel engines, is going to build a three billion
Speaker 2: dollar battery plant with help from the Chinese. And there's
Speaker 2: a lot of skepticism at these kind of partnerships concerning
Speaker 2: these kinds of partnerships, including sketchesm that Ford faced building
Speaker 2: a battery plant in Detroit recently. Let's bring in Elizabeth Bermont.
Speaker 2: She wrote the Comments story for us. She's out of
Speaker 2: Munich right now, are you?
Speaker 4: Are you in the office? You're not at the at
Speaker 4: the show? Right? Did you go to the show?
Speaker 12: I was at the Munich car size from at Monday
Speaker 12: through two yesterday and already having lots of fun with
Speaker 12: it over the weekend.
Speaker 5: It's been a great experience.
Speaker 4: All right.
Speaker 2: So what do we know about this plant that Indiana
Speaker 2: based engine manufacturer Cummins is gonna is gonna build with
Speaker 2: China's Eve Energy Company.
Speaker 5: Yeah, such an interesting development.
Speaker 12: And so, as you were just saying in your intro,
Speaker 12: come in as a diesel engine maker, and they're having
Speaker 12: to get ready for what's up next. They're picking Diamad
Speaker 12: Truck as one of the partners in that venture. The
Speaker 12: world's biggest commercial vehicle maker and then also packer, and
Speaker 12: I think that's absolutely the right way to go to partners,
Speaker 12: strong partners to share the load and gain scale to
Speaker 12: drive down the cost of switching over to batteries.
Speaker 1: Its surprised me given all the rhetoric we see out
Speaker 1: there on the geopolitical stage, why is China's Eve Energy
Speaker 1: company the part of this transaction?
Speaker 12: Well, because they have the technology. I mean, Eve is
Speaker 12: not exactly a company that's coming out of nowhere. They
Speaker 12: are a partner with BMW, and obviously there are these
Speaker 12: geopolitical tensions with the US and China.
Speaker 5: It hasn't stopped other companies from teaming up with them.
Speaker 12: You were just don't mentioning Ford and you know, there's
Speaker 12: absolutely no way around the fact that out of the
Speaker 12: top ten global battery supplies, seven of them are Chinese. So,
Speaker 12: whether you like it or not, there's kind of nowhere
Speaker 12: around working with them.
Speaker 2: Does everybody have enough battery capacity, Elizabeth, or are they
Speaker 2: building these factories quickly to try and get the capacity
Speaker 2: they think they're going to need five years, ten years out.
Speaker 12: You know, it's really interesting when you're comparing where the
Speaker 12: truck makers are and where the carmakers are. The carmakers
Speaker 12: are a lot further down the line as we know,
Speaker 12: and just coming into this conversation, I was just having
Speaker 12: a look around. You know, is this first of this
Speaker 12: kind in the US, you know, supplying batteries for trucks.
Speaker 5: I think it is.
Speaker 12: We've got one announcement from Volvo over here in Europe.
Speaker 5: So they're at this much earlier.
Speaker 12: Stage of moving into this shift, and hopefully they can
Speaker 12: learn from some of the mistakes that the car makers
Speaker 12: have been making, which is to partner up much earlier
Speaker 12: than they did in order.
Speaker 5: To save costs.
Speaker 12: Because unlike with cars, obviously, truck makers need to make
Speaker 12: a profit from their vehicles. So from the get go,
Speaker 12: commercial vehicle makers they need to offer products where logistics
Speaker 12: companies stand to stand to stand to make a profit.
Speaker 2: I wonder though about the actual materials. So this folk,
Speaker 2: this factory is going to focus on lithium iron phosphate batteries. Initially,
Speaker 2: I've heard, you know, Mark Royce from GM tells me
Speaker 2: the chemistry is going to.
Speaker 4: Change every year.
Speaker 2: Right, we don't know what it's going to look like
Speaker 2: in terms of the chem needed in ten years or
Speaker 2: twenty years, but lithium is already in short supply, right,
Speaker 2: are they scrambling to get contracts for the minds?
Speaker 12: I'm not really sure in terms of that where they
Speaker 12: stand on that engagement. I mean, the LFP batteries you
Speaker 12: mentioned that, I think they're a smart initial move because
Speaker 12: they're cheaper than comparable other chemra chemistries, which will help
Speaker 12: them from the get go. In the statements from the companies,
Speaker 12: they were also saying that this is the initial chemistry
Speaker 12: that they're going to be working with. So the way
Speaker 12: that indicates that the way they're going to set this
Speaker 12: up is that they can switch over to other chemistry
Speaker 12: and chemistries as.
Speaker 5: They become available.
Speaker 12: And just on your point about availability of resources to
Speaker 12: make these batteries, I mean, it's a huge question mark
Speaker 12: and arguably there will be bottlenecks along the way. These
Speaker 12: bottlenecks we've seen historically have been able to be resolved,
Speaker 12: you know, not necessarily battery raw materials, but usually when
Speaker 12: there is a bottleneck that we you know, humans find
Speaker 12: a way around them. In terms of the supply again,
Speaker 12: that was also a big topic at the Communika show
Speaker 12: just now. The Chinese have been building their grip on
Speaker 12: the supply chain like no other nation. And while there
Speaker 12: is a lot of lithium coming out of the US
Speaker 12: or Australia as well, for example, eighty percent of lithium
Speaker 12: refining capacity is currently located in China. So it comes
Speaker 12: back to the geopolitics that we were talking about earlier on.
Speaker 12: There's currently nowhere around working with Chinese partners if you
Speaker 12: want to make battery vehicles and those.
Speaker 1: There's also some news coming out of Germany on the
Speaker 1: China front. Again, Mercedes CEO kind of changes his tune
Speaker 1: on China as you know, maybe that's not going to
Speaker 1: be such a great growth market in the next ten
Speaker 1: years as maybe they thought as recently as a couple
Speaker 1: of years ago.
Speaker 4: What's the background there.
Speaker 5: Yeah, he's really changed too, and hasn't he.
Speaker 12: We were looking back over his comments from two years ago,
Speaker 12: and back then he was just saying how the market
Speaker 12: was still looking awesome basically, and people not being able to.
Speaker 5: Get enough from their luxury vehicles.
Speaker 12: If the Chinese market really slows, that's a really big
Speaker 12: problem for the German car makers because even if VW
Speaker 12: has been losing market share there, for all of the
Speaker 12: three German car makers, China remains the biggest market, So
Speaker 12: if people there are no longer or in far fewer
Speaker 12: numbers buying their cars, that's going to be a big problem.
Speaker 5: There are, of course, other markets that they can move to.
Speaker 12: We've had some speculation just talking two people at the
Speaker 12: show that for some of the products from the Mercedes,
Speaker 12: like I know you love that car, the g Wagon,
Speaker 12: that they could focus more on Middle Eastern customers, but
Speaker 12: obviously there are far fewer Middle Eastern customers than there
Speaker 12: are Chinese customers. Again, though, the US could be another
Speaker 12: market where they could refocus their marketing efforts or the
Speaker 12: styling of their cars to see if they can unearth
Speaker 12: a few more people to buy their cars.
Speaker 2: I have always is thought, so I love the G Wagon.
Speaker 2: I've been a fan since I was nine. I bought
Speaker 2: one in twenty twenty, which made my pandemic awesome. And
Speaker 2: I've always thought, you know, they only make like a
Speaker 2: few thousand at one factory in Grots. Mercedes doesn't even
Speaker 2: build themselves. They outsource it to Magnus Styre right, and
Speaker 2: they can't make more, so there's a long waiting list
Speaker 2: and they're incredibly expensive. I've always thought Mercedes should try
Speaker 2: and make like a Volkswagen Bug version of the g
Speaker 2: Wagon that everyone can buy and everyone would buy, but
Speaker 2: they don't want to go I guess down market, right, Elizabeth, Well.
Speaker 12: They weren't talking about a baby g Wagon, weren't they
Speaker 12: at the show, which seatellite TikTok. So yeah, I mean
Speaker 12: I think they. I think even Mercedes is surprised just
Speaker 12: how many g Wagons.
Speaker 5: They can shift.
Speaker 12: So if they're adding more derivatives, which does fit the
Speaker 12: narratives that we're getting from Mercedes that they want to
Speaker 12: focus on that top performing cars, the top end vehicles
Speaker 12: within their portfolio, you know, who knows where you know
Speaker 12: they could go to make the baby do wagon.
Speaker 2: I wonder what you think about the new BMW concept.
Speaker 2: I thought it was horrible, horribly ugly, and I'm a
Speaker 2: huge fan of the cars the carmaker's history, but I
Speaker 2: don't know what they're doing with their future vehicles like
Speaker 2: the XM confuses me completely.
Speaker 4: What do you think about BMW?
Speaker 5: Well?
Speaker 12: I think, you know, car styling is so subjective and
Speaker 12: you can you can talk to no end about it.
Speaker 12: I think you really have to take off your sort
Speaker 12: of Western glasses or even sometimes German glasses in my case,
Speaker 12: what appeals to me doesn't appeal to Chinese customers, and
Speaker 12: that's where they want to sell these cars. You know,
Speaker 12: whether you like the styling or not, I don't think
Speaker 12: it really matters. They were going for some a bit
Speaker 12: of a retro design, you know, we're sort of harks
Speaker 12: back to their heyday of making these really stylish cars.
Speaker 5: So whether that's a bad idea or.
Speaker 12: Not, I'm not really sure. I didn't think the car
Speaker 12: looked terrible. What concerned me a bit more was that
Speaker 12: this vehicle, alongside the Mercedes CLA prototype that they were showing.
Speaker 12: Both of these cars are come on the new generation
Speaker 12: platform for the EVS.
Speaker 5: It's not going to be on.
Speaker 12: Sale until the first half of twenty to twenty five
Speaker 12: or thereabout.
Speaker 4: We're coming out to your LA petition.
Speaker 1: All right, Elizabeth, thank you so much. Elizabeth Barman, team leader,
Speaker 1: Bloomberg News.
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
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Speaker 4: I'm Matt Miller.
Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three.
Speaker 4: And I'm fall Sweeney.
Speaker 1: I'm on Twitter at pt Sweeney before the podcast. You
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