Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news on the Bloomberg Markets Podcast,
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. All right, I looked
Speaker 1: at the mortgage rate, you know on the Bloomberg termoil
Speaker 1: you can do that. It's over seven percent now the
Speaker 1: average thirty year mortgage. What so I feel did you
Speaker 1: close on your tun closing later today? And I feel
Speaker 1: like I'm gaming the market with the rate I got.
Speaker 1: You locked in a good rate? Yeah, well, no, you
Speaker 1: locked in a good rate. I locked in a egregious rate.
Speaker 1: But it looks better than it does today. But let's
Speaker 1: talk about the mortgage market. Let's talk about the housing market.
Speaker 1: Erica Aidelberg, she joins us here on our Bloomberg Interactor
Speaker 1: Broker's studio ericas the mortgage back security strategist for Bloomberg Intelligence.
Speaker 1: Erica talked to us about just kind of a housing market,
Speaker 1: just the basic housing market today, Ray Tire, it seems
Speaker 1: like there's a real supply problem out there. What are
Speaker 1: you seeing? But we have had big jumps in new
Speaker 1: home sales, are pending home sales, way bigger than we
Speaker 1: were looking for. Yeah, Hi, thanks for having me, Thanks
Speaker 1: for coming. You know, the housing market is on a
Speaker 1: roller coaster. It's just you know, everybody I think who's
Speaker 1: interested in buying houses is taking close look at rates
Speaker 1: that I think there's is a lot of It feels
Speaker 1: like there's a lot of pent up demand. Whenever rates
Speaker 1: fall a little bit, and new home builders have a
Speaker 1: lot of inventory, they're probably looking to move because they
Speaker 1: have more houses under constructions. So there's you know, a
Speaker 1: lot of incentives going around to try to encourage people
Speaker 1: to still be involved in the mortgage market, which I
Speaker 1: think is why I'm sorry in the housing market, which
Speaker 1: is why I think you saw the big jump in
Speaker 1: both existing home sales and new home sales, pending home
Speaker 1: sales and new home sales. You know, as soon as
Speaker 1: rates dropped a little bit, existing home sales are still
Speaker 1: very low, but pending home sales are leading indicator for that.
Speaker 1: Let's separate all those three things. For people who don't
Speaker 1: work in the housing industry, like you do. So pending
Speaker 1: home sales is what contracts signed pending home sales is.
Speaker 1: I think, I know, I know. New home sales are
Speaker 1: contracts signed pending home sales. I'm not sure because it's
Speaker 1: a leading indicator for existing home sales. So yeah, it's
Speaker 1: before closing. So yeah, pending home sales are contract signed
Speaker 1: new home sales. New home sales are just built and sold, right,
Speaker 1: not like if Paul lived in his house for twenty
Speaker 1: years and then sells it. That's existing home sales, right.
Speaker 1: But new home sales haven't necessarily even closed. So there
Speaker 1: are a lot of cancelations on new home sales because
Speaker 1: the first time move in, right, New homesales is like yeah,
Speaker 1: new brand new home sales. Yeah, and existing home sales
Speaker 1: is on when the loans actually close the house is
Speaker 1: actually true, so existing home sales is usually related to
Speaker 1: rates a couple of months ago. Both new home sales
Speaker 1: and especially pending home sales are based more on you know,
Speaker 1: where rates are today and what type of incentives people
Speaker 1: are getting, and especially for new homes sales, they may
Speaker 1: not even close. There's a lot of cancelation. So that's
Speaker 1: really the whole thing is kind of confusing even for
Speaker 1: an analyst. But the bottom line is we've seen the
Speaker 1: numbers tick up, yeah, from the doldrums, And does that
Speaker 1: mean we've seen a bottom in housing? You know, So
Speaker 1: there's one more number we can throw in there just
Speaker 1: to confuse people. The Mortgage Banker Association does a weekly
Speaker 1: survey and they look at purchase loan applications and refi
Speaker 1: loan applications, which are of course in the basement. Purchase
Speaker 1: loan applications did tick up a little in January, which
Speaker 1: is why so many people thought that's the biggest leading indicator.
Speaker 1: That's like two months out basically, that's that's h you know,
Speaker 1: that's where you know, people were trying to lock in
Speaker 1: mortgages when the race we're a little bit lower. That's
Speaker 1: now back to twenty eight year lows. It's fallen two
Speaker 1: weeks in a row. So I think, you know, bottom
Speaker 1: line is I think that's NBA B perch if you
Speaker 1: want to bring that up. But I think bottom line
Speaker 1: is that, you know, whatever green shoots we're seeing are
Speaker 1: obviously being peated now by the higher mortgage rates. On
Speaker 1: the bright side, we're moving to the spring housing season
Speaker 1: where a lot of people get involved in the markets
Speaker 1: and then okay, so this is not even the season anyway,
Speaker 1: it's just a yeah, we can't really judge it by
Speaker 1: these numbers. I want to ask about something that I
Speaker 1: think Paul's going to be doing next year, and I
Speaker 1: think maybe a lot more people are than have been
Speaker 1: in the past decade, at least maybe longer people are
Speaker 1: getting adjustable rate mortgages because we're so high right bank
Speaker 1: rate says seven point one two percent right now, are
Speaker 1: more people going to be you said, refies are in
Speaker 1: the basement. Obviously, nobody's refinancing at seven percent. That's why
Speaker 1: city is letting go hundreds of people and get mortgage
Speaker 1: in it. But next year people may be doing just that.
Speaker 1: Are a lot of people picking up adjustable rate mortgages
Speaker 1: hoping that rates go down in the future. Adjustable rate
Speaker 1: mortgages have picked up a little bit. You know, keep
Speaker 1: in mind when you think about adjustable rate mortgage, it's
Speaker 1: not the adjustable rate mortgage of yesteryear, where you might
Speaker 1: even get a teaser rate, or at least you can reset,
Speaker 1: you know, resets annually so you get a low rate.
Speaker 1: Right now, there were like five ones, ten ones, so
Speaker 1: the rates only incrementally lower than thirty year. You can
Speaker 1: look at the bank rate. I think it's you know,
Speaker 1: maybe a hundred based points saving, right, So some people
Speaker 1: are taking those out. They don't have to reset for
Speaker 1: five years, and there's pretty serious caps on the first reset,
Speaker 1: so it's not really a risk for the mortgage market.
Speaker 1: But yeah, we are seeing a little bit of pickup
Speaker 1: and it's almost one hundred percent correlated right now with
Speaker 1: the spread between thirty year and five ones. So that's
Speaker 1: that's the math people are doing. All right, Erica, let's
Speaker 1: talk about the mortgage backed securities market, fixed income market
Speaker 1: in general. Good January, bad February. Talk to us about
Speaker 1: the MBS market. Where you're seeing opportunities risk? What are
Speaker 1: you telling your clients? Yeah, it was very interesting. We
Speaker 1: came out of a really rotten, the worst ever year
Speaker 1: in twenty twenty two. You know, it came out of
Speaker 1: the gates strong. We had the best January that I've seen,
Speaker 1: at least, you know, in history, I mean going back
Speaker 1: as far as any of our series go, both on
Speaker 1: you know, a hedge return basis as well as a
Speaker 1: bondser back you know, total return basis, and it's just
Speaker 1: been you know, dripped by drip pain since then. And
Speaker 1: what turned the market is the fact that I think
Speaker 1: every the markets have been pricing in after you know,
Speaker 1: a nice turn in CPI, what appeared to be a
Speaker 1: turn in CPI, they've been pricing in the end of
Speaker 1: FED tightening and maybe even easing by the end of
Speaker 1: the year. That's all gone out the window as soon
Speaker 1: as last month's non farm payrolls number came in way
Speaker 1: stronger than anyone expected. And other data is also you know,
Speaker 1: made us think, including isems and numbers today, that you know,
Speaker 1: we're not out of the woods yet. The Fed's probably
Speaker 1: gonna have to go a lot higher and keep rates
Speaker 1: a lot higher for a lot longer than people expected.
Speaker 1: And mortgages don't love that scenario, you know, bobs in
Speaker 1: general don't love that scenario. But it also means there's
Speaker 1: probably ongoing you know, volatility while we're trying to figure
Speaker 1: out what's actually going to happen. So as I say,
Speaker 1: mortgages have given up all of their total raid to
Speaker 1: return near to date, and a lot of their excess
Speaker 1: returned near to date as well. Thirty seconds credit quality
Speaker 1: in the NBAS market mortgage market um. Credit quality is
Speaker 1: still very strong. Delinquencies are still very low. Most people
Speaker 1: still have those two percent mortgages or three percent mortgages,
Speaker 1: So look strong. All right, My man over here's got
Speaker 1: a very low mortgage, don't you on the estate in
Speaker 1: west Chester? Yeah, yeah, it's pretty fantastic. Yeah, I'm paying
Speaker 1: glad I locked that in. Yeah, but it doesn't change
Speaker 1: the fact that my taxes are so high. I could
Speaker 1: honestly be buying like a new nine to eleven every year.
Speaker 1: Just insane. Right when you get the scat pack thing coming,
Speaker 1: and you'll be all, you'll be happy. Erica Aidelberg, mortgage
Speaker 1: backed security strategist for Bloomberg Intelligence, joining us here live
Speaker 1: in our Bloomberg Interactive Broker studio on a Friday, so
Speaker 1: that's a double start. I love to Betty Kis. I
Speaker 1: love exchange traded funds. I think, what are they thirty
Speaker 1: years old now, and they just continue to innovation. The
Speaker 1: industry continues to grow. We're talking about at least at
Speaker 1: least nine trillion dollars of funds globally, so incredible growth stories.
Speaker 1: Sylvia Jablonski joins us here a chief investment officer and
Speaker 1: co founder of defiance ETFs and you know Sylvia on
Speaker 1: the Bloomberg terminal. There's this great stories every day on
Speaker 1: ETF space. One that got my attention just recently, Jim
Speaker 1: Kramer ETFs arrives to bet on and against the CNBC
Speaker 1: host picks talk to us. So just about these specialized,
Speaker 1: super specialized kind of ETFs like a pro or con
Speaker 1: Jim Kramer ETF is that is that where the growth
Speaker 1: is as opposed to just like buying in index ETF
Speaker 1: Good morning. You know, it's it's a great question. I
Speaker 1: think it's certainly where the popularity is and where the
Speaker 1: interest is. Um. You know, my sense of it is
Speaker 1: that you kind of have the ETFs out there already
Speaker 1: that you know, a track and represent the classics sectors
Speaker 1: and investors want access to. So for example, there are
Speaker 1: you know, many many options to get SMP five hundred
Speaker 1: exposure and an ETF rapper NASDAK emerging markets you know
Speaker 1: fixed it basic fixed income products and things like that.
Speaker 1: So the second wave of products was really in the
Speaker 1: thematic space and you started to see these cool broader
Speaker 1: themes you know, like um, whether it's space or or
Speaker 1: EVS and things like that. And now you have, as
Speaker 1: you said this this Jim Kramer long, sure, I think
Speaker 1: providers are just coming trying to come out with something
Speaker 1: new that will um, you know, gather assets and will
Speaker 1: represent something that people actually want to trade. And you know,
Speaker 1: people do follow Jim Cramer and have strong opinions either
Speaker 1: way on his side. What's what's a successful ETF in
Speaker 1: terms of size, Like, what's what's considered to be a
Speaker 1: successful et kind of clothes do you need to see? Yeah? Right,
Speaker 1: well it's you know, it depends on the management fee.
Speaker 1: So if obviously the higher the fee, the lower the
Speaker 1: thresholds that you need for success. So if you have
Speaker 1: an ETF that has you know, ninety BIPs to one
Speaker 1: percent and you gather twenty million, you know that's of
Speaker 1: a decent baseline. But if you have an ETF that's
Speaker 1: priced at you know, ten twenty thirty books, you need
Speaker 1: to see hundreds and millions of assets to actually, you know,
Speaker 1: really generate a profit on that product. Because ETFs are
Speaker 1: actually pretty costly to run on the back end, we
Speaker 1: see more and more of these ETFs like the Kramer one.
Speaker 1: UM I think before that we got crews and nance
Speaker 1: tracking what not. Nancy Pelosi and Ted Cruise specifically do.
Speaker 1: But what the Republicans do or what the Democrats doing
Speaker 1: for in terms of you know, front running their legislation
Speaker 1: to make money. Are these just a fad? I think
Speaker 1: time will tell, you know, if if they perform. For example,
Speaker 1: there was a period of time last year where um,
Speaker 1: you know, you saw that short ARCTF right where everybody
Speaker 1: became super sour on Kathy what the year prior? You know,
Speaker 1: she was sort of the here the hero of ETFs,
Speaker 1: and her ETF took off and then last year was terrible. No,
Speaker 1: this year her ETF is up twenty percent again. So
Speaker 1: um flows are kind of leaving the short arc and
Speaker 1: going into the long one. So I think it's it'll
Speaker 1: be the same thing with a long short Cramer fund.
Speaker 1: You know, if the performance is there, I think it'll
Speaker 1: generate assets, and there's enough kind of retail investors that
Speaker 1: are interested in in you know, the media of it
Speaker 1: and the publicity of it all. But you know, do
Speaker 1: I think it's going to end up in an asset
Speaker 1: manager's ETF application? You know, probably not got ETF. I
Speaker 1: think a lot of thematic ETFs have a shot too,
Speaker 1: because you know, there is this interest in disruptive technology
Speaker 1: and innovation things like that. But something like that almost
Speaker 1: feels a little bit memi and will probably you know,
Speaker 1: gather some assets in the moment and then unless performance
Speaker 1: is phenomenal or price fade away, unless the congressional stock
Speaker 1: traders are forced to disclose what they do, you know,
Speaker 1: within like ten years of their buy or self. By
Speaker 1: the way, speaking of Cruz, you have an ETF that
Speaker 1: I think Paul would like. Um, he's obsessed with hotels, planes, cruise,
Speaker 1: ships and you've got Cruz. Yeah, I mean, so we've
Speaker 1: we've we launched that ETF to really tackle the the
Speaker 1: idea that you know, post pandemic, there would be this
Speaker 1: pent up demand for people to travel. And you know,
Speaker 1: there's a very popular airline ETF out there, but there
Speaker 1: wasn't something that sort of captured the full picture with
Speaker 1: hotels and cruises and whatnot. So UM, cruise gives you
Speaker 1: just that, it gives you access to the airline, so
Speaker 1: you're getting domestic, but you're also getting that China reopen
Speaker 1: trade that East meets West, you know, um tailwin that
Speaker 1: we're going to see this year. You get cruises and
Speaker 1: we've seen the data there, a lot of the CEOs
Speaker 1: are coming out and saying that pandemic book bookings are
Speaker 1: backed up to pandemic levels. They're starting to generate revenues again.
Speaker 1: They have pricing power, and of course hotels, business travels
Speaker 1: back up. People are out there traveling. So I think
Speaker 1: in the short term, um, particularly if we don't see
Speaker 1: any kind of hard landing and we start to see
Speaker 1: some of this you know, inflationary pressure cool off, Um,
Speaker 1: you might get some gailwinds and in cruise and some
Speaker 1: of these types of names within that ETF for the
Speaker 1: next year or two, it's your highest year to date return.
Speaker 1: That ETF is up like twenty percent year to date. Yeah,
Speaker 1: in terms of the largest fund assets you operate, the
Speaker 1: five G Right Defiance, next Gen Connectivity ETF. It's also
Speaker 1: lowest fees of the of the ETFs that you operate
Speaker 1: a guess because it's so big, right, and the highest yield. Yeah.
Speaker 1: So the interesting thing about that is when we launched
Speaker 1: that ETF, we were a new fund and a new
Speaker 1: company and we wanted to come to market. We thought that,
Speaker 1: you know, we really need to make a splash. So
Speaker 1: let's let's try to come up with the most innovative
Speaker 1: product that we can and we thought to ourselves, there's
Speaker 1: no you know, great innovative product in terms of the
Speaker 1: feature of communication, and what is the feature of communication?
Speaker 1: It's really five G. So we structured the product and
Speaker 1: then we thought to ourselves, and this is also around
Speaker 1: you know, kind of it's pre covid, but it kind
Speaker 1: of dove into covid around the time that we launched,
Speaker 1: and we thought to ourselves, you know, who's going to
Speaker 1: trade this. It's going to be a kind of that
Speaker 1: younger Robin hood trader and whatnot. And so let's make
Speaker 1: it your transparent, Let's make it as cost effective as
Speaker 1: possible and try to gather assets and really start a company.
Speaker 1: And so it's really it's really our flagship fund, and
Speaker 1: it's what caught us on the map. And you know,
Speaker 1: we're super proud of that ETF today and we hope
Speaker 1: to see it. We hope to see it start to
Speaker 1: grow again as risk app type picks up in coming years. Hey, Solvia,
Speaker 1: talk to us about the trend of mutual funds converting
Speaker 1: to ETF. So I find that fascinating kind of where
Speaker 1: are we in that process and how do you think
Speaker 1: it plays out going forward. So it's interesting because I think,
Speaker 1: you know, I'm young enough where I've invested in ETFs
Speaker 1: for a really long time, and I've worked with people
Speaker 1: who were really like mutual fund believers, hardcore hutual fund believers,
Speaker 1: and thought that the ETF would would go away. I mean,
Speaker 1: it's just really hard to argue that mutual fund assets
Speaker 1: will remain where they are. ETFs are just a much
Speaker 1: better rapper. You know, they're far more efficiating, got intra
Speaker 1: day trading, combine and sell them throughout the day. You
Speaker 1: know what the intra day NAVI is what the fund
Speaker 1: is actually worth versus what you're paying for it. Um.
Speaker 1: You know, there are a lot of tax benefits to
Speaker 1: using the ETF structure. So we've seen that transition. We've
Speaker 1: seen the outflow from mutual funds into ets And not
Speaker 1: to say that, you know, you have some great actively
Speaker 1: managed mutual funds out there that are never going to
Speaker 1: go away, but I think that the ETF rappers is
Speaker 1: now you know, kind of the preferred product of choice
Speaker 1: by by investors and especially the next generation of investors.
Speaker 1: I mean, if you ask um, like a seventeen year
Speaker 1: old about a mutual fund they but not even know
Speaker 1: what it is. What about regulation? I mean, one thing
Speaker 1: about mutual funds I know is that my four o
Speaker 1: one k is like puking mutual funds. Can you put
Speaker 1: ETFs easily in a four oh one k? Are investors limited?
Speaker 1: Because that's a big it's a big pool there. Yeah,
Speaker 1: that's the limit. That's the limit, and that's where the
Speaker 1: assets are sticky for mutual funds. So I think that
Speaker 1: UM either have been talks about this sort of you know,
Speaker 1: forever at least for the last decade that that I've
Speaker 1: been an ETFs that you know, all the retirement plans
Speaker 1: are going to open up to ETFs, and some of
Speaker 1: them have and some of them haven't. The majority have not.
Speaker 1: You know, I suspect that there's going to become a
Speaker 1: time just because there's so much user demand for it,
Speaker 1: where you'll see that open up to ETF products, at
Speaker 1: least certain ETF products, And I think, you know, I
Speaker 1: think in that case that just even further propels the
Speaker 1: EATTF asset number by the trillions and shrinks the mutual
Speaker 1: fund assets. And you see a lot of the you know,
Speaker 1: top actively managed mutual funds trying to create ETFs out
Speaker 1: of their strategies too, so they sort of know that
Speaker 1: they're not, you know, they're not kind of eroding their
Speaker 1: own assets, but they sort of realize that they have
Speaker 1: to switch over to keep their assets. Yeah, just amazing.
Speaker 1: It's one of the just greatest or most you know,
Speaker 1: impactful changes I've seen in the last decade, and I
Speaker 1: know it's been longer than that. I'm going to start.
Speaker 1: I'm gonna start dating people by your either pre ETF
Speaker 1: or posting. Yeah, yeah, you're definitely because you started on
Speaker 1: the street. Yes, before spies were coiled out, exactly, but Sylvia, no,
Speaker 1: after absolutely, Sylvia Jablonski, chief investment Officer, co founder of
Speaker 1: Defiance ETFs, and then on the Bloomberg terminal. For those
Speaker 1: of you are sitting in front of a terminal, et
Speaker 1: F go is a great function. Gives you all the
Speaker 1: good information you want about the ETF space and looking
Speaker 1: at the Defiance ones. Five G is Matt mentioned the
Speaker 1: biggest one and it's got great returns there. It's got
Speaker 1: seven hundred million dollars assets under management. All Right, we
Speaker 1: got Kevin tyin in on here. He's a senior autos
Speaker 1: analyst for Bloomberg Intelligence. No real agenda here, but I
Speaker 1: want to just start Kevin. I know Michael Dean, your
Speaker 1: colleague in London, follows Volf Volkswagen. But Volkswagen came out
Speaker 1: today saying, you know, their boosting production. Demand is still there.
Speaker 1: I want to ask you from the global auto industry,
Speaker 1: is this supply chain issue is that fixed? Well, it's better,
Speaker 1: but you know, and we've talked about this a lot,
Speaker 1: like I'm not sure how much of it was chips
Speaker 1: and supply chain and how much of it was constraining
Speaker 1: output to maintain pricing and margins. So, um, you know,
Speaker 1: automakers are are going to get back to a little
Speaker 1: bit more of that growth mode as the demand is there.
Speaker 1: But um, you know, I think it's an easier hurdle now, right,
Speaker 1: Like across in the key regions, you you don't have
Speaker 1: this um sales for sales sake kind of mindset anymore, right,
Speaker 1: Like the product portfolio is different, costs irrationalized, and it's um,
Speaker 1: you know, it's your most expensive stuff that you're putting
Speaker 1: out there, so um, you know, demand just carmakers, by
Speaker 1: the way, Kevin, you know last week I was down
Speaker 1: at the Ducati shop in Soho and the North American
Speaker 1: CEO Jason Schinnickck told me after their experience during the pandemic,
Speaker 1: they're pushing towards basically thirtyty fifty thousand dollars models rather
Speaker 1: than the entry level ten tho dollar bike used to sell.
Speaker 1: And even same thing at Harley Davidson. Right, if you
Speaker 1: look at that company, you know, this move away from
Speaker 1: volume for volume sake because they got out of a
Speaker 1: lot of difficult regions for them, you know, um international markets,
Speaker 1: and are really just focused on constraining supply, driving prices higher,
Speaker 1: you know, and just filling orders at the highest possible
Speaker 1: price and margin. So my question to you is is
Speaker 1: that a thing? Kevin? Is that a long term trend?
Speaker 1: I mean, this is an industry for it seems like
Speaker 1: my entire lifetime at least. You know, you produced seventeen
Speaker 1: million cars and you sell them, you haggle and you
Speaker 1: do all that kind of stuff. Now you're talking tell
Speaker 1: me fifteen million, and it's you stick a price or
Speaker 1: above is what you're gonna pay? Yeah, Well, here's the thing. Right,
Speaker 1: So if you look at it from a volume perspective,
Speaker 1: you're going to say where where do two and a
Speaker 1: half million units go? And do they ever come back?
Speaker 1: But the thing is at seventeen and a half million,
Speaker 1: you know, from the manufacturer's perspective, even from the dealership's perspective.
Speaker 1: You know, the average transaction price was thirty five thousand
Speaker 1: dollars in twenty twenty three. If we do fifteen million units,
Speaker 1: the average transaction price is going to be about forty
Speaker 1: nine thousand dollars. Excuse me. So when you look at
Speaker 1: the revenue pool, actually, this market is actually bigger than
Speaker 1: when it was peak volume. And that's what I think
Speaker 1: automakers are focused on that consumers aren't right, they're just
Speaker 1: saying or the markets or analysts are just saying seventeen million,
Speaker 1: seventeen and a half to fifteen is bad. But everybody
Speaker 1: else or the automakers are going, yeah, but the revenue
Speaker 1: pool is bigger by about eighty billion dollars, at least
Speaker 1: here in the US. So I think you have to
Speaker 1: layer in that one other data point above just simply volume,
Speaker 1: and say like, okay, well let's look at where how
Speaker 1: much money is this rather than how many units is this?
Speaker 1: Because you know, look a twenty thousand or an eighteen
Speaker 1: thousand dollars Chevrolet Cruise, which no longer exists, isn't the
Speaker 1: same thing as a sixty thousand dollars Silverado. Is pushing
Speaker 1: up the average selling price because uh, you know, I've
Speaker 1: I had to fight to get my last call Dodge
Speaker 1: Challenger scat pack wide body sum and the price was
Speaker 1: let's just say it, I paid too much for a
Speaker 1: car that's going to depreciate a lot um. But it's
Speaker 1: the same everywhere. I mean, the new Mustangs are super expensive.
Speaker 1: You want to get a Broncho, you're gonna pay up.
Speaker 1: And it seems like, and it makes sense, these carmakers
Speaker 1: are taking advantage of a last call for internal combustion
Speaker 1: engines to fund their loss making EV business. Well yeah,
Speaker 1: and it's so it's totally mix shift and not only
Speaker 1: car to truck, but also, like you said, right, look
Speaker 1: at that mix in that LX platform for for Stilantis
Speaker 1: Challenger and charger. Right, there's there's really no more garden
Speaker 1: variety Challengers or you know, rental fleet chargers. I mean
Speaker 1: there are, but but if you were to look at
Speaker 1: the at um penetration rate of the fire breathers, right,
Speaker 1: the scat packs the hell Cats, all that stuff. It's
Speaker 1: probably way higher than you would ever believe it could be, yea,
Speaker 1: because that's what people want, right. They don't want the
Speaker 1: garden varieties, six cylinders, want the tennis star. Sure, everybody
Speaker 1: wants the hell Create for months now. I have no
Speaker 1: idea what it is. What Okay, I'll just quickly tell you. Okay,
Speaker 1: So hell Cat and the hell Cat Red Eye and
Speaker 1: the Superstock and the Demon. These are all super charged
Speaker 1: six point two leader V eights. Okay, so they take
Speaker 1: um the inches down a little bit and slap on
Speaker 1: a power pusher. The scat pack is a six point
Speaker 1: four leader V eight, so a little bit more in
Speaker 1: inches three ninety two, but there's no forced induction, okay,
Speaker 1: so it's naturally aspirated. I give up, though, because I
Speaker 1: don't believe that you're really paying attention. All right, Kevin, Kevin,
Speaker 1: what's the when you talk to institutional investors today, what's
Speaker 1: the number one question you get about the autobiz? You know,
Speaker 1: that idea that pricing new and used is set to tumble,
Speaker 1: you know, and it really comes you know, there's a
Speaker 1: lot of inputs into that Supply versus demand is really
Speaker 1: what's going to determine it. So I don't think automakers
Speaker 1: for the most part, are going to run into an
Speaker 1: oversupply condition, unless, of course, demand goes through the floor,
Speaker 1: which I don't really see either, right, So I think
Speaker 1: the control or the power still stays in the hands
Speaker 1: of the automakers. You know, while we could see some
Speaker 1: softening demand just because of interest rates and prices and whatever,
Speaker 1: you know that fifteen million unit isn't as high a
Speaker 1: hurdle in terms of pent up demand. And I think
Speaker 1: it's the number we can easily do and do it
Speaker 1: basically at MSRP and do it very profitably. All right,
Speaker 1: everybody wins here, but the consumer, right, that's the thing,
Speaker 1: all right to me, that's a bullish call on his
Speaker 1: auto name across the sport with Kevin just well, well
Speaker 1: here here's the other thing too, Paul, is that you know,
Speaker 1: if the process is better for the consumer, everybody paying
Speaker 1: the same and they're being transparency the pricing, arguably they
Speaker 1: all right, all right, we'll see how it plays out
Speaker 1: until I replaced the BMW twenty fourteen with manual transmission.
Speaker 1: Thank you very much, Kevin Tyne and Senior Automotive analyst
Speaker 1: for Bloomberg Intelligence. He's based down in our Princeton, New
Speaker 1: Jersey office, and the cool thing about him is, like
Speaker 1: Matt Miller, he gets to test drive pretty much every
Speaker 1: single car that comes out, so he knows what he's
Speaker 1: talking about. But left talking to Kevin looking at the
Speaker 1: fixed income landscape, Well, you guys had a really good January,
Speaker 1: February not so much. Give us a sense of kind
Speaker 1: of your thoughts are here in early March about your space. Yeah, hey,
Speaker 1: good morning. You were absolutely spot on. January was amazing,
Speaker 1: February not so much. And you know, we've almost erased
Speaker 1: all the games we had to start the year. Year
Speaker 1: to dates are only up about thirty basis points. You know,
Speaker 1: the bad news is we're not predicting a lot of
Speaker 1: positive tailwinds carrying the sector into March. There's not a
Speaker 1: lot of cash coming back to investors. Primary supply continues
Speaker 1: to be really light, and you know the problem is
Speaker 1: we're really just attached to where rates are traveling, and
Speaker 1: treasuries have had a rough time. I know today looks
Speaker 1: a little better, but last time I checked, inflation isn't
Speaker 1: dead yet. So until that really gets under control, we're
Speaker 1: sort of hamstrung. All right, the good news is well,
Speaker 1: first of all, I forgot to say bam, yeah, I
Speaker 1: almost want to read the billboard again. Bam, there you go.
Speaker 1: Last time we were down at Bild America Mutual. We've
Speaker 1: got to talk to Chris Bergotti. He's the managing director
Speaker 1: Senior VP of Muni Investments over at Valley National Bank.
Speaker 1: And the good news is we have him here with
Speaker 1: us today, so Chris, we can bring you in to
Speaker 1: follow on to what Eric just said. First of all,
Speaker 1: good morning, thanks for joining us. What are your expectations
Speaker 1: in terms of inflation. It's clearly not died down over night.
Speaker 1: What are your expectations in terms of rates? The Fed
Speaker 1: is clearly rethinking any kind of pause that was thought
Speaker 1: to come. Yeah, good morning man, thanks for having me.
Speaker 1: And you know, my thoughts are basically, inflation is still
Speaker 1: going to be a little bit of challenge for the
Speaker 1: economy and the markets, and I expect net net to
Speaker 1: test those higher yields that we saw back in October,
Speaker 1: which would have put ten years at treasuries at a
Speaker 1: four thirty two and thirty year treasuries at a four
Speaker 1: thirty three, so that four forty two. I'm sorry. So
Speaker 1: that being said, you know, I'm expecting a little bit
Speaker 1: more pain to be had in the fixed income markets
Speaker 1: as a result of the inflationary environment. And we got
Speaker 1: the Fed talking about finally having to do another fifty
Speaker 1: basis point move, possibly in March. That's being put out
Speaker 1: there and has some credibility behind. It's not a good
Speaker 1: look if it has to happen. Paul pointed out, you know,
Speaker 1: once you've stepped down to twenty five, it doesn't make
Speaker 1: you look great to have to turn around and go
Speaker 1: back to fifty exactly exactly. So, Chris, I mean, what
Speaker 1: do I mean again? Flation data? I guess we can say,
Speaker 1: you know, with some certain the inflation has peaked, But
Speaker 1: is the market just telling us and the FED feder
Speaker 1: Reserve in particular, saying, yeah, but it's not coming down
Speaker 1: as fast as maybe we thought maybe towards the end
Speaker 1: of last year. Is that kind of what you think
Speaker 1: this Federal Reserve is looking at. I think it looked
Speaker 1: like there was a deceleration happening towards the end of
Speaker 1: last year, and then January data indicated that the deceleration
Speaker 1: was not decelerating at quite the same pace as we
Speaker 1: might have seen previously. So, you know, higher inflation as
Speaker 1: a challenge, and the fact that FED funds rate is
Speaker 1: still well below the core piece core CPI. It's a
Speaker 1: challenge for the markets that I don't think we've got
Speaker 1: to close that gap before we can see meaningful progress. So, Eric,
Speaker 1: as you talk to your institutional investor clients kind of
Speaker 1: what's the conversation centering on today. Is it just the
Speaker 1: FED or is there something inn immunity space specifically that
Speaker 1: maybe gets your attention gets attention to some of your clients.
Speaker 1: I think it's a combination of things. So, you know,
Speaker 1: first off, everyone is sort of vexed by the lack
Speaker 1: of primary supplying the market. You know, that's obviously a
Speaker 1: huge challenge because we're so technically driven, but you sort
Speaker 1: of compounded on top of that is just sort of
Speaker 1: this uncertainty where credit and credit spreads are going to
Speaker 1: go for the duration of the year. You know, one
Speaker 1: of the things we're paying attention to. And we had
Speaker 1: Nick Bloom from Stanford University during our podcast last month
Speaker 1: to talk about the challenges that cities are still having
Speaker 1: with a good amount of people still working from home.
Speaker 1: You know, either full time or part time on a
Speaker 1: hybrid basis. And now you just had a headline come
Speaker 1: out this morning about Amazon canceling plans for their second
Speaker 1: headquarters in Virginia as a result of sort of those trends.
Speaker 1: So definitely like something that we're keeping an eye on, Chris,
Speaker 1: in terms of you know, demand, what's it look like
Speaker 1: this year after the horrible, no good, very bad twenty
Speaker 1: twenty two and is there going to be enough to
Speaker 1: supply to satisfy it? You know, I think that's a challenge,
Speaker 1: and that's why we're seeing ratios where they are. Demand
Speaker 1: is still relatively strong. Fund flows and the ETFs have
Speaker 1: as a barometer for that are kind of flatish versus
Speaker 1: last year there was a pretty pretty decent liquidations from
Speaker 1: those types of funds, which are a good way to
Speaker 1: look at the market in terms of demand. And so
Speaker 1: you know, flatish demand versus really light supply down thirty
Speaker 1: percent so far year over year in twenty twenty two,
Speaker 1: and that's not a good dynamic to be able to
Speaker 1: have from a supply standpoint. So let's even say steady
Speaker 1: demand versus much lighter supply, there's plenty of demand to
Speaker 1: eat it up and that's why ratios are so low.
Speaker 1: And you know, one of the interesting things as a
Speaker 1: result of that is seeing is the treasury curve we
Speaker 1: know is inverted, but for the first time in forever
Speaker 1: for those that are Disney fans, the municipal ield curve inverted.
Speaker 1: And that's that's whatever happened. Yes, So that is a
Speaker 1: unique dynamic that has not happened before, and that just
Speaker 1: indicates the strong demand on the front end of the
Speaker 1: muni for vapor the first time in forever. Music they'll
Speaker 1: be fun boy, get it all here, And who's got
Speaker 1: the two year old in this studio? I guess we
Speaker 1: can tell. Hey, Eric, what little I know about the
Speaker 1: taxabotle municipal bond market I've learned from you in your research.
Speaker 1: What's the outlook for taxable muni market this year? I mean,
Speaker 1: pretty dismal from a supply standpoint, if you can imagine,
Speaker 1: we made so much volume, you know in the beginning,
Speaker 1: you know, stages of the pandemic, just because rates were
Speaker 1: so much lower, and a lot of the activity the
Speaker 1: keen in taxable muni states was refunding of tax exam bonds. Really,
Speaker 1: you know, we're trying to take economic advantage of that
Speaker 1: trade has totally gone away, and supply has gone with it.
Speaker 1: You know, you're looking down almost like seventy percent year
Speaker 1: of a year basis for supply. And again you know
Speaker 1: you're talking taxible MUNI rates tied to treasury rates. It's
Speaker 1: attractive from a buying standpoint, but the challenge is finding
Speaker 1: those bonds to buy. Why is there thirty percent decline,
Speaker 1: Chris in supply here? Is it just because interest rates
Speaker 1: have risen? Because I've I've been told that, true, they
Speaker 1: don't really care about rates exactly. They issue money, They
Speaker 1: issue bonds when they need the money. We need to
Speaker 1: get Joe Meisek in here, because he's been telling us
Speaker 1: this for years. So yeah, I thought, like, they don't
Speaker 1: even care what the rate is. Whenever they need the money,
Speaker 1: they issue the bonds. It's not like what Paul used
Speaker 1: to tell his clients, you know, get the money when
Speaker 1: you can, not when you need it. Muni's you know,
Speaker 1: towns and cities they're dumb. They don't do that. They
Speaker 1: do when they don't. I think you know, you're looking
Speaker 1: at it the way that when there's a really big shock,
Speaker 1: you know, the markets in general, and look at issuers
Speaker 1: as well. They don't like indecision, they don't like volatility,
Speaker 1: and so they just step back and say they can push,
Speaker 1: you know, kick the can down the road a little bit,
Speaker 1: and they don't need to borrow today with the higher
Speaker 1: interest rate, and they're hopeful that things can improve for
Speaker 1: them and they can borrow it better rates down the road.
Speaker 1: They might be willing to do that, and that in
Speaker 1: the phase of a challenging environment with a lot of
Speaker 1: volatility just scares them. And so just think of them
Speaker 1: not wanting to step into it when there's volatility is
Speaker 1: one way I tend to look at it. Hey, Eric,
Speaker 1: credit quality here, we've I guess since in the last
Speaker 1: several years, we've had no credit quality issues out there
Speaker 1: generally speaking. I mean, there's been so much liquidity from
Speaker 1: the federal government out there in the marketplace. Is that
Speaker 1: still the case here? I mean, do you even run
Speaker 1: recession models for some of these issuers? Oh, we have
Speaker 1: tons of models. We're running them all the time now.
Speaker 1: I mean, they did look these cities, states, counties. They've
Speaker 1: had a ton of cash the first year and a
Speaker 1: half two years of the pandemic, but they've they've sort
Speaker 1: of worked their way through that, and to sort of
Speaker 1: add on to la Chris said, you know, some of
Speaker 1: this lack of supply has been them having these stock
Speaker 1: pads of cash they hadn't really needed to access to
Speaker 1: market in times of higher rates. That's sort of running
Speaker 1: out now right. They're on the clock, and we might
Speaker 1: actually see them being forced to issue into a higher
Speaker 1: rate environment when they don't really want to, which will
Speaker 1: be you know, obviously like eighteenful situation, because it's just
Speaker 1: going to translate into you know, higher taxes to trickle through.
Speaker 1: You know, we're not predicting anything from a default standpoint,
Speaker 1: but they're always just the you know, the thread of
Speaker 1: spread widening as credits offtens through the rest of the year.
Speaker 1: Oh we even saw Illinois get upgraded a few weeks ago,
Speaker 1: So who knows what's going on up there? All right,
Speaker 1: that was fun a municipa bond round table, that is
Speaker 1: absolutely it was Max. I mean Max's been calling for
Speaker 1: that for the longest time, folks. We finally got it together.
Speaker 1: Eric Kazaski, senior municipal strategists out of prison and wait, Chris,
Speaker 1: where are you a Wayne, New Jersey? Beautiful Wayne? So
Speaker 1: if I wanted to ask, if you do you want
Speaker 1: to go to Brooklyn Bolden night and see a dead
Speaker 1: cover band. I wonder if it wasn't for the commune.
Speaker 1: There you go. Chris Bergotti, Managing Director, Senior VP of
Speaker 1: Municipal Investments at Valley National Bank, talk at all things
Speaker 1: munis there. How fun is that? Paul and I have
Speaker 1: a guest in studio who runs what I think is
Speaker 1: one of the most fascinating businesses that we've talked about
Speaker 1: in a long time. Ali ben Elmadanni joins us. He
Speaker 1: is the CEO of ABL Aviation, and this is a
Speaker 1: company that buys planes for airlines, I mean big planes,
Speaker 1: um not you know, little private jets, and then leases
Speaker 1: them back. So he has a bird's eye view of
Speaker 1: the airline industry and the crunch we're experiencing now in
Speaker 1: terms of capacity, which results of course in higher prices.
Speaker 1: How is that going to go in the coming months
Speaker 1: and years? Ali, thanks so much for joining us. Pleasure
Speaker 1: having you in the in the studio. Um, what do
Speaker 1: you how do you view the aviation industry right now?
Speaker 1: We've been talking about the bounce back in travel across hotels,
Speaker 1: cruises and airlines, We've seen planes packed to full capacity
Speaker 1: here in the US, and now we have Europe not
Speaker 1: doing as badly as we thought it would, plus China reopening.
Speaker 1: What does that mean for you? Thank you, thank you
Speaker 1: so much about you on well, a big shortage of
Speaker 1: supply of aircrafts. And you see that's all the flights
Speaker 1: that are going, knowing Europe and Americas are all full.
Speaker 1: The demand is very high. Everybody is sultling. And that's
Speaker 1: without Asia being fully opened. So just with America and Europe,
Speaker 1: there's a big demand for flying and you see it
Speaker 1: into piles of tickets going higher and all the flights
Speaker 1: being fully booked. You don't have enough supply of aircraft
Speaker 1: to all the airlines. So there's shortage and the slowdown
Speaker 1: of supply of aircrafts. Why not enough supply? Is it
Speaker 1: because the airlines stopped putting in orders over COVID? Is
Speaker 1: it because they parked aircraft that they haven't been able
Speaker 1: to get back yet? Is it? Is there some other reason?
Speaker 1: Why is there a shortage on the supply side? Because
Speaker 1: I'm sure Boeing and Airbus are willing to make as
Speaker 1: many as they can. Well, Bowling and Airbus are producing
Speaker 1: as fast as they can, but then as producing enough.
Speaker 1: There's delay on both Bowling and Airbus, which had supply
Speaker 1: chain problems, just like the carmakers. Yes, so they had
Speaker 1: a big supply changine COVID issues and they're fixing it,
Speaker 1: but there's a delay on us. In addition to that,
Speaker 1: the demand is so high. We didn't expect that the
Speaker 1: demand would be so high after COVID, and that's without
Speaker 1: even Asia being open. That's they so much demand of
Speaker 1: people flying all over the world that didn't fly for
Speaker 1: two years or three years all flying again. And I'm
Speaker 1: sure like people like you are going on vacation like before,
Speaker 1: going on much more flying on the country. And if
Speaker 1: you fly like a Vegas New York, all the flights
Speaker 1: are full and there's a big demand. Voice when you
Speaker 1: get it, when you believe it would have that supplying
Speaker 1: demand will come back into balance a little bit more.
Speaker 1: When do you think that will occur? Well, it's not
Speaker 1: happened in my personal view for the next twenty four months,
Speaker 1: because Asia is not open yet, so Evan would just
Speaker 1: America and Europe being at full speed. We see that
Speaker 1: there's a huge demand the moments. If we assume that's
Speaker 1: maybe America and Europe is going to slow down a
Speaker 1: little base. Then you have all of the demanda from
Speaker 1: Asia that's going to happen, and this will keep on going. Wow.
Speaker 1: So this kind of goes the Airbus and Boeing. That's
Speaker 1: the production site we're talking about earlier, all the stories
Speaker 1: at the beginning of the pandemic airlines taking the planes
Speaker 1: and parking them in the desert in Arizona or whatever.
Speaker 1: By the way, which airlines do you supply a at
Speaker 1: abl We have few Alnes and do us who have
Speaker 1: a making airlines? We have Delta, we have Alaska, as
Speaker 1: we supply in Europe. We have Lifton's Air francel in Israel,
Speaker 1: so different airlines as we provided. As an aside, I'll
Speaker 1: tell you that for years Paul thought that the picture
Speaker 1: of the man on the tail of an Alaska airliner
Speaker 1: was Jerry Garcia the Great Debt, and then he realized
Speaker 1: eventually that it was an Escama. Yes, well into my adulthood,
Speaker 1: I thought that, which is an amazing all right, I
Speaker 1: park a plane in the desert. Why can't I just
Speaker 1: if the man picks up, just go start it up
Speaker 1: again and put it back, Which they all did write
Speaker 1: a lot of your customers during COVID said listen, uh,
Speaker 1: you know that we're releasing planes from you. We're gonna
Speaker 1: park them in Arizona for a while, some of them
Speaker 1: in buckets. But you need to make those aircuffs air
Speaker 1: water again, so like to make its air water, it
Speaker 1: takes time. You have to have a check in what
Speaker 1: we call an l facilities, so mantenance over whole facility.
Speaker 1: But there's no spots, like there's a shortage of spots
Speaker 1: in all those but there's a delay. Everybody is going
Speaker 1: back to those amables to have those aircrafts airwards. You
Speaker 1: or to have those checks, and there's not enough space
Speaker 1: for all those aircrafts. So you have I mean, you're
Speaker 1: basically sitting pretty right now in terms of your business.
Speaker 1: You're a happy man. Not well. Yes, if you have
Speaker 1: naked aircraft, you can lease them at a high powers today,
Speaker 1: but you have to remember that there's in a case
Speaker 1: of answer state that's happened in the last few months
Speaker 1: that will have an impact on the leasers and the
Speaker 1: cost of financing that has not been implemented yet. So
Speaker 1: the least rates of all those leasers that have been
Speaker 1: leased to airlines is not seeing yet, so you have
Speaker 1: to adjust for those new ancestais environments, for this new
Speaker 1: cost of financing. And that's just happening now. So it's
Speaker 1: just starting, so I would be a happy man into amount.
Speaker 1: How do you anticipate, how does the industry anticipate they're
Speaker 1: reopening a China to impact kind of just the global
Speaker 1: aviation market and over what time frame? Well, the moments
Speaker 1: that we are going to have a full opening of Asia,
Speaker 1: not only Channel as Asia. You are going to see
Speaker 1: all those people like what's happened in America, what's happening
Speaker 1: in Europe. The first thing you did when COVID was
Speaker 1: the way it said, I want to go on the
Speaker 1: flight to Piace. I want to go to see Venice.
Speaker 1: I want to see what I couldn't see anymore. Because
Speaker 1: COVID is gone, you're going to have the same thing
Speaker 1: from Asian people as I want to see New York,
Speaker 1: I want to see Vegas like there's no more you
Speaker 1: can finally go back to Tokyo for example, exactly. So
Speaker 1: then you are going to have big demand, and that
Speaker 1: demand you need to supply aircraft for that. You need
Speaker 1: to supply good roots for that and there will be
Speaker 1: a huge demand for it. In terms of one are
Speaker 1: the other things that you care about? I mean fuel prices,
Speaker 1: they haven't gone up substantially yet. I've been watching at
Speaker 1: least you know, Brent crude and it hasn't been boosted
Speaker 1: so much by the reopening in China yet. Well, it's happens.
Speaker 1: But you have to remember that the cost of most airlines,
Speaker 1: one sort of the cost is fueled, and some of
Speaker 1: them did hedge, some of them did hedge. But as
Speaker 1: long as the fuel stays where it is, we have
Speaker 1: enough demand to make sure that airlines in very good health.
Speaker 1: So airlines are very very happy today. If you look
Speaker 1: at the ticket prices versus before COVID, it's almost three
Speaker 1: times where it's used to be. So that's due to
Speaker 1: the demand supply issue. What's the biggest challenge right now
Speaker 1: for your business? The costs of finance in the cost
Speaker 1: of debt because of a is going and the inflation
Speaker 1: is going to be one of the big issues. Are
Speaker 1: you a big borrower? Are you have a lot of
Speaker 1: debt to finance your aircraft? Well before ants in case,
Speaker 1: we used to boil lots of money to finance aircrafts.
Speaker 1: I know in the last twelve months with the ants
Speaker 1: in case while doing most of our aircrafts, that's one
Speaker 1: hundred percents equity and with the ideas to back lover
Speaker 1: lets on. Where do you get the equity? Well, one
Speaker 1: of our biggest partners, the Japanese Big House in Japan,
Speaker 1: is one of eques partners, and we have two partners
Speaker 1: here in the US. Interesting, Okay, it is a fascinating business.
Speaker 1: I have to say, uh, And we could spend like
Speaker 1: an hour talking with you about this. So I hope
Speaker 1: you come back or we could go so so Ali
Speaker 1: has just moved to Marrakesh, if we can share that,
Speaker 1: and Paul is like on eBookers right now booking his
Speaker 1: next flight. I honestly really want to go there, and
Speaker 1: you can go there from my brother just went there.
Speaker 1: I think it would be a great place to take
Speaker 1: a motorcycle trip, like I want to go there, get
Speaker 1: a BMW like a GS twelve fifty and just ride
Speaker 1: around Morocco. I would love to have you though, love
Speaker 1: to have you Mudcas. I love you a great when
Speaker 1: I get there, exactly. Ali ben Lemnadi, CEO of ABL Aviation,
Speaker 1: Thanks for listening. To the Bloomberg Markets podcast. You can
Speaker 1: subscribe and listen to interviews of Apple Podcasts or whatever
Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
Speaker 1: at Matt Miller nineteen seventy three. And I'm false Sweeney.
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
Speaker 1: can always catch us worldwide at Bloomberg Radio