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. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. It's a dramatic intervention
Speaker 1: to staaloff and imminent crash in the guilt market. My
Speaker 1: pledging unlimited purchases along dated bonds. But isn't that kind
Speaker 1: of a cross currents with Prime Minister list trust tax
Speaker 1: cuts bill that was just recently announced kind of whip
Speaker 1: sawing markets. Um, you know, over the last several days,
Speaker 1: we want to get a little bit of perspective about
Speaker 1: what's happening on the trading floors around the world. Vince
Speaker 1: Cignarella joins his global macro strategist with Bloomberg News. Vince,
Speaker 1: what do you make of what's coming out of our
Speaker 1: good friends over in London quantitative easing? No, No, this
Speaker 1: was all taken up basically because of the pension issued.
Speaker 1: UH pensions have taken a beating on this moving bonds Uh,
Speaker 1: there were some questions about liquidation and liquidity issues. So
Speaker 1: the b if you really just stepped in to protect
Speaker 1: the pension funds, um and as one treasury uh trade
Speaker 1: or friend of mine st today is the b V
Speaker 1: essentially engaging in yield curve control by another name, similar
Speaker 1: to the Bank of Japan moves of later and you
Speaker 1: could argue that that's realisted. What's going on. I'm looking
Speaker 1: at the long end of the curve here down a
Speaker 1: hundred basis points in yield. Yesterday we went over five
Speaker 1: on the UK thirty year. Today we're under four. That
Speaker 1: kind of move um looks like panic. Well, you know
Speaker 1: it's the it's the same situation. It is because the
Speaker 1: pension funds are out in the long end, so that's
Speaker 1: where the banking is playing. Um. It's almost an operation
Speaker 1: twist if you will, um as to what they're doing
Speaker 1: the stabilize the race situation. You know, what does it mean?
Speaker 1: What does it mean? Vince? If you're a trader, If
Speaker 1: you're a trader who bought the thirty year guilty yesterday,
Speaker 1: I guess you're in pig heaven. But if you are short,
Speaker 1: if you went short them yesterday, Um, you're closing up shop. Yeah, absolutely, no,
Speaker 1: that's this is uh, this is a very uh, this
Speaker 1: is a rip your face off kind of moves. Say
Speaker 1: on the street, if you were if you decided you
Speaker 1: were going to short that market yesterday. Um. But you know,
Speaker 1: it's it's a little bit of you know, fiscal irresponsibility
Speaker 1: as to what was happening prior to today and what
Speaker 1: the markets were spanking the pound and that market yesterday
Speaker 1: aggressively because they don't like what the what the the
Speaker 1: fiscal policy is about cutting taxes and increasing spending, while
Speaker 1: the Bank of England is talking about raising two bases
Speaker 1: points to try to fight installation. It's you've got the
Speaker 1: Treasury Department and the and the Bank of England working
Speaker 1: at odds, which is an almost emerging market kind of crisis.
Speaker 1: You you've taken a cheap tank jeep ten country and
Speaker 1: you've thrown it into em almost. I mean, how often
Speaker 1: in developed markets do um bond yields move one full
Speaker 1: percentage point in the space of like twenty minutes. Vince,
Speaker 1: are we highly highly a luxe Vince, are we gonna
Speaker 1: get parity with the pounds, sterling and dollar because the
Speaker 1: pound hasn't exactly strengthened. We're at one oh six ninety
Speaker 1: seven right now. I think the currency is very much
Speaker 1: in danger of a collapse. I think, you know, what
Speaker 1: depends on on what the what the Bank of England
Speaker 1: does next. I mean, you know, the Bank of Thing
Speaker 1: and raising rights now to try to defend the pound
Speaker 1: is going to make situation worse. It's gonna look like
Speaker 1: the Sorrows era where markets are going to see the
Speaker 1: banket thing in a panic mode trying to protect Sterling,
Speaker 1: trying to protect the currency by raising rates, and the
Speaker 1: market is going to take that, you know, a bit
Speaker 1: between their teeth and see this as an opportunity to
Speaker 1: push them to see how far they can go, because
Speaker 1: there's only so far they can raise rates to try
Speaker 1: to protect the pound. When you have more motgage rate
Speaker 1: um mortgages uh going back to being marked up, and
Speaker 1: you know what does that do to the consumer? You're
Speaker 1: giving them money in a tax cut, but then you're
Speaker 1: taking it away by higher mortgage rates. So it it's
Speaker 1: it's literally like throwing money into the fireplace. It just
Speaker 1: doesn't help you. I'll remind our listeners that you know
Speaker 1: here in the US, you get a thirty year fixed
Speaker 1: mortgage in the UK. Often um the mortgage you get
Speaker 1: us for less than ten years. So you I think
Speaker 1: there are one point eight million people in the UK
Speaker 1: who need to refy their mortgages this year. Still, Yeah,
Speaker 1: tough situation going from zero to you know, well maybe
Speaker 1: they had a three percent rate and now they're looking
Speaker 1: at like nine. So Vince, coming back to this side
Speaker 1: of the ocean, Federal Reserve, they look at all this
Speaker 1: global uncertainty, they look at kind of the instability coming
Speaker 1: out of Great Britain, one of our biggest partners. Does
Speaker 1: that influence them at all? Well, I think they have
Speaker 1: to keep this in mind because you have the same
Speaker 1: similar situation here in the US. You've seen the stock
Speaker 1: markets drop some what orse um, does that put pressure
Speaker 1: on US pension funds. It's very likely you're probably going
Speaker 1: to see another round of earnings that are are not
Speaker 1: going to look too rosy because of the moving a dollar. Um.
Speaker 1: You know, I wouldn't be surprised if we took a
Speaker 1: run at one double ow and sterling that that would
Speaker 1: be you know, the curtain call, if you will, for
Speaker 1: the global central banks or the G ten central banks.
Speaker 1: Uh to step in and do some coordinated intervention because
Speaker 1: part of the problem too it will stronger dollar, is
Speaker 1: that that that weekends. You know that that lessons prices
Speaker 1: on imports, um and and put potentially makes the inflation
Speaker 1: situation worse for than set suset as well. All Right,
Speaker 1: It's very interesting, and I also wonder if people on
Speaker 1: the wrong side of the trade have to sell treasuries,
Speaker 1: if energy importers have to sell treasuries, if the Bank
Speaker 1: of Japan has to sell treasuries, or the Finance ministry
Speaker 1: to show up their currency. All right, Vin Signarella, good stuff.
Speaker 1: Appreciate a macro strategist for Bloomberg. Give us a sense
Speaker 1: of just kind of what he's hearing on the street
Speaker 1: from bond traders, currency traders, and you know a lot
Speaker 1: of uncertainty, particularly coming out of the UK with what's
Speaker 1: been happening over there over the past early three or
Speaker 1: four or five days, just putting a lot of uncertainty
Speaker 1: into the markets. Let's check in with Katarina sem and Eddie.
Speaker 1: She's a senior VP at Morgan Stanley Private Wealth Management. Katarino,
Speaker 1: what are the phone calls that the incoming calls you're
Speaker 1: getting from your clients, any any themes emerging to you
Speaker 1: uh this year, Well, this has certainly been a challenging
Speaker 1: year and a challenging market, and investors are concerned and
Speaker 1: the phone calls were getting uh, you know, just really
Speaker 1: you know, the vocalize this year that that investors are
Speaker 1: you know, experiencing looking at their portfolios being down so much.
Speaker 1: And what has been unusual about earlier in the year
Speaker 1: is that it wasn't just the stocks that were down,
Speaker 1: at the stocks and bonds that were down. So investors
Speaker 1: are looking for the guideline from us, you know, as
Speaker 1: far as what they should do, and what we're recommending
Speaker 1: is above all to not fear cell because as easy
Speaker 1: as it is to you know, to to be concerned about,
Speaker 1: you know, all of the markets, you know, in our view,
Speaker 1: there is an end inside where nearing the end of it,
Speaker 1: the well they're they're they're absolutely could be, and sometimes
Speaker 1: things are worse before they get better. And in our view,
Speaker 1: the biggest risk to the market are the earnings declining
Speaker 1: earnings and the earnings revisions that you know, we see
Speaker 1: ahead because the reality is that we're most likely going
Speaker 1: to have poor inflation remain high for some time market
Speaker 1: is already pricing in the interest rate increases, you know,
Speaker 1: but with earnings revisions that are not done yet. You know,
Speaker 1: this is that next leg down that we are expecting
Speaker 1: towards the end of the year. But this is again
Speaker 1: not to say that we are bearish in the long run,
Speaker 1: but I mean, we're looking for this. I think the
Speaker 1: median is for two dollars a share SMP meeting SMPUM
Speaker 1: five hundred year end EPs. What are you what are
Speaker 1: you looking for? Well, the question is you know what
Speaker 1: kind of recession we're going to get. I think the
Speaker 1: consensus is that we most likely are going to get
Speaker 1: the economic recession. And if it's going to be a
Speaker 1: mild recession, we probably are going to end the year
Speaker 1: at a sumwhere around thirty four hundred and the SMP.
Speaker 1: But if if it's more of a severe recession outcome,
Speaker 1: you know, we might be looking at three thousand, you know,
Speaker 1: And it's hard to predict these things because you know,
Speaker 1: of course, there is a certain amount of lag between
Speaker 1: the FED action and the desired outcome. And you know,
Speaker 1: the what we're all questioning right now is that truly
Speaker 1: going to be data dependent? You know, as we rely
Speaker 1: on them to be or will they react to the
Speaker 1: pressures of the market, you know, and continue tightening, you know,
Speaker 1: and as a result push us to the economic recession.
Speaker 1: All right, to have a programmed question here that I've
Speaker 1: written to myself that a couple of days um. And
Speaker 1: this comes from a long time listener. I thought it
Speaker 1: was very smart. He said, last year's inflation is transitory.
Speaker 1: Is this year's short and set and shallow recession? Um?
Speaker 1: What changes short and shallow? Too long and severe? What's
Speaker 1: what's that hinge on? Well? I think that that's where
Speaker 1: the risk or federal reserve overshooting or raising rates too much,
Speaker 1: you know, because we're not seeing the desired reaction from
Speaker 1: the inflation. That's where that comes in, because we have
Speaker 1: to allow some time between the rate hikes and an
Speaker 1: inflation coming down, you know. But the the current economic environment,
Speaker 1: you know, has so many pressures. The cost of doing businesses,
Speaker 1: high profit margins are getting narrower. Consumers are reluctant to
Speaker 1: spend money on most things outside of poor necessities, you know,
Speaker 1: unless you know, you're looking at travel and entertainment, which
Speaker 1: is like natural in the post COVID environment now. But
Speaker 1: this is really the you know, the time where negative
Speaker 1: earnings and re visions that we're expecting over the next
Speaker 1: couple of quarters take the central stage, because ultimately, once
Speaker 1: the earnings are revised, it will be possible for the
Speaker 1: u S company to meet earnings and exceed earnings, which
Speaker 1: is going to be the pivot that we're looking for
Speaker 1: into the next bowl market. But we're not quite there yet.
Speaker 1: So are you. If an investor comes to you with
Speaker 1: new money, what do you do with it? Well, with
Speaker 1: new money currently understanding the risks and understanding you know,
Speaker 1: what is ahead of us. You know, we would dollar
Speaker 1: cost average into the equity market. We definitely would recommend
Speaker 1: staying invested, but we will pivot and lean towards the
Speaker 1: defensive sectors. Sectors like healthcare, utilities, consumer staples, and reads
Speaker 1: all given in paying stocks because income is extremely important
Speaker 1: in this inflationary environment. You know. The other thing to
Speaker 1: consider is relative to bonds, stocks are pretty expensive. But finally,
Speaker 1: unlike earlier in this year, there is a little bit
Speaker 1: of a safe haven in fixed income is actually in
Speaker 1: short term high quality UM corporate bonds and treasuries. We
Speaker 1: can get significant amount of yield in these sectors. And
Speaker 1: you know, if there is an argument to be made
Speaker 1: for a safer acid allocation while we get through this
Speaker 1: challenging bolatile UH cycle in the market, you know that
Speaker 1: that makes sense for a lot of investors here, all right,
Speaker 1: Katerine and good stuff. Always appreciate getting your perspective, Katerina
Speaker 1: semineity Uh, Senior VP at more Extantly Private Wealth Management. Well,
Speaker 1: I've always said trading biotech stocks is a tough way
Speaker 1: to make a living. You really have to be right.
Speaker 1: I mean, if you're right, you make a lot of money,
Speaker 1: but boy, if you're wrong, you'll lose a lot of money.
Speaker 1: Here on these new drugs, today is a good day
Speaker 1: for Biogen and it's Japanese partner ISI. Stocks are both surging.
Speaker 1: At Biogen up about thirty six percent today. They had
Speaker 1: some good news on one of their trials about one
Speaker 1: of the Alzheimer's drugs. And to give us the latest
Speaker 1: is Robert Langworth. He covers all things biotech healthcare for
Speaker 1: Bloomberg News. Robert talked to us about what bio jen
Speaker 1: and Isai are are are doing today, what they're drug
Speaker 1: is and kind of what we learned today. Yeah, so
Speaker 1: this is a trial I mean actually run by a
Speaker 1: SI as I did this trial, in charge this trial
Speaker 1: and did this trial. Uh it's in partnership with Biogen,
Speaker 1: but as I was really running in biogeneral, I think
Speaker 1: would get half of the profits as far as long
Speaker 1: standing collaboration. But basically, this is a drug to remove amyloids,
Speaker 1: this toxic protein for the brains Alzheimer's patients. And drug
Speaker 1: company has been trying to do this uh uh for
Speaker 1: many years and have tested all sorts of other drugs
Speaker 1: to do this, and all the previous trials of other
Speaker 1: drugs for amyloid of generating their mixed mixed results are
Speaker 1: failed entirely in trials, so they've been working on years
Speaker 1: and years with little success. You may remember that Biogen
Speaker 1: itself had another drug that was actually approved called aji Helm.
Speaker 1: It was actually approved in one of the most controversial
Speaker 1: u S approvals and history uh and it was another
Speaker 1: emoid drug with the and but then Medicare refused to
Speaker 1: cover it because the results of that. Their trials are
Speaker 1: kind of contradictory and no one could figure out whether
Speaker 1: it worked or didn't work. So now this trial is
Speaker 1: another amyloid lowering drug under the Biogen a side partnership.
Speaker 1: But this one, as I said, aside was kind of
Speaker 1: was was leading the charge on and this trial was
Speaker 1: the first trial then emily lowering drug to show it
Speaker 1: kind of a clearly uh clearly statistically positive effect and
Speaker 1: slowing cognitive decline. Like I've heard it described as like
Speaker 1: a plaque plaque on your brain. Yeah, there's kind of
Speaker 1: a kind of four mittle plaques in the brain. No
Speaker 1: one is exactly sure how they are toxic. It's thought
Speaker 1: to be toxic. It's one of the leading kind of
Speaker 1: theories of Alzheimer's. Uh everything about alzremers of controversial, but
Speaker 1: this is kind of one of the leading theories. So
Speaker 1: basically it appeared in this very big trial, this new
Speaker 1: director show you know, a a small positive effect that
Speaker 1: it appears to be kind of quite modest. It's like
Speaker 1: zero point five, zero point four or five points from
Speaker 1: the eight point scale. So they think the big debate
Speaker 1: next is going to be like how clinically meaningful you know,
Speaker 1: is this? But you know, everyone thinks this is enough
Speaker 1: to get approval. Side question kind of why do they
Speaker 1: give these drugs such bad names? Ad you helm was
Speaker 1: the last one? What's this one? Called it's similarly unpronouncing. Well,
Speaker 1: this is a generic name, is Lacannon, mab map stands
Speaker 1: or monocola antibody. But but it's gonna get it. If
Speaker 1: it's approved, it's going to get a brand name. And
Speaker 1: we don't know what that's gonna be, so it could
Speaker 1: be another incomprehensible brand name, you know, who knows. Is
Speaker 1: that a strategy though? Is that part of the marketing strategy?
Speaker 1: Like if you can't pronounce it and you can't remember
Speaker 1: what it is, then you must think it's gonna work. Yeah,
Speaker 1: I don't know where they come up with these names.
Speaker 1: You know, drug companies lots, you know, like come up
Speaker 1: with names, lots of xs and zs in them, you know.
Speaker 1: And I think they've spent spent a lot of money
Speaker 1: consultants to come up with the name. So how they
Speaker 1: do it, that's just the mystery. So Robert, I see
Speaker 1: this stock, this Biogen stock. It's a forty billion dollar
Speaker 1: market cap stock. It's a thirty six day That tells
Speaker 1: me that this is a breakthrough drug. But you're telling
Speaker 1: me it's not really, or that there are a lot
Speaker 1: of punters in in bio tech. I think, yeah, I guess,
Speaker 1: I mean this move and the stock tells me that
Speaker 1: this is radical, and it's not radical, is it. It's
Speaker 1: a step along the way, so like so yeah, the
Speaker 1: step along the way. But you know, they haven't had
Speaker 1: really any clear cut steps all in the way, and
Speaker 1: it stord of like, you know, all the steps aren't aborted.
Speaker 1: So you know, this is like the first successful trial
Speaker 1: disease felling trial. So in that sense, it's, you know,
Speaker 1: a breakthrough in critical trials, you know, but whether there
Speaker 1: was a patient, it's the medical breakthrough not not so clear. Well,
Speaker 1: they said the they said the use of the drug
Speaker 1: reduces the pace of cognitive decline in people with early
Speaker 1: disease by t over eighteen months when compared to placebo.
Speaker 1: That doesn't sound great, but it sounds better than nothing. Yeah,
Speaker 1: it's kind of like, you know, better than nothing. It's
Speaker 1: it's not so clear whether you know, you and the
Speaker 1: patient of family would even detect the change in the difference.
Speaker 1: I mean, you know, if you think about it, like,
Speaker 1: you know, if you were going to decline, you know, yeah,
Speaker 1: a hundred points in the scale, you're still going to
Speaker 1: decline seventy three points in the scale. That's difference, so,
Speaker 1: you know, but I guess they they're touting the possibility
Speaker 1: that it over a longer period of time, it may
Speaker 1: do even an even better job. Right. Um Um, They
Speaker 1: say that the top line data as strong as it
Speaker 1: can be with high statistical significance across all end points.
Speaker 1: Data doesn't get much cleaner than this in biotech. That's
Speaker 1: according to BEMO Capital Markets analyst Evan Seagerman. You know
Speaker 1: that because you probably wrote the story. But um, yeah, so,
Speaker 1: I mean, this is the first thing I read when
Speaker 1: I woke up this morning. I looked over the headlines
Speaker 1: and I picked this out because it's important to me
Speaker 1: on a you know, personal level, and I think for
Speaker 1: millions of people it's a huge issue. It's a horrible
Speaker 1: disease that affects everybody in the family if one person
Speaker 1: gets it. Yeah, no, it's a very difficult disease. You know,
Speaker 1: the caregiver cost cost of this disease, you know, are
Speaker 1: very very high. And this you know, this drug, you know,
Speaker 1: it doesn't stop the decline. It only you know, slows
Speaker 1: it close it somewhat. And and we don't know a
Speaker 1: lot of these details. All we have right now is
Speaker 1: really just a press release from the company. Is there
Speaker 1: anything else, Robert, Is there a moon shot out there,
Speaker 1: maybe something that attacks the disease differently than just removing
Speaker 1: the plaque from your brain? Um? Is anyone working on
Speaker 1: something that could be better? Yeah, So, coming are working
Speaker 1: on lots of things. Now. One of the hopeful things
Speaker 1: is that there's a much kind of broader array of
Speaker 1: attempts doing different strategies to try to treat the disease. Now,
Speaker 1: it's not all just focused on this one idea amyloid.
Speaker 1: And you know, it seems, you know, clear a lot
Speaker 1: of people are saying that, you know, we'll need to
Speaker 1: make this ultimately more like cancer and attack it from
Speaker 1: like three or four like different drugs at once, using
Speaker 1: that attack three or four different mechanisms, because clearly, you know,
Speaker 1: removing amyloidcase, this drug does a tremendous job at removing amyloid,
Speaker 1: but what you get is this tony seven percent difference.
Speaker 1: So it's clearly, you know, it seems to say that
Speaker 1: that Emily's not the only thing where you're gonna have
Speaker 1: to suggest go after multiple causes and over time, Robert,
Speaker 1: just thirty seconds left in a post COVID world, is
Speaker 1: it easier to get drugs approved or is it has
Speaker 1: that changed at all? Um So you know there's no
Speaker 1: fundamental change. I don't. I don't think in the in
Speaker 1: the in the f days kind of approval strategy as
Speaker 1: a result of COVID that I know of. But you know,
Speaker 1: certainly the the neurology division that has been looking at
Speaker 1: throughout s light the ones for all shimers. They you know,
Speaker 1: they are you know, uh, it seems to me, you know,
Speaker 1: taking an aggressive strategy and you know, and trying to
Speaker 1: you know, get drugs approved. That show begins shows some
Speaker 1: kind of a difference. You know, they approved the biogen
Speaker 1: drug you know, based on bio mark is based on
Speaker 1: emiloid loring alone. This one is the first one. This
Speaker 1: one goes beyond that. It actually shows like a measurable
Speaker 1: critical difference. But it's small, It's really small, all right, Robert, good,
Speaker 1: good stuff. Thanks to that porting. We appreciate it, Robert Langreth.
Speaker 1: I want to bring in our next guest, Alo Tero.
Speaker 1: He's a portfolio manager at Armada E T F Advisors.
Speaker 1: Uh and they've got a US read E T F
Speaker 1: H A U S. Talking about the housing market. We
Speaker 1: had some pending home sales today month on month was
Speaker 1: down two percent. The consensus was for a decline at
Speaker 1: one point five percent, but on a year on year basis,
Speaker 1: that's how I like to look at it. UH came
Speaker 1: in and minus twenty two and a half percent. So
Speaker 1: looks like this housing market rolling over al. Thanks so
Speaker 1: much for joining us here, talk to us about your
Speaker 1: h A U S read E t F and kind
Speaker 1: of kind of what you're trying to do with this
Speaker 1: et F and then love to get also your over
Speaker 1: you just kind of this where we are in this
Speaker 1: housing market. Sure ture's a good good morning. Thanks so
Speaker 1: much for having me. Yes, and our MADA et F
Speaker 1: is a relatively newly formed U advisory firm. Houses are
Speaker 1: first product. UH. We basically have background in UH, in
Speaker 1: the read industry, in the into et F industry, and
Speaker 1: then also in the direct real estate industry. And the
Speaker 1: goal with with house was really UM and our founder
Speaker 1: was looking at about two years ago and it was
Speaker 1: looking for a residential red e t F UM UH
Speaker 1: and he said, g one doesn't exist, maybe we need
Speaker 1: to create one, and that's exactly what what he did,
Speaker 1: and we launched a fund back in March, and again
Speaker 1: it's residential read ets. So it's it is certainly housing
Speaker 1: related to the extent that what goes on in the
Speaker 1: residential read market that's multifamily, uh, single family rental manufactured
Speaker 1: housing certainly a correlation there with the single family housing market. UM.
Speaker 1: But again the goal here is to number one current income.
Speaker 1: Number two hard assets, predictable cash flows, uh, you know,
Speaker 1: attractive dividends that are are growing an attractive rate, strong
Speaker 1: balance sheets, so lots of lots of good characteristics that
Speaker 1: roll up into the residential read market. So what do
Speaker 1: um the flows look like thus far? What are you
Speaker 1: looking at in terms of assets under management? So where
Speaker 1: we're tiny, guys. We we launched back in early March.
Speaker 1: We have a couple of you know, uh several several
Speaker 1: million dollars in the fund right now. We've launched into
Speaker 1: a bit of a volatile environment. I think a lot
Speaker 1: of folks that we're talking to like the like the
Speaker 1: idea residential reaths uh you know at residential real estate
Speaker 1: again broadly defined as I mentioned earlier and not just housing,
Speaker 1: you know, has has been a favorite part of the
Speaker 1: investment landscape at landscape for a very long time. UM. Again,
Speaker 1: rent growth more recently has just been off the charts. Uh.
Speaker 1: Certainly that's starting to moderate, and I think it's a
Speaker 1: good thing. But as we look back over the last
Speaker 1: you know, quarter, two quarters, and we talked to our
Speaker 1: constituent companies, Uh, you know you hear the worst historic
Speaker 1: getting tossed down a lot. We've we've had historic rent growth.
Speaker 1: We've had occupancy levels and and tendant retention, resident retention
Speaker 1: levels that have really just been off the charts, and
Speaker 1: lots of lots of that house to have to do
Speaker 1: with some of the structural change that have gone on
Speaker 1: in the in the market of the last couple of years.
Speaker 1: But we were continuously good demand for this product. I
Speaker 1: can imagine if you'd launched at the beginning of UM,
Speaker 1: you'd just be shoveling out cash, right, But uh, you
Speaker 1: come in at a time, well basically at the peak,
Speaker 1: right when I bought my house, you launched your house, UM,
Speaker 1: and I feel like I got the very top price
Speaker 1: I possibly could have paid, but I did at least
Speaker 1: get a little rate. And now we're looking at mortgage
Speaker 1: rates up over seven percent in some cases. UM, is
Speaker 1: this do you think is this part of the problem
Speaker 1: for house And do you have other products that you're
Speaker 1: gonna that you're looking to launch around this second to
Speaker 1: your answer second question, Yeah, we are looking at other
Speaker 1: products touch launch around this, um, but think the heart
Speaker 1: of the matter, you know, and as it relates to housing,
Speaker 1: and and it's it's a long term investment. You long
Speaker 1: term investment. You recently bought your house. You're gonna hopefully
Speaker 1: be in there on average right right sitting you know,
Speaker 1: you know, fifteen years or so they're about so it's
Speaker 1: a long term investment. Obviously, historically, um HP a house
Speaker 1: price appreciation has been inflationary plus so, so there there's
Speaker 1: a hedge against inflation there. Um. You know, market timing
Speaker 1: is always so so difficult, but we see an opportunity,
Speaker 1: especially when you look at what's going on in the
Speaker 1: housing market and as uh and and and as that
Speaker 1: home prices have gone up so much that really tends
Speaker 1: to also keep residents in apartments longer. And that's I
Speaker 1: think one of the interesting things about what we're seeing
Speaker 1: today in the rental market. Um, there's an affordability problem
Speaker 1: with with home ownership today, and that affordability gap between
Speaker 1: owning and renting makes it still a very attractive proposition
Speaker 1: to rent, and we think that's a proposition that's going
Speaker 1: to certainly last through the end of twenty two and
Speaker 1: most likely into three as well. All Right, Al, good stuff.
Speaker 1: I appreciate you coming on and talk to us about
Speaker 1: the housing market here. Al oh Taro, portfolio manager of
Speaker 1: Armada E. T F Advisors. Uh, looking at you know,
Speaker 1: mortgage rates north of six percent and it's really really
Speaker 1: headwinds for the real estate market after that surge during
Speaker 1: the pandemic. Trust Company of the West the kids now
Speaker 1: call it TCW. It's a monstrous money management firm out
Speaker 1: on the West coast in Los Angeles. A lot of
Speaker 1: really smart people in the equities and fixed income business.
Speaker 1: The fixed income folks that we've talked to TCW from,
Speaker 1: you know, over the last I don't know how long,
Speaker 1: but you know many many quarters been really really conservative
Speaker 1: in their outlooking. Boy have they been right? Uh here,
Speaker 1: double digit declines and most fixed income businesses. Steve Kane
Speaker 1: co c I O in General's portfolio manager with t
Speaker 1: c W, joins us here today. Steve, the fix income
Speaker 1: business is brutal. Nobody wants to talk to you guys
Speaker 1: at cocktail parties. What do you do? What do you
Speaker 1: do now? Good? What do you do now with your
Speaker 1: feather reserve? Is just doubling down on raising these interest rates?
Speaker 1: Well well, guys, actually, even in the good times when
Speaker 1: bonds are doing well, no one wants to talk to it,
Speaker 1: so that this environment is no different from that perspective.
Speaker 1: Is it a buy now? Jeff Goodlock? I believe um
Speaker 1: a tc w alum. He's been buying bonds over the
Speaker 1: last couple of days, at least according to his Twitter,
Speaker 1: but he says it's been partially painful. I guess until
Speaker 1: you know, the last few hours. Yeah, yeah, and uh yeah,
Speaker 1: I think we're seeing a lot more value in the market.
Speaker 1: I'm you know, starting with the idea that fed tightening cycles.
Speaker 1: You know where you were starting this conversation. They're never
Speaker 1: fun there, you know, as I sort of joke with
Speaker 1: some of our folks around here, you you don't know
Speaker 1: they're over, But when you start to taste the bile
Speaker 1: and the back of your throat, you know you're probably
Speaker 1: getting close. And we're we're starting to get to that point. Um.
Speaker 1: But yeah, it's been a brutal market. But you know,
Speaker 1: when you talk about real rates in the mid one
Speaker 1: percent level, and investment great bonds five and a half
Speaker 1: plus percent, agency mortgages pushing six percent high yield almost
Speaker 1: to ten. Uh, those start to look very attractive to us.
Speaker 1: So we've you know, we've been scaling in. You know,
Speaker 1: we're a little bit long duration. You know, we like
Speaker 1: the rate environment. We're not firing all our bullets at
Speaker 1: today's level. We think there could be more volatility, probably
Speaker 1: will be in more pressure upward on rates before this
Speaker 1: is all done. But yeah, we're seeing value. So what
Speaker 1: do you do when you see like, uh thirty year
Speaker 1: guilts yielding five do you start to kind of average
Speaker 1: into that or are the markets too volatile to make
Speaker 1: a call? Do you wait till things calm down? Well,
Speaker 1: we actually got that one right, believe it or not,
Speaker 1: that we we actually yesterday weighted in uh thirty year
Speaker 1: agolts right around five percent and then we sold them today.
Speaker 1: Nice thought. Are these long term buy and hold people?
Speaker 1: What are you talking about? All the trades that went
Speaker 1: the other way? But I'm happy to is the idea
Speaker 1: that basically, when you when you make that much money,
Speaker 1: you don't want to get greedy and you just cash in. Yeah, yeah,
Speaker 1: there's a lot of volatility in the UK is certainly
Speaker 1: not a an area where we have a lot of
Speaker 1: confidence in the in the near term direction of where
Speaker 1: things are heading. But when things get to extreme levels
Speaker 1: like we saw, we know we weren't positive rates, we're
Speaker 1: going to peek out there or there would be intervention.
Speaker 1: That wasn't really the thesis, but the markets do push
Speaker 1: back against policymakers at some point, and that will be
Speaker 1: the case with the currency as well. Vigilantes they're back,
Speaker 1: according to Eduard Denny. So see how about credit quality here?
Speaker 1: You know, a lot of folks are saying we're either
Speaker 1: intercession or certainly heading towards one and maybe be a
Speaker 1: severe one. Your team's your analysts, you know, are they
Speaker 1: really sharpening their pencils and kind of checking out all
Speaker 1: the ratios to make sure that they're not overly exposed
Speaker 1: to credit risk? Yeah, yeah, we are. I mean, I
Speaker 1: think the area is to be very concerned about. I
Speaker 1: think are anything that touches Europe given the degree of
Speaker 1: stress that uh, you know that economy is can be
Speaker 1: under with the energy crisis there here in the US. Um, yes,
Speaker 1: we're definitely sharpening our pencils. There's areas of the market
Speaker 1: regulated areas like banks that we think, you know, notwithstanding
Speaker 1: the fact that banks typically do suffer a bit during recessions,
Speaker 1: we think the banks are well positioned today, and so
Speaker 1: there are areas in the investigrade market where we sharpen
Speaker 1: the pencils. We've stressed. Uh, you know what what credits
Speaker 1: will look like in a recession, even a severe one,
Speaker 1: and feel very comfortable at for example, money Center Bank,
Speaker 1: you know, senior debt of money Center banks north of
Speaker 1: two basis points spread to treasuries. We think that's a
Speaker 1: very attractive risk return. Notwithstanding a fairy fairly bearish outlook
Speaker 1: for the economy, we would do we do think we're
Speaker 1: we're heading for resush. Is it too bearish? Yeah? Druck
Speaker 1: and Miller said he would be. I think he said
Speaker 1: he would be shocked if there wasn't a recession by
Speaker 1: the end of the year, is there, Uh, is high
Speaker 1: yield then too risky right now? Yeah? Well, here's what
Speaker 1: I would say about high yield. You know, as I mentioned,
Speaker 1: you know, almost ten percent yield. If you could buy
Speaker 1: your high yield today, put it in a drawer, you know,
Speaker 1: go do a rumpel steel skin, fall asleep and wake
Speaker 1: up in five years. You'd be happy you did that.
Speaker 1: But HW yield doesn't you know, We're we're in a
Speaker 1: mark to market world, total return world. In our sense
Speaker 1: is that we haven't hit the wide and spreads on
Speaker 1: high yield in this cycle at you know, fifty off
Speaker 1: treasuries or a little north of that. We we think
Speaker 1: there's material widening. We're adding a little bit, we're seeing
Speaker 1: a little bit of opportunity, but we're saving our powder.
Speaker 1: We do think, you know somewhere, you know, hundreds of
Speaker 1: basis points wide to hear is where you start to
Speaker 1: back up the truck. All right, good stuff, as always,
Speaker 1: Steve Kane, co c Io and Generali's portfolio manager t
Speaker 1: c W Investment Management. That meeting plus the Capitol Group
Speaker 1: are your two anchor meetings when you go to Los
Speaker 1: Angeles it Those are the ones that you build your
Speaker 1: whole schedule around that. So you're going out there to
Speaker 1: pitch your wears. TCW and Capitol Group. Thanks for listening
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer.
Speaker 1: I'm Matt Miller, I'm on Twitter at Matt Miller. Three
Speaker 1: pt on False Sweeney, I'm on Twitter at pt Sweeney.
Speaker 1: Before the podcast. You can always catch us worldwide at
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