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
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Speaker 1: at Bloomberg dot com slash podcast. We're gonna get right
Speaker 1: into that energy story in a big way. We're gonna
Speaker 1: roundtable this thing with a couple of smart folks. Fernando Valley,
Speaker 1: he's the senior an also Bloomberg Intelligence. He's been covering
Speaker 1: the oil industry for decades. He's our global view guy.
Speaker 1: Mike mcglowe's senior macro strategists with Bloomberg Intelligence. Our commodities
Speaker 1: guru joins us viafone. Fernando's here in our Bloomberg Interactive
Speaker 1: Brokers studio. So since he's here, he's getting the gold star.
Speaker 1: You get to go first, Fernando. Opec. They surprised me.
Speaker 1: I woke up this morning. I wasn't expecting a production cut.
Speaker 1: What's what's going on with our friends at Opec? Plus
Speaker 1: same here? It moved up the timeline. We were expecting
Speaker 1: that they would do it around the June meeting, which
Speaker 1: is the presential meeting, the larger one, and they moved
Speaker 1: it up to Wednesday. The rumor mill says that muhammadan Salman,
Speaker 1: the Crown Princess of Saudi Arabia, was upset that the
Speaker 1: Biden administration did not do strategic petroleumers of purchases to
Speaker 1: help stabilize the prices, and so they decided to act quicker.
Speaker 1: Why didn't and then that's a little outside here, why
Speaker 1: haven't we built back the spr when there are a
Speaker 1: couple of reasons. First, they had tried to time the
Speaker 1: market to perfection and they didn't. And then even when
Speaker 1: prices dropped below the oil price set, they did not
Speaker 1: make those acquisitions because it was a pre sale of
Speaker 1: the expected sales over the next ten years. They just
Speaker 1: moved it up so they don't technically have to refill.
Speaker 1: But it does seem like they missed a golden chance
Speaker 1: to kind of time the market and create some support
Speaker 1: for the local industry as opposed to foreign industries. Get it, Yeah, No,
Speaker 1: it's it's pretty shocking that they weren't able to do that,
Speaker 1: especially since the price fell at one point below the
Speaker 1: level that they had set right to buy barrels. And
Speaker 1: at the same time President Biden warned there would be
Speaker 1: consequences for a cut that the Kingdom put into place
Speaker 1: last October, right a two million barrel a day cut,
Speaker 1: and those consequences never, as far as we know, came about. Yeah,
Speaker 1: they haven't materialized to tishing. And I think one of
Speaker 1: the problem is if they did make those acquisitions, they
Speaker 1: would have moved the price up a little bit above it.
Speaker 1: The WTI came to sixty six dollars versus a sixty
Speaker 1: eight price, so if they were to purchase that kind
Speaker 1: of level, you would have pushed it back up way
Speaker 1: above seventy dollars. So it was a limited window. But
Speaker 1: I think there was no real commitment, and apparently the
Speaker 1: Department of Energy doesn't have a strategy to make those
Speaker 1: purchases as are. This is what I'm gonna do. I'm
Speaker 1: gonna send Mike McLoone to the pits and just say
Speaker 1: start buying hand over fill. He's been right on his
Speaker 1: his oil podcasts. How does this OPEC movement here change
Speaker 1: your call, which has been these prices going down. I
Speaker 1: think what Fernando said really is scary. The fact that
Speaker 1: if they're going to try to raise prices as we
Speaker 1: tilt towards global recession, as you just saw the ism, manufacturing, employment,
Speaker 1: new orders all came out weaker than expected and below
Speaker 1: fifty as a federal reserves tighten, as o're entering a
Speaker 1: bankering crisis, just just adds to my fear that we're
Speaker 1: entering to the greatest global macroeconomic reset of our lifetime.
Speaker 1: So let's look at w TR right now. It's eighty
Speaker 1: dollars a barrel. It's still down nineteen percent on a
Speaker 1: one year basis, goals up two percent. But the key
Speaker 1: thing is bouncing the upper end of the range. But
Speaker 1: before this happened today, net positions had all been stopped
Speaker 1: out because they're all bullish above a hundred. They got
Speaker 1: stopped on the sixty four. The low this year was
Speaker 1: sixty four. And I think the rational thing for people
Speaker 1: to do now is Okay, this is a bear market.
Speaker 1: We're bouncing and to start selling again to questions how
Speaker 1: that high pick kicks in, because it's there's the macro's
Speaker 1: overwhelming and the key thing, remember Ellen, was this at opec.
Speaker 1: OPEC is always when you have surprise cuts. It's always
Speaker 1: almost always consistent with bear markets. I want to hear
Speaker 1: more about your big concern there because our lifetime where
Speaker 1: were you old? So you're saying this is going to
Speaker 1: be the greatest, the greatest when you say global macroeconomic
Speaker 1: research resets of our lifetime. So I've been writing about
Speaker 1: it for about a year. I've been tightening and printing
Speaker 1: it more on headlines lately, but I had to get
Speaker 1: into a gradually. It's just the classic examples of biggest
Speaker 1: booms in history and the back of liquidity, and then
Speaker 1: the bus come as you take that liquidity away. Now
Speaker 1: you just look at money supply, you look at bank deposits.
Speaker 1: Things are negative things never before just plunging in. The
Speaker 1: FED is still tightening based on backward looking measures of
Speaker 1: inflation that were spiked by them in the first place.
Speaker 1: Because they didn't they waited too long and they cut
Speaker 1: too much. And I'm not blaming them, but it's just
Speaker 1: a classic pendulum singing swing heading the other way. In
Speaker 1: crude olt natural gas was one of the best indicators.
Speaker 1: It's the number one measure of heat, electricity and fertilizing
Speaker 1: this country. It's down eighty percent at two dollars, the
Speaker 1: equivalent price in WTI is closer to forty forty five
Speaker 1: the cost of production in the US. I think that's
Speaker 1: where it's going. And just in the numbers, we saw
Speaker 1: Printon just a few minutes ago. Manufacturing in this country
Speaker 1: and a global basis is negative and central banks are
Speaker 1: still tightening. That's a classic recessionary trajectory. And if you
Speaker 1: see what Anna wants is are chief economists. She said
Speaker 1: her calls for a recession in Q three and now
Speaker 1: she's pushing it closer. Basis point One of the reasons
Speaker 1: that you would be bullish oils because a limited spare
Speaker 1: capacity at OPEC and when you cut what have you
Speaker 1: just made spare capacity, So you're really trying to put
Speaker 1: in a floor to the price as opposed to make
Speaker 1: its spike. And so this is a tug of wars,
Speaker 1: Mike was saying, between interest rates and the FED trying
Speaker 1: to contain the overheating of the economy, and then other
Speaker 1: sides like OPEC trying to steer more inflation in higher prices,
Speaker 1: and so far demand seems to be winning, or like
Speaker 1: lower demand. I should say, yeah. But by the way, Mike,
Speaker 1: if you want to sell that book, I'm going to
Speaker 1: say change global macroeconomic reset. You got to say something
Speaker 1: that people understand, because I still don't know exactly what
Speaker 1: that is. If you say, you know, the greatest financial
Speaker 1: crisis of our lifetime, that book I'm buying good well.
Speaker 1: I expect to be you know, I expect to be
Speaker 1: writing the history Sunday and leaving it right now. You
Speaker 1: never really realize when you're middle of it. When you
Speaker 1: point out these facts, and if you study the history
Speaker 1: of booms and busts and supplying and contraction and coming
Speaker 1: on with liquidity, it's we're in one of the most
Speaker 1: severe cases of liquidity contraction ever. Now. The key point
Speaker 1: is we have a banking crisis, that's clear, and what
Speaker 1: cause that banking crisis is still Actually it's accelerating. The
Speaker 1: FED raised rates just what a week ago the ECB
Speaker 1: did the Bank of England. That's what's making it worse.
Speaker 1: And you know, the key thing that's the trigger is
Speaker 1: the stock market probably needs to go down. And good
Speaker 1: indications for that is what's happening with copper, and they
Speaker 1: trade tick for tick and if the stock market can
Speaker 1: stay up, everything's fine. But I think the biggest risk
Speaker 1: because it's more like to do what take the hint
Speaker 1: of the what people say the smarter bond market, I
Speaker 1: mean the two year note yield that and Fed funds
Speaker 1: at five percent? Is not that that's a recession indication, Fernando.
Speaker 1: We don't have a huge risk to the upside, do we?
Speaker 1: Because what if Chinese people get in their cars in droves,
Speaker 1: in hundreds of millions and drive around. What if Europe
Speaker 1: doesn't have a recession and they continue to drive everywhere
Speaker 1: and fill up their tanks. The OPAT plus companies are
Speaker 1: going to be able to come to market with, you know,
Speaker 1: cheat these production cuts as they have historically, right, they
Speaker 1: can to a certain extent if everyone goes through the
Speaker 1: door at the same time, and then we're probably short
Speaker 1: because we haven't invested in the industry. And that's the
Speaker 1: case we see in the long term why oil should
Speaker 1: be higher. But we agree with Mike. In the short term,
Speaker 1: the pressures on themand are just too strong that especially
Speaker 1: with the Chinese consumer being over levered, the European consumer
Speaker 1: being way too exposed to high energy prices, the US
Speaker 1: consumer between high leverage and higher energy prices also struggling.
Speaker 1: We see those pressures being too much in the short term,
Speaker 1: and then eventually that leads even more underinvestment in oil
Speaker 1: and gas, and that's when we see a supercycle for
Speaker 1: commodities really taking off. Wow, good stuff. We got these
Speaker 1: two guys on. Those are some superlidis. I know I'm
Speaker 1: going big time here. I told you. Fernando Valley, senior
Speaker 1: annalso Bloomberg Intelligence covering the energy space for Bloomberg Intelligence.
Speaker 1: And Mike mcloan is Scot's down in South Miami Beach,
Speaker 1: senior macro strategist for Bloomberg Intelligence. He's our commodities go
Speaker 1: to person. So we'll have to get those two folks
Speaker 1: on together. We have big moves in oil like we
Speaker 1: do today given the OPEC plus did even talk about
Speaker 1: good going over twenty eight thousand? I know we don't
Speaker 1: even get to that, but interesting stuff waking up this
Speaker 1: morning in the global energy space. We'll have more coming up.
Speaker 1: This is Bloomberg. You're listening to the Team Cancer Live program,
Speaker 1: Bloomberg Markets weekdays at ten AMI staring on Bloomberg dot Com,
Speaker 1: the I Heard Radio app and the Bloomberg Business appe.
Speaker 1: We're listening on demand wherever you get your podcast. Tomorrow
Speaker 1: we'll be a when history will be made, when former
Speaker 1: President Donald Trump will be indicted in Lower Manhattan. We
Speaker 1: want to get the latest on that. We go right
Speaker 1: to ground zero, if you will. Bloomberg's Curtty Gupta joins
Speaker 1: us from downtown Manhattan to discuss the latest on the
Speaker 1: ground there and also joined by Nick Ackerman. He is
Speaker 1: self employed the law office of Nick Ackerman. He was
Speaker 1: former assistant Special Watergate prosecutor. He joins us on the phone, Cretty,
Speaker 1: let's start with you. You're down in Manhattan. Just tell
Speaker 1: us where you are and what you're observing down there
Speaker 1: as we wait President Trump's indictment schedule for tomorrow. Yeah,
Speaker 1: a lot of anticipation in the air. It's interesting. So
Speaker 1: we're standing rights here outside of the New York District
Speaker 1: Attorney's office. So within the next forty eight hours, this
Speaker 1: is the spot where President Trump or former President Trump
Speaker 1: is expected to be arraigned at about two pm tomorrow afternoon.
Speaker 1: But look, it's going to be a really quick visit.
Speaker 1: He's gonna fly out from his Marlago esteate, or is
Speaker 1: at least expected to today. I want to say, in
Speaker 1: a couple of hours stay at Trump's how we're a
Speaker 1: few blocks north from here, which I hear is packed
Speaker 1: right now, only to get arranged, like I said, right
Speaker 1: out here outside the District Attorney's office in downtown Manhattan
Speaker 1: at two pm tomorrow, only to return again to his
Speaker 1: moral lago state at eight fifteenth pm tomorrow. So right
Speaker 1: now you're really seeing a lot of media presents, a
Speaker 1: lot of police presidents, actually a couple of protesters as well.
Speaker 1: You can really see the anticipation here isn't just for
Speaker 1: seeing President Trump go through this historic move, but also
Speaker 1: what the fallout might be, protests, rallies. The police are
Speaker 1: prepared for it. Allow, So he's going to go straight back.
Speaker 1: I guess he assumes he'll be released on his own recognizance, right,
Speaker 1: because usually if you're indicted, don't you don't they have
Speaker 1: to hold you? Or I don't know, Hey, Nick, let's
Speaker 1: let's bring you in Nick. How does this typically works?
Speaker 1: What's the legal process tomorrow for former President Trump? Well,
Speaker 1: the process of the arrangement is he will go in
Speaker 1: before the judge. The judge will ask him if he
Speaker 1: wants to read the charges, and he can either wave
Speaker 1: the reading or not. And at that point, the judge
Speaker 1: will ask whether how he pleads guilty or not guilty.
Speaker 1: Most all defendants plead not guilty at an arraignment, and
Speaker 1: then the judge sets bail. In this case, it's it's
Speaker 1: almost a certainty that he's going to be released on
Speaker 1: his own recognisance. Sometimes, if there's a situation that justifies
Speaker 1: bail because the person doesn't have roots to the community
Speaker 1: and as a flight risk, they would put up a
Speaker 1: certain amount for bail. But I don't think in this case.
Speaker 1: I think it's it's pretty much a dead certainty that
Speaker 1: he's going to be released on his own recognissance. Nick,
Speaker 1: what do you think about based upon what we know,
Speaker 1: which which is limited at this point, but based upon
Speaker 1: your experience as an assistant US attorney for the Southern
Speaker 1: District of New York from nineteen seventy six to nineteen
Speaker 1: eighty three, as I mentioned, a former assistant special Watergate
Speaker 1: prosecutor from seventy three to seventy five. Based upon your
Speaker 1: experience and based upon what we know, what do you
Speaker 1: think of this case here that the district attorneys of
Speaker 1: the screen, well, we don't know what the case is,
Speaker 1: we don't know what the charges are. The only thing
Speaker 1: we really know is that they have been looking, you know, publicly.
Speaker 1: That we know is that one of the things they
Speaker 1: clearly have been looking at is this Pecker, David Pecker,
Speaker 1: who is the head of the National Inquirer, and Donald
Speaker 1: Trump agreed that the National Inquirer would keep their eyes
Speaker 1: out for any kind of stories that might hurt Trump's
Speaker 1: chances for election in twoy sixteen, and as a result,
Speaker 1: they wound up paying off Karen McDougall, who is a
Speaker 1: former Playboy playmate, and they paid off Stormy Daniels. But
Speaker 1: part of what's going on here fits into the overall
Speaker 1: theme of falsification of records of the Trump organization, for
Speaker 1: which the Trump Organization has already been convicted of a
Speaker 1: criminal violation in Manhattan State Court. And so the real
Speaker 1: question is will there be other violations of falsification of records,
Speaker 1: of insurance fraud, bank fraud, falsification of annual statements for
Speaker 1: the Trump organization. Will that play a role in this indictment.
Speaker 1: We just don't know at this point, and it's a
Speaker 1: pure guesswork as to what this indictment is going to
Speaker 1: look like. It could also involve actions that Donald Trump
Speaker 1: has taken in the last week by putting up that
Speaker 1: picture of him with a baseball bat and the district
Speaker 1: attorney that could wind up involving other charges. There could
Speaker 1: also be witness tampering relating to Michael Cohen. All of
Speaker 1: this is speculation at this point, right, Well, we're going
Speaker 1: to find out tomorrow. It does remind me that Trump
Speaker 1: essentially threatened death and destruction if he were indicted. Cratty,
Speaker 1: You're standing there at the DA's office, and you mentioned
Speaker 1: that there are a lot of people around trump O.
Speaker 1: Are there security concerns? Are we worried that there will
Speaker 1: be you know, busloads of angry protesters coming in from
Speaker 1: out of state. Well, it definitely is the worry, And
Speaker 1: I mean I can say that pretty confidently with the
Speaker 1: amount of police presidence here. It's not just about protection
Speaker 1: for President Trump as well. But you can see the barricade.
Speaker 1: You're even seeing media not necessarily about to be parked
Speaker 1: close side to where their cameras are parked, for example.
Speaker 1: So this is definitely the preparation for that worst ye scenario.
Speaker 1: But I think we also have to keep in mind
Speaker 1: that even President Trump's defense team over the weekend had
Speaker 1: come out on another network and said, look, we are
Speaker 1: trying to avoid showmanship or trying to avoid the theater.
Speaker 1: And Nick can perhaps comment on this, but I thought
Speaker 1: it was really interesting the way that they're talking about
Speaker 1: approaching this case. They're not looking to dismiss it. They're
Speaker 1: not looking to remove the presiding judge, who, by the way,
Speaker 1: has a history of presiding against the former president President Trump,
Speaker 1: even going as far to saying, one merchant, who of
Speaker 1: course is the judge presiding, he hates me. And those
Speaker 1: are some comments, a very wrong comments made on social media.
Speaker 1: Yet the defense team isn't actually looking to remove them
Speaker 1: from the case. And that's all to show that this
Speaker 1: is being done cooperatively, collaboratively and through the due process
Speaker 1: of law. Hey, Nick, just want to get a sense
Speaker 1: from you given up, there's a lot we don't know.
Speaker 1: But and assuming the former president, you know, does not
Speaker 1: plead some point at this case, what's the timing of
Speaker 1: a case like this, how would it progress and when
Speaker 1: would we actually get to a trial if there was
Speaker 1: a trial, Well, I hate to say it, but after tomorrow,
Speaker 1: it's probably going to be thoroughly boring. Um, what what's
Speaker 1: going to happen is just like at all other criminal cases.
Speaker 1: The defense is going to file motions. Um, they're probably
Speaker 1: the emotions are dismissed. It could be emotion for change
Speaker 1: of venue. There could be emotion for more details on
Speaker 1: the complaint in the indictment. But my senses, this is
Speaker 1: going to be a very detailed indictment, unlike most indictments.
Speaker 1: But there'll be the pre trial motion practice. The district
Speaker 1: attorney will have the opportunity to respond. This doesn't take
Speaker 1: place in a matter of days. It's going to be
Speaker 1: a matter of months as this goes back and forth.
Speaker 1: The judge then has to decide the motions. They'll be
Speaker 1: discovery where the DA's office has to provide the defense
Speaker 1: with documents that are in its possession that relate to
Speaker 1: the case. So this is this could very well take
Speaker 1: up to a year before it finally gets to trial.
Speaker 1: This is not going to happen overnight, all right, Really
Speaker 1: appreciate getting your insight there. Nick Ackerman, he's a former
Speaker 1: assistant special Watergate prosecutor and then he went on to
Speaker 1: be the Assistant US Attorney for the Southern District of
Speaker 1: New York from nineteen seventy six to eighty three. And
Speaker 1: he now has his own law office of Nick Ackerman,
Speaker 1: getting his thoughts there, and of course could Gupta on
Speaker 1: the ground downtown Manhattan for Bloomberg News on site at
Speaker 1: the DA's office in Lower Manhattan. If you're listening to
Speaker 1: the tape, Kens are a line program Bloomberg Markets weekdays
Speaker 1: at ten am Eastern on Bloomberg Radio, the Tuna app,
Speaker 1: Bloomberg dot Com, and the Bloomberg Business App. You can
Speaker 1: also listen live on Amazon Alexa from our flagship New
Speaker 1: York station. Just say Alexa play Bloomberg eleven thirty. I
Speaker 1: want to get to the banks here. It is grim
Speaker 1: news coming out of Switzerland. UBS buying credit Swiss. I
Speaker 1: guess that's the good news kind of. But there's a
Speaker 1: lot of redundancies there. They're going to cut a lot
Speaker 1: of people, and that's why we go to Alison Williams,
Speaker 1: Senior Global Banks Analysts. So, Alison, you saw some of
Speaker 1: the numbers here, tens of thousands of people likely to
Speaker 1: be let go. Here is this kind of part and
Speaker 1: parcel when you put two investment banks together, well, it is.
Speaker 1: It is generally with investment banks, especially areas where there
Speaker 1: might be direct overlaps such as such as research as
Speaker 1: you know, and it does seem like, you know, some
Speaker 1: of the reports I've seen that a lot of the
Speaker 1: cuts could be centered in Switzerland would also seem to
Speaker 1: make sense just because, um, there's probably a lot of
Speaker 1: overlap in terms of systems and management administration. And again
Speaker 1: it's it's it's tough to tell, and we've said since
Speaker 1: the beginning of this deal, it's tough to tell sort
Speaker 1: of what the what the revenue attrition is going to
Speaker 1: be from. You know, people that use both banks right
Speaker 1: and that now um maybe move some of their exposure
Speaker 1: to someone else that also will reverberate with employees. So um,
Speaker 1: So there are a lot of synergies, so to speak,
Speaker 1: but I wonder if they're as bad as as we anticipate.
Speaker 1: I mean, the market has been there for Credit Suite
Speaker 1: and ubs. There was enough share for both players before.
Speaker 1: And while I get that, you know in terms of
Speaker 1: back office or you know, wealthy clients that used both
Speaker 1: to hedge their bets in a sense, um, that's an overlap,
Speaker 1: But it seems like there still is enough room for
Speaker 1: this big business, isn't there? Yeah, I mean it does.
Speaker 1: I mean to me, it does seem a really big number.
Speaker 1: Like I scratched my head a little bit about where
Speaker 1: some of those will come, right, because a lot of
Speaker 1: the like asset management UM, you know, there's very complimentary products.
Speaker 1: And as I said, so there's some overlap in the
Speaker 1: investment bank, but that investment bank has already been so
Speaker 1: dramatically downsized. I'm not sure you know what's left to
Speaker 1: cut except for a couple of small areas that I mentioned.
Speaker 1: You know, a lot of the uh, you know, one
Speaker 1: of the compelling things that UBS ces is the ability
Speaker 1: to add the US presence and the technology presence that
Speaker 1: it doesn't have a credit suitee UM, and same thing
Speaker 1: in asset management, there's some complimentary things. And then in
Speaker 1: terms of the wealth management business you know, both globally
Speaker 1: and the Swiss in particular to the extent that you
Speaker 1: have a number of advisors with a number of client UM. Yes,
Speaker 1: as I said, there might be some overlap and some
Speaker 1: reduction of exposures, but the headline number is really significant.
Speaker 1: Little bit it is a little bit interesting to think,
Speaker 1: like where those cuts are going to write. I mean,
Speaker 1: this is this is this is all according to the
Speaker 1: Zontag Situngue, which is a Swiss newspaper citing an unidentified
Speaker 1: senior manager at ubs. They're saying thirty six thousand jobs
Speaker 1: will roll, so eleven thousand inside Switzerland, twenty five thousand
Speaker 1: outside Switzerland. And this is not at all a beloved
Speaker 1: deal domestically, So you can imagine that a local newspaper. Um,
Speaker 1: you know, if it bleeds, it leads, they might want
Speaker 1: to play it up a little bit just for sales.
Speaker 1: I don't know, yeah, and who knows how they're coming
Speaker 1: because the cuts, the cost cutting that they've talked about, um,
Speaker 1: you know, it's something like fifteen to twenty percent of
Speaker 1: the cost base. You know. Also could it be outsourcing again,
Speaker 1: like it's very hard to get to these really sizeable numbers.
Speaker 1: One one could imagine someone saying, oh, well, if it's
Speaker 1: this much percent of clasts, what does that mean for
Speaker 1: a headcount? But I think you know, again, it's it's
Speaker 1: a very different um, you know, business and some others. Right,
Speaker 1: So it's not like a typical we're going to have
Speaker 1: we know, two branches now we're only going to have one. Um,
Speaker 1: you know, how many headcounts? How many heads you really cut?
Speaker 1: If those branches are focused on serving Mualti clients and
Speaker 1: you're bringing those people together. They're we've sort of identified
Speaker 1: for you where we see the areas we're cuts, but
Speaker 1: it's still hard to get to that. So Elson's big numbers.
Speaker 1: I can't think of a reason. I mean, if I'm
Speaker 1: an UBS shareholder here, I have to be really patient,
Speaker 1: don't I'm because i don't know really what I've bought.
Speaker 1: I'm not really sure what I'm going to end up with.
Speaker 1: I mean, you really have to believe in UBS management
Speaker 1: to stick around for what it could be a multi
Speaker 1: year in integration, you do. And perhaps that's one of
Speaker 1: the reasons why they felt they needed to bring Ermadi back,
Speaker 1: you know, some of the fits and starts, um. You know,
Speaker 1: obviously Hammers was not there for that long, but some
Speaker 1: of the things that he had done, you know, in
Speaker 1: terms of buying the Digital Wealth Manager in the US,
Speaker 1: a deal that was later canceled, um, like we did
Speaker 1: evaluation or other reasons. Archigos actually happened under Hammer's watch,
Speaker 1: although you could certainly connect the dots to say that
Speaker 1: the risk culture was there before he got there. But
Speaker 1: URMANDI what he brings is, you know, he came in
Speaker 1: after if you can remember the rogue trader scandal or
Speaker 1: unauthorized incident as they like to call it, which we
Speaker 1: know means they lost money because generally a rogue trader
Speaker 1: make money. We don't hear about that. But you know
Speaker 1: he came in after that, he put in a plan.
Speaker 1: His plan was successful. He said he was going to
Speaker 1: shrink the investment bank and he did, and he did it,
Speaker 1: by the way, at a time when it was not
Speaker 1: that popular, Like they were the first bank to say,
Speaker 1: you know what, we don't have to be this big
Speaker 1: fix income. We don't have to be everything to everybody.
Speaker 1: We're going to focus where we want. We're going to
Speaker 1: focus on profitability and then manage through like a ten
Speaker 1: year period of like regulation, litigation, the things coming. So
Speaker 1: I think, yeah, to your point, it's a long period,
Speaker 1: but maybe that he gives some confidence. All right, Alison,
Speaker 1: thank you so much for joining us yet again. Alison Williams,
Speaker 1: Senior banks analyst for Bloomberg Intelligence, breaking down what is
Speaker 1: the beginnings of a long merger process ubs acquiring credit Swiss.
Speaker 1: You're listening to the Take Kids Are a live program
Speaker 1: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
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Speaker 1: Business App. You can also listen live on Amazon Alexa
Speaker 1: from our flagship New York station, Just say Alexa play
Speaker 1: Bloomberg eleven thirty. Yeah, woke this warning to a big
Speaker 1: production cut command out. Plus looking at in the markets here,
Speaker 1: WTI crude oil up about five point eight percent, about
Speaker 1: just about eighty dollars per bower. What does that mean
Speaker 1: for global investors? Will Robert Teeter joins us here in
Speaker 1: our Bloomberg Director Broker studio. He's head of investment policy
Speaker 1: and strategy for Silver Crests Asset Management. Robert, thanks for
Speaker 1: so much for coming to the studio here. Again, what
Speaker 1: do you make of this move from OPEC in the
Speaker 1: in the impact on global energy? Yeah, it's a really
Speaker 1: interesting development in terms of a couple of different impacts.
Speaker 1: I think the first thing that I would say is
Speaker 1: that it does certainly send us a pretty important signal
Speaker 1: that perhaps demand in the global economy hasn't been quite
Speaker 1: as strong as we've all been expecting. I think that's
Speaker 1: one of the things that OPEC's been responding to here
Speaker 1: is trying to get prices up through restricting the supply
Speaker 1: side rather than relying on demand. And I think that's
Speaker 1: a pretty important signal in terms of demand outlook for
Speaker 1: global economics. I mean, you have, i've key drivers that
Speaker 1: you think we should be watching, bank stress, inflation, the economy, earnings,
Speaker 1: and the fixed income market. This I think goes to
Speaker 1: inflation and to the economy in a sense. It seems
Speaker 1: like it could drive inflation higher and slow the economy down.
Speaker 1: Is that Am I reading it the right way? I'm
Speaker 1: reading it that way as well. Certainly, mechanically speaking, higher
Speaker 1: oil prices will be inflationary. They will represent that classic
Speaker 1: tax on the consumer and take spending away from other
Speaker 1: other parts of the economy. I do think perhaps it
Speaker 1: plays into the rate hike cycle as well, though in
Speaker 1: terms of reading that signal that perhaps demand is a
Speaker 1: bit slower than we've been anticipating. So on the bank
Speaker 1: stress issue, is that something that's in our rearview mirror now.
Speaker 1: I mean, it was kind of acute there three or
Speaker 1: four weeks ago. Haven't heard too much since, but some
Speaker 1: of the drivers probably are still there. I think they are.
Speaker 1: I think in terms of depositors, it's in the rearview mirror. Certainly,
Speaker 1: the comments from FED officials have been very focused on
Speaker 1: protecting deposits. I think they've been very er that that
Speaker 1: issue is over and done with. When you think about
Speaker 1: earnings in the economy, I think the earnings drag on
Speaker 1: banks might be real, and I think when you think
Speaker 1: about the drag on economic activity from a slowdown in lending,
Speaker 1: that's going to be real as well. Although the fact
Speaker 1: that the crisis was sort of mostly over and done
Speaker 1: with relatively quickly bodes well for the outlook. But nonetheless,
Speaker 1: I think there will be follow through drag on the
Speaker 1: economy from a slowdown in lending, whether that's regulatory mandated
Speaker 1: or just more caution on balance sheets. So what does
Speaker 1: that mean? What are your expectations for earnings? Are we
Speaker 1: entering a recession and does that mean earnings come down? What?
Speaker 1: In percentage terms? I don't see a recession yet, So
Speaker 1: my view has been that we're running around two percent
Speaker 1: on the economy right now. I'd expect somewhere like another
Speaker 1: one percent drag from some of these issues in banking.
Speaker 1: So I'm in the camp of slightly positive economic growth
Speaker 1: and I'm in the camp that consensus earnings are about
Speaker 1: right for flat, although I do think there will be
Speaker 1: some reshuffling of the deck beneath that, and we'll get
Speaker 1: a lot more color on that as we get into
Speaker 1: earning season and see where some of those misses and
Speaker 1: beats are coming from. It all that backdrop, what do
Speaker 1: you expect our federal Reserve to do? There's you know,
Speaker 1: a lot of folks out there to saying, hey, another
Speaker 1: twenty five bases point hike, maybe two, But there's also
Speaker 1: a reasonable crowd out there saying this economy is slowing
Speaker 1: down everywhere you look. We had the ism data again today,
Speaker 1: this should be it. Maybe you can cut. I mean,
Speaker 1: what camp do you fall into. I'm in the camp
Speaker 1: of it. They'll either be a pause or twenty five
Speaker 1: and that will be the end of it. And I
Speaker 1: think if it is twenty five, it's unlikely to be
Speaker 1: more following. The one thing that I think will perhaps
Speaker 1: change over coming weeks will be that the rate cuts
Speaker 1: that have been priced in for later in the year,
Speaker 1: I think those will be going away. I read the
Speaker 1: signals from the FED as the bank crisis is not
Speaker 1: a major issue. They don't need to cut in response
Speaker 1: to that. Economy is okay. They don't need to cut
Speaker 1: in response to that, and that they'll be resolute in
Speaker 1: keeping rates where they are our twenty five bases points
Speaker 1: higher until inflation gets down to target. So let me
Speaker 1: get to the fifth driver. Then we've covered the banking stresses.
Speaker 1: We've covered inflation in the economy as well as earnings.
Speaker 1: The fixed income market has been aptly nut. So I
Speaker 1: mean I grafted the VIX, which is supposed to measure
Speaker 1: in some sense at least equity market volatility, against the
Speaker 1: move index, which measures bond market volatility, and the move
Speaker 1: index is just off the charts. I mean, looking at that,
Speaker 1: you would expect equities to be doing absolutely nothing, which
Speaker 1: is fair, a fair assessment, but the bond market just
Speaker 1: to be, I mean, going crazy. How does this affect
Speaker 1: your investment strategies? Yeah, so it's interesting. I read the
Speaker 1: volatility in a similar way, and I think I take
Speaker 1: it as to an indication that we're right around this
Speaker 1: inflection point. So we're near the end of the FED
Speaker 1: rate hike cycle. We're sort of on the edge of
Speaker 1: a recession, but not quite there, and so each incremental
Speaker 1: data point is going to trigger a pretty massive response
Speaker 1: in the fixed income markets. But I think if I
Speaker 1: zoom out from that a little bit and look away
Speaker 1: from day to day trading and think about this upcoming
Speaker 1: weeks and months, to me, we're likely to be range
Speaker 1: bound on treasuries. The range of you know, plus or
Speaker 1: minus thirty basis points are still from here, which is
Speaker 1: still some volatility. But I think dependent upon what signal
Speaker 1: as we get in terms of inflation, what signals we
Speaker 1: get on the FED. You see some of the data
Speaker 1: today in ism pointing to a slightly weaker economy. So
Speaker 1: I think all of these things balance out and keep
Speaker 1: us range bounding treasuries, even though there's been a lot
Speaker 1: of volatility lately. Robert, when you talk to folks in
Speaker 1: the marketplace, do you get a sense a lot of
Speaker 1: people missed that first quarter move? I mean, we'd s
Speaker 1: and p up just about seven percent in the first
Speaker 1: quarter and coming off with just a brutal twenty twenty
Speaker 1: two when you lost money is inequities, you lost money
Speaker 1: in bonds. Do you get a sense that people missed it.
Speaker 1: I think some people have missed it. I think it's
Speaker 1: been very easy to be barished at any point in
Speaker 1: time over the last couple of years, there's certainly lots
Speaker 1: of things going on that we can point to as negative.
Speaker 1: But one of the things that I've been impressed by,
Speaker 1: and you see it when you listen to company earnings calls,
Speaker 1: is just the dynamic response of companies and ways to
Speaker 1: find to manage around whatever the problems of the day
Speaker 1: might be, whether that's a OPEC oil cut or surprise
Speaker 1: inflation or the issues we had with COVID, and so
Speaker 1: companies are finding ways to make money, and so I
Speaker 1: think it's important to sort of stick with that story
Speaker 1: through the long haul, even though there there are lots
Speaker 1: of reasons to be barished today as there were a
Speaker 1: year ago. Where which companies? Where where are you looking
Speaker 1: to find those? Yeah? So I think we've seen some
Speaker 1: durability and earnings in the consumer discretionary space. I think
Speaker 1: we're still looking to see some positive earnings out of
Speaker 1: the industrial side, and we've and we've seen tech companies
Speaker 1: respond in a pretty interesting way to the situations that
Speaker 1: they're involved in. So whether that means earnings, beats or missus,
Speaker 1: I think they're doing a lot of things to restructure
Speaker 1: their businesses and create earnings. So those three sectors are
Speaker 1: ones that I think have the potential for durable gains
Speaker 1: and earnings going forward. We had our commodities analyst on
Speaker 1: earlier and what was the term he used, Matt like,
Speaker 1: I mean, he's got like Mike McLoone said, this will
Speaker 1: be the greatest global macroeconomic reset in history. Oh no,
Speaker 1: in our life, in our lifetime, but that's close enough
Speaker 1: to history because we're pretty old. Yeah, exactly so, I mean,
Speaker 1: I mean he was just kind of looking at it
Speaker 1: from interest rates and commodity prices and you know this
Speaker 1: and not and you know, weaning off of the stimulus
Speaker 1: from the pandemic. He thinks we're set up for how
Speaker 1: long the duration is, but certainly a violent move downward
Speaker 1: in this economy that's the hardest of hard landing. I
Speaker 1: guess it was kind of a Thomas Wood statement. I
Speaker 1: think it was, you know, the kind of thing we
Speaker 1: were hearing a lot after the Great Financial Crisis but
Speaker 1: didn't really come to pass. At some point, though, the
Speaker 1: chickens have to come home to roost, right. I think
Speaker 1: that's right, And I actually think the financial crisis is
Speaker 1: a good analogy in a way. We've had a massive
Speaker 1: cycle over the past few years related to the pandemic
Speaker 1: and we're sort of back to where we started, although
Speaker 1: I do think there will be some drags and some lags.
Speaker 1: And so if we look at, you know, long term
Speaker 1: numbers on economic growth coming into the pandemic era, we
Speaker 1: were around two percent. We're maybe there now, but a
Speaker 1: bit lower going forward because of all those drags. But
Speaker 1: I do think it's a reset. It's sort of a
Speaker 1: back to where we were before. Not a lot of
Speaker 1: dynamic activity on the economy, just slow growth. That doesn't
Speaker 1: seem like a bad thing. I mean, it doesn't seem
Speaker 1: as bad as McLoone put it, right, But they're not
Speaker 1: going to sell any books Robert, Yeah, Boks, Mike needs
Speaker 1: to write a book, and Robert needs to just make
Speaker 1: money for his clients, right, exactly, Easy peasy, all right.
Speaker 1: So Robert Energy is having its day in the sun today.
Speaker 1: You know, had a after I had had two or
Speaker 1: three great years, and then Nis you're given it a
Speaker 1: back smarting because he thinks he missed I think I
Speaker 1: missed that trade a little bit. So, but what do
Speaker 1: we do with energy from here? I mean, I know
Speaker 1: today's having a good day, but it hasn't been having
Speaker 1: a good twenty twenty three. In my view, I would
Speaker 1: say the outlook is okay. And the reason I say
Speaker 1: okay is I think the backdrop on economic growth is
Speaker 1: relatively slow. So that same signal that I think we
Speaker 1: got from OPEC today of not seeing a lot of
Speaker 1: demand side activity as far as energy, I think that
Speaker 1: backdrop is with us going forward. So while the price
Speaker 1: action might be favorable today and going forward, I think
Speaker 1: that's probably just an okay outlook rather than a great
Speaker 1: outlook for energy. So the the idea that OPEC is
Speaker 1: going to cut this surprise announcement that we got yesterday
Speaker 1: didn't rock your boat too much. Not a lot. I mean,
Speaker 1: I think the follow through on pricing will again be
Speaker 1: inflationary and a drag on the consumer. But I think
Speaker 1: it's more important to look at the demand side signal
Speaker 1: that it seems to be sending. That's a poor demand
Speaker 1: side signal. I know. Just thirty seconds Robert Tech it's
Speaker 1: having a good year after big really really lagging last big,
Speaker 1: big profitable Tech has done well. Yeah, yeah it has.
Speaker 1: And I think a lot of the rotation we've seen
Speaker 1: recently has been on the back of balance sheet strength.
Speaker 1: In my view, with inflation continuing to improve, you'll get
Speaker 1: rate stabilizing and some valuation boost on that front as well.
Speaker 1: So I think the outlook for technology is reasonably favorable
Speaker 1: here as long as they're cutting costs. That seems to
Speaker 1: be a theme for a lot of industries, a lot
Speaker 1: of companies. Robert Teeter, head of investment policy in a
Speaker 1: strategy group for Silver Crest Asset Management. We appreciate getting
Speaker 1: his time. Appreciate him coming into the Bloomberg and Actor
Speaker 1: Broker studio. You're listening to the Team Cancer Line program
Speaker 1: Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot Com,
Speaker 1: the Irhart Radio app, and the Bloomberg Business App. We're
Speaker 1: listening on demand wherever you get your podcast. I'm gonna guess, actually,
Speaker 1: I'll bet that our next guest is not the WWE fan.
Speaker 1: What do you think? I don't think he is either.
Speaker 1: All right, let's him in here. Jerry Smith. He's a
Speaker 1: reporter Bloomberg News. I think he knows more about ww
Speaker 1: than both of us combined. Yes, particularly in the last
Speaker 1: twenty twenty four hours. Because he's a reporter. This is
Speaker 1: his beat, all that media entertainment stuff, and he joins
Speaker 1: us live in a Bloomberg Interactive Broker studio, which is
Speaker 1: a strong performance from somebody who's a Wake Forest Demon deacon.
Speaker 1: So we appreciate him coming into the studio. So, Jerry,
Speaker 1: what's it he's ripping on you? Dude? What's a talent
Speaker 1: agency doing buying? You know, mister McMahon's WWE. So Endeavor
Speaker 1: is a lot more than a talent agency. They own UFC,
Speaker 1: so they are already into They're into with this okay,
Speaker 1: combat sports, and I think that's why a lot of
Speaker 1: people saw them as the front runner when WWE said
Speaker 1: that they were exploring a potential sale. As you can
Speaker 1: just see the obvious synergies, the crossover a fan bases
Speaker 1: between people who are fans of combat sports like UFC
Speaker 1: and WWE. So, first off, just some semantics here. I
Speaker 1: see the red sticky headline that crossed the Bloomberg terminal
Speaker 1: says Endeavor and WWE to combine in a deal valued
Speaker 1: it more than twenty one billion dollars? Is endeavor? Has
Speaker 1: it been reduced to just UFC? Are they really combining
Speaker 1: as a merger of equals? Or is Endeavor buying WWE?
Speaker 1: So Endeavor is gonna have fifty one percent of the
Speaker 1: new company, and WWE is gonna have forty nine percent
Speaker 1: of this new company. Um, and that it's going to
Speaker 1: trade under the stock ticker t KO, which is a
Speaker 1: fun a fun stock tick, technical knockout for those unfamiliar. Correct.
Speaker 1: So so it's a purchase essentially, it's not a combination.
Speaker 1: That's PR likes to spin it that way all the time. Um,
Speaker 1: I just need to sort it out because what do
Speaker 1: you call a flak? He hates that term, hate that,
Speaker 1: but it's for a good reason. Um. I just when
Speaker 1: I saw the headline, I thought, oh, maybe Endeavor has
Speaker 1: just uh you know, focused most of its business on UFC,
Speaker 1: and I didn't know that it dwindled down to that.
Speaker 1: But Endeavor does a lot more than just bat sports. Right.
Speaker 1: This is William Morris Endeavor, right right, I mean this
Speaker 1: is a massive talent agency. A lot of the biggest
Speaker 1: celebrities in Hollywood are represented by um talent agents. I
Speaker 1: mean obviously, um Ari Emmanuel runs Endeavor and kind of
Speaker 1: made famous by that show Gold was said to be
Speaker 1: based on on Ari Emmanuel. So they do that, you know,
Speaker 1: they broker major sports rights, A lot of sports leagues
Speaker 1: will UM, you know, higher endeavor to help them with
Speaker 1: their sports rights deals. So they do a lot more
Speaker 1: than just UFC. But as far as buying WWE, I
Speaker 1: think that's where a lot of people saw the synergies
Speaker 1: in this. So Vince McMahon, who was the control shareholder
Speaker 1: of WWE via his control stock, had ten votes per share.
Speaker 1: Did he have to body slam his daughter out of
Speaker 1: there to get control? Right? I mean, this is a
Speaker 1: remarkable turn of events for Vince McMahon. I mean considering
Speaker 1: just months ago he um, you know, he's been under
Speaker 1: investigation for um, you know, hush um alleged high money
Speaker 1: payments with UM, you know, involving his leadership of the company.
Speaker 1: And now he turns around and UM has this massive
Speaker 1: deal with Endeavor, so um, you know it's you never
Speaker 1: count out UM. Vince McMahon scorn stars though, right, But
Speaker 1: is he gonna so now his super voting stock is
Speaker 1: can be converted into just common stock, right, So he's
Speaker 1: not gonna have any outsized control here. He's in fact
Speaker 1: just gonna be a minority shaholder. Right. Yeah, he is
Speaker 1: somebody who and if you can actually see this in
Speaker 1: WWE's sec filings where they see him so important to
Speaker 1: WWE that if he was out of the picture, Um,
Speaker 1: you know, the creativity of the company would suffer and
Speaker 1: that would be material impact the company because he is
Speaker 1: for years. I mean, he is the guy who has
Speaker 1: um really orchestrated, um all of this behind the scenes.
Speaker 1: So he's very involved. So do we know what his
Speaker 1: role will be in his new couh he's still gonna
Speaker 1: be leading WWE. Um Nick con is gonna be uh
Speaker 1: technically leading WWE, but he's still there and it's um yeah,
Speaker 1: I mean it's going to be really interesting. He was
Speaker 1: on CNBC earlier. I thought it was a perfect fit.
Speaker 1: He said that, um, WW had many suitors for the company.
Speaker 1: Is that true? Where there are a lot of people
Speaker 1: after WWE? That's what That's what he said. Um, you
Speaker 1: know it's I think one thing to think about is
Speaker 1: this is live sports is extremely valuable right now if
Speaker 1: you think about what's happening in the industry with cord cutting.
Speaker 1: Anybody who can draw even just a few million viewers
Speaker 1: because WrestleMania was this weekend, right yeah, WrestleMania. I mean
Speaker 1: the viewership for that is huge. They're very big on
Speaker 1: social media as well. They're very savvy about WWE's social
Speaker 1: media presence. They've been trying to expand internationally. So yeah,
Speaker 1: I mean this is um, you know, whether they had
Speaker 1: multiple suitors or not, I'm is a good question, but
Speaker 1: it's certainly valuable. And I think they paired this where
Speaker 1: they were also renewing these deals with USA and Fox,
Speaker 1: which are they're two big broadcasters, so you know, we'll
Speaker 1: see what happens with those deals. So what do we
Speaker 1: what is Endeavor saying today about how they want to
Speaker 1: create value here? We're you know, because they're paying a
Speaker 1: pretty big number here, and but the w w E
Speaker 1: stock is down, so maybe they're getting you know, a
Speaker 1: good deal a relative to expectations. But where do they
Speaker 1: see the upside here? Yeah? I mean Ari Manuel said,
Speaker 1: you know, they're looking at doing some sort of streaming product, um,
Speaker 1: but I think there's also just cough save means and
Speaker 1: synergies involved, So you know, I think it's going to
Speaker 1: be um. You know, you're talking about two big properties
Speaker 1: in terms of live sports, combat sports, and I think
Speaker 1: they're not saying too much about the strategy just yet,
Speaker 1: but I think that that's you can see opportunities there
Speaker 1: of combining these companies and putting that together. One of
Speaker 1: the interesting things we've seen, besides Vince McMahon's mustache is
Speaker 1: the value for the curling up. I've got a little
Speaker 1: I've got a little thing going on here, only on radio, okay,
Speaker 1: not on TV. UM is that the WWE thinks maybe
Speaker 1: betting would be a good idea. How can you organize
Speaker 1: betting on what's essentially a fixed match? I assume these
Speaker 1: things are all fixed, right, They're scripted? Is the term, right? Jerry? Well?
Speaker 1: I think they, um, you know, there's been reporting out
Speaker 1: there that they had explored potential betting on WWE UM
Speaker 1: and they could see the opportunity there. Um, you know,
Speaker 1: similar to you can bet on UM award shows and
Speaker 1: it's you know which the outcome of those are already
Speaker 1: known to a small number of people. So I think, yeah,
Speaker 1: you can bet on the Oscars for example, Yeah, okay,
Speaker 1: or the Grammy's right fee. Only two award shows I
Speaker 1: can think of, but I'm sure there are others. Golden Globes.
Speaker 1: All you can bet on the Golden Globes. Okay, good
Speaker 1: to know. So, Jerry, is this is an all stock deal?
Speaker 1: Do we know or is they some cashion near Do
Speaker 1: we know? Um that I have the check on that.
Speaker 1: So I'm just wondering, like, who's going to really really
Speaker 1: control this thing? But I'm guessing Ari and the Endeavor
Speaker 1: folks will be doing it, and so this is a
Speaker 1: big deal. Do we know when this closes? I think
Speaker 1: they've said, um, later this year. Okay, all right, good stuff.
Speaker 1: That was fun. All right, wrestling. I'm just I know
Speaker 1: it's huge and people are into it. So the third
Speaker 1: time we've talked about it in the last two hours,
Speaker 1: I know, so we I feel like we've talked more
Speaker 1: about the WWE today than we have about oil well
Speaker 1: and the former president being indicted right now. Yeah, well
Speaker 1: that's tomorrow's news. So all right, Jerry Smith, thanks much
Speaker 1: for joining us. Jerry Smith is a media entertainment reporter
Speaker 1: for Bloomberg News and that includes wrestling and ultimate fighting stuff.
Speaker 1: And Jerry, are you a fan? I've dabbled, Yeah, you've dabbled.
Speaker 1: I would have lost that bet. All right, Jerry Smith
Speaker 1: breaking it down for us here, Endeavor buying WWE snapped
Speaker 1: into a slim gym. There you go, this is Bloomberg.
Speaker 1: You're listening to the take to our live program Bloomberg
Speaker 1: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 1: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
Speaker 1: You can also listen live on Amazon Alexa from our
Speaker 1: flagship New York station, jes Say Alexa play Bloomberg eleven thirty.
Speaker 1: The bank rate thirty year fixed mortgage six point eight
Speaker 1: one percent down from the peak, just a couple of
Speaker 1: USCO still sharply higher than what a lot of people got,
Speaker 1: just as recently as a year ago. I count myself lucky. Yes,
Speaker 1: you know, sometimes I'm so angry about the high taxes
Speaker 1: I pay living up in Westchester. But then I think,
Speaker 1: at least I got three percent of the mortgage, because
Speaker 1: that kind of makes up for it. That does, That does.
Speaker 1: Let's talk to somebody who follows this real estate stuff
Speaker 1: on a daily basis. Jeff Langbaum. He is the senior
Speaker 1: reets analyst for Bloomberg Intelligence. Hey, Jeff, I mean, there's
Speaker 1: a couple of ways we want to go here. People
Speaker 1: are concerned that the banks are going to run into
Speaker 1: some problems because interest rates are going up and a
Speaker 1: lot of these offices, these office complex out there, a
Speaker 1: lot of real estate owners. I got a refinance here
Speaker 1: and it's gonna be a lot more expensive. How do
Speaker 1: you look at that? How do you quantify that risk? Well? So, um,
Speaker 1: basically we're likely, like you mentioned, Paul Offices are in
Speaker 1: a perfect storm here. The you know, it's it's been
Speaker 1: a story for a while that um that you know,
Speaker 1: cash flow into building level is falling as there's a
Speaker 1: risk of you know, tenants pulling back on space and
Speaker 1: higher rates mean lower asset values. And at the same
Speaker 1: time all that's going on now, all of a sudden
Speaker 1: you kind of wonder when who's going to be willing
Speaker 1: to lend on these properties? When new death new when
Speaker 1: debt maturities come due over the next couple, next couple
Speaker 1: of years, um, and the landlords are you know, going
Speaker 1: to have to fight to find access to capital. So um,
Speaker 1: this is a real concern in the sector. And I
Speaker 1: noticed today we saw a story on the Bloomberg Terminal
Speaker 1: that Blackstones be Read, the famous Blackstone Read saw four
Speaker 1: and a half billion dollars of withdrawal requests in March.
Speaker 1: This is a third month in a row that they've
Speaker 1: been in that you know, four to five billion dollar area.
Speaker 1: Of course, they have shut down the gates. There's a
Speaker 1: I think a limit to what investors can take out
Speaker 1: in any given quarter five percent, so they haven't been
Speaker 1: able to withdraw that. But what does this mean for
Speaker 1: the industry. Well, I think what going on with the
Speaker 1: Blackstone Read is there's a disconnect right now between what
Speaker 1: public READ prices are showing to be the perceived value
Speaker 1: of commercial real estate versus where nonlisted shares like b
Speaker 1: READ and private real estate values are trading. And investors
Speaker 1: in b READ are looking at that and saying, well,
Speaker 1: if public reach shares are way down, this is going
Speaker 1: down too, let me try and get my money out.
Speaker 1: And so there's there's just a disconnect there, and I
Speaker 1: think one of the things that it's going to have
Speaker 1: to happen is private real estate values are going to
Speaker 1: have to come down some and then we'll have to
Speaker 1: figure out whether public reap shares came down too much
Speaker 1: or whether private values are going to have to chase
Speaker 1: them lower. All right, So how bad is it out there, Jeff?
Speaker 1: In the office world? I mean, you know, vacancies here
Speaker 1: in New York City still remain extraordinarily high, and no,
Speaker 1: I'm not gonna say vacancies, but people coming back to work.
Speaker 1: It just seems like this is a huge problem that
Speaker 1: I'm not sure when it gets people realizing Yeah, when
Speaker 1: when when will this be realized? When will the office
Speaker 1: owners really feel the pain when they come around they
Speaker 1: say their tenants don't want, don't need as much space.
Speaker 1: They're feeling it now. I mean, vacancy is high, not
Speaker 1: just you know, the amount of people in the buildings,
Speaker 1: but the amount of UM least space in the buildings.
Speaker 1: It's it's high. It's above historical levels UM, and it's
Speaker 1: going and it's probably going to get worse. But I
Speaker 1: think what's interesting and what needs to be UM thought
Speaker 1: about is that there really is going to have to
Speaker 1: be some sort of bifurcation between the better quality assets
Speaker 1: UM and the better and the better located assets and
Speaker 1: those that are you know, probably bound for obsolescence UM.
Speaker 1: And what you'll probably see is those better, better quality assets.
Speaker 1: You know, even if the existing tenants move out or
Speaker 1: pair back of their space, they'll have an easier time
Speaker 1: filling that space because their own assets. Where tenants are
Speaker 1: going to want to be UM, the older, more commodity
Speaker 1: like stuff. You know, that's going to be a real
Speaker 1: tough slog and it's going to impact the overall supplied
Speaker 1: demand dynamics, no doubt. Um. But you know, the better
Speaker 1: quality assets probably hold up better. It's a lot. It's
Speaker 1: a lot like what happened in the mall space over
Speaker 1: the last decade or so, where you know, the lower
Speaker 1: tier malls just kind of disappeared and the better, better
Speaker 1: quality malls. You know, did Okay? I love a good mall. Sure,
Speaker 1: I gotta Sammy, you're coming to New Jersey. I just
Speaker 1: was hanging out the Ridge Hill Mall in Yonkers. We
Speaker 1: do malls in Jersey. I want to check out the
Speaker 1: what is the American Dream Mall? Yeah? I know we
Speaker 1: can get over there, uh, Jeff. In terms of the movements,
Speaker 1: the flow us that you've seen, um, was there a
Speaker 1: marked difference pre and post SVB because the collapse of
Speaker 1: Silicon Valley Bank obviously tied to holding they're holding a
Speaker 1: chut charity portfolio and the move in rates. But everybody
Speaker 1: then started saying commercial real estate was the next shoot
Speaker 1: to drop. Has that freaked out big institutional holders, It
Speaker 1: freaked out the anybody invested in office reachs that's for sure.
Speaker 1: And you can look at the stock price performance on
Speaker 1: on you know, the Bloomberg Office Read index for example,
Speaker 1: and you know it was it was down. They underperformed
Speaker 1: last year just because of all the things that we've
Speaker 1: been talking about. But then all of a sudden in
Speaker 1: March when it became you know what, when refinancing became
Speaker 1: the new risk, the new headwind. Uh, they shot down
Speaker 1: um pretty rapidly, um completely disconnected from the rest of
Speaker 1: the reach sectors. They found a little bounced lately. I
Speaker 1: think probably a little short squeeze, a little you know,
Speaker 1: risk on type type move. But you know, there's been
Speaker 1: a real move away from those names because of the
Speaker 1: concern that if you can't refinance, your mortgage is coming due. Um,
Speaker 1: you know, what's the equity worth. So I think about
Speaker 1: just the New York marketings. I think that's one of
Speaker 1: the harder hit markets in the country, along with maybe
Speaker 1: San Francisco and New York. I'm looking at your research
Speaker 1: New York focused s L Green and Vornado. I mean,
Speaker 1: what do those reads do, what are they what are
Speaker 1: they telling me about the future of their business? I'm
Speaker 1: you know, you just look around in New York and
Speaker 1: it's it's tough to see a real rebound in office occupancies. Well,
Speaker 1: they do tend to own the better quality acids, like
Speaker 1: I was referring to before, So you know, they they
Speaker 1: probably m end up being okay, but not without pain
Speaker 1: in the in the near term. What they need to
Speaker 1: do is actually show UM that they have the ability
Speaker 1: to raise capital, that they have the ability to refinance
Speaker 1: that's that is coming due UM and you know, UM
Speaker 1: one way that they can do that is if they
Speaker 1: can sell some assets or or partial ownership interest in
Speaker 1: assets and prove that there is still demand to own
Speaker 1: this space and demand to lend on this space. And
Speaker 1: you know, that's something that's really going to take a
Speaker 1: little while to shake out. It's going to probably be
Speaker 1: the story of twenty twenty three, you know, proof that
Speaker 1: there is both debt and equity interest in office buildings.
Speaker 1: And it really remains to be seen. But you know,
Speaker 1: I do think that, you know, if if my argument
Speaker 1: about the bifurcation between quality holds true, that those guys
Speaker 1: end up being okay. How about Hudson Yards. I mean,
Speaker 1: that is an amazing redevelopment of Midtown West just west
Speaker 1: of Penn station and amazing office buildings and space over there.
Speaker 1: But that seemed to open almost like just right before
Speaker 1: the pandemic. How is it doing it? It's actually doing okay. UM.
Speaker 1: And you know one of the reasons it's doing okay
Speaker 1: is because they got those leases signed and you know,
Speaker 1: you've got long term leases and so we haven't really
Speaker 1: had as much opportunity for that to roll off yet. UM.
Speaker 1: And and you know, with the benefit of a long
Speaker 1: term lease is that even if people aren't coming back
Speaker 1: to work, the tenant is on the hook and so um.
Speaker 1: You know it will it will be an interesting shakeout
Speaker 1: over the next you know, couple of years to see
Speaker 1: what works and what doesn't. Um. But again, high quality
Speaker 1: new stuff really should be them, you know, the type
Speaker 1: of buildings that uh that that tend to um outperform
Speaker 1: versus the overall average. They have cool stuff to do
Speaker 1: over there, studios there, They've got this little Spain area
Speaker 1: which is I saw that eat there. Do do office
Speaker 1: big successful office properties have to offer experiences or do
Speaker 1: they have to have a daycare on site? Does there
Speaker 1: need to be a gym? Do you see that, Jeff,
Speaker 1: highly amenetized space will win out. I mean, you know, basically,
Speaker 1: what landlords are trying to do and what tenants are
Speaker 1: trying to do is figure out ways that they can
Speaker 1: make the office buildings somewhere where their tenants and their
Speaker 1: employees want to go. And you know, they're they're trying
Speaker 1: to figure out what works and it will evolve over time.
Speaker 1: But yeah, I mean, you know that that goes that
Speaker 1: goes hand in hand with you know, highly amenitizes, you know,
Speaker 1: landlords that can put capital into their buildings to make them,
Speaker 1: you know, up to the most modern required standards. And
Speaker 1: that's what's going to win out. Why can't a boss
Speaker 1: just say come back to work. I don't know how
Speaker 1: that does work, all right, Jeff, thanks so much for
Speaker 1: joining our Yeah, exactly waiting for your session. Jeff Langbaum,
Speaker 1: he's a senior read analyst for Bloomberg Intelligence breaking it
Speaker 1: down and lots of headwinds for the real real estate space,
Speaker 1: particularly on the commercial side. Do you think about the
Speaker 1: pandemic and people not coming into the office and now
Speaker 1: you've got you know, kind of refinancing risk here in
Speaker 1: a much higher interest rate environment, which is one thing
Speaker 1: after another impacting these companies. So it's good to have
Speaker 1: somebody like Jeff Langbaumo covers all of the reats able
Speaker 1: to get us a little bit smarter here. Thanks for
Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
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Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt
Speaker 1: Miller nineteen seventy three. And I'm fall Sweeney. I'm on
Speaker 1: Twitter at pt Sweeney. Before the podcast, you can always
Speaker 1: catch us worldwide at Bloomberg Radio