Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find the Bloomberg pm L podcast on iTunes,
Speaker 1: SoundCloud and at Bloomberg dot com. I would like to
Speaker 1: learn more about what we have actually learned about healthcare
Speaker 1: under President elect Donald Trump. There has been a lot
Speaker 1: talked about about possibly provisions of Obamacare that could be repealed.
Speaker 1: But but I want to dig into what we have
Speaker 1: learned so far. Susan Dvore, she's the CEO of Premiere.
Speaker 1: It is a company that advises on how to reduce
Speaker 1: healthcare costs and improve outcomes at hospital systems around the country.
Speaker 1: Here in the studio with us. Thank you so much
Speaker 1: for being with us. Thank you. So what have we
Speaker 1: actually learned about the concrete proposals that are likely in
Speaker 1: a Trump administration that could change the outlook for hospitals. Well,
Speaker 1: we have heard over and over again repeal Obamacare, and
Speaker 1: while I think that's legislatively pretty easy to do, the
Speaker 1: question is how do we not go back to what
Speaker 1: we had before Obamacare? And how do we actually take
Speaker 1: waste out of the system, Have consumers involved in their
Speaker 1: health care pay for healthcare based on the value it's delivering.
Speaker 1: And so how do we replace Obamacare with something that works? Yes,
Speaker 1: and before President Trump takes over, we still have a
Speaker 1: few weeks left of the current Congress and administration. Can
Speaker 1: we expect anything from this lame duck Congress or is
Speaker 1: it just write it off? At this point? There is
Speaker 1: one really important thing that we Premiere think needs to
Speaker 1: happen in the lame duck Congress, which is how do
Speaker 1: you make these healthcare systems interoperable? How do you have
Speaker 1: your data as a patient, uh, get connected to all
Speaker 1: the other pieces of data about you? So right decisions
Speaker 1: are being made. You just talked about big data. Um.
Speaker 1: The question of interoperability is in a bill could pass,
Speaker 1: probably will pass, and could be done in the lame
Speaker 1: duck Congress that would move us forward uh faster. So
Speaker 1: basically would force hospital systems to get on a specific
Speaker 1: grid to It would force vendors, It would force all
Speaker 1: of these technology vendors to make their systems talk to
Speaker 1: one another. It's like having an iPhone that that you
Speaker 1: can't put any apps on today because none of it
Speaker 1: can be connected. They need to be forced to connect.
Speaker 1: What's the counter argument? The counter argument that often they
Speaker 1: will make is that patient privacy issue. So you have
Speaker 1: to make sure you can protect the patient information and
Speaker 1: the price privacy, but allow the patient to have connected information.
Speaker 1: And if you really want to solve big health care
Speaker 1: problems like the problem of stroke, the problem of diabetes,
Speaker 1: you need population based data, so you need to be
Speaker 1: able to connect the data at a population level as well.
Speaker 1: So it's like for a lot of people out there,
Speaker 1: the big question is we've seen our health insurance premiums
Speaker 1: go up year after year pretty alarming rates, and you know,
Speaker 1: you blame whoever you want on that um. President Trump
Speaker 1: has sort of promised to stop that um. But the
Speaker 1: question is something has to give in the whole chain there.
Speaker 1: Where do you expect the pressure to be uh focused
Speaker 1: in a Trump administration as far as lowering prices? What
Speaker 1: what sector of healthcare or the insurance industry do you
Speaker 1: expect to sort of come under the most scrutiny. Yes,
Speaker 1: So there's no simple answer here, right, this is like
Speaker 1: a game of Jenga where you have all these interrelated
Speaker 1: wooden pieces and if you pull one out at the
Speaker 1: wrong time, the whole thing collapses. Right. So the question is, well,
Speaker 1: the question is, how do you have all the participants
Speaker 1: in healthcare UH participate to to solve this problem. So
Speaker 1: from the perspective of hospitals and physicians and provider delivery systems,
Speaker 1: they are building value based systems. They're saying, pay us
Speaker 1: based on the clinical and economic value we deliver to consumers.
Speaker 1: Insurance companies have to take all of this regulatory reporting
Speaker 1: and all of this administrative paperwork out. Um, the suppliers
Speaker 1: and device companies have to find a way to help
Speaker 1: us curb the cost of high pharmaceuticals and medical devices. Well,
Speaker 1: you know, I'm looking at Tenant Healthcare's stock, which just
Speaker 1: plunged in the wake of UH Donald Trump's election as
Speaker 1: the next US president. I'm wondering what traders are looking
Speaker 1: at right now that's making them so barish on hospitals.
Speaker 1: I mean, what are they worried about in the in
Speaker 1: the new administration? You know, I think what they're missing
Speaker 1: is they're viewing hospitals as hospitals and they're not viewing
Speaker 1: hospitals as health care systems, so a lot of hospit battles.
Speaker 1: Most of the hospitals across the country have employed physicians,
Speaker 1: affiliated physicians, nursing home surgery centers, and they're taking care
Speaker 1: of populations, and they can move patients around into the
Speaker 1: delivery system to optimize the value and to lower the cost.
Speaker 1: If you look at a more pure hospital company, people
Speaker 1: are worried about the external pressure on cost in the
Speaker 1: hospital setting. If you look at an integrated delivery system
Speaker 1: where they can optimize how the patient is taken care
Speaker 1: of to lower the cost, that's a different thing. And
Speaker 1: I think that people are are pretty shortsighted in just
Speaker 1: the view of hospital in other words, just to sort
Speaker 1: of give some specifics, in other words, having urgy care
Speaker 1: centers and specific neighborhoods are sort of getting targeting high
Speaker 1: risk populations and getting them screenings earlier, and having these
Speaker 1: sort of other programs to to your point that committize costs. Right,
Speaker 1: So if you look at health care systems in communities,
Speaker 1: they're taking care of all these patients. These patients are
Speaker 1: going to show up in their emergency rooms, show up
Speaker 1: in their urgent care center, show up at their doctor's offices,
Speaker 1: and so we have to move to a system where
Speaker 1: they're paid based on the value across the continuum of care,
Speaker 1: not go back to a view of the world that
Speaker 1: you pay in silos. You pay a hospital silo, you
Speaker 1: pay a nursing home silo, you pay a physician silo.
Speaker 1: And I think that's what the new replacement to Obamacare
Speaker 1: will continue to do. One of the elements of Obamacare
Speaker 1: that created so much of the backlash was the notion
Speaker 1: that employers be mandated to provide coverage. Um, do you
Speaker 1: see that surviving Trump and and sort of what are
Speaker 1: how would you prioritize the changes we can expect under Trump? Yes,
Speaker 1: so there are no free lunches. So you can take
Speaker 1: away the individual and the employer mandate. But if you
Speaker 1: take that away, you've got to have a way to
Speaker 1: incent consumers to have healthcare coverage and to have it continuously,
Speaker 1: because what you don't want is people staying out of
Speaker 1: the system and then jumping in when they need healthcare.
Speaker 1: It's a very high cost way to do it. So
Speaker 1: I think what the Republicans will do is they will
Speaker 1: incent consumers by what it cost you if you jump
Speaker 1: in versus what it costs you if you have continuous coverage.
Speaker 1: So I think there are all are alternatives to the
Speaker 1: individual and employer mandate um that will drive continuous coverage.
Speaker 1: But we've got to we've got to have a system
Speaker 1: where people have coverage. Thank you so much. That was
Speaker 1: really fascinating. This is definitely one of the most important
Speaker 1: things to watch going forward, as as the population in
Speaker 1: the US does get older and as people increasingly depend
Speaker 1: on the health care system going forward, Susan divorce CEO
Speaker 1: of Premier, a company that goes into hospitals around the
Speaker 1: country and hospital systems and all of the outlying businesses
Speaker 1: that are related in order to make sure that quality
Speaker 1: is consistent and that costs are minimumized and that it's
Speaker 1: made more efficient. For some more direction, I want to
Speaker 1: bring a Mike Underhill, portfolio manager of the rich Worth
Speaker 1: Capital Innovations, Global Resources and Infrastructure Fund, to get some
Speaker 1: sense of this. Mike, is it time to invest in
Speaker 1: real assets or is it time? Is there going to
Speaker 1: be sort of a slow waning of that as people
Speaker 1: cycle into stocks. Well, it's a great question. When I
Speaker 1: look at the world we're in today, we continue to
Speaker 1: see investors posing questions around four themes volatility, uncertainty, complexity,
Speaker 1: and ambiguity. And you look at volatility, complements and ets
Speaker 1: other types of structured products. You look at the uncertainty.
Speaker 1: We've we've just passed the U S election, but we've
Speaker 1: got other milestones of uncertainty. You've got an OPEC meeting
Speaker 1: next week. You've got a bunch of different regulatory and
Speaker 1: policy shocks that potentially we're going to be experiencing over
Speaker 1: the next twelve months. The complexity and financial structures and
Speaker 1: the markets. And then the ambiguity. You've seen it in
Speaker 1: the bond market and you've seen it with the steepening
Speaker 1: of the yield. So what we're starting to see both
Speaker 1: in the equity markets and fixed income markets, you're seeing
Speaker 1: a need for more real asset income. And so investors,
Speaker 1: institutional investors and also individual investors are really focusing on
Speaker 1: what's going on with the reflationary trade. As I said,
Speaker 1: we've we've gone past the US elections now where we've
Speaker 1: removed some of that uncertainty. We look at some of
Speaker 1: the fiscal policy things like infrastructure investment, a potential investment
Speaker 1: package of upwards of one trillion dollars of infrastructure benefits
Speaker 1: Companies that are in the materials think base metals and steel,
Speaker 1: but you know gold and oil in particulars. Go back
Speaker 1: to your question. I look at gold, it's more of
Speaker 1: a it's a currency plan, and you look at the
Speaker 1: basement of the US dollar, and you look at the
Speaker 1: volatility and uncertainty in the market. Goals a great investment.
Speaker 1: The other question you had about oil, it's the largest,
Speaker 1: most liquid commodity in the world, and you look at
Speaker 1: the least amount of spare capacity the OPEQUE meeting and
Speaker 1: the positioning going into the OPEC meeting, Oil is trending
Speaker 1: towards fifty five a barrow, possibly sixty by the end
Speaker 1: of the year. I'm like, I'm looking at some of
Speaker 1: the giant moves we've seen. I'm looking at copper right
Speaker 1: now up uh rally started before the election, but towards
Speaker 1: mid October it's up that much. Uh SMP industrial stocks
Speaker 1: about nine this month. Has the optimism about this stimulus
Speaker 1: spending gotten a little ahead of itself. I think all
Speaker 1: that very valid points. I think what you're seeing is
Speaker 1: a few things. You're seeing a rotation out of defensive names.
Speaker 1: So thank utilities and reats and and telco type companies.
Speaker 1: You know, those equity income place into more cyclicals and
Speaker 1: so names like you look at Southern Copper and you
Speaker 1: look at some of the other names like US Steel,
Speaker 1: beneficiaries of the industrial and manufacturing renaissance that's going to happen.
Speaker 1: Have they gotten ahead of themselves? I would say they
Speaker 1: have not. Actually, when you look at what's gone on,
Speaker 1: a lot of money has come off the sidelines. You've
Speaker 1: seen short covering and copper, You've seen short covering in steel.
Speaker 1: You look at iron ore and things like that. Some
Speaker 1: of these names are up in the last month. They're
Speaker 1: going to take a breather. You're gonna see some trades
Speaker 1: and people do some short term profit taking. If you
Speaker 1: look at the longer term secular trends, there's a trend
Speaker 1: towards this not only infrastructure stimulus, but you're going to
Speaker 1: see more manufacturing and production. So I think the trend
Speaker 1: line is very bullish, particularly for copper and some of
Speaker 1: the base metals. And when you look at what's going
Speaker 1: on in China, you know there's an industrial base there
Speaker 1: that's starting to recover, albeit slowly. Are there any sectors
Speaker 1: were commodities that have people have missed that they should
Speaker 1: have loaded into recently but but haven't taken off. Well,
Speaker 1: I look at timber. Timpers at a great example. If
Speaker 1: if you look at a company like wire house or
Speaker 1: it's a timber reat, you know you can you can
Speaker 1: get access to timber. And when you look at timber
Speaker 1: as a commodity, you've got deforestation and climate change, and
Speaker 1: you've got things like in British Columbia the Mountain pine
Speaker 1: beetles killed one of every three trees in BC, and
Speaker 1: so you've got decreasing supply of timber as a commodity.
Speaker 1: You've got increasing to man. You've seen most recently existing
Speaker 1: home sales five point six million. That's that's significantly over
Speaker 1: the five point four four expected. And so the autumn
Speaker 1: revival of housing market is there for not only existing
Speaker 1: but you look at single family starts in October sixty
Speaker 1: nine thousand, So you know timber commodity price inflation, decreasing
Speaker 1: timber as a commodity, increasing demand. So that's the definition
Speaker 1: of commodity price inflation. Wirehouse is a great way to
Speaker 1: play it. You get some divided income while you wait
Speaker 1: as well as you get some good upside and leverage
Speaker 1: to the US single and multifamily housing recovery. You know, Mike,
Speaker 1: I'm looking at a story right now about the priorities
Speaker 1: laid forth by President elect Donald Trump, and this Baron's
Speaker 1: reporter is noting that he really did not talk about
Speaker 1: infrastructure spending very much, and that currently in the markets
Speaker 1: there is sort of a reduction and expectations for what
Speaker 1: some of his infrastructure plans may be a let alone
Speaker 1: what he might actually get across. I mean, hasn't one
Speaker 1: of the the main drivers of the UH take up
Speaker 1: in commodities, with the exception of gold, hasn't it been
Speaker 1: really driven by these infrastructure expectations And how much could
Speaker 1: there be a sort of decline in commodities should there
Speaker 1: be some disappointment on this front. Well, again, good question there,
Speaker 1: and I would say it's it's not just the infrastructure
Speaker 1: the potential infrastructure spending, because I think whether if it
Speaker 1: was Trump or or Hillary Clinton, you're looking at infrastructure
Speaker 1: as being one of the last great ways you can
Speaker 1: stimulate the economy because you look at monetary policy and
Speaker 1: artificially low rates that experiment over the last decade, you know,
Speaker 1: we've run the course on on monetary policy, fiscal policies
Speaker 1: and next logical progression. You've seen it in Australia, You've
Speaker 1: seen it in the UK over the last thirty years,
Speaker 1: what they've done with fiscal spending and investing in infrastructure.
Speaker 1: There's a multiplier effect, and so infrastructure plus some of
Speaker 1: these tax cuts financed via deficit. You know, infrastructure investment
Speaker 1: both economic infrastructure, energy, utilities, transportation, as well as social infrastructure,
Speaker 1: so think about schools and hospitals. There's a multiplier effect
Speaker 1: that creates jobs as well as it it increases the
Speaker 1: overall GDP and economic output. Has the base metal commodity
Speaker 1: trade has it has its out outlasted the short term trade?
Speaker 1: I don't think so. I think what you're seeing is
Speaker 1: there's short term speculation as well as short covering by
Speaker 1: some hedge funds in the material space. And admittedly, if
Speaker 1: you were to look at natural resources and medals in
Speaker 1: two thousand fifteen, a year ago, some of those asset classes,
Speaker 1: some of those companies were down, so the asset class
Speaker 1: was washed out. You've seen a reversion of the mean,
Speaker 1: and that's started in February, really February eleventh, two thousand
Speaker 1: and sixteen, when you saw oil and equity sort of
Speaker 1: hit their technical market bottom. We saw the dead cat bounce,
Speaker 1: and then you've seen this. This fits and starts of volatility.
Speaker 1: So it really started. Natural resources and material started ramping
Speaker 1: up an energy in February sixteen, so this started quite
Speaker 1: some time ago. But I think again, you're gonna see
Speaker 1: volatility as well as significant upside, So it's not going
Speaker 1: to be a smooth ride, right. Mike Underhill, portfolio manager
Speaker 1: of the Ridgeworth Capital Innovations, Global Resources and Infrastructure Fund,
Speaker 1: on the outlook going forward for commodities of all type,
Speaker 1: of all types. And Lisa brown Woods. Uh, Mike Reagan
Speaker 1: here with me today Bloomberg calumnist filling in for Pim Fox,
Speaker 1: who's on vacation. This is Bloomberg. I'm seeing people smile now,
Speaker 1: clients of mine where I didn't even know they had teeth.
Speaker 1: That is a quote in a story, truly phenomenal story
Speaker 1: on the Bloomberg by Max Abelson and Tacan Campbell. Uh.
Speaker 1: And Lisa brown Woods here with Mike Reagan filling in
Speaker 1: for Pim Fox. Max Abelson, really great read. What are
Speaker 1: you hearing from these Wall Street types at this point. Lisia,
Speaker 1: First of all, thank we're saying that about the story. Second, well,
Speaker 1: I have to give full credit to Dacon Campbell and
Speaker 1: my colleague forgetting that awesome quote. I always I was
Speaker 1: proud of my ability to get good quotes, but that
Speaker 1: one is like, that was pure Deacon. When he showed
Speaker 1: that to me, I was so excited because what we
Speaker 1: were interested in finding out was how these guys are
Speaker 1: viewing Trump after he spent like months just openly mocking them.
Speaker 1: Trump Trump called bankers, um at Wall Street people, hedge
Speaker 1: for managers, you know, basically the members of like a
Speaker 1: criminalistic cabal. And you know, it took them. They told
Speaker 1: us like basically twenty minutes, you know, the twenty minutes
Speaker 1: after the election, they were sad that Hillary Clinton didn't win,
Speaker 1: you know, the Clinton supporters that is. And then they
Speaker 1: moved on because at least they think, you know, they're
Speaker 1: they're made in the shade that their industries is gonna
Speaker 1: be deregulated, their taxes are gonna go down, and uh
Speaker 1: it's gonna Trump is gonna help usher in this like
Speaker 1: free willing new era. So Max, what are they basically
Speaker 1: anticipating just the complete destruction of Dodd Frank. I mean,
Speaker 1: is that is that a realistical I think that anyone
Speaker 1: on Wall Street or or or anywhere else who thinks
Speaker 1: they know what's gonna happen like under President Trump, is
Speaker 1: you know, really is going to have to be surprised.
Speaker 1: Because I feel like we was very diplomatic. I was about, yeah,
Speaker 1: you know, look, people have had the wrong idea about
Speaker 1: this guy for a really long time, going back to
Speaker 1: when he basically was nearly ruined in the early nineties
Speaker 1: and managed to bounce back is a sort of like
Speaker 1: new reality figure, and then of course during the primaries,
Speaker 1: of course during the presidential run. But I think that
Speaker 1: to answer your question, there's an expectation because he's said
Speaker 1: so that a lot of Dodd Frank is going to disappear,
Speaker 1: is going to be rolled back. Now. The thing that
Speaker 1: we also have to talk about that's kind of complicates
Speaker 1: all this is that he's also said totally contradictory things.
Speaker 1: He suggested that, for example, like glass Stagel will come back,
Speaker 1: or at least that is literally in the Republican platform
Speaker 1: for for this year. So what's giving bankers confidence that
Speaker 1: Donald Trump had been station will be positive for Wall Street. Well,
Speaker 1: came up during my interviews UM and and interviews that
Speaker 1: Dacan Campbell, My colleague ran, is this you had as
Speaker 1: the closing ad for Trump's campaign that remember that image
Speaker 1: of Lloyd Blank fine uh and Donald Trump's voiceover was like,
Speaker 1: you know, a a criminal group is trying to steal
Speaker 1: your money. Um. By the Friday after the election, the
Speaker 1: team that was in charge of Trump's transition, that is
Speaker 1: in charge of Trump transition included Golden sax Alum, Steve Bannon,
Speaker 1: Goldman sax Alum, Steve Manuchin, Goldman sax along Lam, Anthony Scaramucci.
Speaker 1: So he is surrounding himself with these people and I
Speaker 1: think that's incredibly comforting. And then you know, even beyond
Speaker 1: who's going to be Treasury Secretary, Zach Mider and I
Speaker 1: wrote that long profile about Steve Manuch and it's kind
Speaker 1: of it's kind of feeling like it's going to be
Speaker 1: him Treasury secretary. Side my colleagues UM, Jesse Hamilton and
Speaker 1: Robert Schmidt had a great story today that folks should
Speaker 1: read as well. That's basically about Wall Street licking their
Speaker 1: lips to UM expecting that Tarulah. Of course that at
Speaker 1: the FED is going to sort of be out of
Speaker 1: the unofficial role that he's kind of been in over
Speaker 1: the last couple of years, and that they'll have a
Speaker 1: Federal Reserve Vice chairman overseeing Wall Street who's like incredibly
Speaker 1: sympathetic to bankers. That that's that's what Schmith's story is.
Speaker 1: You know, how much of a surprise really is this?
Speaker 1: I mean, isn't this always what people suspect that presidential
Speaker 1: candidates will sort of talk a hard line on Wall Street,
Speaker 1: then they'll get into office and they'll forget everything. And
Speaker 1: isn't that the sort of classic cliche, you know the differences.
Speaker 1: I think that Reagan and Bush one and Bush two
Speaker 1: came in with, um, you know, nothing but but mostly
Speaker 1: nice things to say about the financial services industry. Um,
Speaker 1: this is the old guy over here. We would remember
Speaker 1: if George W. Bush was insulting Wall Street, had to
Speaker 1: go there with the old guy. Listen. I'm I think
Speaker 1: it's fair to say that even um, you know, even Obama,
Speaker 1: even Obama when he took over at the height of
Speaker 1: financial crisis, didn't have nearly the same kind of populous
Speaker 1: tone that that that Donald Trump had. So on the
Speaker 1: one hand, you always expect Republicans and frankly even Democrats
Speaker 1: to be much softer on Wall Street because of the
Speaker 1: financial power of Wall Street. But and and and then
Speaker 1: of course people are disappointed. But but then on the
Speaker 1: other um, you know, Donald Trump is is just so inconsistent.
Speaker 1: It's just so hard to hard to know what's gonna come. Max.
Speaker 1: Let me ask you, from all the reporting you've done
Speaker 1: on Wall Street and Trump, and it's been excellent reporting
Speaker 1: for for sort of a junior rookie reporter like yourself,
Speaker 1: young a young man like yourself. Have you talked to
Speaker 1: many bankers who have actually done business with Trump? And
Speaker 1: is there a difference in perspective from those that have
Speaker 1: actually done deals with them and those that are just
Speaker 1: you know, watching along like the rest of us. You know,
Speaker 1: I think that um one real pity is that the
Speaker 1: City Group banker who was really in charge in the
Speaker 1: early nineties passed away. I think she was actually hit
Speaker 1: riding a bicycle just just before Trump's run really took off.
Speaker 1: So well, we don't know, um. I would love to
Speaker 1: know what she has to say about I think it
Speaker 1: was sort of partially her decision to keep Trump alive,
Speaker 1: to keep Trump above water um that they really could
Speaker 1: have brought him down, that he had skinning him, so
Speaker 1: he basically could have had to go personally break right
Speaker 1: rather rather than the company's going back roup. But but
Speaker 1: I have whenever you speak to people who have done
Speaker 1: business with them, they speak with it with incredible anchor
Speaker 1: and sadness about about the betrayals that that they've had
Speaker 1: to go through. There are people who love him, but
Speaker 1: there are a lot of people who feel betrayed after
Speaker 1: spending time working with Donald Trump. Donald Trum. We got
Speaker 1: some home sales data this morning at ten am. Existing
Speaker 1: home sales came in higher than expected, just sort of
Speaker 1: showing that there might just be momentum behind the housing market.
Speaker 1: But is that momentum about to stall out? I want
Speaker 1: to bring in Logan Mota Shoppi, a senior loan officer
Speaker 1: at AMC Lending Group, to give us a little bit
Speaker 1: of color. I'm forward leading indicators. Logan. When we look
Speaker 1: at existing home sales, that's a backward looking indicator. Correct, yes,
Speaker 1: it's a backward indicating look indicator. But what what I
Speaker 1: would uh emphasize today on the existing home sales report
Speaker 1: is that existing home sales are at psycho highs, as
Speaker 1: mortgage demand is at psycho highs, and the housing community, economists,
Speaker 1: analysts and everybody has been telling people that low inventory
Speaker 1: is holding housing back. It's exactly the opposite. All the
Speaker 1: data showing demand is at psycho highs and home sales
Speaker 1: are at psycho highs, and existing home sales UH what
Speaker 1: we've seen as cash buyers have been falling, but mortgage
Speaker 1: demand has been rising. But yet mortgage demand is basically
Speaker 1: back to levels. And there's your issue with the home
Speaker 1: sales in this cycle is that we don't have that
Speaker 1: kind of strong demand curve, So we shouldn't be using
Speaker 1: excuses as low inventory or tight lending that are holding
Speaker 1: sales back based on certain economists as metrics look, then
Speaker 1: I'm wondering how elastic can we expect that demand to
Speaker 1: be given the recent jump in UH interest rates. Mortgage
Speaker 1: rate have been higher in and twenty fifteen than where
Speaker 1: we are today. So when we look back at what
Speaker 1: happened in was that mortgage rates were working from four
Speaker 1: and a half percent levels, Existing home sales went negative
Speaker 1: year over year, New home sales had the biggest miss
Speaker 1: I've ever seen in twenty years, and an up cycle.
Speaker 1: So even though we could see sales be impacted, in
Speaker 1: reality we only lost two hundred thousand homes at A
Speaker 1: five point three million when rates were higher in t
Speaker 1: UH sales still grew, but the rate of growth was impacted.
Speaker 1: So I don't think it's going to be as big
Speaker 1: as people think because demand is low already, so we're
Speaker 1: not working from an elevated level to where UH low
Speaker 1: rates were boosting home sales. This has been the worst
Speaker 1: demand curve we've ever seen world War two. Well, let's
Speaker 1: talk about that. Why has demand for mortgages been so low.
Speaker 1: Because the fundamental core backdrop you need for a housing market.
Speaker 1: For strong housing markets, you need good demographics. We we
Speaker 1: have terrible demographics for housing in this cycle, ages seventeen
Speaker 1: to twenty nine or massive, ages forty nine to sixty
Speaker 1: five or massive. This is a renting profile. Second, you
Speaker 1: have no more exotic loans in the system, so that
Speaker 1: facilitates demand that's gone. Everybody has to have the ability
Speaker 1: to own the debt right now, That takes some demand off.
Speaker 1: Wait until years four when you have a higher ages
Speaker 1: thirty one to thirty four in the systems. Either millennials
Speaker 1: are buying but the millennials that are ages thirty in
Speaker 1: the thirty four are buying ages of the biggest in
Speaker 1: America right now, they're still too young to have a
Speaker 1: strong housing market. Now. Are the homebuilders going to adjust
Speaker 1: to the needs of millennials? Um? Is that part of
Speaker 1: what's keeping things in check to some degree that there
Speaker 1: there there's not as many starter houses being built as
Speaker 1: perhaps there should be. The builders have been building bigger
Speaker 1: and bigger homes since nineteen seventy five. Back in nineteen
Speaker 1: seventy five, medium square foot was about fifteen hundred. Today
Speaker 1: it's over. They're not building because they can't really make
Speaker 1: money off of them. So if you want new home
Speaker 1: sales to go over eight nine hundred thousand, you're gonna
Speaker 1: need to build smaller homes. This year was the first
Speaker 1: year that we saw median home sales price fall for
Speaker 1: builders for the new home sales market. That is actually
Speaker 1: a very bullish data line because that means they're building
Speaker 1: more of the smaller homes and that's what you would
Speaker 1: need to get more first time home buyers in that market.
Speaker 1: Local Where do you think that we are in the
Speaker 1: housing market? Site on the year, Well, it's this has
Speaker 1: not been a very strong cycle, so I wouldn't look
Speaker 1: at economic cycles to work with housing. UH two thousand
Speaker 1: eight to two thousand nineteen we're going to be soft,
Speaker 1: but in the next decade you're going to have a massive,
Speaker 1: massive UH demographic homeownership age bracket, but also you're going
Speaker 1: to have your first time homeowners would be a lot better.
Speaker 1: We've had over seven million loans delinquent because we had
Speaker 1: people with exotic debt. The home buyers now in this
Speaker 1: cycle are the best I've ever seen in my life.
Speaker 1: So the move up buyer is it's just been a
Speaker 1: much more solid UH position to move up years down
Speaker 1: the line. But now it's just been a very soft cycle.
Speaker 1: Don't expect anything to really change until and is the
Speaker 1: sort of maybe not the death but the definitely reduction
Speaker 1: in adjustable rate mortgages. UM. That's something different in this cycle,
Speaker 1: right that we won't have to sort of worry about
Speaker 1: we have we We do not have any exotic recasting
Speaker 1: debt in scale. There's some home equity lines that are
Speaker 1: going to recast, but we don't have this massive debt
Speaker 1: leverage bubble as we did in two thousand seven. But
Speaker 1: one of the main points is that people forget. In
Speaker 1: two thousand and seven, primate labor force growth peaked and
Speaker 1: then it declined. We had we didn't have that in
Speaker 1: the nineteen eighties or the nineteen nineties. That is a
Speaker 1: very big metric for housing. We're not going to have
Speaker 1: that problem anymore. Primate labor forces is starting to grow again,
Speaker 1: so we have no more adjustable rate risk in terms
Speaker 1: of in big scale, There's always going to be a
Speaker 1: few out there, but our demographics are starting to get stronger.
Speaker 1: So the future of housing look actually looks a lot
Speaker 1: stronger than it did from two thousand eight to two
Speaker 1: thousand sixteen. Logan Mota Shami, thank you so much for
Speaker 1: joining us senior loan officer at a MC lending group
Speaker 1: talking about perhaps we shouldn't call it the housing cycle,
Speaker 1: maybe just the housing plateau. Thanks for listening to the
Speaker 1: Bloomberg pien L podcast. You can subscribe and listen to
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Speaker 1: I'm Pim Fox. I'm out there on Twitter at pim Fox.
Speaker 1: I'm out there on Twitter at Lisa Abramo. It's one
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