1 00:00:00,760 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day we bring 3 00:00:06,960 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,560 Speaker 1: with essential market moving news. Fund The Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:21,560 Speaker 1: at Bloomberg dot com slash podcast. All right, we got 7 00:00:21,560 --> 00:00:24,880 Speaker 1: earnings kicking off later this week. We want to get 8 00:00:24,880 --> 00:00:27,600 Speaker 1: a sense from some professionals like, how should we think 9 00:00:27,640 --> 00:00:30,560 Speaker 1: about these these earnings? What should we be looking for? 10 00:00:31,280 --> 00:00:32,960 Speaker 1: What are the risks out there? So let's bring in 11 00:00:33,120 --> 00:00:36,760 Speaker 1: Gina Martin Adams. She's our chief strategist at Bloomberg Intelligence 12 00:00:37,159 --> 00:00:39,560 Speaker 1: and she joins us here on our Bloomberg Interactive Broker studio. 13 00:00:39,600 --> 00:00:42,879 Speaker 1: So we appreciate that you get the gold star. You know, 14 00:00:42,920 --> 00:00:44,839 Speaker 1: we've dealt with a lot until last time we talk 15 00:00:44,840 --> 00:00:46,880 Speaker 1: to you. It seems like it's been a little bit Gina. 16 00:00:46,960 --> 00:00:49,440 Speaker 1: We've had a banking crisis, we've had a FED continuing 17 00:00:49,440 --> 00:00:54,600 Speaker 1: to raise rates, market pricing in rate cuts. Let's get 18 00:00:54,600 --> 00:00:58,160 Speaker 1: back the fundamentals stocks earnings. What are you looking for 19 00:00:58,400 --> 00:01:00,600 Speaker 1: this earnings period? Well, I think it's going to be 20 00:01:00,600 --> 00:01:02,640 Speaker 1: a pretty ugly earning season. Remember, at the beginning of 21 00:01:02,640 --> 00:01:05,160 Speaker 1: the year, analysts we're anticipating about a two percent drop 22 00:01:05,160 --> 00:01:09,560 Speaker 1: in first quarter earnings. They're now anticipating an eight percent decline. 23 00:01:09,920 --> 00:01:13,240 Speaker 1: They are also anticipating at least a three quarter earnings 24 00:01:13,240 --> 00:01:15,559 Speaker 1: recession that began with a fourth quarter of twenty twenty 25 00:01:15,600 --> 00:01:17,760 Speaker 1: two will extend through the first half of this year. 26 00:01:17,800 --> 00:01:21,120 Speaker 1: At the very least, probably by the end of earning season, 27 00:01:21,120 --> 00:01:22,760 Speaker 1: we'll find that it will be a full four quarter 28 00:01:22,760 --> 00:01:25,440 Speaker 1: earnings recession extending through the third quarter, because the third 29 00:01:25,480 --> 00:01:27,880 Speaker 1: quarter estimate is on the verge of decline already. Wait, 30 00:01:27,959 --> 00:01:30,880 Speaker 1: these are your analysts. Is this is the consensus of 31 00:01:30,959 --> 00:01:34,440 Speaker 1: Wall Street analysts? Ah, well, what do you think. Look, 32 00:01:34,480 --> 00:01:37,040 Speaker 1: our model says we get a five percent earnings contraction 33 00:01:37,200 --> 00:01:39,400 Speaker 1: that was as of Our model is suggesting we were 34 00:01:39,400 --> 00:01:41,440 Speaker 1: headed into earnings recession as early as the middle of 35 00:01:41,520 --> 00:01:44,440 Speaker 1: last year. It currently says somewhere between a five and 36 00:01:44,520 --> 00:01:48,080 Speaker 1: seven percent earnings contraction overall on a trailing twelve month basis. 37 00:01:48,360 --> 00:01:50,320 Speaker 1: If you look at the trailing twelve month numbers as 38 00:01:50,360 --> 00:01:52,920 Speaker 1: implied by the analyst consensus, it's closer to a three 39 00:01:52,960 --> 00:01:56,440 Speaker 1: and a half percent earnings recession. That's very similar to 40 00:01:56,440 --> 00:01:59,520 Speaker 1: the twenty fifteen twenty sixteen earnings recession, which was a 41 00:01:59,560 --> 00:02:03,920 Speaker 1: midscal recession, but certainly very light relative to your typical 42 00:02:03,920 --> 00:02:07,480 Speaker 1: earnings recession was about fifteen percent. I think what everyone 43 00:02:07,600 --> 00:02:09,919 Speaker 1: is struggling with right now, as everyone says the market 44 00:02:10,040 --> 00:02:13,960 Speaker 1: is fully unprepared for this recession. Unfortunately, I think that 45 00:02:13,960 --> 00:02:18,200 Speaker 1: the timing is a little bit messy because as of October, 46 00:02:18,280 --> 00:02:20,880 Speaker 1: our models would suggest actually the market was pricing for 47 00:02:21,000 --> 00:02:24,200 Speaker 1: up to a fifteen percent recession emerging in twenty twenty three, 48 00:02:24,560 --> 00:02:28,119 Speaker 1: so we already priced the earnings down draft that we're 49 00:02:28,120 --> 00:02:30,120 Speaker 1: going through right now. You have to get to a 50 00:02:30,240 --> 00:02:35,000 Speaker 1: point where the consensus capitulates so far, so fast that 51 00:02:35,040 --> 00:02:37,079 Speaker 1: they're now starting to say, look, this could be even 52 00:02:37,160 --> 00:02:40,720 Speaker 1: worse than fifteen percent before the market even need go 53 00:02:40,880 --> 00:02:43,280 Speaker 1: lower than it was in October. And I think that 54 00:02:43,280 --> 00:02:45,840 Speaker 1: that is what is creating a lot of confusion on 55 00:02:45,840 --> 00:02:48,600 Speaker 1: the part of investors is are we ready for this? 56 00:02:48,680 --> 00:02:50,799 Speaker 1: Are we not ready for this? I think the market 57 00:02:50,880 --> 00:02:53,000 Speaker 1: is very well prepared for this, and that's why it's 58 00:02:53,000 --> 00:02:54,959 Speaker 1: been able to look through a lot of this weakness, 59 00:02:55,120 --> 00:02:58,880 Speaker 1: so stocks can perform. The market can perform in a 60 00:02:58,960 --> 00:03:03,040 Speaker 1: period where earning are coming down yep, And essentially we 61 00:03:03,080 --> 00:03:05,520 Speaker 1: already priced this in, We've already dealt with it, and 62 00:03:05,560 --> 00:03:07,840 Speaker 1: we've already recovered on the market, even though you haven't 63 00:03:07,880 --> 00:03:10,200 Speaker 1: seen it hit the street. Two conditions that need to 64 00:03:10,240 --> 00:03:13,560 Speaker 1: happen that we need to see happen for that to 65 00:03:13,639 --> 00:03:17,800 Speaker 1: remain the base case. The first is estimate revision momentum 66 00:03:17,880 --> 00:03:20,720 Speaker 1: cannot go lower than it was in October. So intriguingly, 67 00:03:21,000 --> 00:03:25,000 Speaker 1: estimate revisions reached the worst of their worst momentum in 68 00:03:25,040 --> 00:03:27,760 Speaker 1: the October November time period as well, So even though 69 00:03:27,760 --> 00:03:30,600 Speaker 1: analysts are marking down expectations, they're not marking them down 70 00:03:30,639 --> 00:03:32,600 Speaker 1: as fast as they were in October and November, and 71 00:03:32,639 --> 00:03:36,560 Speaker 1: that momentum is really critical to driving price. So yes, 72 00:03:36,640 --> 00:03:39,160 Speaker 1: you can absolutely see earnings continue to remain weak, and 73 00:03:39,360 --> 00:03:41,520 Speaker 1: as a matter of fact, on average, stock prices bottom 74 00:03:41,560 --> 00:03:45,360 Speaker 1: two quarters before earnings ultimately find their bottom. We can 75 00:03:45,400 --> 00:03:48,160 Speaker 1: continue to see earnings remain weak in stock prices move higher, 76 00:03:48,160 --> 00:03:50,800 Speaker 1: but we need to see that momentum remain a little 77 00:03:50,800 --> 00:03:54,120 Speaker 1: bit less bad, if not start to improve. The second 78 00:03:54,120 --> 00:03:57,560 Speaker 1: thing that is absolutely critical to maintaining I think market 79 00:03:57,600 --> 00:04:01,240 Speaker 1: momentum going forward is these do need to continue to 80 00:04:01,240 --> 00:04:04,560 Speaker 1: cut cost to the point where we can get confident 81 00:04:04,640 --> 00:04:07,040 Speaker 1: that margins will bottom in the first half of this year. 82 00:04:07,360 --> 00:04:09,760 Speaker 1: This is something we've been talking about since twenty twenty one. 83 00:04:09,800 --> 00:04:12,320 Speaker 1: When margin weaknesses started to emerge on the index. It 84 00:04:12,360 --> 00:04:15,160 Speaker 1: was a very critical sign of weakness coming for the 85 00:04:15,200 --> 00:04:18,760 Speaker 1: index itself, and we need to see margins bottom. Now. 86 00:04:18,760 --> 00:04:21,119 Speaker 1: The analyst consensus says, hey, margins are going to bottom 87 00:04:21,160 --> 00:04:23,039 Speaker 1: in the first quarter. We're going to see the worst 88 00:04:23,080 --> 00:04:24,520 Speaker 1: of the worst in the first quarter. It's going to 89 00:04:24,520 --> 00:04:26,680 Speaker 1: get slightly less bad going into the second quarter, in 90 00:04:26,720 --> 00:04:29,880 Speaker 1: the third quarter because finally all these cost pressures are 91 00:04:29,880 --> 00:04:33,120 Speaker 1: starting to abate, and that is really quite a critical 92 00:04:33,160 --> 00:04:35,800 Speaker 1: to forming that ultimate earnings turn around to twenty twenty four. 93 00:04:36,000 --> 00:04:39,200 Speaker 1: Who don't get enough cost cuts. It's a problem when 94 00:04:39,200 --> 00:04:41,680 Speaker 1: you look across the university of companies that you and 95 00:04:41,839 --> 00:04:45,480 Speaker 1: Bloomberg Intelligence covers, do you see that happening? I mean, 96 00:04:45,680 --> 00:04:48,440 Speaker 1: you can tell right before you really get earnings if 97 00:04:48,480 --> 00:04:52,200 Speaker 1: they fired enough people, if they've so it has it happened. 98 00:04:52,360 --> 00:04:55,159 Speaker 1: It has happened for some sectors. It has absolutely happened 99 00:04:55,200 --> 00:04:58,039 Speaker 1: within the communication services space. This is at the forefront 100 00:04:58,040 --> 00:05:02,320 Speaker 1: of everything. This is the world, This is Paul's comfort zone. 101 00:05:02,360 --> 00:05:04,400 Speaker 1: These are the companies that are really at the forefront 102 00:05:04,400 --> 00:05:08,000 Speaker 1: of this. Yeah, even though this used to be a 103 00:05:08,040 --> 00:05:10,279 Speaker 1: meta free zone. Yeah, trying to get with the kids. 104 00:05:10,279 --> 00:05:13,640 Speaker 1: You can't help himself. Netflix, those Disneys of the world. 105 00:05:13,680 --> 00:05:16,600 Speaker 1: Those companies were at the forefront of the massive margin 106 00:05:16,640 --> 00:05:19,000 Speaker 1: problems that emerged in twenty twenty one. They are now 107 00:05:19,040 --> 00:05:21,600 Speaker 1: at the forefront of finding some margin lows through their 108 00:05:21,640 --> 00:05:25,080 Speaker 1: cost cunning endeavors. You're also seeing tech start to get 109 00:05:25,080 --> 00:05:28,960 Speaker 1: in on this game some select consumer discretionary stocks. We're 110 00:05:29,000 --> 00:05:32,159 Speaker 1: not seeing it end mass, and we may need to 111 00:05:32,200 --> 00:05:35,120 Speaker 1: see it in mass before we can really create that 112 00:05:35,200 --> 00:05:37,560 Speaker 1: margin low. You know, you've had very few layoffs in 113 00:05:37,560 --> 00:05:40,800 Speaker 1: the financial sector, very few layoffs and industrials there are some, 114 00:05:41,560 --> 00:05:45,200 Speaker 1: but perhaps not enough to create those really solid margin lows. 115 00:05:45,600 --> 00:05:48,080 Speaker 1: I would anticipate we continue to hear more news about 116 00:05:48,160 --> 00:05:50,560 Speaker 1: layoffs over the JIL. Corporate America has more work to 117 00:05:50,600 --> 00:05:52,840 Speaker 1: do into Q two. As your mentor, yeah, I think 118 00:05:52,880 --> 00:05:55,359 Speaker 1: a little bit more. They also have a lot of 119 00:05:55,360 --> 00:05:58,360 Speaker 1: cost rationalization they can do, though, just in just general 120 00:05:58,480 --> 00:06:01,880 Speaker 1: marketing and expenditure you know, the general expenses can come 121 00:06:01,920 --> 00:06:04,200 Speaker 1: down as well, which would help that operating leverage. I 122 00:06:04,240 --> 00:06:07,040 Speaker 1: think the investor relations people like across the corporate America 123 00:06:07,080 --> 00:06:09,960 Speaker 1: have said to their CFOs and CEOs, cost cuts the 124 00:06:10,000 --> 00:06:12,719 Speaker 1: market likes, oh yeah, yeah, the stocks go up when 125 00:06:12,720 --> 00:06:15,359 Speaker 1: you talk about cutting costs. That's kind of the market 126 00:06:15,400 --> 00:06:17,440 Speaker 1: right now, as opposed to the market wants to see 127 00:06:17,480 --> 00:06:20,160 Speaker 1: top line both. So anyway, Gina has been talking about 128 00:06:20,160 --> 00:06:22,479 Speaker 1: and her team I've been talking about watch those margins 129 00:06:22,520 --> 00:06:26,000 Speaker 1: for years and been spot on there. Gina Martin Adams, 130 00:06:26,120 --> 00:06:29,040 Speaker 1: chief equity strategist for Bloomberg Intelligence, joining us here in 131 00:06:29,080 --> 00:06:32,560 Speaker 1: our Bloomberg Interactive Broker Studio again. Ernie's kicking off later 132 00:06:32,600 --> 00:06:34,839 Speaker 1: this week and we'll have full coverage from the bi analysts, 133 00:06:34,839 --> 00:06:37,920 Speaker 1: from the strategists, and from external analysts, as well as 134 00:06:37,960 --> 00:06:42,440 Speaker 1: some Sweet Suite people coming in as well. You're listening 135 00:06:42,480 --> 00:06:46,280 Speaker 1: to the team can'ser Line program, Bloomberg Markets weekdays at 136 00:06:46,320 --> 00:06:49,839 Speaker 1: ten am Eastern, Bloomberg dot Com, the I Heard Radio app, 137 00:06:49,960 --> 00:06:52,839 Speaker 1: and the Bloomberg Business app. We're listening on demand wherever 138 00:06:52,920 --> 00:06:58,760 Speaker 1: you get your podcast. We got interest rates rising early 139 00:06:58,760 --> 00:07:01,200 Speaker 1: over the last twelve months. A rate we've never seen before. 140 00:07:01,279 --> 00:07:03,240 Speaker 1: That can't be good for real estate. So how do 141 00:07:03,320 --> 00:07:07,480 Speaker 1: you in your world look at real estate today? What's 142 00:07:07,480 --> 00:07:11,320 Speaker 1: your call? First of all, Paul Mcko morning, thank you 143 00:07:11,360 --> 00:07:15,960 Speaker 1: again for having me. You're talking about our home Green Street. 144 00:07:16,160 --> 00:07:20,440 Speaker 1: I hear the kind of David here. I'm fine. Oh okay, 145 00:07:20,440 --> 00:07:23,640 Speaker 1: there we go. Headphone problem, David, We hear you. Good 146 00:07:23,720 --> 00:07:30,920 Speaker 1: man sound check successful sound check before the show. Um, 147 00:07:31,080 --> 00:07:34,360 Speaker 1: you know and appreciate the Green Street mentioned my farm 148 00:07:34,560 --> 00:07:37,960 Speaker 1: home and yeah, you're right. Definitely the pre eminent reet 149 00:07:38,080 --> 00:07:40,360 Speaker 1: and research shop. You know, when we talk about the 150 00:07:40,360 --> 00:07:43,080 Speaker 1: current environment of reets in a rising at just rate environment, 151 00:07:43,560 --> 00:07:46,880 Speaker 1: my approach is to focus on the fundamentals. We are, 152 00:07:46,920 --> 00:07:49,720 Speaker 1: you know, with us focused on the residential reet income 153 00:07:49,800 --> 00:07:53,160 Speaker 1: et FR ticker as house h a US. We're looking 154 00:07:53,200 --> 00:07:56,760 Speaker 1: at the residential reads focused on that rental income. So 155 00:07:56,840 --> 00:08:00,280 Speaker 1: from a fundamental perspective and a strong employe in an 156 00:08:00,320 --> 00:08:04,160 Speaker 1: environment that we're experiencing, the rent is paid. A lot 157 00:08:04,200 --> 00:08:07,440 Speaker 1: of the rental players have tailwords in their favor, which 158 00:08:07,480 --> 00:08:11,160 Speaker 1: should lead to a pretty decent first quarter earning season 159 00:08:11,800 --> 00:08:15,320 Speaker 1: for many of these single family rental players. The multifamily 160 00:08:15,400 --> 00:08:18,120 Speaker 1: reats and other players that are in the sector. Well, 161 00:08:18,200 --> 00:08:21,040 Speaker 1: so everything's good now, but what happens when they have 162 00:08:21,200 --> 00:08:27,120 Speaker 1: to refi at these rates, Well, that's a great question, Matt. 163 00:08:27,160 --> 00:08:30,360 Speaker 1: And you know what's interesting is we published a blog 164 00:08:30,400 --> 00:08:33,800 Speaker 1: recently looking at the balance sheets of our top ten constituents, 165 00:08:34,200 --> 00:08:36,880 Speaker 1: and what we've noticed is that, first of all, we're 166 00:08:36,880 --> 00:08:39,360 Speaker 1: operating in a ten year environment right now, looking at 167 00:08:39,360 --> 00:08:42,560 Speaker 1: my Bloomberg of three forty two, much different than what 168 00:08:42,600 --> 00:08:45,240 Speaker 1: we experienced during COVID, when the ten year was training 169 00:08:45,240 --> 00:08:47,920 Speaker 1: around one and a half percent, Much different than just 170 00:08:47,960 --> 00:08:50,360 Speaker 1: a few months ago when we were training near four percent. 171 00:08:50,760 --> 00:08:53,160 Speaker 1: And so, as a result, because of what happened during COVID, 172 00:08:53,480 --> 00:08:55,600 Speaker 1: many of these reats were able to take advantage of 173 00:08:55,600 --> 00:09:00,560 Speaker 1: basically unprecedented lending conditions to really well capitalize their balance sheets. 174 00:09:00,600 --> 00:09:03,120 Speaker 1: And then our blog that I mentioned, we talk about, 175 00:09:03,160 --> 00:09:05,040 Speaker 1: you know, the top ten holdings are looking at their 176 00:09:05,040 --> 00:09:08,240 Speaker 1: debt maturities pretty much across the board. We say that 177 00:09:08,400 --> 00:09:11,440 Speaker 1: right now, for our guys, right now, the average debt 178 00:09:11,480 --> 00:09:14,000 Speaker 1: maturity over the next three years, it's about twenty percent 179 00:09:14,040 --> 00:09:16,839 Speaker 1: of the stack. No more company is rolling more than 180 00:09:16,920 --> 00:09:20,760 Speaker 1: thirty percent over the next three years. We say, right now, 181 00:09:20,760 --> 00:09:24,040 Speaker 1: the weighted average debt maturity is about eight years with 182 00:09:24,160 --> 00:09:26,679 Speaker 1: an average weighted interest rate about three points six percent 183 00:09:26,760 --> 00:09:29,400 Speaker 1: of pretty much right online. With the tenure where we're 184 00:09:29,400 --> 00:09:32,320 Speaker 1: at right now. Result, you know, with many of these guys, 185 00:09:32,440 --> 00:09:36,000 Speaker 1: you know, predominantly with fixed rate debt, I don't see 186 00:09:36,040 --> 00:09:38,080 Speaker 1: it being into at this point, and hopefully by the 187 00:09:38,080 --> 00:09:40,440 Speaker 1: time that it really comes into play, we will see 188 00:09:40,720 --> 00:09:42,760 Speaker 1: you know, federal reserve interest rates being in a more 189 00:09:42,800 --> 00:09:45,560 Speaker 1: manageable level. And David, I know you guys focus on 190 00:09:45,559 --> 00:09:50,960 Speaker 1: a residential real estate biz. So that's regional big time Reasonal, 191 00:09:51,000 --> 00:09:54,520 Speaker 1: I guess the pandemic has just exacerbated the regional differences. 192 00:09:54,960 --> 00:09:58,000 Speaker 1: So is it just as simple as go along the 193 00:09:58,080 --> 00:10:01,680 Speaker 1: sun Belt? You know, I wish they were that simple, 194 00:10:01,679 --> 00:10:03,760 Speaker 1: because if that was the answer, Matt, you and I'd 195 00:10:03,760 --> 00:10:06,200 Speaker 1: be traveling cross country on my G five, going to 196 00:10:06,200 --> 00:10:11,560 Speaker 1: see all the shows we want to see. Unfortunately, you know, 197 00:10:11,640 --> 00:10:14,560 Speaker 1: first of all, location matters. You know, we have firms 198 00:10:14,600 --> 00:10:16,920 Speaker 1: that are out there, we all see them every day, 199 00:10:17,000 --> 00:10:19,959 Speaker 1: Coast Stars, Zilo, Real Page, redfin et cetera. That are 200 00:10:19,960 --> 00:10:23,400 Speaker 1: telling where those migration trends are going. And one of 201 00:10:23,400 --> 00:10:25,840 Speaker 1: the key takeaways here is that if you were called 202 00:10:25,920 --> 00:10:29,000 Speaker 1: during COVID, pretty much there was this massive exodus from 203 00:10:29,040 --> 00:10:32,320 Speaker 1: the coast, from New York, San Francisco, LA. And what 204 00:10:32,400 --> 00:10:34,960 Speaker 1: we're seeing, especially out of companies like F six, which 205 00:10:34,960 --> 00:10:38,080 Speaker 1: is a West Coast based apartner route, people are coming back. 206 00:10:38,440 --> 00:10:40,600 Speaker 1: And so as a result, though the Sun Belt remains 207 00:10:40,760 --> 00:10:44,320 Speaker 1: very resilient, you are seeing pockets of strength happen again 208 00:10:44,400 --> 00:10:47,600 Speaker 1: back in certain parts of New York City, San Francisco, LA, 209 00:10:47,720 --> 00:10:50,240 Speaker 1: some of the southern parts of California where there are 210 00:10:50,320 --> 00:10:53,719 Speaker 1: tenants that are moving back into those properties. Interesting. So 211 00:10:53,800 --> 00:10:58,520 Speaker 1: people are well capitalized, they got right with race during Zerpe, 212 00:10:59,000 --> 00:11:05,480 Speaker 1: and the tenants are moving back into the you know, 213 00:11:05,720 --> 00:11:10,120 Speaker 1: properties they abandoned on the coasts. What about costs? You know, 214 00:11:10,120 --> 00:11:13,040 Speaker 1: we were just talking with Gina Martin Adams from Bloomberg 215 00:11:13,080 --> 00:11:17,800 Speaker 1: Intelligence and she was saying, the market, you know, broadly 216 00:11:18,240 --> 00:11:22,280 Speaker 1: priced in or accession last year, and so we just 217 00:11:22,400 --> 00:11:25,160 Speaker 1: need to see that hit the street. But the only 218 00:11:25,200 --> 00:11:28,240 Speaker 1: concern she has when we get earnings this quarter is 219 00:11:28,280 --> 00:11:31,240 Speaker 1: that companies need to deal with costs. They should hopefully 220 00:11:31,240 --> 00:11:33,199 Speaker 1: already have taken care of them, but maybe they had 221 00:11:33,320 --> 00:11:37,720 Speaker 1: need to into the second quarter. What about reets. Great question, 222 00:11:37,800 --> 00:11:41,080 Speaker 1: and obviously Gina always delivered the goods when she's either 223 00:11:41,160 --> 00:11:43,640 Speaker 1: on TV or radio. Super you know, top guests for 224 00:11:43,720 --> 00:11:45,880 Speaker 1: me to follow up on. You know, a couple of 225 00:11:46,160 --> 00:11:50,600 Speaker 1: takes here from a cost perspective that is always in 226 00:11:50,640 --> 00:11:53,559 Speaker 1: the wheelhouse of every single reef management team trying to 227 00:11:53,600 --> 00:11:57,240 Speaker 1: focus on can we maximize our revenues through growth? And 228 00:11:57,320 --> 00:11:59,880 Speaker 1: how can we minimize our expenses through a spect control 229 00:12:00,000 --> 00:12:04,480 Speaker 1: of about utilizing smart technology a Podding concept, you know, 230 00:12:04,520 --> 00:12:07,040 Speaker 1: a Podding concept would be, let's say you have three 231 00:12:07,120 --> 00:12:10,600 Speaker 1: residential properties within a two mile radius. You could use 232 00:12:10,760 --> 00:12:14,840 Speaker 1: let's say one or two maintenance guys across all three properties, 233 00:12:14,880 --> 00:12:18,400 Speaker 1: opposed to planting one at each location. So I think 234 00:12:18,440 --> 00:12:21,560 Speaker 1: with these guys focused on trying to minute maximize the 235 00:12:21,600 --> 00:12:25,200 Speaker 1: bottom line, the NI number, you know, that's expense control 236 00:12:25,240 --> 00:12:28,240 Speaker 1: plays into it. But from a very high level. You know, 237 00:12:28,360 --> 00:12:31,520 Speaker 1: right now, the rental market remains strong. You're talking about 238 00:12:31,559 --> 00:12:34,880 Speaker 1: thirty your mortgage rates that are above seven percent. Housing 239 00:12:34,920 --> 00:12:37,880 Speaker 1: affordability is out the window, especially if you're in one 240 00:12:37,880 --> 00:12:41,720 Speaker 1: of these desirable markets. So for those factors alone, that 241 00:12:41,840 --> 00:12:47,080 Speaker 1: benefits the rental landlord. Remember we're focused on rental income. 242 00:12:47,160 --> 00:12:50,400 Speaker 1: That rental income that you pay to the landlord as 243 00:12:50,440 --> 00:12:53,720 Speaker 1: your monthly rent payment goes into investors pockets in the 244 00:12:53,760 --> 00:12:56,480 Speaker 1: form of dividend income. And that's what we're focused on, 245 00:12:56,600 --> 00:12:59,520 Speaker 1: is the rent goes up, that dividend hopefully should go 246 00:12:59,600 --> 00:13:01,840 Speaker 1: up at the end of the day as well. So 247 00:13:01,960 --> 00:13:04,760 Speaker 1: I'm looking just at the SP five real Estate Investment 248 00:13:04,760 --> 00:13:07,199 Speaker 1: Trusts index, and year to date it's kind of flat 249 00:13:07,280 --> 00:13:10,679 Speaker 1: up a little bit. Where are the riets stocks relative 250 00:13:10,760 --> 00:13:14,600 Speaker 1: to say navs right here's or value in rates or 251 00:13:15,000 --> 00:13:17,200 Speaker 1: in a rising in real real estate or a rising 252 00:13:17,200 --> 00:13:20,000 Speaker 1: interest rate environment, just maybe don't want to get near them. 253 00:13:21,240 --> 00:13:23,560 Speaker 1: Let me get a little pedestal here and give you 254 00:13:23,640 --> 00:13:26,560 Speaker 1: the four one one on four to eleven. There, public 255 00:13:26,600 --> 00:13:30,280 Speaker 1: traded roets are trading at a massive discount to net 256 00:13:30,280 --> 00:13:33,600 Speaker 1: asset value. That soundlike some of the private vehicles that 257 00:13:33,600 --> 00:13:36,320 Speaker 1: are out there talking about them trading at premiums to 258 00:13:36,400 --> 00:13:39,400 Speaker 1: net asset value. Historically though, and if you go back 259 00:13:39,480 --> 00:13:42,640 Speaker 1: to some mayreet the National Association or real Estate Investment 260 00:13:42,679 --> 00:13:46,800 Speaker 1: trust some of data over the long term and rising 261 00:13:46,800 --> 00:13:50,160 Speaker 1: periods of rising interest rates. Rates are the sector that 262 00:13:50,240 --> 00:13:53,160 Speaker 1: you want to be invested in, you know, Traditionally, reets 263 00:13:53,160 --> 00:13:56,880 Speaker 1: have been that usual go to during flights to safety 264 00:13:57,400 --> 00:14:01,080 Speaker 1: because again of that dividend income stream, and so you know, 265 00:14:01,480 --> 00:14:04,680 Speaker 1: until we do see a major reset in this interest 266 00:14:04,760 --> 00:14:08,359 Speaker 1: rate environment, we're focused on those strong pockets and fundamentals, 267 00:14:08,360 --> 00:14:11,280 Speaker 1: you know. Taking it outside of residential, there's a reason 268 00:14:11,320 --> 00:14:15,839 Speaker 1: why company sectors of industrial reefs or different rets and 269 00:14:16,000 --> 00:14:19,320 Speaker 1: tower reefs continue to remain very strong because these are 270 00:14:19,360 --> 00:14:22,960 Speaker 1: properties and sectors that are being used every single day. 271 00:14:23,120 --> 00:14:25,720 Speaker 1: Self storage there's a there's a merger that's going on 272 00:14:25,840 --> 00:14:29,840 Speaker 1: right now between extra Space Storage or tickers EXR and 273 00:14:29,960 --> 00:14:33,720 Speaker 1: Light Life Space Storage tick LSI, and so there's some 274 00:14:33,800 --> 00:14:36,440 Speaker 1: tail ones in that storage space. Remember we're all holding 275 00:14:36,440 --> 00:14:38,920 Speaker 1: more and more stuff. You know, Matt, I can't go 276 00:14:38,960 --> 00:14:41,440 Speaker 1: to a show without buying another T shirt or a magnet. 277 00:14:41,640 --> 00:14:44,720 Speaker 1: So you know, that just adds up into the storage unit. 278 00:14:44,960 --> 00:14:46,920 Speaker 1: And so as a result, these are sectors that are 279 00:14:46,920 --> 00:14:49,720 Speaker 1: just going to continue to grow. It's those other sectors 280 00:14:49,720 --> 00:14:51,760 Speaker 1: that are right now. You know, everybody tech heres about 281 00:14:52,040 --> 00:14:55,840 Speaker 1: offices and malls and what's the long term future for 282 00:14:55,920 --> 00:14:58,520 Speaker 1: those sectors. I wish I knew the answer to that, 283 00:14:58,560 --> 00:15:00,760 Speaker 1: but I can tell you that they're definitely long road 284 00:15:01,120 --> 00:15:04,480 Speaker 1: ahead for residential reefs as far as that, you know, 285 00:15:04,560 --> 00:15:08,200 Speaker 1: maintained strength. Don't get me started on malls, dude, When 286 00:15:09,560 --> 00:15:13,200 Speaker 1: we recently got the summer tour schedule, what are the 287 00:15:13,400 --> 00:15:15,960 Speaker 1: what are the must see shows? What are the shows 288 00:15:15,960 --> 00:15:17,800 Speaker 1: that you can't miss? Are you coming back to MSG? 289 00:15:19,120 --> 00:15:22,520 Speaker 1: I'm hopeful to be at ALL seven MSG. I will 290 00:15:22,560 --> 00:15:24,680 Speaker 1: be seeing my two hundred show next week at the 291 00:15:24,720 --> 00:15:27,880 Speaker 1: Hollywood Bowl in La. Sorry, we can't be together, but 292 00:15:28,560 --> 00:15:30,680 Speaker 1: if all goes well, yes you will. I will be 293 00:15:30,680 --> 00:15:34,640 Speaker 1: at ALL seven at MSG again. Vernado, you know, big 294 00:15:34,680 --> 00:15:38,000 Speaker 1: New York office and plaza, big major redevelopment going on 295 00:15:38,080 --> 00:15:41,040 Speaker 1: in the area. Currently on pause, I believe, But you know, again, 296 00:15:41,120 --> 00:15:43,200 Speaker 1: it's hard. You can't walk around New York City without 297 00:15:43,240 --> 00:15:45,400 Speaker 1: being hit in the face. Buyer reets at pretty much 298 00:15:45,440 --> 00:15:49,520 Speaker 1: every single intersection. All right, David, good stuff. Appreciate that. 299 00:15:49,600 --> 00:15:52,920 Speaker 1: David auerback, managing director at Armada ETF Advisors. So you 300 00:15:52,960 --> 00:15:57,440 Speaker 1: were talking fish fish. I want to an amazing fish 301 00:15:57,520 --> 00:16:02,160 Speaker 1: show with David and I guess I hope I'll be 302 00:16:02,240 --> 00:16:05,560 Speaker 1: doing it again. And they just tour all the time, 303 00:16:05,640 --> 00:16:08,040 Speaker 1: just like the Dead did they tour? Yeah? Pretty much. 304 00:16:08,040 --> 00:16:10,520 Speaker 1: I mean they've had hiatuses. I don't know the plural 305 00:16:10,520 --> 00:16:14,120 Speaker 1: of netword, but they're on tour again and I'm ssighted 306 00:16:14,120 --> 00:16:15,920 Speaker 1: to see them this summer. This is the last summer 307 00:16:16,000 --> 00:16:17,880 Speaker 1: for the Deadenco. By the way, is that right? If 308 00:16:17,880 --> 00:16:21,880 Speaker 1: you want to see Bobby and Mickey play with John Mayer? 309 00:16:22,040 --> 00:16:23,720 Speaker 1: This is it? All right? I'll make a note. All right, 310 00:16:23,920 --> 00:16:26,000 Speaker 1: very good this mister Weir. By the way, do we 311 00:16:26,040 --> 00:16:30,880 Speaker 1: not believe he's seventy seven? Maybe you're listening to the 312 00:16:30,920 --> 00:16:34,480 Speaker 1: tap Can's are Live program Bloomberg Markets weekdays at ten 313 00:16:34,560 --> 00:16:38,560 Speaker 1: am Eastern on Bloomberg Radio, tune in app, Bloomberg dot Com, 314 00:16:38,600 --> 00:16:41,360 Speaker 1: and the Bloomberg Business App. You can also listen live 315 00:16:41,440 --> 00:16:44,520 Speaker 1: on Amazon Alexa from our flagship New York station. Just 316 00:16:44,680 --> 00:16:49,840 Speaker 1: say Alexa play Bloomberg eleven thirty. All right, we got 317 00:16:49,880 --> 00:16:53,280 Speaker 1: some m and A out there, folks. Gold Giant numont 318 00:16:53,400 --> 00:16:57,080 Speaker 1: raises new Newcrest bid to nineteen point five billion dollars. 319 00:16:57,080 --> 00:17:01,040 Speaker 1: Some movement there in the gold space. Grant's spa, Spora? 320 00:17:01,200 --> 00:17:02,760 Speaker 1: How do I do that? Grant? Grant? How do I 321 00:17:02,800 --> 00:17:07,399 Speaker 1: pronounce your last name? Spora? It's Spora. Yes, he's a 322 00:17:07,440 --> 00:17:10,840 Speaker 1: metals of Mining Senior an also Bloomberg Intelligence. So Grant 323 00:17:10,840 --> 00:17:14,240 Speaker 1: talk to us about this, uh, you know Newmont deal 324 00:17:14,359 --> 00:17:17,919 Speaker 1: for Newcrest, what's going on there? M yeah, thank you 325 00:17:17,960 --> 00:17:20,919 Speaker 1: for having me on. Firstly, in the gold space, I 326 00:17:20,920 --> 00:17:23,080 Speaker 1: mean they're two drivers for M and A. One is, 327 00:17:24,040 --> 00:17:27,240 Speaker 1: every year these gold companies eat up their reserves and resources, 328 00:17:27,560 --> 00:17:31,240 Speaker 1: and if you're of a certain scale, you really struggle 329 00:17:31,320 --> 00:17:34,040 Speaker 1: to replace those reserves and resources. So the one way 330 00:17:34,080 --> 00:17:38,199 Speaker 1: to do that quickly and you know arguably well it 331 00:17:38,200 --> 00:17:41,520 Speaker 1: depends on your valuation, but hopefully not too expensively is 332 00:17:41,600 --> 00:17:44,240 Speaker 1: through M and A. So that's the one reason. And 333 00:17:45,520 --> 00:17:49,119 Speaker 1: in this case Newcrest does have a particularly good or 334 00:17:49,280 --> 00:17:53,960 Speaker 1: large reserve base. Um, so that's what Newmont are after. 335 00:17:54,560 --> 00:17:59,000 Speaker 1: And the second reason, or the second rational is there 336 00:17:59,080 --> 00:18:01,840 Speaker 1: is a school of thought it's the bigger you get 337 00:18:01,880 --> 00:18:07,560 Speaker 1: in gold, the more you likely to attract the generalist shareholder, 338 00:18:07,960 --> 00:18:10,800 Speaker 1: as opposed to staying in an inner sector, which is 339 00:18:10,920 --> 00:18:15,240 Speaker 1: often perceived by mainstream investors as a bit niche. So 340 00:18:15,359 --> 00:18:17,760 Speaker 1: you know, if you become the let's say, the the 341 00:18:17,960 --> 00:18:21,760 Speaker 1: Xon of the gold sector, that'll that'll get you a 342 00:18:21,800 --> 00:18:26,440 Speaker 1: premium because people will naturally gravitate towards you, so that 343 00:18:26,760 --> 00:18:29,480 Speaker 1: both of these are at play here. For for new 344 00:18:29,480 --> 00:18:34,720 Speaker 1: month's bid for New Crest, so nonetheless the shares are 345 00:18:34,800 --> 00:18:40,400 Speaker 1: down today they were down yesterday. Um, is this price 346 00:18:40,840 --> 00:18:46,040 Speaker 1: too much? So if it depends on which way you 347 00:18:46,040 --> 00:18:47,560 Speaker 1: look at it, So if you look at it on 348 00:18:47,600 --> 00:18:53,720 Speaker 1: an earning is multiple, the answer is possibly. Um, the 349 00:18:53,840 --> 00:18:57,879 Speaker 1: implied sort of valuation bid in terms of EVT but 350 00:18:58,040 --> 00:19:01,879 Speaker 1: dies around nine point six times for New Crest, which is, 351 00:19:02,359 --> 00:19:06,360 Speaker 1: you know, way more expensive than its next most expensive pier, 352 00:19:06,400 --> 00:19:09,280 Speaker 1: which is a Nico Eagle at around eight point eight times. 353 00:19:09,359 --> 00:19:12,880 Speaker 1: So on near terms earnings basis, you know, one would 354 00:19:12,920 --> 00:19:17,639 Speaker 1: say Newmont is paying up. If you look at it 355 00:19:17,680 --> 00:19:19,880 Speaker 1: from another perspective, if you look at it in terms 356 00:19:19,920 --> 00:19:23,720 Speaker 1: of reserve value, then it actually isn't you know? Then 357 00:19:24,200 --> 00:19:27,040 Speaker 1: then for instance, Agnico Eagle is you know, is around 358 00:19:27,080 --> 00:19:32,280 Speaker 1: five hundred and thirty dollars per ounce of reserve, whereas 359 00:19:32,600 --> 00:19:35,560 Speaker 1: the New Crest but is only around two hundred dollars 360 00:19:35,600 --> 00:19:39,880 Speaker 1: an ounce. So on that basis, you know, Um, future 361 00:19:40,359 --> 00:19:45,080 Speaker 1: future reserves or future growth is not that expensive today's 362 00:19:45,119 --> 00:19:50,439 Speaker 1: earnings are, so I guess investors today you're saying, well, 363 00:19:50,680 --> 00:19:53,240 Speaker 1: in the near term that looks a bit expensive, given 364 00:19:53,280 --> 00:19:56,680 Speaker 1: that that Newmont's shares about the only gold sector gold 365 00:19:56,720 --> 00:20:00,000 Speaker 1: stock that is down today. So grant in the space 366 00:20:00,119 --> 00:20:03,479 Speaker 1: is here. I mean, is the scale matter? I mean, 367 00:20:03,480 --> 00:20:04,960 Speaker 1: when I'm digging the stuff out of the ground, the 368 00:20:05,000 --> 00:20:09,919 Speaker 1: scale matter? Why do this gale anything? Well again, it's 369 00:20:10,000 --> 00:20:14,160 Speaker 1: it's it's in fairness. You know. My initial reaction would 370 00:20:14,160 --> 00:20:16,800 Speaker 1: be would be to say, look, it's all about quality, right, 371 00:20:16,840 --> 00:20:20,200 Speaker 1: It's how much value are you adding? What's your your 372 00:20:20,240 --> 00:20:22,280 Speaker 1: cash flow to share things like all the good good 373 00:20:22,320 --> 00:20:26,120 Speaker 1: metrics if we look at UM. But so far Newmont, 374 00:20:26,160 --> 00:20:29,080 Speaker 1: which has built some scale, UM it does trade, also 375 00:20:29,200 --> 00:20:32,720 Speaker 1: traded a premium versus many of its peers, including Barrick 376 00:20:32,760 --> 00:20:36,440 Speaker 1: which is his nearest, its next biggest competitor. So let's 377 00:20:36,480 --> 00:20:39,399 Speaker 1: pulled the valuation gap on its on its nearest competitor. 378 00:20:39,480 --> 00:20:41,680 Speaker 1: And you know, in terms of quality, I wouldn't say 379 00:20:41,720 --> 00:20:45,639 Speaker 1: Newmont is necessarily a better quality company than Barrick UM. 380 00:20:46,119 --> 00:20:49,720 Speaker 1: But the market seems to um, you know, be wanting scale, 381 00:20:49,760 --> 00:20:54,720 Speaker 1: So that the market seems to has seems to be 382 00:20:54,760 --> 00:20:59,440 Speaker 1: indicating that, yes, scale does matter. Um, you know, my, my, my, 383 00:20:59,560 --> 00:21:01,920 Speaker 1: I would the opposite side of it, and say, you know, 384 00:21:01,920 --> 00:21:04,520 Speaker 1: I'd rather see the value add in terms of you know, 385 00:21:04,760 --> 00:21:07,000 Speaker 1: are you able to take those reserves and resources and 386 00:21:07,040 --> 00:21:09,840 Speaker 1: actually develop them and deliver the cash flow out of 387 00:21:09,840 --> 00:21:13,720 Speaker 1: those ouncers. And this deal will will take some time 388 00:21:13,760 --> 00:21:16,320 Speaker 1: before that comes to light. You know, you could be 389 00:21:16,320 --> 00:21:18,680 Speaker 1: two to three years before we actually see the benefit 390 00:21:18,720 --> 00:21:22,879 Speaker 1: of the deal coming out. So how have grant these 391 00:21:23,080 --> 00:21:27,360 Speaker 1: gold miners then in general traded next to gold? I mean, 392 00:21:27,359 --> 00:21:31,119 Speaker 1: we've seen the underlying commodity breeds two thousand dollars and 393 00:21:31,119 --> 00:21:34,520 Speaker 1: get pretty close to an all time high. So in 394 00:21:34,600 --> 00:21:37,000 Speaker 1: terms of if you look at year to day performance, 395 00:21:37,640 --> 00:21:40,320 Speaker 1: most of the certainly the more leverage names have done 396 00:21:40,440 --> 00:21:43,920 Speaker 1: very very well. So some of your your South African stocks, 397 00:21:44,640 --> 00:21:47,960 Speaker 1: you know, up fifty percent here to date, really really 398 00:21:47,960 --> 00:21:53,160 Speaker 1: done very well, massively outperformed gold. Some of the larger 399 00:21:53,240 --> 00:21:56,640 Speaker 1: cap plays of have marginally outperformed gold. Because of course 400 00:21:56,920 --> 00:22:00,439 Speaker 1: you still have lingering cost inflation, so that you know 401 00:22:00,520 --> 00:22:02,280 Speaker 1: what you what you gain on the top line, you're 402 00:22:02,280 --> 00:22:04,399 Speaker 1: also giving away on the on the bottom line to 403 00:22:04,400 --> 00:22:07,800 Speaker 1: a certain extent. And and Newmont because it's in a 404 00:22:08,040 --> 00:22:10,440 Speaker 1: you know, it's it's the aggressor in a bidding situation 405 00:22:10,520 --> 00:22:13,040 Speaker 1: has that's kind of underperformed a little bit. So it's 406 00:22:13,040 --> 00:22:17,440 Speaker 1: the one stock that has actually underperformed slightly. UM. So Yeah, 407 00:22:17,520 --> 00:22:20,280 Speaker 1: in general, you know, the gold stocks and the more 408 00:22:20,320 --> 00:22:22,680 Speaker 1: leveraged ones have done very very well here to date. 409 00:22:23,520 --> 00:22:27,520 Speaker 1: So grant, what's the Is this a space, the mining space, 410 00:22:27,560 --> 00:22:30,600 Speaker 1: something across all metals. Is this a space that is 411 00:22:30,680 --> 00:22:35,080 Speaker 1: ripe for consolidation, has already consolidated? Give us a sense 412 00:22:35,119 --> 00:22:39,040 Speaker 1: of how that space looks. So I think I think 413 00:22:39,280 --> 00:22:42,240 Speaker 1: to sort of before I answer that question directly, I 414 00:22:42,280 --> 00:22:46,359 Speaker 1: would say that the miners are definitely tilting from UM 415 00:22:46,840 --> 00:22:51,440 Speaker 1: cash returns to too much more growth, so you'll see 416 00:22:51,440 --> 00:22:55,880 Speaker 1: capital spend rise as well as the sector being much 417 00:22:55,920 --> 00:22:58,280 Speaker 1: more willing to look at M and A as a 418 00:22:58,320 --> 00:23:02,680 Speaker 1: growth angle. So I mean, for the past, i'd say, 419 00:23:02,760 --> 00:23:05,800 Speaker 1: you know, since about twenty twenty thirteen or so, they've 420 00:23:05,800 --> 00:23:09,239 Speaker 1: been in the in the sin bin um for for 421 00:23:09,359 --> 00:23:11,880 Speaker 1: overpaying at the top of the cycle in past them 422 00:23:11,920 --> 00:23:15,000 Speaker 1: and A transactions. So they've kind of redeemed themselves by 423 00:23:15,160 --> 00:23:18,440 Speaker 1: by paying lots of you know, good dividends and doing 424 00:23:18,480 --> 00:23:22,080 Speaker 1: share buybacks and being very very disciplined with their capital. 425 00:23:22,280 --> 00:23:24,120 Speaker 1: So they've kind of earned the right to go out 426 00:23:24,200 --> 00:23:26,600 Speaker 1: and grow again, and we are starting to see that 427 00:23:26,720 --> 00:23:32,560 Speaker 1: slowly emerge UM, and and so is gold is I 428 00:23:32,560 --> 00:23:34,840 Speaker 1: would say, is right for consolidation. Some of the other 429 00:23:34,880 --> 00:23:38,560 Speaker 1: sectors are it's a little bit more challenging UM. But 430 00:23:38,720 --> 00:23:42,719 Speaker 1: in in base metals, you know, the battery metals, particularly copper, 431 00:23:42,840 --> 00:23:45,560 Speaker 1: is very sought after and it's quite difficult to get 432 00:23:45,640 --> 00:23:49,040 Speaker 1: your hands on on really good assets. Gold. Is gold 433 00:23:49,040 --> 00:23:50,960 Speaker 1: set to keep rising? I mean two thousand and five 434 00:23:51,000 --> 00:23:52,960 Speaker 1: dollars a troy ouns right now two thousand and six 435 00:23:53,440 --> 00:23:57,560 Speaker 1: as the FED taps out at the terminal rate, which 436 00:23:57,640 --> 00:24:00,520 Speaker 1: is the expectation, and then goes on pause. Are we 437 00:24:00,560 --> 00:24:06,840 Speaker 1: expecting gold to continue to climb? Oh wish? A good 438 00:24:07,920 --> 00:24:10,200 Speaker 1: gold looks quite expensive to me at the moment. So 439 00:24:10,400 --> 00:24:13,600 Speaker 1: at the moment you are, it's kind of anticipating that's 440 00:24:13,640 --> 00:24:18,240 Speaker 1: fed on pause. And it's also it's also pricing in 441 00:24:18,320 --> 00:24:21,680 Speaker 1: quite a hefty let's call an insurance premium against any 442 00:24:21,680 --> 00:24:24,280 Speaker 1: sort of tale risks that are out there in the 443 00:24:24,320 --> 00:24:28,800 Speaker 1: financial in the financial system, you know, more banks potentially 444 00:24:28,840 --> 00:24:32,760 Speaker 1: in trouble. So for me, gold looks expensive, but it's 445 00:24:32,800 --> 00:24:34,840 Speaker 1: certainly in a bold market. So I wouldn't rule out 446 00:24:34,840 --> 00:24:38,040 Speaker 1: that it continues to climb, but you know, it's getting 447 00:24:38,040 --> 00:24:40,520 Speaker 1: more and more expensive versus a whole raft of other 448 00:24:40,600 --> 00:24:44,720 Speaker 1: financial metrics. All right, Grant, thanks so much. We appreciate 449 00:24:44,720 --> 00:24:47,359 Speaker 1: you coming on here talking to us about this deal. 450 00:24:47,400 --> 00:24:49,679 Speaker 1: In the gold space and kind of the gold market overall. 451 00:24:49,800 --> 00:24:52,320 Speaker 1: Is Matt was saying, golds north of two hundred dollars 452 00:24:53,280 --> 00:24:55,720 Speaker 1: lots here and it's yeah, it's pushing up towards all 453 00:24:55,720 --> 00:24:58,439 Speaker 1: time record grants for he is a metals and mining 454 00:24:58,520 --> 00:25:01,160 Speaker 1: senior analyst at Bloomberg can tell just looking at a CV. 455 00:25:01,320 --> 00:25:04,080 Speaker 1: He was a head of euromining and research at Macquarie, 456 00:25:04,240 --> 00:25:07,399 Speaker 1: at Deutsche Bank, he did a stint at UBS and 457 00:25:07,480 --> 00:25:10,359 Speaker 1: he's been at Bloomberg Intelligence now for about three years. 458 00:25:11,800 --> 00:25:15,680 Speaker 1: You're listening to the Team Cancer Line program Bloomberg Markets 459 00:25:15,720 --> 00:25:18,800 Speaker 1: weekdays at ten am easting on Bloomberg dot com, the 460 00:25:18,880 --> 00:25:21,600 Speaker 1: I Heart Radio app, and the Bloomberg Business app. We're 461 00:25:21,640 --> 00:25:27,600 Speaker 1: listening on demand wherever you get your podcast. We're waiting 462 00:25:27,640 --> 00:25:30,879 Speaker 1: some comments from Washington, d C. Secretary at Jennet Yellen 463 00:25:31,520 --> 00:25:33,679 Speaker 1: scheduled around the bottom of the hour. We'll see how 464 00:25:33,720 --> 00:25:35,639 Speaker 1: that goes. When she does speak. We'll bring those comments 465 00:25:35,680 --> 00:25:37,960 Speaker 1: to you. I want to talk about this economy. I 466 00:25:37,960 --> 00:25:40,399 Speaker 1: want to talk about the FED. So I want to 467 00:25:40,440 --> 00:25:43,000 Speaker 1: talk to somebody who kind of knows what they're talking about. 468 00:25:43,040 --> 00:25:45,280 Speaker 1: Here Neil Grossman, co founder and former CIO of t 469 00:25:45,480 --> 00:25:48,240 Speaker 1: k n G Capital Neil while the rest of us 470 00:25:48,320 --> 00:25:52,960 Speaker 1: word and an advisor to the Norwegian Central Bank. Oh nice, 471 00:25:53,119 --> 00:25:56,439 Speaker 1: How did you actually live in Norway? Fortunately, no, you 472 00:25:56,480 --> 00:25:59,359 Speaker 1: did it from over here, because Norway's pretty nice. Actually, 473 00:25:59,400 --> 00:26:03,560 Speaker 1: they usually only invited me to come visit in February, right, exactly. 474 00:26:03,760 --> 00:26:05,840 Speaker 1: You get some you get some deals there. I guess. Hey, 475 00:26:05,920 --> 00:26:07,840 Speaker 1: you know, you know, last Friday most of us were 476 00:26:08,200 --> 00:26:11,240 Speaker 1: not here. Weird markets were closed. We're celebrating Good Friday 477 00:26:11,320 --> 00:26:15,120 Speaker 1: or however you do that thing. We had another good 478 00:26:15,240 --> 00:26:18,960 Speaker 1: jobs number. You know, Payrolls are still strong, unemployment rate 479 00:26:19,040 --> 00:26:23,440 Speaker 1: is low. Can you have that and this greatly anticipated 480 00:26:23,520 --> 00:26:26,360 Speaker 1: recession at the same time. It's going to take time 481 00:26:26,400 --> 00:26:29,200 Speaker 1: to evolve into what I would guess the number. By 482 00:26:29,200 --> 00:26:32,159 Speaker 1: the way, a couple interesting things about the number, two 483 00:26:32,240 --> 00:26:35,960 Speaker 1: hundred and thirty six thousand jobs. The trailing twelve months 484 00:26:36,040 --> 00:26:38,240 Speaker 1: was about three hundred and forty two thousand and that's 485 00:26:38,280 --> 00:26:41,480 Speaker 1: the weakest since we've started the real recovery. But if 486 00:26:41,480 --> 00:26:44,480 Speaker 1: you go back pre COVID, the single strongest twelve month 487 00:26:44,520 --> 00:26:48,320 Speaker 1: period going back into the eighties, it was three hundred 488 00:26:48,359 --> 00:26:51,040 Speaker 1: and thirty two thousand jobs over a twelve month period 489 00:26:51,040 --> 00:26:54,960 Speaker 1: on average. So we're still creating jobs in a sense 490 00:26:55,040 --> 00:27:00,080 Speaker 1: at a rate that's very, very strong. To get the 491 00:27:00,160 --> 00:27:03,440 Speaker 1: unemployment rate up is going to be tremendously difficult. I mean, 492 00:27:03,520 --> 00:27:05,600 Speaker 1: the one hundred one hundred and twenty five thousands usually 493 00:27:05,640 --> 00:27:08,280 Speaker 1: viewed to be at break even, So you're going to 494 00:27:08,359 --> 00:27:11,320 Speaker 1: have to go below that to start to push the 495 00:27:11,440 --> 00:27:15,879 Speaker 1: rate up. Does this fed have the I don't know 496 00:27:15,920 --> 00:27:18,480 Speaker 1: if courage is the right word the metal to push 497 00:27:18,520 --> 00:27:20,560 Speaker 1: through that point, because it's going to be painful for 498 00:27:20,640 --> 00:27:24,800 Speaker 1: Americans and not politically palatable at all. Well, I mean, again, 499 00:27:24,840 --> 00:27:26,959 Speaker 1: the question is going to be how you balance that 500 00:27:27,000 --> 00:27:30,440 Speaker 1: with inflation. I think most, for the most part, Americans 501 00:27:30,480 --> 00:27:33,320 Speaker 1: would probably tell you that the inflation they've experienced has 502 00:27:33,359 --> 00:27:36,960 Speaker 1: been horrifically difficult for them. True, but those who I mean, 503 00:27:37,760 --> 00:27:40,480 Speaker 1: if you're faced with rising prices are losing your job? 504 00:27:40,640 --> 00:27:43,399 Speaker 1: I think I know what most Americans, So the question 505 00:27:43,480 --> 00:27:46,480 Speaker 1: matters how far below. First of all, one hundred and 506 00:27:46,480 --> 00:27:49,480 Speaker 1: twenty five thousand jobs a month is still not losing job. 507 00:27:49,560 --> 00:27:54,320 Speaker 1: Even going down to zero job creation is not fully 508 00:27:54,359 --> 00:27:56,920 Speaker 1: losing your job. It means, of course, the unemployment rate 509 00:27:56,920 --> 00:28:00,960 Speaker 1: will be rising. In the background, I think the question 510 00:28:01,040 --> 00:28:03,440 Speaker 1: is going to be a couple of things. First of all, 511 00:28:04,440 --> 00:28:07,320 Speaker 1: there is no way to keep adding jobs at this 512 00:28:07,480 --> 00:28:10,720 Speaker 1: rate unless the workforce starts so expansing the you're going 513 00:28:10,760 --> 00:28:13,160 Speaker 1: to hit a limit where there's just no jobs available. 514 00:28:13,440 --> 00:28:15,680 Speaker 1: I actually think in the background this is what could 515 00:28:15,720 --> 00:28:18,680 Speaker 1: be the Fed's biggest problem, because if you're not really 516 00:28:18,720 --> 00:28:20,919 Speaker 1: losing jobs, which are probably likely to find, is that 517 00:28:20,960 --> 00:28:25,000 Speaker 1: the competition for good employees is going to push wages up. 518 00:28:25,040 --> 00:28:27,080 Speaker 1: And that's where the FED, I think, is worried. That's 519 00:28:27,080 --> 00:28:29,320 Speaker 1: the wage price spiral that they want to avoid. We 520 00:28:29,440 --> 00:28:32,280 Speaker 1: did just talk with Gina Martin Adams, who runs our 521 00:28:32,320 --> 00:28:36,919 Speaker 1: equities coverage for Bloomberg Intelligence, and she said, what we 522 00:28:37,000 --> 00:28:39,680 Speaker 1: need to see, what investors need to see to justify 523 00:28:39,760 --> 00:28:43,200 Speaker 1: these valuations is real cost cutting and that maybe we 524 00:28:43,240 --> 00:28:45,880 Speaker 1: haven't seen enough in the first quarter. Corporate America needs 525 00:28:45,880 --> 00:28:47,760 Speaker 1: to do more in Q two. Yeah, you haven't seen 526 00:28:47,840 --> 00:28:50,680 Speaker 1: much and Again, the other interesting feature of what's going 527 00:28:50,760 --> 00:28:54,640 Speaker 1: on is I think people scratched their head why the 528 00:28:54,680 --> 00:28:57,760 Speaker 1: economy has tended to remain strong. But what we've had 529 00:28:57,800 --> 00:29:02,160 Speaker 1: as a very strong nominal economy for the less several years, 530 00:29:02,200 --> 00:29:05,480 Speaker 1: and what's been coming down is real growth is real 531 00:29:05,520 --> 00:29:10,000 Speaker 1: growth because inflation has been going up. We're now starting 532 00:29:10,040 --> 00:29:13,160 Speaker 1: to see inflation come down. Even though nominal growth is 533 00:29:13,200 --> 00:29:16,360 Speaker 1: coming down, that will still support the real number. The 534 00:29:16,400 --> 00:29:17,680 Speaker 1: real problem is going to come. And this is what 535 00:29:17,800 --> 00:29:19,840 Speaker 1: I'm I've started in a position for for whatever it's worth, 536 00:29:19,880 --> 00:29:22,560 Speaker 1: I'm beginning to buy protection into the fall because I 537 00:29:22,600 --> 00:29:25,560 Speaker 1: think in the fall you're going to see the consequences 538 00:29:25,600 --> 00:29:32,600 Speaker 1: of falling earnings what will be weaker growth, not only nominally, 539 00:29:32,640 --> 00:29:34,640 Speaker 1: but I think you're going to start to see inflation 540 00:29:34,960 --> 00:29:37,200 Speaker 1: actually rise as we move into the fall. Wait, before 541 00:29:37,200 --> 00:29:39,640 Speaker 1: we get further into the economics of it, give us 542 00:29:39,720 --> 00:29:42,400 Speaker 1: the structure the mechanics of that trade. How do you 543 00:29:42,440 --> 00:29:45,800 Speaker 1: buy protection? Well, for me, I'm well, first of a 544 00:29:45,840 --> 00:29:48,240 Speaker 1: couple of things are interesting, and we've talked about this before. 545 00:29:48,320 --> 00:29:50,040 Speaker 1: What I've been doing for the last let's say half 546 00:29:50,040 --> 00:29:52,480 Speaker 1: a year to year, because volatility is high, I'm very 547 00:29:52,600 --> 00:29:55,120 Speaker 1: I've been very happy writing optionality and getting paid to 548 00:29:55,120 --> 00:29:59,040 Speaker 1: take risk. Volatility has come down significantly, So I've started 549 00:29:59,080 --> 00:30:01,840 Speaker 1: actually by way out the money puts, and I'll build 550 00:30:01,840 --> 00:30:05,440 Speaker 1: a structure where I can have a fairly significant size, 551 00:30:05,440 --> 00:30:09,480 Speaker 1: either outright or a spread trade designed to you know, 552 00:30:09,560 --> 00:30:11,920 Speaker 1: to benefit if we have a fairly sizeable move. I'm 553 00:30:11,920 --> 00:30:14,200 Speaker 1: not really as worried about a five or six percent move. 554 00:30:14,240 --> 00:30:17,160 Speaker 1: Those are not the type of things that cause problems. 555 00:30:17,160 --> 00:30:19,800 Speaker 1: You're protecting against a big ten to twenty percent drop, ye, 556 00:30:20,600 --> 00:30:22,400 Speaker 1: or yeah, it could be thirty. I mean, you know 557 00:30:22,440 --> 00:30:25,160 Speaker 1: some of the streets analysts are looking for three thousand, 558 00:30:25,960 --> 00:30:28,360 Speaker 1: thirty two fifty that type of drop. I want to 559 00:30:28,360 --> 00:30:30,840 Speaker 1: make sure I'm making a lot of money on my hedges. 560 00:30:30,920 --> 00:30:32,760 Speaker 1: How the market drop or do you risk that much 561 00:30:32,760 --> 00:30:38,080 Speaker 1: in the face of declining interest rates? That story, well, 562 00:30:38,200 --> 00:30:40,480 Speaker 1: interest rates have fallen, you're talking about the front end. 563 00:30:40,960 --> 00:30:44,520 Speaker 1: But the problem is if inflation starts to rise. Listen, 564 00:30:44,560 --> 00:30:47,880 Speaker 1: remember we had a period less fall where the average 565 00:30:47,880 --> 00:30:51,840 Speaker 1: inflation rate headline CPI use it was at point one percent. 566 00:30:52,720 --> 00:30:54,800 Speaker 1: That's fairly low, and so it's going to be a 567 00:30:54,920 --> 00:30:58,160 Speaker 1: very easy situation for the year on your numbers to 568 00:30:58,200 --> 00:31:01,720 Speaker 1: start to push up the year on year inflation rate. 569 00:31:01,880 --> 00:31:05,480 Speaker 1: So if inflation is rising while you're getting slowing earnings 570 00:31:05,480 --> 00:31:09,200 Speaker 1: and slowing growth, the Fed's hands are still tied functionally. 571 00:31:09,640 --> 00:31:12,520 Speaker 1: And that's really the situation I think we have to 572 00:31:12,560 --> 00:31:16,840 Speaker 1: be worried about. So no cuts at the to the 573 00:31:16,840 --> 00:31:19,840 Speaker 1: target rate. I mean they've told us time and time again. 574 00:31:20,640 --> 00:31:23,680 Speaker 1: Jerome Palace said, don't expect any cuts in twenty twenty three, 575 00:31:23,800 --> 00:31:26,520 Speaker 1: but the market is still pricing in four From the 576 00:31:26,560 --> 00:31:29,520 Speaker 1: way I read the WORP page, the World Interest Rate 577 00:31:29,560 --> 00:31:32,560 Speaker 1: probability page, and you're probably someone who's much better at 578 00:31:32,560 --> 00:31:35,080 Speaker 1: reading that kind of stuff, I'm not sure it really 579 00:31:35,120 --> 00:31:37,560 Speaker 1: means that the market believes the FED is going to 580 00:31:37,640 --> 00:31:40,120 Speaker 1: cut rates four times. Maybe they're hedging as well well. 581 00:31:40,320 --> 00:31:43,520 Speaker 1: I mean that's where the three month live or or 582 00:31:43,560 --> 00:31:47,240 Speaker 1: the sofa, you know, futures are priced for. So people 583 00:31:47,240 --> 00:31:50,680 Speaker 1: are actually out there putting on positions that are directing 584 00:31:50,720 --> 00:31:54,840 Speaker 1: these these these yielding you know, break evens. I think 585 00:31:54,840 --> 00:31:56,920 Speaker 1: the answer to all this is and the last time 586 00:31:56,920 --> 00:31:58,120 Speaker 1: I was on, I think Paul asked me, do I 587 00:31:58,160 --> 00:32:01,120 Speaker 1: think they're gonna cut rates? The answer is generally know unless, 588 00:32:01,360 --> 00:32:04,280 Speaker 1: and the unless is a really is a stocking marker 589 00:32:04,360 --> 00:32:07,520 Speaker 1: comes apart. I see no wonders. I don't understand why 590 00:32:07,520 --> 00:32:12,120 Speaker 1: anyone thinks if you're near full employment and the economy 591 00:32:12,200 --> 00:32:15,880 Speaker 1: is still doing okay, why the FED has any reason 592 00:32:16,040 --> 00:32:19,520 Speaker 1: to cut rates. And it's the equity market that feels 593 00:32:19,520 --> 00:32:22,640 Speaker 1: it needs lower yields to push prices up in this 594 00:32:22,720 --> 00:32:25,520 Speaker 1: type of environment, the FED, I think, if you're looking 595 00:32:25,520 --> 00:32:30,000 Speaker 1: at a longer term, you know, a dynamic stochastic process 596 00:32:30,080 --> 00:32:32,920 Speaker 1: or whatever you want to call it, the FED needs 597 00:32:32,960 --> 00:32:36,600 Speaker 1: to ring out inflation to actually maximize the outcomes over 598 00:32:36,640 --> 00:32:38,640 Speaker 1: a long period of time, not just in the next 599 00:32:38,680 --> 00:32:42,440 Speaker 1: three year six. Do you think is materially coming down 600 00:32:42,720 --> 00:32:45,520 Speaker 1: or is it just kind of stuff we see maybe 601 00:32:45,960 --> 00:32:47,560 Speaker 1: I think some of it is and some of it isn't. 602 00:32:47,600 --> 00:32:49,800 Speaker 1: If you go into a restaurant and try and right, 603 00:32:49,920 --> 00:32:51,640 Speaker 1: or you fly or you go to I mean, I 604 00:32:51,680 --> 00:32:54,520 Speaker 1: can tell you stories about hotel prices just you fall, 605 00:32:54,640 --> 00:32:56,560 Speaker 1: you fall off your chair. If you look at some 606 00:32:56,600 --> 00:32:58,440 Speaker 1: of the things, for example, some of the union issues 607 00:32:58,440 --> 00:33:00,400 Speaker 1: that are going on now, I think you know, if 608 00:33:00,480 --> 00:33:03,200 Speaker 1: Rutgers just went on strike, I mean, this is not 609 00:33:03,320 --> 00:33:06,320 Speaker 1: the type of behavior in a weak economy where you're 610 00:33:06,320 --> 00:33:08,520 Speaker 1: worried about your job. This is I think you deserve 611 00:33:08,600 --> 00:33:11,520 Speaker 1: to pay me more. And the question is if we're 612 00:33:11,560 --> 00:33:13,840 Speaker 1: going to continue to see upward pressure, I think the 613 00:33:13,880 --> 00:33:16,920 Speaker 1: doc workers are threatening or on strikeout West again, that 614 00:33:17,000 --> 00:33:19,200 Speaker 1: by the way, has much more of a flow through impact. 615 00:33:19,720 --> 00:33:21,880 Speaker 1: You know. Then then you've got the issues that it 616 00:33:21,920 --> 00:33:26,680 Speaker 1: makes it harder and harder to you know, to look 617 00:33:26,720 --> 00:33:29,760 Speaker 1: at say commodity price inflation and ignore the other stuff. 618 00:33:29,800 --> 00:33:33,640 Speaker 1: What do you pay attention to the Jolts data? Yes, 619 00:33:34,120 --> 00:33:36,320 Speaker 1: why is it now? I went back and just looked, 620 00:33:36,320 --> 00:33:39,200 Speaker 1: and it usually is like four to five million, six million. 621 00:33:39,640 --> 00:33:43,000 Speaker 1: We've been sitting around ten or eleven million openings for 622 00:33:43,040 --> 00:33:46,280 Speaker 1: a long time. What's happened our workforce world? Well, it's not, 623 00:33:46,360 --> 00:33:48,120 Speaker 1: by the way, Number one, it's not clear that those 624 00:33:48,120 --> 00:33:50,320 Speaker 1: are all real jobs. I mean, sometimes if you need, 625 00:33:50,360 --> 00:33:53,720 Speaker 1: if you need workers, you may be spreading out more 626 00:33:55,240 --> 00:33:57,960 Speaker 1: job requests and you don't know if that people are 627 00:33:58,000 --> 00:34:00,920 Speaker 1: on multiple I'm not an expert on the dynamics that's hot, 628 00:34:00,960 --> 00:34:02,680 Speaker 1: but that's for sure true. I mean I can just 629 00:34:03,000 --> 00:34:07,800 Speaker 1: tell you looking for used Hellcat online, use what dodge 630 00:34:07,840 --> 00:34:11,239 Speaker 1: Challenger Hellcat. A lot of the ads there are no 631 00:34:11,280 --> 00:34:13,040 Speaker 1: longer relevant, you know. And it's the same thing with 632 00:34:13,120 --> 00:34:16,680 Speaker 1: job with job openings. Right. You're listening to the team 633 00:34:17,000 --> 00:34:20,399 Speaker 1: Ken's her live program Bloomberg Markets weekdays at ten am 634 00:34:20,400 --> 00:34:23,520 Speaker 1: Eastern on Bloomberg dot Com, the I Heard Radio app 635 00:34:23,640 --> 00:34:26,080 Speaker 1: and the Bloomberg Business App. We're listening on to mand 636 00:34:26,120 --> 00:34:30,320 Speaker 1: wherever you get your podcast. What did tree here? We 637 00:34:30,400 --> 00:34:32,719 Speaker 1: got a new contributor to Bloomberg News in New York. 638 00:34:32,719 --> 00:34:34,160 Speaker 1: I mean, just been your fault. I was gonna say, 639 00:34:34,200 --> 00:34:38,040 Speaker 1: not new to me. I've been interviewing her since before 640 00:34:38,160 --> 00:34:42,319 Speaker 1: she left, then while she was gone, and now she's 641 00:34:42,400 --> 00:34:45,800 Speaker 1: come back. She's back, Simone Foxman. She is a reporter 642 00:34:45,840 --> 00:34:48,120 Speaker 1: for Bloomberg News, joining us here in our Bloomberg Interactive 643 00:34:48,120 --> 00:34:50,760 Speaker 1: Broker studio. So you get a gold star for coming 644 00:34:50,800 --> 00:34:52,680 Speaker 1: in not phoning it in, Matt Night. We may we 645 00:34:52,800 --> 00:34:55,920 Speaker 1: keep notes of that, Simone. You were in Qatar for 646 00:34:56,000 --> 00:34:58,319 Speaker 1: like how many years? For three and a half years 647 00:34:58,360 --> 00:35:03,920 Speaker 1: and covering all things, covering all things geopolitics, energy, a 648 00:35:03,920 --> 00:35:05,960 Speaker 1: little sports. Yeah, I remember we talked to her. We 649 00:35:05,960 --> 00:35:08,759 Speaker 1: talked to her during the World Cup. That's right, that's right. Oh, 650 00:35:08,800 --> 00:35:11,680 Speaker 1: that's oh boy, what a great time with or soccer. 651 00:35:11,880 --> 00:35:15,120 Speaker 1: Still it's still soccer to me. Good all right, But 652 00:35:15,200 --> 00:35:18,839 Speaker 1: and you also did energy in a big way, right, yeah, yeah, absolutely, So. 653 00:35:18,880 --> 00:35:21,239 Speaker 1: I mean you know OPEC plus what was it a 654 00:35:21,280 --> 00:35:24,880 Speaker 1: week or so ago of yeah, it was it was 655 00:35:25,440 --> 00:35:30,320 Speaker 1: Sunday before last. Okay, OPEC plus comes in and cuts production. 656 00:35:30,880 --> 00:35:32,520 Speaker 1: What do you make of that? I mean it sounded 657 00:35:32,560 --> 00:35:36,960 Speaker 1: pretty coordinated to me. Absolutely. I mean, look, we clearly 658 00:35:37,000 --> 00:35:42,680 Speaker 1: have golf producers, especially Saudi Arabia, wanting oil prices higher. 659 00:35:43,040 --> 00:35:45,520 Speaker 1: You know, they're looking for eighty dollars of barrel and 660 00:35:45,600 --> 00:35:49,040 Speaker 1: that's largely because of the economic transformation that Saudi Arabia 661 00:35:49,200 --> 00:35:53,880 Speaker 1: is pursuing. It has these you know, trillion dollar projects 662 00:35:53,960 --> 00:35:56,880 Speaker 1: right like Neiom and needs the money and needs the 663 00:35:56,880 --> 00:36:00,400 Speaker 1: money in order to is what. That's the that's the Drey, 664 00:36:00,560 --> 00:36:03,560 Speaker 1: It's the dream city on the Red Sea. Yes, this 665 00:36:03,640 --> 00:36:07,600 Speaker 1: is extremely exciting really building it. They are absolutely trying 666 00:36:07,719 --> 00:36:10,880 Speaker 1: to build it. They are hiring lots of people, slow process. 667 00:36:10,920 --> 00:36:14,319 Speaker 1: They have big targets for twenty thirty. Actually, so we're 668 00:36:14,320 --> 00:36:16,239 Speaker 1: gonna try and see. We're gonna see how this goes 669 00:36:16,239 --> 00:36:18,239 Speaker 1: over the next course of the cut, next couple of years. 670 00:36:18,280 --> 00:36:21,040 Speaker 1: This will be the biggest master plan community in the world. 671 00:36:21,160 --> 00:36:23,879 Speaker 1: When they're really and if you if you check out 672 00:36:24,080 --> 00:36:27,279 Speaker 1: so the projections, it's this line. I believe it's like 673 00:36:27,360 --> 00:36:30,319 Speaker 1: fifteen hundred kilombs. There's a very law I don't want 674 00:36:30,320 --> 00:36:34,560 Speaker 1: to say the wrong number here, extremely length, the massive project, 675 00:36:34,640 --> 00:36:37,399 Speaker 1: super futuristic. But you know, in order to do this, 676 00:36:37,800 --> 00:36:40,920 Speaker 1: they need oil prices at eighty dollars a barrel because 677 00:36:41,080 --> 00:36:43,760 Speaker 1: you know, their break even is something like seventy dollars 678 00:36:43,760 --> 00:36:46,160 Speaker 1: a barrel, so they need that extra to balance there. Well, 679 00:36:46,160 --> 00:36:48,800 Speaker 1: they got it there, right, I mean, WTI trades for 680 00:36:48,840 --> 00:36:52,239 Speaker 1: around eighty Brent trades for eighty five and yeah, right now. 681 00:36:52,320 --> 00:36:54,160 Speaker 1: But I mean I think that's why you see a 682 00:36:54,239 --> 00:36:57,120 Speaker 1: move from OPEC plus you know, this time really led 683 00:36:57,120 --> 00:37:00,239 Speaker 1: by Saudi Arabia cutting five hundred thousand barrels a day. 684 00:37:00,920 --> 00:37:04,000 Speaker 1: That's why you're seeing this because they need that oil price. 685 00:37:04,000 --> 00:37:07,600 Speaker 1: And so if there's any concern about demand from China 686 00:37:08,239 --> 00:37:12,919 Speaker 1: going you know, rebounding slower than expect it, concerns about 687 00:37:12,920 --> 00:37:15,600 Speaker 1: recession in the United States and Europe, you're going to 688 00:37:15,640 --> 00:37:18,000 Speaker 1: see them be really proactive about this to try and 689 00:37:18,120 --> 00:37:20,640 Speaker 1: keep those prices high. I think that's just the way 690 00:37:20,680 --> 00:37:24,720 Speaker 1: they've come out on this so far, it looks good 691 00:37:24,800 --> 00:37:28,680 Speaker 1: in terms of the European and US economies. Right the 692 00:37:28,800 --> 00:37:31,840 Speaker 1: China reopening, is that still the big question mark? I 693 00:37:31,880 --> 00:37:33,879 Speaker 1: think it's a little bit of everything. I think there's 694 00:37:33,880 --> 00:37:36,840 Speaker 1: just a broader concern that you know, you're going to 695 00:37:36,880 --> 00:37:40,600 Speaker 1: see the FED continue to tighten because of things like 696 00:37:40,960 --> 00:37:44,080 Speaker 1: inflation remaining high, and I think energy doesn't probably help 697 00:37:44,160 --> 00:37:48,640 Speaker 1: that kind of conversation. But yeah, I mean, look, you know, 698 00:37:49,239 --> 00:37:51,440 Speaker 1: I think the markets are just jittery and they haven't 699 00:37:51,560 --> 00:37:54,840 Speaker 1: kind of landed on an ultimate explanation, and you know, 700 00:37:54,960 --> 00:37:57,560 Speaker 1: unless things turn around in China, then you know, the 701 00:37:57,600 --> 00:38:01,680 Speaker 1: whole question is bigger. If you're so for the Qatar economy, 702 00:38:01,960 --> 00:38:06,799 Speaker 1: is it all energy? A lot energy? I forget the 703 00:38:06,840 --> 00:38:10,640 Speaker 1: exact breakdown, but they have tried to grow their um 704 00:38:10,920 --> 00:38:17,040 Speaker 1: non energy sector, tourism, tourism. Wealthy people that are going 705 00:38:17,080 --> 00:38:19,160 Speaker 1: to be arrested everywhere else in the world love to 706 00:38:19,200 --> 00:38:21,840 Speaker 1: go to Qatar. Right, Hey, I mean I feel like 707 00:38:21,880 --> 00:38:23,920 Speaker 1: I feel like you can lump a couple well I 708 00:38:23,960 --> 00:38:26,080 Speaker 1: shouldn't say this, but there's a lot of things that 709 00:38:26,120 --> 00:38:30,440 Speaker 1: are the same among these Gulf countries, and there's reasons. 710 00:38:30,920 --> 00:38:34,480 Speaker 1: Clutter is no longer part of OPEC, but there's reasons 711 00:38:34,320 --> 00:38:39,480 Speaker 1: for all of them. No, no geopolitical, but but there's reasons. 712 00:38:39,480 --> 00:38:41,880 Speaker 1: They all want to keep oil prices relatively high. You 713 00:38:41,920 --> 00:38:44,040 Speaker 1: look at the UAE as well. I mean, these are 714 00:38:44,080 --> 00:38:49,280 Speaker 1: all places that see the end of hydrocarbons eventually down 715 00:38:49,320 --> 00:38:51,440 Speaker 1: the road, and they say, this is our moment to 716 00:38:51,480 --> 00:38:54,640 Speaker 1: really capitalize on this, to try and build non oil 717 00:38:54,680 --> 00:38:58,440 Speaker 1: economies that haven't existed before, with the exception maybe of Dubai, 718 00:38:58,520 --> 00:39:01,719 Speaker 1: which really largely is moved through its oil. And so 719 00:39:01,920 --> 00:39:04,680 Speaker 1: again that's why you've seen them act in conjunction. So 720 00:39:04,760 --> 00:39:07,640 Speaker 1: the place to go a really hot place if you're 721 00:39:08,280 --> 00:39:13,319 Speaker 1: an international fugitive billionaire has been Dubai. Right, But isn't 722 00:39:13,360 --> 00:39:17,799 Speaker 1: Saudi Arabia trying to get some market the boost the 723 00:39:17,880 --> 00:39:21,160 Speaker 1: profile of RIAD to get some of those people. Okay, 724 00:39:21,239 --> 00:39:25,160 Speaker 1: not the fugitive billionaires. I don't think anyone particularly is 725 00:39:25,200 --> 00:39:31,120 Speaker 1: excited about hosting them. But maybe the former king of Spain, right, Okay, Well, 726 00:39:31,680 --> 00:39:35,600 Speaker 1: Yad's plan is say everyone move your global headquarters here 727 00:39:35,640 --> 00:39:39,480 Speaker 1: if you want contracts with Saudi Arabia over the coming years. 728 00:39:39,719 --> 00:39:41,359 Speaker 1: And they've said, you know, a deadline. I believe it's 729 00:39:41,400 --> 00:39:45,080 Speaker 1: twenty twenty four. But you've got to move here if 730 00:39:45,120 --> 00:39:48,560 Speaker 1: you want our contracts. You can't have your regional headquarters 731 00:39:48,600 --> 00:39:50,400 Speaker 1: and somewhere else like Dubai. So this has been a 732 00:39:50,440 --> 00:39:53,480 Speaker 1: real challenge to Dubai. You know, the problem with Saudi 733 00:39:53,480 --> 00:39:57,640 Speaker 1: Arabia is the standard of living is different than you 734 00:39:57,719 --> 00:39:59,919 Speaker 1: might expect. It's very it's very different from the West. 735 00:40:00,239 --> 00:40:03,399 Speaker 1: Still feels foreign despite all the reforms that you've seen 736 00:40:03,440 --> 00:40:05,960 Speaker 1: there in the last couple of years. You know, the 737 00:40:06,160 --> 00:40:10,160 Speaker 1: looser dress codes, you can find alcohol even though it 738 00:40:10,160 --> 00:40:12,960 Speaker 1: continues to be illegal. You know, but there's various reasons 739 00:40:13,000 --> 00:40:16,120 Speaker 1: people don't want to live in real Okay, so where 740 00:40:16,160 --> 00:40:18,160 Speaker 1: they still do want to live in places like the 741 00:40:18,280 --> 00:40:21,160 Speaker 1: UAE or even though hot for that matter. Okay, Well, 742 00:40:21,200 --> 00:40:24,360 Speaker 1: I guess you know it's interesting here because the Journal 743 00:40:24,400 --> 00:40:27,160 Speaker 1: had a story out recently, Saudi led oil cuts hit headwind. 744 00:40:27,560 --> 00:40:30,760 Speaker 1: Some small producers have boosted their output, threatening to undercut 745 00:40:30,840 --> 00:40:34,080 Speaker 1: the effort. I mean, how powerful is OPEC and OPEC 746 00:40:34,120 --> 00:40:37,479 Speaker 1: plus today versus I don't know twenty thirty years ago, 747 00:40:37,920 --> 00:40:40,920 Speaker 1: because it seemed pretty like they still kind of have it. 748 00:40:40,960 --> 00:40:42,800 Speaker 1: If you will, they can still move the markets. Obviously, 749 00:40:42,880 --> 00:40:44,880 Speaker 1: well absolutely, they can still move the markets, but I 750 00:40:44,880 --> 00:40:48,040 Speaker 1: think the US supply is a real challenge to them. 751 00:40:48,080 --> 00:40:51,239 Speaker 1: And notably, the US has increased its output by more 752 00:40:51,280 --> 00:40:54,000 Speaker 1: than a billion barrels a day over the past year. 753 00:40:54,239 --> 00:40:57,120 Speaker 1: But the Washer Journal story it points out something very 754 00:40:57,200 --> 00:41:01,799 Speaker 1: interesting that even members of OPEC the issue. Part of 755 00:41:01,800 --> 00:41:04,680 Speaker 1: the reason that we had really you know, tight markets, 756 00:41:04,760 --> 00:41:07,480 Speaker 1: high prices for a little while was because even members 757 00:41:07,480 --> 00:41:11,759 Speaker 1: of OPEC, like Nigeria, for example, they were overcomplying so 758 00:41:12,400 --> 00:41:16,000 Speaker 1: weren't producing as much as the quota that they had. 759 00:41:16,080 --> 00:41:20,920 Speaker 1: So the issue for places like Saudi Arabia is now 760 00:41:20,960 --> 00:41:23,720 Speaker 1: they're actually producing much closer to the quota they had. 761 00:41:24,480 --> 00:41:27,880 Speaker 1: You know, they'd shut down some of their mining and 762 00:41:27,960 --> 00:41:31,280 Speaker 1: production for COVID nineteen and it was a slow start 763 00:41:31,320 --> 00:41:34,759 Speaker 1: for them. They there was some theft issues, particularly in Nigeria, 764 00:41:34,920 --> 00:41:37,960 Speaker 1: but you know, Nigeria adding three hundred fifty thousand barrels 765 00:41:37,960 --> 00:41:40,760 Speaker 1: per days in September, you know, that erases about half 766 00:41:40,760 --> 00:41:43,680 Speaker 1: of the Saudi cut at that time. So it's not 767 00:41:43,760 --> 00:41:46,960 Speaker 1: just the overall OPEC plus move, it's you know, working 768 00:41:47,000 --> 00:41:50,279 Speaker 1: against these even small players one hundred thousand barrels a 769 00:41:50,320 --> 00:41:53,160 Speaker 1: day here, two hundred thousand dollars a day there. You know, 770 00:41:53,239 --> 00:41:56,600 Speaker 1: that erodes the overall power of someone like Saudi Arabia, Russia. 771 00:41:56,719 --> 00:42:01,840 Speaker 1: Let's broaden it out to a globe conversation about gas prices, 772 00:42:01,880 --> 00:42:05,359 Speaker 1: because we were freaking out. We were a year ago, 773 00:42:05,600 --> 00:42:09,560 Speaker 1: and especially Europe was not in a good place. But 774 00:42:09,600 --> 00:42:14,040 Speaker 1: they've done relatively well, helped by I guess a milder weather. Right, 775 00:42:14,440 --> 00:42:18,360 Speaker 1: how does it look now we're heading in the summer, 776 00:42:18,400 --> 00:42:21,080 Speaker 1: so we're gonna be okay, but going in the next winter. Yeah, 777 00:42:21,120 --> 00:42:24,920 Speaker 1: they got super lucky with the weather, and it really 778 00:42:25,000 --> 00:42:29,680 Speaker 1: meant that storage was not eroded by as much as 779 00:42:29,719 --> 00:42:32,960 Speaker 1: it could have been. I think we ended the season, 780 00:42:33,040 --> 00:42:37,800 Speaker 1: the overall season around sixty percent of storage still remaining full. 781 00:42:39,040 --> 00:42:40,640 Speaker 1: And we heard a lot of folks, you know, I 782 00:42:40,640 --> 00:42:43,319 Speaker 1: think coming into this, you're saying, well, the twenty twenty 783 00:42:43,320 --> 00:42:46,920 Speaker 1: three twenty twenty four winter, that's gonna be the main concern. 784 00:42:47,360 --> 00:42:50,760 Speaker 1: But now you have Morgan Stanley's saying that they believe 785 00:42:50,800 --> 00:42:52,880 Speaker 1: that European storage is gonna be a one hundred percent 786 00:42:53,040 --> 00:42:56,239 Speaker 1: full by late August. That's not so far off from 787 00:42:56,239 --> 00:42:59,160 Speaker 1: our BNF forecast. Of a couple of weeks ago, ninety 788 00:42:59,239 --> 00:43:02,439 Speaker 1: percent at the end of September, and this really sets 789 00:43:02,480 --> 00:43:05,600 Speaker 1: them up for a very positive year here. A lot 790 00:43:05,640 --> 00:43:09,440 Speaker 1: of this, however, is demand destruction. You know, industry not 791 00:43:10,040 --> 00:43:14,360 Speaker 1: seeing much higher prices still and therefore you know, slower 792 00:43:14,440 --> 00:43:18,520 Speaker 1: European economy. That said, you know, if the concern was 793 00:43:18,560 --> 00:43:21,160 Speaker 1: that Europe's going to fall apart because there were decline 794 00:43:21,160 --> 00:43:25,120 Speaker 1: and supplies from Russia, that's just not really what we're seeing. Again. 795 00:43:25,160 --> 00:43:27,080 Speaker 1: We got a couple of winters here though, to get through. 796 00:43:27,719 --> 00:43:29,440 Speaker 1: All right, So you've been when you should move back 797 00:43:29,480 --> 00:43:32,200 Speaker 1: to New York, like two weeks ago? What do you 798 00:43:32,200 --> 00:43:36,000 Speaker 1: miss most of Qatar? The pool in my building? The pool? No, 799 00:43:36,200 --> 00:43:38,759 Speaker 1: I miss my friends too, but but you know you 800 00:43:38,880 --> 00:43:41,399 Speaker 1: live in New York City. Yep, I don't know how. 801 00:43:41,480 --> 00:43:43,520 Speaker 1: I mean, there are handful of people who probably have 802 00:43:43,560 --> 00:43:46,040 Speaker 1: a pool in their building. But you know, good upstairs 803 00:43:46,200 --> 00:43:48,399 Speaker 1: and what and what were you looking forward to most 804 00:43:48,400 --> 00:43:50,720 Speaker 1: coming back to New York? Oh, my friends and family 805 00:43:50,800 --> 00:43:52,680 Speaker 1: we live we live around here. But you know, also 806 00:43:53,760 --> 00:43:57,480 Speaker 1: good pizza, great pizza. I mean there was good food 807 00:43:57,480 --> 00:44:01,160 Speaker 1: in cluts are too, but um, you know the differences. 808 00:44:01,160 --> 00:44:03,160 Speaker 1: It's not walkable in the same way. It's very new, 809 00:44:03,200 --> 00:44:05,080 Speaker 1: it's very fresh, and I think it is going to 810 00:44:05,120 --> 00:44:10,760 Speaker 1: take them time to kind of build more cultural cachet. 811 00:44:10,880 --> 00:44:13,160 Speaker 1: That's just that's just my opinion. Well, welcome back to 812 00:44:13,200 --> 00:44:17,080 Speaker 1: the capital of the world. All right, Simon Foxman. She's 813 00:44:17,080 --> 00:44:20,560 Speaker 1: a reporter for Bloomberg Television and News. Joining us here 814 00:44:20,560 --> 00:44:23,120 Speaker 1: in a Bloomberg in Actor Broker studio. You're listening to 815 00:44:23,160 --> 00:44:26,719 Speaker 1: the tape cans are live program Bloomberg Markets weekdays at 816 00:44:26,719 --> 00:44:30,400 Speaker 1: ten am Eastern on Bloomberg Radio, tune in app, Bloomberg 817 00:44:30,440 --> 00:44:32,960 Speaker 1: dot Com, and the Bloomberg Business App. You can also 818 00:44:33,080 --> 00:44:36,640 Speaker 1: listen live on Amazon Alexa from our flagship New York station. 819 00:44:36,840 --> 00:44:42,040 Speaker 1: Just say Alexa play Bloomberg eleven thirty. Looking at the 820 00:44:42,080 --> 00:44:47,000 Speaker 1: shares of CarMax about eleven percent today, put out some 821 00:44:47,040 --> 00:44:50,560 Speaker 1: pretty good numbers. Let's get break it all down. We'll 822 00:44:50,600 --> 00:44:53,279 Speaker 1: talk all things auto. Since Matt Miller is not here, 823 00:44:53,320 --> 00:44:55,160 Speaker 1: he went over to the TV studio to get ready 824 00:44:55,160 --> 00:44:57,400 Speaker 1: for his show. So let's talk cars. Kevin Tyne and 825 00:44:57,440 --> 00:45:01,279 Speaker 1: Cedar auto analysts for Bloomberg Intelligence. So Carmack's big moving 826 00:45:01,280 --> 00:45:04,920 Speaker 1: to stock here today. Kevin, what's the story with their earnings. Yeah, 827 00:45:04,960 --> 00:45:09,800 Speaker 1: you know one of the companies that just given the scale, 828 00:45:09,960 --> 00:45:14,640 Speaker 1: the experience, the market positioning that you did a decent 829 00:45:14,760 --> 00:45:19,160 Speaker 1: job with controlling costs in a market where volume is 830 00:45:19,200 --> 00:45:22,839 Speaker 1: going to be low for a while. Gross profit per 831 00:45:22,920 --> 00:45:26,200 Speaker 1: unit was strong, but you know, this is a company 832 00:45:26,239 --> 00:45:29,240 Speaker 1: that's going to be dealing with a much lower volume 833 00:45:29,320 --> 00:45:32,719 Speaker 1: environment for probably quite a while, and that's really what 834 00:45:32,840 --> 00:45:36,400 Speaker 1: derailed you know, some of the pure play online only 835 00:45:37,440 --> 00:45:41,680 Speaker 1: used sellers like Carvana and Shift and Room and companies 836 00:45:41,719 --> 00:45:45,840 Speaker 1: like that. So you know, just their market position was 837 00:45:45,840 --> 00:45:48,120 Speaker 1: was a big advantage to them in this kind of 838 00:45:48,600 --> 00:45:51,400 Speaker 1: environment where we're just not going to sell as much stuff. 839 00:45:51,760 --> 00:45:54,400 Speaker 1: And Kevin I remember just you know, putting in the 840 00:45:54,440 --> 00:45:58,160 Speaker 1: context when the pandemic hit, you know, Detroit shutdown its 841 00:45:58,239 --> 00:46:00,840 Speaker 1: lines and so people in the car they had to 842 00:46:00,920 --> 00:46:03,080 Speaker 1: really start looking at the used car market, and as result, 843 00:46:03,200 --> 00:46:05,799 Speaker 1: used cars went prices went through the roof. Are we 844 00:46:05,880 --> 00:46:10,840 Speaker 1: now lapping that? And that tough tough comps? Now, well 845 00:46:10,880 --> 00:46:13,399 Speaker 1: here's a problem. And you know, everything you hear about 846 00:46:13,400 --> 00:46:15,520 Speaker 1: the used car market is like, oh just wait, here 847 00:46:15,520 --> 00:46:21,400 Speaker 1: comes prices just tumbling down, and you know that volume issue. 848 00:46:21,560 --> 00:46:24,319 Speaker 1: On the news side, I think bleeds into the use 849 00:46:24,400 --> 00:46:27,120 Speaker 1: side as time goes by, and especially like in areas 850 00:46:27,160 --> 00:46:31,319 Speaker 1: like leasing. You know, so when we prior to the pandemic, 851 00:46:31,360 --> 00:46:33,960 Speaker 1: if you're talking about a seventeen million unit market at 852 00:46:34,000 --> 00:46:37,040 Speaker 1: thirty percent lease penetration, you know, we had five million 853 00:46:37,040 --> 00:46:40,160 Speaker 1: off lease vehicles coming every you know, every year. But 854 00:46:41,200 --> 00:46:45,120 Speaker 1: the pandemic hits and we go down to fourteen million 855 00:46:45,200 --> 00:46:48,719 Speaker 1: unit market. And then on the news side, you're not 856 00:46:48,800 --> 00:46:52,480 Speaker 1: incentivizing those sales because there's so much lower right selling 857 00:46:52,560 --> 00:46:57,360 Speaker 1: over sticker, no more incentives, no more discounting, so prices 858 00:46:57,400 --> 00:47:00,279 Speaker 1: are high. So you're getting a market or you had 859 00:47:00,320 --> 00:47:04,399 Speaker 1: a market that didn't need lease incentives. So leasing goes 860 00:47:04,440 --> 00:47:08,359 Speaker 1: down to twenty percent in twenty twenty two, and we 861 00:47:08,440 --> 00:47:11,840 Speaker 1: only did fourteen million units. So you're talking about a 862 00:47:11,920 --> 00:47:14,640 Speaker 1: world where we're going to see instead of five million 863 00:47:14,680 --> 00:47:18,279 Speaker 1: off lease vehicles, two and a half. And so that 864 00:47:18,360 --> 00:47:21,640 Speaker 1: kind of situation, you're saying, like, Okay, well, how do 865 00:47:21,800 --> 00:47:24,560 Speaker 1: prices come down if we're going to cut the off 866 00:47:24,680 --> 00:47:29,160 Speaker 1: lease supply in half? Yep? Yep. So I mean maybe 867 00:47:29,440 --> 00:47:31,319 Speaker 1: we've seen the declines we're going to see. So so 868 00:47:31,360 --> 00:47:36,120 Speaker 1: if I'm CarMax am am, I like the new, like 869 00:47:36,160 --> 00:47:38,920 Speaker 1: the new model year guys. If I'm at like CarMax 870 00:47:38,960 --> 00:47:41,399 Speaker 1: selling used cars, am I selling fewer units but maybe 871 00:47:41,440 --> 00:47:43,719 Speaker 1: at a higher gross margin? I think so. And I 872 00:47:43,760 --> 00:47:47,720 Speaker 1: think like you said, you know, new vehicle dealers, and 873 00:47:47,920 --> 00:47:50,600 Speaker 1: I mean full line dealers that are doing new use 874 00:47:50,760 --> 00:47:54,480 Speaker 1: part service financing Church. All those guys and then they 875 00:47:54,600 --> 00:47:58,040 Speaker 1: used only and the online used only, like, all those 876 00:47:58,160 --> 00:48:02,160 Speaker 1: dealers or all those retailers should be prepared in all 877 00:48:02,200 --> 00:48:05,480 Speaker 1: those business units to be doing less volume except for 878 00:48:06,120 --> 00:48:09,440 Speaker 1: probably you know, your service bays, your parts counters. Right 879 00:48:09,440 --> 00:48:11,480 Speaker 1: as people are going to be holding onto their vehicles 880 00:48:11,480 --> 00:48:14,520 Speaker 1: longer because of pricing or interest rates, you know, you 881 00:48:14,520 --> 00:48:17,879 Speaker 1: can expect you know, more wear and tear maintenance. So 882 00:48:18,280 --> 00:48:20,520 Speaker 1: the full line dealers probably have a little bit of 883 00:48:20,520 --> 00:48:24,960 Speaker 1: advantage in that business unit specifically, But anybody's selling vehicles 884 00:48:25,040 --> 00:48:28,520 Speaker 1: new or use prepare for a much lower volume environment. 885 00:48:28,719 --> 00:48:33,400 Speaker 1: All right. So again, in my lifetime, the Detroit you know, 886 00:48:33,440 --> 00:48:36,120 Speaker 1: the auto guys will crank out seventeen million units a year. 887 00:48:36,520 --> 00:48:38,880 Speaker 1: You're telling me that's kind of a thing of the past, 888 00:48:38,920 --> 00:48:41,160 Speaker 1: that these guys are going to have the discipline to 889 00:48:41,239 --> 00:48:43,520 Speaker 1: keep production down at I don't know, fourteen or fifteen 890 00:48:43,520 --> 00:48:45,920 Speaker 1: million a year. Yeah, I think so, And I don't know, 891 00:48:46,000 --> 00:48:48,600 Speaker 1: it's so much discipline. I think, you know, this is 892 00:48:48,640 --> 00:48:51,800 Speaker 1: where the market or the industry has wanted to be forever, 893 00:48:52,680 --> 00:48:56,120 Speaker 1: and it all comes down to rationalizing those costs. You know, 894 00:48:56,239 --> 00:48:58,680 Speaker 1: it was a world where it had to be seventeen 895 00:48:58,680 --> 00:49:01,400 Speaker 1: million units because you know, there was a lot of 896 00:49:01,440 --> 00:49:06,440 Speaker 1: fixed costs in their legacy costs, you know, pensions, union, 897 00:49:06,560 --> 00:49:10,600 Speaker 1: labor related costs. So it's really a different environment now 898 00:49:10,640 --> 00:49:14,400 Speaker 1: on the on the cost side of the ledger that 899 00:49:14,840 --> 00:49:17,040 Speaker 1: you just don't need to produce that many vehicles. And 900 00:49:17,040 --> 00:49:19,279 Speaker 1: I think the other thing that's nice too, when you 901 00:49:19,320 --> 00:49:21,120 Speaker 1: look at it from that perspective, you got all the 902 00:49:21,160 --> 00:49:24,120 Speaker 1: transportation costs, the carrying costs for the dealers. So it's 903 00:49:24,120 --> 00:49:28,800 Speaker 1: not just the manufacturers that are okay with this lower volume, 904 00:49:29,239 --> 00:49:33,600 Speaker 1: richer margin mix. It's also the retailers. Right. You don't 905 00:49:33,640 --> 00:49:39,280 Speaker 1: have you don't have logistics and floor plan expense on 906 00:49:40,360 --> 00:49:43,120 Speaker 1: a sea of vehicles that you're not going to move 907 00:49:43,160 --> 00:49:46,440 Speaker 1: for months at a time. Yeah, I guess so. I 908 00:49:46,440 --> 00:49:50,600 Speaker 1: mean it sounds like, you know, this is the best 909 00:49:50,760 --> 00:49:53,000 Speaker 1: spot the industry has been in from just a profitability 910 00:49:53,040 --> 00:49:55,719 Speaker 1: perspective that I can remember. I mean, is that am 911 00:49:55,760 --> 00:49:58,719 Speaker 1: I overstating it? No, not at all. And I think 912 00:49:58,719 --> 00:50:00,719 Speaker 1: that's the thing is everybody goes, oh, you know, are 913 00:50:00,719 --> 00:50:03,400 Speaker 1: they going to have the discipline? And you say, well, 914 00:50:03,920 --> 00:50:06,040 Speaker 1: you know, it's where you want it to be. So 915 00:50:06,080 --> 00:50:09,160 Speaker 1: it's it's not an accident that the industry is here. 916 00:50:09,200 --> 00:50:13,920 Speaker 1: I think, to their credit, manufacturers and even retailers have 917 00:50:14,040 --> 00:50:19,640 Speaker 1: moved their businesses to a point where it's it's more efficient, right, 918 00:50:19,880 --> 00:50:22,720 Speaker 1: fewer years now, you don't have to worry about tacking 919 00:50:22,760 --> 00:50:27,759 Speaker 1: on those extra two and a half three million units 920 00:50:27,760 --> 00:50:31,120 Speaker 1: by throwing money at the problem. Right, So hey, if 921 00:50:31,160 --> 00:50:33,759 Speaker 1: I only need to get my market share of a 922 00:50:33,800 --> 00:50:36,760 Speaker 1: fifteen million unit market, that's a lot easier than trying 923 00:50:36,800 --> 00:50:40,480 Speaker 1: to get that same market share and create a seventeen 924 00:50:40,520 --> 00:50:43,040 Speaker 1: million unit market. And it's you know, it's it's better 925 00:50:43,080 --> 00:50:46,160 Speaker 1: for the income statement, it's better for your retail network. 926 00:50:47,040 --> 00:50:51,879 Speaker 1: So it's a much organically healthy environment. But I think 927 00:50:51,920 --> 00:50:54,600 Speaker 1: people look at things from the consumer's perspective and say, 928 00:50:55,480 --> 00:50:57,400 Speaker 1: you know, where do those two and a half million 929 00:50:57,480 --> 00:51:00,680 Speaker 1: units go? The market is rolling over, it's you know, 930 00:51:00,719 --> 00:51:04,840 Speaker 1: it's it's it's devastated. It's and it's really not. It's 931 00:51:04,880 --> 00:51:09,960 Speaker 1: because the revenue pool is actually larger. How come it 932 00:51:10,000 --> 00:51:11,759 Speaker 1: seems like maybe this is a sector that should be 933 00:51:11,760 --> 00:51:15,360 Speaker 1: rerated from an investment perspective, stock perspective, a multiple perspective. 934 00:51:15,560 --> 00:51:17,480 Speaker 1: Are you surprised we haven't seen these stocks move higher 935 00:51:17,480 --> 00:51:19,359 Speaker 1: because it sounds like a lot better business than it 936 00:51:19,360 --> 00:51:21,640 Speaker 1: ever has been. Yeah, I think I think the way 937 00:51:21,680 --> 00:51:24,760 Speaker 1: it's looked at is that, right, you're either a growth 938 00:51:25,280 --> 00:51:28,400 Speaker 1: industry or you're a value play. And you know, I 939 00:51:28,400 --> 00:51:30,799 Speaker 1: think the problem is that when you go, well, how 940 00:51:30,840 --> 00:51:34,000 Speaker 1: do you explain being a growth industry going from fifteen 941 00:51:34,040 --> 00:51:36,960 Speaker 1: million years? You know, from seventeen to fifteen, Right, that's 942 00:51:37,000 --> 00:51:39,600 Speaker 1: the opposite of growth. But you know, people aren't really 943 00:51:39,640 --> 00:51:42,520 Speaker 1: looking at what that means for you know, the revenue 944 00:51:42,920 --> 00:51:47,879 Speaker 1: and profit contribution from fewer units. So, and I think 945 00:51:47,920 --> 00:51:50,799 Speaker 1: what we're on the verge of is, look this, this 946 00:51:50,840 --> 00:51:54,759 Speaker 1: industry couldn't grow total volume, so it became about mix 947 00:51:54,840 --> 00:51:57,799 Speaker 1: shift to truck from cary. Now you have a lot 948 00:51:57,840 --> 00:52:01,400 Speaker 1: of automakers that can't shift anymore truck for it is 949 00:52:01,440 --> 00:52:04,759 Speaker 1: like ninety eight percent already and most are already there. 950 00:52:05,120 --> 00:52:07,520 Speaker 1: So what you're getting now is that the next growth 951 00:52:07,520 --> 00:52:11,640 Speaker 1: opportunity comes from the mixed shift to electrification. Problem is 952 00:52:11,680 --> 00:52:16,000 Speaker 1: it's not profitable yet. And ultimately thirty seconds left, Kevin, Ultimately, 953 00:52:16,160 --> 00:52:18,000 Speaker 1: what do you think the profit margins on an EV 954 00:52:19,160 --> 00:52:21,759 Speaker 1: vehicle will be versus an ice? Well, you know, the 955 00:52:21,840 --> 00:52:28,440 Speaker 1: idea is that simple manufacturing, simpler manufacturing process, which I'm 956 00:52:28,480 --> 00:52:30,560 Speaker 1: not sure. I think if we look at the way 957 00:52:30,600 --> 00:52:33,040 Speaker 1: Tesla does things, there's a lot of copy and paste, 958 00:52:33,040 --> 00:52:36,319 Speaker 1: and you know, the models look the same, and you know, 959 00:52:36,360 --> 00:52:40,040 Speaker 1: I'm not sure that a full line portfolio is as 960 00:52:40,040 --> 00:52:43,120 Speaker 1: efficient in terms of production, but fewer moving parts, and 961 00:52:43,480 --> 00:52:45,040 Speaker 1: you know, the whole idea of it. Look, it's a 962 00:52:45,080 --> 00:52:47,240 Speaker 1: skateboard of batteries and then you're just going to flap 963 00:52:47,239 --> 00:52:49,680 Speaker 1: a different body on it. You know it can get there, 964 00:52:49,719 --> 00:52:52,800 Speaker 1: but you know you're talking about a whole different menu 965 00:52:52,920 --> 00:52:56,720 Speaker 1: of materials too. Yep, all right, Kevin. Always a pleasure 966 00:52:56,719 --> 00:52:58,640 Speaker 1: to speak with you, particularly when Matt's not here, because 967 00:52:58,680 --> 00:53:01,680 Speaker 1: I could get a question two in their Usually Matt 968 00:53:01,800 --> 00:53:04,800 Speaker 1: just goes all over the auto story. Thanks for listening 969 00:53:04,840 --> 00:53:08,319 Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen 970 00:53:08,360 --> 00:53:12,640 Speaker 1: to interviews of Apple podcasts, or whatever podcast platform you prefer. 971 00:53:13,040 --> 00:53:16,320 Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen 972 00:53:16,440 --> 00:53:19,080 Speaker 1: seventy three. And I'm fall Sweeney. I'm on Twitter at 973 00:53:19,120 --> 00:53:21,960 Speaker 1: pt Sweeney. Before the podcast, you can always catch us 974 00:53:22,040 --> 00:53:23,399 Speaker 1: worldwide at Bloomberg Radio