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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the

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Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am

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Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg

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Speaker 1: Business App. Listen on demand wherever you get your podcasts,

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Speaker 1: or watch us live on YouTube.

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Speaker 2: In the markets, the selloff continues got to be really

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Speaker 2: central though to tech. Shelby mcfatten, investment analyst at Motley

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Speaker 2: Full Asset Management, joins us. Now, Shelby, is your interpretation

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Speaker 2: that just continuing the overall market slide or that this

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Speaker 2: is a tech problem?

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Speaker 3: You know, I think it's a little bit of both, right.

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Speaker 3: I think tech usually gets to hit up front, and

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Speaker 3: part of that is because that's where a lot of

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Speaker 3: the froth has sort of concentrated itself. So we saw

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Speaker 3: that as well. A couple of years ago, we had

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Speaker 3: that initial sell off that then translated to the broader market,

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Speaker 3: which was we have to get some of these sort

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Speaker 3: of non foundational premiums out of the market and then

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Speaker 3: we can address things later. And oftentimes that might mean

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Speaker 3: that there's nothing to address because other things are somewhat

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Speaker 3: fairly priced. But I would say in these conditions we

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Speaker 3: could reasonably expect to continue across the broader, especially large

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Speaker 3: cap market, just because there are some genuine concerns that

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Speaker 3: sort of underpin the environment that we trade in.

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Speaker 4: Are you marking down your growth forecast for this US economy?

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Speaker 4: Are you marking up your inflation forecast for this economy?

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Speaker 3: We are definitely marking up our inflation expectations. Growth is

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Speaker 3: something we have to sort of go quarter by quarter,

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Speaker 3: and because we are bottom up, we tend to be

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Speaker 3: a little bit more focused on marking up or down

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Speaker 3: those growth expectations for each individual company. But I would

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Speaker 3: say if there's something we're looking at from top to bottom,

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Speaker 3: it's definitely inflation. So understanding at the very least that

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Speaker 3: we are most likely just going to be entering a

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Speaker 3: higher price level for the next four to seven years

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Speaker 3: than we may have expected about four years ago. And

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Speaker 3: that's something that we as a team had been thinking

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Speaker 3: about probably for the last two years. I mean, before

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Speaker 3: the first FED cut, there was a pretty broad expectation

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Speaker 3: on our team that we were more likely to end

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Speaker 3: up in the exact spot that the FED didn't want

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Speaker 3: us to be in, which was, hey, we can't get

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Speaker 3: under two. We're stuck at two and a half, we're

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Speaker 3: stuck at two point six, and with a lot of

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Speaker 3: the different prerogatives going on that are going to affect

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Speaker 3: the market, it's looking more and more likely that that'll

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Speaker 3: be the case.

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Speaker 2: But last time we spoke, and this was on TV,

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Speaker 2: it Shelby you like Costco. So to me, though, Costco

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Speaker 2: would definitely be in the line of fire for inflation

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Speaker 2: and the exposed consumer.

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Speaker 5: And they are.

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Speaker 3: And that's just the simple facts of it, right, because

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Speaker 3: even though they are the pretty much the best at

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Speaker 3: what they do, that doesn't take them out of the storms.

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Speaker 3: The way we like to think of it is, if

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Speaker 3: we have to go through this, we'd rather be in

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Speaker 3: a boat that's got multiple engines, right, instead of us

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Speaker 3: in a little canoe with an ore right. And so

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Speaker 3: that's how we sort of see Costcos that they've got turbos,

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Speaker 3: they can try and get through this. They still have

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Speaker 3: to weather it, but they're a little bit better prepared

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Speaker 3: to do it. We did hear from management upfront during

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Speaker 3: earnings the other week that they are starting to pick

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Speaker 3: up on some inventory, so they are doing what companies

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Speaker 3: at their scale can do early that smaller companies are

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Speaker 3: not necessarily able to do trying to get ahead of

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Speaker 3: any parap related issues with inventory, and we know they

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Speaker 3: can sell it down. We've seen them do it. We

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Speaker 3: saw other large companies do it after the sort of

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Speaker 3: buying heights of twenty twenty and twenty twenty one. So

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Speaker 3: if we have to choose where we want to be

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Speaker 3: while still getting that solid, sticky consumer exposure that's going

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Speaker 3: to provide value and get the traffic. We have no

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Speaker 3: intentions on leaving that kind of company right now because

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Speaker 3: they are in some of the best shape if we're

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Speaker 3: looking at active positions in the market.

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Speaker 4: Shelby, how do you feel about the consumer and how

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Speaker 4: does the impact kind of influence your stock selection? We

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Speaker 4: had some disappointing you miss data last friday. We had

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Speaker 4: the airlines last week cut their forward guidance. Are you

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Speaker 4: how concerned are you, if at all, about the consumer?

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Speaker 3: Yeah, we can definitely see the consumer heading into some

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Speaker 3: toper times. I don't think it's unreasonable to want to

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Speaker 3: take a look at that part of the portfolio and

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Speaker 3: figure out, Okay, what sort of exposure do we need

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Speaker 3: to trim? So where we want to focus and where

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Speaker 3: I'm focusing really is mission critical right staples and what

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Speaker 3: provides the most value if it is going to be discretionary.

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Speaker 3: So when we looked at that Umish data and we

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Speaker 3: saw the expectations, they're not great, right, They're reminiscent of

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Speaker 3: some dark times. But I think the important thing for

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Speaker 3: us to remember is that we have to also see

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Speaker 3: the outcomes. So looking at the expectations doesn't make you

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Speaker 3: feel anything exciting inside butterflies put in the worst way.

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Speaker 3: But that's for the you know, the sort of upcoming

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Speaker 3: short periods. We have to go ahead and see these

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Speaker 3: outcomes first. And it's it's you know, it's it's highly

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Speaker 3: possible that the expectations end up matching the outcomes. But

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Speaker 3: I think while we well, I wouldn't say I'm bullish

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Speaker 3: on the consumer. I've not given up yet because the

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Speaker 3: US consumer has shown to be very resilient and even

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Speaker 3: if we're going into a financing economy, that's still a

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Speaker 3: way to sort of you know, fun consumer activity.

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Speaker 2: Real quick, before I let you go, Shelby, what about

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Speaker 2: the positives of whatever we might see at a President Trump, Like,

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Speaker 2: if we really do reindustrialize the United States and manufacturing,

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Speaker 2: is there a play there yet for you guys.

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Speaker 3: You know, one of the first things we talked about

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Speaker 3: in our sort of what now meeting on I guess

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Speaker 3: it was November six, was you know, what does this

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Speaker 3: mean for corporates, because that was the one tangible thing

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Speaker 3: we just kind of like knew new for sure, if

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Speaker 3: you will, without having a crystal ball, that was most

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Speaker 3: likely coming back. And what that meant was it was

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Speaker 3: going to hopefully increase in capex and encourage more research

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Speaker 3: and development and innovation because of the tax incentives. So

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Speaker 3: that is a positive that we are still hoping will

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Speaker 3: roll out and that companies that are highly scaled and

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Speaker 3: able to make those decisions have those sort of piles

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Speaker 3: of cash and regular generative cash flow to make those reinvestments.

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Speaker 3: We'll be able to take advantage of that. So that's

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Speaker 3: one tangible thing that we were looking looking forward to

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Speaker 3: sticking and I think in some of the valid in

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Speaker 3: many cases noise coming out of the administration has been

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Speaker 3: dulled a little bit, but we do very much hold

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Speaker 3: on to that.

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Speaker 4: Shelby, thank you so much for joining us. Always appreciate

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Speaker 4: getting some of your thoughts.

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Speaker 5: Shelby.

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Speaker 4: MCFAD investment analysts from Motley Full Asset Management. Joining us

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Speaker 4: from Alexandria, Virginia via zoom your part.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 5: All right.

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Speaker 2: A news overnight, of course, is that Israel launched air

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Speaker 2: strikes across Gaza, killing hundreds of people and shattering in

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Speaker 2: early two months sees Fire with Hamas joining us now

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Speaker 2: for Morris Dan Williams, reporter for Bloomberg News based in Jerusalem. Dan,

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Speaker 2: how did this wind up unfolding overnight?

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Speaker 5: Well, tactically unfolded as a surprise.

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Speaker 6: In fact, I think we will discover in the coming

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Speaker 6: hours and days that the conversation that preoccupied many Israelis

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Speaker 6: and as a result, I imagine Hamas and Palestinians over

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Speaker 6: the weekend and over the last couple of days about

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Speaker 6: a shakeup within the government, a termination of Israel's internal

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Speaker 6: security chief. I imagine that was in part designed to

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Speaker 6: create a smoke screen, a tactical smoke screen, to lower

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Speaker 6: Hamas's guard and to enable these lightning strikes that began overnight,

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Speaker 6: but operationally speaking, strategically, they really should have surprised no

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Speaker 6: one because the last degreed ceasefire between Israel and Hamas

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Speaker 6: expired seventeen days ago. The sides were in loggerheads and

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Speaker 6: attempts to mediate negotiate through American and Arab mediation an

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Speaker 6: extension to that ceasefire, a new ceasefire deal. Israel responded

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Speaker 6: initially by cutting off aid supplies to Gaza and part

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Speaker 6: of the electrical supply there, and it openly said it

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Speaker 6: would resume warfare, something it promised to do all along

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Speaker 6: in order to achieve its goals of destroying Hamas and

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Speaker 6: retrieving hostages. It was just a matter of time before

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Speaker 6: we were to see this war beginner new failing a

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Speaker 6: capitulation by Hamas which simply was not in the cards.

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Speaker 4: Dan, do we know why Hamas has refused to release

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Speaker 4: the remaining hostages.

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Speaker 6: Well, certainly it's in a long term, diehard war against Israel.

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Speaker 6: Hamas has committed to seeing Israel's destruction, and what it

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Speaker 6: wants in a conclusion of this war is effectively a

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Speaker 6: return to with a kind of ceasefire we've seen between

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Speaker 6: Israel Hamas some half dozen times over the last twenty years. Basically,

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Speaker 6: Hamas wants to return to the status quo ante October sixth,

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Speaker 6: twenty twenty three, a day before it launched this attack

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Speaker 6: on Israel, albeit with far greater devastation in the Gaza

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Speaker 6: strip to deal with in terms of reconstruction. But Hamas

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Speaker 6: wants to stay in power and wants to retain its weaponry.

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Speaker 6: Israel has a very different objective here. Israel's objective is

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Speaker 6: not to return to the status quot ante, not to

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Speaker 6: enter another ceasefire that it believes Hamas will only.

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Speaker 5: Violate in the future.

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Speaker 6: Israel's attitude is that the October seventh attacks was a

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Speaker 6: game changer, and Israel is now changing the rules.

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Speaker 5: And the new rules.

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Speaker 6: According to israel As, Hamas cannot be allowed to remain

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Speaker 6: in Gaza, not in power, not with its rockets and rifles,

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Speaker 6: and not in a manner that will ever threaten Israel

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Speaker 6: from Gaza again.

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Speaker 5: So those two objectives, those.

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Speaker 6: Strategic endgames, are on the face of it, impossible to reconcile.

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Speaker 6: Israel was hoping at least to retain to recover some

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Speaker 6: of the hostages through pressure on Hamas, but even a

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Speaker 6: measure of return. Some of those return the ones that

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Speaker 6: Hamas said was willing to return. The numbers it was

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Speaker 6: offering well below the numbers that Israel was accepting for

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Speaker 6: an extension of the truce. But really that's irrelevant to

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Speaker 6: the ultimate fact that there is no reconciling the objectives

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Speaker 6: of the two sides, and the hostages and Palestinian civilians are.

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Speaker 5: Caught in the middle.

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Speaker 6: So now what, Well, what we've had now is intensive

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Speaker 6: Israeli air strikes, at least two or three waves since nightfall.

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Speaker 6: We've had, according to authorities and Yaza, at least four

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Speaker 6: hundred Palestinians killed, many of them civilians. It would appear

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Speaker 6: a number of senior Hamas figures as well. What we

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Speaker 6: don't have so far is a return of Israeli troops

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Speaker 6: and tanks two Palaestinian population centers in the Gaza strip,

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Speaker 6: were that to happen. If it happens, it would escalate

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Speaker 6: things much further in terms of the stakes, in terms

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Speaker 6: of the death toll, in terms of the risk posed

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Speaker 6: to hostages, be it from accidental damage caused by the

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Speaker 6: Israeli strikes, or be it from the open threat of

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Speaker 6: Hamas to execute the hostages should it believe the idef

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Speaker 6: Israeli forces are about to conduct a successful rescue. So

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Speaker 6: the stakes are getting higher by the hour. The question

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Speaker 6: is what is the off ramp offered to Hamas. Hamas

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Speaker 6: has been offered an off ramp in the form of

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Speaker 6: a consensual evacuation, a consensual exile for its leaders from

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Speaker 6: the Gaza Strip. Israel has even offered bounties of five

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Speaker 6: million dollars for any members of Hamas.

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Speaker 5: Who would give up hostages.

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Speaker 6: Deliver them safe and sound back to Israel, not just

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Speaker 6: the money, but also that will include safe passage and

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Speaker 6: immunity from Israeli strikes. So far, none of those offers

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Speaker 6: have found purchase among Palestinians in the Gaza Strip for

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Speaker 6: a number of reasons. I think Israel is hoping to

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Speaker 6: increase the pain, increase the pressure in a manner that

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Speaker 6: may cause Palestinians to reconsider. And indeed, if Israel does

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Speaker 6: manage to eliminate the current leadership of Hamas and the

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Speaker 6: Gaza Strip, it was very successful during the war and

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Speaker 6: doing it with the pre existing leadership. If it manages

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Speaker 6: to eliminate the new leadership, I think they're hoping that

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Speaker 6: they will have a trickle down effect, with more junior

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Speaker 6: commanders being more willing to cut a deal for their

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Speaker 6: own survival, realizing that the game is lost. But for

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Speaker 6: now it appeared that both sides are in their corners,

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Speaker 6: really doggedly sticking to their principles and their policies and

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Speaker 6: their strategies. It's very hard to see a way to

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Speaker 6: reconcile the two right now.

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Speaker 4: Is the US playing any role ready here Dan and

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Speaker 4: these because it seems like the administration's focused on Ukraine here, Well.

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Speaker 6: I'd say the US is the indeed focus in Ukraine,

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Speaker 6: but it's really playing a very significant role here, if

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Speaker 6: only rhetorically, and it's not only rhetorically. The Israelis know

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Speaker 6: that they have the back of a Trump administration that

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Speaker 6: has openly shown really indifference to.

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Speaker 5: The Hamas claims.

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Speaker 6: It's openly called for Hamas to be ousted in a

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Speaker 6: manner that really echoes Israel's demands. And ironically enough, these

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Speaker 6: ready defensive minister today use the Trump metaphor for what

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Speaker 6: Hamas will face if it doesn't relent on the issue

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Speaker 6: of hostages. He said, the gates of hell will open

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Speaker 6: on Hamas if it doesn't deliver the hostages. That's taken

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Speaker 6: directly out of the Trump playbook, the Trump rhetorical roster.

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Speaker 5: So the factor is a lockstep. Rhetoric is very important.

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Speaker 6: Because Hamas cannot necessarily hope to appeal to American public opinion,

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Speaker 6: or at least the US administration's opinion, when it comes

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Speaker 6: to suffering. I'd just like to add on this point

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Speaker 6: that the US attacks on the hoofies in Yemen since

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Speaker 6: the weekend, while they have their own objectives as outlined

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Speaker 6: by the Trump administration, have also blunted a strategic retaliatory

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Speaker 6: on farmas in the region.

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Speaker 5: That's probably been very helpful to his world too.

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Speaker 4: All Right, Dan, thank you so much for your reporting.

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Speaker 7: We really appreciate it.

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Speaker 4: Dan Williams, He's a reporter based in Jerusalem for Bloomberg News.

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Speaker 4: We appreciating the direct reporting there of the escalation of

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Speaker 4: the truth that has now been shattered, the ceasefire between

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Speaker 4: Israel and Hamswall's continued.

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Speaker 7: Reporting on that.

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Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 4: I'm looking at the thirty year mortgage that just quoted

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Speaker 4: by the Mortgage Bankers Association, thirty year fixed. It's down

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Speaker 4: to six point six seven percent, and that's down from

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Speaker 4: seven point zero nine percent just a couple of months ago.

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Speaker 4: So trending in the right direction got to be good

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Speaker 4: for real estate. I would think let's check it out

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Speaker 4: with Jeff Around, founder and CEO of T two Capital Management. Hey, Jeff,

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Speaker 4: in the commercial real estate business, we do have mortgages

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Speaker 4: coming down. Are you seeing that at all as a

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Speaker 4: positive sign for commercial real estate? For are they defined?

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Speaker 8: Definitely a positive sign. Commercial real estate very a very

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Speaker 8: leverage business. Infrast rates matter in a significant way. And

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Speaker 8: so yeah, we'll take a week and get if it's

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Speaker 8: moved from seven to six and two thirds, we'll take it.

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Speaker 4: Where in commercial real estate do you guys see relative

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Speaker 4: value the most attractive right now?

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Speaker 8: Yeah, there's a few spots and certainly a lot of

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Speaker 8: headlines get focused on the doom and gloom that's out there.

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Speaker 8: Office has been just a whipping boy for real estate

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Speaker 8: for really since COVID so called five years now. But

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Speaker 8: some bright spots are out there, and Tea two is

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Speaker 8: active in some of these spots. Private credit has been

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Speaker 8: a bit of a darling. Frankly, it's a great time

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Speaker 8: to be a lender right now, as as banks and

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Speaker 8: others kind of try to process all the information that's

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Speaker 8: going on, not just economically but politically and figure out

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Speaker 8: where is it wise to allocate capital. So being in

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Speaker 8: private credit, being that lender in these spots of uncertainty

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Speaker 8: has some advantages to them from a pricing power perspective. Also,

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Speaker 8: we have found a tremendous green shoot in student housing

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Speaker 8: as well. We recently exited a large position at the

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Speaker 8: University of Tennessee just last month. With liquidity as difficult

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Speaker 8: as it is to come by as in the past

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Speaker 8: couple of years, really for us to exit one hundred

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Speaker 8: plus million dollar position just last month is noteworthy. So

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Speaker 8: those two spots, credit and student housing have been real

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Speaker 8: free shoots for us.

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Speaker 2: So then how dony of you sort of some of

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Speaker 2: the difficulties in universities and colleges as costs really risees

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Speaker 2: some funding is taken away. Does that provide opportunity for

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Speaker 2: you or is that a risk factor?

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Speaker 7: A little bit of both. It's a great question.

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Speaker 8: I would say it definitely leads to greater discernment, greater investigates,

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Speaker 8: and greater diligence on various schools. It's easy to paint

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Speaker 8: real estate and even sectors within real estate with a

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Speaker 8: broad brush, but in student housing in particular, you've got

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Speaker 8: to pick your spots with schools with geographies, growth dynamics

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Speaker 8: or lack of dynamics in that regard. So there's again

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Speaker 8: you've got to be careful. You got to pick your spots.

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Speaker 8: But it is cause for a lot of us to

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Speaker 8: step back and at least reassess what had been true

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Speaker 8: even just a couple months ago.

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Speaker 4: How about on the multifamily front here, we've heard for

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Speaker 4: such a long time that there is a housing shortage

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Speaker 4: in the US. What role does multifamily play in kind

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Speaker 4: of solving that?

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Speaker 7: I think it plays a huge role.

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Speaker 8: You know, you just alluded to mortgage rates dropping from

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Speaker 8: seven is down to six and two thirds. It's a

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Speaker 8: meaningful lord wine at least to a lot of people

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Speaker 8: being able to jump into the housing space that may

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Speaker 8: not have had the ability to historically. But there has

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Speaker 8: been an affordability crisis for a long time within the

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Speaker 8: United States, and how's in shortage really since the Great

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Speaker 8: Financial Crisis, and my perception is that multifamily can fill

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Speaker 8: at least a bulk of that void. Now, what you

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Speaker 8: have on the flip side is we need to build.

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Speaker 8: Part of resolving the demand issue is providing supply. And

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Speaker 8: it's been incredibly difficult as investors to rationalize doing ground

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Speaker 8: up construction multi family projects anywhere in the country over

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Speaker 8: the past three or four years now, as we've had

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Speaker 8: to deal with rising interest rates. I think that seemed

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Speaker 8: to have leveled off at this point, but what you

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Speaker 8: have now are elevated insurance costs. We all know the

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Speaker 8: natural disasters that are taking place around the country and

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Speaker 8: what that leads to on the insurance front. And then

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Speaker 8: construction cost really have not abated that much. Really, they've

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Speaker 8: settled down a bit since COVID, but they haven't really

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Speaker 8: receded to the point where people can easily make sense

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Speaker 8: of ground up construction.

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Speaker 2: And to that point, we saw permits falling as well

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Speaker 2: today in the data that we got out at A

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Speaker 2: thirty and part of that was because we don't know

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Speaker 2: what those construction costs are going to be. In part

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Speaker 2: because of terror for risk when it comes to things

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Speaker 2: like lumber, and that's not even addressing labor.

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Speaker 7: Now it's a horrible story.

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Speaker 8: I you know what we're dealing with right now in

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Speaker 8: construction front on the front lines for us. We've got

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Speaker 8: a plumbing contractor, for instance, has recently taken the position

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Speaker 8: in light up tariffs in light of the uncertainty that's

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Speaker 8: out there, said hey, we can give you a bid

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Speaker 8: or I'm just going to tell you we're going to

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Speaker 8: mark it up by either thirty or forty percent and

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Speaker 8: you have twenty four hours to accept it or not.

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Speaker 8: So this is this sort of paranoia that exists out

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Speaker 8: there again kind of founded by the uncertainty that exists politically.

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Speaker 8: Has definitely caused a lot of people to step back

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Speaker 8: and reassess things.

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Speaker 4: Interesting, all right, Jeff, thank you so much for joining us.

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Speaker 4: Really appreciate it. Jeff Brown, founder and CEO of T two.

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Speaker 4: But to management, to talk about the commercial real estate business,

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Speaker 4: we have to keep our finger on the pulse of

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Speaker 4: that important market, which again has undergone a tremendous amount

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Speaker 4: of a dislocation from the pandemic and it's now getting

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Speaker 4: back on its feet.

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