Speaker 1: This is Bloomberg Business Wait inside from the reporters and
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Speaker 1: global business, finance and tech news. The Bloomberg Business Week
Speaker 1: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2: Well, this story definite caught our attention reading in this morning.
Speaker 2: It is among the most read on the Bloomberg. It's
Speaker 2: about the world's mega rich betting on US rentors to
Speaker 2: grow their billions.
Speaker 1: Yeah.
Speaker 3: More specifically, however, the past decade, ultra wealthy individuals and
Speaker 3: their firms have more than double their investments and apartments,
Speaker 3: largely in the sector known in the US as multi
Speaker 3: family housing. This according Carroll to the research firm Night Frank.
Speaker 2: All right, let's break it all down and get to
Speaker 2: these findings with us Bloomberg News US commercial real estate
Speaker 2: reporter Natalie Wan joining us on zoom in New York City,
Speaker 2: Natalie Providence, who knew, We'll get to that in just
Speaker 2: a moment. First of all, tell us what's going on
Speaker 2: exactly right, Thanks.
Speaker 4: For having me on. So it's this really interesting trend
Speaker 4: of period when everyone's shying away from commercial real estate,
Speaker 4: whether it's the massive institutions like Blackstone or the big
Speaker 4: bank banks who are trying to reduce their exposure. And
Speaker 4: in the meantime, you have these ultra wealthy billionaires that
Speaker 4: are snatching up properties. You know, I think for them
Speaker 4: it's really a diversification play, and they are trying to
Speaker 4: increase the allocation of their holdings to properties. And in
Speaker 4: the past, whereas it used to be for offices, clearly
Speaker 4: with the glut and drop in values of offices, today
Speaker 4: apartments seem like a much better bet for them.
Speaker 3: Is this also a bet on just the fact that
Speaker 3: so many Americans with housing prices at a record in
Speaker 3: many parts of the country, mortgage rates high, that many
Speaker 3: people aren't going to be able to buy a home.
Speaker 4: Yeah, that's a big part of it. We clearly see
Speaker 4: that there's been a shortage in affordable housing for people.
Speaker 4: That's pushed a lot of people into the rental market.
Speaker 4: There's a lack of housing even across the rental space
Speaker 4: across and that's why we've seen rents continue to rise
Speaker 4: even over the past year. You know, I think that
Speaker 4: for these folks, they're kind of looking at this from
Speaker 4: an extremely long term play. They're less exposed to the
Speaker 4: fluctuations in the debt market, and they can often pay
Speaker 4: with cash or they have special strong financing relationships with
Speaker 4: banks that are willing to fund them and for them.
Speaker 4: They're looking at this as kind of a stable, long
Speaker 4: term play and a bet really on the growth of
Speaker 4: major cities like New York or Chicago that you know,
Speaker 4: even if the property market continues to struggle across commercial
Speaker 4: real estate for the foreseeable future, some of the best
Speaker 4: properties will probably still continue to produce income for these folks.
Speaker 2: I kidd it at the top Providence, who knew, but
Speaker 2: we're talking about rent growth over the past six months,
Speaker 2: and Providence Rhode Island right up about eight percent. So
Speaker 2: that's kind of a top the list, even more so
Speaker 2: than New York City, right.
Speaker 4: That's topping the list. We're seeing brand raps also top
Speaker 4: the list. I think Hartford is in that list as well.
Speaker 4: And you know, I think it really goes to the
Speaker 4: boom across maybe cities that you know aren't like New
Speaker 4: York or Chicago. But with the pandemic, we've seen that
Speaker 4: people might not have to work in the office, they
Speaker 4: might not necessarily need to do their shopping in retail,
Speaker 4: but they do need homes, and so we've seen kind
Speaker 4: of a boom across some of these secondary cities, some
Speaker 4: of the more suburban areas, and I think that we're
Speaker 4: seeing these billionaires ultra wealthy folk try to get in
Speaker 4: at a time when there's less competition in the space,
Speaker 4: and also the returns look for more attractive than compared
Speaker 4: to say, two years ago, when we saw double digit
Speaker 4: rent growth across many of these cities and everyone trying
Speaker 4: to bid for properties. There's been a step back in
Speaker 4: today's market and that kind of provides a perfect buying
Speaker 4: opportunity for long term investors that have access to capital today.
Speaker 3: Well, speaking of access to capital, Natalie, do we know
Speaker 3: how these billionaires are financing these these purchases. Are they
Speaker 3: just paying cash? Are they actually financing them? I mean,
Speaker 3: rates are very very high right now.
Speaker 4: They're extremely high, and a lot of cases they're putting
Speaker 4: in a lot of cash. I think in some situations
Speaker 4: banks it's not like they don't have liquidity, they're just
Speaker 4: being a lot more cautious as to what they're lending
Speaker 4: on and who they're lending to. Because you know, we've
Speaker 4: seen even some of the biggest folks to fault on
Speaker 4: their loans. But I think for these billionaires, I mean,
Speaker 4: relationships between a lender and their borrowers one of the
Speaker 4: most important things for these types of institutions. And I
Speaker 4: think if you're a billionaire, like is there a founder
Speaker 4: Amansia Ortega, you might have less hurdles to across if
Speaker 4: you're looking for a lender for a deal like this.
Speaker 2: I wonder, I don't know if you've kind of looked
Speaker 2: into this side of too. I think about what it
Speaker 2: means though for the renters and stuff with investors getting involved,
Speaker 2: does that mean is it problematic? I mean, I mean
Speaker 2: rent is often set by you know, the market, right
Speaker 2: or the geography, if you will. But I do wonder
Speaker 2: if this is going to mean higher rental cost potentially
Speaker 2: for renters.
Speaker 4: Yeah. I think some of the specific deals that we
Speaker 4: quoted in the story, you know, we're Taga buying that
Speaker 4: two hundred and thirty two million dollar luxury apartment building
Speaker 4: in Chicago, and then another billionaire buying a Manhattan Grammarcy apartment.
Speaker 4: Those are kind of already luxury apartment buildings where I
Speaker 4: think the clients hele for those buildings are used to
Speaker 4: paying top notch rents. I don't necessarily see a flood
Speaker 4: of interest in rent stabilized or rent controlled properties. Investors
Speaker 4: are definitely shying away from that right now. We're seeing
Speaker 4: a lot of talk about that, even with the Signature
Speaker 4: Bank portfolio, where there is a significant chunk of rent
Speaker 4: stabilized properties, and sort of the question as to who
Speaker 4: wants to take on that risk that's interesting, I think,
Speaker 4: A yeah, I think these folks are largely targeting some
Speaker 4: of the higher end apartments, which you know there's always
Speaker 4: going to be demand for at this time.
Speaker 3: Do we know, you know, not necessarily average rents, but
Speaker 3: when you stay higher end, give us some context for
Speaker 3: our listeners and viewers around the world, like, you know,
Speaker 3: three thousand bucks a month for a one bedroomyah.
Speaker 4: I think in Manhattan. I haven't looked at the most
Speaker 4: recent numbers, but I think we're topping near like four
Speaker 4: thousand on average for an apartment, right Natalie.
Speaker 2: This is a fascinating story, and I also thought it
Speaker 2: was interesting how that before the pandemic you had the
Speaker 2: world's rich really focused on office properties. But we know
Speaker 2: what's going on there, so they've shifted uh into rental
Speaker 2: properties and residential So really interesting story in terms of
Speaker 2: what's going on today. Bloomberg News US commercial real estate
Speaker 2: reporter Natalie, thank you so much. Netlie Wan joining us
Speaker 2: on zoom in New York City. This is Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 2: World. All right, yeah, you know, we are waiting really
Speaker 2: for this war in Ukraine to be over. I think
Speaker 2: about Ukrainian President Vladimir Zelinsky in town last week speaking
Speaker 2: before the UN General Assembly, making his case for pressing
Speaker 2: on with the war effort. Yet President Biden coming out
Speaker 2: calling out world leaders to stand by Ukraine, and it
Speaker 2: struggled to eject Russian troops even as Kiev's all I
Speaker 2: say that they now expect the war to last for
Speaker 2: years to come. I was watching coverage and people are saying, Okay,
Speaker 2: we're getting ready for year number three.
Speaker 3: Yeah, it's unbelievable to think that that we're there, especially
Speaker 3: given what we thought when Russia first invaded Ukraine almost
Speaker 3: two years ago. Carol with more on the war and
Speaker 3: other global risks. It's really great to have back with
Speaker 3: us in our Bloomberg Interactive Brokers studio. Ed Price Principal
Speaker 3: for Geopolitical Forecasting at Ergo, a global intelligence consulting and
Speaker 3: forecasting firm. At also a former British trade official, representing
Speaker 3: His Majesty's government to Wall Street and the US official
Speaker 3: sector from twenty seventeen to twenty twenty one. He's advised
Speaker 3: a number of European and British parliaments, Carol, and worked
Speaker 3: also in the city of London.
Speaker 2: It just knows a lot and I seeing a lot.
Speaker 3: He also traveled a.
Speaker 2: Lot, and he's just back from Ukraine. Good to have
Speaker 2: you back.
Speaker 5: Thank you very much, Carole.
Speaker 1: How are you?
Speaker 2: But do it okay? Trying to keep up with it
Speaker 2: all and try to make sense of it all. You
Speaker 2: are just back from Ukraine. How did you make sense
Speaker 2: of what you saw?
Speaker 5: Well? I think the word evil crept into my mind
Speaker 5: a lot, so there was a sort of theological reaction
Speaker 5: at the end of the day. I suppose. I otherwise
Speaker 5: tried to make sense of it by putting it into
Speaker 5: the economics bucket and the military bucket. The economics bucket
Speaker 5: is of course that the Ukrainians are really trying to
Speaker 5: make their economy work. They're trying to just go to
Speaker 5: the shops, drink coffees and go out as much as
Speaker 5: they can, which is to be welcomed. And of course,
Speaker 5: on the other hand, the somewhat disappointing counter offensive. I
Speaker 5: went just before the offensive itself, and I think that's
Speaker 5: probably one thing that we're probably going to have to
Speaker 5: talk about today.
Speaker 3: Oh go ahead, Cairl.
Speaker 2: Well, one thing I wanted to say, and I was
Speaker 2: talking to our team about this. There was sixty minutes
Speaker 2: at a piece and it was talking about the American Aid,
Speaker 2: the USA, and one component I wasn't aware of was
Speaker 2: how much was going into the country to support small
Speaker 2: businesses and the whole idea of you've got to have
Speaker 2: some economy to back to after this is resolved. Otherwise,
Speaker 2: you know, you have a taxpayer base. Then people are
Speaker 2: you know, kicking money into the economy, otherwise you have
Speaker 2: everybody leave. So I thought that was an interesting part
Speaker 2: of the aid that I wasn't aware of. I was
Speaker 2: aware of all the military, but it's an important part.
Speaker 5: It's hugely important. And let's not also forget that the
Speaker 5: Ukrainians are still trying to transition out of a Soviet
Speaker 5: economic model. They have a structural deficit essentially, that's a
Speaker 5: social welfare model. They can't really get rid of it.
Speaker 5: By their own admission that the older generation is somewhat corrupt,
Speaker 5: you know, they look at governments of.
Speaker 2: Scuba and another thing I didn't now, yeah.
Speaker 5: I mean, I didn't really understand that until I spent
Speaker 5: some time there. But it's a war on two fronts, right,
Speaker 5: It's the military war, as I say, and they're also
Speaker 5: trying to keep the democratic and market institutions not only
Speaker 5: alive but developing as best they can. And so of
Speaker 5: course the aid that we're sending has to do both.
Speaker 3: You know, there are a great number of people in
Speaker 3: this country who don't want to send aid to the
Speaker 3: Ukrainian government. What would you say, after being there and
Speaker 3: seeing with your own eyes what's going on on the
Speaker 3: ground in Ukraine to folks here in the US who
Speaker 3: are telling their representatives, and some representatis are indeed very
Speaker 3: vocal about it, especially on the Republican side, that they
Speaker 3: do not want to send a to Ukraine. What's your
Speaker 3: message to them?
Speaker 5: My message, very respectfully, would be Where do you want
Speaker 5: to fight Pewtin, the Ukraine, Poland Berlin, Paris. Well it's
Speaker 5: that simple, I think. And the small amount of money
Speaker 5: relative to our overall military budget that we have spent
Speaker 5: in Ukraine, it's about say five percent, that has degraded
Speaker 5: the Russian military capacity in a way that I didn't
Speaker 5: think I would see in my lifetime. Honestly, they will
Speaker 5: previously say five days away from a serious attack on NATO.
Speaker 5: They must be five years away now given the damage
Speaker 5: we've done to them. So you know, what do you
Speaker 5: want for five percent of your military budget? More trucks,
Speaker 5: more uniforms. I would suggest that killing bad guys for
Speaker 5: pennies on the dollar is probably a good ROI if
Speaker 5: we don't.
Speaker 2: Do it, if countries pull back their support, if the
Speaker 2: US pulls back its support, then what potentially?
Speaker 5: I think that Putin and the Russians are trying to
Speaker 5: overhaul the Second World Wars settlement. I think they're trying
Speaker 5: to undo a global order. I don't think that they
Speaker 5: want to live in a world of rules. And if
Speaker 5: Ukraine goes down, and you know, all bets are off.
Speaker 5: I say that in part because the if a new
Speaker 5: US administration leaves NATO, then we've got a bit of
Speaker 5: a problem on our hands because I don't think that
Speaker 5: the Germans are ready themselves to back Europe's independent deterrent yet.
Speaker 5: So what happens is carnage.
Speaker 2: It's like terrifying.
Speaker 3: It is terrifying. I'm wondering, should the US be pushing
Speaker 3: for a cease fire? Should our allies be pushing for
Speaker 3: a ceasefire here? Should that be what they're pushing for
Speaker 3: in terms of an end to this war?
Speaker 5: I think what we should be pushing for is removing
Speaker 5: Russians from every last inch of Ukrainian territory. That's a
Speaker 5: maximalist position. There are people in my world who disagree
Speaker 5: with that, and so it's too dangerous. But if we
Speaker 5: award aggression with any sort of negotiation or peace agreement,
Speaker 5: we're bucking the number one lesson from world history.
Speaker 3: But he's got nukes.
Speaker 5: Well, he's got nukes, and so have we. And I
Speaker 5: think we talked about this before, like if we get
Speaker 5: to that stage, yeah, who you know who has a
Speaker 5: greater faith in the Almighty? I think it's probably us.
Speaker 5: But before that stage, and if he is indeed bluffing,
Speaker 5: which I would suggest to he is so far we've
Speaker 5: crossed every single redline. This is a case of facing
Speaker 5: down military aggression the same way we should have done
Speaker 5: in the nineteen thirties with Hitler.
Speaker 2: So you have a lot to talk about at an
Speaker 2: event you have coming up on Thursday, and I want
Speaker 2: to get into that a little bit. The London Stock
Speaker 2: Exchange Group in the NYU Center for Global Affairs hosting
Speaker 2: a discussion of your political risk with you, which you
Speaker 2: kindly invited us to. And if I still ended earlier,
Speaker 2: I could make it any right, it's Ukraine with love.
Speaker 2: Tell us about what you want to emphasize there.
Speaker 5: Yeah, that's really coind it's essentially the same message, right.
Speaker 5: I don't want to come in here and repeat myself,
Speaker 5: but I'm really trying to push as an analyst for
Speaker 5: the case that the aid that we're sending Ukraine must
Speaker 5: be in place, probably should increase. I think it's rather
Speaker 5: strange that we haven't offered them more in the way
Speaker 5: of air power while suggesting that they can conduct combined
Speaker 5: arms operations and the essentially they are fighting for our
Speaker 5: freedom as well. It's that simple, it's that emotive. So
Speaker 5: I'm trying to get some powerful, interesting people together, remind
Speaker 5: them of that, tell them a few stories from Ukraine,
Speaker 5: because the alternative is pretty.
Speaker 3: Grim based on your analysis, ad what you've seen over
Speaker 3: the last two years, the world's response. How does this end?
Speaker 5: How does the war end?
Speaker 1: Yeah?
Speaker 5: I think probably the central case right now is that
Speaker 5: Russia gets to keep a big old chunk of Ukraine.
Speaker 5: It's embedded itself. You've seen the defensive lines, and at
Speaker 5: that point, all bets are offers to what happens the
Speaker 5: decade after that, if they're rewarded. I'm afraid that's the
Speaker 5: central case right now. I don't think we've given them enough.
Speaker 3: To push the can that be prevented it yet?
Speaker 6: Well?
Speaker 5: I mean, I mean, look at this, This is all
Speaker 5: a function of how load you want to go, right, Like,
Speaker 5: do you want do you really want to push the
Speaker 5: Russians out with conventional power? And we're creeping towards that.
Speaker 5: I mean, you'll notice that there is a deep contradiction
Speaker 5: in American thinking because on the one hand, we say,
Speaker 5: as I just said, he probably won't use them, don't worry,
Speaker 5: so keep on. On the other hand, of course, we
Speaker 5: haven't sent everything we could have, because that in the
Speaker 5: back of your mind you're thinking, well, maybe he might,
Speaker 5: but it's not going to end well unless there's there's
Speaker 5: more military intermention.
Speaker 2: And this isn't a European thing, this is a global
Speaker 2: concern has.
Speaker 5: To be I would say, so, Carol, I mean.
Speaker 2: I mean, I'm asking kind of the obvious, but I
Speaker 2: do feel like there are people like that's Europe's problems.
Speaker 5: Yes, and I think that's wildly dangerous because you know,
Speaker 5: Pewtin and Shijenpin do not have the relationship that they claim.
Speaker 5: Pewtin is the junior partner. But just imagine if Peutin
Speaker 5: made a feint at the Baltics or you know, at
Speaker 5: NATO in conjunction with increased Chinese harassment of Taiwan. These
Speaker 5: guys are smart. They can figure out a way to
Speaker 5: spread our resources more thinly. So for my money, I say,
Speaker 5: the more work that we do in Ukraine to hold
Speaker 5: down this autocratic aggressive power, the better.
Speaker 2: Does that relationship between China and Russia.
Speaker 6: Where are you?
Speaker 5: It worries me deeply. Yes, I'm yeah, I'm up at
Speaker 5: night thinking about that one.
Speaker 2: We're running out of time, But like it's I think
Speaker 2: about that a lot in terms of that relationship and
Speaker 2: it just do you feel like what we got off
Speaker 2: of the un last week? Do you feel like there
Speaker 2: was the right support and just got about fifteen seconds?
Speaker 5: Absolutely not, No, there needs to be more.
Speaker 2: Yeah, it felt like people were getting tired at the situation,
Speaker 2: which was unfortunate. Good luck with your event Thursday at
Speaker 2: what time?
Speaker 5: Six pm? I'll say London Suck Exchange Group. If you'd
Speaker 5: like to come, let me.
Speaker 2: Know, ad Price. Thank you. As always, this is Bloomberg.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 2: A lot going on in the auto world. Continues to
Speaker 2: be President Biden on the picket line telling striking autoworkers
Speaker 2: to stick with it. And then you had Ford being
Speaker 2: blasted by its largest labor union for halting construction on
Speaker 2: that three and a half billion dollar battery plant in Michigan,
Speaker 2: amid scrutiny of its ties to a Chinese battery maker
Speaker 2: by Republican lawmakers lock going on.
Speaker 1: Yeah.
Speaker 3: In today's edition of Bloomberg Plugged In, we're looking at
Speaker 3: the world of evs with us. We got a Bloomberg
Speaker 3: Intelligence senior autos analyst, Kevin Tynan from Bloomberg Intelligence headquarters
Speaker 3: in Princeton, Jersey. Also very pleased to have back with us.
Speaker 3: Diana Lee, co founder and CEO at Constellation. She's with
Speaker 3: us in our Bloomberg Interactive Brokers studio. Constellation a marketing
Speaker 3: platform for the automotive industry. It helps car dealerships reach
Speaker 3: out to customers. Kevin, I want to start with you
Speaker 3: and just just lay it all out there for us
Speaker 3: in terms of historical context here and what it means
Speaker 3: to have a sitting president actually join a picket line today.
Speaker 6: Yeah, very interesting. You know, it's been a little bit
Speaker 6: since Friday, since the expansion of the of the walkouts,
Speaker 6: it's been a little bit quiet. So I think there's
Speaker 6: real work going on. There's photo ops, you know today
Speaker 6: with the President being on the picket line, But you know,
Speaker 6: I think real work is getting done. You know, and
Speaker 6: I've said this all along. I think really for the
Speaker 6: manufacturers it's about flexibility to rationalize capacity, and headcount going forward,
Speaker 6: And for the Union, it's about sharing and the the
Speaker 6: profitability that the automakers have had over the past ten years.
Speaker 2: Forty percent increase in pay, Kevin President says, yes, I'm
Speaker 2: not sure that many Americans can relate to it, that
Speaker 2: forty percent increase in pay. So walk us through the
Speaker 2: changing balance sheets potentially for the big three US automakers
Speaker 2: as we transition to that ev world. I mean, does
Speaker 2: it that balance sheet change the cost the gains?
Speaker 6: Yeah, Look, and I think if it's if it's the
Speaker 6: labor component of cost of goods, it's a little bit
Speaker 6: easier to absorb. Right. So if you look at even
Speaker 6: just transaction prices over the life of the last contract,
Speaker 6: you know, up significantly. So even if there's you know,
Speaker 6: eight percent a year over the next four years, which
Speaker 6: comes out to be that thirty six percent, you know,
Speaker 6: prices have actually risen faster than that during the last contract. Now,
Speaker 6: a lot of the automakers forward, specifically are all truck
Speaker 6: in the US, so there's very little additional mix upside
Speaker 6: for companies like that. Electrification isn't quite there yet, so
Speaker 6: it's probably going to be something like software and in
Speaker 6: vehicle content that helps offset some of those costs, But
Speaker 6: where it would really hurt and impact the balance sheet
Speaker 6: would be in you know, a change in sort of
Speaker 6: the pension, the healthcare some of those long term legacy costs,
Speaker 6: or being tied into a specific headcount and capacity level
Speaker 6: that just isn't sustainable as volume declines and continues decline
Speaker 6: going forward.
Speaker 2: Dana, we talked with you on Friday, so thank you
Speaker 2: for coming back. You are closely with the dealerships. Remind
Speaker 2: our audience what you are hearing from them and how
Speaker 2: you are thinking about this in regards to them.
Speaker 7: Yeah, I think that there's a lot of confusion that's
Speaker 7: going on, and I think the worries that if you
Speaker 7: are a GM Ford or Stilantis dealership right now, you're
Speaker 7: not sure where your parts are coming from, and you
Speaker 7: don't know where your vehicles are going to be coming
Speaker 7: from in the future. Electric vehicles is a really hot
Speaker 7: topic right now, especially because Tesla has stolen the electric
Speaker 7: market from the original traditional automakers.
Speaker 2: Stolen or just smart and read the market and first
Speaker 2: move for advantage, I mean, no offense. Many would argue
Speaker 2: that Tesla woke up the world and said we can
Speaker 2: do this because I think the traditional automakers were putting
Speaker 2: out a much longer timeline and Tesla came in and
Speaker 2: kind of woke everybody.
Speaker 7: Yet, well, I think what happened differently was the fact
Speaker 7: that they actually went to court and they decided that
Speaker 7: they were going to actually go direct to consumer. And
Speaker 7: that's a big deal. Yeah, it's a huge deal. All
Speaker 7: of America, twenty five traditional automakers all were set a
Speaker 7: long time ago, and the law basically said that you
Speaker 7: could not sell direct to consumer sales.
Speaker 2: But why not, you know, Kevin, come on in on this.
Speaker 2: Why can't cars be sold direct to consumers where they
Speaker 2: are now? I couldn't be like, who was that protecting?
Speaker 6: Well, well, there's a lot to unpack here. First of all,
Speaker 6: an automaker is going to book revenue on the sale
Speaker 6: to the dealership, right, So when you have companies like
Speaker 6: Lucid and Rivian and starting to happen to Tesla where
Speaker 6: you can't deliver to the consumer all your vehicles, you
Speaker 6: can't book that revenue. And that's where these price cuts
Speaker 6: are coming from, right. You have to you're paying to
Speaker 6: build the vehicle, so all that cost is in your
Speaker 6: cost of goods. But you're not booking revenue until you
Speaker 6: sell it or deliver it to the consumer and they
Speaker 6: pay for it, where everybody else with a franchise model
Speaker 6: is booking revenue. So your gross margin is consistent because
Speaker 6: your revenue is booked and offsetting your cost of goods
Speaker 6: on the sale to the dealership. The other thing is, look,
Speaker 6: if there's a ten percent haircut in what the manufacturer
Speaker 6: takes in selling the vehicle to the dealership wholesale, there's
Speaker 6: no way, ever, that any automaker at scale is going
Speaker 6: to recreate the franchise model and deliver and support and
Speaker 6: service vehicles at a margin better than ten percent. Ever,
Speaker 6: so the direct sales model isn't scalable. I mean, people
Speaker 6: talk about how great it is for TESL, but it's
Speaker 6: not right, and it's not scalable, and it's not sustainable,
Speaker 6: and it's not something that the legacy automakers can move to.
Speaker 3: But one challenge there, Diana, feel free to just jump
Speaker 3: in here, yeah, is you know, if you're a car dealership,
Speaker 3: you're making so much of your money based on servicing
Speaker 3: internal combustion engine vehicles. Absolutely, somebody brings in a car
Speaker 3: to get an oil change. You know you're making money
Speaker 3: on that. Yeah, you know it doesn't need an oil
Speaker 3: change an EV, right.
Speaker 7: But at the end of the day, not all automakers
Speaker 7: are going to make it.
Speaker 6: Right.
Speaker 7: You've got all of the traditional automakers, including the Big
Speaker 7: three now actually coming out with electric vehicles. You have Tesla,
Speaker 7: you have Recent, you have Rivian, you have pull Start,
Speaker 7: you have BYD Chinese automakers coming in. Sony Honda is
Speaker 7: building a vehicle and releasing their car in twenty twenty six. Overall,
Speaker 7: not everybody's going to make it, and they're going after
Speaker 7: hard dollars for EV. Now what has happened with Detroit
Speaker 7: Big Three, they won't lose ground right now on EV
Speaker 7: selling EV leasing EV at the end of the day
Speaker 7: if they don't resolve the UAW strike right And that's
Speaker 7: my fear because when someone leases a vehicle for three years,
Speaker 7: you're locked for three years. You cannot make another brand
Speaker 7: decision after that. So I think in the next five years,
Speaker 7: the evs that are gonna make it are all going
Speaker 7: to be We're going to know who they are and
Speaker 7: they are going to be BMW. I believe that. I
Speaker 7: believe there's going to be the Germans the Koreans. I
Speaker 7: think that Japanese brands like Toyota is going to actually
Speaker 7: also that's what I'm fearing, Like, are you what are
Speaker 7: you afraid of? If the UAW strike doesn't get resolved, eventually,
Speaker 7: we will not be able to produce these electric vehicles.
Speaker 2: So but and what But there's there's resolution, and then
Speaker 2: there's like, what's the resolution that needs to happen, that
Speaker 2: needs just be done.
Speaker 7: We just have to negotiate where it's fair for everybody.
Speaker 7: But overall, I want the Detroit three to make it.
Speaker 7: These are the only auto makers in the US. Well,
Speaker 7: we can't not have the US market.
Speaker 3: Apartment of Tesla.
Speaker 2: Yes, So Kevin come back here. I mean, what is
Speaker 2: the right balance? Does it make sense that workers get
Speaker 2: more money? I mean, that's the backbone of these automakers,
Speaker 2: But at the same time, you don't want to increase
Speaker 2: those legacy costs so that I don't know, five years
Speaker 2: from now, you know, you're looking at an industry that,
Speaker 2: you know, like we saw before the Great Financial Crisis, right,
Speaker 2: that had some real serious problems.
Speaker 6: Yeah. Well, look, you know people talk about Tesla dominating
Speaker 6: EV sales, which are still a very small percentage of
Speaker 6: sales in this country. They did it because they lose
Speaker 6: money on the vehicles for ten years. And it's not
Speaker 6: an issue of if or when legacy automakers can make
Speaker 6: a decent EV, it's when are they profitable. And that's
Speaker 6: why you get slow moving or slow play by the
Speaker 6: domestic manufacturers. They're printing money on full size internal combustion
Speaker 6: pickups and SUVs, and then the market or the media
Speaker 6: or the government wants to move to an unprofitable alternative
Speaker 6: and it's just not ready and that makes it very messy.
Speaker 6: And that's where it is right now. So it's not
Speaker 6: a matter of you know, ken GM figure out how
Speaker 6: to make an EV. They made an EV in the
Speaker 6: nineteen nineties and saw what that costs look like that
Speaker 6: it was unsustainable. So what's going to happen with the
Speaker 6: additional costs in this labor contract is that the small cars,
Speaker 6: the unprofitable cars, the inexpensive cars are going to get
Speaker 6: lopped off the bottom of the portfolio and prices are
Speaker 6: going to go higher for everybody.
Speaker 2: All right, So glad we got to speak with both
Speaker 2: of you. Kevin Tynan, he is our senior autos and
Speaker 2: analyst for our Bloomberg Intelligence team and Diana Lee, thanks
Speaker 2: so much for coming back, co founder and CEO at Constellation.
Speaker 5: Brother Mack.
Speaker 7: The journal.
Speaker 6: Now about you? Let me drive?
Speaker 1: No, no, who's going to honey?
Speaker 3: Please?
Speaker 2: I want to drive.
Speaker 7: It's good question.
Speaker 1: This is the drive to the globe. Well don on
Speaker 1: Bloomberg Radio.
Speaker 2: All right, TikTok, everybody, Just under eighteen minutes left in
Speaker 2: today's trading session. We've got stocks near their lows of
Speaker 2: the session, and this, you know, as we really have
Speaker 2: seen a bit of a market reset when it comes
Speaker 2: to yield expectations. We were just breaking down the markets
Speaker 2: with John Tucker ten year note four fifty four, and
Speaker 2: you've got that to year note with a yield to
Speaker 2: five point twelve.
Speaker 3: I'm really interested to hear what our next guest has
Speaker 3: to think. Very pleased to have with us. Nancy Tangler,
Speaker 3: chief investment officer at Laffer Tangler Investment. She's here in
Speaker 3: our Bloomberg Interactive Brokers studio. Also, her new book, The
Speaker 3: Women's Guide to Successful Investing, is out now. Nancy, good
Speaker 3: to have you with us. How are you?
Speaker 8: I'm good, Tim thanks so much for having me.
Speaker 3: Well, I want to start with just the markets today.
Speaker 3: I mean, you picked quite a day to come join us. Yeah,
Speaker 3: you know you were here to just out Frida day, right, Yeah,
Speaker 3: John Tucker who said that, You know, you take a
Speaker 3: time machine all the way back to June to see
Speaker 3: you know, the S and P five hundred looking like this.
Speaker 3: What are your thoughts?
Speaker 8: Well, I think there's a lot of things going on,
Speaker 8: but effectively, you know, there's been a lot of triggers,
Speaker 8: let me put it that way. So we had the FED,
Speaker 8: now we've got the potential shutdown. Then we've had you know,
Speaker 8: we've got earnings upcoming, and we had you know, we've
Speaker 8: got uncertainty around how high rates are going to stay
Speaker 8: for how long. But I actually don't think much of
Speaker 8: that matters in the long term. There's also window dressing
Speaker 8: going on and a quarter and then you're going to
Speaker 8: get the mutual funds shoring up their portfolios in October.
Speaker 8: I think what really matters, what's going to matter and
Speaker 8: will continue to matter, is earnings. And I'm actually a
Speaker 8: little more optimistic than the street. I've been doing this
Speaker 8: for forty years, I'm sorry to report, and you know, interest
Speaker 8: rates have been at this level much of my career,
Speaker 8: and so real rates if you go back to the nineties,
Speaker 8: sort of vacillated between two percent and four and a
Speaker 8: half percent, and they're at two percent now on the tenure.
Speaker 8: So I don't find any of this super distressing. Not
Speaker 8: nearly as worried about interest rates as it relates to
Speaker 8: technology as I am about a stronger dollar. I think
Speaker 8: that's going to be a challenge to earnings in the
Speaker 8: coming quarter. But mostly I view this as an opportunity
Speaker 8: to step in and pick.
Speaker 2: Off some names.
Speaker 8: Just like last October, we were adding to technology names
Speaker 8: pretty robustly. We were trimming those names in May, June,
Speaker 8: July and adding to industrials. I'll be doing the flip
Speaker 8: if possible in the coming weeks.
Speaker 2: So buying into technology continue to Yep, interesting which technology.
Speaker 8: So we're gonna we really like the established tech names.
Speaker 8: I don't want to say old economy, some of them
Speaker 8: are old economy, Carol, but in general the names that
Speaker 8: are actually monetizing AI and cloud computing. So take a
Speaker 8: name like in the old economy space Oracle. They reported
Speaker 8: the street thought it was disappointing. I didn't think it
Speaker 8: was that disappointing. They doubled their cloud computing AI cloud
Speaker 8: computing business that they generate, you know, seventy or eighty
Speaker 8: percent of their revenue. Seventy percent is renewable. So this
Speaker 8: is a company. The margins are improving, even with Cerner,
Speaker 8: which was the negative, margins are improving, so we've been
Speaker 8: adding to that name. But well, I mean, I'd love
Speaker 8: another chance at Microsoft at two hundred and eleven dollars
Speaker 8: a share, like where it was less faull.
Speaker 3: Okay, what else? Microsoft, Oracle? What else are you at?
Speaker 1: Right?
Speaker 2: Can I ask you? Nvidia?
Speaker 4: Not?
Speaker 7: It is?
Speaker 8: It was it was cheap enough on our valuation work
Speaker 8: for about twenty minutes and we missed it.
Speaker 2: So we're watching it.
Speaker 8: We haven't loaded. We've done all the fundamental work, which
Speaker 8: is not terribly exciting. I mean, you know, it's a
Speaker 8: great company.
Speaker 2: Do we have a headline on open Ai in terms
Speaker 2: of evaluation.
Speaker 3: Yeah, ninety billion dollars, Carol. This is based on a
Speaker 3: share sale journal sounds like a pretty hefty valuation. Yeah,
Speaker 3: for press private company. Where do you stand on the
Speaker 3: AI revolution?
Speaker 8: I actually think that it's going to improve productivity. I
Speaker 8: think there's going to be new startups we don't know
Speaker 8: anything about. But what you're seeing is all the major players, Amazon, Microsoft, Google,
Speaker 8: they're all investing in sort of the leading edge innovators.
Speaker 8: And Microsoft for sure has figured out a way to monetize.
Speaker 8: We like the names that are already making money off it.
Speaker 8: So a name like Broadcom, they think about twenty five
Speaker 8: percent of their revenues are going to come from AI
Speaker 8: cloud Enterprise CHIPS's that's our largest holding actually across all
Speaker 8: of our strategies.
Speaker 3: Okay, so you say you see this as a buying opportunity.
Speaker 3: Do you think there's further to go when it comes
Speaker 3: to declines on the S and P?
Speaker 4: Yeah?
Speaker 3: How much further?
Speaker 8: I mean, if I don't really do marketingcast for forty years,
Speaker 8: I wouldn't be surprised if we had another five to
Speaker 8: seven percent down. It could be more, but we end
Speaker 8: the year higher from these levels and from whatever level
Speaker 8: we bought them out at, And that I can say
Speaker 8: with I think somewhat certainty.
Speaker 2: Help me out though. With the Treasury trade, we had
Speaker 2: another two year auction yield stopping at five point zero
Speaker 2: eighty five percent, highest auction yield in more than seventeen years.
Speaker 2: Will we feel I feel like we keep having these
Speaker 2: superlatives when it comes to the treasury trade. But as
Speaker 2: you say, it was the negative rate cycle that was
Speaker 2: the anomaly. Yes, So why is it that it feels
Speaker 2: so bad?
Speaker 8: I think, look at the average person in this business
Speaker 8: has not been doing it for forty years. They've been
Speaker 8: doing it for fifteen twenty, where we were in a
Speaker 8: perennial bull market for bonds, and so I think there's
Speaker 8: this consternation if I've never seen this before. I mean,
Speaker 8: my first mortgage was twelve and a half percent, and.
Speaker 3: We might be getting close to this.
Speaker 8: We made it, We were able to make the payments.
Speaker 8: You know, you make adjustments. But I think but interest
Speaker 8: rates were also at eighteen percent, so I think the
Speaker 8: Fed and well, I'm sorry, the federal government has really
Speaker 8: distorted the short end the treasury, and so I mean,
Speaker 8: I'm taking advantage of it. We were out of bonds
Speaker 8: in August to twenty twenty when the ten year yield
Speaker 8: hit fifty bases points. We moved our clients back into
Speaker 8: short ladders a year ago, and we continue to renew
Speaker 8: those ladders.
Speaker 2: Many money markets or.
Speaker 8: No, no, we're just we buy treasuries or corporates getting
Speaker 8: on their personal preference, and we build short ladders. Some
Speaker 8: have maturities of three years, but many just have the
Speaker 8: maturity under a year. We just keep rolling them.
Speaker 2: So I'm just thinking about the book that you've got out,
Speaker 2: the Women's gude to Successful Investing. So what would you
Speaker 2: you know women men were really different? John Tucker? Well, well,
Speaker 2: I want to know, Nancy, and I know we've talked
Speaker 2: to you a little bit about your book which is out, Like,
Speaker 2: what is the differences that we need to be thinking
Speaker 2: about and why a book specifically for women?
Speaker 8: Yeah. So I retired from the business for about five
Speaker 8: years and I went and got a master's in creative writing.
Speaker 8: Don't ask, but I spent a lot of time meeting
Speaker 8: women at my kids supports.
Speaker 2: In romance novelice. It's really okay, Nancy, we still like you.
Speaker 8: I'd love to And I've met these really smart women
Speaker 8: and they'd say to me, well, what did you do?
Speaker 8: And I said, well, I was, you know, chief investment officer,
Speaker 8: and they'd recoil physically. They were not involved with the
Speaker 8: with the decision making in their in their households, they
Speaker 8: didn't know the passwords, they didn't care. And then I
Speaker 8: started to do the research, and I was like, this
Speaker 8: is the book I'd written a memoir, so haha, funny
Speaker 8: wasn't a romance novel. But I decided to write this
Speaker 8: book because women first age of average age of first
Speaker 8: divorce in the US is thirty, average age of a
Speaker 8: widow is fifty nine. That's exactly how I was old
Speaker 8: I was when my husband passed away. There is no
Speaker 8: safety net for women. There isn't any health care if
Speaker 8: they're not working, and if they don't know what's going
Speaker 8: on in the portfolios, it's a bad time to learn.
Speaker 8: And so I really wanted to encourage women. Turns out,
Speaker 8: research shows live research of real portfolios that women perform
Speaker 8: better than their male counterparts in every study that's been done.
Speaker 8: They perform particularly well against single men because they don't
Speaker 8: have that sort of drive for beat the index. And
Speaker 8: we controlled ninety five trillion dollars of wealth globally and
Speaker 8: are adding by trillions.
Speaker 1: Oh yeah, all right, we have to run.
Speaker 2: I know we'll talk more about this in the future. Nancy,
Speaker 2: Thank you so much. Nancy Tangley, chief investment officer at
Speaker 2: Laffertangler Investments.
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