1 00:00:00,160 --> 00:00:02,360 Speaker 1: Hello, and welcome back to another episode of The Mark 2 00:00:02,400 --> 00:00:05,720 Speaker 1: Moss Show, where we talk about the decentralized revolution of course, 3 00:00:05,760 --> 00:00:07,920 Speaker 1: the way the world is changing as we look at 4 00:00:07,960 --> 00:00:11,560 Speaker 1: it through the lens of politics, finance, and technology. 5 00:00:11,840 --> 00:00:13,680 Speaker 2: You know, I try to bring a bunch of. 6 00:00:13,640 --> 00:00:16,759 Speaker 1: Different perspectives for you so you could learn to understand 7 00:00:16,800 --> 00:00:19,119 Speaker 1: these issues from a bunch of different angles. And I 8 00:00:19,239 --> 00:00:21,000 Speaker 1: try to bring to decent people that you know, know 9 00:00:21,079 --> 00:00:22,560 Speaker 1: some of these issues better than I do. And that's 10 00:00:22,600 --> 00:00:25,560 Speaker 1: exactly what we have today. I'm in studio with Rob Simone. 11 00:00:25,920 --> 00:00:28,840 Speaker 1: He works with Hedge Eye Reats, which of course are 12 00:00:28,920 --> 00:00:32,680 Speaker 1: real estate investment trusts. He knows a couple things about this, 13 00:00:32,760 --> 00:00:35,239 Speaker 1: and of course, as we're talking about the problems in 14 00:00:35,280 --> 00:00:39,159 Speaker 1: the economy, the problems in the mortgage backed security specifically 15 00:00:39,200 --> 00:00:42,800 Speaker 1: commercial mortgage by securities market and reads as well, I thought, man, 16 00:00:42,840 --> 00:00:44,479 Speaker 1: who better to have than Rob on? 17 00:00:44,600 --> 00:00:45,960 Speaker 2: So Rob, thanks for joining me today. 18 00:00:46,600 --> 00:00:47,720 Speaker 3: Thanks a lot for having me Mark. 19 00:00:47,800 --> 00:00:49,440 Speaker 4: Yeah, I mean, I you know, like you said, I 20 00:00:50,880 --> 00:00:54,080 Speaker 4: work at HEDGEI I cover real estate investment trusts, which 21 00:00:54,120 --> 00:00:59,080 Speaker 4: are basically, you know, publicly traded companies that own real estate. 22 00:00:59,800 --> 00:01:03,160 Speaker 3: And so the the issues that everyone's reading. 23 00:01:02,920 --> 00:01:06,520 Speaker 4: About kind of like directly and tangentially touches my space, 24 00:01:06,640 --> 00:01:09,000 Speaker 4: so I have to kind of, you know, keep on 25 00:01:09,040 --> 00:01:10,760 Speaker 4: top of it. But it's it's a much you know, 26 00:01:10,800 --> 00:01:14,160 Speaker 4: it's interesting. It's a much broader kind of I guess 27 00:01:14,200 --> 00:01:17,400 Speaker 4: you could say, like concern or consideration outside of just reads. 28 00:01:17,440 --> 00:01:19,880 Speaker 4: But yeah, you know, it's it's a fascinating topic these 29 00:01:19,959 --> 00:01:20,559 Speaker 4: days for sure. 30 00:01:21,680 --> 00:01:21,920 Speaker 2: Yeah. 31 00:01:21,959 --> 00:01:25,000 Speaker 1: I mean it's certainly touching every every area of the world. 32 00:01:25,080 --> 00:01:26,800 Speaker 1: I mean, it's it's money, so it's half of every 33 00:01:26,840 --> 00:01:30,639 Speaker 1: single transaction that we do. You know, I know I've 34 00:01:30,680 --> 00:01:32,759 Speaker 1: covered quite a bit, you know, the problems that happened 35 00:01:32,800 --> 00:01:35,360 Speaker 1: in the banking crisis with Silicon Valley Bank and the 36 00:01:35,360 --> 00:01:37,440 Speaker 1: other banks as well, and kind of they got caught 37 00:01:37,480 --> 00:01:39,120 Speaker 1: up in this kind of mismatch of duration. 38 00:01:39,520 --> 00:01:40,039 Speaker 2: Seemingly. 39 00:01:40,880 --> 00:01:43,040 Speaker 1: What they did is they took customer deposits and put 40 00:01:43,120 --> 00:01:48,720 Speaker 1: them into these very risky assets, not alt coins, but treasury. 41 00:01:50,360 --> 00:01:53,320 Speaker 1: And when the treasurers lost money, then then they got 42 00:01:53,400 --> 00:01:56,320 Speaker 1: they got hammered. Now, of course, the Treasury, every time 43 00:01:56,360 --> 00:01:58,000 Speaker 1: you think their back is against the wall, they seem 44 00:01:58,040 --> 00:02:01,800 Speaker 1: to pull another magic trick or another special facility out 45 00:02:01,840 --> 00:02:05,920 Speaker 1: BTFB this time and now I've been looking at what's 46 00:02:05,960 --> 00:02:09,600 Speaker 1: going on in the commercial space. So I mean, first 47 00:02:09,600 --> 00:02:13,959 Speaker 1: of all, you deal with reats. Break that down for us. 48 00:02:14,840 --> 00:02:16,880 Speaker 4: That there are two tough kinds of rates, and again 49 00:02:16,919 --> 00:02:19,680 Speaker 4: those are real estate investment trust I tend to focus 50 00:02:19,760 --> 00:02:23,560 Speaker 4: on what are called the equity rates, and those are 51 00:02:23,600 --> 00:02:29,480 Speaker 4: the companies that actually take ownership stakes and assets, but 52 00:02:29,560 --> 00:02:33,440 Speaker 4: across multiple different property sectors. So like sometimes you know, 53 00:02:33,480 --> 00:02:36,800 Speaker 4: people will say, oh, commercial real estate or real estate 54 00:02:36,919 --> 00:02:40,480 Speaker 4: is like one kind of catch all term, but in 55 00:02:40,520 --> 00:02:44,400 Speaker 4: reality it's it's a very like broad, deep and diverse universe. 56 00:02:44,480 --> 00:02:48,560 Speaker 4: So within the you know, the world, they're multifamily or 57 00:02:48,600 --> 00:02:54,280 Speaker 4: apartment rates, retail, office, industrial, and logistics. Those are kind 58 00:02:54,320 --> 00:02:57,480 Speaker 4: of like the you know, the main food groups so 59 00:02:57,600 --> 00:02:59,800 Speaker 4: to speak, of traditional real estate. 60 00:03:00,320 --> 00:03:01,720 Speaker 3: And then beyond that you'll. 61 00:03:01,520 --> 00:03:05,720 Speaker 4: Have things like a little little more creative like self storage, 62 00:03:05,760 --> 00:03:11,040 Speaker 4: cell phone towers, data centers, you know, thing something called 63 00:03:11,040 --> 00:03:13,480 Speaker 4: triplenet which we can get into, so that those would 64 00:03:13,480 --> 00:03:14,600 Speaker 4: be like the property owners. 65 00:03:14,600 --> 00:03:16,160 Speaker 3: And then on the other side, a much. 66 00:03:16,000 --> 00:03:22,000 Speaker 4: Smaller universe of what are called em reads and M 67 00:03:22,080 --> 00:03:26,280 Speaker 4: rates actually make debt investments, so they originate mortgages or loans, 68 00:03:26,720 --> 00:03:29,400 Speaker 4: whether they be like bridge loans or whatever against real estate. 69 00:03:29,440 --> 00:03:31,359 Speaker 3: The purpose is like that. 70 00:03:31,520 --> 00:03:33,679 Speaker 4: The real point is that like reads are supposed to 71 00:03:33,720 --> 00:03:36,880 Speaker 4: be investors and property, whether it be equity or debts, 72 00:03:36,880 --> 00:03:38,800 Speaker 4: so they kind of split the world in half in 73 00:03:38,840 --> 00:03:43,520 Speaker 4: the much bigger universes, the equity rates that actually own properties. 74 00:03:45,240 --> 00:03:46,720 Speaker 1: You make a good point there that I just want 75 00:03:46,720 --> 00:03:48,360 Speaker 1: to just hammer on just a little bit something I 76 00:03:48,400 --> 00:03:51,160 Speaker 1: talk about. There is no such thing as the real 77 00:03:51,280 --> 00:03:54,240 Speaker 1: estate market. Thousands of markets, and not only are they 78 00:03:54,240 --> 00:03:56,920 Speaker 1: broken up by different types. So obviously a big category 79 00:03:56,960 --> 00:03:59,400 Speaker 1: would be single family versus commercial properties, and then of 80 00:03:59,400 --> 00:04:03,000 Speaker 1: course broke down the different types of commercial properties. But 81 00:04:03,040 --> 00:04:05,440 Speaker 1: then even within those categories then you have other things 82 00:04:05,520 --> 00:04:09,800 Speaker 1: like size and location you know specifically, and then even 83 00:04:09,840 --> 00:04:12,600 Speaker 1: within that potentially even what types of use. 84 00:04:12,480 --> 00:04:13,160 Speaker 2: Cases they have. 85 00:04:13,320 --> 00:04:16,880 Speaker 1: So for example, commercial that does office space in San 86 00:04:16,880 --> 00:04:19,960 Speaker 1: Francisco is way different than commercial that does data centers 87 00:04:20,520 --> 00:04:22,520 Speaker 1: in a cheap energy state or something like that. 88 00:04:22,600 --> 00:04:24,640 Speaker 3: Right, Yeah, yeah, for sure. 89 00:04:24,680 --> 00:04:26,880 Speaker 4: And I used to actually I used to work at 90 00:04:26,920 --> 00:04:32,280 Speaker 4: an office erite called Paramount Group that owns office buildings 91 00:04:32,320 --> 00:04:35,000 Speaker 4: in Manhattan and San Francisco, and you kind of hit 92 00:04:35,080 --> 00:04:35,320 Speaker 4: on it. 93 00:04:35,400 --> 00:04:35,840 Speaker 3: So like. 94 00:04:37,720 --> 00:04:42,880 Speaker 4: In general, I think for better for worse. The and 95 00:04:42,920 --> 00:04:44,680 Speaker 4: this isn't just reads. These are kind of like all 96 00:04:44,720 --> 00:04:48,760 Speaker 4: property owners unless you really get into like major scale 97 00:04:48,880 --> 00:04:52,880 Speaker 4: like a brook Field or maybe like a Boston Properties 98 00:04:52,960 --> 00:04:56,240 Speaker 4: or something something along those lines, or if you're like 99 00:04:56,320 --> 00:04:59,840 Speaker 4: a big fund investor that owns assets kind of scattered 100 00:04:59,839 --> 00:05:03,239 Speaker 4: to the wind all over the place. But these private 101 00:05:03,279 --> 00:05:06,240 Speaker 4: and public owners of real estate, including the reads, they 102 00:05:06,240 --> 00:05:09,080 Speaker 4: tend to focus on a couple of markets and like 103 00:05:09,200 --> 00:05:12,279 Speaker 4: know them really well, as opposed to like spring themselves 104 00:05:12,279 --> 00:05:15,240 Speaker 4: too thin. And so it's not uncommon to see like 105 00:05:15,320 --> 00:05:18,479 Speaker 4: a read focus on one property sector and then kind 106 00:05:18,480 --> 00:05:21,920 Speaker 4: of circle a couple of markets and then really learn 107 00:05:22,000 --> 00:05:26,359 Speaker 4: them intimately, understand like all the different constituencies and the 108 00:05:26,360 --> 00:05:28,920 Speaker 4: players in that market, so that it like at least 109 00:05:28,960 --> 00:05:31,400 Speaker 4: theoretically gives you, or it should give you an edge 110 00:05:32,240 --> 00:05:33,880 Speaker 4: over less experience investors. 111 00:05:33,920 --> 00:05:36,720 Speaker 3: Now that obviously it doesn't always play out, and we've 112 00:05:36,760 --> 00:05:38,240 Speaker 3: seen that, you know. 113 00:05:38,880 --> 00:05:43,359 Speaker 4: Episodically, and you know, fortunately in my space or you know, 114 00:05:43,400 --> 00:05:45,360 Speaker 4: depending on whether you're long or short, there haven't been 115 00:05:45,400 --> 00:05:49,440 Speaker 4: any like major read blow ups yet, but you know, 116 00:05:49,760 --> 00:05:52,360 Speaker 4: we saw it in the last cycle. You know, if 117 00:05:52,400 --> 00:05:55,760 Speaker 4: I had to kind of like think about some of 118 00:05:55,800 --> 00:05:57,960 Speaker 4: the sectors that got into some real trouble with too 119 00:05:58,040 --> 00:06:00,880 Speaker 4: much leverage in the in the Great Financial Crisis, it 120 00:06:00,880 --> 00:06:04,159 Speaker 4: would be office and lodging. I forgot the hotel reads 121 00:06:04,160 --> 00:06:06,239 Speaker 4: by the way, so like some some reads own hotels 122 00:06:06,279 --> 00:06:09,680 Speaker 4: as well. This time around, there's general like less leverage 123 00:06:09,720 --> 00:06:13,560 Speaker 4: in general, but one sector that's very, very highly levered 124 00:06:15,040 --> 00:06:18,560 Speaker 4: is office and part of it's because of like absolute 125 00:06:18,640 --> 00:06:21,719 Speaker 4: levels of debt, but also it's just like poor operating performance, 126 00:06:21,720 --> 00:06:24,960 Speaker 4: you know, whether it be tenant move outs or firms 127 00:06:25,000 --> 00:06:28,679 Speaker 4: like they call it consolidating space. And that's where you 128 00:06:28,760 --> 00:06:31,520 Speaker 4: like as a as a tenant, you know, maybe like 129 00:06:31,880 --> 00:06:36,000 Speaker 4: you know, five ten years ago, you thought about one 130 00:06:36,080 --> 00:06:38,880 Speaker 4: hundred and seventy five to two hundred square feed per employee. 131 00:06:39,160 --> 00:06:41,120 Speaker 4: But along the way, whether it be like through co 132 00:06:41,320 --> 00:06:43,839 Speaker 4: working or like you know, moving some of your folks 133 00:06:43,839 --> 00:06:46,520 Speaker 4: out of the office and letting them work remotely, suddenly 134 00:06:46,560 --> 00:06:48,880 Speaker 4: you only need one hundred and fifty square feed per employee. 135 00:06:48,880 --> 00:06:51,039 Speaker 4: And now what does that mean to the landlord. It 136 00:06:51,080 --> 00:06:53,520 Speaker 4: means that all else the same, each tenant takes less space, 137 00:06:53,920 --> 00:06:57,400 Speaker 4: so it's harder to lease up a building. The economics 138 00:06:57,400 --> 00:06:59,680 Speaker 4: are worse you have to put like more capex into it, 139 00:06:59,680 --> 00:07:03,960 Speaker 4: give tenants more concessions and whatnot, and all else. 140 00:07:04,000 --> 00:07:04,320 Speaker 3: The same. 141 00:07:04,360 --> 00:07:07,160 Speaker 4: If you have like a mortgage on that asset, right 142 00:07:07,240 --> 00:07:10,480 Speaker 4: and you thought it was like maybe fifty or sixty 143 00:07:10,480 --> 00:07:13,200 Speaker 4: percent of the value of the building six or seven 144 00:07:13,280 --> 00:07:16,680 Speaker 4: years ago, today, like because of what I just described, 145 00:07:16,720 --> 00:07:19,920 Speaker 4: it maybe eighty percent or higher. So it's it's kind 146 00:07:19,920 --> 00:07:22,120 Speaker 4: of like a slow moving train wreck. And you're starting 147 00:07:22,120 --> 00:07:25,000 Speaker 4: to see some of the owners default and give the 148 00:07:25,080 --> 00:07:27,160 Speaker 4: keys back on some of these assets. Like we just 149 00:07:27,200 --> 00:07:31,920 Speaker 4: saw Brookfield default on four out of four building portfolio 150 00:07:31,920 --> 00:07:34,000 Speaker 4: of yesterday, just as an example. 151 00:07:34,080 --> 00:07:35,560 Speaker 2: Yeah, that was a big news. 152 00:07:36,400 --> 00:07:37,239 Speaker 3: Yeah. 153 00:07:37,360 --> 00:07:41,800 Speaker 1: So out of these different types of reads that you're 154 00:07:41,840 --> 00:07:45,280 Speaker 1: kind of breaking down everything from you know, retail to 155 00:07:45,360 --> 00:07:48,320 Speaker 1: business office space, data centers, et cetera, hotels, et cetera, 156 00:07:50,320 --> 00:07:54,560 Speaker 1: I guess I saw in the commercial mortgage backed security market. 157 00:07:54,840 --> 00:07:57,440 Speaker 1: It looks like that's like another big bomb that potentially 158 00:07:57,520 --> 00:08:00,960 Speaker 1: could be blowing up inside the banking sector. I believe 159 00:08:00,960 --> 00:08:04,400 Speaker 1: it's almost three trillion two point nine trillion dollars worth 160 00:08:04,440 --> 00:08:08,560 Speaker 1: of commercial mortgage backed securities, of which I saw about 161 00:08:08,600 --> 00:08:12,720 Speaker 1: twenty percent of that seems to be non payers. I 162 00:08:12,720 --> 00:08:16,520 Speaker 1: don't know if that's specifically in the office space commercial sector. 163 00:08:19,120 --> 00:08:22,120 Speaker 2: Do you have any data on that or on that data? 164 00:08:22,160 --> 00:08:26,680 Speaker 4: Well, it's a little it's a little more opaque, and 165 00:08:27,480 --> 00:08:30,160 Speaker 4: to be honest, like from you know, and this isn't 166 00:08:30,240 --> 00:08:32,320 Speaker 4: this isn't dodging the quest. Actually it may it may 167 00:08:32,360 --> 00:08:35,360 Speaker 4: be informative for folks, and it may help people dodge 168 00:08:35,360 --> 00:08:39,960 Speaker 4: some bullets investment wise. And I guess like as an analyst, 169 00:08:40,000 --> 00:08:43,320 Speaker 4: that's kind of my that's my goal primarily. 170 00:08:43,600 --> 00:08:46,199 Speaker 1: Before you drop that piece of knowledge for us, I'm 171 00:08:46,240 --> 00:08:48,880 Speaker 1: gonna take a quick break, so I want to hear 172 00:08:49,400 --> 00:08:51,320 Speaker 1: what we could potentially do to dodge this bullet, which 173 00:08:51,360 --> 00:08:53,959 Speaker 1: I see is this big, big bomb that could potentially 174 00:08:54,040 --> 00:08:56,800 Speaker 1: come crashing through the system. As a matter of fact, 175 00:08:56,960 --> 00:09:00,280 Speaker 1: even Elon Musk appears to be warning people about thismercial 176 00:09:00,320 --> 00:09:02,640 Speaker 1: real estate debt bomb as well. If you're just tune in, 177 00:09:02,679 --> 00:09:05,360 Speaker 1: you're listening to the Markomas Show. I'm joined with Rob 178 00:09:05,400 --> 00:09:07,320 Speaker 1: Simone from Hedge Eye Reads. 179 00:09:07,200 --> 00:09:09,319 Speaker 2: And we're talking about the commercial real estate market. 180 00:09:09,320 --> 00:09:12,440 Speaker 1: There's a lot of nuance to this, and so you 181 00:09:12,520 --> 00:09:15,320 Speaker 1: need to understand the difference is how this could affect you. 182 00:09:15,360 --> 00:09:18,000 Speaker 1: And like he said, what the potential bombs you could dodge. 183 00:09:18,000 --> 00:09:19,160 Speaker 2: So we'll be back in a minute. We take a 184 00:09:19,200 --> 00:09:21,400 Speaker 2: quick break. Don't go away, We're back, all right, Welcome back. 185 00:09:21,440 --> 00:09:23,040 Speaker 1: If you're just tune in, you're listening to the Mark 186 00:09:23,080 --> 00:09:26,600 Speaker 1: Maas Show. I'm sitting down with Rob Simone from hedge 187 00:09:26,600 --> 00:09:29,599 Speaker 1: i Reads and we're talking about what's going on commercial 188 00:09:29,640 --> 00:09:32,760 Speaker 1: real estate, what's going on with the potential bomb sitting 189 00:09:32,840 --> 00:09:35,760 Speaker 1: in the balance sheets of these commercial banks. Rob, I 190 00:09:35,840 --> 00:09:38,120 Speaker 1: cut you off before we have to take a quick break, 191 00:09:38,120 --> 00:09:40,360 Speaker 1: but you were saying some ways that we could kind 192 00:09:40,360 --> 00:09:40,840 Speaker 1: of look at this. 193 00:09:42,040 --> 00:09:43,000 Speaker 3: Yeah. Sure, So. 194 00:09:44,760 --> 00:09:48,920 Speaker 4: It's interesting in my corner of the world. Most of 195 00:09:48,960 --> 00:09:54,239 Speaker 4: the reads they prefer to be what are called unsecured borrowers. 196 00:09:54,600 --> 00:09:58,160 Speaker 4: So what they do and what the reason why I'm 197 00:09:58,160 --> 00:10:02,080 Speaker 4: bringing this up is, it's an interesting way of at 198 00:10:02,160 --> 00:10:05,560 Speaker 4: least like mitigating one of the risks maybe maybe default 199 00:10:05,640 --> 00:10:10,240 Speaker 4: risk or the direct like you know, impact of an 200 00:10:10,280 --> 00:10:13,400 Speaker 4: owner defaulting and like the equity going to zero. Right, So, 201 00:10:13,520 --> 00:10:16,600 Speaker 4: like reads tend to be what are called unsecured borrowers. 202 00:10:16,720 --> 00:10:20,440 Speaker 4: They'll they'll basically issue bonds at the corporate level to 203 00:10:20,720 --> 00:10:24,640 Speaker 4: partially finance themselves and then use those proceeds plus their 204 00:10:24,720 --> 00:10:27,760 Speaker 4: equity to make investments in assets. It's a little less 205 00:10:27,800 --> 00:10:32,440 Speaker 4: common for buildings unless it's like a smaller company to 206 00:10:32,440 --> 00:10:35,560 Speaker 4: have mortgages on them. And the reason why I bring 207 00:10:35,600 --> 00:10:38,600 Speaker 4: that up is it's it's the mortgages the individual asset 208 00:10:39,440 --> 00:10:41,960 Speaker 4: loans or you know, loans that are secured by a 209 00:10:41,960 --> 00:10:46,400 Speaker 4: specific asset that get put into CMBs. The private borrowers 210 00:10:46,480 --> 00:10:50,480 Speaker 4: tend to use that kind of financing in the debt markets, 211 00:10:50,520 --> 00:10:53,880 Speaker 4: and so like it makes it has a couple of impacts. 212 00:10:53,920 --> 00:10:57,000 Speaker 4: Like one, it leaves the reads like kind of isolated, 213 00:10:57,080 --> 00:10:59,440 Speaker 4: and so it's it's a decent place to play if 214 00:10:59,520 --> 00:11:02,600 Speaker 4: you want to, like you know, mitigate your risk. But 215 00:11:02,640 --> 00:11:05,040 Speaker 4: it also as an analyst, that makes it a little 216 00:11:05,120 --> 00:11:08,719 Speaker 4: tougher to analyze because the private borrowers are not as 217 00:11:08,760 --> 00:11:11,040 Speaker 4: forthcoming with their data as like some of the public 218 00:11:11,120 --> 00:11:16,520 Speaker 4: traded companies. Now, with that said, there's like plenty of 219 00:11:16,760 --> 00:11:21,079 Speaker 4: data around like the different CMBs, the indices. So a 220 00:11:21,120 --> 00:11:23,920 Speaker 4: couple of years ago, I believe it was what's called 221 00:11:24,080 --> 00:11:29,040 Speaker 4: cmb X five or six, and it was a majority 222 00:11:29,720 --> 00:11:33,360 Speaker 4: or like a pretty big slug of the loans that 223 00:11:33,400 --> 00:11:37,800 Speaker 4: make up that index were collateralized by malls. The new 224 00:11:38,240 --> 00:11:41,000 Speaker 4: flavor of the week. I think it might be six 225 00:11:41,120 --> 00:11:43,320 Speaker 4: or seven. It's like CMBX six or seven. You can 226 00:11:43,360 --> 00:11:46,679 Speaker 4: look it up on a Bloomberg terminal. It tracks the 227 00:11:46,760 --> 00:11:51,320 Speaker 4: performance and pricing of loans that are like major, well 228 00:11:51,480 --> 00:11:53,720 Speaker 4: maybe not majority, but like there's a big slug of 229 00:11:53,720 --> 00:11:57,360 Speaker 4: office in there, and office is where the most stress is. 230 00:11:57,400 --> 00:12:01,160 Speaker 4: So like what I would do if, like for your listeners, 231 00:12:01,400 --> 00:12:04,079 Speaker 4: is if you're looking to like kind of ring fence 232 00:12:04,160 --> 00:12:08,199 Speaker 4: that or or avoid any like big blow ups, focus 233 00:12:08,280 --> 00:12:12,400 Speaker 4: on like the lower levered rates that don't have individual 234 00:12:12,400 --> 00:12:17,040 Speaker 4: property mortgages, or you know, if you wanted to take 235 00:12:17,080 --> 00:12:20,199 Speaker 4: advantage of it, track the indices that have high concentrations 236 00:12:20,520 --> 00:12:24,800 Speaker 4: concentrations of office loans. What what's really really opaque? And 237 00:12:24,880 --> 00:12:27,440 Speaker 4: like if anyone told you they knew the answer to this, 238 00:12:27,520 --> 00:12:30,440 Speaker 4: I think they would be lying to you. Like even 239 00:12:30,480 --> 00:12:33,840 Speaker 4: our our financials analysts, our bank analyst Josh Steiner, I don't. 240 00:12:33,920 --> 00:12:35,679 Speaker 4: I think he would tell you, like he's not quite 241 00:12:35,720 --> 00:12:38,560 Speaker 4: sure exactly how to answer the question, just that there's 242 00:12:38,600 --> 00:12:44,360 Speaker 4: an issue is like where you know, where the individual 243 00:12:44,440 --> 00:12:47,480 Speaker 4: loans that haven't been securitized in these big CMBs to 244 00:12:47,559 --> 00:12:49,880 Speaker 4: sit on the bank balance sheets and what that means. 245 00:12:49,920 --> 00:12:52,679 Speaker 4: And like, my theory is where the pain is going 246 00:12:52,760 --> 00:12:55,320 Speaker 4: to show up is on the financials and on the 247 00:12:55,360 --> 00:12:57,880 Speaker 4: bank earnings when they have to take credit loss positions 248 00:12:57,920 --> 00:13:02,320 Speaker 4: as credit loss charge as opposed to like the big 249 00:13:02,360 --> 00:13:04,640 Speaker 4: publicly traded reads. Like that's where I think you're going 250 00:13:04,679 --> 00:13:06,880 Speaker 4: to see like a real mess, just a theory. 251 00:13:08,080 --> 00:13:09,800 Speaker 1: So is that sort of like in the Great Financial 252 00:13:09,840 --> 00:13:11,800 Speaker 1: Crisis in two thousand and eight was sort of a 253 00:13:11,800 --> 00:13:15,120 Speaker 1: similar situation, but it was in the in the retail space, 254 00:13:15,240 --> 00:13:18,360 Speaker 1: in the residential mortgage space, and it was also commercial 255 00:13:18,679 --> 00:13:23,520 Speaker 1: mortgage backed securities, and they were sort of combined into 256 00:13:23,559 --> 00:13:26,800 Speaker 1: this mortgage back security sausage, so to speak, where then 257 00:13:26,880 --> 00:13:30,200 Speaker 1: there wasn't really any visibility into what these tranches were 258 00:13:30,480 --> 00:13:32,640 Speaker 1: and what the risk levels were within that. So is 259 00:13:32,679 --> 00:13:34,720 Speaker 1: that kind of what you're saying In a similar way, 260 00:13:34,880 --> 00:13:36,280 Speaker 1: you kind of have all this it's kind of been 261 00:13:36,320 --> 00:13:37,839 Speaker 1: mashed together and there's really no way to kind of 262 00:13:37,840 --> 00:13:38,520 Speaker 1: assess the risk. 263 00:13:39,360 --> 00:13:41,480 Speaker 3: Yeah, that's exactly what I'm saying. 264 00:13:41,480 --> 00:13:45,720 Speaker 4: And in many ways it's gotten even tougher because coming 265 00:13:45,760 --> 00:13:50,320 Speaker 4: out of the GFC, the banks under tighter capital rules 266 00:13:50,559 --> 00:13:53,880 Speaker 4: and like having to hold additional equity capital and also 267 00:13:54,640 --> 00:13:58,920 Speaker 4: individual pieces of the tranching on a risk basis. So 268 00:13:58,960 --> 00:14:01,280 Speaker 4: like if you what I mean is, if you originated 269 00:14:01,280 --> 00:14:04,719 Speaker 4: a CMBs, you would have to as the issuer, as 270 00:14:04,760 --> 00:14:08,640 Speaker 4: the sponsor, you'd have to retain the equity slice. Banks 271 00:14:08,760 --> 00:14:11,920 Speaker 4: all else the same don't want to do that because 272 00:14:11,960 --> 00:14:16,120 Speaker 4: it requires them to tie up more of their equity 273 00:14:16,200 --> 00:14:18,440 Speaker 4: i e. Like not loaded out and earn a spread. 274 00:14:18,520 --> 00:14:21,280 Speaker 4: So it's it's costly to them. And so what's happened 275 00:14:21,400 --> 00:14:24,160 Speaker 4: is you've had the rise of these like what are 276 00:14:24,160 --> 00:14:28,280 Speaker 4: called non bank or shadow shadow lenders. By the way, 277 00:14:28,360 --> 00:14:32,680 Speaker 4: the mortgage rates are part of that bucket, so they're 278 00:14:32,720 --> 00:14:35,680 Speaker 4: like not they're not part of the federal reserve system, 279 00:14:35,920 --> 00:14:40,280 Speaker 4: they're not as tightly regulated. They're more like, by the way, 280 00:14:40,320 --> 00:14:42,520 Speaker 4: they're more free market vehicles. It's it's the kind of 281 00:14:42,560 --> 00:14:45,680 Speaker 4: situation where like if you're a shareholder of a mortgage 282 00:14:45,760 --> 00:14:48,080 Speaker 4: rate and you don't really have a good sense of 283 00:14:48,600 --> 00:14:50,840 Speaker 4: the types of risks are funding that the reads are 284 00:14:50,920 --> 00:14:54,880 Speaker 4: utilizing and taking, you know, you bear the consequences of that. 285 00:14:54,920 --> 00:14:58,520 Speaker 4: It's like it's kind of more more libertarian. I guess 286 00:14:58,520 --> 00:15:01,680 Speaker 4: you could say but the but the byproduct of that 287 00:15:01,880 --> 00:15:04,480 Speaker 4: is it's become more opaque and less easy to see 288 00:15:05,440 --> 00:15:05,960 Speaker 4: we're fined. 289 00:15:07,240 --> 00:15:10,880 Speaker 1: So I think that's the problem. Without that visibility or transparency, 290 00:15:10,880 --> 00:15:12,560 Speaker 1: it's a problem for the banks. They don't really understand 291 00:15:12,560 --> 00:15:14,520 Speaker 1: their risk levels that they have there, but we do 292 00:15:14,720 --> 00:15:16,440 Speaker 1: know some of the risks. So that kind of goes 293 00:15:16,480 --> 00:15:19,240 Speaker 1: back to potentially there's two point ninety trillion dollars in 294 00:15:19,280 --> 00:15:23,640 Speaker 1: commercial mortgage paper, of which about twenty percent of it 295 00:15:23,680 --> 00:15:28,119 Speaker 1: seems to be non pain delinkdine, that's right, and about 296 00:15:28,840 --> 00:15:32,160 Speaker 1: fifty percent of it has to be refinanced or rolled 297 00:15:32,200 --> 00:15:34,400 Speaker 1: over in the next twenty four months. It looks like 298 00:15:35,040 --> 00:15:38,560 Speaker 1: at what appears to be going to be much higher 299 00:15:39,080 --> 00:15:39,960 Speaker 1: interest rates. 300 00:15:40,760 --> 00:15:42,800 Speaker 4: Can I can I tell you a story about one 301 00:15:42,880 --> 00:15:48,480 Speaker 4: of the things that we're hearing so over you know, 302 00:15:48,600 --> 00:15:52,040 Speaker 4: where I'm most worried and this may be like kind 303 00:15:52,040 --> 00:15:54,880 Speaker 4: of surprising to focus is on the multifamily side, on 304 00:15:54,920 --> 00:15:56,240 Speaker 4: the on the apartment side. 305 00:15:56,440 --> 00:15:58,520 Speaker 2: Okay, So i'd just. 306 00:15:58,480 --> 00:16:00,960 Speaker 1: Consider that anything about four or are you typically thinking 307 00:16:01,040 --> 00:16:06,080 Speaker 1: like in the hundreds? Sorry, anything over anything over four 308 00:16:06,200 --> 00:16:08,960 Speaker 1: units technically multifamily? Are you are you thinking typically in 309 00:16:09,000 --> 00:16:11,200 Speaker 1: like apartments like hundreds of units. 310 00:16:10,880 --> 00:16:13,920 Speaker 4: Any any uh, I'd say like north of north of 311 00:16:13,960 --> 00:16:16,200 Speaker 4: four Like so I'm thinking like class C apartments where 312 00:16:16,240 --> 00:16:18,720 Speaker 4: you start getting into like the thirty forty to fifty 313 00:16:18,800 --> 00:16:20,560 Speaker 4: unit buildings and above. 314 00:16:20,880 --> 00:16:23,160 Speaker 3: Okay, But but what happened was. 315 00:16:23,560 --> 00:16:26,080 Speaker 4: Obviously like everyone, I'm sure that the listeners of your 316 00:16:26,120 --> 00:16:28,520 Speaker 4: show and like you you know, we've talked about it 317 00:16:28,560 --> 00:16:31,200 Speaker 4: a lot, and it was very topical over the last 318 00:16:31,240 --> 00:16:34,120 Speaker 4: two and a half years, just kind of like the rise, 319 00:16:35,800 --> 00:16:37,920 Speaker 4: like both on an absolute level but from a rate 320 00:16:37,960 --> 00:16:40,800 Speaker 4: of change perspective, and how rents have changed, right, apartment runs, 321 00:16:40,880 --> 00:16:44,000 Speaker 4: particularly in the sun Belt. And so at the same time, 322 00:16:44,080 --> 00:16:47,680 Speaker 4: which was which was somewhat unique, interest rates were at 323 00:16:47,800 --> 00:16:53,680 Speaker 4: kind of generational lows, right, so you had trough interest rates, uh, 324 00:16:54,000 --> 00:16:56,320 Speaker 4: trough cap rates, which we can get into that. But 325 00:16:56,360 --> 00:16:59,720 Speaker 4: a cap rate is just a methodology for valuing a building, 326 00:16:59,720 --> 00:17:03,200 Speaker 4: actually the inverse of value, right, So lower the cap rate, 327 00:17:03,280 --> 00:17:06,800 Speaker 4: higher the value. You had all these borrowers, like what 328 00:17:06,840 --> 00:17:11,159 Speaker 4: are called sponsors, so think like private developers, private owners 329 00:17:11,240 --> 00:17:16,960 Speaker 4: running around taking advantage of really cheap financing to buy 330 00:17:17,119 --> 00:17:21,080 Speaker 4: assets at like very very high prices and low cap rates, 331 00:17:21,640 --> 00:17:25,840 Speaker 4: and in many cases they use what are called transitional loans, 332 00:17:26,080 --> 00:17:28,960 Speaker 4: so like two to three year bridge loans that obviously 333 00:17:29,000 --> 00:17:31,800 Speaker 4: at maturity you have to roll those right, they're called 334 00:17:31,880 --> 00:17:35,440 Speaker 4: roll like rolling it and industry parlance a refinancing it. 335 00:17:35,560 --> 00:17:36,400 Speaker 3: Well, what happened. 336 00:17:36,720 --> 00:17:38,280 Speaker 1: I'm gonna have to I'm gonna have to put you, 337 00:17:38,400 --> 00:17:41,199 Speaker 1: put you on hold there, Rob, and leave everybody on 338 00:17:41,200 --> 00:17:41,800 Speaker 1: a cliffhanger. 339 00:17:41,840 --> 00:17:43,760 Speaker 2: What did happen? Because I want to know. 340 00:17:44,240 --> 00:17:47,520 Speaker 1: I'm suspecting it's a big problem that's there. I know 341 00:17:47,600 --> 00:17:49,480 Speaker 1: these bridge loans have to be kind of rolled over 342 00:17:49,880 --> 00:17:51,200 Speaker 1: to the point we're making. If you're just tuned in, 343 00:17:51,280 --> 00:17:53,520 Speaker 1: you're listening to the Mark Mas Show. I'm sitting down 344 00:17:53,520 --> 00:17:57,119 Speaker 1: with Rob Simone of Hedge Eye Reads, and we're discussing 345 00:17:57,160 --> 00:17:59,920 Speaker 1: the potential problems sitting inside the banking sector with these 346 00:18:00,000 --> 00:18:02,160 Speaker 1: mortgage back securities. Were back with more in a minute. 347 00:18:02,160 --> 00:18:03,840 Speaker 1: Don't go away, all right, Welcome back. If you just 348 00:18:03,840 --> 00:18:06,439 Speaker 1: tune in, you're listening to the Marcomas Show. We're sitting 349 00:18:06,440 --> 00:18:09,320 Speaker 1: down with Rob Simone of Hedge Eye Reads and we're 350 00:18:09,320 --> 00:18:12,359 Speaker 1: talking about what's going on in the commercial mortgage and 351 00:18:12,480 --> 00:18:15,800 Speaker 1: back security the commercial real estate market. And Rob, you 352 00:18:15,800 --> 00:18:19,040 Speaker 1: were just explaining before the break all these short term 353 00:18:19,080 --> 00:18:22,040 Speaker 1: bridge loans sometimes two three bridge loans that might have 354 00:18:22,040 --> 00:18:24,320 Speaker 1: been piled up, and maybe what potential problems could be. 355 00:18:25,200 --> 00:18:26,040 Speaker 3: Yeah, definitely. 356 00:18:26,080 --> 00:18:29,520 Speaker 4: So like imagine, well, let's put it in practical terms, 357 00:18:29,560 --> 00:18:33,720 Speaker 4: Like imagine you Mark, you bought a house and you know, 358 00:18:33,880 --> 00:18:37,280 Speaker 4: you bought it in the second quarter twenty one, and 359 00:18:37,359 --> 00:18:39,480 Speaker 4: you bought it with like a two year loan, right, 360 00:18:40,040 --> 00:18:42,359 Speaker 4: and your plan was to rent it out. And you 361 00:18:42,440 --> 00:18:44,840 Speaker 4: at that point, or like anybody else that could kind 362 00:18:44,840 --> 00:18:47,840 Speaker 4: of see like rents flying off the page, thought that 363 00:18:48,160 --> 00:18:51,639 Speaker 4: like at a you know, a three sub three percent 364 00:18:51,720 --> 00:18:54,440 Speaker 4: interest rate. That by the way, these are floating loans, right, 365 00:18:54,480 --> 00:18:57,119 Speaker 4: so they're not fixed in at rate, they float with 366 00:18:57,200 --> 00:18:59,720 Speaker 4: the market. You locking, you thought you were getting a 367 00:18:59,720 --> 00:19:02,480 Speaker 4: three percent cost of financing and that like over the 368 00:19:02,520 --> 00:19:05,879 Speaker 4: next three years, rents were going to grow fifteen percent 369 00:19:05,920 --> 00:19:08,720 Speaker 4: per year. And the bet you were making was that, 370 00:19:08,840 --> 00:19:11,680 Speaker 4: like you could pay a really high price or a 371 00:19:11,760 --> 00:19:16,800 Speaker 4: low cap rate, earn that growth on your rents, and 372 00:19:16,840 --> 00:19:18,840 Speaker 4: then on the back end of it refinanced it at 373 00:19:18,840 --> 00:19:21,600 Speaker 4: a much higher higher value. Right, So that was the 374 00:19:21,600 --> 00:19:23,400 Speaker 4: bet that a lot of these guys are making. 375 00:19:23,400 --> 00:19:25,520 Speaker 2: Well and what they were doing working for a long time. 376 00:19:26,520 --> 00:19:28,040 Speaker 3: It's been working for a really long time. 377 00:19:28,080 --> 00:19:31,280 Speaker 4: But in this case, because the debt markets were so open, 378 00:19:31,359 --> 00:19:34,360 Speaker 4: a lot of these guys used like ninety percent plus, 379 00:19:35,280 --> 00:19:37,000 Speaker 4: you know, or like think of think of the inverse, 380 00:19:37,000 --> 00:19:38,760 Speaker 4: they only put like five to ten percent equity in. 381 00:19:38,880 --> 00:19:41,359 Speaker 4: So the LTV on a lot of these loans is 382 00:19:41,400 --> 00:19:44,720 Speaker 4: eighty percent or higher. Now, what happened between now and then, right, 383 00:19:44,760 --> 00:19:48,760 Speaker 4: like inflation obviously soored fed came in, jacked up rates 384 00:19:48,800 --> 00:19:51,199 Speaker 4: faster than like any of us have ever seen, at 385 00:19:51,280 --> 00:19:55,520 Speaker 4: least in our lifetimes. Right, rent growth slowed, so like 386 00:19:55,600 --> 00:19:58,840 Speaker 4: if you thought you were you thought you were getting 387 00:19:58,880 --> 00:20:01,320 Speaker 4: fifteen percent and a lot growth per year, or like 388 00:20:01,359 --> 00:20:04,400 Speaker 4: rent growth per year, maybe that turned into eight percent compounded. 389 00:20:04,880 --> 00:20:07,520 Speaker 4: And at the same time, your your cost to borrow 390 00:20:07,520 --> 00:20:10,000 Speaker 4: and went from two to seven. So when you go 391 00:20:10,040 --> 00:20:13,080 Speaker 4: into the permanent financing market, suddenly the math doesn't work 392 00:20:13,119 --> 00:20:15,520 Speaker 4: anymore and you can only you know, finance maybe sixty 393 00:20:15,560 --> 00:20:17,679 Speaker 4: to sixty five percent of the value. And oh, by 394 00:20:17,680 --> 00:20:20,560 Speaker 4: the way, the value came down thirty five percent. So 395 00:20:20,760 --> 00:20:22,960 Speaker 4: like a lot of these guys and I know you 396 00:20:23,040 --> 00:20:26,000 Speaker 4: under I know you get it, but like practically speaking, 397 00:20:26,080 --> 00:20:28,119 Speaker 4: like what a lot. What this really means for folks 398 00:20:28,200 --> 00:20:30,640 Speaker 4: is that everyone's underwater. And so a lot of these 399 00:20:30,640 --> 00:20:33,720 Speaker 4: guys are running around trying to like basically get another 400 00:20:33,840 --> 00:20:35,720 Speaker 4: two to three year bridge loan to get them to 401 00:20:35,760 --> 00:20:37,919 Speaker 4: the other side, making the bet that the Fed's going 402 00:20:38,000 --> 00:20:39,880 Speaker 4: to have to cut rates and they'll be able to live, 403 00:20:40,160 --> 00:20:43,160 Speaker 4: like basically live to fight another day. And you know, 404 00:20:43,320 --> 00:20:46,240 Speaker 4: we at Hedge Eye like we're we're kind of we're 405 00:20:46,320 --> 00:20:48,560 Speaker 4: very rate of change focus, but like we also think 406 00:20:48,600 --> 00:20:52,479 Speaker 4: that we're going to be higher for longer pretty clearly, 407 00:20:52,520 --> 00:20:54,480 Speaker 4: and that the FED, every time the market rips the 408 00:20:54,480 --> 00:20:56,879 Speaker 4: way it has, the FED is more incentive to like 409 00:20:57,040 --> 00:20:59,600 Speaker 4: keep rates higher for longer so that it makes that 410 00:20:59,720 --> 00:21:02,639 Speaker 4: like ability to kick the can a lot tougher for 411 00:21:02,680 --> 00:21:03,080 Speaker 4: these guys. 412 00:21:03,119 --> 00:21:05,119 Speaker 3: And I and I'm seeing it. We're seeing it. 413 00:21:05,200 --> 00:21:06,880 Speaker 4: Like with one of the reads that I cover called 414 00:21:07,000 --> 00:21:09,800 Speaker 4: arbor A b r It's and Mortgage Ry, they they 415 00:21:09,840 --> 00:21:12,159 Speaker 4: only do these like two and three year bridge loans 416 00:21:12,200 --> 00:21:14,200 Speaker 4: for for apartment sponsors. 417 00:21:14,200 --> 00:21:16,320 Speaker 3: Basically they're already seeing you. 418 00:21:16,280 --> 00:21:18,560 Speaker 4: Know, guys literally just give the keys back and like 419 00:21:18,640 --> 00:21:20,800 Speaker 4: maybe flee the country because they're just like they put 420 00:21:20,800 --> 00:21:22,920 Speaker 4: five percent equity in and they're underwater and it's like, 421 00:21:22,960 --> 00:21:25,680 Speaker 4: you know what, we lost this one, we're out, and then. 422 00:21:25,880 --> 00:21:27,240 Speaker 3: The lenders stuck with the keys. 423 00:21:28,960 --> 00:21:29,360 Speaker 2: Hmmm. 424 00:21:29,960 --> 00:21:30,800 Speaker 3: So it's it's messy. 425 00:21:30,800 --> 00:21:33,080 Speaker 4: And then like those impairments, what's gonna happen is those 426 00:21:33,119 --> 00:21:36,240 Speaker 4: losses are going to start showing up I think over 427 00:21:36,280 --> 00:21:39,720 Speaker 4: the next like quarter or two on on not just 428 00:21:39,760 --> 00:21:43,639 Speaker 4: the banks, but like these you know, shadow lenders balance sheets, 429 00:21:43,640 --> 00:21:46,160 Speaker 4: and they're their earnings are going to be bad. They're 430 00:21:46,160 --> 00:21:48,920 Speaker 4: probably gonna have to raise equity in some some cases 431 00:21:49,040 --> 00:21:52,879 Speaker 4: to like you know, basically have a capital buffer and 432 00:21:52,920 --> 00:21:54,960 Speaker 4: still be able to lend out right. It's it's it's 433 00:21:54,960 --> 00:21:56,520 Speaker 4: a really tough situation. 434 00:21:56,119 --> 00:21:56,480 Speaker 3: I think. 435 00:21:57,000 --> 00:21:58,000 Speaker 2: And the and the other. 436 00:21:58,200 --> 00:22:00,840 Speaker 1: The other big thing on that is not only obviously 437 00:22:00,880 --> 00:22:03,399 Speaker 1: the problems that you've already talked about. So you have 438 00:22:03,760 --> 00:22:05,960 Speaker 1: a multiple kind of attacks, if you if you will, 439 00:22:06,040 --> 00:22:09,400 Speaker 1: So one, you have you know, potentially people not buying. Two, 440 00:22:09,440 --> 00:22:10,960 Speaker 1: you have this loan that has to be rolled over 441 00:22:11,000 --> 00:22:13,000 Speaker 1: that now you can't afford at the new rate. But 442 00:22:13,040 --> 00:22:15,520 Speaker 1: then on top of it, you have, because this problem 443 00:22:15,560 --> 00:22:17,400 Speaker 1: has been created by the Fed raising rates so much, 444 00:22:17,520 --> 00:22:19,520 Speaker 1: people that were buying buildings at a three four five 445 00:22:19,520 --> 00:22:21,120 Speaker 1: percent cap rate don't want to buy it at three 446 00:22:21,160 --> 00:22:23,000 Speaker 1: four five percent caprate anymore when I can go make 447 00:22:23,200 --> 00:22:24,480 Speaker 1: five percent just sitting. 448 00:22:24,200 --> 00:22:25,800 Speaker 3: At the fast right, that's right. 449 00:22:26,119 --> 00:22:28,440 Speaker 2: So now they've rained away liquidity from the market. 450 00:22:28,840 --> 00:22:30,680 Speaker 3: Yeah, and by the. 451 00:22:30,600 --> 00:22:33,560 Speaker 4: Way, like it's it's actually a lot scarier than that. 452 00:22:33,800 --> 00:22:36,320 Speaker 4: So some of these deals that I've been looking at, 453 00:22:36,840 --> 00:22:39,120 Speaker 4: we're done at like two and a half percent cap 454 00:22:39,200 --> 00:22:42,320 Speaker 4: rates in the first and second quarter twenty one. I mean, 455 00:22:42,359 --> 00:22:45,360 Speaker 4: that's a tremendous amount of risk and they levered themselves 456 00:22:45,400 --> 00:22:48,359 Speaker 4: up eighty percent. It just the math doesn't work. And 457 00:22:48,400 --> 00:22:51,760 Speaker 4: you're right, right, Like what there's you and I may 458 00:22:51,920 --> 00:22:55,040 Speaker 4: like hate monetary policy the way the way it's run, 459 00:22:55,359 --> 00:22:56,920 Speaker 4: and I think you and I we probably guessing we 460 00:22:57,000 --> 00:22:58,960 Speaker 4: probably see eye to eye on that, but like the 461 00:22:59,040 --> 00:23:02,080 Speaker 4: reality is, you know, you basically have on a nominal basis, 462 00:23:02,119 --> 00:23:04,800 Speaker 4: you have a risk risk free bed at five percent right. 463 00:23:04,720 --> 00:23:07,479 Speaker 3: Now, So why take the other side of that? 464 00:23:08,280 --> 00:23:10,640 Speaker 1: Yeah, yeah, it makes no sense, and that that that 465 00:23:10,800 --> 00:23:14,080 Speaker 1: creates even more problems. So there's two potential things here 466 00:23:14,119 --> 00:23:15,760 Speaker 1: that I want to talk about and see if we 467 00:23:15,800 --> 00:23:19,960 Speaker 1: can speculate on to potentially what could happen from this. 468 00:23:20,400 --> 00:23:22,880 Speaker 1: And so one is like, obviously all this. 469 00:23:22,920 --> 00:23:24,280 Speaker 2: Debt that could potentially go bad. 470 00:23:24,440 --> 00:23:26,879 Speaker 1: People just handing the keys over, they're walking away, and 471 00:23:26,880 --> 00:23:29,320 Speaker 1: that just kind of rolls up to whatever banks holding 472 00:23:29,320 --> 00:23:32,080 Speaker 1: that paper or whatever read or wherever that is. 473 00:23:32,119 --> 00:23:33,840 Speaker 2: So there's there's a big problem there. 474 00:23:33,880 --> 00:23:37,840 Speaker 1: Now, it seems like what I would expect after seeing 475 00:23:37,840 --> 00:23:41,000 Speaker 1: what happened with these new facilities the FED put in, 476 00:23:41,080 --> 00:23:45,320 Speaker 1: you know, with the BTFP et cetera, is probably something 477 00:23:45,400 --> 00:23:47,040 Speaker 1: going back to like what we saw in two thousand 478 00:23:47,040 --> 00:23:48,440 Speaker 1: and eight, where maybe the FED just says, give me 479 00:23:48,480 --> 00:23:50,600 Speaker 1: all your mortgage backed securities, I'll just put you give 480 00:23:50,640 --> 00:23:53,679 Speaker 1: you back to PAR. So maybe all these commercial mortgage 481 00:23:53,720 --> 00:23:56,440 Speaker 1: backed securities that are sitting there whatever two point nine 482 00:23:56,440 --> 00:23:58,520 Speaker 1: trillion need to be rolled over, and there's this big 483 00:23:58,560 --> 00:24:00,240 Speaker 1: debt bomb that's sitting there that a lot of people 484 00:24:00,240 --> 00:24:04,000 Speaker 1: are warning about. Potentially the FED could just be like, okay, 485 00:24:04,240 --> 00:24:05,840 Speaker 1: like we see the problem there, we don't have to 486 00:24:05,840 --> 00:24:06,520 Speaker 1: sten to collapse. 487 00:24:06,720 --> 00:24:08,520 Speaker 2: We'll just put them on our books. We'll give you 488 00:24:08,560 --> 00:24:09,040 Speaker 2: back at PAR. 489 00:24:10,440 --> 00:24:12,640 Speaker 3: It's possible. Yeah, I mean I think. 490 00:24:13,640 --> 00:24:15,440 Speaker 1: I mean all not we end up in a two 491 00:24:15,520 --> 00:24:17,480 Speaker 1: thousand and eight meltdown scenario, right. 492 00:24:17,600 --> 00:24:22,280 Speaker 3: Yeah, Yeah, but I think I'm just guessing here, but. 493 00:24:23,440 --> 00:24:25,879 Speaker 2: I'm all guessing here, guessing. 494 00:24:26,320 --> 00:24:29,480 Speaker 4: We're all guessing. It has to get a lot worse 495 00:24:29,520 --> 00:24:33,960 Speaker 4: from here. So if you recall last time around, and 496 00:24:34,000 --> 00:24:36,600 Speaker 4: I'm just thinking about this through the lens of commercial 497 00:24:36,640 --> 00:24:39,879 Speaker 4: real estate, not rezi, you know, what was happening was 498 00:24:39,920 --> 00:24:42,800 Speaker 4: you were kind of like some of the like let's 499 00:24:42,840 --> 00:24:45,480 Speaker 4: talk about lodging, like, so the hotel sector got very 500 00:24:45,520 --> 00:24:49,320 Speaker 4: overlevered going into the GFC from a commercial like on 501 00:24:49,320 --> 00:24:53,280 Speaker 4: the commercial real estate side. And what happened was a 502 00:24:53,320 --> 00:24:58,560 Speaker 4: couple of borrowers or sponsors started running into trouble and 503 00:24:58,640 --> 00:25:02,200 Speaker 4: they started kicking back assets like onesies and twosies back 504 00:25:02,240 --> 00:25:04,119 Speaker 4: to the banks, and the banks were taking the keys. 505 00:25:04,880 --> 00:25:08,240 Speaker 4: But then what happened was things got real and everybody 506 00:25:08,320 --> 00:25:11,560 Speaker 4: was defaulting together, and suddenly the bank said, hey, time out, 507 00:25:11,840 --> 00:25:14,480 Speaker 4: like we actually can't. We don't want to, but we 508 00:25:14,560 --> 00:25:17,720 Speaker 4: actually cannot take all of this back at once because 509 00:25:17,760 --> 00:25:21,399 Speaker 4: we'll have to raise too much equity. And that's when 510 00:25:21,760 --> 00:25:24,600 Speaker 4: the market, like you know, and you and I saw it, 511 00:25:24,680 --> 00:25:26,920 Speaker 4: like the days where all the banks were dropping twenty 512 00:25:27,000 --> 00:25:31,480 Speaker 4: thirty percent per day, started pricing in banks having if 513 00:25:31,520 --> 00:25:34,000 Speaker 4: they were able to survive at all having to do 514 00:25:34,040 --> 00:25:36,800 Speaker 4: these big giant equity raises, right, because they would have 515 00:25:36,840 --> 00:25:39,840 Speaker 4: to raise equity to hold against the assets they take 516 00:25:39,920 --> 00:25:42,200 Speaker 4: back in lieu of like a loan. Because there again, 517 00:25:42,800 --> 00:25:44,800 Speaker 4: banks aren't in the business of owning real estate. They're 518 00:25:44,800 --> 00:25:47,520 Speaker 4: in the business of making loans. And so my thought is, like, 519 00:25:48,080 --> 00:25:50,359 Speaker 4: before we get there, like, it's got to get a 520 00:25:50,359 --> 00:25:52,280 Speaker 4: lot worse, and they're either going to the Fed's either 521 00:25:52,320 --> 00:25:54,200 Speaker 4: going to do what you said, or they're going to 522 00:25:54,320 --> 00:25:57,280 Speaker 4: do like some form of capital injections into the banks 523 00:25:57,280 --> 00:25:59,439 Speaker 4: if it got that bad, similar to last time, to 524 00:25:59,440 --> 00:26:03,160 Speaker 4: give the banks basically cushion to absorb those losses. But yeah, 525 00:26:03,200 --> 00:26:05,119 Speaker 4: I mean, it's it's a logical conclusion, right, Like I 526 00:26:05,160 --> 00:26:07,320 Speaker 4: don't I don't know. I don't think the private markets 527 00:26:07,359 --> 00:26:11,000 Speaker 4: would would be too keen on recapping the banks given 528 00:26:11,000 --> 00:26:12,399 Speaker 4: that there's a backstop, right. 529 00:26:12,359 --> 00:26:14,440 Speaker 2: So yeah, well I guess uh. 530 00:26:14,520 --> 00:26:16,800 Speaker 1: And and just kind of in that thought exercise, kind 531 00:26:16,800 --> 00:26:19,000 Speaker 1: of going back to some of these some of these 532 00:26:19,600 --> 00:26:22,119 Speaker 1: takes where you know, Elon Muss's commercial real estate is 533 00:26:22,119 --> 00:26:25,119 Speaker 1: by far the most serious looming issue, right, And like 534 00:26:25,160 --> 00:26:26,840 Speaker 1: I said, you look at look, it looks like a 535 00:26:26,920 --> 00:26:29,119 Speaker 1: lot of the smaller tier banks are the ones sitting 536 00:26:29,160 --> 00:26:31,320 Speaker 1: on this paper, and they're the ones that are most vulnerable, 537 00:26:31,640 --> 00:26:34,000 Speaker 1: and so like, while it looks like it could bring 538 00:26:34,040 --> 00:26:37,560 Speaker 1: the whole house of cards down, it seems like the 539 00:26:37,560 --> 00:26:40,000 Speaker 1: Fed would probably step in and bail out the House 540 00:26:40,040 --> 00:26:42,240 Speaker 1: of cards before it all came down to your point 541 00:26:42,280 --> 00:26:44,480 Speaker 1: that you're making, though, I think it has to get 542 00:26:44,720 --> 00:26:46,439 Speaker 1: a lot worse. So I want to I want to 543 00:26:46,480 --> 00:26:49,120 Speaker 1: ask you about that, and then I want to find 544 00:26:49,160 --> 00:26:51,639 Speaker 1: out what you think you know, kind of what your 545 00:26:51,680 --> 00:26:53,879 Speaker 1: idea forecast is. Are we going to see a big 546 00:26:54,000 --> 00:26:56,120 Speaker 1: sale coming up? Or is this the time to really 547 00:26:56,160 --> 00:26:57,000 Speaker 1: tread carefully? 548 00:26:57,560 --> 00:26:57,760 Speaker 2: Now? 549 00:26:57,800 --> 00:26:58,280 Speaker 3: If you're just. 550 00:26:58,240 --> 00:27:00,399 Speaker 1: Tuning in, you're listening to the Mark Mash Show. I'm 551 00:27:00,440 --> 00:27:03,679 Speaker 1: sitting down with Rob Simone from Hedge Eye Reads and 552 00:27:03,680 --> 00:27:07,480 Speaker 1: we're discussing what's going on in the commercial real estate sector. 553 00:27:07,480 --> 00:27:11,240 Speaker 1: I want to play a little bit of like a 554 00:27:11,280 --> 00:27:12,960 Speaker 1: guessing game of what's gonna happen in the future, how 555 00:27:12,960 --> 00:27:13,680 Speaker 1: we're going to navigate it. 556 00:27:13,680 --> 00:27:16,000 Speaker 2: We'll be back with more in a minute. Don't go away, 557 00:27:16,080 --> 00:27:17,560 Speaker 2: I'll be right back, all right, Welcome back. 558 00:27:17,600 --> 00:27:19,200 Speaker 1: If you're just tune in, you're listening to the Mark 559 00:27:19,280 --> 00:27:22,359 Speaker 1: mass show sitting down with Rob Simone from Hedge Eye Reads, 560 00:27:22,359 --> 00:27:25,480 Speaker 1: and we're talking about the potential bombs blowing up in 561 00:27:25,600 --> 00:27:29,520 Speaker 1: the commercial mortgage backed securities market, and I want to 562 00:27:29,560 --> 00:27:33,320 Speaker 1: talk about also what you think are there possibilities of 563 00:27:33,359 --> 00:27:36,280 Speaker 1: opportunities coming up or is this like a danger stay away. 564 00:27:36,320 --> 00:27:38,119 Speaker 1: I'm kind of already guessing I know what your answer is. 565 00:27:38,920 --> 00:27:41,479 Speaker 1: But you were saying things might have to get a 566 00:27:41,520 --> 00:27:45,120 Speaker 1: lot worse before the FED steps in. So what does 567 00:27:45,119 --> 00:27:48,399 Speaker 1: that look like? Getting worse? Lots of defaults? The banks 568 00:27:48,400 --> 00:27:50,840 Speaker 1: are now taking these back. They're not in a dangerous 569 00:27:50,880 --> 00:27:53,159 Speaker 1: enough situation yet where the FED has to intervene, but 570 00:27:53,240 --> 00:27:55,800 Speaker 1: maybe the bank has to do some things. They're starting 571 00:27:55,800 --> 00:27:58,119 Speaker 1: to fire sell these things off, getting some kind of 572 00:27:58,119 --> 00:27:59,360 Speaker 1: creative deals, going. 573 00:28:00,160 --> 00:28:02,280 Speaker 4: Yeah, yeah, So I like to be clear, I think 574 00:28:02,359 --> 00:28:04,320 Speaker 4: I think you're you know, you kind of hit on it. 575 00:28:04,400 --> 00:28:08,320 Speaker 4: So we we at Hedge Eye, we're very macro focused. 576 00:28:08,320 --> 00:28:10,520 Speaker 4: We kind of like start with the macro and then 577 00:28:10,560 --> 00:28:15,160 Speaker 4: it's my job to to pick stocks underneath that depending 578 00:28:15,160 --> 00:28:17,560 Speaker 4: on like where we are in the cycle. And and 579 00:28:17,640 --> 00:28:22,240 Speaker 4: our thought is that in our macro teams thought is 580 00:28:22,240 --> 00:28:25,080 Speaker 4: that we're in the middle of maybe like one of 581 00:28:25,119 --> 00:28:30,919 Speaker 4: the most challenging macro environments since uh, you know you 582 00:28:31,080 --> 00:28:34,000 Speaker 4: or I could remember, right, like so you know, not 583 00:28:34,119 --> 00:28:37,800 Speaker 4: to get yeah, like not not to get too alarmist, 584 00:28:37,920 --> 00:28:39,960 Speaker 4: but like we we think it's pretty bad, and it's 585 00:28:40,000 --> 00:28:43,640 Speaker 4: and it's getting worse at a at a significantly faster rate. 586 00:28:44,840 --> 00:28:48,280 Speaker 4: You know, our founder Keith he he thinks we're in 587 00:28:48,320 --> 00:28:51,000 Speaker 4: the middle of what's called a credit event. Now what 588 00:28:51,000 --> 00:28:55,560 Speaker 4: what does that mean? Credit event basically means like a 589 00:28:55,560 --> 00:28:59,680 Speaker 4: cascading default cycle, and and how does that express itself? 590 00:28:59,720 --> 00:29:03,640 Speaker 4: Like what should people look for? So usually one thing 591 00:29:03,640 --> 00:29:06,400 Speaker 4: that's really interesting right now is the bond market and 592 00:29:06,440 --> 00:29:08,760 Speaker 4: the and the equity market. So the stock market are 593 00:29:08,800 --> 00:29:13,480 Speaker 4: sending two very different messages. The bond market is, whether 594 00:29:13,520 --> 00:29:16,000 Speaker 4: it be like the government or corporate bond market is 595 00:29:16,040 --> 00:29:19,800 Speaker 4: basically like batting down the hatches preparing for the storm. 596 00:29:20,160 --> 00:29:23,080 Speaker 4: Where the equity market is is kind of ripping higher 597 00:29:23,200 --> 00:29:26,200 Speaker 4: or bouncing higher. We think it's actually being forced that 598 00:29:26,200 --> 00:29:27,880 Speaker 4: way by people who need to get out, like some 599 00:29:27,960 --> 00:29:30,440 Speaker 4: of the bigger players that are you know, using what 600 00:29:30,480 --> 00:29:32,640 Speaker 4: are called one data expiration options, et cetera. 601 00:29:32,640 --> 00:29:34,040 Speaker 3: Without getting into too much detail. 602 00:29:34,640 --> 00:29:38,760 Speaker 4: Usually the bond market's right and So what's selling off 603 00:29:38,880 --> 00:29:43,720 Speaker 4: like yield high yield credit, which really means like junk bonds, 604 00:29:43,760 --> 00:29:47,280 Speaker 4: lower you know, lower quality credit. What's catching a bid 605 00:29:47,360 --> 00:29:50,160 Speaker 4: right now? Treasuries right like longer data treasuries, or at 606 00:29:50,200 --> 00:29:53,800 Speaker 4: least they're starting to. So we think that like credit 607 00:29:53,840 --> 00:29:56,200 Speaker 4: spreads are going to widen, the stock market's going to 608 00:29:56,240 --> 00:30:00,960 Speaker 4: puke aggressively most likely as it normally does. There's gonna 609 00:30:00,960 --> 00:30:02,040 Speaker 4: be a wave of default. 610 00:30:01,800 --> 00:30:03,840 Speaker 2: Is that a twenty percent or more? 611 00:30:05,920 --> 00:30:07,200 Speaker 3: I mean we we. 612 00:30:07,160 --> 00:30:12,200 Speaker 4: Don't well, we actually don't do price targets here, believe 613 00:30:12,200 --> 00:30:15,200 Speaker 4: it or not. But yeah, like what's what's a crash? 614 00:30:15,240 --> 00:30:18,120 Speaker 4: It's usually like, you know, twenty percent or so. And like, 615 00:30:18,160 --> 00:30:21,080 Speaker 4: by the way, you can make an argument we've already crashed, 616 00:30:21,320 --> 00:30:24,160 Speaker 4: like you know, pikatrough in some in some cases, but 617 00:30:24,360 --> 00:30:25,720 Speaker 4: uh yeah. 618 00:30:25,360 --> 00:30:27,120 Speaker 1: I was just trying to get some clarifiation on what 619 00:30:27,160 --> 00:30:28,960 Speaker 1: that puke aggressively kind of would mean. 620 00:30:29,000 --> 00:30:30,000 Speaker 2: So twenty percent or more? 621 00:30:30,000 --> 00:30:31,040 Speaker 3: Okay? It? 622 00:30:31,120 --> 00:30:34,080 Speaker 4: You know risk, you know that famous that famous line, right, 623 00:30:34,200 --> 00:30:37,680 Speaker 4: like you know, risk happens slowly and then all at once, 624 00:30:38,000 --> 00:30:40,960 Speaker 4: and so you know, these are the weeks where you're 625 00:30:41,000 --> 00:30:44,000 Speaker 4: down fifteen percent of the week when like everything is 626 00:30:44,000 --> 00:30:46,640 Speaker 4: printing down five six percent together, and the banks are 627 00:30:46,720 --> 00:30:50,520 Speaker 4: leading the way because credit's getting worse and that's their business, right, 628 00:30:50,520 --> 00:30:53,800 Speaker 4: Like those are the tells. So yeah, I think, like 629 00:30:53,840 --> 00:30:57,480 Speaker 4: to answer answer the question, it's an interesting time to 630 00:30:57,480 --> 00:31:00,400 Speaker 4: be short. I actually have more short recommendations, even in 631 00:31:00,400 --> 00:31:03,480 Speaker 4: real estate, which like should be safer at least theoretically. 632 00:31:05,320 --> 00:31:08,520 Speaker 4: But yeah, I would. I would just advocate patients by folks. 633 00:31:09,000 --> 00:31:11,160 Speaker 4: You know, there's this thought that like things are cheap. 634 00:31:11,280 --> 00:31:13,280 Speaker 4: I don't think things are cheap at all. That whatever 635 00:31:13,480 --> 00:31:16,280 Speaker 4: cheap means like cheap is kind of like an opinion 636 00:31:16,360 --> 00:31:18,920 Speaker 4: that a fact, And like the facts are, the FED 637 00:31:19,040 --> 00:31:22,720 Speaker 4: is pulling out a tremendous amount of liquidity. Rates are 638 00:31:22,800 --> 00:31:25,800 Speaker 4: high and probably not falling as aggressively as they need to. 639 00:31:26,440 --> 00:31:30,320 Speaker 4: The consumer is not in good shape. We vehemently disagree 640 00:31:30,320 --> 00:31:33,720 Speaker 4: with that. Credit card balances are like all time highs, 641 00:31:33,720 --> 00:31:35,320 Speaker 4: and by the way, so are the rates at which 642 00:31:35,360 --> 00:31:40,080 Speaker 4: they're being charged. It's a very very concerning kind of 643 00:31:40,160 --> 00:31:44,440 Speaker 4: macro setup. And we if you can't go short, be cautious, 644 00:31:44,520 --> 00:31:47,400 Speaker 4: be patient, you know, build a war chest of like 645 00:31:47,520 --> 00:31:50,560 Speaker 4: dry powder or cash to deploy, because we think things 646 00:31:50,600 --> 00:31:53,720 Speaker 4: are going to get interesting probably like around the middle 647 00:31:53,720 --> 00:31:54,480 Speaker 4: through the middle. 648 00:31:54,280 --> 00:31:54,720 Speaker 3: Of this year. 649 00:31:55,920 --> 00:31:58,040 Speaker 1: Yeah, I mean that kind of coincides with a lot 650 00:31:58,040 --> 00:32:00,320 Speaker 1: of a lot of thinking and including my own. You know, 651 00:32:00,360 --> 00:32:02,880 Speaker 1: we know that typically it takes twelve to eighteen months 652 00:32:02,920 --> 00:32:04,640 Speaker 1: to see the effects of these rate hikes, and so 653 00:32:05,040 --> 00:32:06,920 Speaker 1: to the point that you made earlier, the FED has 654 00:32:06,960 --> 00:32:09,320 Speaker 1: gone on one of the fastest rate hiking cycles we've 655 00:32:09,360 --> 00:32:12,360 Speaker 1: seen in at least over five decades. And we're in 656 00:32:12,440 --> 00:32:16,040 Speaker 1: now the thirteenth month, so we're basically one month into 657 00:32:16,040 --> 00:32:18,520 Speaker 1: that twelve month twelve to eighteen month period. So the 658 00:32:18,640 --> 00:32:20,400 Speaker 1: end of the summer kind of puts us like right 659 00:32:20,440 --> 00:32:22,600 Speaker 1: there in that in that dead zone. And to your points, 660 00:32:22,600 --> 00:32:24,560 Speaker 1: you start looking at all these other indicators that are 661 00:32:24,600 --> 00:32:26,880 Speaker 1: out there, and it certainly looks troubling ahead. 662 00:32:28,160 --> 00:32:28,640 Speaker 3: It does. 663 00:32:28,720 --> 00:32:32,360 Speaker 4: And also something that gets lost is not it's not 664 00:32:32,480 --> 00:32:35,640 Speaker 4: just the absolute level of rates, it's the pace at 665 00:32:35,680 --> 00:32:38,720 Speaker 4: which they were increased. So like if you if you 666 00:32:38,760 --> 00:32:41,240 Speaker 4: look at the rate of change of rate increase, it 667 00:32:41,320 --> 00:32:44,840 Speaker 4: was literally a straight line up. And I think if 668 00:32:44,880 --> 00:32:47,600 Speaker 4: you if you kind of drew like for like comparison, 669 00:32:49,440 --> 00:32:53,000 Speaker 4: you know, the last tightening cycle, Powell and team probably 670 00:32:53,040 --> 00:32:57,120 Speaker 4: tightened four or five times faster than the you know, 671 00:32:57,160 --> 00:33:00,560 Speaker 4: the prior cycle, and and like that means things, A, 672 00:33:00,680 --> 00:33:03,720 Speaker 4: it's going to be a more severe impact, but also 673 00:33:03,800 --> 00:33:06,600 Speaker 4: it's going to come quicker and faster and harder. So 674 00:33:06,920 --> 00:33:10,160 Speaker 4: like maybe if the traditional cycles twelve to eighteen months, 675 00:33:10,200 --> 00:33:12,280 Speaker 4: like you think about kind of the front end of that, right, 676 00:33:12,320 --> 00:33:15,000 Speaker 4: and we just we just think it like warrant's a 677 00:33:15,040 --> 00:33:17,680 Speaker 4: good deal of caution and not excessive risk. 678 00:33:17,560 --> 00:33:21,400 Speaker 1: Taking from from a from a macro standpoint, you know, 679 00:33:21,680 --> 00:33:24,320 Speaker 1: today more than ever probably I think you have to 680 00:33:24,560 --> 00:33:28,120 Speaker 1: take into the geopolitical picture because it's not just the 681 00:33:28,240 --> 00:33:31,440 Speaker 1: United States operating on its own anymore, right, Really, we're 682 00:33:31,680 --> 00:33:35,560 Speaker 1: kind of having to deal with these geopolitical forces including 683 00:33:35,840 --> 00:33:39,160 Speaker 1: you know, potentially central banks buying less treasuries et cetera, 684 00:33:39,600 --> 00:33:42,640 Speaker 1: dollar and less demand, obviously fighting wars on now potentially 685 00:33:42,680 --> 00:33:47,480 Speaker 1: multiple continents. That's highly inflationary. You have the decentralization of 686 00:33:48,200 --> 00:33:50,920 Speaker 1: supply chains and things like that. Those are massively inflationary. 687 00:33:50,920 --> 00:33:53,400 Speaker 1: But just if we look at just the macroeconomic picture, 688 00:33:53,440 --> 00:33:56,000 Speaker 1: even the United States to your point, you know, you 689 00:33:56,040 --> 00:33:58,360 Speaker 1: said you think they'll probably hold rates higher for longer. 690 00:33:58,720 --> 00:34:00,600 Speaker 2: They said they would do that until he breaks something. 691 00:34:00,360 --> 00:34:02,680 Speaker 1: Powell said, He's okay breaking something because they have the 692 00:34:02,720 --> 00:34:04,400 Speaker 1: tools to rebuild them. So we kind of know his 693 00:34:04,520 --> 00:34:08,480 Speaker 1: thought process. However, that the FED is broke now, the 694 00:34:08,520 --> 00:34:11,719 Speaker 1: FED is putting massive losses off the books. The treasuries 695 00:34:11,760 --> 00:34:15,600 Speaker 1: now broke. The Treasury cannot had to borrow almost a 696 00:34:15,640 --> 00:34:18,520 Speaker 1: trillion dollars in Q one this year. The banks are 697 00:34:18,560 --> 00:34:20,839 Speaker 1: now broke, and so at some point there is this 698 00:34:21,040 --> 00:34:24,840 Speaker 1: constraint that they hit upon, right, and so FED, the 699 00:34:24,880 --> 00:34:29,279 Speaker 1: FED can't even cover the interest and the mandatory payments 700 00:34:29,440 --> 00:34:31,960 Speaker 1: on its books. I mean, sorry that the treasury. And 701 00:34:32,000 --> 00:34:36,719 Speaker 1: so at some point there's sort of like there's only 702 00:34:36,760 --> 00:34:39,000 Speaker 1: one well, there's two ways out, and they're both kind 703 00:34:39,040 --> 00:34:42,640 Speaker 1: of two sides of the same coin default, either through 704 00:34:42,719 --> 00:34:44,680 Speaker 1: deflationary default or inflationary default. 705 00:34:44,920 --> 00:34:45,799 Speaker 2: Right, that's the. 706 00:34:45,760 --> 00:34:52,160 Speaker 1: Coin, so right, nomen all real exactly, So we don't 707 00:34:52,200 --> 00:34:54,360 Speaker 1: know maybe what happens the next you know, twelve to 708 00:34:54,400 --> 00:34:56,360 Speaker 1: twenty four months, but it seems like we kind of 709 00:34:56,360 --> 00:34:58,160 Speaker 1: know where we'll be three to five years from now. 710 00:34:58,200 --> 00:34:59,359 Speaker 2: I don't know if you would have kind of agree 711 00:34:59,400 --> 00:34:59,600 Speaker 2: with that. 712 00:35:00,560 --> 00:35:03,040 Speaker 4: Yeah, And and by the way, like so that has 713 00:35:03,120 --> 00:35:05,759 Speaker 4: implications for real estate too, right, so there's going to 714 00:35:05,800 --> 00:35:09,040 Speaker 4: be a time to get long some of the more 715 00:35:09,160 --> 00:35:12,839 Speaker 4: like irreplaceable kind of mission critical real estate sectors. But 716 00:35:13,000 --> 00:35:15,160 Speaker 4: like one of our one of our longest, you know, 717 00:35:15,280 --> 00:35:17,000 Speaker 4: just at Hedge Eye broadly, and we kind of go 718 00:35:17,040 --> 00:35:20,279 Speaker 4: across like everywhere, across all asset classes. We're pounding the 719 00:35:20,320 --> 00:35:23,720 Speaker 4: table pretty hard on gold right now. You know, I'm 720 00:35:23,800 --> 00:35:28,440 Speaker 4: personally a bitcoiner. I own both bitcoin and gold. Bitcoin 721 00:35:29,640 --> 00:35:32,400 Speaker 4: like behave market wise, you know, we can have that 722 00:35:32,440 --> 00:35:34,440 Speaker 4: discussion about what it's going to be, but like it 723 00:35:34,520 --> 00:35:37,759 Speaker 4: behaves a little bit differently than gold from a volatility 724 00:35:37,800 --> 00:35:40,840 Speaker 4: perspective right now. And so like typically gold is a 725 00:35:40,880 --> 00:35:44,200 Speaker 4: safer bet earlier, but like bitcoin is the faster horse is, 726 00:35:44,239 --> 00:35:47,400 Speaker 4: Like Tutor Jones like to say, you know, we I 727 00:35:47,440 --> 00:35:50,000 Speaker 4: think we would make a bet that, like you know 728 00:35:50,680 --> 00:35:54,839 Speaker 4: that that that nominal default is kind of more likely 729 00:35:55,120 --> 00:35:59,200 Speaker 4: and that hard assets are are you know, hard assets 730 00:35:59,200 --> 00:36:03,800 Speaker 4: typically front run the FED turning around and printing a 731 00:36:03,800 --> 00:36:06,480 Speaker 4: bunch of money to basically paper over the issues that 732 00:36:06,520 --> 00:36:08,640 Speaker 4: you and I are talking about. So like as a firm, 733 00:36:09,000 --> 00:36:11,839 Speaker 4: you know, we're pretty long goald or we're advocating people 734 00:36:11,880 --> 00:36:14,040 Speaker 4: take a long goal position, and I think like for 735 00:36:14,160 --> 00:36:16,440 Speaker 4: real estate. You know it's it's going to have a 736 00:36:16,480 --> 00:36:18,840 Speaker 4: similar impact, but it's going to take longer because we 737 00:36:18,880 --> 00:36:21,800 Speaker 4: have to go through these fits and starts and credit 738 00:36:21,920 --> 00:36:24,640 Speaker 4: and like the issues the consumer has with paying their 739 00:36:24,680 --> 00:36:26,880 Speaker 4: own bills, whether it be their apartment rent or whatever. 740 00:36:27,640 --> 00:36:29,440 Speaker 4: It's going to be choppy along the way. But yeah, 741 00:36:29,680 --> 00:36:32,920 Speaker 4: I think that's right, and we you know, our founder 742 00:36:32,960 --> 00:36:33,520 Speaker 4: says the same. 743 00:36:34,320 --> 00:36:35,800 Speaker 2: Yeah, yeah, I agree. 744 00:36:35,880 --> 00:36:38,080 Speaker 1: It's certainly you know, it's going to be an event 745 00:36:38,120 --> 00:36:40,000 Speaker 1: that's probably going to be very hard to trade through. 746 00:36:40,120 --> 00:36:42,399 Speaker 1: So it's about just taking your long positions and trying 747 00:36:42,400 --> 00:36:43,680 Speaker 1: to be right there. If you just tune in, you're 748 00:36:43,719 --> 00:36:45,759 Speaker 1: listening to the Mark mass Show. I've been sitting down 749 00:36:45,760 --> 00:36:48,560 Speaker 1: with Rob Simone. He is from hedge I hedge I 750 00:36:48,680 --> 00:36:51,319 Speaker 1: Reads check him out at hedge eye dot com or 751 00:36:51,520 --> 00:36:53,280 Speaker 1: at hedge eye reates on Twitter. 752 00:36:53,600 --> 00:36:55,960 Speaker 2: And that's what we got. Thanks so much for listening.