WEBVTT - Amazon, Real Estate, & Tech Sector 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you. 0:00:05.360 --> 0:00:07.680 Along with my co host Lisa Brahma Waits. Each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money, whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.960 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:21.959 at Bloomberg dot com. Well, Amazon reported earnings after the 0:00:21.960 --> 0:00:26.280 bell yesterday, showing the first drop year over year since 0:00:26.320 --> 0:00:29.760 early t seventeen in their earnings, and the longer that 0:00:29.840 --> 0:00:33.000 investors have to digest this, the more investors to like, 0:00:33.040 --> 0:00:35.320 you know what, we actually kind of like Amazon more, 0:00:35.360 --> 0:00:37.760 actually a little bit lower to discount and shares have 0:00:37.840 --> 0:00:40.680 come back at one point down more than eight percent, 0:00:40.760 --> 0:00:43.600 now down two point six percent. Joining us now to 0:00:43.640 --> 0:00:47.320 discuss Alex web technology calumnist for a Bloomberg opinion, Joining 0:00:47.360 --> 0:00:49.920 from London. So, Alex, We've been talking about it all morning, 0:00:50.440 --> 0:00:55.560 Amazon shares falling. It does seem though that they are stabilizing. 0:00:55.840 --> 0:00:59.760 Why do you think? I mean, I think that usually 0:00:59.800 --> 0:01:04.440 when Amazon spends money, it goes somewhere which does wind 0:01:04.520 --> 0:01:07.760 market share and generate returns, Um. On the one hand, 0:01:07.800 --> 0:01:12.000 we've gotten spending money on on improved deliveries in acceleration 0:01:12.080 --> 0:01:16.440 the pacer which prime orders get delivered. And secondly, it 0:01:16.480 --> 0:01:18.760 looks as though they are taking a bit of a 0:01:18.880 --> 0:01:22.399 hit on on the margin for Amazon Web services, the 0:01:22.480 --> 0:01:26.880 hugely successful cloud operations. But the motivation for that might 0:01:26.959 --> 0:01:30.520 be about defending its market share. That by by cutting prices, 0:01:30.560 --> 0:01:33.199 they are fending off the incursions of the likes of 0:01:33.440 --> 0:01:37.240 Microsoft in particular, but also perhaps Google and Ali barber Um. 0:01:37.840 --> 0:01:40.399 And you know, if you're defending market share, then it's 0:01:40.400 --> 0:01:43.920 defensible to maybe sacrifice a little bit of profitability. So Alex, 0:01:44.120 --> 0:01:46.360 you know, this is a company that's kind of dialed 0:01:46.440 --> 0:01:49.480 up expenses, dialed down expenses, you know, kind of depending 0:01:49.560 --> 0:01:52.360 upon maybe either kind of what they what they need 0:01:52.400 --> 0:01:54.560 to invest in and maybe what kind of profits they 0:01:54.560 --> 0:01:56.400 want to show the street. Are we do you get 0:01:56.400 --> 0:01:58.760 the sense that maybe the company is getting into a phase, 0:01:59.560 --> 0:02:03.280 uh of higher expenses. I think it certainly looks as 0:02:03.280 --> 0:02:06.360 though the competitive challenges are increasing. Um. That's happening both 0:02:06.360 --> 0:02:09.720 when it comes to e commerce and cloud and therefore, 0:02:09.840 --> 0:02:14.360 you know, warrants opening the checkbook a little bit. The 0:02:15.680 --> 0:02:20.720 you know, AWS profits are still disproportionately huge. You know, 0:02:20.760 --> 0:02:23.919 they account for two thirds of the overall profit of 0:02:24.120 --> 0:02:28.000 the business. UM, we are yet to see whether really 0:02:28.080 --> 0:02:31.760 the pushes from the likes of Walmart and Target can 0:02:31.880 --> 0:02:35.080 make a real incursion into this e commerce space. I 0:02:35.120 --> 0:02:38.200 think that there starts something like e commerce accounts for 0:02:38.280 --> 0:02:42.200 ten percent of all retail in the US, and Amazon's 0:02:42.240 --> 0:02:47.160 about of that. So until we see any meaningful shift 0:02:47.240 --> 0:02:50.280 on that dial um, then I think people can be 0:02:50.360 --> 0:02:53.880 very confident in the Amazon's trajectory. So let's talk about 0:02:53.880 --> 0:02:58.640 a WS, the cloud computing service sector of Amazon that 0:02:58.800 --> 0:03:01.280 was also a disappoint a minute, and it arguably is 0:03:01.320 --> 0:03:05.600 You're making the argument this morning a more significant disappointment 0:03:05.720 --> 0:03:09.760 than the increased spend, and I'm wondering why people seem 0:03:09.800 --> 0:03:13.600 to be shruggling that off. I think maybe the perhaps 0:03:13.639 --> 0:03:15.959 the arguments of the rationale for that for that slight 0:03:16.040 --> 0:03:19.080 decline are emerging. It might be we don't really know, 0:03:19.160 --> 0:03:20.960 but we might be that, as we said, it is 0:03:20.960 --> 0:03:25.400 about defending market share and UM and you know, it 0:03:25.520 --> 0:03:27.960 still is the biggest player in that space by quite 0:03:28.000 --> 0:03:31.000 some some distance, and the sort of expenditure you need 0:03:31.160 --> 0:03:35.600 to to you know, challenge in in essentially data centers 0:03:36.280 --> 0:03:39.880 is significant. You know, these chips, you know, server chips 0:03:39.880 --> 0:03:43.280 from Intel costs sort of ten twelve thousand dollars a pop, 0:03:43.360 --> 0:03:45.360 and if you've got hundreds of them, that's a huge outlay. 0:03:45.400 --> 0:03:48.280 So it's not that once you have a competitive advantage there, 0:03:48.320 --> 0:03:51.920 it is quite hard to displace. Um. Nonetheless, the competitors 0:03:51.920 --> 0:03:54.040 in the space are very well capitalized and not to 0:03:54.080 --> 0:03:58.160 be trifled with. And you know, as long but as 0:03:58.200 --> 0:03:59.960 long as Amazon continues to throw off cash and be 0:04:00.000 --> 0:04:04.400 happy to reinvest it, then then you know it's it's 0:04:04.480 --> 0:04:07.040 by no means a sort of it's still a very 0:04:07.080 --> 0:04:10.480 healthy business. So how about one of the businesses that 0:04:10.800 --> 0:04:13.320 may not be as healthy, and that's the grocery business. 0:04:13.320 --> 0:04:15.840 And I remember them buying something like a Whole Foods 0:04:15.920 --> 0:04:18.000 or something a year or two ago. Did they disclose 0:04:18.160 --> 0:04:21.920 much about their grocery business? Is that something that they 0:04:22.400 --> 0:04:24.560 think is going to be a growth forever in the future. 0:04:25.320 --> 0:04:28.400 I mean generally that the push from Amazon into into 0:04:28.520 --> 0:04:33.440 bricks and mortar is a play which I'm yet to 0:04:33.480 --> 0:04:37.720 see fully explained and quite how that the margin profile 0:04:37.880 --> 0:04:40.880 of that will hold up. But UM, you know that 0:04:40.960 --> 0:04:45.040 the numbers they've disclosed from from Whole Foods, um, you 0:04:45.040 --> 0:04:47.919 know that it does seem to have declined in the 0:04:47.920 --> 0:04:50.120 most recent quarter. I think physical stores you're in your 0:04:50.160 --> 0:04:54.040 growth excluding currency effects fell by about one percent. Now 0:04:54.160 --> 0:04:56.119 that's not a trend that people will be happy to see. 0:04:56.520 --> 0:04:59.120 But you know, the Amazon argument will be, well, it's 0:04:59.839 --> 0:05:01.719 you an't necessarily to be making the sales in the stores. 0:05:01.760 --> 0:05:03.760 They were kind of perhaps a lost leader where you 0:05:03.800 --> 0:05:05.120 go out, people see it in there, and then they 0:05:05.200 --> 0:05:07.920 might go online and buy things. Nonetheless, I don't think 0:05:07.920 --> 0:05:12.200 it seems terribly compelling. Um, you know, story to tell investors. 0:05:12.839 --> 0:05:14.680 Thank you so much for being with us, Alex Webb, 0:05:15.160 --> 0:05:17.360 and for all of your commentary throughout the morning. Alex 0:05:17.360 --> 0:05:20.040 Webb is a Bloomberg Opinion technology calmness. You create all 0:05:20.160 --> 0:05:23.480 his columns, as well as all the other fantastic work 0:05:23.560 --> 0:05:26.039 put out on O P. I N go on the 0:05:26.040 --> 0:05:30.599 Bloomberg terminal or Bloomberg dot com slash Opinion if you 0:05:30.720 --> 0:05:47.600 go to the web. You know, I was just chatting 0:05:47.600 --> 0:05:49.040 with Lisa Affair and I was saying, you know, we 0:05:49.080 --> 0:05:51.840 haven't we don't really talk that much about risk arbitrage 0:05:51.880 --> 0:05:53.960 and trading around deals that used to be such a 0:05:54.400 --> 0:05:56.039 big part of the market. I feel like we don't 0:05:56.080 --> 0:05:57.960 talk about it enough, but I think we can change 0:05:58.000 --> 0:05:59.880 that a little bit. Right now, you'll have Sharon It's 0:06:00.040 --> 0:06:03.719 portfolio manager for dree House Capital Management in Chicago, joins 0:06:03.800 --> 0:06:05.840 us on the phone. You have, thanks so much for 0:06:05.920 --> 0:06:09.600 joining us. Let's start with the risk arbitrage part of 0:06:09.640 --> 0:06:12.159 the market. Give us a sense of you know, how 0:06:12.240 --> 0:06:15.320 vibrant that is. What kind of returns are risk arbitraders 0:06:15.360 --> 0:06:17.960 getting these days? Sure, well, thanks for having me on. 0:06:18.200 --> 0:06:21.120 You know, at a at a holistic level. Today, UH, 0:06:21.240 --> 0:06:23.760 annual spreads or I guess gross spreads are sitting at 0:06:23.760 --> 0:06:26.000 a just under four percent, so call it three point 0:06:26.040 --> 0:06:29.520 six percent as of quarter end. UM. There's been in 0:06:29.560 --> 0:06:31.640 the middle part of this decade quite a boom in 0:06:31.880 --> 0:06:35.680 and obviously traditional murder arbitrage activity UM. In the most 0:06:35.720 --> 0:06:39.080 recent quarter that has died down UM, partly because of 0:06:39.120 --> 0:06:43.039 the global economic concern to geopolitical tensions, etcetera. But what 0:06:43.200 --> 0:06:46.560 we're seeing is still quite a bit of deal activity UM, 0:06:46.640 --> 0:06:49.520 not only in traditional merger arbitrage, which again you know 0:06:49.560 --> 0:06:52.839 investors can expect kind of a four percent gross return 0:06:52.920 --> 0:06:55.320 depending on when deals closed. People are looking for a 0:06:55.360 --> 0:06:58.000 mid single digits, potentially an upper single digits rate to 0:06:58.040 --> 0:07:01.560 return annualize UM. But we're also seeing a bunch of 0:07:01.760 --> 0:07:05.280 non traditional quote unquote event or deal activity, which is 0:07:05.279 --> 0:07:09.120 also driving the the avenger of an investing landscape. How 0:07:09.200 --> 0:07:11.360 easy is it to get it right what you're dealing 0:07:11.360 --> 0:07:15.240 with this, UH at a time of such bifurcated results 0:07:15.240 --> 0:07:18.280 often Sure, Yeah, that's a great question. It's something that 0:07:18.320 --> 0:07:20.240 we've spent a lot of time focusing on. Really, the 0:07:20.280 --> 0:07:23.000 bifurcation not only in in risk are, but in in 0:07:23.080 --> 0:07:25.120 other parts of the market as well, credit and even 0:07:25.160 --> 0:07:28.480 equity valuations. But UM has been a driving force of 0:07:28.600 --> 0:07:31.200 l but specifically for risk are, we really have seen 0:07:31.240 --> 0:07:35.240 a bifurcation where the quote unquote safe spreads UM, just 0:07:35.320 --> 0:07:37.440 like we're seeing in yield, there's a there's a flight 0:07:37.480 --> 0:07:40.440 to quality. People are trying to hide out in in 0:07:40.560 --> 0:07:43.480 these safe spreads ones, the ones that don't have either 0:07:43.760 --> 0:07:47.600 you know, contentious litigation or regulatory overhang UM or cross 0:07:47.640 --> 0:07:51.920 border UH concerns getting tied up in in government UH 0:07:52.040 --> 0:07:54.760 tip for TAD if you will. UH. Those spreads are 0:07:54.760 --> 0:07:57.800 really compressed in overly tight, and then you have this 0:07:57.880 --> 0:08:00.480 air pocket in the middle of the risk arbitract spectrum 0:08:00.480 --> 0:08:02.720 where there aren't very many deals that live in the 0:08:03.400 --> 0:08:06.080 you know, mid to sing upper single digits range for 0:08:06.160 --> 0:08:08.560 a grosser rate to return. So then what you're left 0:08:08.600 --> 0:08:11.160 with is a handful or a slew of deals that, 0:08:11.360 --> 0:08:15.800 again for either regulatory purposes or geopolitical purposes, are sitting 0:08:15.880 --> 0:08:18.200 essentially at coin flips. So if you think about it 0:08:18.240 --> 0:08:22.160 in an implied probability standpoint, the really safe spreads are 0:08:22.200 --> 0:08:26.440 trading in the upper implied probability. The overall deal universe 0:08:26.520 --> 0:08:31.600 is still trading around implied probability, which is somewhat in 0:08:31.640 --> 0:08:34.319 line with its historical range. But there's a whole slew 0:08:34.320 --> 0:08:36.599 of deals that are sitting essentially at coin flips, so 0:08:37.720 --> 0:08:40.800 implied probabilities. Again, these are deals that are either need 0:08:40.920 --> 0:08:45.000 Chinese approval UH, deals that need or are being under 0:08:45.080 --> 0:08:48.160 a new FTC guideline, particularly in the healthcare space, where 0:08:48.160 --> 0:08:52.000 there's a lot of concern as to what the rules 0:08:52.000 --> 0:08:54.400 of the game are. So that's that's really what's been 0:08:54.480 --> 0:08:57.000 driving this bifurcation. And obviously, you know you nailed it 0:08:57.040 --> 0:09:00.720 on the head getting getting the ones right is significant 0:09:00.720 --> 0:09:04.400 and obviously drives returns, but just as importantly as avoiding 0:09:04.440 --> 0:09:07.200 the blow ups is really what's important. Obviously, you know, 0:09:07.440 --> 0:09:10.600 at the beginning of eighteen with n XPN Qualcom, there 0:09:10.679 --> 0:09:12.520 was a lot of carnage in the space that kind 0:09:12.520 --> 0:09:15.080 of reset spreads a little wider. And now it's been 0:09:15.120 --> 0:09:16.840 a while since there's been a big blow up. But 0:09:16.960 --> 0:09:20.160 avoiding those is is equally, if not more important than 0:09:20.160 --> 0:09:23.040 getting the ones right. So you have when I started 0:09:23.040 --> 0:09:25.360 on Wall Street in the mid eighties, all the big 0:09:25.679 --> 0:09:29.200 investment banks had big risk are trading desk and that 0:09:29.280 --> 0:09:32.160 was kind of the really cool place to be. Who's 0:09:32.200 --> 0:09:35.280 investing and who's playing in the risk are market? Uh? 0:09:35.360 --> 0:09:37.840 These days, yeah, I mean I think you still have 0:09:37.920 --> 0:09:41.080 dedicated funds to risk arb, both in in the liquid 0:09:41.080 --> 0:09:43.640 space and obviously in the LP space. I think what's 0:09:43.720 --> 0:09:47.839 what's evolved over time is uh, a broader spectrum, if 0:09:47.840 --> 0:09:51.760 you will, a catalyst spectrum for events space investing, So 0:09:51.840 --> 0:09:55.080 event driven investing, anything from obviously activism gets a lot 0:09:55.120 --> 0:09:59.280 of attention, but really you know, any sort of corporate actions, recapitalizations, 0:09:59.360 --> 0:10:05.480 refinance things, pushing out maturity walls understanding either seismic shifts 0:10:05.480 --> 0:10:09.000 and industries or regulatory concerns. So I think the the 0:10:09.120 --> 0:10:12.920 investor base and the number of strategies that one is 0:10:12.960 --> 0:10:15.160 able to utilize as really broadened out. So it's not 0:10:15.280 --> 0:10:19.760 just you know, the traditional murder arb levered play that 0:10:19.960 --> 0:10:22.600 was prevalent as you referenced in the eighties and nineties. Today, 0:10:22.640 --> 0:10:25.840 you know, we employ on our fund a multi strategy approach, 0:10:25.880 --> 0:10:28.640 and one of the things that really allows us to 0:10:28.679 --> 0:10:31.480 take advantage of dislocations and shifts in the market is 0:10:31.520 --> 0:10:33.640 that's when that creates new opportunity for us, and we're 0:10:33.679 --> 0:10:36.320 able to you know, in a quarter where you know, 0:10:36.440 --> 0:10:40.160 Q three had the lowest deal activity both from number 0:10:40.200 --> 0:10:42.520 and value in the last five years, going back to 0:10:42.600 --> 0:10:45.640 Q four of teens. So in a quarter like that 0:10:45.679 --> 0:10:48.280 where there's no deal activity, you still have plenty of 0:10:48.320 --> 0:10:53.040 other pockets to invest along the catalyst spectrum. Excuse me, 0:10:53.160 --> 0:10:55.520 so you know that's sorry, Go ahead, no, no, you have. 0:10:55.600 --> 0:10:57.920 I wanted to get into something that you said earlier, 0:10:57.960 --> 0:11:00.960 which is avoiding blow ups, and um, when you think 0:11:01.080 --> 0:11:03.440 when I think of avoiding blow ups, I think of 0:11:03.520 --> 0:11:06.839 soft bank, and I think of the we work situation 0:11:06.920 --> 0:11:10.880 in the uber declines, etcetera. Um, what do you make 0:11:11.040 --> 0:11:13.120 of the recent I p O is that I either 0:11:13.360 --> 0:11:16.760 fizzled in post ip O treating or that failed to 0:11:16.760 --> 0:11:19.200 get off the ground. Yeah, you know, I think this 0:11:19.280 --> 0:11:20.840 year has been an interesting year for I p O 0:11:20.880 --> 0:11:23.000 s because it's been uh somewhat of a hit or 0:11:23.040 --> 0:11:26.920 miss year. Um. Traditionally i pos performed performed well. Obviously, 0:11:26.920 --> 0:11:28.840 you want to be able to tap capital markets in 0:11:28.840 --> 0:11:30.920 the future, so you try and price these appropriately and 0:11:31.200 --> 0:11:33.960 so that they performed well. This year has been driven 0:11:34.000 --> 0:11:36.360 by a few large I p O s. U. I 0:11:36.520 --> 0:11:40.000 p O s broadly are there's less um kind of 0:11:40.040 --> 0:11:43.439 the traditional traditional ones that are going. But obviously the 0:11:43.679 --> 0:11:46.000 few large ones have accounted for the bulk of the activity, 0:11:46.200 --> 0:11:49.000 which is actually something that we're seeing in murder arbit 0:11:49.000 --> 0:11:50.640 trash as well. This year is going to end up 0:11:50.640 --> 0:11:52.959 being a you know again quote unquote a good year 0:11:53.000 --> 0:11:56.840 or healthy year for for murder arb in terms of volumes, 0:11:56.880 --> 0:11:59.199 but it's really going to be driven by a few 0:11:59.280 --> 0:12:02.480 key deals. Um, what we're seeing is that there's less 0:12:02.640 --> 0:12:05.559 uh bread than the activity and in smaller deals. So 0:12:05.880 --> 0:12:07.720 you know, I think, uh, we watch the I p 0:12:07.800 --> 0:12:09.679 O is very closely because I think they're they're a 0:12:09.760 --> 0:12:14.320 good um U forecaster of general capital markets exposure and 0:12:14.320 --> 0:12:17.679 in financing capabilities. UM we participate in a lot of 0:12:18.040 --> 0:12:21.240 UH financing deals UH in particularly in the healthcare space. 0:12:21.280 --> 0:12:24.600 That also is is a good harbinger of UH capital 0:12:24.600 --> 0:12:29.199 markets appetite and people's willingness to fund and lend. Obviously, 0:12:29.240 --> 0:12:32.440 when you have a few situations that unfold that that 0:12:32.559 --> 0:12:35.920 hurt hurt investors, there's a period of kind of licking 0:12:36.000 --> 0:12:39.800 the wounds and in resetting of not only expectations, but 0:12:40.040 --> 0:12:43.600 resetting of of risk risk appetite. And in the merger 0:12:43.679 --> 0:12:45.800 arbitrarge space where you'll see there is is kind of 0:12:46.040 --> 0:12:48.880 spreads well wide and now people will reassess, people will 0:12:48.920 --> 0:12:52.280 require a higher rate of return, which is not surprising 0:12:52.280 --> 0:12:55.000 in a in a investment vehicle or in a in 0:12:55.080 --> 0:12:58.000 a particular pocket of the market where you know, again, 0:12:58.000 --> 0:13:00.319 if if the implied probability is ninety five scent of 0:13:00.360 --> 0:13:03.280 the time time you're going to be right five percent 0:13:03.320 --> 0:13:05.680 you're gonna be wrong. The math dictates that when you're wrong, 0:13:05.720 --> 0:13:07.640 it's going to hurt more than when you're right. Yeah, 0:13:07.800 --> 0:13:10.040 that's why it's so important to avoid the blow us. 0:13:10.400 --> 0:13:12.440 You have Sharon, Thank you so much for being with us. 0:13:12.480 --> 0:13:15.559 You have Sharon, his portfolio manager at dry House Capital Management, 0:13:16.040 --> 0:13:20.040 coming to us from Chicago. Interesting to hear about avoiding 0:13:20.080 --> 0:13:23.320 the blow ups. Asymmetrical returns. I think they call it, 0:13:23.360 --> 0:13:26.240 you know, when they blows up. Boy, that's big. Yeah. Well, 0:13:26.280 --> 0:13:30.040 I think that asymmetrical returns are something that some analysts 0:13:30.120 --> 0:13:51.160 over at soft Bank are focusing on in this era 0:13:51.400 --> 0:13:54.800 of ultra low interest rates. Is it still good to 0:13:54.840 --> 0:13:58.120 invest in real estate? Joining us now, Melissa Reagan had 0:13:58.120 --> 0:14:00.520 of research for new real estate writing us in our 0:14:00.520 --> 0:14:03.880 bloom Biger Active Brokers studios. Melissa, we've seen already such 0:14:03.960 --> 0:14:06.920 a big run up in the prices of real estate 0:14:06.960 --> 0:14:10.720 around the nation, particularly in coastal cities. How much more 0:14:10.800 --> 0:14:14.720 upside at this point is there left? I'd say a 0:14:14.720 --> 0:14:17.319 lot still a lot left. And by that I say 0:14:17.360 --> 0:14:19.880 that because of the fundamentals that you see in real estate. 0:14:19.880 --> 0:14:23.040 So if you think about apartments, for example, having one 0:14:23.040 --> 0:14:25.680 of its strongest years on record from an occupancy perspective, 0:14:25.680 --> 0:14:30.000 occupancies over that's the Hyacinths two thousand, that's nineteen years, 0:14:30.200 --> 0:14:33.360 and rents are growing three to four percent, sometimes seven 0:14:33.400 --> 0:14:35.440 eight percent, depending on the sun Belt market you're in. 0:14:35.800 --> 0:14:39.400 So the fundamentals are there to support pricing. So is 0:14:39.440 --> 0:14:43.120 this still a big regional play as it relates to apartments? Again, 0:14:43.160 --> 0:14:45.240 you mentioned the sun Belt, I've kind of we've always 0:14:45.240 --> 0:14:48.480 heard that, I guess, So is it still regional play? 0:14:48.800 --> 0:14:50.960 It is, absolutely. I mean it depends on sort of 0:14:51.000 --> 0:14:53.000 the property type, but I would say in general, yeah, 0:14:53.000 --> 0:14:54.880 the sun Belt is really strong. Right, You've got the 0:14:54.960 --> 0:14:58.560 strong in migration coming from millennials right there, starting to 0:14:58.640 --> 0:15:01.320 form families and are thinking about where to want Where 0:15:01.520 --> 0:15:02.720 Where am I want to live? Where do I want 0:15:02.760 --> 0:15:06.080 to live? Right? And the Sunbelt offers a great quality 0:15:06.080 --> 0:15:11.040 of life, has a deep job pool, more affordable and 0:15:11.160 --> 0:15:13.360 this is where millennials want to be driving real estate. 0:15:13.520 --> 0:15:16.000 So this has been a theme for a while. It's 0:15:16.000 --> 0:15:18.720 a talk about some of the other investments that nuvine 0:15:18.720 --> 0:15:23.040 has been making, such as cell towers, billboards and healthcare 0:15:23.080 --> 0:15:26.440 related of the cell tower business. This is a great business. 0:15:26.440 --> 0:15:31.080 It is a great business. Please absolutely, so in this 0:15:31.160 --> 0:15:35.280 we have a healthcare technology theme for real estate investing. 0:15:35.480 --> 0:15:38.720 Why because it's generated higher risk adjustice returns in the 0:15:38.800 --> 0:15:41.840 last decade, and we think that's true going forward given 0:15:41.880 --> 0:15:44.840 the strong tail winds behind technology driven real estate. So 0:15:44.840 --> 0:15:47.440 that can be data center, cell towers, just extend billboards, 0:15:47.440 --> 0:15:52.040 depending on how you want to categorize it. Look at 0:15:52.080 --> 0:15:53.920 when you drive down the highway. I thought we talked 0:15:53.960 --> 0:15:56.360 about that. That's not what I'm talking about. Gains? Is it? 0:15:56.520 --> 0:16:00.600 Absolutely margins? Growing lows midmid single digit tons of free 0:16:00.640 --> 0:16:02.960 cash flow? I took them public back in the day. Absolutely, 0:16:02.960 --> 0:16:05.520 look at you, all right, there are some electronics that 0:16:05.560 --> 0:16:08.920 there are some electronic that are much more technology focus, 0:16:08.960 --> 0:16:12.000 but either way, so so yeah, So how we see 0:16:12.000 --> 0:16:14.520 the world is that these are the sectors, the technology 0:16:14.560 --> 0:16:16.600 healthcare driven sectors are the ones that are going to 0:16:16.640 --> 0:16:19.760 continue to generate higher risk and justic returns relative to 0:16:19.840 --> 0:16:22.280 just you know, your your traditional real states still going 0:16:22.320 --> 0:16:25.600 to give you that solid income, but higher risk justice. 0:16:25.920 --> 0:16:27.960 Here's what I'm thinking about as you talk how do 0:16:28.000 --> 0:16:30.120 you avoid the blow ups as we were talking about 0:16:30.120 --> 0:16:33.080 earlier in the show, because when you talk about apartments, 0:16:33.400 --> 0:16:35.320 sure the Sun Belt might be doing all right, but 0:16:35.320 --> 0:16:37.480 there's certainly cities that aren't. When you talk about health 0:16:37.480 --> 0:16:40.560 care properties, you can think about hospital chains that have 0:16:40.640 --> 0:16:43.320 been overbuilt and overbetded and need to get you know, 0:16:43.400 --> 0:16:46.359 cut down, and are need to have their debt restructured. 0:16:46.720 --> 0:16:51.000 So where are the potholes here that you're avoiding absolutely? 0:16:51.040 --> 0:16:52.920 So that's a great point when you talk about healthcare 0:16:52.920 --> 0:16:55.280 and you think about something like skill nursing, right, and 0:16:55.320 --> 0:16:57.120 so that that is where you've seen a lot of 0:16:57.120 --> 0:17:00.880 operators in that space strong go with their margins, not 0:17:00.920 --> 0:17:02.960 be able to turn a profit. Dad has been a 0:17:03.040 --> 0:17:06.680 huge struggle area for healthcare real estate. But when I 0:17:06.720 --> 0:17:08.440 think about healthcare real estate, we look at it from 0:17:08.440 --> 0:17:11.200 a life science perspective, which is driven a lot by 0:17:11.280 --> 0:17:15.000 biotech VC funding, which is not going anywhere drugs, right, 0:17:15.400 --> 0:17:17.840 the tenants in that space they make drugs that's not 0:17:17.880 --> 0:17:19.959 going anywhere. And then we also look at it from 0:17:20.040 --> 0:17:23.600 a medical office perspective, where you're not it's not a 0:17:23.640 --> 0:17:26.080 direct play on the hospital not buying the hospital, you're 0:17:26.080 --> 0:17:29.280 buying the medical office that maybe campus adjacent or even 0:17:29.320 --> 0:17:32.840 off campus, but is strong demand right from baby boomers 0:17:32.880 --> 0:17:36.960 aging needing new hips, new knees. That's how we think 0:17:37.000 --> 0:17:40.040 about avoiding the potholes. But yes, there are many of them. 0:17:40.280 --> 0:17:42.640 Those are the sectors we really like do you avoid 0:17:42.760 --> 0:17:46.280 markets that may be overheated. It's such as kind of 0:17:46.320 --> 0:17:49.440 the coastal areas like you know again the northeast, the 0:17:50.080 --> 0:17:52.840 west coast, are those too highly priced that you can't 0:17:52.840 --> 0:17:55.879 generate the returns you like? Absolutely? So what we've done 0:17:56.040 --> 0:18:00.560 is we have built a relative value model for every 0:18:01.320 --> 0:18:03.640 metro and by property type. And so what that says 0:18:03.680 --> 0:18:06.159 to us is, all right, you have to put in 0:18:06.200 --> 0:18:08.199 what is your initial yield going into these markets? And 0:18:08.240 --> 0:18:10.680 to your point, if it's really low, you're not going 0:18:10.760 --> 0:18:12.680 to get no matter how good the fundamentals are, You're 0:18:12.720 --> 0:18:14.600 just not going to get the growth, even if the 0:18:14.600 --> 0:18:17.200 growth is very strong. And so we've built these models 0:18:17.200 --> 0:18:20.560 so we can tell you on the fly this market 0:18:20.640 --> 0:18:22.960 is a better value because you get the growth, but 0:18:23.000 --> 0:18:25.800 the initial yield is higher, and so we're trying to 0:18:25.880 --> 0:18:28.399 we're doing that on the fly and dynamically so we 0:18:28.440 --> 0:18:31.359 know kind of any given day, quarter month, where to 0:18:31.400 --> 0:18:34.200 place the capital. Is there one city you absolutely would 0:18:34.200 --> 0:18:40.440 not buy in great question, really hard to answer, right 0:18:40.520 --> 0:18:45.280 because if you think about how how real estate works, right, location, location, location, 0:18:45.920 --> 0:18:50.200 and so there are macro plays. Certainly cities we would 0:18:50.200 --> 0:18:53.800 want to not put as much capital into but real estate, 0:18:53.840 --> 0:18:54.880 you have to remember, at the end of the day 0:18:54.880 --> 0:18:58.000 is very much micro location, location location, So that's a 0:18:58.040 --> 0:19:01.200 heart You can't you couldn't just black line an entire city, 0:19:01.240 --> 0:19:04.439 but if you could, would would would you invest in 0:19:04.480 --> 0:19:07.520 the dream mall in the swamps of Jersey? Probably not? 0:19:08.200 --> 0:19:10.680 So it's a great it's a great it's a great point. Right, 0:19:10.680 --> 0:19:12.920 And when you think about our thirty five tomorrow cities, 0:19:12.920 --> 0:19:15.480 which you could go online and look at cities that 0:19:15.520 --> 0:19:17.040 are not on their St. Louis is not on their 0:19:17.080 --> 0:19:20.520 Detroit's not on their really tiny cities, Birmingham's on their 0:19:20.640 --> 0:19:24.000 Why these are places that are losing population? I wouldn't 0:19:24.640 --> 0:19:28.800 just not great robust demographic fundamentals. Well it's a Reagan. 0:19:28.960 --> 0:19:31.199 You'll have to come back and elaborate a head of 0:19:31.240 --> 0:19:48.040 research for Nevin real Estate. Thank you for being with us. Well, 0:19:48.040 --> 0:19:51.119 we're just starting to get some earnings from the technology companies. 0:19:51.119 --> 0:19:54.119 We had some disappointing numbers as some of the semiconductor 0:19:54.359 --> 0:19:56.359 names earlier in the week. We had Amazon last night 0:19:56.400 --> 0:19:58.400 disappointing numbers that stock was down as much as seven 0:19:58.520 --> 0:20:00.680 or eight percent. It's only down one point repercent here 0:20:00.680 --> 0:20:02.720 as the market rallies, they get a sense of kind 0:20:02.720 --> 0:20:04.600 of what we should be looking forward to as it 0:20:04.640 --> 0:20:07.879 relates to tech earnings. Welcome David Garretty, chief market strategist 0:20:07.960 --> 0:20:10.960 for laid long Companies, also a partner at bt block, 0:20:11.040 --> 0:20:14.120 joining us live here on our Bloomberg Interactive Broker studio. So, David, 0:20:14.200 --> 0:20:16.040 let's start with Amazon. That last night kind of a 0:20:16.640 --> 0:20:19.680 the obviously missed on earnings, A guidance on the profitability 0:20:19.760 --> 0:20:22.440 side again a little bit light, I kind of, I guess, 0:20:22.520 --> 0:20:25.800 raising concerns for some investors, like here we go again 0:20:25.920 --> 0:20:28.560 back into investment spend. Um, what do you make out 0:20:28.560 --> 0:20:30.359 of the Amazon numbers last night? Well, I think in 0:20:30.480 --> 0:20:34.040 terms of what we're seeing, um, you know, not bad numbers. 0:20:34.080 --> 0:20:36.000 If we look in terms of some of the high 0:20:36.080 --> 0:20:39.160 growth areas for the company, I around cloud computing, Amazon 0:20:39.200 --> 0:20:42.080 Web services, you know, numbers there were up fairly solid 0:20:42.160 --> 0:20:44.439 thirty five percent a year every year. People who are 0:20:44.440 --> 0:20:46.399 inclined to pick nits might say, well, that was a 0:20:46.440 --> 0:20:49.080 deceleration from the year every year growth of thirty seven 0:20:49.440 --> 0:20:51.960 the quarter before. But thirty five or thirty seven you 0:20:52.000 --> 0:20:55.360 still got a fairly robust number, especially against the backdrop 0:20:55.400 --> 0:20:58.000 we're we're looking about of the U. S economy being 0:20:58.040 --> 0:21:01.920 in recession um relative their forward guidance. I mean, Amazon 0:21:02.000 --> 0:21:05.080 has always sandbagged the numbers and and certainly things are 0:21:05.080 --> 0:21:07.120 set up right now going into the fourth quarter where 0:21:07.160 --> 0:21:10.160 the U. S. Consumer looks to be relatively okay, where 0:21:10.160 --> 0:21:13.240 an unemployment levels are so you know, I think broader 0:21:13.320 --> 0:21:17.040 numbers are for four percent industry wide retail increase in 0:21:17.040 --> 0:21:19.600 in the fourth quarter. But obviously Amazon is getting going 0:21:19.680 --> 0:21:22.639 to do a multiple of that, just given how how 0:21:22.680 --> 0:21:25.480 much they've strengthened themselves and given their investments in the 0:21:25.560 --> 0:21:28.640