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Speaker 2: This is the Bloomberg Surveillance Podcast.

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Speaker 3: I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz.

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Speaker 3: Our guest in the morning to synthesize all this with

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Speaker 3: our question. Peter Cheers joins us now. Ahead of a

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Speaker 3: macro strategy at Academy Securities.

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Speaker 2: You look for price up, yield down. What will that do?

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Speaker 2: To the equity market.

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Speaker 4: I think for now it's going to be good. I

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Speaker 4: think we see four thirty on tens before four, before

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Speaker 4: we see four to seventy five. I think the pain

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Speaker 4: trade is actually to lower yields. A lot of people

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Speaker 4: who are bullish at five kind of got short again.

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Speaker 4: I think that works until we get down about four

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Speaker 4: thirty five. Equities rally on the back of that. Then

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Speaker 4: we realize we're getting there because things like oil, copper

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Speaker 4: receding because the economy is actually slowing fast. So I

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Speaker 4: think at that point that's when the recession fear start

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Speaker 4: getting priced back into stock taking.

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Speaker 3: Academy Securities three year view, you've got that slowing global demand.

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Speaker 3: Nick bennenbrook On from Wells Fargo stunning with a two

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Speaker 3: point four percent global GDP call.

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Speaker 2: Can you own equities out with a three year vision?

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Speaker 4: I think you could if you had a three year vision.

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Speaker 4: I think right now it's more like a two to

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Speaker 4: three week vision. Everything's so volatile. We don't know where

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Speaker 4: this economy is turning. We don't know what's going on there.

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Speaker 4: And one thing that's starting to scare me is we're

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Speaker 4: having a lot of discussions about the middle East, we're

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Speaker 4: starting to hear a little bit more concerns about supply chains.

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Speaker 4: I don't think it's an issue today, but if as

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Speaker 4: this drags on, if there's any degree of escalation, supply

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Speaker 4: chains become an issue again. So I think that will

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Speaker 4: be a big drag on the economy.

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Speaker 5: The Middle East crude last month is just unreal to

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Speaker 5: see a move of almost eleven percent lower on WTI,

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Speaker 5: even with the heightened tension of them. Add least a

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Speaker 5: lot of people Pete appointing to maybe demand starting to

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Speaker 5: crack in a certain places around the world, Europe one,

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Speaker 5: maybe even the United State's gone into next year.

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Speaker 6: What's your view on that?

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Speaker 4: Yeah, I think last time I was here, I said

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Speaker 4: buying oil was not going to be a good hedge

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Speaker 4: for escalation there because oil had been under so much

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Speaker 4: pressure before, and I think that's what we're seeing again.

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Speaker 4: There's just that lack of demand and the Saudis definitely

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Speaker 4: have the ability to turn on the tap if they want.

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Speaker 4: We're clearly trying to figure out how to work with Venezuela,

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Speaker 4: and so far it looks like Aram's going to continue

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Speaker 4: to pump oil despite the sanctions, despite the heighted tensions there,

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Speaker 4: So there's not much in favor of oil right now,

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Speaker 4: and I think that's a very crowded long position, so

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Speaker 4: I could see that breaking lower next year.

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Speaker 6: You mentioned a two to three week view. I'm with you.

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Speaker 5: You know what's about to happen though, In the next

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Speaker 5: two to three weeks, we're going to get a load

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Speaker 5: of people publishing their outlooks for twenty twenty four. Can

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Speaker 5: you help us understand how you get any visibility whatsoever?

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Speaker 5: It's next year? What's the strategic view going into next year?

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Speaker 4: You know, I think there's still some big themes. I

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Speaker 4: think AI, how people are using AI, the efficiency that

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Speaker 4: that could cause for companies. I think that's going to

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Speaker 4: be a big theme still. So you can look over that.

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Speaker 4: Where are we going to be on the defense spending?

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Speaker 4: Where are we going to be in terms of geopolitical spending.

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Speaker 4: I think the reshoring is still real. I think a

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Speaker 4: reasonably healthy economy with their decent jobs is still the

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Speaker 4: overriding thing. So I think markets are a little bit

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Speaker 4: more volatile, volatile right now than the underlying economy is.

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Speaker 7: So if you put this together to what you said

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Speaker 7: earlier that you see benchmark ten year yields getting down

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Speaker 7: to four point three to five percent before going back

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Speaker 7: up to four point seventy five percent, or just basically

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Speaker 7: they're heading lower. Does that mean that we're going to

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Speaker 7: have slower growth but still the soft landing and that

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Speaker 7: it basically people are going to a little concerned about stocks,

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Speaker 7: but that it sets up a rally. And I'm just

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Speaker 7: trying to understand. No, I think a very convoluted range

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Speaker 7: of thoughts.

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Speaker 4: So I think as we move towards four thirty five,

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Speaker 4: you get this, oh, this is all good for stocks,

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Speaker 4: And then as you start moving below four forty, I

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Speaker 4: think people realize, oh, man, we're getting there because things

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Speaker 4: are not good in the economy. The job market has changed,

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Speaker 4: you know, white collar workers aren't doing as well as

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Speaker 4: they were. You're seeing, I think, some potential for spending.

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Speaker 4: You're seeing little cracks in the housing prices. So I think,

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Speaker 4: all of a sudden, by year end, we're going to

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Speaker 4: be back on a hard landing discussion, and it'll be

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Speaker 4: the boy who cried Wolf, but we'll all be back

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Speaker 4: talking about no more soft landing. We've overdone it.

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Speaker 7: So you think that at that point treasures will continue

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Speaker 7: to be Haven's once again, even though arguably one of

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Speaker 7: the biggest drivers of the yield move has been Washington,

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Speaker 7: d C. And it doesn't look like that's changing.

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Speaker 4: That's not changing. But again that's a three five, ten

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Speaker 4: year sort of pain. It's you know, we get ahead

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Speaker 4: of ourselves. And I do think the one problem we

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Speaker 4: all have is the bond market's so big. You talk

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Speaker 4: about these numbers, two hundred and fifty billion, and it's huge,

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Speaker 4: but it's you know, a action of twenty five trillions.

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Speaker 4: So I think the ability to digest this. You see

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Speaker 4: corporate bonds come out twenty two billion yesterday, I believe

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Speaker 4: it was you know, there's no problem digesting this. So

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Speaker 4: I think the market's pretty healthy. I think people see

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Speaker 4: yields as attractive. You're going to see people continue to

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Speaker 4: add to that, so I think that's fine. It's going

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Speaker 4: to be the risk side of things that gets people

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Speaker 4: a little bit more spooked.

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Speaker 3: Tell me about the November real yield shift we've seen.

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Speaker 3: We've seen the ten year real yield migrate two point

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Speaker 3: five zero percent to two point one nine percent.

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Speaker 2: That makes things easier for everybody, right, it does.

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Speaker 4: But I think the nominal yields still play a big role.

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Speaker 4: They're still relatively high, and we had that move from

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Speaker 4: you know, three seventy five to five, so we haven't

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Speaker 4: clawed a lot of that back. I think there's this

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Speaker 4: long you know, invariable lag time is really long. This

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Speaker 4: time people did such a good job locking in yields.

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Speaker 4: It's only now that you're hearing more and more people

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Speaker 4: have to roll over their debt. Right if you issue

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Speaker 4: to your debt back in the hey day, Now it's

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Speaker 4: rolling over three year debts not quite rolling over. So

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Speaker 4: I think we're just starting to see that slow down impact.

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Speaker 4: And I think one point John brings up, we've got

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Speaker 4: what we've been calling this full liquidity, this fake liquidit

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Speaker 4: idiot feels like the markets are super liquid at any

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Speaker 4: given price point, but the ability to gap high or

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Speaker 4: low is there. So I think we got pushed to

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Speaker 4: five percent by people getting stopped out pushing on yields.

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Speaker 4: Were now got back to four fifty in a heartbeat

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Speaker 4: because people are getting stopped out the other way. So

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Speaker 4: that's what we're trying to I think manage is like

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Speaker 4: what's the real noise versus the signal?

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Speaker 5: You mentioned the Great financinc. The Great financcinc of the pandemic,

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Speaker 5: the huge wealth transfer we had from Treasury to the consumer.

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Speaker 5: Consumer balance sheets were stronger. Everyone under the Sunny wonder

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Speaker 5: House remortgage termed out that debt low rates. Corporate America

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Speaker 5: did the same thing. One place didn't, Treasury Stan Drug

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Speaker 5: AMLA has been very critical of leadership at Treasury over

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Speaker 5: the last i don't know, five years through that low

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Speaker 5: interest rate period not termin out the debt. What are

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Speaker 5: your thoughts on that? What do you think about that conversation?

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Speaker 4: Yeah, I think they should have done what corporations did.

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Speaker 4: I'm always a big believer, right, you know, borrolong it

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Speaker 4: blocks in, You've reduced volatility, and we're having a lot

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Speaker 4: of conversations with clients. Probably a little bit hypothetical at

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Speaker 4: this point, but maybe people are supposed to be under

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Speaker 4: weight treasuries and tea bills and way overweight whether it's

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Speaker 4: commercial paper, corporations. That right, if you take a step

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Speaker 4: back and talk about this as being governance, right, the

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Speaker 4: US governance is awful right now in terms of our spending,

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Speaker 4: in terms of we talk about not spending paying our bills. Right,

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Speaker 4: you look at the large corporations world, they have good

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Speaker 4: corporate governance, they have global plans. They never once would

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Speaker 4: ever even think about saying, oh, we're not going to

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Speaker 4: pay our debt on time because we don't feel like it.

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Speaker 4: So I think you're supposed to be starting to push

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Speaker 4: really heavily to overweight high quality corporates, maybe in commercial paper,

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Speaker 4: maybe some abs, and move really underweight T bills.

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Speaker 7: So do you foresee a time when Apple can borrow

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Speaker 7: at a lower rate than the US government.

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Speaker 4: You know that ability to break the sovereign ceiling rarely happens,

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Speaker 4: even in emerging markets. I don't think it happens here,

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Speaker 4: But I do think you can see really tight spread compression,

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Speaker 4: especially at the front end of the corporate bond curve.

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Speaker 4: So I like that as a trade.

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Speaker 5: Do you think we get conversion spread compression on governance

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Speaker 5: issues alone?

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Speaker 4: I think that will play a part of it.

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Speaker 2: Yeah.

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Speaker 4: I think the top quality companies have a ton of cash.

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Speaker 4: The liquidity in the bond market's not what it once was,

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Speaker 4: so whatever you have to pay up their own T bills,

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Speaker 4: maybe you don't. And I think this government issue is

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Speaker 4: going to become a real thought again if you think

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Speaker 4: about it, why would you lend to someone who talks

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Speaker 4: about not paying your.

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Speaker 5: Debt because for a long time they've had the privilege

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Speaker 5: of acting recklessly correct talked about this so many times

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Speaker 5: there's been a consequence for it.

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Speaker 6: Why is this time different.

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Speaker 4: I think something we talked about before snapped in the market,

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Speaker 4: and all of a sudden people are really questioning this

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Speaker 4: whole you know, correlation or coalescence of events that have

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Speaker 4: been on the back of everyone's mind. I don't think

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Speaker 4: it cracks this time, certainly, but I think it starts

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Speaker 4: setting us in stage again. I always go back to

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Speaker 4: the Great Financial Crisis. It started breaking in two thousand

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Speaker 4: and six, got fixed, broken in in two thousand and seven,

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Speaker 4: got fixed, broken in two thousand and seven, got fixed.

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Speaker 4: So I feel now we've started this unwined, and unless

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Speaker 4: DC gets its act together, this is going to be

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Speaker 4: Every time it rears, Itt cetera will get uglier. But

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Speaker 4: it's not this year's story anymore.

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Speaker 5: Pey love it always thoughtful, pitecher there of academy securities.

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Speaker 3: Libby Cantrell, joints now Managing director, had a public policy

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Speaker 3: at PIMCO.

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Speaker 2: Libby, You're the only one I can do this with.

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Speaker 3: Can you take the election results and you can fold

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Speaker 3: them into a government shutdown, which happens in about three

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Speaker 3: cups of coffee. Can you make that exercise happen?

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Speaker 4: Yeah?

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Speaker 8: Well, good morning, and thank you for not asking me

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Speaker 8: a question about ORGO. I did not take organic chemistry school,

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Speaker 8: so thanks thanks for testing me on that. Yeah, so

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Speaker 8: I do think that the read through actually from last night, Tom,

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Speaker 8: so thanks for thanks for a layup. Here is actually

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Speaker 8: Democrats won a special election in Rhode Island. This was

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Speaker 8: a is a blue race, a blue seat. This is

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Speaker 8: a House seat. That means that they have two hundred

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Speaker 8: and thirteen seats in the House. Republicans, however, only have

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Speaker 8: two hundred and twenty one. They have a special election

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Speaker 8: Utah in a few weeks. The reason why this actually

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Speaker 8: means is important from a government shutdown perspective is that

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Speaker 8: means practically that Republicans now can only lose three seats

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Speaker 8: excuse me, three votes in order to pass a funding

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Speaker 8: bill that they need a pass to avoid a shutdown

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Speaker 8: by by next Friday. So it just means that the

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Speaker 8: margin of error is much more narrow for Republicans. Speaker

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Speaker 8: Johnson was already needing to thread a needle, if you will,

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Speaker 8: and that a needle point has just gotten even more

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Speaker 8: narrow from from the result from last night.

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Speaker 3: And threading the needle. What will moderate Republicans do. I

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Speaker 3: don't have it in front of me, but I'm going

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Speaker 3: to suggest on Long Island east of New York City,

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Speaker 3: the Republicans had a good night. What are the moderate

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Speaker 3: I guess the former president would say, Republicans in name only?

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Speaker 2: How do they adapt an adjust off thee selection?

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Speaker 8: You know, I think that what we what we learned

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Speaker 8: last night is that the abortion rights still very much resonate.

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Speaker 8: That was obviously a take away from the twenty two,

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Speaker 8: twenty twenty two midterms, where abortion really emboldened turnout. It

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Speaker 8: shows last night that this really is very much an issue,

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Speaker 8: especially when it is on the ballot.

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Speaker 6: Now.

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Speaker 8: I think for twenty twenty four, many of these folks,

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Speaker 8: particularly in those districts Tom that you mentioned, where there

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Speaker 8: are you know, Republicans who are defending Biden districts, the

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Speaker 8: Democrats will make this an issue. You're going to hear

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Speaker 8: a lot about abortion rights over the next year because

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Speaker 8: of the results of last night, just sort of underscoring

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Speaker 8: that this clearly is a resident voting issue for voters

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Speaker 8: now in terms of the government shutdown, what does that

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Speaker 8: make those modern Republicans do they are voting in lockstep here?

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Speaker 8: They really are trying to give Speaker Johnson, you know,

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Speaker 8: the benefit of the doubt. I think that will continue.

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Speaker 8: I think the big question for markets is, though, is

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Speaker 8: that enough can they actually avoid a shutdown? If they

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Speaker 8: pass apartisan bill, tom, we will see a shutdown next

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Speaker 8: next Friday. So again kind of an open question of

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Speaker 8: how this all resolves. But as of now, it looks

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Speaker 8: like they are voting in a partisan way, which means

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Speaker 8: that shutdown risk is you know, I think is increased

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Speaker 8: over the last week or so.

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Speaker 7: Do markets care though, I mean, it's a shutdown basically, Okay,

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Speaker 7: they're going to do it for twenty four hours for

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Speaker 7: a fact, and then we'll move on.

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Speaker 8: Yeah, least I think that's that's that's the real the

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Speaker 8: real issue. If it is a temporary shutdown, no, this

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Speaker 8: will just be more DC noise. If it's a longer,

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Speaker 8: more prolonged shutdown, it does become I mean, the economic

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Speaker 8: impacts of you know, lots of federal workers being furloughed

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Speaker 8: not actually collecting a paycheck, could matter. And also, you know,

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Speaker 8: the data matters, right. If we don't get data from

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Speaker 8: the Department of Labor, for instance, that makes the Fed's job,

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Speaker 8: you know, a little bit a little bit harder. And

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Speaker 8: we can also see, you know, that this term premium

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Speaker 8: that you all been talking about, we could see you know,

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Speaker 8: some of the yields back up again as well on

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Speaker 8: account of this. So I think you're right. If it's

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Speaker 8: a short term shutdown, no, the markets probably don't care.

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Speaker 8: If it's longer term, however, you know, it may it

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Speaker 8: may weigh on, you know, again on just sort of

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Speaker 8: the confidence around sort of the political apparatus in Washington,

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Speaker 8: d C.

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Speaker 7: Just shifting from last night's elections to what we're expecting

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Speaker 7: next year, the presidential election. How much of a certainty

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Speaker 7: do you think that it is that we're going to

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Speaker 7: see President Biden versus former President Trump. How much will

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Speaker 7: tonight's debate really color that discussion about potential other running

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Speaker 7: candidates for the Republican Party in particular.

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Speaker 8: Yes, I think what we've been messaging to client Lisa

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Speaker 8: is with high conviction President Biden will be the nominee

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Speaker 8: for the Democratic Party. This idea that he is going

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Speaker 8: to drop out, that Governor Newsom, for instance, may jump

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Speaker 8: into the race. It just is not it's just not

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Speaker 8: realistic at this point. Nor is there any indication from

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Speaker 8: the Biden camp that he has you know, he has

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Speaker 8: any interest in dropping out or any intention of dropping out.

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Speaker 8: So he will be the Democratic nominee again, you know,

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Speaker 8: excluding or assuming there's no sort of exident health issue

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Speaker 8: or have you. On the Republican side. If President Trump

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Speaker 8: obviously has an incredibly formidable lead in the polls, but

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Speaker 8: this is actually a really important point. His campaign is

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Speaker 8: much more organized, I think by his own emission than

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Speaker 8: it was in twenty sixteen, and they have been systematically

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Speaker 8: changing the delegate rules in the states in terms of

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Speaker 8: how the state primaries allocate delegates to his benefits. So

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Speaker 8: not only does he have this formidable lead in the polls,

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Speaker 8: but he's also sort of changed the kind of the

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Speaker 8: machinations behind the scenes in terms of how these delegates

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Speaker 8: are allocated, and of course getting the nominations just a

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Speaker 8: delegate game. So the fact that he's been changing these

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Speaker 8: rules is to his benefit as well. So, I mean

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Speaker 8: a lot would have to happen, I think tonight and

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Speaker 8: over the next two months now. I think what we

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Speaker 8: can show from even last night that voting behavior is

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Speaker 8: the most important thing to look at and polls are

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Speaker 8: not always right, and so particularly in Iowa and New Hampshire, Nevada,

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Speaker 8: and South Carolina. Those are the four the first contests, Lisa,

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Speaker 8: and how we're guiding our clients is if Trump wins

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Speaker 8: all of those, then he very likely is going to

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Speaker 8: be the nominee. However, if there's somebody can test one

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Speaker 8: of those that it could be easily become a two

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Speaker 8: person race. But again sort of remains to be seeing.

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Speaker 8: In terms of tonight, it's really a race for number

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Speaker 8: two DeSantis between and Haley. Yeah, I think we will

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Speaker 8: see it be pretty pretty nasty and pretty ugly tonight.

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Speaker 5: Looking forward to that debt, Rebe, thank you got to

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Speaker 5: catch out you one.

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Speaker 2: Of the best.

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Speaker 6: You got to catch with at Pencott.

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Speaker 3: Le Vis at fourteen point eight four. That is a

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Speaker 3: Dana Ives Market is Senior Equity Research Channel Wedbush. He

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Speaker 3: refuses to talk to us when Apple learnings come out.

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Speaker 3: We only get him to pick up the debris and

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Speaker 3: we can tell for those of you on radio, you

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Speaker 3: can understand.

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Speaker 2: These long Lily Pulitzer as well this morning. Great.

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Speaker 3: Look, Dan, I want to talk about your two forty

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Speaker 3: call on Apple.

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Speaker 2: You're not lonely.

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Speaker 3: There's a few other people out there with dan ives

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Speaker 3: optimism on Apple. When I saw those margins and a

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Speaker 3: company managing for profit not revenue growth, can you raise

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Speaker 3: your two forty estimate?

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Speaker 2: Yeah?

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Speaker 9: Look, I think this is just the beginning of the

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Speaker 9: next phase of the Apple store. You look at margins

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Speaker 9: that are historical. You look what's happening on services now.

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Speaker 9: Mid teen growth and iPhones despite the haters continuing to hate,

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Speaker 9: is growing even when you take out currency, and you look,

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Speaker 9: it's even growing more asps. The China iPhone demise story

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Speaker 9: is a fictional Netflix story, and in my opinion, this

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Speaker 9: is just the start of what I ultimately view is

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Speaker 9: at three and a half to four trillion dollar markets.

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Speaker 3: A slow day, we gotta make some news here. Can

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Speaker 3: you pop from two forty up to two fifty this

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Speaker 3: morning for us?

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Speaker 9: Look, I believe that I believe are the best case

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Speaker 9: or the bowl case is probably closer to seventy five

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Speaker 9: as this all plays out, because also now you don't

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Speaker 9: have AI in those numbers. This is just to get

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Speaker 9: out the popcorn moment for when Apple, ultimately, I believe,

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Speaker 9: over the next year, introduces the AI App Store, and

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Speaker 9: that's just going to be you know, ultimately from a

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Speaker 9: services perspective, that could be an incremental five, ten, fifteen million.

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Speaker 6: You made a couple of statements, so let's stalk down

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Speaker 6: on them. We can do that.

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Speaker 5: Your friends, you talked about growth at the iPhone. What

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Speaker 5: growth are you talking about?

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Speaker 9: So if you look at unit growth, units are growing

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Speaker 9: into the December quarter. You also, if you take our currency,

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Speaker 9: which is ahead wind, you're basically mid single digit growth.

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Speaker 5: You've been talking about a massive boom of people upgrading.

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Speaker 5: I guess my question to you, Dan, to be polite

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Speaker 5: about it, have you been right for the wrong reasons

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Speaker 5: on the stock to acknowledge that?

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Speaker 9: I would say that ultimately, if you look at this,

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Speaker 9: what I've used a mini supercycle that's playing out. The

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Speaker 9: ASP stories played out, and I think our biggest call

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Speaker 9: has been China. Despite many yelling fire in a crowd theater,

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Speaker 9: the China growth is actually increasing, not decreasing.

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Speaker 6: But they had a down quarter right in China.

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Speaker 9: Well, if you look at China, meanwhile, in China was

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Speaker 9: actually a record for the September quarter. When you look

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Speaker 9: at the overall you know, as Keen talks about the

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Speaker 9: initial reaction after sure iPads max that and three dollars

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Speaker 9: go to your cup of coffee. I'm focused on iPhones

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Speaker 9: where units were up in China.

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Speaker 6: Well, I'm struggling with that.

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Speaker 5: And you'd appreciate this if you came on today and say,

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Speaker 5: margins the better they are. I'm with you, Okay, Marchin

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Speaker 5: is a great service revenues where the growth is that

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Speaker 5: deserves to hire multiple I understand that maybe you can

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Speaker 5: make the case for why the stock is high this

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Speaker 5: year based on those things. When you say things like

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Speaker 5: iPhone supercycles when we've had no growth for four quarters

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Speaker 5: in the company, that's where I struggle.

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Speaker 6: Can you help understanding?

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Speaker 9: So let's dissect that first. When you think about the

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Speaker 9: card five six hundred BIPs FX headwinds, that is actually

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Speaker 9: underlying growth that you're seeing an iPhone units.

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Speaker 6: Just to steady stated.

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Speaker 9: I also believe our whole view of the iPhone cycle

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Speaker 9: is really going to be over the next three, four

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Speaker 9: or five quarters. That's where you're going to have these upgrades.

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Speaker 9: It's that actually come through. I'm not saying that you

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Speaker 9: don't have some maybe share minor share losses on the

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Speaker 9: sort of mid tier, but in terms of high end

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Speaker 9: as a utility, this essentially is going to be a

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Speaker 9: mid to high single digit growth on iPhone, and when

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Speaker 9: you start to run that through, that could be an

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Speaker 9: incremental one two three dollars earnings as you look out

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Speaker 9: next two three years.

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Speaker 7: There's a lot of growth already baked into valuation, and

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Speaker 7: a big piece of valuation is where the buyers are

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Speaker 7: going to come from. And you've been traveling around the

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Speaker 7: world trying to hold everyone's hand and convince them that

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Speaker 7: there is still value in big tech. How much do

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Speaker 7: the losses of other areas of the tech like sphere

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Speaker 7: and I'm thinking of Masioshi's Sun and the more than

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Speaker 7: eleven billion dollar loss on we work.

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Speaker 6: How much does that.

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Speaker 7: Play into a little ambivalence about buying the story right now?

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Speaker 9: Look, I think you're definitely having winners and losers in

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Speaker 9: terms of this just broader economy, and I think in

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Speaker 9: terms of the Magnificent seven in terms of big tech,

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Speaker 9: I think the strong gets strong to my point, you know,

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Speaker 9: being an easier for a few weeks and in Europe,

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Speaker 9: you know, It's very easy to sit there here in

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Speaker 9: New York on your ten floor spreadsheet being negative on Apple.

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Speaker 9: What I see out in the world is a much

438
00:20:13,640 --> 00:20:16,760
Speaker 9: different environment in terms of the growth that's happening, and

439
00:20:16,840 --> 00:20:19,400
Speaker 9: I believe tech to your point, you're going to see

440
00:20:19,440 --> 00:20:22,760
Speaker 9: the strong continuing to dominate. And I think in terms

441
00:20:22,760 --> 00:20:28,000
Speaker 9: of AI, we are just in the early stages of monetization.

442
00:20:28,160 --> 00:20:30,160
Speaker 9: I think that's a big thing in this tech ball market.

443
00:20:30,520 --> 00:20:33,200
Speaker 9: Microsoft saw it in terms of AI. You're starting now

444
00:20:33,240 --> 00:20:36,320
Speaker 9: see monization data Dog. That's a Hall of fame quarter

445
00:20:36,359 --> 00:20:39,320
Speaker 9: in terms of what we saw there, pallenteer the messy

446
00:20:39,359 --> 00:20:42,720
Speaker 9: of AI, and I believe alternately, right now the AI

447
00:20:43,160 --> 00:20:44,679
Speaker 9: gold rush is actually starting.

448
00:20:44,920 --> 00:20:47,480
Speaker 7: That sounds lovely on that side. On the side of

449
00:20:47,560 --> 00:20:50,879
Speaker 7: how much we're paying for price monetization and monetization of AI,

450
00:20:50,960 --> 00:20:54,200
Speaker 7: AM looking at Apple plus in sort of the amount

451
00:20:54,240 --> 00:20:56,359
Speaker 7: that though that's increased. Are we going to be paying

452
00:20:56,359 --> 00:20:58,560
Speaker 7: six hundred dollars a month to Apple for all of

453
00:20:58,560 --> 00:20:59,440
Speaker 7: our various services?

454
00:20:59,520 --> 00:21:04,320
Speaker 9: Look, I think over in there. But to your point,

455
00:21:04,359 --> 00:21:06,320
Speaker 9: I think over the next year or two, I think

456
00:21:06,359 --> 00:21:09,960
Speaker 9: the average Apple user is going to start to definitely

457
00:21:09,960 --> 00:21:13,879
Speaker 9: increase what they're paying Apple on the services because ultimately,

458
00:21:14,119 --> 00:21:18,320
Speaker 9: as it goes out, the AI technology that's going to

459
00:21:18,359 --> 00:21:21,679
Speaker 9: be in fitness health in the app store, that's just

460
00:21:21,720 --> 00:21:25,199
Speaker 9: going to give them just another added growth to the

461
00:21:25,280 --> 00:21:27,800
Speaker 9: monization of Coupertino. And I think part of why the

462
00:21:27,840 --> 00:21:31,280
Speaker 9: stocks reacted, you know, despite you know many I think

463
00:21:31,320 --> 00:21:35,520
Speaker 9: being very negative initially, as it's come through, you know,

464
00:21:35,640 --> 00:21:39,240
Speaker 9: to Pharaoh's point iPhone, you're now starting to see grow

465
00:21:39,680 --> 00:21:44,399
Speaker 9: services mid teen growth margins. This is just another you know,

466
00:21:44,440 --> 00:21:46,879
Speaker 9: flex the muscles moment, and I think that's on a

467
00:21:47,000 --> 00:21:49,159
Speaker 9: sum of the parts, how this is a stock that

468
00:21:49,240 --> 00:21:51,880
Speaker 9: ultimately is gonna be a four trillion dollar markup by

469
00:21:51,880 --> 00:21:52,960
Speaker 9: twenty twenty five.

470
00:21:53,119 --> 00:21:56,320
Speaker 5: Just picking up on penalty the messy of AI. Why

471
00:21:56,400 --> 00:21:57,560
Speaker 5: why is thy the messy of Ai?

472
00:21:57,640 --> 00:22:01,879
Speaker 9: Because I believe they are the purest AI name in

473
00:22:01,920 --> 00:22:05,159
Speaker 9: the market period. And and look, Palenteer is one where

474
00:22:05,560 --> 00:22:07,720
Speaker 9: you know, many have been negative on that story for

475
00:22:07,720 --> 00:22:09,720
Speaker 9: a number of different reasons. But I think what you're

476
00:22:09,760 --> 00:22:14,920
Speaker 9: seeing now happen is that they've actually parlayed enterprise success

477
00:22:15,400 --> 00:22:18,560
Speaker 9: and you're now seeing the use cases explode. I believe

478
00:22:18,560 --> 00:22:20,639
Speaker 9: Palenteerman twenty five is are a base case, but that

479
00:22:20,880 --> 00:22:22,400
Speaker 9: is the golden child of AI.

480
00:22:22,520 --> 00:22:24,440
Speaker 2: I'm gonna make some news any day now.

481
00:22:24,440 --> 00:22:28,920
Speaker 3: Do I see another massive, mega billion dollar Apple debt offering.

482
00:22:29,520 --> 00:22:32,280
Speaker 9: Look, I think that's something that you know clearly, you

483
00:22:32,320 --> 00:22:34,960
Speaker 9: know could be on the table. I think the bigger

484
00:22:35,040 --> 00:22:37,800
Speaker 9: thing for Apple is I think they're finally going to

485
00:22:37,840 --> 00:22:40,040
Speaker 9: look at M and A, and we've talked about I.

486
00:22:39,960 --> 00:22:42,040
Speaker 3: Think we got to extend the inf They're going to

487
00:22:42,080 --> 00:22:44,520
Speaker 3: buy Disney by by the week.

488
00:22:44,600 --> 00:22:48,000
Speaker 9: I believe ESPN is the asset that.

489
00:22:48,040 --> 00:22:48,840
Speaker 6: Ultimately o't buy.

490
00:22:49,119 --> 00:22:52,320
Speaker 9: Okay, but for that, I think thirty five to forty

491
00:22:52,359 --> 00:22:54,359
Speaker 9: billion in terms.

492
00:22:54,119 --> 00:22:57,040
Speaker 6: Of what bates transaction, but it could not beats three

493
00:22:57,080 --> 00:22:57,640
Speaker 6: and a half billion.

494
00:22:57,680 --> 00:23:00,800
Speaker 9: But also it goes back to the MLS deal that

495
00:23:00,960 --> 00:23:03,000
Speaker 9: was I think where the light bulb went off in

496
00:23:03,080 --> 00:23:07,119
Speaker 9: terms of live streaming sports. I think ESPN's a unique

497
00:23:07,119 --> 00:23:09,720
Speaker 9: ass And look right now, you look at the top

498
00:23:09,760 --> 00:23:14,440
Speaker 9: of this mound, it's Nodella, it's cook you know, it's

499
00:23:14,600 --> 00:23:18,800
Speaker 9: you're really starting to see ultimately more of an opportunity

500
00:23:18,800 --> 00:23:21,159
Speaker 9: where they can go on the offensive rather than defense.

501
00:23:21,280 --> 00:23:24,240
Speaker 5: Okay, it's good to say it though, Thank you buddy

502
00:23:24,280 --> 00:23:25,840
Speaker 5: here Dennice of web Bush.

503
00:23:36,320 --> 00:23:39,399
Speaker 7: It's joining us to talk about just how bad of

504
00:23:39,400 --> 00:23:41,920
Speaker 7: a time this is for this to hit. Alexander Goldfarb,

505
00:23:41,960 --> 00:23:43,760
Speaker 7: Senior Research Analystic Piper Sandler.

506
00:23:44,080 --> 00:23:44,439
Speaker 3: I want to.

507
00:23:44,440 --> 00:23:45,320
Speaker 6: Start there, Alexander.

508
00:23:45,320 --> 00:23:49,399
Speaker 7: There've been talks discussions around the number of leases that

509
00:23:49,480 --> 00:23:52,520
Speaker 7: we work is going to abandon. Is the pressure on

510
00:23:52,600 --> 00:23:55,680
Speaker 7: commercial real estate office space in particular in New York

511
00:23:56,000 --> 00:23:58,119
Speaker 7: is it overstated right now or understated?

512
00:23:59,320 --> 00:24:02,399
Speaker 10: Well, Lisa and Tom and thank you for having me on,

513
00:24:03,200 --> 00:24:05,280
Speaker 10: you know here at Piper Sandler. When we look at

514
00:24:05,320 --> 00:24:08,600
Speaker 10: what is going on in office, it's eerily similar to

515
00:24:08,640 --> 00:24:11,840
Speaker 10: what happened with malls. You know, over the past decade.

516
00:24:12,280 --> 00:24:15,720
Speaker 10: If you recall everyone pre pandemic thought every single mall

517
00:24:15,840 --> 00:24:18,080
Speaker 10: was going to close because everyone was going to shop online.

518
00:24:18,080 --> 00:24:21,200
Speaker 10: And in fact what happened is the dominant malls like

519
00:24:21,240 --> 00:24:26,320
Speaker 10: the Roosevelt Fields or Houston Gallerias continue to excel and

520
00:24:26,440 --> 00:24:29,400
Speaker 10: lesser malls fall away. The same thing is with office.

521
00:24:29,440 --> 00:24:31,960
Speaker 10: So if you look at we work, which we don't

522
00:24:31,960 --> 00:24:33,480
Speaker 10: cover we work, but if you look at some of

523
00:24:33,480 --> 00:24:36,480
Speaker 10: the fallout out in San Francisco, they rejected a bunch

524
00:24:36,520 --> 00:24:40,280
Speaker 10: of leases. They did not reject one lease from Boston Properties.

525
00:24:40,520 --> 00:24:43,240
Speaker 10: When you look in San Francisco. When you look in

526
00:24:43,320 --> 00:24:46,639
Speaker 10: New York, you know companies like s Green Bornado have

527
00:24:46,840 --> 00:24:49,640
Speaker 10: zero exposure now to WE Work because they exited those

528
00:24:49,680 --> 00:24:52,800
Speaker 10: we Work leases over the past number of years, and

529
00:24:52,840 --> 00:24:55,679
Speaker 10: even Boston properties only as one percent. So when you

530
00:24:55,680 --> 00:24:58,080
Speaker 10: look at the fallout that's going to happen, and you

531
00:24:58,119 --> 00:25:01,280
Speaker 10: look at the major rates and especially the ones that

532
00:25:01,320 --> 00:25:05,200
Speaker 10: we cover here at Piper Sandler, the impact is negligible.

533
00:25:05,520 --> 00:25:08,440
Speaker 10: And what's really interesting is when you look at office,

534
00:25:08,680 --> 00:25:12,280
Speaker 10: especially here in New York, it's gravitating around Grand Central

535
00:25:12,640 --> 00:25:15,479
Speaker 10: and actually you're seeing rents increase on Park Avenue. So

536
00:25:15,920 --> 00:25:20,000
Speaker 10: just like mal the dominant office will survive the lesser

537
00:25:20,119 --> 00:25:22,439
Speaker 10: the generic office. That's where the trouble is.

538
00:25:22,680 --> 00:25:25,000
Speaker 7: So are you saying right now that the prices have

539
00:25:25,080 --> 00:25:27,600
Speaker 7: baked in a lot of that trouble or that people

540
00:25:27,680 --> 00:25:31,360
Speaker 7: just haven't been discerning enough to understand the winners versus

541
00:25:31,480 --> 00:25:32,120
Speaker 7: the losers.

542
00:25:33,000 --> 00:25:37,080
Speaker 10: Absolutely. If you speak to the brokerage community like Newmark,

543
00:25:37,720 --> 00:25:41,440
Speaker 10: they are starting They and Cushman and the other brokerage

544
00:25:41,440 --> 00:25:44,320
Speaker 10: companies are starting to discern the difference between top tier

545
00:25:44,760 --> 00:25:47,960
Speaker 10: versus generic Class A, Class B, etc. So when you

546
00:25:48,000 --> 00:25:52,119
Speaker 10: look at what tenants want today, tenants want great space

547
00:25:52,560 --> 00:25:56,960
Speaker 10: with a lot of amenities, convenient, convenient for commuters, and

548
00:25:57,200 --> 00:25:59,800
Speaker 10: they want a landlord who has the capital wherewithal to

549
00:26:00,040 --> 00:26:02,520
Speaker 10: invest in the properties. And let's face it, the brokers

550
00:26:02,560 --> 00:26:05,680
Speaker 10: want to get paid a commission, and you're seeing that fallout.

551
00:26:05,760 --> 00:26:08,400
Speaker 10: It's no different than we've seen in retail. So again

552
00:26:08,480 --> 00:26:11,440
Speaker 10: I use them all example Simon Property Group, yet with

553
00:26:11,480 --> 00:26:14,080
Speaker 10: their billion dollars a year for the past, so tenants

554
00:26:14,160 --> 00:26:16,320
Speaker 10: know that they can be there. The same is happening

555
00:26:16,680 --> 00:26:19,000
Speaker 10: in reads with companies like sl Green.

556
00:26:19,600 --> 00:26:22,080
Speaker 2: That's right where I wanted to go. Alexander, you are

557
00:26:22,119 --> 00:26:24,760
Speaker 2: reading my mind. What is David Simon going to do

558
00:26:24,840 --> 00:26:25,440
Speaker 2: with this folks?

559
00:26:25,520 --> 00:26:30,080
Speaker 3: Simon Property Group Indianapolis, three thousand employees. What is the

560
00:26:30,119 --> 00:26:33,359
Speaker 3: guy from Indiana University can do? He's seen this before

561
00:26:34,119 --> 00:26:38,160
Speaker 3: we come down. But my history is fresh money always

562
00:26:38,200 --> 00:26:41,760
Speaker 3: comes in. When does the fresh money click in? If

563
00:26:41,800 --> 00:26:44,520
Speaker 3: transaction to transaction, I'm down forty percent.

564
00:26:45,880 --> 00:26:49,120
Speaker 10: Well, you are speaking David's mind. He loves cash flow.

565
00:26:49,520 --> 00:26:52,920
Speaker 10: So since IPO, the company's paid out thirty nine billion

566
00:26:53,240 --> 00:26:56,000
Speaker 10: in dividends, and the reason they've done that is by

567
00:26:56,080 --> 00:27:00,199
Speaker 10: investing shrewdly. So when you look right now, he's very

568
00:27:00,240 --> 00:27:03,520
Speaker 10: focused on investing in his malls. So apart for the

569
00:27:03,560 --> 00:27:07,800
Speaker 10: Tallman acquisition, which was structured before the pandemic, he hasn't

570
00:27:07,880 --> 00:27:13,480
Speaker 10: bought anything on the outside. His focus has been investing

571
00:27:13,720 --> 00:27:16,200
Speaker 10: in the malls, like out in Northgate in Seattle where

572
00:27:16,200 --> 00:27:19,120
Speaker 10: they're converting it into a hockey arena, or Houston Gallera

573
00:27:19,119 --> 00:27:23,280
Speaker 10: where they're adding office and apartments, etc. So that's where

574
00:27:23,320 --> 00:27:26,840
Speaker 10: he's focused. But let's face it, given the challenges away

575
00:27:26,880 --> 00:27:30,440
Speaker 10: from Simon, he can pick and choose. But if you look,

576
00:27:30,880 --> 00:27:33,240
Speaker 10: he's making a ton of money out of his portfolio,

577
00:27:33,280 --> 00:27:36,000
Speaker 10: which people forget is actually small. It's only one hundred

578
00:27:36,000 --> 00:27:39,480
Speaker 10: and twenty malls and only two hundred or so domestic

579
00:27:39,480 --> 00:27:42,480
Speaker 10: properties in total. So he's a large company, but with

580
00:27:42,560 --> 00:27:45,680
Speaker 10: a small powerhouse portfolio.

581
00:27:45,280 --> 00:27:47,359
Speaker 3: Right bet Alison, I got to make some headlines here.

582
00:27:47,400 --> 00:27:50,199
Speaker 3: We're in the business and news, Alexander. There's blood on

583
00:27:50,240 --> 00:27:52,159
Speaker 3: the streets. We see it in New York, and I

584
00:27:52,200 --> 00:27:54,639
Speaker 3: get it in New York's its own little weird place,

585
00:27:54,720 --> 00:27:57,720
Speaker 3: but there's all across the nation real estate blood on

586
00:27:57,800 --> 00:28:00,840
Speaker 3: the streets. Are you saying your world reads back to

587
00:28:00,840 --> 00:28:04,240
Speaker 3: when you were at Lehman, Your world of reads. Is

588
00:28:04,280 --> 00:28:07,440
Speaker 3: it now a screaming by because of all the agony

589
00:28:07,520 --> 00:28:09,080
Speaker 3: Lisa was just framing.

590
00:28:09,240 --> 00:28:11,960
Speaker 10: So it's not a screaming buy in the sense that

591
00:28:12,200 --> 00:28:14,639
Speaker 10: interest rates are high. Right, we have a tenure that

592
00:28:14,720 --> 00:28:17,119
Speaker 10: was approaching five percent. It's now backed off a little,

593
00:28:17,320 --> 00:28:20,879
Speaker 10: but certainly the financing market, which as you guys have reported,

594
00:28:21,280 --> 00:28:24,439
Speaker 10: is basically shut down, right. CNBS market is tough. You

595
00:28:24,480 --> 00:28:26,920
Speaker 10: walk into a bank and try to get a construction loan,

596
00:28:27,080 --> 00:28:28,960
Speaker 10: they'll call the cops on you. They're like, we don't

597
00:28:28,960 --> 00:28:32,240
Speaker 10: do that right now, right, So lending is very tough.

598
00:28:32,320 --> 00:28:35,159
Speaker 10: The transaction market is almost on ice because of the

599
00:28:35,480 --> 00:28:39,880
Speaker 10: widespread what's interesting and people missing Tom, you're like my

600
00:28:39,920 --> 00:28:41,960
Speaker 10: first boss at Lehman, David Shulman. You've been around a

601
00:28:42,000 --> 00:28:45,760
Speaker 10: number of decades. Real estate right now is benefiting from

602
00:28:45,800 --> 00:28:48,560
Speaker 10: a phenomena that it has not had in a long

603
00:28:48,600 --> 00:28:51,760
Speaker 10: long time, which is low supply because nothing new is

604
00:28:51,760 --> 00:28:56,560
Speaker 10: getting built and low vacancy. That combination is really powerful.

605
00:28:56,840 --> 00:28:59,080
Speaker 10: And you started the show by saying, how is the

606
00:28:59,080 --> 00:29:00,320
Speaker 10: credit going to get work out?

607
00:29:00,320 --> 00:29:00,600
Speaker 4: Again?

608
00:29:00,640 --> 00:29:03,960
Speaker 10: As you as we've spoken before, back in the GFC,

609
00:29:04,400 --> 00:29:07,160
Speaker 10: everyone was panicked about the CNBS. No one can tell

610
00:29:07,200 --> 00:29:09,720
Speaker 10: you where the benchmark GG ten. What happened to that

611
00:29:10,040 --> 00:29:13,320
Speaker 10: famous twenty two thousand and seven deal. Right, stuff gets

612
00:29:13,360 --> 00:29:15,920
Speaker 10: worked out. Obviously there will be pain, there will be

613
00:29:16,000 --> 00:29:18,800
Speaker 10: blood for sure. But if you look at real estate's

614
00:29:18,800 --> 00:29:21,840
Speaker 10: biggest benefit right now, it's that lack of supply and

615
00:29:21,920 --> 00:29:25,320
Speaker 10: low vacancy. That's a huge positive that is underappreciated by

616
00:29:25,320 --> 00:29:25,760
Speaker 10: the market.

617
00:29:25,920 --> 00:29:28,760
Speaker 7: Just about thirty seconds, what happens if there's force selling

618
00:29:28,880 --> 00:29:30,120
Speaker 7: akin to we work.

619
00:29:31,400 --> 00:29:34,480
Speaker 10: So we work is a tenant, so you don't really

620
00:29:34,480 --> 00:29:37,760
Speaker 10: have forced selling from that. But to be clear, banks,

621
00:29:37,840 --> 00:29:40,320
Speaker 10: where everyone's focused on, they're not in the business of

622
00:29:40,440 --> 00:29:42,720
Speaker 10: running real estate, right, So as long as it's a

623
00:29:42,720 --> 00:29:45,680
Speaker 10: good asset with a good sponsor, they're going to work

624
00:29:45,720 --> 00:29:48,080
Speaker 10: out some deal. Because, as the old adage goes, a

625
00:29:48,200 --> 00:29:52,000
Speaker 10: rolling loan collects no loss. That said, there's clearly going

626
00:29:52,040 --> 00:29:54,160
Speaker 10: to be assets that will go back to the lenders,

627
00:29:54,400 --> 00:29:57,880
Speaker 10: and those are the assets where the economics don't exist.

628
00:29:58,160 --> 00:30:01,880
Speaker 10: That's the stuff to worry about. Big properties like the

629
00:30:01,880 --> 00:30:05,400
Speaker 10: three ninety nine Parks, the one Vanderbilts, those big centers

630
00:30:05,640 --> 00:30:09,120
Speaker 10: or are going to be fine. And again, when you

631
00:30:09,120 --> 00:30:11,480
Speaker 10: look at where the value in real estate is, it's

632
00:30:11,520 --> 00:30:15,240
Speaker 10: a crewing at the top. You're right, there will be blood,

633
00:30:15,280 --> 00:30:17,320
Speaker 10: and the blood is going to be some generic assets.

634
00:30:17,520 --> 00:30:22,480
Speaker 3: Alexander brilliant. Alexander Goldfar years of work at Piper Sandler,

635
00:30:22,600 --> 00:30:27,160
Speaker 3: now on real estate investment Trust. Subscribe to the Bloomberg

636
00:30:27,200 --> 00:30:31,200
Speaker 3: Surveillance podcast on Apple, Spotify, and anywhere else you get

637
00:30:31,240 --> 00:30:35,560
Speaker 3: your podcasts. Listen live every weekday starting at seven am

638
00:30:35,640 --> 00:30:40,160
Speaker 3: Eastern on Bloomberg dot Com, the iHeartRadio app tune In,

639
00:30:40,480 --> 00:30:43,880
Speaker 3: and the Bloomberg Business app. You can watch us live

640
00:30:44,080 --> 00:30:48,360
Speaker 3: on Bloomberg Television and always. I'm the Bloomberg Terminal. Thanks

641
00:30:48,360 --> 00:30:52,200
Speaker 3: for listening. I'm Tom Keane, and this is Bloomberg