1 00:00:00,280 --> 00:00:02,560 Speaker 1: This is Bloomberg Wall Street Week. 2 00:00:02,680 --> 00:00:07,200 Speaker 2: The global push into infrastructure, breaking the IPO logjam in tex. 3 00:00:07,160 --> 00:00:09,200 Speaker 3: The financial stories that shape. 4 00:00:08,920 --> 00:00:12,040 Speaker 2: Our world, cutting inflation without losing jobs. Do we need 5 00:00:12,119 --> 00:00:14,560 Speaker 2: rate cuts? And if so? How many? Investing in a 6 00:00:14,560 --> 00:00:16,120 Speaker 2: time of geopolitical turmoil. 7 00:00:16,200 --> 00:00:18,560 Speaker 1: Through the eyes of the most influential voices. 8 00:00:18,720 --> 00:00:22,480 Speaker 2: Ten Rogueff economists of Harvard, former FDIC had Shila Bert 9 00:00:22,640 --> 00:00:26,160 Speaker 2: ge CEO, Larry Culp, San Francisco FED President Mary Daily. 10 00:00:26,239 --> 00:00:30,240 Speaker 1: Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 11 00:00:30,720 --> 00:00:33,760 Speaker 4: Market sped on a September rate cut, Vice President Harris 12 00:00:33,760 --> 00:00:37,080 Speaker 4: wins a key endorsement, and the Paris Olympic Games begin 13 00:00:37,560 --> 00:00:40,879 Speaker 4: after a rail sabotage. This is Bloomberg Wall Street Week. 14 00:00:40,960 --> 00:00:54,360 Speaker 4: I'm Romain Bossed again for David Weston, and we begin 15 00:00:54,480 --> 00:00:56,960 Speaker 4: with the week in markets. I saw our rotation out 16 00:00:56,960 --> 00:01:00,000 Speaker 4: of big tech and into small caps. When you take 17 00:01:00,160 --> 00:01:02,400 Speaker 4: look at an S and P five hundred that rallied 18 00:01:02,440 --> 00:01:05,119 Speaker 4: here on this Friday afternoon but still ended the week 19 00:01:05,160 --> 00:01:07,920 Speaker 4: in the red. You have to overlay that with the 20 00:01:07,959 --> 00:01:10,399 Speaker 4: massive outperformance that we saw in the small and mid 21 00:01:10,480 --> 00:01:13,040 Speaker 4: cap space four straight weeks now where we've seen the 22 00:01:13,120 --> 00:01:16,680 Speaker 4: Russell two thousand outperform, the Nastac outperform, the mag seven 23 00:01:16,720 --> 00:01:19,640 Speaker 4: outperform the broader market overall, and a lot of that 24 00:01:19,680 --> 00:01:22,520 Speaker 4: seems to be predicated on the belief the interest rates 25 00:01:22,600 --> 00:01:25,120 Speaker 4: might be coming down soon. Peter Boro is joining us 26 00:01:25,200 --> 00:01:28,480 Speaker 4: right now, the chairman and CEO of Computer Trading, to 27 00:01:28,520 --> 00:01:30,039 Speaker 4: talk a little bit about some of the moves that 28 00:01:30,040 --> 00:01:32,000 Speaker 4: we saw this week, and Peter, some of this did 29 00:01:32,080 --> 00:01:34,640 Speaker 4: seem to be driven by the macro, whether it was 30 00:01:34,680 --> 00:01:37,360 Speaker 4: the economic data or maybe the feed through into what 31 00:01:37,400 --> 00:01:39,760 Speaker 4: folks think that macroeconomic data is going to mean for 32 00:01:39,760 --> 00:01:40,119 Speaker 4: the Fed. 33 00:01:41,000 --> 00:01:43,840 Speaker 5: Absolutely, but it could also go back to rule number 34 00:01:43,840 --> 00:01:49,000 Speaker 5: one that we all learn by low sell high. This 35 00:01:49,160 --> 00:01:52,440 Speaker 5: market has been one where everybody's been buying high, and 36 00:01:52,600 --> 00:01:55,480 Speaker 5: so what did we have. We had a natural rotation 37 00:01:55,760 --> 00:02:00,720 Speaker 5: to over sold stocks out of stocks that were highly overbought. 38 00:02:01,080 --> 00:02:05,760 Speaker 5: Now the question is has the underlying fundamentals changed to me? 39 00:02:07,000 --> 00:02:08,560 Speaker 3: They have, As you know, the. 40 00:02:08,520 --> 00:02:10,840 Speaker 5: Last time I was on here, we talked about the 41 00:02:10,880 --> 00:02:16,600 Speaker 5: seven c's of all the commodities that market in general 42 00:02:16,720 --> 00:02:24,639 Speaker 5: has been much weaker, grains, crude oil, cotton, copper in particular, 43 00:02:25,080 --> 00:02:28,440 Speaker 5: So that may be an indication that the FED is 44 00:02:28,520 --> 00:02:33,680 Speaker 5: more likely to ease, and therefore the small cap stocks 45 00:02:33,680 --> 00:02:38,320 Speaker 5: benefit significantly in a interest rate environment where rates are 46 00:02:38,320 --> 00:02:40,440 Speaker 5: going down or more stable. 47 00:02:40,840 --> 00:02:43,800 Speaker 4: They would benefit from rates going down. But if economic 48 00:02:43,880 --> 00:02:46,680 Speaker 4: conditions are weakening to the point where the FED thinks 49 00:02:46,720 --> 00:02:48,840 Speaker 4: it needs to cut rates, how is that going to 50 00:02:48,840 --> 00:02:49,799 Speaker 4: benefit small caps? 51 00:02:51,120 --> 00:02:51,799 Speaker 3: Great question. 52 00:02:52,560 --> 00:02:55,799 Speaker 5: So that also gets into the yield curve and interest 53 00:02:55,880 --> 00:02:59,760 Speaker 5: rates and whether the FED cuts are longer rates going 54 00:02:59,760 --> 00:03:02,200 Speaker 5: to go up is going to be a bear steepener. 55 00:03:02,639 --> 00:03:06,840 Speaker 5: But the first reaction is mean reversion, so that's buying 56 00:03:06,919 --> 00:03:11,200 Speaker 5: things that were over sold and selling things that were overbought. 57 00:03:11,320 --> 00:03:14,200 Speaker 5: There could be this week, and part of it could 58 00:03:14,240 --> 00:03:20,240 Speaker 5: be the fact that Vice President Harris has done significantly 59 00:03:20,280 --> 00:03:24,519 Speaker 5: better in the polling, and that may imply the expiration 60 00:03:25,160 --> 00:03:28,639 Speaker 5: of the Trump tax cuts, which could lead to higher 61 00:03:28,680 --> 00:03:32,040 Speaker 5: capital gains rates, which could lead to selling winners again 62 00:03:32,240 --> 00:03:35,600 Speaker 5: and harvesting some of your losses which were in the 63 00:03:35,640 --> 00:03:38,240 Speaker 5: small cap. So a lot of positive things have come. 64 00:03:38,120 --> 00:03:38,680 Speaker 3: Together for that. 65 00:03:38,840 --> 00:03:41,440 Speaker 4: It's interesting you raised that point here about people basically 66 00:03:41,440 --> 00:03:43,720 Speaker 4: buying effectively the laggers. I mean, I was looking at 67 00:03:43,760 --> 00:03:46,800 Speaker 4: one stock today on this Friday, neul Brands. Of course, 68 00:03:46,800 --> 00:03:48,800 Speaker 4: it makes all those little rubber may things that you 69 00:03:48,840 --> 00:03:50,880 Speaker 4: have in your cabinet, some more than thirty percent on 70 00:03:50,920 --> 00:03:52,840 Speaker 4: the day. But then when you look at its performance 71 00:03:52,920 --> 00:03:55,320 Speaker 4: prior today on a year to date basis, of course, 72 00:03:55,360 --> 00:03:57,640 Speaker 4: it was also down double digits here, So people are 73 00:03:57,640 --> 00:04:00,720 Speaker 4: definitely looking at the bottom of the barrel and maybe 74 00:04:00,760 --> 00:04:02,760 Speaker 4: finding some hope there. But it gets back to the 75 00:04:02,840 --> 00:04:06,600 Speaker 4: question about economic conditions, consumer spending. And we had a 76 00:04:06,600 --> 00:04:09,440 Speaker 4: PCE report on Friday. You had a GDP report a 77 00:04:09,480 --> 00:04:12,920 Speaker 4: couple of days ago that, while still healthy, certainly showed 78 00:04:13,400 --> 00:04:14,760 Speaker 4: some softening. 79 00:04:14,320 --> 00:04:17,600 Speaker 3: When it comes to the consumer, no question about it. 80 00:04:17,839 --> 00:04:20,039 Speaker 5: And what I look at for the strength of the 81 00:04:20,080 --> 00:04:23,760 Speaker 5: consumer is I look at Visa, I look at MasterCard, 82 00:04:24,400 --> 00:04:28,919 Speaker 5: and those stocks have been underperforming, let's say relative to 83 00:04:29,040 --> 00:04:32,600 Speaker 5: American Express, where American Express tends to be the card 84 00:04:32,640 --> 00:04:38,320 Speaker 5: of choice for higher income HULU. So the economy seems. 85 00:04:37,920 --> 00:04:39,599 Speaker 3: To be slowing. 86 00:04:39,800 --> 00:04:41,640 Speaker 4: It's interesting when we look at some of the market 87 00:04:41,640 --> 00:04:43,600 Speaker 4: moves over the last I don't know, five or six weeks. 88 00:04:43,640 --> 00:04:45,240 Speaker 4: I mean, you've obvious seen a bid come into some 89 00:04:45,279 --> 00:04:49,120 Speaker 4: of those economically sensitive areas like utilities, like materials. Probably 90 00:04:49,120 --> 00:04:51,359 Speaker 4: one of the more interesting stealth rallies out there and 91 00:04:51,600 --> 00:04:53,560 Speaker 4: stealth to me at least, was some of the moves 92 00:04:53,560 --> 00:04:55,839 Speaker 4: that you saw in banks over the last couple of weeks. 93 00:04:55,839 --> 00:04:57,360 Speaker 4: And not just the big banks. We're talking about some 94 00:04:57,400 --> 00:04:59,600 Speaker 4: of those regional banks that everybody sold off about a 95 00:04:59,640 --> 00:05:00,440 Speaker 4: year and awf half ago. 96 00:05:01,240 --> 00:05:04,080 Speaker 5: Yes, So who's going to be the biggest beneficiary of 97 00:05:04,160 --> 00:05:08,160 Speaker 5: those cutting interest rates is going to be the regional banks. 98 00:05:08,680 --> 00:05:13,520 Speaker 5: And over the last three weeks they have really outperformed 99 00:05:13,839 --> 00:05:17,960 Speaker 5: the Goldman Sachs as JP Morgan's of the world. It's 100 00:05:18,000 --> 00:05:21,760 Speaker 5: been to me that's been more impressive than the rally 101 00:05:22,120 --> 00:05:24,559 Speaker 5: in the small cap IWN. 102 00:05:24,440 --> 00:05:26,599 Speaker 4: All right, Peter, always a great conversation, one of the 103 00:05:26,600 --> 00:05:30,000 Speaker 4: best in the business. Peter Borish of Computer Trading Company. 104 00:05:30,600 --> 00:05:33,840 Speaker 2: Vice president Harris emerged this week as the likely alternative 105 00:05:33,880 --> 00:05:37,000 Speaker 2: to former President Trump, focusing investors on what her approach 106 00:05:37,040 --> 00:05:39,679 Speaker 2: to the economy would be and whether it would differ 107 00:05:39,880 --> 00:05:42,719 Speaker 2: from that of President Biden to take us through the choices. 108 00:05:42,839 --> 00:05:44,840 Speaker 2: Welcome back now, are very special contributor here in Wall 109 00:05:44,839 --> 00:05:47,320 Speaker 2: Street Week. He is Larry Summers of Harvard Lurie. Great 110 00:05:47,320 --> 00:05:49,159 Speaker 2: to have you back with us. What do we know 111 00:05:49,320 --> 00:05:51,880 Speaker 2: or think we know about what a Kamala Harrison administration 112 00:05:51,920 --> 00:05:54,200 Speaker 2: would do with the economy versus a Donald Trump. 113 00:05:54,520 --> 00:05:55,800 Speaker 3: We don't know much yet. 114 00:05:55,920 --> 00:05:59,800 Speaker 6: The campaign's only been going for two days, but I 115 00:05:59,800 --> 00:06:05,599 Speaker 6: think we've got some strong bases for optimism. First, it's 116 00:06:05,640 --> 00:06:10,040 Speaker 6: been the Biden Harris administration, and if you step back, 117 00:06:10,400 --> 00:06:14,560 Speaker 6: it really has a remarkable record. I don't think any 118 00:06:14,600 --> 00:06:20,400 Speaker 6: administration has so outperformed the economic forecasts on the day 119 00:06:20,400 --> 00:06:24,920 Speaker 6: that it came into office as the Biden Harris administration has. 120 00:06:25,560 --> 00:06:29,680 Speaker 6: And that's because of an approach that is about investing 121 00:06:29,720 --> 00:06:32,839 Speaker 6: in America and investing in America's future. 122 00:06:33,440 --> 00:06:34,640 Speaker 3: And if you look at some of the. 123 00:06:34,600 --> 00:06:40,080 Speaker 6: Things Vice President Harris has done, they have that orientation 124 00:06:40,440 --> 00:06:45,120 Speaker 6: to the future. She knows that our children are our future, 125 00:06:45,640 --> 00:06:49,359 Speaker 6: and that's why the childcare credit and investing in children 126 00:06:49,480 --> 00:06:52,880 Speaker 6: investments that reduce the child poverty rate by a half 127 00:06:53,279 --> 00:06:57,160 Speaker 6: when they were in effect, were so important to her. 128 00:06:57,960 --> 00:07:04,640 Speaker 6: She knows that fiscal responsibility is central, and that's why 129 00:07:04,680 --> 00:07:10,280 Speaker 6: she puts emphasis on the fact that we need to 130 00:07:10,360 --> 00:07:17,240 Speaker 6: raise taxes where it is replacing the ineffective massive corporate 131 00:07:17,280 --> 00:07:23,040 Speaker 6: tax cuts that President Trump put into place. She understands 132 00:07:23,440 --> 00:07:28,280 Speaker 6: that much of our future lies in exporting to the 133 00:07:28,320 --> 00:07:32,520 Speaker 6: rest of the world. It's not her approach to call 134 00:07:32,560 --> 00:07:38,960 Speaker 6: Africa and Al Salvador countries as President Trump did. It's 135 00:07:39,000 --> 00:07:45,000 Speaker 6: her approach to work to strongly support their development because 136 00:07:45,040 --> 00:07:49,280 Speaker 6: she knows that more prosperous countries around the world make 137 00:07:50,000 --> 00:07:55,960 Speaker 6: for a more prosperous United States. It's a new generational 138 00:07:56,040 --> 00:08:02,280 Speaker 6: approach and a start contrast with what came before with 139 00:08:03,760 --> 00:08:07,680 Speaker 6: Donald Trump, and, judging by what he's saying on the 140 00:08:07,920 --> 00:08:13,679 Speaker 6: campaign trail, a even larger contrast with what would come 141 00:08:14,360 --> 00:08:20,480 Speaker 6: if he were elected. What he describes David is a 142 00:08:20,520 --> 00:08:26,840 Speaker 6: prescription for massive inflation. Ignore the deficit, bash the Fed, 143 00:08:27,800 --> 00:08:32,920 Speaker 6: trash the dollar, cut back on labor supply by trying 144 00:08:33,000 --> 00:08:45,040 Speaker 6: immediately to send millions of people home, stop subsidizing clean energy, 145 00:08:45,600 --> 00:08:50,520 Speaker 6: and put massive tariffs on so businesses can't get cheap inputs. 146 00:08:51,280 --> 00:08:56,400 Speaker 6: It's hard to imagine a better strategy for creating inflation, 147 00:08:57,040 --> 00:09:03,520 Speaker 6: for creating high interest rates, and the Trump's strategy. President 148 00:09:03,559 --> 00:09:10,960 Speaker 6: Harris I believe will avoid all those pro inflation mistakes, 149 00:09:11,600 --> 00:09:16,559 Speaker 6: and much more important, We'll build a future oriented economy 150 00:09:17,040 --> 00:09:22,280 Speaker 6: through our kids, through our technologies, through containing our debts, 151 00:09:22,840 --> 00:09:24,360 Speaker 6: and through working with the world. 152 00:09:24,559 --> 00:09:28,200 Speaker 2: So let's talk about those pro inflation policies, and specifically 153 00:09:28,240 --> 00:09:30,360 Speaker 2: on the fiscal stemua the side, because you've been outspoken 154 00:09:30,400 --> 00:09:33,360 Speaker 2: about that in the past. That that has contributed to inflation, 155 00:09:33,600 --> 00:09:36,440 Speaker 2: and we're investing in children obviously is one thing. She's 156 00:09:36,520 --> 00:09:39,160 Speaker 2: also has been for expanded medicare. In fact, at one 157 00:09:39,200 --> 00:09:41,040 Speaker 2: point she was for medicare for all. She backed off 158 00:09:41,080 --> 00:09:44,600 Speaker 2: that a bit. She's also for rental assistance programs. What 159 00:09:44,640 --> 00:09:46,640 Speaker 2: do you make of those? Are those good ideas? Assuming 160 00:09:46,679 --> 00:09:49,880 Speaker 2: she could get those through? Are those good for the economy. 161 00:09:50,000 --> 00:09:55,040 Speaker 6: I don't think it's fair to judge Donald Trump by 162 00:09:55,120 --> 00:09:58,800 Speaker 6: the things he was saying when he was campaigning for 163 00:09:59,000 --> 00:10:03,280 Speaker 6: office the first time, or even before, and that was 164 00:10:03,320 --> 00:10:08,240 Speaker 6: a very different context. And I don't think that Vice 165 00:10:08,280 --> 00:10:14,320 Speaker 6: President Harris feels committed to the things she said during 166 00:10:14,360 --> 00:10:20,480 Speaker 6: her campaign for the presidency before she joined the Biden 167 00:10:20,520 --> 00:10:29,520 Speaker 6: administration partnership and advocated those policies for four years. No, 168 00:10:29,679 --> 00:10:34,559 Speaker 6: I don't think medicare for all is a good idea, 169 00:10:34,800 --> 00:10:39,360 Speaker 6: and I wouldn't expect that a Harris administration would push 170 00:10:39,960 --> 00:10:41,120 Speaker 6: medicare for all. 171 00:10:41,480 --> 00:10:43,240 Speaker 2: Lauria, next week, you and I will both you got 172 00:10:43,280 --> 00:10:45,880 Speaker 2: an Aspen for the Aspen Economic Strategy for meetings, And 173 00:10:45,920 --> 00:10:48,400 Speaker 2: while we're doing that, the FED will be meeting in Washington. 174 00:10:48,679 --> 00:10:51,360 Speaker 2: We'll have another Fed decision. We just had Bill Dudley, 175 00:10:51,400 --> 00:10:54,200 Speaker 2: whom you know well we all respect, come on just 176 00:10:54,280 --> 00:10:57,040 Speaker 2: this week in a Bloomberg opinion piece saying it's time 177 00:10:57,040 --> 00:10:59,280 Speaker 2: for them to cut rates as early as next week, 178 00:11:00,200 --> 00:11:02,280 Speaker 2: a part of the so called Sam rule about where's 179 00:11:02,480 --> 00:11:04,840 Speaker 2: where on umployments going. What do you think about that? 180 00:11:05,520 --> 00:11:11,320 Speaker 6: On current facts, I would not cut rates next week. 181 00:11:12,320 --> 00:11:17,559 Speaker 6: I think we need to be very careful about making 182 00:11:18,760 --> 00:11:24,439 Speaker 6: the move, especially since when the FED starts to cut rates, 183 00:11:24,920 --> 00:11:29,840 Speaker 6: there will inevitably be an expectation of some cascade of 184 00:11:29,920 --> 00:11:34,839 Speaker 6: rate cuts. It's certainly true that as the news has 185 00:11:34,920 --> 00:11:38,720 Speaker 6: come in over the last several months, it's tended to 186 00:11:38,720 --> 00:11:43,560 Speaker 6: be on the low inflation and on the soft economy side, 187 00:11:44,040 --> 00:11:49,200 Speaker 6: and so markets have now adjusted to expect a rate 188 00:11:49,280 --> 00:11:55,080 Speaker 6: cut in September. I had thought that that was a possibility, 189 00:11:55,160 --> 00:11:59,320 Speaker 6: but not a probability. On current facts, I'd certainly regard 190 00:11:59,360 --> 00:12:03,280 Speaker 6: it as probability, both in terms of what should happen 191 00:12:03,880 --> 00:12:07,640 Speaker 6: and what will happen. But I think it's the better 192 00:12:07,840 --> 00:12:13,559 Speaker 6: part of prudence, particularly in so unsettled an environment where 193 00:12:13,640 --> 00:12:19,880 Speaker 6: the deficit figures are coming in in a very problematic way. 194 00:12:20,559 --> 00:12:24,280 Speaker 6: I think it's the better part of prudence for the 195 00:12:24,320 --> 00:12:28,280 Speaker 6: Fed to wait a little longer before cutting rates. 196 00:12:28,559 --> 00:12:30,320 Speaker 2: Larry, It's always such a pleasure to have you with us. 197 00:12:30,320 --> 00:12:32,520 Speaker 2: Thank you so much. That is our special Wall Street 198 00:12:32,520 --> 00:12:37,640 Speaker 2: Week contribuer, Larry Summers of Harvard, coming up, the view 199 00:12:37,679 --> 00:12:41,080 Speaker 2: from Goldman Sachs on where this economy is taking investors 200 00:12:41,320 --> 00:12:43,640 Speaker 2: with Sherman, most of our Ruckmanney. 201 00:12:43,800 --> 00:12:47,000 Speaker 7: Us pre eminence is intact and stay invested. 202 00:12:48,440 --> 00:12:50,800 Speaker 2: That's next on Wall Street Week on Bloomberg. 203 00:12:52,280 --> 00:12:56,520 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 204 00:12:56,640 --> 00:12:59,360 Speaker 1: Bloomberg Radio. 205 00:13:04,400 --> 00:13:06,680 Speaker 2: This is Wall Street Week. I'm David Weston. A stock 206 00:13:06,720 --> 00:13:09,920 Speaker 2: market that just won't quit, a bond market rewarding fixed 207 00:13:09,960 --> 00:13:13,680 Speaker 2: income at long last, and inflation apparently coming under control 208 00:13:13,720 --> 00:13:16,959 Speaker 2: at least for now. What's an investor to do? As 209 00:13:17,000 --> 00:13:20,360 Speaker 2: Chief investment officer for Golden Sachs Wealth Management, Charmian most 210 00:13:20,360 --> 00:13:23,120 Speaker 2: of our Rock Money answers that question every single day, 211 00:13:23,400 --> 00:13:25,240 Speaker 2: and we welcome her back now to Wall Street Week. 212 00:13:25,280 --> 00:13:27,280 Speaker 2: Always a delight to have you here, Charmin thank you for. 213 00:13:27,280 --> 00:13:28,840 Speaker 7: Joining us, Thanks for having me. 214 00:13:29,000 --> 00:13:32,280 Speaker 2: Okay, So you talk to investors all the time, customers 215 00:13:32,320 --> 00:13:34,120 Speaker 2: all the time. What are they asking about? What are 216 00:13:34,120 --> 00:13:34,800 Speaker 2: they concerned about? 217 00:13:34,840 --> 00:13:39,160 Speaker 7: Right now, they're asking the questions about our two key 218 00:13:39,200 --> 00:13:41,920 Speaker 7: investment teams. We have been tending clients to be overweight 219 00:13:42,040 --> 00:13:45,240 Speaker 7: US equities, and we've been telling them to stay invested. 220 00:13:45,640 --> 00:13:48,600 Speaker 7: So after this big market rally that's been going on 221 00:13:48,679 --> 00:13:51,320 Speaker 7: for so long, as you pointed out, clients are saying, 222 00:13:51,440 --> 00:13:54,880 Speaker 7: are those themes still valid? Should we still be overweight 223 00:13:55,040 --> 00:13:58,680 Speaker 7: US equities? And should we still stay invested after this 224 00:13:59,120 --> 00:14:02,920 Speaker 7: unexpected be significant rally following twenty twenty three, which was 225 00:14:02,920 --> 00:14:06,240 Speaker 7: also very strong. And our answer to both of those 226 00:14:06,360 --> 00:14:11,040 Speaker 7: questions is yes, US pre eminence is intact, and stay invested. 227 00:14:11,360 --> 00:14:13,719 Speaker 2: So let's break that down first of all the equities part, 228 00:14:13,760 --> 00:14:16,120 Speaker 2: then we'll get to the US part. Equities, we do 229 00:14:16,160 --> 00:14:19,280 Speaker 2: have real returns now in fixed income? Doesn't that shift 230 00:14:19,280 --> 00:14:21,400 Speaker 2: the emphasis at least somewhat because you can make real 231 00:14:21,440 --> 00:14:22,600 Speaker 2: money now on bonds? 232 00:14:23,160 --> 00:14:25,960 Speaker 7: Well, our view is that the upside in US equities 233 00:14:26,000 --> 00:14:29,240 Speaker 7: is substantially greater. So when you're looking at the return 234 00:14:29,280 --> 00:14:32,360 Speaker 7: to expectations, we do recommend especially with US clients, they 235 00:14:32,400 --> 00:14:35,360 Speaker 7: need to look at the returns on an after tax basis. 236 00:14:35,680 --> 00:14:37,840 Speaker 7: So you can't just look at the yield, for example, 237 00:14:37,960 --> 00:14:41,080 Speaker 7: on treasury bonds or on corporate bonds and then compare 238 00:14:41,080 --> 00:14:44,120 Speaker 7: that to the expected return for US equities. You actually 239 00:14:44,120 --> 00:14:46,640 Speaker 7: need to look at both on an after tax basis. 240 00:14:46,920 --> 00:14:49,960 Speaker 7: And one of the most amazing things about US equities 241 00:14:50,000 --> 00:14:53,440 Speaker 7: are if you have them in some passive tax efficient form, 242 00:14:53,680 --> 00:14:56,080 Speaker 7: you have very little bit of a tax liability and 243 00:14:56,160 --> 00:14:59,440 Speaker 7: there's much more long term upside. So we actually recommend 244 00:14:59,480 --> 00:15:03,240 Speaker 7: clients be at their duration target for their fixed income acts, 245 00:15:03,560 --> 00:15:07,640 Speaker 7: but still overweight US equities versus non US equities. 246 00:15:07,680 --> 00:15:11,080 Speaker 2: What about the valuation in the equity marketing, Some people 247 00:15:11,120 --> 00:15:13,640 Speaker 2: are concerned, we're getting a pretty high valuation. So you 248 00:15:13,640 --> 00:15:15,880 Speaker 2: say there's a lot of upside left inequities. Are we 249 00:15:15,920 --> 00:15:16,520 Speaker 2: sure about that? 250 00:15:16,960 --> 00:15:19,520 Speaker 7: So there's no short term upside. In fact, the US 251 00:15:19,560 --> 00:15:23,760 Speaker 7: equity market has exceeded our expectations for this year. So 252 00:15:23,840 --> 00:15:27,040 Speaker 7: our good case for US equities this year when we 253 00:15:27,080 --> 00:15:31,160 Speaker 7: published our initial outlook was up thirteen percent, and so 254 00:15:31,600 --> 00:15:35,960 Speaker 7: now we're up about seventeen percent. You're today roughly, And 255 00:15:36,040 --> 00:15:37,760 Speaker 7: so when we look at that we'll say, yes, it 256 00:15:37,840 --> 00:15:41,840 Speaker 7: has exceeded our expectations, but earnings have been better than expected. 257 00:15:42,480 --> 00:15:45,920 Speaker 7: Typically when you start having the Fed cut interest rates, 258 00:15:45,920 --> 00:15:49,520 Speaker 7: as long as we don't go into a recession. On average, 259 00:15:49,760 --> 00:15:53,640 Speaker 7: US equities are up nineteen percent for the next twelve months, 260 00:15:53,880 --> 00:15:56,400 Speaker 7: so we may not have much upside left for the 261 00:15:56,440 --> 00:15:59,520 Speaker 7: rest of this year, but already the markets starting to 262 00:15:59,520 --> 00:16:02,920 Speaker 7: think about twenty twenty five and what earnings will be. 263 00:16:03,000 --> 00:16:06,280 Speaker 7: And then as investors shift focused to twenty twenty five 264 00:16:06,320 --> 00:16:09,480 Speaker 7: and earnings and price targets, that's when you'll see some 265 00:16:09,760 --> 00:16:10,840 Speaker 7: more upside. 266 00:16:11,080 --> 00:16:13,120 Speaker 2: You said something terribly important there, as long as we 267 00:16:13,160 --> 00:16:16,120 Speaker 2: don't go into recession. We had Bill Dudley actually with 268 00:16:16,200 --> 00:16:19,000 Speaker 2: an opinion piece in Bloomberg this week saying he's got 269 00:16:19,040 --> 00:16:21,960 Speaker 2: some concerns now, growing concerns with a slower economy, sink 270 00:16:22,080 --> 00:16:24,440 Speaker 2: with a p some rule that fell into the complicated 271 00:16:24,520 --> 00:16:27,280 Speaker 2: rule about unemployment, and when it points to recession that 272 00:16:27,360 --> 00:16:29,920 Speaker 2: he says, there is now our growing risk of recession 273 00:16:30,160 --> 00:16:32,400 Speaker 2: and maybe the Fed should cut as early as next week. 274 00:16:32,520 --> 00:16:33,400 Speaker 2: What do you think about that? 275 00:16:34,360 --> 00:16:37,040 Speaker 7: We actually followed Bill Dudley and try to talk to 276 00:16:37,120 --> 00:16:39,480 Speaker 7: him often and think very highly of his opinion. He 277 00:16:39,560 --> 00:16:43,280 Speaker 7: went into twenty twenty three expecting a recession and a 278 00:16:43,360 --> 00:16:46,360 Speaker 7: very high probability, So we've had this discussion with him 279 00:16:46,400 --> 00:16:50,080 Speaker 7: on the likelihood of recession. We started this year with 280 00:16:50,200 --> 00:16:54,400 Speaker 7: a probability of thirty percent for the odds of a recession, 281 00:16:54,480 --> 00:16:57,560 Speaker 7: and we have stuck with that, and people say, why 282 00:16:57,600 --> 00:17:00,800 Speaker 7: aren't you lower. Some people are substantially lower. We haven't 283 00:17:00,880 --> 00:17:04,119 Speaker 7: changed our recession probability, partly because of the shape of 284 00:17:04,160 --> 00:17:07,919 Speaker 7: the yield curve. The yield curve is significantly inverted, or 285 00:17:07,920 --> 00:17:10,480 Speaker 7: it was more inverted before, and it has stayed that way, 286 00:17:10,800 --> 00:17:14,000 Speaker 7: and we have what we call a yield curve diffusion index, 287 00:17:14,160 --> 00:17:17,240 Speaker 7: and when that triggers, more often than not, you get 288 00:17:17,280 --> 00:17:20,200 Speaker 7: a recession. That's why we're at thirty percent. However, when 289 00:17:20,200 --> 00:17:22,960 Speaker 7: we think about these various indicators, like the sam rule 290 00:17:23,000 --> 00:17:26,199 Speaker 7: that you refer to, we also have to consider and 291 00:17:26,280 --> 00:17:30,320 Speaker 7: factor in some unusual situations. So people talk about the 292 00:17:30,320 --> 00:17:32,600 Speaker 7: amount of immigration in the US, and so that has 293 00:17:32,680 --> 00:17:36,200 Speaker 7: pushed up the unemployment rate or post pandemic. We were 294 00:17:36,240 --> 00:17:41,199 Speaker 7: at such low unemployment rates that getting slightly above that 295 00:17:41,600 --> 00:17:44,200 Speaker 7: is not necessarily an indication of a recession. 296 00:17:44,240 --> 00:17:45,080 Speaker 2: Around the corner. 297 00:17:45,359 --> 00:17:47,480 Speaker 7: So do we worry about our recession? Do we need 298 00:17:47,520 --> 00:17:50,880 Speaker 7: to be on the alert about it look at other indicators? Yes, 299 00:17:51,240 --> 00:17:53,639 Speaker 7: But are we worried about a recession anytime in the 300 00:17:53,640 --> 00:17:55,960 Speaker 7: next twelve months or so? Not at this point. Thirty 301 00:17:56,000 --> 00:17:59,800 Speaker 7: percent probability. That means seventy percent probability of no recession. 302 00:18:00,280 --> 00:18:02,120 Speaker 2: Charman, it's always such a pleasure having you on. Thank 303 00:18:02,160 --> 00:18:06,200 Speaker 2: you so much. That's Charmine most about ROCHMANI of Goldman Sachs. 304 00:18:06,520 --> 00:18:10,480 Speaker 2: Geopolitical risk remains high and economies around the world face 305 00:18:10,600 --> 00:18:14,240 Speaker 2: different paths ahead. Take us through what this means for investors. 306 00:18:14,400 --> 00:18:17,600 Speaker 2: Welcome back now, David Hunt. He's president and CEO of PGIM. 307 00:18:17,800 --> 00:18:18,480 Speaker 2: Great to have you back. 308 00:18:18,680 --> 00:18:20,159 Speaker 3: It's wonderful to be back with you, David. 309 00:18:20,240 --> 00:18:22,320 Speaker 2: So let's talk with the geopolitics, because we have a 310 00:18:22,359 --> 00:18:25,280 Speaker 2: heightened level of geopolitical risk these days all around the 311 00:18:25,280 --> 00:18:28,000 Speaker 2: world pretty much where ever, Look, how does that affect investors? 312 00:18:28,560 --> 00:18:30,119 Speaker 8: Well, the first thing I would say, David, is that 313 00:18:30,840 --> 00:18:33,520 Speaker 8: it may be heightened the relative to the last ten 314 00:18:33,600 --> 00:18:36,640 Speaker 8: or twelve years, but I would not say it's necessarily 315 00:18:36,720 --> 00:18:40,400 Speaker 8: heightened relative to the longer term sweep of history. We've 316 00:18:40,400 --> 00:18:43,000 Speaker 8: actually had a period of real I would say moderation 317 00:18:44,280 --> 00:18:48,080 Speaker 8: since the GFC in terms of political flashpoints, and it's 318 00:18:48,119 --> 00:18:51,160 Speaker 8: really been the last few years between the health pandemic 319 00:18:51,280 --> 00:18:55,040 Speaker 8: two wars that we've started to see these re emerge, 320 00:18:55,480 --> 00:18:58,000 Speaker 8: and I would say it's more of a getting back 321 00:18:58,040 --> 00:19:02,560 Speaker 8: to normal than it is actually a high of the averages. 322 00:19:02,960 --> 00:19:05,200 Speaker 8: I would also say that I think that this kind 323 00:19:05,200 --> 00:19:08,280 Speaker 8: of summer of democracy, which we're still working our way through, 324 00:19:08,760 --> 00:19:11,080 Speaker 8: is only heightening that as well. So I think we 325 00:19:11,160 --> 00:19:15,520 Speaker 8: have even more geopolitical risk. And indeed, as I travel 326 00:19:15,520 --> 00:19:20,040 Speaker 8: the world talking to our large institutional investors, their number 327 00:19:20,040 --> 00:19:22,880 Speaker 8: one risk is geopolitical. It is not what's the ved 328 00:19:22,960 --> 00:19:24,399 Speaker 8: going to do, It's not where are we in the 329 00:19:24,440 --> 00:19:28,080 Speaker 8: interest rate cycle. They really want to talk about the 330 00:19:28,119 --> 00:19:32,480 Speaker 8: heightened geopolitical risk and what that does for their portfolio construction. 331 00:19:32,720 --> 00:19:34,639 Speaker 2: So talk to me a bit about that very issue, 332 00:19:34,640 --> 00:19:37,639 Speaker 2: the intersection, if you will, how that intersects with the 333 00:19:37,640 --> 00:19:40,600 Speaker 2: politics and the geopolitics. I mean, how does the politics 334 00:19:40,640 --> 00:19:43,480 Speaker 2: potentially affect the long term growth of a Europe, of 335 00:19:43,520 --> 00:19:45,160 Speaker 2: a Japan, of the United States. 336 00:19:45,800 --> 00:19:49,119 Speaker 8: Long term investors have a very different attitude toward I 337 00:19:49,160 --> 00:19:54,240 Speaker 8: think volatility in general and that's probably the biggest difference. 338 00:19:54,520 --> 00:19:58,920 Speaker 8: I think a lot of the popular media confuse volatility 339 00:19:58,960 --> 00:20:02,359 Speaker 8: and risk really not the same thing. So when I 340 00:20:02,440 --> 00:20:06,679 Speaker 8: say we have heightened volatility, that actually can spell as 341 00:20:06,760 --> 00:20:10,120 Speaker 8: much opportunity as it does risk. I mean, the only 342 00:20:10,160 --> 00:20:12,240 Speaker 8: way you lose money is to sell an asset for 343 00:20:12,320 --> 00:20:14,560 Speaker 8: less than you bought it for or take a permanent impairment, 344 00:20:15,080 --> 00:20:17,679 Speaker 8: but simply because market's move does not create a loss, 345 00:20:18,040 --> 00:20:21,440 Speaker 8: and long term investors tend to look through those cycles 346 00:20:21,840 --> 00:20:24,880 Speaker 8: and they use changes in market levels to actually get 347 00:20:24,920 --> 00:20:27,640 Speaker 8: in at a more attractive price. So as we look 348 00:20:27,720 --> 00:20:33,360 Speaker 8: forward to the increased volatility, our key focus is do 349 00:20:33,400 --> 00:20:37,200 Speaker 8: our clients have enough liquidity so that they can move 350 00:20:37,320 --> 00:20:39,480 Speaker 8: and move in size when the. 351 00:20:39,480 --> 00:20:40,200 Speaker 3: Time is right. 352 00:20:40,640 --> 00:20:43,080 Speaker 8: And I would say that as people have moved more 353 00:20:43,119 --> 00:20:46,760 Speaker 8: into privates and more into liquid assets, that liquidity has 354 00:20:46,800 --> 00:20:49,000 Speaker 8: become a bit squeezed, and a lot of the work 355 00:20:49,040 --> 00:20:50,840 Speaker 8: we're doing with clients is to make sure that they 356 00:20:50,880 --> 00:20:54,159 Speaker 8: have the liquidity so that they can move when the 357 00:20:54,160 --> 00:20:54,840 Speaker 8: timing is right. 358 00:20:54,960 --> 00:20:56,960 Speaker 2: It's one of the things your institutional investors take a 359 00:20:56,960 --> 00:21:00,520 Speaker 2: look at your social clients is long term growth prospects. 360 00:21:00,720 --> 00:21:03,480 Speaker 2: Because right now, right now, it looks like, for example, 361 00:21:03,560 --> 00:21:06,080 Speaker 2: Europe is different from the United States, just to joke 362 00:21:06,119 --> 00:21:06,680 Speaker 2: one example. 363 00:21:07,080 --> 00:21:09,320 Speaker 8: No, it's a great example, And I would say that 364 00:21:09,359 --> 00:21:12,760 Speaker 8: we are seeing a pretty big rotation in how people 365 00:21:12,880 --> 00:21:16,359 Speaker 8: view growth opportunities and where they're putting capital work. So 366 00:21:16,880 --> 00:21:20,040 Speaker 8: if you start in Europe, you know, in general, people 367 00:21:20,080 --> 00:21:25,239 Speaker 8: are quite I think pessimistic about growth. The EU is 368 00:21:25,359 --> 00:21:28,680 Speaker 8: no bigger now than it was in twenty eighteen, and 369 00:21:29,080 --> 00:21:31,879 Speaker 8: it really doesn't seem to be breaking out of the 370 00:21:31,920 --> 00:21:37,160 Speaker 8: cycle of low productivity and low growth that it's had. Meanwhile, 371 00:21:37,240 --> 00:21:40,439 Speaker 8: you then go to Asia and you find, on the 372 00:21:40,480 --> 00:21:42,840 Speaker 8: one hand, Japan, which is I would say in a 373 00:21:43,119 --> 00:21:47,600 Speaker 8: new you know, kind of found optimism. They finally have 374 00:21:47,720 --> 00:21:50,280 Speaker 8: inflation back, which they're grateful for. Growth has come back, 375 00:21:50,560 --> 00:21:54,199 Speaker 8: They are very constructive about some of the reforms that 376 00:21:54,240 --> 00:21:57,640 Speaker 8: they've made to corporate governance, and I would say there's 377 00:21:57,720 --> 00:22:01,280 Speaker 8: more optimism there and about internet actional investors looking in 378 00:22:01,560 --> 00:22:03,560 Speaker 8: than we've had in a long time. And in fact, 379 00:22:03,560 --> 00:22:06,800 Speaker 8: I would say that Japan has been the leading country 380 00:22:06,840 --> 00:22:10,200 Speaker 8: to benefit from the tensions with China because many people 381 00:22:10,200 --> 00:22:12,879 Speaker 8: are now building their plants and building their supply lanes 382 00:22:13,240 --> 00:22:17,399 Speaker 8: around a strategy that's based in Japan, So Japan I 383 00:22:17,440 --> 00:22:20,520 Speaker 8: think is much more positive. China, on the other hand, 384 00:22:20,640 --> 00:22:25,080 Speaker 8: is probably in a more difficult position. Even last week 385 00:22:25,119 --> 00:22:27,159 Speaker 8: with the Third Plan, and we did not see the 386 00:22:27,240 --> 00:22:29,960 Speaker 8: kind of concerted action that we all thought was going 387 00:22:30,000 --> 00:22:33,399 Speaker 8: to be needed. So I think people are worried about growth, 388 00:22:33,440 --> 00:22:35,679 Speaker 8: and they're worried that there isn't going to be a 389 00:22:35,760 --> 00:22:38,800 Speaker 8: resurgence of consumer spending, which is what's really need to 390 00:22:38,840 --> 00:22:44,920 Speaker 8: rebalance the economy, but rather continued focus on manufacturing. So 391 00:22:44,960 --> 00:22:47,919 Speaker 8: there's no new money at the moment going into China. 392 00:22:48,440 --> 00:22:52,679 Speaker 8: Then you come back to the US and as difficult, 393 00:22:52,960 --> 00:22:54,800 Speaker 8: and we like to focus on all the problems of 394 00:22:54,840 --> 00:22:59,960 Speaker 8: the US. Actually, productivities has looked not bad. Growth is looked, 395 00:23:00,960 --> 00:23:04,040 Speaker 8: you know, like it's powering through this difficulty. Wages continue 396 00:23:04,040 --> 00:23:07,840 Speaker 8: to be pretty strong, so you know, the US is 397 00:23:08,520 --> 00:23:11,159 Speaker 8: on a relative basis at this point doing very well. 398 00:23:11,359 --> 00:23:13,240 Speaker 8: So the net of that is that there is really 399 00:23:13,960 --> 00:23:17,960 Speaker 8: money coming out of Europe. There is money, no more 400 00:23:18,000 --> 00:23:20,800 Speaker 8: money going into China. There's quite a bit more money 401 00:23:20,800 --> 00:23:23,720 Speaker 8: going into the US and Japan, and then select emerging 402 00:23:23,760 --> 00:23:27,320 Speaker 8: markets like I would say Mexico, Vietnam, Indonesia, which you're 403 00:23:27,359 --> 00:23:30,439 Speaker 8: benefiting from the changes in the global supply chain. So 404 00:23:30,440 --> 00:23:34,359 Speaker 8: it's a very differencing shift in how people are putting 405 00:23:34,359 --> 00:23:35,720 Speaker 8: their money to work geographically. 406 00:23:35,800 --> 00:23:37,919 Speaker 2: Let's pick up on one thing that you just referred to, 407 00:23:38,000 --> 00:23:40,919 Speaker 2: which I find puzzling because here in the United States, 408 00:23:40,960 --> 00:23:43,200 Speaker 2: maybe in part is the election not unteally, we tend 409 00:23:43,200 --> 00:23:45,560 Speaker 2: to be very critical of what's going on economically. We're 410 00:23:45,560 --> 00:23:47,520 Speaker 2: in a lot of trouble, a lot of uncertainty things, 411 00:23:47,720 --> 00:23:49,520 Speaker 2: and yet the rest of the world seems to want 412 00:23:49,560 --> 00:23:52,680 Speaker 2: to invest here. The inflows are remarkable here, by the way, 413 00:23:52,920 --> 00:23:54,439 Speaker 2: a lot of people want to come here. It's one 414 00:23:54,480 --> 00:23:56,960 Speaker 2: of the firt reason we have an immigration problem is 415 00:23:57,240 --> 00:24:00,199 Speaker 2: who wants to move here? Who's got it wrong? I mean, 416 00:24:00,200 --> 00:24:03,520 Speaker 2: are we misperceiving our own economy or is the rest 417 00:24:03,520 --> 00:24:05,520 Speaker 2: of the world overestimating what we can do. 418 00:24:06,119 --> 00:24:08,240 Speaker 8: I think it's maybe a little bit of both, and 419 00:24:08,280 --> 00:24:11,240 Speaker 8: maybe a third as well. I think that there's no 420 00:24:11,359 --> 00:24:16,200 Speaker 8: question that the corporate sector and therefore what's driving earnings 421 00:24:16,240 --> 00:24:19,760 Speaker 8: and therefore kind of the markets is in better health 422 00:24:19,800 --> 00:24:22,920 Speaker 8: than almost any of us would have predicted eighteen months ago. 423 00:24:23,400 --> 00:24:27,120 Speaker 8: That doesn't necessarily mean that consumer sentiment or the average 424 00:24:27,200 --> 00:24:30,680 Speaker 8: person feeling that way, and for them, they're much more 425 00:24:30,760 --> 00:24:34,760 Speaker 8: likely to feel actually, the world's twenty percent more expensive 426 00:24:34,880 --> 00:24:38,080 Speaker 8: than it was three years ago, and my wages haven't 427 00:24:38,119 --> 00:24:41,560 Speaker 8: gone out by twenty percent, So for the median worker, 428 00:24:42,560 --> 00:24:44,840 Speaker 8: you don't feel that things are quite so great here. 429 00:24:44,880 --> 00:24:48,040 Speaker 8: So both of those stories I think are equally true. 430 00:24:49,640 --> 00:24:53,640 Speaker 8: But what we do have, I think is a very 431 00:24:53,800 --> 00:24:57,600 Speaker 8: dynamic economy. And if the pandemic told us anything, it 432 00:24:57,720 --> 00:25:00,440 Speaker 8: was you know, we were chaotic. Every state did it differently. 433 00:25:00,480 --> 00:25:02,679 Speaker 8: We couldn't enforce rules, all of the things that we 434 00:25:02,720 --> 00:25:05,160 Speaker 8: don't like about ourselves, and yet we came out of it, 435 00:25:05,359 --> 00:25:09,040 Speaker 8: I think, pretty strongly, pretty quickly, and our corporate sector 436 00:25:09,160 --> 00:25:11,360 Speaker 8: was able to actually rebalance with a lot of help 437 00:25:11,359 --> 00:25:14,320 Speaker 8: from the government obviously, and I'd say that our rebound 438 00:25:14,560 --> 00:25:17,639 Speaker 8: is a real sign of strength of the fundamentals of 439 00:25:17,680 --> 00:25:18,520 Speaker 8: the US economy. 440 00:25:18,720 --> 00:25:20,479 Speaker 2: David is such a treat always to have you on. 441 00:25:20,520 --> 00:25:22,680 Speaker 2: Thank you so much. That is David Hunt of p 442 00:25:22,880 --> 00:25:27,960 Speaker 2: JIM coming up the path forward for commercial real estate 443 00:25:28,080 --> 00:25:31,080 Speaker 2: with Owen Thomas, chairman and CEO of b XP. 444 00:25:31,840 --> 00:25:35,240 Speaker 9: All CEOs, in my opinion, want their employees to be 445 00:25:35,320 --> 00:25:37,919 Speaker 9: working in person more and one of those carts is 446 00:25:37,960 --> 00:25:39,080 Speaker 9: to be in a great building. 447 00:25:40,720 --> 00:25:42,960 Speaker 2: That's next on Wall Street Week. I'm Bloomberg. 448 00:25:44,040 --> 00:25:48,280 Speaker 1: This is Bloomberg Wall Street Week with David Weston from 449 00:25:48,400 --> 00:25:51,119 Speaker 1: Bloomberg Radio. 450 00:25:55,960 --> 00:25:58,520 Speaker 2: This is Wall Street Week. I'm David Weston. Commercial real 451 00:25:58,600 --> 00:26:01,000 Speaker 2: estate has been among the slow US to recover from 452 00:26:01,000 --> 00:26:04,080 Speaker 2: the pandemic. We talked to b XP chairman and CEO 453 00:26:04,160 --> 00:26:06,800 Speaker 2: Owen Thomas about the path forward for the space. 454 00:26:08,680 --> 00:26:09,720 Speaker 3: It has been a rough time. 455 00:26:09,840 --> 00:26:13,240 Speaker 9: I always say though, perception is worse than reality, and 456 00:26:13,320 --> 00:26:17,639 Speaker 9: commercial real estate is bouncing back. Defined as office, there 457 00:26:17,680 --> 00:26:21,320 Speaker 9: are two external drivers that really drive the office business, 458 00:26:21,320 --> 00:26:24,760 Speaker 9: certainly the business of BXP. One is interest rates and 459 00:26:24,800 --> 00:26:26,520 Speaker 9: the other is corporate earnings growth. 460 00:26:27,040 --> 00:26:29,160 Speaker 3: I think the interest rate story is pretty. 461 00:26:28,880 --> 00:26:33,840 Speaker 9: Obvious, you know, real estate stocks real estate are primarily 462 00:26:33,880 --> 00:26:36,640 Speaker 9: a financial asset, and if the cost of capital is lower, 463 00:26:36,880 --> 00:26:38,720 Speaker 9: those asset assets are worth more. 464 00:26:39,280 --> 00:26:43,120 Speaker 3: You know, we had a very favorable inflation report. 465 00:26:42,880 --> 00:26:45,439 Speaker 9: Last week, and since that came out, and with the 466 00:26:45,480 --> 00:26:47,840 Speaker 9: prospect of more rate cuts and the fact that the 467 00:26:47,920 --> 00:26:52,560 Speaker 9: ten year now is below four point two percent, you know, 468 00:26:52,600 --> 00:26:56,240 Speaker 9: it's really escalated our stock price over the last week. 469 00:26:56,840 --> 00:27:00,760 Speaker 9: The second important driver is corporate earnings growth. Because that leasing. 470 00:27:01,560 --> 00:27:04,400 Speaker 9: In twenty twenty three, the S and P five hundred 471 00:27:04,440 --> 00:27:08,320 Speaker 9: earnings growth was flat and zero. In twenty twenty two 472 00:27:08,359 --> 00:27:11,240 Speaker 9: it was very tipid. But here in twenty twenty four, 473 00:27:11,280 --> 00:27:13,119 Speaker 9: in the first quarter it was up eight percent and 474 00:27:13,160 --> 00:27:15,920 Speaker 9: this quarter is predicted to be even higher. So when 475 00:27:15,920 --> 00:27:19,879 Speaker 9: companies are profitable and they're making money and they're growing 476 00:27:19,920 --> 00:27:22,560 Speaker 9: their earnings, they're more likely to grow higher people and 477 00:27:22,600 --> 00:27:25,760 Speaker 9: take more space. And we're seeing that in our leasing activity. 478 00:27:25,800 --> 00:27:30,200 Speaker 9: In the first quarter at bxp our, the square footage 479 00:27:30,200 --> 00:27:32,600 Speaker 9: that we leased was up thirty percent from the first 480 00:27:32,680 --> 00:27:35,640 Speaker 9: quarter of twenty three, and in the second quarter we're 481 00:27:35,640 --> 00:27:40,159 Speaker 9: seeing continued escalation both in terms of signed leases in 482 00:27:40,240 --> 00:27:41,960 Speaker 9: our pipeline for future. 483 00:27:41,680 --> 00:27:44,120 Speaker 2: Quarters up thirty percent. Boots that off of a low base. 484 00:27:44,200 --> 00:27:46,040 Speaker 9: It was off a low base, yeah, because we went 485 00:27:46,080 --> 00:27:49,960 Speaker 9: through as interest rates went up in twenty twenty two 486 00:27:49,960 --> 00:27:52,080 Speaker 9: and twenty twenty three. You know, as I mentioned, corporate 487 00:27:52,119 --> 00:27:56,320 Speaker 9: earnings growth slowed way down, and when that happens, companies 488 00:27:56,359 --> 00:27:59,199 Speaker 9: aren't growing, they're thinking about waste cut costs, and we 489 00:27:59,200 --> 00:28:01,280 Speaker 9: saw that a lot of BLAEF space got put in 490 00:28:01,280 --> 00:28:03,800 Speaker 9: the market. There wasn't a lot of new requirements in 491 00:28:03,840 --> 00:28:07,120 Speaker 9: the market. But now that the business, the environment around 492 00:28:07,160 --> 00:28:10,560 Speaker 9: corporate earnings is improving, it's improving our leasing because companies 493 00:28:10,600 --> 00:28:11,240 Speaker 9: are growing again. 494 00:28:11,680 --> 00:28:14,240 Speaker 2: So strong corporate earnings make it a little easy to 495 00:28:14,320 --> 00:28:16,320 Speaker 2: hire more people. As you say, yes, you have to 496 00:28:16,359 --> 00:28:18,040 Speaker 2: actually get the people into the office. 497 00:28:18,359 --> 00:28:20,520 Speaker 3: Yes, that's true too. 498 00:28:20,680 --> 00:28:22,960 Speaker 2: How's that going, how's return to agics going? Yeah? 499 00:28:23,040 --> 00:28:25,640 Speaker 9: I do think there's no question that work from home 500 00:28:25,760 --> 00:28:28,280 Speaker 9: has an impact on office demand. I do think in 501 00:28:28,359 --> 00:28:30,919 Speaker 9: the premium sector where we operate, it's a little bit 502 00:28:31,040 --> 00:28:34,320 Speaker 9: less so because the clients that we have generally want 503 00:28:34,359 --> 00:28:38,920 Speaker 9: their employees to be in the office many days per week. 504 00:28:39,200 --> 00:28:43,280 Speaker 9: But in terms of what we actually see, BXP manages 505 00:28:43,320 --> 00:28:46,080 Speaker 9: today about fifty four million square feet and we have 506 00:28:46,800 --> 00:28:50,240 Speaker 9: badge data on about fifty percent of that space. And 507 00:28:50,280 --> 00:28:54,440 Speaker 9: so what we're seeing today versus the last quarter before 508 00:28:54,520 --> 00:28:58,440 Speaker 9: the pandemic is in New York Tuesday to Thursday, on 509 00:28:58,720 --> 00:29:03,920 Speaker 9: buildings that are comparably leased, the visitation is the same. So, 510 00:29:03,960 --> 00:29:06,840 Speaker 9: in other words, the badge swipes haven't diminished at all. 511 00:29:06,880 --> 00:29:09,960 Speaker 9: So Tuesday to Thursday New York is back, and Monday 512 00:29:10,040 --> 00:29:13,400 Speaker 9: is coming up slowly and Friday is very slow. By 513 00:29:13,400 --> 00:29:15,200 Speaker 9: the way Friday was slowing down before. 514 00:29:14,960 --> 00:29:17,000 Speaker 3: The pandemic, but it's definitely slower today. 515 00:29:17,560 --> 00:29:21,320 Speaker 9: So that number in Boston is about eighty percent, also rising. 516 00:29:21,400 --> 00:29:25,120 Speaker 9: So Boston is also improving Tuesday to Thursday, and then 517 00:29:25,280 --> 00:29:28,960 Speaker 9: San Francisco lags. It's at fifty two percent, but again 518 00:29:29,040 --> 00:29:31,959 Speaker 9: that is slowly improving. And the other thing that we 519 00:29:32,000 --> 00:29:34,520 Speaker 9: see in the data is that if you look at 520 00:29:34,520 --> 00:29:38,840 Speaker 9: the unique weekly visits of a worker, that gap between 521 00:29:38,840 --> 00:29:42,320 Speaker 9: the East and the West Coast is less. However, those 522 00:29:42,760 --> 00:29:46,080 Speaker 9: individuals are coming into the office fewer days per week 523 00:29:46,200 --> 00:29:48,400 Speaker 9: on the West Coast than they are in New York 524 00:29:48,480 --> 00:29:48,960 Speaker 9: or Boston. 525 00:29:49,560 --> 00:29:51,080 Speaker 2: When it comes to the stock market, it has been 526 00:29:51,120 --> 00:29:54,280 Speaker 2: driven so much this year by that so called Magnificent seven, Yes, 527 00:29:54,280 --> 00:29:55,880 Speaker 2: which seems to be a lot of it related to 528 00:29:56,080 --> 00:29:57,080 Speaker 2: artificial intelligence. 529 00:29:57,160 --> 00:29:57,400 Speaker 3: Yes. 530 00:29:57,560 --> 00:30:00,200 Speaker 2: Is that spilling over into commercial real estate market? 531 00:30:00,360 --> 00:30:01,360 Speaker 3: It is? It is. 532 00:30:01,600 --> 00:30:05,920 Speaker 9: So if you look overall in space demand today, I 533 00:30:05,920 --> 00:30:09,320 Speaker 9: actually would say the technology companies is the biggest gap. 534 00:30:10,560 --> 00:30:13,760 Speaker 9: We see most of the demand today coming from financial 535 00:30:13,760 --> 00:30:18,560 Speaker 9: services companies, law firms, professional service firms, and the technology 536 00:30:18,600 --> 00:30:22,000 Speaker 9: companies are not leasing space at nearly the level that 537 00:30:22,040 --> 00:30:26,040 Speaker 9: they were before or during the pandemic. Primarily driven by 538 00:30:26,040 --> 00:30:29,920 Speaker 9: the large tech companies. However, in San Francisco, to your point, David, 539 00:30:29,960 --> 00:30:33,240 Speaker 9: there are a number of AI companies, small startups and 540 00:30:33,320 --> 00:30:36,680 Speaker 9: medium sized companies that are taking space. I think the 541 00:30:36,720 --> 00:30:40,280 Speaker 9: net absorption from those companies over the last year eighteen 542 00:30:40,360 --> 00:30:42,760 Speaker 9: months has been about two to three million square feet. 543 00:30:43,160 --> 00:30:46,960 Speaker 9: And also interestingly, those workers are in the office I 544 00:30:47,000 --> 00:30:48,920 Speaker 9: think in many cases up to five days a week. 545 00:30:49,320 --> 00:30:51,520 Speaker 2: So when you get a new project, the three forty 546 00:30:51,600 --> 00:30:54,400 Speaker 2: one matters in Otherwise, is the financing there for it? 547 00:30:54,760 --> 00:30:56,920 Speaker 3: Yes, so great question. 548 00:30:57,080 --> 00:30:59,120 Speaker 9: So on the financing, I think you have to divide 549 00:30:59,120 --> 00:31:03,200 Speaker 9: it between the private market and mortgage financing that's secured 550 00:31:03,240 --> 00:31:07,120 Speaker 9: by the properties, and also the public unsecured market. So 551 00:31:07,160 --> 00:31:09,800 Speaker 9: on the private side and mortgages, it's challenging. You know, 552 00:31:09,840 --> 00:31:15,880 Speaker 9: there are many banks, insurance companies, other lenders that are 553 00:31:15,920 --> 00:31:18,640 Speaker 9: not getting repayments of their office loans and therefore they 554 00:31:18,640 --> 00:31:22,320 Speaker 9: don't have fresh capital to lend on new office projects. 555 00:31:22,360 --> 00:31:24,760 Speaker 9: It's very hard to get. We did a very large 556 00:31:25,320 --> 00:31:29,800 Speaker 9: secured mortgage financing last year on an ironclad building in 557 00:31:30,360 --> 00:31:33,160 Speaker 9: East Cambridge and we didn't get a quote from a 558 00:31:33,240 --> 00:31:36,640 Speaker 9: US lender. We ended up closing the deal with European 559 00:31:36,880 --> 00:31:38,600 Speaker 9: and Asian lenders. 560 00:31:39,080 --> 00:31:42,160 Speaker 3: So that's on the private secured side. 561 00:31:42,200 --> 00:31:44,640 Speaker 9: But if you look at the unsecured market, you know 562 00:31:44,680 --> 00:31:47,000 Speaker 9: there are a handful of well, there are many ruts 563 00:31:47,040 --> 00:31:49,840 Speaker 9: that are investment grade or not investment grade rated, and 564 00:31:49,840 --> 00:31:54,560 Speaker 9: they're funding themselves in the public investment grade bond market, 565 00:31:54,600 --> 00:31:57,200 Speaker 9: which is what we do, and so we have access 566 00:31:57,240 --> 00:32:01,720 Speaker 9: to that market. In fact, are spread are at long 567 00:32:01,840 --> 00:32:04,680 Speaker 9: term averages, so we're you know, not being per se 568 00:32:04,760 --> 00:32:07,800 Speaker 9: penalized for being an office company in that market. The 569 00:32:07,840 --> 00:32:10,200 Speaker 9: overall cost of the financing is a lot higher than 570 00:32:10,240 --> 00:32:13,040 Speaker 9: it used to be, just because the ten year treasury 571 00:32:13,120 --> 00:32:14,600 Speaker 9: rate is much higher than it was two or three 572 00:32:14,680 --> 00:32:15,040 Speaker 9: years ago. 573 00:32:15,120 --> 00:32:16,840 Speaker 2: Go back to your Cambridge building in for a second. 574 00:32:18,080 --> 00:32:22,240 Speaker 2: No domestic bidders for it done, so it came from overseas. 575 00:32:22,400 --> 00:32:24,680 Speaker 2: Is that a larger trend? Because the United States in 576 00:32:24,720 --> 00:32:26,920 Speaker 2: general is an investment haven right now, you're seeing a 577 00:32:26,920 --> 00:32:28,960 Speaker 2: lot of foreign direction investmor coming in. Does that apply 578 00:32:29,000 --> 00:32:29,920 Speaker 2: to commercial real estate? 579 00:32:30,680 --> 00:32:31,200 Speaker 3: I think so. 580 00:32:31,480 --> 00:32:35,120 Speaker 9: I think that there are buildings that are selling office 581 00:32:35,120 --> 00:32:40,080 Speaker 9: buildings today. I think primarily they are distressed types of 582 00:32:40,120 --> 00:32:44,000 Speaker 9: deals and the buyers tend to be family offices. And 583 00:32:44,240 --> 00:32:48,160 Speaker 9: distressed asset funds, and my guess is the underlying capital 584 00:32:48,200 --> 00:32:51,560 Speaker 9: for those is a mix of both domestic and non 585 00:32:51,680 --> 00:32:55,040 Speaker 9: US sources. But you know, broadening that out, there also 586 00:32:55,320 --> 00:32:59,760 Speaker 9: are large international, sophisticated investors that want to continue to 587 00:32:59,840 --> 00:33:03,959 Speaker 9: invest in US real estate. We announced last year a 588 00:33:04,120 --> 00:33:08,760 Speaker 9: major joint venture with Norgis of the Norwegian Central Bank, 589 00:33:09,000 --> 00:33:11,720 Speaker 9: and they invested seven hundred and fifty million dollars in 590 00:33:11,920 --> 00:33:16,240 Speaker 9: two life science developments that we are completing in East Cambridge, 591 00:33:16,240 --> 00:33:18,520 Speaker 9: and that was obviously a very significant commitment. 592 00:33:19,200 --> 00:33:21,760 Speaker 2: Since we started really talking a lot about commercial real estate, 593 00:33:22,040 --> 00:33:24,480 Speaker 2: there's a lot of emphasis on the premium buildings. You're 594 00:33:24,480 --> 00:33:27,160 Speaker 2: in premium, but there's an A and a B and 595 00:33:27,200 --> 00:33:30,200 Speaker 2: a C and things like that. Is that difference maintaining, 596 00:33:30,400 --> 00:33:33,120 Speaker 2: is it exacerbating? Is it diminishing the distinction? 597 00:33:33,400 --> 00:33:36,959 Speaker 9: Yeah, it's certainly maintaining and maybe even escalating further. So, 598 00:33:37,360 --> 00:33:40,480 Speaker 9: the way we describe it is there's premier workplaces and 599 00:33:40,520 --> 00:33:44,600 Speaker 9: there's everything else. And the premier workplaces we're defining as 600 00:33:45,000 --> 00:33:47,200 Speaker 9: basically the top ten percent. 601 00:33:46,840 --> 00:33:48,240 Speaker 3: Of buildings in our market. 602 00:33:48,600 --> 00:33:50,680 Speaker 9: Those buildings tend to be a little bit larger, so 603 00:33:50,720 --> 00:33:54,160 Speaker 9: it's about fifteen to twenty percent of the space. What 604 00:33:54,320 --> 00:33:56,600 Speaker 9: is the definition of a premier workplace. Well, it's a 605 00:33:56,680 --> 00:34:00,320 Speaker 9: building where if you have an industry leading client would 606 00:34:00,320 --> 00:34:02,800 Speaker 9: be interested in leasing space in the building if it 607 00:34:02,880 --> 00:34:03,560 Speaker 9: was available. 608 00:34:03,880 --> 00:34:05,240 Speaker 3: So it's that top ten percent. 609 00:34:05,320 --> 00:34:08,080 Speaker 9: And if you look at the data for those buildings, 610 00:34:08,400 --> 00:34:11,120 Speaker 9: first of all, the asking rent for that ten percent 611 00:34:11,239 --> 00:34:15,239 Speaker 9: is fifty four percent higher today than the whole the 612 00:34:15,280 --> 00:34:19,600 Speaker 9: other ninety percent, and the vacancy the direct vacancy rate 613 00:34:19,719 --> 00:34:22,359 Speaker 9: is about seven and a half percentage points. It's about 614 00:34:22,360 --> 00:34:27,080 Speaker 9: eleven low elevens percent, which is seven percent seven percentage 615 00:34:27,120 --> 00:34:29,800 Speaker 9: points lower than the rest of the market which is 616 00:34:29,840 --> 00:34:33,160 Speaker 9: at like seventeen or eighteen. And then lastly, the net 617 00:34:33,200 --> 00:34:37,280 Speaker 9: absorption if you look at it for the five central 618 00:34:37,320 --> 00:34:41,360 Speaker 9: business districts where we operate, the net absorption of space 619 00:34:41,480 --> 00:34:44,280 Speaker 9: into that top ten percent has been a positive eight 620 00:34:44,480 --> 00:34:48,319 Speaker 9: plus million square feet, and for everything else it's been 621 00:34:48,600 --> 00:34:50,840 Speaker 9: negative over thirty million square feet. 622 00:34:52,239 --> 00:34:55,840 Speaker 2: It is the XP chairman and CEO Owen Thomas mellow 623 00:34:55,880 --> 00:34:58,400 Speaker 2: Brooks taught us that it is in merchandising that the 624 00:34:58,440 --> 00:35:01,520 Speaker 2: real money from the movie Is is made. This week, 625 00:35:01,560 --> 00:35:03,799 Speaker 2: a lot of people in Paris are hoping that there 626 00:35:03,840 --> 00:35:07,160 Speaker 2: will be real money to be made from selling Olympics merchandise, 627 00:35:07,520 --> 00:35:10,120 Speaker 2: which four years ago is in Tokyo, brought in over 628 00:35:10,200 --> 00:35:13,000 Speaker 2: one hundred and twenty seven million dollars for that Olympics, 629 00:35:13,520 --> 00:35:15,799 Speaker 2: and they'll need every penny of that to help cover 630 00:35:15,880 --> 00:35:19,360 Speaker 2: the Paris operating budget of over four point three billion dollars. 631 00:35:19,960 --> 00:35:22,799 Speaker 2: If Paris wants to get some real money for merchandising, 632 00:35:22,920 --> 00:35:25,920 Speaker 2: maybe they should get a celebrity or two involved, like 633 00:35:26,000 --> 00:35:28,920 Speaker 2: George Clooney, who with a friend put together a tequila 634 00:35:29,000 --> 00:35:32,600 Speaker 2: brand he sold after four years for one billion dollars. 635 00:35:32,960 --> 00:35:36,560 Speaker 8: Everything about Kosamigos's real is nothing made up. George and 636 00:35:36,640 --> 00:35:38,640 Speaker 8: I signed every batche will sign because we want to 637 00:35:38,680 --> 00:35:40,719 Speaker 8: make sure that it's exactly what it's supposed to be. 638 00:35:41,560 --> 00:35:44,680 Speaker 2: Then there's the new Louis Vitan Timberland boots going for 639 00:35:44,760 --> 00:35:47,919 Speaker 2: a mere twenty eight hundred and fifty dollars for the pair. 640 00:35:48,640 --> 00:35:52,000 Speaker 2: Master Marketer Elon Musk appears to be raking in plenty 641 00:35:52,000 --> 00:35:55,280 Speaker 2: of real money from a wide range of merchandise, including 642 00:35:55,640 --> 00:36:00,279 Speaker 2: everything from spacesuit onesies for infants with SpaceX logo on 643 00:36:00,320 --> 00:36:04,719 Speaker 2: the sleeve to a men's fragrance named Burnt hare described 644 00:36:04,760 --> 00:36:08,960 Speaker 2: as quote the essence of repugnant desire to a cyber 645 00:36:09,000 --> 00:36:12,239 Speaker 2: truck inspired cat bed. And now, for all of those 646 00:36:12,320 --> 00:36:14,799 Speaker 2: wanting to try their own hand at making some real 647 00:36:14,880 --> 00:36:18,520 Speaker 2: money for merchandising the way George Clooney and Elon Musk have, 648 00:36:18,920 --> 00:36:21,360 Speaker 2: you can go to Harvard to learn how. For a 649 00:36:21,400 --> 00:36:25,120 Speaker 2: mere twelve thousand dollars, you can take Professor Anita Elberse's 650 00:36:25,160 --> 00:36:28,600 Speaker 2: four day course That's the Business of Entertainment, Media and 651 00:36:28,640 --> 00:36:32,440 Speaker 2: Sports and study everything from David Beckham's brand management to 652 00:36:32,520 --> 00:36:35,920 Speaker 2: how Beyonce launches her new albums. But you'll have to 653 00:36:35,960 --> 00:36:39,160 Speaker 2: get in line behind executors from Hollywood and Madison Avenue, 654 00:36:39,360 --> 00:36:43,640 Speaker 2: as well as Channing Tatum and ll Coolja. It's a 655 00:36:43,680 --> 00:36:46,480 Speaker 2: safe bet, however, that one person who will not be 656 00:36:46,600 --> 00:36:49,840 Speaker 2: needing any fancy Harvard course is the marketer in chief. 657 00:36:50,120 --> 00:36:52,360 Speaker 2: He is, of course, the former President of the United States, 658 00:36:52,400 --> 00:36:55,800 Speaker 2: Donald J. Trump, whose red Maga hats and other clothing 659 00:36:55,840 --> 00:37:00,600 Speaker 2: have become ubiquitous. According to website Chummy Tees, Online searches 660 00:37:00,640 --> 00:37:03,240 Speaker 2: for the former president's T shirts spiked by over seven 661 00:37:03,480 --> 00:37:07,160 Speaker 2: thousand percent after that attempt on his life in Pennsylvania. 662 00:37:07,600 --> 00:37:10,440 Speaker 2: That is the largest spike in searches and clicks to 663 00:37:10,520 --> 00:37:13,440 Speaker 2: our website we've ever seen, they say. And if that 664 00:37:13,520 --> 00:37:16,880 Speaker 2: weren't enough, Axios reports that a Trump owned company was 665 00:37:16,960 --> 00:37:20,640 Speaker 2: out with limited edition sneakers that include on the shoes 666 00:37:20,680 --> 00:37:23,759 Speaker 2: a picture of mister Trump right after the shooting with 667 00:37:23,880 --> 00:37:26,640 Speaker 2: blood on his face. And for your two hundred and 668 00:37:26,680 --> 00:37:29,239 Speaker 2: ninety nine dollars, you'll get not only the sneakers, but 669 00:37:29,360 --> 00:37:31,839 Speaker 2: a chance to get one of ten pairs that will 670 00:37:31,840 --> 00:37:35,400 Speaker 2: be autographed by the former president and given out at random. 671 00:37:36,120 --> 00:37:38,880 Speaker 2: So Vice President Harris is now in a fierce contests 672 00:37:38,960 --> 00:37:42,200 Speaker 2: not only for votes, but to win the merchandise competition. 673 00:37:42,680 --> 00:37:45,719 Speaker 2: She's playing from behind, but her supporters had unofficial T 674 00:37:45,880 --> 00:37:49,440 Speaker 2: shirts and water bottles online within minutes of President Biden's 675 00:37:49,480 --> 00:37:53,040 Speaker 2: announcement last Sunday, and it took her new campaign only 676 00:37:53,080 --> 00:37:56,080 Speaker 2: twelve hours to get the real merch out there. But 677 00:37:56,160 --> 00:37:58,239 Speaker 2: to make sure she comes out on top, she might 678 00:37:58,280 --> 00:38:00,560 Speaker 2: want to take another look at the greatest movie about 679 00:38:00,600 --> 00:38:04,480 Speaker 2: merchandising of all time. We've been down this aisle already. 680 00:38:04,520 --> 00:38:06,440 Speaker 3: We've never been down this isle. It's pain. 681 00:38:13,120 --> 00:38:14,000 Speaker 9: Church brought me. 682 00:38:14,440 --> 00:38:15,279 Speaker 2: I'm a married spot. 683 00:38:15,280 --> 00:38:16,800 Speaker 3: I'm a marriage spot. 684 00:38:17,239 --> 00:38:19,080 Speaker 2: That does it for this episode of Wall Streight Week. 685 00:38:19,200 --> 00:38:27,360 Speaker 2: I'm David Weston. This is Bloomberg. See you next week.