WEBVTT - Credit Crunch, ETFs, Oil, and Apple 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day, we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.360 --> 0:00:20.480 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:20.920 --> 0:00:24.599 All right, let's switch gears to real estate, and we 0:00:24.640 --> 0:00:26.400 can do that because I've got a lot of questions 0:00:26.440 --> 0:00:29.200 about real estate, particularly because half of midtown Manhattan nobody's 0:00:29.240 --> 0:00:31.960 in their office buildings, So we want to get to 0:00:32.000 --> 0:00:35.800 the bottom of that. Lisa Nie, she is managing partner 0:00:35.880 --> 0:00:38.199 of real estate at Eisner Amper. I'm taking that as 0:00:38.240 --> 0:00:41.480 a promotion, dude, managing partner anywhere you go, managing partner 0:00:41.560 --> 0:00:43.640 is big. But she helps us kind of think about 0:00:43.640 --> 0:00:45.800 what's going on in the real estate sector. She's at 0:00:45.800 --> 0:00:49.559 Eisner Amper, So Lisa talk to us about kind of 0:00:49.560 --> 0:00:52.080 where we are with the real estate market today. We 0:00:52.240 --> 0:00:54.520 are on the other side of the pandemic that's in 0:00:54.600 --> 0:00:58.160 the rear view. The world's back to normal on so 0:00:58.240 --> 0:01:00.600 many metrics. Where are we in real estate? Yeah? 0:01:00.600 --> 0:01:00.920 Thank you? 0:01:00.960 --> 0:01:01.480 For having me. 0:01:01.560 --> 0:01:03.400 But that's that's a great point and a great question. 0:01:03.720 --> 0:01:05.600 But let's put a little bit of landscape on that. 0:01:05.680 --> 0:01:07.919 So everyone's worried about where we are in office space, 0:01:08.120 --> 0:01:11.120 but when we look back, it's a supply and demand problem. 0:01:11.240 --> 0:01:12.320 And you go back. 0:01:12.440 --> 0:01:14.880 Even to the nineteen nineties. I don't know if you remember, 0:01:14.959 --> 0:01:17.640 but there was the sea through office problem, so the 0:01:17.720 --> 0:01:20.840 offices were empty. People weren't in those office buildings in 0:01:20.920 --> 0:01:23.920 nineteen ninety. We had too much supply at that point, 0:01:24.080 --> 0:01:26.520 and then as we've sort of grown over the last 0:01:26.560 --> 0:01:29.840 couple of years, the pandemic is one of many problems 0:01:29.840 --> 0:01:32.000 that office has had. First we started with it was 0:01:32.040 --> 0:01:33.880 three hundred square foot of person, and then it went 0:01:33.880 --> 0:01:37.000 down to one hundred square feed. Then we started doing hotel, 0:01:37.240 --> 0:01:39.840 so now we needed less people in the space. Then 0:01:39.840 --> 0:01:43.280 when you start looking at office open space concept, exactly 0:01:43.280 --> 0:01:45.119 what we have at Bloomberg, exactly what we. 0:01:45.120 --> 0:01:47.120 Might get that in nineteen eighty two, by the way, 0:01:47.160 --> 0:01:51.080 before like Zuckerberg was even born, before there was an Internet, 0:01:51.280 --> 0:01:52.200 I was doing. 0:01:52.120 --> 0:01:55.600 Fully space, so that's also less space. And then we looked, 0:01:55.760 --> 0:01:59.000 you know, I'm in a service profession. We had libraries, 0:01:59.240 --> 0:02:02.920 we had file rooms, file cabinets. You don't have any 0:02:02.960 --> 0:02:05.240 of that. So that was four problems that were happening 0:02:05.320 --> 0:02:08.160 with office before we even got to the pandemic, which 0:02:08.200 --> 0:02:10.920 is now a behavioral issue of where are we at 0:02:11.000 --> 0:02:13.639 when where we need that hybrid office space? So what's 0:02:13.680 --> 0:02:16.520 the nail on the coffin and where's that equilibrium of 0:02:16.560 --> 0:02:19.520 what really people need for space to do their jobs. 0:02:19.720 --> 0:02:22.440 And I think that's that realignment right now is what 0:02:22.680 --> 0:02:25.080 the pain we're having, and no one's able to figure 0:02:25.080 --> 0:02:27.360 out where we're going to solve that. And so that's 0:02:27.440 --> 0:02:30.559 why you hear about Crepsy's watch list and the delinquency 0:02:30.680 --> 0:02:33.400 rate for the mortgages is going up. People are giving 0:02:33.480 --> 0:02:36.280 back office buildings here in New York. And it's not 0:02:36.440 --> 0:02:39.240 because they don't believe or that they don't have the 0:02:39.280 --> 0:02:41.640 capital to invest. They just don't think that that is 0:02:41.680 --> 0:02:44.280 a good investment right now of their capital. And so 0:02:44.360 --> 0:02:47.600 I think that's where we're sitting with office, well the core. 0:02:47.440 --> 0:02:50.120 Of any kind of investment. Paul will agree to this 0:02:50.200 --> 0:02:54.120 as timing right, it's kind of forecasting exactly how long 0:02:54.160 --> 0:02:56.000 that trend is going to last. And it feels like 0:02:56.040 --> 0:02:58.200 when we talk about commercial real estate. This idea of 0:02:58.600 --> 0:03:01.320 hybrid work or hybrid lie or whatever it is something 0:03:01.639 --> 0:03:05.840 still kind of registers as temporary when you are valuing 0:03:05.880 --> 0:03:09.440 commercial real estate or looking at it. Is this something 0:03:09.480 --> 0:03:11.400 that we're going to be still talking about in ten 0:03:11.480 --> 0:03:13.000 years time or is this something that's going to kind 0:03:13.000 --> 0:03:14.919 of maybe dissipate once this recession hits. 0:03:15.000 --> 0:03:17.520 So real estate's cyclical, so we can talk about retail, 0:03:17.560 --> 0:03:20.639 we can talk about multi family, single family, and it's 0:03:20.639 --> 0:03:23.160 all pretty cyclical, and we don't really know the value 0:03:23.160 --> 0:03:25.200 of real estate because there's not a lot of transactions 0:03:25.200 --> 0:03:27.960 happening right now. So to your point, we don't know 0:03:28.000 --> 0:03:30.720 where things are going to end up with office or 0:03:30.760 --> 0:03:33.320 with any of the sectors of real estate. And that's 0:03:33.320 --> 0:03:35.160 what people are waiting for, is when is the trading 0:03:35.200 --> 0:03:37.840 going to happen so I know the value And it's 0:03:37.880 --> 0:03:41.200 a behavioral issue of when are people going to come back? 0:03:41.560 --> 0:03:43.400 It's more of remember, really, when you think about an 0:03:43.440 --> 0:03:47.040 office building, you are leasing it for seven days of 0:03:47.040 --> 0:03:48.720 a week, but you were only ever using it for 0:03:48.760 --> 0:03:51.080 five and now you're at two or three. So it 0:03:51.120 --> 0:03:54.800 was a unique rental or a unique acquisition to begin with. 0:03:55.160 --> 0:03:57.560 So where's that behavioral and where does the pencil mark 0:03:57.600 --> 0:03:59.560 out what am I going to pay for that office 0:04:00.120 --> 0:04:01.880 lease if I'm only using it two to three days 0:04:01.920 --> 0:04:04.400 a week. To your point, it's valuation exactly. 0:04:04.440 --> 0:04:06.280 And do we have any evidence yet? I don't know 0:04:06.280 --> 0:04:10.920 when if there's a big waterfall of leases expiring and 0:04:10.960 --> 0:04:14.880 renewing in New York or San Francisco or Chicago, is 0:04:14.880 --> 0:04:17.400 there a year or a time when we're going to 0:04:17.440 --> 0:04:19.960 get a really good market sense of where the market is, 0:04:20.000 --> 0:04:22.440 Like you can tell me like five jillion square feet 0:04:22.440 --> 0:04:23.880 are going to come up for renewal next year in 0:04:23.880 --> 0:04:26.640 New York. And the question is is it down twenty percent? 0:04:26.760 --> 0:04:29.200 Is down thirty percent? Do we have any sense of 0:04:29.240 --> 0:04:30.680 when we're going to get that or is it just 0:04:30.760 --> 0:04:31.560 kind of over time. 0:04:31.800 --> 0:04:34.400 So that's a great question because the realignment is two things. 0:04:34.440 --> 0:04:36.880 It's the expiration of your mortgages and it's the expiration 0:04:36.920 --> 0:04:39.360 of leases. Mortgages we can tell because we know when 0:04:39.600 --> 0:04:41.120 when the debt cycle is going to come up, and 0:04:41.160 --> 0:04:43.080 we know when it is the lease is that's going 0:04:43.120 --> 0:04:44.920 to be a slow bleed because we don't know when 0:04:44.920 --> 0:04:46.880 people are going to start giving back or what their 0:04:46.920 --> 0:04:50.080 needs are, and so that's where the uncertainty is that 0:04:50.520 --> 0:04:52.760 credit worthy tenant that people were so excited to have 0:04:52.839 --> 0:04:55.720 into their space. We don't know how much space they're 0:04:55.760 --> 0:04:57.800 going to take back and when those leases are going 0:04:57.839 --> 0:04:59.880 to start to expire within the building. And so that's 0:05:00.760 --> 0:05:03.960 your point is exact onto that's the uncertainty. 0:05:04.800 --> 0:05:07.279 What about kind of all the talk we hear about 0:05:07.520 --> 0:05:09.880 that this banking turmoil that we've talked about in the community 0:05:09.920 --> 0:05:13.960 banks is ultimately going to have this big ripple effect 0:05:14.000 --> 0:05:17.800 in commercial real estate. One has that kicked off, are 0:05:17.800 --> 0:05:19.800 we seeing that? Are we going to see that? How 0:05:19.800 --> 0:05:22.840 are you viewing it as someone who's part of this industry? 0:05:23.960 --> 0:05:26.240 So that that is going to have a huge impact, 0:05:26.279 --> 0:05:28.640 and it's part of what the regulators within the banking 0:05:28.640 --> 0:05:30.760 community are going to allow the banks to have on 0:05:30.800 --> 0:05:33.760 their balance sheets and where underwriting is. And so they're 0:05:33.800 --> 0:05:37.080 all very skittish, they're skittish to invest back in there. 0:05:37.120 --> 0:05:40.599 And so as the mortgagees come back up, somebody's going 0:05:40.640 --> 0:05:42.839 to have to put capital back in and infuse capital 0:05:42.920 --> 0:05:46.279 back into those buildings, because if you had a hedge, 0:05:46.400 --> 0:05:49.000 or if they're for the interest rate environment, somebody has 0:05:49.040 --> 0:05:51.080 to come up with that capital, and the banks most 0:05:51.120 --> 0:05:53.120 likely are going to keep a very low loan to 0:05:53.200 --> 0:05:55.680 value ratio. They don't want to take the properties back, 0:05:55.720 --> 0:05:57.280 they don't want to put them on the balance sheet, 0:05:57.400 --> 0:05:59.599 and they absolutely don't want to write down their balance 0:05:59.640 --> 0:06:02.479 sheets for those discounts. And so there is going to 0:06:02.560 --> 0:06:05.120 be a point where the banks, and this the banking 0:06:05.160 --> 0:06:07.520 industry is going to have a huge role as to 0:06:08.080 --> 0:06:09.920 when they go out there. Are they going to sell 0:06:09.960 --> 0:06:13.159 portfolios of loans that's very expensive. Are they going to 0:06:13.160 --> 0:06:15.320 give back the buildings one at a time? The banks 0:06:15.320 --> 0:06:17.760 don't want to run those buildings, and so the regulators 0:06:17.800 --> 0:06:22.400 are going to keep really really strict lending restrictions going forward, 0:06:22.640 --> 0:06:24.400 and certainly they're going to be looking at what's on 0:06:24.440 --> 0:06:27.279 the balance sheets of those banks right now and be 0:06:27.520 --> 0:06:28.960 very concerned about. 0:06:28.760 --> 0:06:31.040 Uh boy, is how they do that. I just feel 0:06:31.040 --> 0:06:32.760 like this is can get worse before it gets better. 0:06:32.839 --> 0:06:34.960 Lisa Nie, thanks so much for joining us. Lisa Nie 0:06:35.040 --> 0:06:37.800 is the managing partner of real estate at Eisner Amper, 0:06:38.360 --> 0:06:41.200 joining us live in our Bloomberg Interactive Broker studio. Talking 0:06:41.200 --> 0:06:43.520 about that the commercial real estate is some tough times 0:06:43.760 --> 0:06:44.839 and some tough times ahead. 0:06:46.839 --> 0:06:50.680 You're listening to the Team Ken's live program Bloomberg Markets 0:06:50.720 --> 0:06:53.839 weekdays at ten am Eastern on Bloomberg dot com, the 0:06:53.920 --> 0:06:57.039 iHeartRadio app and the Bloomberg Business app, or listen on 0:06:57.120 --> 0:06:59.719 demand wherever you get your podcasts. 0:07:01.080 --> 0:07:04.280 Pretty you know, on the Mount rushmore of work from Home. 0:07:04.880 --> 0:07:07.640 The two of the founding members, Yeah, to be our 0:07:07.720 --> 0:07:08.200 next guest. 0:07:08.440 --> 0:07:10.400 I used to sit between both of them. 0:07:10.760 --> 0:07:11.320 Really, yeah. 0:07:11.400 --> 0:07:12.880 My desk was nestled right in between. 0:07:13.000 --> 0:07:15.200 I have such huge respect for these guys and how 0:07:15.200 --> 0:07:18.600 they're doing their business these days. Cameron Christ and Vince Cignirella. 0:07:19.160 --> 0:07:22.080 They cover their macro strategists. They write some really good 0:07:22.240 --> 0:07:25.040 smart stuff on these markets. They talk to a lot 0:07:25.080 --> 0:07:27.360 of smart people and we get a few minutes of 0:07:27.400 --> 0:07:28.480 their time every once in a while. 0:07:28.360 --> 0:07:30.920 And went together every once in a while they're even right, 0:07:31.120 --> 0:07:31.760 and every once. 0:07:31.600 --> 0:07:33.040 In a while they're even right. But to get them 0:07:33.040 --> 0:07:36.400 together at one spot is big, camer I want to 0:07:36.440 --> 0:07:38.920 start with you here. Matt Miller just walked in. You know, 0:07:38.960 --> 0:07:40.520 he starts his day a little bit. Lady gets in 0:07:40.520 --> 0:07:42.600 here around ten thirty. But he walked in here with 0:07:42.680 --> 0:07:45.040 his brand new leather jacket, and he says he doesn't 0:07:45.040 --> 0:07:47.640 believe he thinks the FED is not going to raise 0:07:47.720 --> 0:07:50.640 rates this June meeting. Do I should I listen to 0:07:50.680 --> 0:07:51.160 Matt Miller? 0:07:52.200 --> 0:07:55.800 Well, I mean they've basically told you they're not. Philip 0:07:55.840 --> 0:08:01.440 Jefferson is the mooted new vice Erman basically came out 0:08:01.520 --> 0:08:06.560 last week and uh said that they should pause and 0:08:06.600 --> 0:08:10.520 have a look around, not necessarily saying they're gonna it's 0:08:10.560 --> 0:08:14.440 a definitive end, but that they they should they should pause. 0:08:14.520 --> 0:08:17.320 And you know, it's kind of they're like Ef Hutton 0:08:17.320 --> 0:08:19.400 when they talked, you're supposed to you're supposed to listen. 0:08:19.400 --> 0:08:23.200 Pretty pretty won't get that joke, but I know you will, Paula, 0:08:23.240 --> 0:08:25.040 I know Vince will as well. 0:08:25.160 --> 0:08:27.360 See what I had to deal with every day. 0:08:28.400 --> 0:08:30.200 If you guys give us a stick for where we work, 0:08:30.320 --> 0:08:33.719 you know, we can give you, uh you know, let 0:08:33.720 --> 0:08:36.840 it let our experience come to bear. Yeah. So, I 0:08:36.880 --> 0:08:40.679 mean they basically provided some some jawboning over the last 0:08:40.720 --> 0:08:43.320 week or so that June is probably off the table. 0:08:43.400 --> 0:08:46.160 So that's adjusted market pricing, and we're kind of going 0:08:46.200 --> 0:08:50.520 to be left parsing the signals for the second half 0:08:50.559 --> 0:08:52.960 of the year. Right now. Market still thinks there's a 0:08:53.000 --> 0:08:56.239 decent chance that they'll have to go again. But obviously 0:08:57.000 --> 0:09:01.079 things can change, and and today's service services eyes ISM 0:09:01.520 --> 0:09:06.560 provides a less robust or less upbeat signal than we 0:09:06.720 --> 0:09:09.840 had from say, the labor market data last Friday. 0:09:10.400 --> 0:09:12.560 Well, Vin's hop on in here because one of the 0:09:13.160 --> 0:09:18.680 key stark memories of the start of this monetary tightening regime, 0:09:19.000 --> 0:09:21.480 Chairman Powell said over and over and over again, we 0:09:21.520 --> 0:09:23.360 don't want to make the mistake of the seventies. We 0:09:23.360 --> 0:09:25.640 don't want to stop too prematurely, and therefore we're going 0:09:25.679 --> 0:09:29.200 to kind of put our full force behind tightening. And 0:09:29.280 --> 0:09:32.640 yet here we are with a super super hot payrolls 0:09:32.640 --> 0:09:36.960 report on Friday, one trading session later, not even we 0:09:37.040 --> 0:09:40.880 have this ISM data. How does the Federal Reserve in 0:09:40.920 --> 0:09:45.239 that context avoid some sort of vulgar repeat by potentially 0:09:45.360 --> 0:09:46.200 skipping this month. 0:09:47.200 --> 0:09:50.319 Well, you know, I think any comparison to the seventies, 0:09:50.600 --> 0:09:53.760 having sat on guess lines waiting for the ODDI even 0:09:53.840 --> 0:09:57.119 number license plate situation, this is nowhere near the seventies. 0:09:57.440 --> 0:10:01.000 And I think what Powell is speaking about and worrying 0:10:01.000 --> 0:10:04.559 about credibility, it's not credibility that they're going to make 0:10:04.600 --> 0:10:07.600 the mistake of the nineteen seventies, I think realistically, and 0:10:07.640 --> 0:10:09.280 he's not emitting it. They don't want to make the 0:10:09.320 --> 0:10:13.040 mistake they made with calling inflation transient. They're trying to 0:10:13.080 --> 0:10:15.360 catch up for a major mistake they made through the pandemic, 0:10:15.440 --> 0:10:18.400 and not to be fair to them, wasn't so much 0:10:18.400 --> 0:10:20.520 of their mistake as much as it was the fiscal 0:10:20.600 --> 0:10:24.800 policy of overstimulating the economy at that time. Now, all 0:10:24.840 --> 0:10:27.040 well and good, it was necessary, but then when the 0:10:27.040 --> 0:10:30.200 economy started a turn, there was no movement interest rates 0:10:30.240 --> 0:10:32.720 and there was no appetite on a federal level to 0:10:32.720 --> 0:10:35.520 take money out of the economy. So now he's faced 0:10:35.559 --> 0:10:40.599 with this dilemma of trying to maintain the Fed's credibility 0:10:40.640 --> 0:10:44.720 that they've actually lost the financial markets and not thinking 0:10:44.720 --> 0:10:48.760 they're very credible at the moment, and trying to walk 0:10:48.800 --> 0:10:53.400 this tightrope between not seeing inflation come down fast enough 0:10:53.400 --> 0:10:57.840 for them and overtightening and perhaps pushing the economy into 0:10:57.840 --> 0:10:59.880 a recession. I will make a note there was a 0:11:00.080 --> 0:11:03.520 you know this headline that's going not at all really 0:11:03.720 --> 0:11:08.439 spoken about the idea of raising capital reserves on banks 0:11:08.559 --> 0:11:12.120 is going to be a very very big draw on 0:11:12.200 --> 0:11:14.840 growth and no one's talking about it and no one's 0:11:14.840 --> 0:11:17.559 seeing it. But when you raise capital reserves on banks, 0:11:18.400 --> 0:11:22.360 that's lending they can't make, and that's not even being discussed. 0:11:22.360 --> 0:11:27.520 So depending upon how high they raise those additional capital 0:11:27.600 --> 0:11:31.280 requirements could be enough tightening that the FED doesn't have 0:11:31.320 --> 0:11:32.120 to do anything else. 0:11:32.520 --> 0:11:36.440 Interesting all right, Cameron, I was on a holiday on Friday, 0:11:36.440 --> 0:11:38.400 so I missed this whole non farm payroll thing. But 0:11:38.480 --> 0:11:41.079 it seems like people want a job. They can get 0:11:41.120 --> 0:11:43.559 a job. You can't have a recession in that kind 0:11:43.559 --> 0:11:44.360 of scenario. 0:11:44.080 --> 0:11:46.079 Can you? 0:11:46.120 --> 0:11:46.200 No? 0:11:46.960 --> 0:11:51.320 You and the thoughts so, but two provisos. One is 0:11:51.360 --> 0:11:55.720 that you often find that the labor data is misleading 0:11:55.920 --> 0:12:01.079 at turns, because it's not like the payroll numbers comprised 0:12:01.400 --> 0:12:05.120 of the BLS calling every business in America and saying 0:12:05.240 --> 0:12:06.880 how many people you I'm going to feel you out 0:12:06.880 --> 0:12:07.360 working for you? 0:12:08.120 --> 0:12:08.280 Right? 0:12:08.360 --> 0:12:10.960 So, there's a lot of statistical techniques that are used 0:12:11.360 --> 0:12:17.800 to estimate a broader conclusion from a relatively limited sample, 0:12:17.920 --> 0:12:20.280 and that works very well in normal circumstances, but at 0:12:20.280 --> 0:12:23.679 turning points you find that these modeling techniques don't work. 0:12:25.000 --> 0:12:27.760 So there is a that's one thing to consider and 0:12:27.800 --> 0:12:30.720 the other is that this economic cycle is likely to 0:12:30.760 --> 0:12:33.520 be very nonlinear. Things will look great and then you'll 0:12:33.520 --> 0:12:37.040 have a wily coyote moment and things will suddenly look 0:12:37.160 --> 0:12:40.199 not very great at all. Now, we thought that there 0:12:40.320 --> 0:12:43.920 was a reasonable probability that that would be the outcome 0:12:44.520 --> 0:12:48.360 of the March banking sector turmoil. The evidence thus far 0:12:48.480 --> 0:12:51.880 is that that hasn't actually been the case. And I'll 0:12:51.920 --> 0:12:54.200 admit had in the air that I thought we would 0:12:54.240 --> 0:12:58.199 have a more immediate and more substantial impact than we've 0:12:58.200 --> 0:13:01.480 seen in the data thus far. That han't been said. 0:13:01.480 --> 0:13:03.240 And this is adding on to sort of Vince's point 0:13:03.360 --> 0:13:06.320 about the transmission of credit, is that we're now at 0:13:06.360 --> 0:13:09.120 the point, now that the dead ceiling nonsense has been resolved, 0:13:09.520 --> 0:13:12.319 where the Treasury is going to be sucking a lot 0:13:12.320 --> 0:13:15.440 of money out of the financial system by issuing a 0:13:15.559 --> 0:13:21.160 veritable everest of Treasury bills, and that is going to 0:13:22.240 --> 0:13:26.160 have an impact. Traditionally, when bank reserves at the FED 0:13:26.720 --> 0:13:30.800 decline substantially, you tend to see lending go down, and 0:13:30.840 --> 0:13:33.839 you tend to see financial markets, certainly the equity market 0:13:34.240 --> 0:13:38.040 go down. At this point, it's indeterminate whether the demand 0:13:38.240 --> 0:13:42.480 for treasury bills will come from bank deposits or from 0:13:42.520 --> 0:13:46.880 money funds, who would then try, you know, essentially take 0:13:46.960 --> 0:13:49.040 money out of the reverse repot facility at the FED 0:13:49.200 --> 0:13:51.160 and use it to buy treasury bills. But it's a 0:13:51.160 --> 0:13:54.559 significant risk that we have to consider moving forwards. 0:13:55.080 --> 0:13:58.640 You know, the irony of Fens and Cam talking to 0:13:58.640 --> 0:14:02.040 me about issue and treasury auctions and stuff like that. 0:14:02.040 --> 0:14:03.960 They actually taught me how to how to interpret them 0:14:03.960 --> 0:14:06.760 back in the day, all that funny jargon stops and 0:14:06.840 --> 0:14:08.120 tails and all that jazz. 0:14:08.440 --> 0:14:10.680 Yeah too, I just wait to read the first two paragraphs. 0:14:10.760 --> 0:14:13.160 Yeah, well, they're usually the ones writing it well. Cam 0:14:13.240 --> 0:14:15.640 following up on that point when it comes to kind 0:14:15.679 --> 0:14:19.400 of issuance and lending, haven't both lending and liquidity kind 0:14:19.400 --> 0:14:22.800 of been on I don't want to say like the drop, 0:14:22.840 --> 0:14:25.280 but like they've been declining significantly in the last couple 0:14:25.280 --> 0:14:27.040 of months because of the banking turmoil. I get your 0:14:27.040 --> 0:14:30.800 point about liquidity, but to marry it with the point 0:14:30.840 --> 0:14:33.360 that Ben's just made about the capital requirements. If lending 0:14:33.480 --> 0:14:36.840 is already dropping, how big of a difference can that 0:14:36.880 --> 0:14:41.440 capital requirement increase really make If there is an appetite 0:14:41.440 --> 0:14:44.320 to lend anyway, Well. 0:14:44.880 --> 0:14:47.840 Again, I think it's it's not the sort of thing 0:14:47.880 --> 0:14:51.400 you're gonna wake up one day and lending will have 0:14:51.520 --> 0:14:57.680 dropped by half a trillion dollars. It will be gradual 0:14:57.880 --> 0:15:04.440 until it's not gradual. And from a financial markets perspective, 0:15:04.600 --> 0:15:06.960 I think it's reserves that are going to be the 0:15:07.160 --> 0:15:11.560 more timely issue to consider, because even though sort of 0:15:11.560 --> 0:15:17.040 bank deposits have dropped over obviously substantially so far this year, 0:15:17.840 --> 0:15:21.880 bank reserves and FED have actually increased as the Treasury 0:15:21.920 --> 0:15:25.880 has drawn down its general account, sort of spending every 0:15:25.960 --> 0:15:29.440 last penny that it had hidden under the FED sofa cushions. 0:15:29.880 --> 0:15:33.520 As that treasury account is built back up through the 0:15:33.560 --> 0:15:35.560 issues of Treasury bills, now there's going to be a 0:15:35.600 --> 0:15:40.080 disproportioned impact on other FED liabilities, the two main components 0:15:40.120 --> 0:15:43.240 of which are these bank reserves and the money fund 0:15:43.320 --> 0:15:46.880 usage of the reverse repot facility, and how which one 0:15:46.960 --> 0:15:51.240 bears the brunt of treasury. Treasury is real rebuilding a 0:15:51.320 --> 0:15:53.240 general account, I think is going to have a significant 0:15:53.240 --> 0:15:58.840 impact on financial markets more broadly and liquidic conditions. 0:15:59.400 --> 0:16:01.600 All right, So thirty seconds, Vince, I'm putting you on 0:16:01.640 --> 0:16:04.840 the spot in the context of what Cam just said, 0:16:04.920 --> 0:16:08.880 Vince is like, bring it on. Is there a sense 0:16:09.080 --> 0:16:11.880 then of even more risk taking to get that yield, 0:16:11.920 --> 0:16:13.960 to get that carry? What are you seeing in that 0:16:14.040 --> 0:16:15.000 thirty seconds? 0:16:15.680 --> 0:16:17.920 Real quick? I will tell you this, Like you looked 0:16:18.040 --> 0:16:21.280 that was up seven hundred on Friday. Yeah, everybody knew 0:16:21.320 --> 0:16:24.120 on Friday this treasury issuance is coming. And this is 0:16:24.160 --> 0:16:29.440 the third lie that media and analysts are pushing. First 0:16:29.440 --> 0:16:31.400 Europe was going to freeze to death, and the death 0:16:31.400 --> 0:16:34.280 ceiling was going to crush us. And now treasury issuance 0:16:34.320 --> 0:16:37.240 is going to blow the lid off interest rates. If 0:16:37.240 --> 0:16:39.440 they go up high enough, there'll be a lot of buyers. 0:16:39.560 --> 0:16:41.800 It's just I think another story. 0:16:42.080 --> 0:16:44.360 All right, guys, thanks very much for joining us. Both 0:16:44.360 --> 0:16:47.480 of you, Cameron Christ and Vince Cignarello, the macro strategists 0:16:47.480 --> 0:16:51.080 with Bloomberg News. They're the work from home kings. They've 0:16:51.160 --> 0:16:53.720 mastered it, and nobody does it better than we appreciate 0:16:54.000 --> 0:16:56.800 getting their time and getting their time together. 0:16:57.160 --> 0:17:00.760 You're listening to the tape Cancer Live program bloom Markets 0:17:00.800 --> 0:17:04.200 weekdays at ten am Eastern on Bloomberg Radio, the tune 0:17:04.240 --> 0:17:07.200 in app, Bloomberg dot Com, and the Bloomberg Business app. 0:17:07.240 --> 0:17:10.040 You can also listen live on Amazon Alexa from our 0:17:10.080 --> 0:17:15.080 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:17:15.720 --> 0:17:17.600 All right, here's one of the biggest trends I've noticed 0:17:17.640 --> 0:17:19.240 over the last five or ten years, which is just 0:17:19.320 --> 0:17:22.040 this whole thing of exchange traded funds. The kids call 0:17:22.080 --> 0:17:25.520 them ETFs. Man, what an exploding business. And our next 0:17:25.560 --> 0:17:28.040 guest was smart enough, you know, twenty some odd years 0:17:28.080 --> 0:17:30.760 ago to kind of get in on this game, Ben Slaven, 0:17:30.880 --> 0:17:34.320 Global head of ETFs at B and Y Mellon asset Servi. 0:17:34.400 --> 0:17:36.919 And that's a pretty good gig. Ben, Thanks so much 0:17:36.960 --> 0:17:40.320 for joining us here in our studio. Here again, I've 0:17:40.359 --> 0:17:44.159 just been awed by the amount of capital going to 0:17:44.240 --> 0:17:47.800 the ETF space just over the last five to ten years. 0:17:47.800 --> 0:17:50.399 It seems like where are we today. Just give us 0:17:50.400 --> 0:17:52.879 an overview of kind of the ETF space in general. 0:17:53.440 --> 0:17:56.080 Well, first of all, thanks for having me back. Look, 0:17:56.160 --> 0:18:00.919 this trend has not abated and actually continue to accelerate. 0:18:01.000 --> 0:18:05.800 So we've seen a huge divergence between investor's appetite to 0:18:05.840 --> 0:18:10.120 put capital into ETFs versus traditionally mutual funds and other 0:18:10.200 --> 0:18:13.240 structures and what we saw really in the last couple 0:18:13.280 --> 0:18:15.919 of years was a significant pickup. So last year was 0:18:15.960 --> 0:18:21.320 the widest gap ever between inflows into ETFs and outflows 0:18:21.359 --> 0:18:24.119 from mutual funds, and that gap was around one point 0:18:24.200 --> 0:18:27.280 five trillion dollars, which is kind of hard to get 0:18:27.280 --> 0:18:29.920 your head wrapped around. But what we're also seeing is 0:18:29.960 --> 0:18:32.879 a little bit you know different under the hood. So 0:18:33.080 --> 0:18:37.080 this equity trade or this equity difference in terms of 0:18:37.119 --> 0:18:40.200 investor preference has you know, been in place for a while, 0:18:40.680 --> 0:18:43.680 and last year we saw a much larger pickup in 0:18:43.680 --> 0:18:47.080 investor adoption of fixed income ETFs and it picked up 0:18:47.119 --> 0:18:50.280 about three percent of market share against mutual funds. And 0:18:50.320 --> 0:18:54.200 that's a huge leap and a shift now showing investors 0:18:54.240 --> 0:18:57.159 widening out their preference for the ETF structure. 0:18:58.600 --> 0:19:01.119 When it comes to ETFs. I mean, the reason for 0:19:01.160 --> 0:19:04.120 a lot of the retail investor based to hop into 0:19:04.160 --> 0:19:06.040 them is liquidity. At the end of the day, access 0:19:06.040 --> 0:19:08.520 things like the bond market or the commodities market, which 0:19:08.560 --> 0:19:11.240 is harder to get to. Are you seeing that kind 0:19:11.240 --> 0:19:14.200 of sustained momentum from that class of investor. 0:19:15.160 --> 0:19:19.119 It's a mix, So retail is absolutely part of it. 0:19:19.920 --> 0:19:25.679 And actually we saw a pretty large uptick, especially in 0:19:25.720 --> 0:19:28.560 the pandemic and kind of the rise of the retail 0:19:28.600 --> 0:19:33.520 trader really adopting thematic ETFs. We saw some of the 0:19:33.560 --> 0:19:36.520 leverage and short ETFs as well catch a lot of 0:19:36.560 --> 0:19:39.720 attention from investors. But also what's changed in the last 0:19:39.720 --> 0:19:43.000 couple of years is certainly the institutional investors are really 0:19:43.040 --> 0:19:46.720 getting involved in ETFs in a big way. So for example, 0:19:46.920 --> 0:19:50.720 that stat I just quoted on fixed income ETFs, Yes, 0:19:50.760 --> 0:19:53.240 it's some retail, but a big piece of that is 0:19:53.280 --> 0:19:57.280 also the institutions jumping in to use ETFs exactly as 0:19:57.280 --> 0:20:00.000 you were just saying as a liquidity vehicle priced discuss 0:20:01.000 --> 0:20:03.119 and in a way to get access to some of 0:20:03.160 --> 0:20:05.800 these harder to reach asset types. 0:20:06.359 --> 0:20:09.720 What type of institutional use is there for ETFs? Is 0:20:09.720 --> 0:20:14.600 it hedge funds? Who uses that? From an introdutional perspective? 0:20:15.040 --> 0:20:18.639