1 00:00:00,760 --> 00:00:04,040 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 2 00:00:04,040 --> 00:00:06,920 Speaker 1: my co host Matt Miller. Every business day, we bring 3 00:00:06,920 --> 00:00:11,520 Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along 4 00:00:11,520 --> 00:00:15,520 Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast 5 00:00:15,600 --> 00:00:18,439 Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and 6 00:00:18,480 --> 00:00:22,680 Speaker 1: at Bloomberg dot com slash podcast. It's a cloud supply chain. 7 00:00:22,840 --> 00:00:26,960 Speaker 1: We haven't that was the thing in twenty twenty still 8 00:00:27,040 --> 00:00:29,960 Speaker 1: twenty and I think part most of twenty twenty two. 9 00:00:29,960 --> 00:00:32,919 Speaker 1: But I don't know if that's the thing anymore. I mean, 10 00:00:32,960 --> 00:00:36,040 Speaker 1: our ships still sitting out there in the ports. I don't. 11 00:00:36,159 --> 00:00:38,760 Speaker 1: Let's go to the Let's go to the absolute source. 12 00:00:39,080 --> 00:00:41,239 Speaker 1: Gene Siroca. He's the executive director of the Port of 13 00:00:41,280 --> 00:00:44,680 Speaker 1: Los Angeles. He is on our Bloomberg Interactive Broker Studio. 14 00:00:44,720 --> 00:00:46,760 Speaker 1: We appreciate it making the trip just to see us. 15 00:00:46,760 --> 00:00:49,279 Speaker 1: I'm sure maybe look at some ships that are off 16 00:00:49,280 --> 00:00:52,199 Speaker 1: the coast of Bayo, New Jersey. Maybe Gene talked to 17 00:00:52,280 --> 00:00:55,480 Speaker 1: us about LA. How are things there? How many ships 18 00:00:55,480 --> 00:00:57,480 Speaker 1: are waiting off the coast? Are you getting stuff to 19 00:00:57,520 --> 00:01:01,200 Speaker 1: the trains into the warehouses? How's it going? Yeah, good morning, 20 00:01:01,200 --> 00:01:05,080 Speaker 1: Paul and Matt. Things that the port look relatively normal. 21 00:01:05,400 --> 00:01:08,039 Speaker 1: That backlog of ships that started at one hundred and 22 00:01:08,120 --> 00:01:10,480 Speaker 1: nine almost at this point last year was worked down 23 00:01:10,480 --> 00:01:13,800 Speaker 1: to single digits by August, while breaking records in five 24 00:01:13,800 --> 00:01:17,319 Speaker 1: of the first seven months, effectively worried about eighty percent 25 00:01:17,440 --> 00:01:20,679 Speaker 1: of throughput capacity. Today the dwell times of how long 26 00:01:20,760 --> 00:01:23,479 Speaker 1: cargo sits before it moves out by truck or rail 27 00:01:23,760 --> 00:01:28,760 Speaker 1: back to pre pandemic points, not the whole supply chain though, right. 28 00:01:28,760 --> 00:01:32,399 Speaker 1: I mean, Jean, you guys are doing your job and 29 00:01:32,440 --> 00:01:35,480 Speaker 1: you've taken care of the mess. You've basically mocked it up. Nonetheless, 30 00:01:36,440 --> 00:01:38,600 Speaker 1: that doesn't mean that the stuff coming in through your 31 00:01:38,640 --> 00:01:41,959 Speaker 1: ports is still completely full of all the chips that 32 00:01:41,959 --> 00:01:44,520 Speaker 1: that stuff needs to be full of. Yeah, chips usually 33 00:01:44,560 --> 00:01:46,840 Speaker 1: take the air freight route. But to your point, Matt, 34 00:01:47,080 --> 00:01:50,760 Speaker 1: the supply chain has still got dislocations globally and here 35 00:01:50,760 --> 00:01:54,520 Speaker 1: in the US, for example, the inventory sales ratio for 36 00:01:54,680 --> 00:01:57,400 Speaker 1: retailers is at about one point three seven from the 37 00:01:57,480 --> 00:02:00,400 Speaker 1: last report of the Saint Louis FED. That's all all 38 00:02:00,440 --> 00:02:04,400 Speaker 1: time highs, but still much of a higher level than 39 00:02:04,520 --> 00:02:06,160 Speaker 1: a lot of folks would see. So if you're like me, 40 00:02:06,240 --> 00:02:09,160 Speaker 1: you're getting email blasts and techs every day from retailers 41 00:02:09,400 --> 00:02:12,040 Speaker 1: with deep discounts, And if you're like me, you're still 42 00:02:12,080 --> 00:02:15,519 Speaker 1: buying right. How about China reopening? I mean, you guys, 43 00:02:16,360 --> 00:02:18,320 Speaker 1: when the ships leave of China, they come right to 44 00:02:18,360 --> 00:02:21,040 Speaker 1: your port. Geane, what do you guys, how are you 45 00:02:21,080 --> 00:02:23,799 Speaker 1: thinking about the reopening of China? You know, it's been 46 00:02:23,840 --> 00:02:27,480 Speaker 1: pretty steady, Paul. Even when there were so many ships 47 00:02:27,560 --> 00:02:30,640 Speaker 1: outside of the port of Shanghai back last summertime and 48 00:02:30,639 --> 00:02:32,480 Speaker 1: folks were saying it's going to be a deluge coming 49 00:02:32,520 --> 00:02:36,040 Speaker 1: across the Pacific, the central government and the Young Shaan 50 00:02:36,120 --> 00:02:38,720 Speaker 1: Deep Seaport in Shanghai, along with Ningbo and other ports, 51 00:02:38,760 --> 00:02:42,200 Speaker 1: prioritized that long leg cargo. So while we may have 52 00:02:42,240 --> 00:02:43,720 Speaker 1: seen a little bit of a dip, a little bit 53 00:02:43,760 --> 00:02:46,359 Speaker 1: of a pickup, that was the extent of it, not 54 00:02:46,400 --> 00:02:49,160 Speaker 1: so much this crush or wave of cargo that's coming 55 00:02:49,200 --> 00:02:52,600 Speaker 1: across the Pacific, but it will ease pressures there domestically 56 00:02:52,639 --> 00:02:57,079 Speaker 1: as well, whether it's land, transport, barge, factory subassembly units. 57 00:02:57,760 --> 00:03:00,799 Speaker 1: All right, So in terms of we'res have you got 58 00:03:00,800 --> 00:03:03,400 Speaker 1: everybody you need? And in terms of price pressures. Have 59 00:03:03,440 --> 00:03:05,679 Speaker 1: you seen a lot of them? Do they continue? Yeah? 60 00:03:05,720 --> 00:03:08,320 Speaker 1: On the worker front, three big segments. As we've talked 61 00:03:08,360 --> 00:03:11,360 Speaker 1: about before, Matt, the dock workers average six days a 62 00:03:11,400 --> 00:03:14,560 Speaker 1: week on the job during all of this import surge. 63 00:03:14,919 --> 00:03:17,880 Speaker 1: They continue to work and the productivity is great. The 64 00:03:17,960 --> 00:03:22,200 Speaker 1: dock worker contract with their employers, the Pacific Maritime Association, 65 00:03:22,320 --> 00:03:26,160 Speaker 1: is now being negotiated for the tenth month. We're at 66 00:03:26,160 --> 00:03:29,959 Speaker 1: the outer edge of where this usually reads some level 67 00:03:30,120 --> 00:03:33,240 Speaker 1: of agreement, but it's not quite there yet. We've got 68 00:03:33,240 --> 00:03:35,760 Speaker 1: to get this contract done because the people that control 69 00:03:35,800 --> 00:03:39,800 Speaker 1: the cargo importers and exporters have shifted their goods to 70 00:03:40,000 --> 00:03:43,800 Speaker 1: East and Gulf Coast ports. Some of that may stick 71 00:03:43,840 --> 00:03:47,520 Speaker 1: permanently on the truck driver's side, pretty good shape, but again, 72 00:03:47,560 --> 00:03:50,680 Speaker 1: you're only running at eighty percent of capacity. Warehouses are 73 00:03:50,680 --> 00:03:53,080 Speaker 1: still pretty full, and that's where a little bit of 74 00:03:53,080 --> 00:03:55,640 Speaker 1: the challenge comes in getting workers. How do you so, 75 00:03:55,960 --> 00:03:58,040 Speaker 1: we did hear stories, and you told us stories over 76 00:03:58,080 --> 00:03:59,800 Speaker 1: the last couple of years about some of that cargo 77 00:04:00,280 --> 00:04:05,120 Speaker 1: to East coast ports. How do you compete for that? 78 00:04:05,320 --> 00:04:07,119 Speaker 1: I presume part of the reason you're in New York 79 00:04:07,200 --> 00:04:10,840 Speaker 1: is talking to some customers and things like that. How 80 00:04:10,880 --> 00:04:14,480 Speaker 1: do you compete with the Norfolks, the Savannahs, the Baltimore 81 00:04:14,760 --> 00:04:16,920 Speaker 1: and of course New York. Yeah, these ports have hired, 82 00:04:17,000 --> 00:04:19,599 Speaker 1: switched on people, they've aligned with their policy makers, and 83 00:04:19,640 --> 00:04:23,440 Speaker 1: they're doing huge investments. We've got to stay ahead of 84 00:04:23,440 --> 00:04:25,880 Speaker 1: the curve. And they have a different union, and they've 85 00:04:25,880 --> 00:04:29,839 Speaker 1: got a different union, that's correct. The International Longshore Association 86 00:04:29,880 --> 00:04:32,440 Speaker 1: covering the East and Gulf Coast has their contract coming 87 00:04:32,520 --> 00:04:36,960 Speaker 1: up for renegotiation next summertime. At this point right now, 88 00:04:37,000 --> 00:04:39,360 Speaker 1: what we've got to do is continue to add value 89 00:04:39,640 --> 00:04:43,280 Speaker 1: where people continue to tell me your costs are too high, 90 00:04:43,400 --> 00:04:47,680 Speaker 1: you've got labor complications, and you're overly regulated in California. 91 00:04:47,760 --> 00:04:50,479 Speaker 1: So we've got a band together and continue to push 92 00:04:50,520 --> 00:04:53,480 Speaker 1: the envelope on these issues because we've got to compete. 93 00:04:53,920 --> 00:04:56,560 Speaker 1: Before the pandemic, forty percent of the nation's imports came 94 00:04:56,600 --> 00:04:58,919 Speaker 1: through this gateway. Now it's down to thirty three percent. 95 00:04:59,279 --> 00:05:01,880 Speaker 1: And the big number for the listeners to remember is 96 00:05:01,920 --> 00:05:04,800 Speaker 1: in two thousand and two, eighty percent of the Transpacific 97 00:05:04,839 --> 00:05:08,440 Speaker 1: trade came through West Coast ports. Today that's fifty six percent. 98 00:05:08,880 --> 00:05:12,719 Speaker 1: So what is the state government in California, for example. 99 00:05:13,640 --> 00:05:17,280 Speaker 1: How do they respond because that's such a natural advantage 100 00:05:17,279 --> 00:05:21,359 Speaker 1: for West Coast ports with this, the Transpacific sounds like 101 00:05:21,360 --> 00:05:24,320 Speaker 1: they respond with way too much regulation as usual. I 102 00:05:24,320 --> 00:05:26,680 Speaker 1: mean you've been there for how many years as now 103 00:05:26,720 --> 00:05:30,640 Speaker 1: on the West Coast. I mean that's part of living 104 00:05:30,640 --> 00:05:34,120 Speaker 1: in California, isn't it? You accept that bad if you 105 00:05:34,160 --> 00:05:36,719 Speaker 1: want to put it that way with the good, which 106 00:05:36,800 --> 00:05:39,440 Speaker 1: is living in such a fantastic place, right. We've got 107 00:05:39,440 --> 00:05:41,640 Speaker 1: to capture the moment here. Never in a generation have 108 00:05:41,720 --> 00:05:44,360 Speaker 1: we seen a linement between the federal, state and local governments. 109 00:05:44,720 --> 00:05:48,120 Speaker 1: The Infrastructure Investment in Jobs Act, the Inflation Reduction Act, 110 00:05:48,200 --> 00:05:53,200 Speaker 1: and the California Governor's budget all have investment ready for 111 00:05:53,360 --> 00:05:56,600 Speaker 1: us at the ports. On the regulatory side, we want 112 00:05:56,600 --> 00:05:59,680 Speaker 1: to get to zero carbon or zero emissions. The technology 113 00:05:59,760 --> 00:06:01,599 Speaker 1: is just not there yet, So we've got to keep 114 00:06:01,600 --> 00:06:04,920 Speaker 1: working with regulators and private sector industry to make these 115 00:06:04,960 --> 00:06:08,560 Speaker 1: investments and encourage create a market maker concept that gets 116 00:06:08,640 --> 00:06:12,279 Speaker 1: manufacturers enticed to us as a customer. Are the carbon 117 00:06:12,440 --> 00:06:14,960 Speaker 1: costs at your level or is that on a shippers level? 118 00:06:15,160 --> 00:06:17,919 Speaker 1: We asked today we saw carbon in Europe go to 119 00:06:17,920 --> 00:06:20,360 Speaker 1: one hundred euros, which is the highest price we've seen 120 00:06:20,400 --> 00:06:23,200 Speaker 1: so far. Right, combination of all three things. So we've 121 00:06:23,200 --> 00:06:25,640 Speaker 1: got a pretty big bucket of money out of Washington, 122 00:06:25,960 --> 00:06:30,479 Speaker 1: another one out of Sacramento. We've put attacks on containers 123 00:06:30,480 --> 00:06:34,239 Speaker 1: coming through to incent cleaner trucks. Yet we can't spend 124 00:06:34,240 --> 00:06:36,279 Speaker 1: the money because the technology is not there yet. We've 125 00:06:36,279 --> 00:06:40,000 Speaker 1: collected about thirty five million dollars on that new container fee, 126 00:06:40,080 --> 00:06:43,159 Speaker 1: and we've only spent about one million. We've got a 127 00:06:43,160 --> 00:06:45,880 Speaker 1: long way to go, both on hydrogen fuel cell electric 128 00:06:45,960 --> 00:06:49,080 Speaker 1: as well as battery electric trucks. They've got to be affordable. 129 00:06:49,120 --> 00:06:51,720 Speaker 1: Today the prices on those rigs are eight to ten 130 00:06:51,800 --> 00:06:54,640 Speaker 1: times more than what the average trucker pays for a 131 00:06:54,800 --> 00:06:57,279 Speaker 1: used diesel. But you've got a fantastic use case for 132 00:06:57,279 --> 00:06:59,200 Speaker 1: those kind of I mean, you've got a ship stuff 133 00:07:00,040 --> 00:07:03,320 Speaker 1: ruck stuff, I should say, rather from the port to 134 00:07:03,400 --> 00:07:06,400 Speaker 1: the warehouses. That's the first place you need to use trucks, right, 135 00:07:06,440 --> 00:07:10,720 Speaker 1: and so you don't need to worry about nationwide electric trucks. 136 00:07:10,760 --> 00:07:13,480 Speaker 1: You can use a number of other alternative sources. That's right. 137 00:07:13,480 --> 00:07:16,240 Speaker 1: About two thirds of the trucks mat that move the 138 00:07:16,280 --> 00:07:17,920 Speaker 1: car will come in and out of the port by 139 00:07:18,000 --> 00:07:20,360 Speaker 1: the third of the cargo goes by rail. But you've 140 00:07:20,360 --> 00:07:22,760 Speaker 1: got to have duty cycle, you got to have torque, 141 00:07:22,880 --> 00:07:25,040 Speaker 1: and you've got to run these trucks. You've got to 142 00:07:25,080 --> 00:07:28,760 Speaker 1: sweat the assets. You cannot waste time charging. The biggest 143 00:07:28,800 --> 00:07:31,320 Speaker 1: bugaboo that we have is that a battery right now 144 00:07:31,320 --> 00:07:33,920 Speaker 1: weighs about sixteen thousand pounds, So you either haul the 145 00:07:33,920 --> 00:07:36,600 Speaker 1: battery or you haul the fright, you can't haul both. 146 00:07:37,160 --> 00:07:40,880 Speaker 1: And the hydrogen fuel cell electric, while really good performance wise, 147 00:07:41,120 --> 00:07:44,880 Speaker 1: still very elevated in pre production stage pricing. So we've 148 00:07:44,920 --> 00:07:46,960 Speaker 1: got to work all this down to the middle. It's 149 00:07:47,000 --> 00:07:48,960 Speaker 1: not going to happen overnight. Wow. And do the East 150 00:07:48,960 --> 00:07:51,720 Speaker 1: Coast ports have the similar challenges. No, they're asking for 151 00:07:51,760 --> 00:07:54,960 Speaker 1: the trucks that we no longer use, wow, as we 152 00:07:55,080 --> 00:07:58,160 Speaker 1: implement cleaner near zero and zero emissions because they don't 153 00:07:58,160 --> 00:08:01,840 Speaker 1: have the same regulatory restraints. That's right. A federal standard 154 00:08:01,880 --> 00:08:04,360 Speaker 1: would be great. California wants to lead the way, they 155 00:08:04,400 --> 00:08:06,600 Speaker 1: want other states to follow. But we've got to bring 156 00:08:06,680 --> 00:08:08,760 Speaker 1: all of these folks together. I want nothing more than 157 00:08:08,880 --> 00:08:11,360 Speaker 1: zero emissions at the port, but we got about be 158 00:08:11,480 --> 00:08:14,840 Speaker 1: smart about how our focus is on accelerating the technology 159 00:08:15,000 --> 00:08:17,560 Speaker 1: and finding the funding streams. Do you have like the 160 00:08:17,560 --> 00:08:20,560 Speaker 1: coolest job in the world. It's always it's always great 161 00:08:20,560 --> 00:08:23,000 Speaker 1: coming to see you guys, and so many things. I 162 00:08:23,040 --> 00:08:24,680 Speaker 1: couldn't keep all the balls in the year. I know 163 00:08:24,920 --> 00:08:27,240 Speaker 1: this whole going green Wait, wait, wait a second. My 164 00:08:27,320 --> 00:08:29,400 Speaker 1: jobs to get stuff off its ships and get it, 165 00:08:29,760 --> 00:08:31,160 Speaker 1: but now I have to do it in a green way. 166 00:08:31,200 --> 00:08:33,559 Speaker 1: But you clearly care about going green as well. I mean, 167 00:08:33,559 --> 00:08:35,839 Speaker 1: it's obviously something that's top of mind for you, right 168 00:08:35,880 --> 00:08:38,800 Speaker 1: and as you transition into this greener technology, that means 169 00:08:38,880 --> 00:08:42,080 Speaker 1: upskilling and reskilling workers for those new jobs. The mechanic 170 00:08:42,400 --> 00:08:45,080 Speaker 1: no longer works with a wrench sheer, he can work 171 00:08:45,120 --> 00:08:48,400 Speaker 1: with a computer. Yeah, Geen Saroka, great stuff as always. 172 00:08:48,559 --> 00:08:50,920 Speaker 1: Jean Stroka, he's the executive director of the Port of 173 00:08:50,960 --> 00:08:53,120 Speaker 1: Los Angeles. He has our go to source for all 174 00:08:53,160 --> 00:08:55,800 Speaker 1: things supply chain. He has been during the entire pandemic. 175 00:08:55,880 --> 00:08:57,840 Speaker 1: We appreciate him taking a few minutes and joining us 176 00:08:57,840 --> 00:09:05,240 Speaker 1: here in our Bloomberg Interactive Broker studio. Mixed day. Here, 177 00:09:05,280 --> 00:09:06,800 Speaker 1: I thought we might get a little bit of a lift, 178 00:09:06,840 --> 00:09:09,160 Speaker 1: but it's kind of mixed here. We got fed minutes 179 00:09:09,200 --> 00:09:13,000 Speaker 1: coming up later today. Michael McKee from Bloomberg Television. He's 180 00:09:13,040 --> 00:09:15,920 Speaker 1: down at DC. He'll have all the details. Let's check 181 00:09:15,960 --> 00:09:19,839 Speaker 1: it with Efan Devitt, chief investment officer of Moneta Group. 182 00:09:20,559 --> 00:09:23,640 Speaker 1: She joins us talk about these markets here. If we're 183 00:09:23,720 --> 00:09:25,720 Speaker 1: kind of at the end of the earning season, which 184 00:09:25,760 --> 00:09:29,199 Speaker 1: getting some of the retailers coming in here, let's kind 185 00:09:29,240 --> 00:09:32,480 Speaker 1: of wrap it up here. What are your takeaways from earnings? 186 00:09:32,480 --> 00:09:34,400 Speaker 1: I know the markets really focused on the FED, but 187 00:09:34,960 --> 00:09:37,120 Speaker 1: let's put into context what we saw this earning season. 188 00:09:38,200 --> 00:09:41,000 Speaker 1: The really interesting thing about this earning season was that 189 00:09:41,320 --> 00:09:45,160 Speaker 1: markets were quite unwilling to punish disappointing earnings where they 190 00:09:45,160 --> 00:09:47,160 Speaker 1: fell shorts. We saw that with the big tech stalks, 191 00:09:47,520 --> 00:09:50,240 Speaker 1: with quite a bit of leniency in effect there, and 192 00:09:50,400 --> 00:09:54,000 Speaker 1: that was surprising. It really reflects that overall, that sense 193 00:09:54,040 --> 00:09:57,120 Speaker 1: of fomo, perhaps that sense of markets and participants were 194 00:09:57,160 --> 00:10:01,080 Speaker 1: willing themselves into risk assets and really back to the races, 195 00:10:01,080 --> 00:10:03,400 Speaker 1: which is where they were for most of twenty twenty one. 196 00:10:03,880 --> 00:10:06,679 Speaker 1: So that's interesting. The other parallels that I think it's 197 00:10:06,679 --> 00:10:09,679 Speaker 1: fascinating is that these warnings coming out of retail are 198 00:10:09,720 --> 00:10:12,720 Speaker 1: almost exactly like the warnings we saw coming out at 199 00:10:12,720 --> 00:10:15,760 Speaker 1: the first part of twenty twenty two. We remember Target 200 00:10:15,800 --> 00:10:18,600 Speaker 1: and Walmart's coming out with some forecasts there where they 201 00:10:18,679 --> 00:10:21,959 Speaker 1: talked about building inventory. This is back in the post 202 00:10:21,960 --> 00:10:24,680 Speaker 1: COVID era when we just had the Russian invasion of Ukraine, 203 00:10:25,080 --> 00:10:28,760 Speaker 1: also building inventories, a slacker consumer, and them having all 204 00:10:28,760 --> 00:10:31,640 Speaker 1: this garden furniture that they needed to sell off, and 205 00:10:31,760 --> 00:10:35,920 Speaker 1: this was a trigger of a market weakness in twenty 206 00:10:35,960 --> 00:10:39,680 Speaker 1: twenty two. So we're seeing almost exactly the same pattern 207 00:10:39,760 --> 00:10:43,400 Speaker 1: play out. Now. We're seeing that these retailers have actually 208 00:10:43,440 --> 00:10:46,040 Speaker 1: had pretty good results. The results are core positive, but 209 00:10:46,120 --> 00:10:49,840 Speaker 1: their forecast is negatives. Their expectations are more gloomy. I 210 00:10:49,960 --> 00:10:52,880 Speaker 1: suspect that is them getting some of this bad news 211 00:10:52,880 --> 00:10:56,120 Speaker 1: out of the way first, telegraphing this an advance so 212 00:10:56,160 --> 00:10:58,319 Speaker 1: that they can surprise on the upside later in the year. 213 00:10:58,840 --> 00:11:02,200 Speaker 1: Under promise over ever, always been a great strategy. Is 214 00:11:02,280 --> 00:11:06,480 Speaker 1: this is the bad news, mostly inventory related. They're going 215 00:11:06,520 --> 00:11:09,760 Speaker 1: to have to slash prices. We just heard from Gene Siroca, 216 00:11:09,880 --> 00:11:13,920 Speaker 1: who runs the ports in Well, the biggest ports in 217 00:11:13,960 --> 00:11:17,080 Speaker 1: the US and on the West Coast, saying that you 218 00:11:17,120 --> 00:11:20,559 Speaker 1: know he's seeing dip deep discounts from retailers all over 219 00:11:20,600 --> 00:11:25,000 Speaker 1: the place, or is the bad news that they want 220 00:11:25,000 --> 00:11:26,440 Speaker 1: to get out of the way. We're going to see 221 00:11:26,520 --> 00:11:29,400 Speaker 1: higher rates, business is going to slow down, the consumer 222 00:11:29,440 --> 00:11:32,199 Speaker 1: is going to be hurt. I think it's the ladder. 223 00:11:32,240 --> 00:11:34,760 Speaker 1: It's around the consumer being slackered. For the most part, 224 00:11:34,880 --> 00:11:38,280 Speaker 1: any supply chain issues have been resolved now, their inventory 225 00:11:38,320 --> 00:11:40,560 Speaker 1: was a little bit around the shifting pattern of demand 226 00:11:40,640 --> 00:11:43,720 Speaker 1: around COVID, and certainly the home depot numbers may reflect 227 00:11:43,760 --> 00:11:46,240 Speaker 1: a little bit of that less money being spent on 228 00:11:46,360 --> 00:11:51,080 Speaker 1: home renovation because of maybe they're being simply more money 229 00:11:51,080 --> 00:11:53,040 Speaker 1: to spend on services and getting out of the home. 230 00:11:53,320 --> 00:11:56,280 Speaker 1: So it's around the consumer. We've seen a really stark 231 00:11:56,320 --> 00:11:59,680 Speaker 1: disconnect between hard data and soft data in recent months. 232 00:12:00,000 --> 00:12:02,720 Speaker 1: The hard data has actually been somewhat positive. We've seen 233 00:12:02,800 --> 00:12:05,840 Speaker 1: positive direct direction of travel when it comes to inflation. 234 00:12:06,160 --> 00:12:10,480 Speaker 1: We've also seen quite a positive story and continuing unemployment. 235 00:12:10,760 --> 00:12:13,439 Speaker 1: But it's that soft data, that consumer sentiment that actually 236 00:12:13,480 --> 00:12:16,800 Speaker 1: been depressed for some time. It just hasn't manifested in sales. 237 00:12:16,880 --> 00:12:19,880 Speaker 1: And we saw January with positive retail tales much put 238 00:12:19,960 --> 00:12:23,760 Speaker 1: more positive than November and December. So clearly the consumer 239 00:12:23,880 --> 00:12:26,280 Speaker 1: is still standing, but they're not feeling great about it. 240 00:12:26,720 --> 00:12:28,760 Speaker 1: So that's where the retailers are trying to get ahead 241 00:12:28,760 --> 00:12:31,880 Speaker 1: of it, even just kind of broadly on these markets here. Obviously, 242 00:12:31,920 --> 00:12:34,440 Speaker 1: twenty twenty two in hindsight just such a brutally year 243 00:12:34,480 --> 00:12:37,000 Speaker 1: for both equity investors and maybe even more to the point, 244 00:12:37,040 --> 00:12:41,040 Speaker 1: fixed income investors going into twenty twenty three. How did 245 00:12:41,040 --> 00:12:44,880 Speaker 1: you kind of frame this year for your clients, maybe 246 00:12:44,920 --> 00:12:47,360 Speaker 1: your portfolio managers or your analys and things like that, 247 00:12:47,640 --> 00:12:50,079 Speaker 1: or do you see it differently now because it seems 248 00:12:50,120 --> 00:12:54,439 Speaker 1: like the market changed its mind yesterday. Yeah, well, there's 249 00:12:54,440 --> 00:12:57,080 Speaker 1: certainly a flip flopping of the narrative that we taught 250 00:12:57,120 --> 00:13:00,000 Speaker 1: was the case. We were actually quite interested to see 251 00:13:00,160 --> 00:13:02,160 Speaker 1: US market SIUs perform at the beginning of the year. 252 00:13:02,440 --> 00:13:04,720 Speaker 1: That was something we expected to reverse to some time. 253 00:13:05,080 --> 00:13:07,960 Speaker 1: Now that narrative seems to have ever reversed again. We 254 00:13:08,000 --> 00:13:10,280 Speaker 1: saw a week er dollar. Now it's firming up, so 255 00:13:10,440 --> 00:13:12,800 Speaker 1: all of those things have certainly changed. So may coming 256 00:13:12,800 --> 00:13:15,440 Speaker 1: off a year like twenty two, which is clearly somewhat 257 00:13:15,480 --> 00:13:18,880 Speaker 1: unprecedented in terms of the poor performance of bonds and equities, 258 00:13:19,120 --> 00:13:21,640 Speaker 1: that balanced portfolio was really on its knees at the 259 00:13:21,679 --> 00:13:24,439 Speaker 1: end of twenty two. Clearly we don't see the same 260 00:13:24,800 --> 00:13:27,520 Speaker 1: negativity in the bond market. We're actually quite keen on 261 00:13:27,520 --> 00:13:29,360 Speaker 1: some of them where we can get those yields with 262 00:13:29,600 --> 00:13:33,440 Speaker 1: interesting yields even net and inflation available in bonds where 263 00:13:33,520 --> 00:13:36,199 Speaker 1: encourage our clients not to have their cash set and 264 00:13:36,240 --> 00:13:38,640 Speaker 1: sweet accounts. You want to see that invested at a 265 00:13:38,720 --> 00:13:41,920 Speaker 1: higher yield elsewhere, and because of that inverted yield curve, 266 00:13:42,120 --> 00:13:44,720 Speaker 1: you can get that in pretty short dated paper. So 267 00:13:44,800 --> 00:13:47,880 Speaker 1: we're certainly not seeing the same leg down lightly in bonds. 268 00:13:48,120 --> 00:13:50,360 Speaker 1: As all in all, we're not going to see that 269 00:13:50,440 --> 00:13:52,760 Speaker 1: kind of massive rate hike that we saw on twenty two. 270 00:13:53,120 --> 00:13:55,840 Speaker 1: The bonds are looking interesting. When it comes to equities, 271 00:13:55,880 --> 00:13:59,240 Speaker 1: we've always had a very balanced allocation to equities in 272 00:13:59,320 --> 00:14:01,960 Speaker 1: core so not too much growth, not too much value, 273 00:14:02,000 --> 00:14:04,520 Speaker 1: just to balance allocation. It's been tough. We would have 274 00:14:04,640 --> 00:14:08,440 Speaker 1: underperformed when the growth was really strong in specially in 275 00:14:08,480 --> 00:14:11,559 Speaker 1: twenty one and post COVID, But having that balanced allocation 276 00:14:12,040 --> 00:14:14,480 Speaker 1: is really key today because when we see things like 277 00:14:14,520 --> 00:14:17,200 Speaker 1: consumer safe will start to come through, we see those 278 00:14:17,360 --> 00:14:21,280 Speaker 1: real assets that the some of the infrastructure holdings start 279 00:14:21,320 --> 00:14:24,520 Speaker 1: to come through because they're more defensive names. That's where 280 00:14:24,520 --> 00:14:28,120 Speaker 1: our balance comes in. So we're actually not making great changes. 281 00:14:28,720 --> 00:14:31,840 Speaker 1: What we're thankful to see is fewer inquiries around some 282 00:14:31,960 --> 00:14:36,520 Speaker 1: of the more sizzle type, more volatile perhaps areas, which 283 00:14:36,560 --> 00:14:39,280 Speaker 1: is cryptocurrency. We're definitely not seeing the same level of 284 00:14:39,320 --> 00:14:42,040 Speaker 1: interest in that today. Well, no volatility there. I mean 285 00:14:42,120 --> 00:14:45,280 Speaker 1: yesterday the NASDAC tanked and bitcoin it's still twenty four 286 00:14:45,320 --> 00:14:49,920 Speaker 1: thousand dollars. That correlation seems to have been broken. I 287 00:14:50,000 --> 00:14:52,920 Speaker 1: don't know why, what's behind it, And maybe it's not 288 00:14:53,040 --> 00:14:54,920 Speaker 1: as interesting to you just because it's not such a 289 00:14:55,000 --> 00:14:59,320 Speaker 1: huge asset anymore. Even the whole universe isn't as big 290 00:14:59,320 --> 00:15:05,240 Speaker 1: as it one was a lot of the traditional investors 291 00:15:05,280 --> 00:15:08,120 Speaker 1: in stocks and bonds seem like they are in kind 292 00:15:08,120 --> 00:15:10,480 Speaker 1: of a waiting game. They expected a dip in the 293 00:15:10,520 --> 00:15:13,160 Speaker 1: first half. Now it looks like that's happening and then 294 00:15:13,160 --> 00:15:14,960 Speaker 1: a recovery in the second half. Are you in that 295 00:15:15,160 --> 00:15:18,640 Speaker 1: camp as well in terms of the recession on the 296 00:15:18,680 --> 00:15:24,040 Speaker 1: economic athletes, in terms of in terms of asset prices, yeah, 297 00:15:24,120 --> 00:15:27,720 Speaker 1: well we we actually were somewhat surprised by the resilience 298 00:15:27,760 --> 00:15:29,800 Speaker 1: and markets and the strong performance in the first quarter. 299 00:15:30,200 --> 00:15:33,040 Speaker 1: We wouldn't necessarily agree with JP Morgan that the best 300 00:15:33,160 --> 00:15:35,520 Speaker 1: is in, that the highest levels are in. We think 301 00:15:35,520 --> 00:15:39,000 Speaker 1: there will be ongoing strength throughout the year, particularly as 302 00:15:39,240 --> 00:15:41,800 Speaker 1: some of the clarity emergence on the state of the 303 00:15:41,800 --> 00:15:44,560 Speaker 1: consumer and on this recession, which you know, we said 304 00:15:44,600 --> 00:15:47,880 Speaker 1: was widely forecast almost to the points where now it 305 00:15:48,000 --> 00:15:51,000 Speaker 1: was so discounted in that positive news was well received, 306 00:15:51,320 --> 00:15:53,760 Speaker 1: so we were not We were a little surprised. So 307 00:15:53,880 --> 00:15:55,720 Speaker 1: there will be a bit of giveback in asset prices 308 00:15:55,760 --> 00:15:58,200 Speaker 1: now as we moved to the end of the first quarter, 309 00:15:58,520 --> 00:16:01,440 Speaker 1: but we're quite optimistic base something the year like twenty two. 310 00:16:01,760 --> 00:16:04,920 Speaker 1: We've been building in higher expectations for return across the 311 00:16:04,960 --> 00:16:07,800 Speaker 1: board and our asset class. Where do you go in 312 00:16:07,920 --> 00:16:12,720 Speaker 1: fixed income here, even fixed income, as I've said, there 313 00:16:12,720 --> 00:16:14,800 Speaker 1: are number of places you can go, and first of all, 314 00:16:14,960 --> 00:16:17,880 Speaker 1: you don't have to go into the highest risk areas 315 00:16:17,920 --> 00:16:20,800 Speaker 1: in order to get a decent yield. As far as cash, 316 00:16:21,080 --> 00:16:23,080 Speaker 1: staying in cash makes sense today, as long as in 317 00:16:23,200 --> 00:16:26,120 Speaker 1: the right kind of account and accounts that's actually earning 318 00:16:26,160 --> 00:16:28,960 Speaker 1: something closer to a short term yields, even a six 319 00:16:29,040 --> 00:16:32,720 Speaker 1: month treasury yield is interesting today, so that's you don't 320 00:16:32,760 --> 00:16:34,800 Speaker 1: have to go into the highest end of the spectrum. 321 00:16:34,960 --> 00:16:38,080 Speaker 1: High yield is interesting, and even high yields itself, higher 322 00:16:38,160 --> 00:16:42,440 Speaker 1: quality within high yield is still yielding quite meaningful returns today. 323 00:16:42,720 --> 00:16:45,760 Speaker 1: So we've been looking across the board. Investment grade itself 324 00:16:45,800 --> 00:16:48,360 Speaker 1: has also had deals that are interesting for the first time. 325 00:16:48,840 --> 00:16:52,480 Speaker 1: So we also in our clients accounts do advocate introducing 326 00:16:52,560 --> 00:16:56,280 Speaker 1: some private credit in there besides the public fixed income, 327 00:16:56,560 --> 00:16:58,880 Speaker 1: just to get that diversification. How do they get that? 328 00:16:59,000 --> 00:17:04,760 Speaker 1: I mean that used to be the realm of sophisticated investors. 329 00:17:04,760 --> 00:17:07,680 Speaker 1: Only can your average retail investor get that kind of 330 00:17:07,720 --> 00:17:12,240 Speaker 1: exposure now if if they are accredited usually that would 331 00:17:12,280 --> 00:17:15,320 Speaker 1: be that the key cutoff there. We are really enthused 332 00:17:15,400 --> 00:17:18,880 Speaker 1: by the greater selection we're seeing that are now suitable 333 00:17:18,920 --> 00:17:21,400 Speaker 1: for credit investors. Obviously, there has to be a full 334 00:17:21,480 --> 00:17:24,400 Speaker 1: understanding of different liquidity terms that might be in place 335 00:17:24,440 --> 00:17:28,480 Speaker 1: for something private. It might be quardally liquidity. Acquardally liquidity 336 00:17:28,560 --> 00:17:31,880 Speaker 1: doesn't necessarily mean easy access in and out. We've seen 337 00:17:31,920 --> 00:17:33,800 Speaker 1: that with some of the reafs at the moment. But 338 00:17:33,880 --> 00:17:35,359 Speaker 1: at the same time, as long as there is an 339 00:17:35,440 --> 00:17:39,080 Speaker 1: understanding and is appropriately sized. We're quite excited by the 340 00:17:39,240 --> 00:17:42,920 Speaker 1: different level of credit investor offerings today. Then, of course, 341 00:17:42,920 --> 00:17:45,680 Speaker 1: if the clients has qualified purchase or status, they can 342 00:17:45,760 --> 00:17:49,080 Speaker 1: move up the spectrum. Again, what about non accredited investors 343 00:17:49,160 --> 00:17:52,399 Speaker 1: just looking you mentioned to move cash. You know, if 344 00:17:52,960 --> 00:17:56,399 Speaker 1: if Paul has one hundred grand of cash just sitting 345 00:17:56,400 --> 00:17:59,240 Speaker 1: in his checking account, do you is there an easy 346 00:17:59,240 --> 00:18:01,280 Speaker 1: way for him to get at you know, four and 347 00:18:01,320 --> 00:18:05,760 Speaker 1: a half five percent from that. Certainly, even something like 348 00:18:05,800 --> 00:18:07,840 Speaker 1: a high grade if we're looking to say and say 349 00:18:07,840 --> 00:18:10,200 Speaker 1: a mutual funds and the index funds, we can look 350 00:18:10,200 --> 00:18:12,840 Speaker 1: at something in the short term government bombs or short 351 00:18:12,960 --> 00:18:16,240 Speaker 1: term investment grade credit, all of that and should be 352 00:18:16,320 --> 00:18:20,200 Speaker 1: yielding something that's closer to four or five percent. It may, obviously, 353 00:18:20,200 --> 00:18:21,879 Speaker 1: we have to be health in order to see that, 354 00:18:21,960 --> 00:18:24,480 Speaker 1: and it doesn't mean that there won't be some volatility 355 00:18:24,560 --> 00:18:28,440 Speaker 1: along that path, but any of those mutual sound options 356 00:18:28,520 --> 00:18:31,520 Speaker 1: are quite suitable for that type of level. All right, Evan, 357 00:18:31,560 --> 00:18:33,720 Speaker 1: thank you so much for joining us. Always appreciate getting 358 00:18:33,880 --> 00:18:37,560 Speaker 1: your perspective, your thoughts there. Ifan Devitt, chief investment Officer 359 00:18:37,920 --> 00:18:44,440 Speaker 1: for Manetta Group c Suite conversation today, let's talk commercial 360 00:18:44,960 --> 00:18:46,560 Speaker 1: real estate, and we can do that today with the 361 00:18:46,600 --> 00:18:49,760 Speaker 1: Hassam Naji. He is the president and CEO of Marcus 362 00:18:49,760 --> 00:18:54,359 Speaker 1: and Millichap and a Hassam is in our Bloomberg Interactor 363 00:18:54,440 --> 00:18:57,080 Speaker 1: Broker Studio Live, which is good stuff, so it gets 364 00:18:57,119 --> 00:18:59,960 Speaker 1: the gold star. It's a publicly traded company New York 365 00:19:00,000 --> 00:19:03,320 Speaker 1: Stock Change. MMI is the ticker to put into your 366 00:19:03,320 --> 00:19:06,720 Speaker 1: Bloomberg terminal there. Sam, thanks so much for joining us here. 367 00:19:07,240 --> 00:19:09,399 Speaker 1: You know, we were just talking about I know you 368 00:19:09,440 --> 00:19:13,640 Speaker 1: guys are a real estate commercial real estate biz. Talk 369 00:19:13,680 --> 00:19:18,399 Speaker 1: to us about kind of the commercial office real estate business. 370 00:19:18,480 --> 00:19:20,720 Speaker 1: How do you think about it? Because boy, the world 371 00:19:20,720 --> 00:19:23,720 Speaker 1: has changed and we have some seven thirty one lex 372 00:19:23,720 --> 00:19:26,640 Speaker 1: where we're located here. Fantastic building, one of the best 373 00:19:26,680 --> 00:19:29,560 Speaker 1: buildings in New York City, but it's tough to fill 374 00:19:29,600 --> 00:19:31,240 Speaker 1: it up. And this used to be the hard of commerce, 375 00:19:31,320 --> 00:19:34,399 Speaker 1: right We had the Gap downstairs and Jay Crew, and 376 00:19:34,480 --> 00:19:37,680 Speaker 1: we had Victoria's Secret and H and M and all 377 00:19:37,680 --> 00:19:40,760 Speaker 1: of that is gone. Well. First of all, it's great 378 00:19:40,840 --> 00:19:43,479 Speaker 1: to be with you in person, yep at seven thirty one, 379 00:19:43,680 --> 00:19:46,879 Speaker 1: even though those stores are not here. I love seeing 380 00:19:46,880 --> 00:19:49,359 Speaker 1: you guys. I love being at Bloomberg it's great to 381 00:19:49,359 --> 00:19:52,000 Speaker 1: be in person. There is no substitute for it. And 382 00:19:52,160 --> 00:19:55,120 Speaker 1: that let me just jump start the conversation by saying, 383 00:19:55,200 --> 00:19:58,840 Speaker 1: is the reason I think the situation with office usage 384 00:19:58,920 --> 00:20:02,119 Speaker 1: will improve over time. People will come back in the 385 00:20:02,160 --> 00:20:04,879 Speaker 1: office more than they are today. But I don't believe 386 00:20:05,040 --> 00:20:10,320 Speaker 1: we are headed for pre pandemic full occupancy anytime in 387 00:20:10,359 --> 00:20:12,919 Speaker 1: the future. No, you just gave me my stat of 388 00:20:12,920 --> 00:20:14,600 Speaker 1: the day when you walked in. You said, we're just 389 00:20:14,640 --> 00:20:18,040 Speaker 1: back to fifty percent, right, Yeah, Nationally, we just crossed 390 00:20:18,040 --> 00:20:22,280 Speaker 1: the fifty percent daily occupancy rate across office space since 391 00:20:22,280 --> 00:20:26,000 Speaker 1: the pandemic. That's a national index, if you will see 392 00:20:26,040 --> 00:20:29,280 Speaker 1: in some markets it's twenty twenty three, right, Yes, so 393 00:20:29,359 --> 00:20:32,040 Speaker 1: since the problem that erupted at the end of really 394 00:20:32,080 --> 00:20:36,240 Speaker 1: twenty nineteen. It's named for that COVID nineteen. This is 395 00:20:36,280 --> 00:20:39,679 Speaker 1: the first time we've gotten back to fifty percent office 396 00:20:39,720 --> 00:20:43,760 Speaker 1: space occupas average. Correct. Now, let's let's take that apart 397 00:20:43,800 --> 00:20:48,760 Speaker 1: for a moment. Places like Florida, Texas and other growth 398 00:20:48,800 --> 00:20:51,720 Speaker 1: oriented markets have a much higher daily occupancy rate and 399 00:20:51,760 --> 00:20:54,840 Speaker 1: didn't fall as much. The urban markets New York, Chicago, 400 00:20:54,920 --> 00:20:59,720 Speaker 1: San Francisco, Seattle, Downtown, LA are really skewing an average 401 00:20:59,760 --> 00:21:03,120 Speaker 1: because their occupancies even less than fifty. Well, there's also 402 00:21:03,160 --> 00:21:05,560 Speaker 1: a big political divide there, so you're what you're saying 403 00:21:05,680 --> 00:21:11,200 Speaker 1: is the Red States are doing fine. They never left 404 00:21:11,200 --> 00:21:13,720 Speaker 1: the office, and they're all back. I'd rather think of 405 00:21:13,760 --> 00:21:16,800 Speaker 1: it more as an urban versus suburban. Okay, Well, you 406 00:21:16,880 --> 00:21:19,520 Speaker 1: just mentioned Florida in Texas and Paul and I often 407 00:21:19,520 --> 00:21:21,239 Speaker 1: talk about I wonder how well they did. Well. They 408 00:21:21,240 --> 00:21:23,640 Speaker 1: didn't leave the office. That's right, they did just fine. 409 00:21:23,800 --> 00:21:27,400 Speaker 1: So if I'm a commercial I don't know a bunch 410 00:21:27,440 --> 00:21:30,400 Speaker 1: of commercial real estate, what do I do? Particularly office space. 411 00:21:30,440 --> 00:21:32,120 Speaker 1: I'm looking around here in New York City and somebody 412 00:21:32,080 --> 00:21:35,600 Speaker 1: these amazing buildings they just opened up right before the pandemic, 413 00:21:36,080 --> 00:21:39,199 Speaker 1: Hudson Yards. I think spectacular office space. It is what 414 00:21:39,200 --> 00:21:41,919 Speaker 1: do I do? Great mixed use? Well, this is a 415 00:21:41,960 --> 00:21:45,760 Speaker 1: snapshot in time. Real estate is a long term investment vehicle, 416 00:21:45,800 --> 00:21:48,680 Speaker 1: as you well know, and if you really step back 417 00:21:48,680 --> 00:21:51,679 Speaker 1: and look at commercial real estate is an alternate investment. 418 00:21:52,119 --> 00:21:56,720 Speaker 1: Office space is one of many seconds you have self storage, hospitality, 419 00:21:56,920 --> 00:21:59,879 Speaker 1: retail of all forms, by the way, retail is the 420 00:22:00,119 --> 00:22:02,720 Speaker 1: comeback hit. Retail right now is the darling of our 421 00:22:02,760 --> 00:22:06,199 Speaker 1: industry and offices a new retail, which is really kind 422 00:22:06,240 --> 00:22:11,080 Speaker 1: of an interesting shift. Apartments. Commercial apartments are a significant 423 00:22:11,119 --> 00:22:14,040 Speaker 1: part of commercial real estate investing, and they've also been 424 00:22:14,080 --> 00:22:17,400 Speaker 1: the darling of the industry for the past ten plus years. 425 00:22:17,520 --> 00:22:20,399 Speaker 1: They're having a little bit of a rough go of 426 00:22:20,440 --> 00:22:24,520 Speaker 1: it right now because of interest rates. The FED, you know, 427 00:22:25,520 --> 00:22:28,520 Speaker 1: answering your question of the overall view on the business, 428 00:22:28,760 --> 00:22:31,199 Speaker 1: The FED has always been a solution when there's been 429 00:22:31,240 --> 00:22:34,760 Speaker 1: a crisis. This time around, the FED became the crisis 430 00:22:35,240 --> 00:22:37,480 Speaker 1: because we missed the window in twenty twenty one to 431 00:22:37,640 --> 00:22:41,480 Speaker 1: gradually tighten financial conditions, get out of the post pandemic 432 00:22:42,119 --> 00:22:45,600 Speaker 1: recovery with an easing back to normal financial conditions with 433 00:22:45,640 --> 00:22:49,520 Speaker 1: interest rates going up gradually. That missed opportunity meant the 434 00:22:49,640 --> 00:22:52,280 Speaker 1: sledgehammer had to come out in twenty twenty two and 435 00:22:52,400 --> 00:22:55,280 Speaker 1: create a spike in interest rates, create a spike in 436 00:22:56,040 --> 00:23:00,560 Speaker 1: liquidity draw and shocked the industry. That's what industry is 437 00:23:00,560 --> 00:23:03,480 Speaker 1: absorbing right now, is that shock. And you know, I 438 00:23:03,520 --> 00:23:06,439 Speaker 1: always think of Jean claud Trichet was ahead of the 439 00:23:06,520 --> 00:23:11,000 Speaker 1: ECB and twenty years ago he told somebody and I 440 00:23:11,080 --> 00:23:16,439 Speaker 1: was listening, it doesn't matter the level of the currency price. 441 00:23:16,640 --> 00:23:19,879 Speaker 1: It just matters how quickly we get there. That's exactly right. 442 00:23:19,920 --> 00:23:21,879 Speaker 1: And isn't it the same for real estate, Like, it 443 00:23:21,880 --> 00:23:25,160 Speaker 1: doesn't matter to you if it's six percent or six 444 00:23:25,200 --> 00:23:28,480 Speaker 1: and a half. But if we got there in less 445 00:23:28,480 --> 00:23:31,480 Speaker 1: than a year from zero, that's that's a problem, Matt. 446 00:23:31,560 --> 00:23:35,639 Speaker 1: You just nailed it. Five percent interest rate on the 447 00:23:35,640 --> 00:23:38,840 Speaker 1: federal funds rate is normal, but going from zero to 448 00:23:38,960 --> 00:23:41,399 Speaker 1: five percent in less than a year is the shock, 449 00:23:41,880 --> 00:23:44,040 Speaker 1: and the market just didn't have time to adjust. A 450 00:23:44,080 --> 00:23:45,960 Speaker 1: lot of lenders have pulled out of the market or 451 00:23:46,000 --> 00:23:49,359 Speaker 1: their underwriting has tightened so much. Lender spreads have gone 452 00:23:49,400 --> 00:23:52,240 Speaker 1: up so much because their risk averse to the point 453 00:23:52,280 --> 00:23:56,120 Speaker 1: where liquidity is there. The capital is there, but the 454 00:23:56,119 --> 00:23:59,200 Speaker 1: flow of capital is not so qualifying. For a loan 455 00:23:59,280 --> 00:24:02,920 Speaker 1: where you could get seventy percent leverage sixty percent leverage 456 00:24:03,000 --> 00:24:05,000 Speaker 1: a year a year and a half ago is down 457 00:24:05,040 --> 00:24:07,080 Speaker 1: to forty or fifty percent leverage, and you have to 458 00:24:07,119 --> 00:24:09,879 Speaker 1: put in much more equity and absorb at two D 459 00:24:10,080 --> 00:24:12,320 Speaker 1: two hundred and fifty basis point increase, and that cause 460 00:24:12,440 --> 00:24:15,120 Speaker 1: to debt at a time when the economy is slowing 461 00:24:15,560 --> 00:24:19,239 Speaker 1: and the buyers are worried about demand for space. Now. 462 00:24:19,240 --> 00:24:21,560 Speaker 1: The reason I ask is that you know, there's not 463 00:24:21,680 --> 00:24:25,680 Speaker 1: a huge difference in people's views on the terminal rate. 464 00:24:25,720 --> 00:24:29,199 Speaker 1: The Fed may go to five percent or five and 465 00:24:29,200 --> 00:24:31,040 Speaker 1: a quarter, or some people are saying five fifty, and 466 00:24:31,040 --> 00:24:34,399 Speaker 1: that's pretty much the upper end. The real struggle, the 467 00:24:34,440 --> 00:24:36,320 Speaker 1: real push and pull in the market has been are 468 00:24:36,320 --> 00:24:37,960 Speaker 1: they going to cut at the end of the year 469 00:24:38,000 --> 00:24:40,399 Speaker 1: in twenty twenty four or are they going to hold 470 00:24:40,440 --> 00:24:42,480 Speaker 1: through the end of the year and into twenty twenty four. 471 00:24:42,840 --> 00:24:47,400 Speaker 1: And if they do hold, is that a killer for you? 472 00:24:47,920 --> 00:24:49,840 Speaker 1: Or are you is that going to give you time 473 00:24:49,880 --> 00:24:52,719 Speaker 1: to adjust to that terminal rate. Our view is that 474 00:24:53,040 --> 00:24:56,160 Speaker 1: the catalyst for cuts later this year aren't there. Right now. 475 00:24:56,200 --> 00:24:59,280 Speaker 1: We don't see it. Unemployment is still at a record low, 476 00:24:59,600 --> 00:25:02,000 Speaker 1: job creation still above the level of the FED wants it. 477 00:25:02,040 --> 00:25:04,800 Speaker 1: We have five hundred thousand jobs in January versus consensus 478 00:25:04,800 --> 00:25:07,360 Speaker 1: of one hundred and eighty seven, so we're still creating 479 00:25:07,480 --> 00:25:09,440 Speaker 1: a lot more jobs than the Fed would like to see. 480 00:25:09,680 --> 00:25:12,560 Speaker 1: From an inflation easing perspective, I don't see the catalyst 481 00:25:12,600 --> 00:25:15,560 Speaker 1: for lowering interest rates, But what the market is looking 482 00:25:15,560 --> 00:25:19,520 Speaker 1: for is three points of clarity one, the FED being done. 483 00:25:19,640 --> 00:25:21,720 Speaker 1: It doesn't, like you said, it doesn't even matter what 484 00:25:21,760 --> 00:25:24,800 Speaker 1: the final rate really is. Is that a quarter point 485 00:25:24,880 --> 00:25:27,320 Speaker 1: higher or lower. It's being done so they can have 486 00:25:27,359 --> 00:25:30,560 Speaker 1: that clarity. It's answering the question of a recession. Are 487 00:25:30,560 --> 00:25:32,840 Speaker 1: we really going into a recession? Seems like the odds 488 00:25:32,840 --> 00:25:35,000 Speaker 1: are less and less that there is a big recession 489 00:25:35,040 --> 00:25:39,359 Speaker 1: around the corner because of consumer strength, because of employment strength. 490 00:25:39,600 --> 00:25:42,639 Speaker 1: So even if we just basically slow down to little 491 00:25:42,720 --> 00:25:45,200 Speaker 1: or no growth for a while, that's clarity. We should 492 00:25:45,200 --> 00:25:47,919 Speaker 1: know that in the next few months because of the 493 00:25:48,160 --> 00:25:50,720 Speaker 1: effect of the interest rates, that increases that have already 494 00:25:50,720 --> 00:25:53,480 Speaker 1: happened are showing up in the market. And lastly, for 495 00:25:53,560 --> 00:25:57,600 Speaker 1: real estate, it's price adjustment. Sellers always take time to 496 00:25:57,640 --> 00:26:00,679 Speaker 1: come to reality. Buyers just need those two points of 497 00:26:00,680 --> 00:26:04,960 Speaker 1: clarity on interest rates and the recession question. The capital 498 00:26:05,040 --> 00:26:07,720 Speaker 1: is there? Always at an industry event national the Housing 499 00:26:07,720 --> 00:26:10,119 Speaker 1: Council with a couple of thousand large apartment owners in 500 00:26:10,119 --> 00:26:14,000 Speaker 1: the audience, and I basically told them there is record capital, 501 00:26:14,280 --> 00:26:17,399 Speaker 1: but there are a few buyers. We have liquidity, there's 502 00:26:17,440 --> 00:26:20,520 Speaker 1: plenty of demand for correctly priced assets. We get multiple 503 00:26:20,600 --> 00:26:23,560 Speaker 1: offers right now. On listenings we bring to market that 504 00:26:23,560 --> 00:26:26,639 Speaker 1: are appropriately priced. There's no shortage of buyers. You just 505 00:26:26,680 --> 00:26:28,960 Speaker 1: have to price the asset correctly. All right, great stuff. 506 00:26:28,960 --> 00:26:32,560 Speaker 1: Hassam Naji joining us here in our Bloomberg Interactive broker studio. 507 00:26:32,600 --> 00:26:36,919 Speaker 1: Hassam Naji. He's a president and CEO of Marcus and Millichap. 508 00:26:36,960 --> 00:26:40,400 Speaker 1: They are commercial national brokerage firm on the commercial real 509 00:26:40,520 --> 00:26:43,760 Speaker 1: estate side. MMI is the ticker they are in New 510 00:26:43,840 --> 00:26:47,719 Speaker 1: York Stock Exchange traded company. So getting some good thoughts 511 00:26:47,720 --> 00:26:50,280 Speaker 1: on kind of the commercial real estate business, all facets 512 00:26:50,359 --> 00:26:54,840 Speaker 1: of it, you know, higher rates, kind of adjusting this market, 513 00:26:54,840 --> 00:26:57,280 Speaker 1: both on the residential side and on the commercial side. 514 00:26:57,440 --> 00:27:00,760 Speaker 1: Of course, we appreciate checking in with mister uh Nagi. 515 00:27:05,359 --> 00:27:10,240 Speaker 1: Looking at our good friends market cap six hundred and 516 00:27:10,240 --> 00:27:12,920 Speaker 1: sixteen billion as of today. Year to date, this bad 517 00:27:13,000 --> 00:27:16,840 Speaker 1: boy's up fifty eight percent um so the whole Twitter 518 00:27:17,119 --> 00:27:20,240 Speaker 1: hangar it's still down twenty eight percent trailing twelve month basis. 519 00:27:20,280 --> 00:27:21,960 Speaker 1: By the way, in the market where the Dow Jones 520 00:27:21,960 --> 00:27:24,960 Speaker 1: Industrial average yesterday raised its games for the year to date, 521 00:27:25,000 --> 00:27:27,159 Speaker 1: did it we had the biggest drop on the S 522 00:27:27,240 --> 00:27:30,879 Speaker 1: and P and then Nazdak yesterday. This year, the SNP 523 00:27:31,240 --> 00:27:34,840 Speaker 1: I believe is about four percent option year to date. 524 00:27:34,920 --> 00:27:37,640 Speaker 1: So so all right, Elon's getting it going. Uh. Matt 525 00:27:37,680 --> 00:27:40,159 Speaker 1: Winkler joins us here in our Bloomberg Interactor Broker studio. 526 00:27:40,200 --> 00:27:42,320 Speaker 1: That's always a good thing. He is the founder of 527 00:27:42,359 --> 00:27:44,440 Speaker 1: Bloomberg News way back in the day. He's now our 528 00:27:44,840 --> 00:27:48,600 Speaker 1: editor emeritus. UM got a fascinating column out here on 529 00:27:49,160 --> 00:27:55,040 Speaker 1: mister Elon Musk and Tesla. UM that stock price performance 530 00:27:55,440 --> 00:27:56,960 Speaker 1: kind of got my tension there, Matt, What are you 531 00:27:57,000 --> 00:28:00,639 Speaker 1: looking at when you look at Tesla? Always great to 532 00:28:00,680 --> 00:28:06,080 Speaker 1: be with you and Matt as well. Um. What we 533 00:28:06,119 --> 00:28:08,440 Speaker 1: look at is what we all should be looking at, 534 00:28:08,480 --> 00:28:12,040 Speaker 1: which is first thing is sales. And no car company 535 00:28:12,040 --> 00:28:13,919 Speaker 1: in the world over the past ten years has had 536 00:28:13,960 --> 00:28:18,120 Speaker 1: the sales growth of Tesla, and more recently, no car 537 00:28:18,160 --> 00:28:21,120 Speaker 1: company in the world, particularly the top ten the ten 538 00:28:21,240 --> 00:28:25,880 Speaker 1: largest car companies, have been anything close to the gross 539 00:28:25,920 --> 00:28:31,320 Speaker 1: margin or profitability of Tesla. UM. And that's saying a lot, 540 00:28:31,359 --> 00:28:34,920 Speaker 1: which means that, for example, Tesca can turn one hundred 541 00:28:34,960 --> 00:28:38,440 Speaker 1: dollars of sales if you like, into twenty six dollars 542 00:28:38,440 --> 00:28:40,760 Speaker 1: of profit at how much production cost. Matt just fresh. 543 00:28:40,840 --> 00:28:42,840 Speaker 1: I remember how much of that is that the credits 544 00:28:42,880 --> 00:28:46,560 Speaker 1: they get for the you know, the BV versus the 545 00:28:46,640 --> 00:28:53,640 Speaker 1: actual profit per they those credits actually weren't there recently 546 00:28:53,760 --> 00:28:56,680 Speaker 1: in the period that we're talking about. They will come back. Okay, 547 00:28:57,160 --> 00:29:02,440 Speaker 1: they are coming back because of the um Biden legislation. 548 00:29:02,680 --> 00:29:07,120 Speaker 1: But um, you know, Tesla has become the most profitable company. 549 00:29:07,200 --> 00:29:09,480 Speaker 1: So if you look at those two things, sales growth 550 00:29:10,240 --> 00:29:14,400 Speaker 1: will say a decade, and then profitability over the same period, 551 00:29:14,600 --> 00:29:19,960 Speaker 1: you see something that is unique. It's it's it's absolutely insane. 552 00:29:20,000 --> 00:29:24,320 Speaker 1: I mean, having covered the car industry for for you know, 553 00:29:24,600 --> 00:29:29,320 Speaker 1: ninon twenty years, here this is better than Porsche levels 554 00:29:29,320 --> 00:29:31,800 Speaker 1: of profitability. And we used to always remember, right, Porsche 555 00:29:31,880 --> 00:29:34,400 Speaker 1: the most profitable carmaker in the world. I'm looking on 556 00:29:34,440 --> 00:29:36,960 Speaker 1: the FA page right now for Tesla, and if you 557 00:29:37,000 --> 00:29:40,920 Speaker 1: click into Ratiosum, Paul, look at the gross margins line, 558 00:29:41,480 --> 00:29:44,760 Speaker 1: it just climbs up. From twenty eighteen, we are at 559 00:29:44,760 --> 00:29:49,240 Speaker 1: eighteen percent, then sixteen percent in twenty nineteen, but now 560 00:29:49,240 --> 00:29:51,800 Speaker 1: twenty one percent, the twenty five percent, twenty six percent. 561 00:29:51,920 --> 00:29:54,680 Speaker 1: What is happening here is this just because they've been 562 00:29:54,720 --> 00:29:57,280 Speaker 1: making the product for long enough that they know where 563 00:29:57,280 --> 00:30:00,600 Speaker 1: to cut costs and they can raise prices in environment. 564 00:30:01,800 --> 00:30:04,280 Speaker 1: It's a combination of everything you just said, and it 565 00:30:04,720 --> 00:30:07,520 Speaker 1: should be said right now as we speak, that you're 566 00:30:07,520 --> 00:30:11,000 Speaker 1: talking about a company that's worth more than Toyota, which 567 00:30:11,040 --> 00:30:14,000 Speaker 1: sells more cars than any company in the world. It's 568 00:30:14,040 --> 00:30:18,840 Speaker 1: worth more than Mercedes Volkswagen, BMW, General Motors, Stellantis, which 569 00:30:18,880 --> 00:30:23,200 Speaker 1: is Chrysler of course, in Pougeot, Citron, and then Ford 570 00:30:23,240 --> 00:30:26,200 Speaker 1: Motor combined. Okay, all of them put together, all of 571 00:30:26,200 --> 00:30:29,480 Speaker 1: them put together, and you know, it's what the eight 572 00:30:29,480 --> 00:30:34,560 Speaker 1: times the value of Porsche which you referenced below. What 573 00:30:34,720 --> 00:30:37,160 Speaker 1: have they done well? They started out with the models, 574 00:30:37,280 --> 00:30:40,040 Speaker 1: which people forget maybe was the car of the year, 575 00:30:40,200 --> 00:30:43,520 Speaker 1: Motor trend car of the Year in twenty thirteen. That 576 00:30:43,840 --> 00:30:47,840 Speaker 1: was totally unexpected for an ev I remember when Consumer 577 00:30:47,880 --> 00:30:50,160 Speaker 1: Reports tested it and they couldn't believe how good it was. 578 00:30:50,360 --> 00:30:54,320 Speaker 1: And then there's you know, not just the S, but 579 00:30:54,600 --> 00:30:57,240 Speaker 1: the Model three, the Model Y, which is an suv, 580 00:30:57,400 --> 00:31:01,080 Speaker 1: the Model X, all these models and more recently Tesla 581 00:31:01,200 --> 00:31:05,840 Speaker 1: has been able to or has decided to discount to 582 00:31:05,880 --> 00:31:09,360 Speaker 1: the point where Bloomberg News reported it this week. It's 583 00:31:09,440 --> 00:31:14,760 Speaker 1: selling evs at a lower cost to the consumer than 584 00:31:14,800 --> 00:31:19,360 Speaker 1: the internal combustion engine, you know, and the Model three, 585 00:31:19,480 --> 00:31:24,800 Speaker 1: for example, the Tesla Model three is out selling the 586 00:31:24,880 --> 00:31:30,000 Speaker 1: introductory BMW if you like, pretty much everywhere in the world. 587 00:31:30,320 --> 00:31:33,040 Speaker 1: So that gives you some example of how competitive it 588 00:31:33,120 --> 00:31:37,040 Speaker 1: is and just how sticky the product is with the consumer. 589 00:31:37,200 --> 00:31:40,160 Speaker 1: So night you're you're a Tesla owner? Correct, almost ten 590 00:31:40,240 --> 00:31:43,480 Speaker 1: years now? Almost ten years now? How is the ev 591 00:31:43,760 --> 00:31:48,720 Speaker 1: aging versus an internal combustion auto? Well, the only thing 592 00:31:48,720 --> 00:31:51,480 Speaker 1: I do every year is I switched to snow tires 593 00:31:51,480 --> 00:31:53,080 Speaker 1: in the winter, which I didn't have to do this 594 00:31:53,200 --> 00:31:56,240 Speaker 1: winter if we haven't had much snow. And then I 595 00:31:56,280 --> 00:31:59,520 Speaker 1: go back to you know, regular tires because because I 596 00:31:59,560 --> 00:32:01,880 Speaker 1: have one of the oldest models, which is a weird 597 00:32:02,120 --> 00:32:05,719 Speaker 1: wheel drive vehicle. H And by the way, they do 598 00:32:05,760 --> 00:32:08,600 Speaker 1: that in my driveway. I just I just go on 599 00:32:08,640 --> 00:32:10,440 Speaker 1: the app and I say this is what I want, 600 00:32:10,520 --> 00:32:14,320 Speaker 1: and pick a day and somebody comes and switches my tires. 601 00:32:14,360 --> 00:32:17,240 Speaker 1: I don't do anything else. So the maintenance factor is 602 00:32:17,280 --> 00:32:23,480 Speaker 1: just almost nine miles and it's the tires that's all 603 00:32:23,480 --> 00:32:26,680 Speaker 1: I change. That's amazing. I don't do anything, you know, 604 00:32:26,840 --> 00:32:30,000 Speaker 1: And so uh, we're talking about it, I said, almost 605 00:32:30,000 --> 00:32:36,000 Speaker 1: a decade. Is there a concern that these sales figures 606 00:32:36,000 --> 00:32:41,120 Speaker 1: in these margins take a hit after Elon musk Um, 607 00:32:41,600 --> 00:32:45,400 Speaker 1: you know, not only bought Twitter, but became almost like 608 00:32:45,440 --> 00:32:51,400 Speaker 1: an outspoken, you know, political activist, and a lot of 609 00:32:51,440 --> 00:32:55,040 Speaker 1: his values run counter to those of what I would 610 00:32:55,040 --> 00:32:58,760 Speaker 1: expect his his broader customer base feels Matt. So anyone 611 00:32:58,840 --> 00:33:04,360 Speaker 1: googling the phrase Tesla failed is immediately inundated with, you know, 612 00:33:04,480 --> 00:33:10,120 Speaker 1: all these purported shortcomings of the company, whether it's you know, 613 00:33:10,200 --> 00:33:16,320 Speaker 1: the vehicles themselves, the workplace culture, business practices, occupational safety, 614 00:33:16,360 --> 00:33:20,440 Speaker 1: and of course the antics of the CEO himself, Elon 615 00:33:20,560 --> 00:33:25,200 Speaker 1: musk So my colleagueshouldn't pay And I thought, okay, that's 616 00:33:25,200 --> 00:33:30,800 Speaker 1: where we start. What does the data say that isn't 617 00:33:31,440 --> 00:33:36,200 Speaker 1: when you google Tesla failed, and the data on the 618 00:33:36,240 --> 00:33:42,400 Speaker 1: Bloomberg compiled by Bloomberg is overwhelmingly the opposite of what 619 00:33:42,560 --> 00:33:46,000 Speaker 1: you read the prevailing narrative. It's all there in the numbers, 620 00:33:46,040 --> 00:33:49,480 Speaker 1: which by the way, explains why last year, when you 621 00:33:49,520 --> 00:33:53,760 Speaker 1: know Tesla lost something like sixty five of its market value, 622 00:33:53,760 --> 00:33:56,920 Speaker 1: it's still worth more than Toyota. After the climax of 623 00:33:58,080 --> 00:34:06,320 Speaker 1: short selling, but Anais, in an unprecedented move, upgraded Tesla. 624 00:34:06,680 --> 00:34:09,960 Speaker 1: In that whole period, Analysts became more bullish about Tesla 625 00:34:10,040 --> 00:34:13,000 Speaker 1: for the first time since the company went public in 626 00:34:13,080 --> 00:34:17,760 Speaker 1: twenty ten last year, at a period when just about 627 00:34:17,760 --> 00:34:22,759 Speaker 1: everybody was saying Tesla had failed. So I did at 628 00:34:22,760 --> 00:34:24,920 Speaker 1: a trillion, you love it at three billion. Why did 629 00:34:24,960 --> 00:34:27,640 Speaker 1: that happen? It happened because you know, they're looking at 630 00:34:27,680 --> 00:34:30,480 Speaker 1: those things that we're supposed to look at, which is 631 00:34:30,520 --> 00:34:34,280 Speaker 1: sales growth, and nobody comes close to Tesla sales growth. 632 00:34:34,680 --> 00:34:38,160 Speaker 1: And they're also looking at profitability and profit margins, and 633 00:34:38,239 --> 00:34:42,359 Speaker 1: again this is where Tesla shines. So that's what makes 634 00:34:42,360 --> 00:34:44,600 Speaker 1: it a leader. Yeah, you're talking about the analyst ratings 635 00:34:44,640 --> 00:34:46,680 Speaker 1: and you can see that on a Bloomberg terminal with 636 00:34:46,760 --> 00:34:50,319 Speaker 1: the Tesla A n R as a function and right 637 00:34:50,400 --> 00:34:54,319 Speaker 1: now there's thirty buys, twelve holds, and six cells. So 638 00:34:54,760 --> 00:34:58,600 Speaker 1: you know, for me, what's different about Tesla today versus 639 00:34:58,880 --> 00:35:02,760 Speaker 1: prior to its anytime it's history is a competitive landscape. 640 00:35:02,800 --> 00:35:06,399 Speaker 1: I now have major OEMs around the world going all 641 00:35:06,520 --> 00:35:10,400 Speaker 1: in on electric vehicles, and that is a twenty twenty 642 00:35:10,440 --> 00:35:13,880 Speaker 1: two event. I wonder how Tesla's gonna fair in it. 643 00:35:14,000 --> 00:35:15,759 Speaker 1: I don't know, but I think that Wall streets saying 644 00:35:15,880 --> 00:35:19,080 Speaker 1: we're pretty comfortable with it, you know, Paul, You know, 645 00:35:19,120 --> 00:35:22,360 Speaker 1: to put it in perspective, if you go back to 646 00:35:22,640 --> 00:35:28,160 Speaker 1: just two thousand and thirteen, or actually even more recently, 647 00:35:28,160 --> 00:35:34,800 Speaker 1: go back to twenty seventeen, Tesla's market share the market 648 00:35:34,920 --> 00:35:38,880 Speaker 1: was thirteen percent. Today it's twenty percent, right, yea, And 649 00:35:39,080 --> 00:35:42,759 Speaker 1: everybody is now selling evs and their market share is 650 00:35:42,800 --> 00:35:46,839 Speaker 1: greater than it was in two seventeen. Interesting. Yeah, that's 651 00:35:46,880 --> 00:35:48,319 Speaker 1: gonna be the big change. I mean, I think to 652 00:35:48,360 --> 00:35:50,520 Speaker 1: see how they compete. You know, it's yeah for sure, 653 00:35:50,560 --> 00:35:53,640 Speaker 1: because you have not only incumbents with a ton of 654 00:35:53,680 --> 00:35:55,960 Speaker 1: money to throw at the problem, which they're doing right. 655 00:35:56,000 --> 00:35:58,680 Speaker 1: Mary Barrow was in here last week and she said 656 00:35:58,760 --> 00:36:01,840 Speaker 1: that business is like a spring that's coiled and ready 657 00:36:01,920 --> 00:36:05,280 Speaker 1: to But you know, here's the thing, and nobody talks 658 00:36:05,280 --> 00:36:11,000 Speaker 1: about this. Tesla makes one thing, zero mission vehicles. Everybody 659 00:36:11,000 --> 00:36:14,359 Speaker 1: in Tesla is focused on that one thing. Everybody else 660 00:36:14,400 --> 00:36:18,320 Speaker 1: who's competing safe for except for BYD and the Chinese companies, 661 00:36:18,600 --> 00:36:23,400 Speaker 1: everybody else in Europe, the US is making the internal 662 00:36:23,400 --> 00:36:28,440 Speaker 1: combustion engine as they always did ye and so that bifurcation, 663 00:36:28,520 --> 00:36:35,080 Speaker 1: that dichotomy is I think a very big obstacle to 664 00:36:35,239 --> 00:36:38,200 Speaker 1: catching Tesla. Yeah, because they have to do two things 665 00:36:38,239 --> 00:36:42,960 Speaker 1: that are diametrically opposed every single day, sell the fossil 666 00:36:43,080 --> 00:36:46,799 Speaker 1: fuel vehicle and make our numbers for the quarter, and 667 00:36:47,200 --> 00:36:49,480 Speaker 1: try to come out with something for the future. It's 668 00:36:49,480 --> 00:36:52,360 Speaker 1: called the EV which is a cross purposes with the 669 00:36:52,400 --> 00:36:54,880 Speaker 1: fossil fuel machine. Yep. Absolutely, But interesting to see how 670 00:36:54,880 --> 00:36:57,200 Speaker 1: this plays out of the next decade or so. When 671 00:36:57,200 --> 00:36:58,840 Speaker 1: we've got Matt Miller right next to us, who was 672 00:36:58,920 --> 00:37:01,400 Speaker 1: the car guide your head and he was gonna be 673 00:37:01,400 --> 00:37:03,080 Speaker 1: our peatree dish to see how this all plays out. 674 00:37:03,120 --> 00:37:05,600 Speaker 1: Matt Winkler, thanks for joining us here. Matt Winkler is 675 00:37:05,600 --> 00:37:09,080 Speaker 1: the founder of Bloomberg News editor emeritus as well joining 676 00:37:09,120 --> 00:37:14,640 Speaker 1: us here on our Bloomberg Interactive Broker Studio. Are you 677 00:37:14,680 --> 00:37:18,400 Speaker 1: a wrestling fan like ww Absolutely not. I you know, 678 00:37:18,480 --> 00:37:19,840 Speaker 1: back in the day when I was a kid, I 679 00:37:19,920 --> 00:37:22,480 Speaker 1: was big time into a Bruno, Sammartino, all that kind 680 00:37:22,480 --> 00:37:27,480 Speaker 1: of chief Ja strongbow. But it's savage. What was his name, 681 00:37:27,560 --> 00:37:31,799 Speaker 1: Randy Andy? I don't know. Randy macho man's right. Now 682 00:37:31,800 --> 00:37:34,120 Speaker 1: it's just become huge. It's bigger than the movie business. 683 00:37:34,200 --> 00:37:36,360 Speaker 1: I mean, it's just amazing how big this stuff is 684 00:37:36,600 --> 00:37:40,320 Speaker 1: has gotten WWE. I think they want to sell themselves 685 00:37:40,360 --> 00:37:43,960 Speaker 1: or something. I don't know what's he's back and he 686 00:37:44,040 --> 00:37:46,400 Speaker 1: threw out his daughter, who was like the boss. Ye 687 00:37:46,640 --> 00:37:49,160 Speaker 1: and now they want to sell it. I mean it was, uh, 688 00:37:49,680 --> 00:37:52,239 Speaker 1: you know, I don't know, but Keith Rung and she's 689 00:37:52,280 --> 00:37:56,040 Speaker 1: the media analyst. She knows this stuff. Keith, what do 690 00:37:56,080 --> 00:37:58,600 Speaker 1: we need to know? Like, I don't view you Githa 691 00:37:58,800 --> 00:38:00,680 Speaker 1: as a w w E. I'm just going to go 692 00:38:00,719 --> 00:38:03,080 Speaker 1: out on a limb there, But I know you're a 693 00:38:03,120 --> 00:38:06,279 Speaker 1: world class analyst. So you know what's going on at 694 00:38:06,320 --> 00:38:10,760 Speaker 1: Worldwide Wrestling Entertainment market cap six point four billion dollars, 695 00:38:12,239 --> 00:38:16,240 Speaker 1: big company? What's going on there? Yeah? So Vince McMann, 696 00:38:16,239 --> 00:38:19,759 Speaker 1: as you just mentioned, a controlling shareholder, he has returned 697 00:38:20,360 --> 00:38:22,719 Speaker 1: to kind of run the company in January, and he 698 00:38:22,800 --> 00:38:26,960 Speaker 1: basically the idea was to kind of oversee this strategic 699 00:38:27,080 --> 00:38:31,320 Speaker 1: review where he would explore options to sell the company. 700 00:38:31,960 --> 00:38:36,000 Speaker 1: And Bloomberg News Lukashaw just broke the story last week, 701 00:38:36,120 --> 00:38:40,360 Speaker 1: saying that he is looking at a nine billion valuation 702 00:38:40,440 --> 00:38:45,440 Speaker 1: for the company. Now that dollars, Yeah, nine billion dollars. 703 00:38:45,520 --> 00:38:47,880 Speaker 1: And you know, so we were just kind of crunching 704 00:38:47,880 --> 00:38:50,920 Speaker 1: some numbers in terms of what that translates to in 705 00:38:51,000 --> 00:38:55,080 Speaker 1: terms of multiples. So it's a twenty two x multiple 706 00:38:55,760 --> 00:39:00,719 Speaker 1: EV to EBITDAM multiple. It's about twice the level of 707 00:39:01,239 --> 00:39:03,480 Speaker 1: media and media companies. So if you just look across 708 00:39:03,520 --> 00:39:07,000 Speaker 1: the board across the media landscape, most media companies are 709 00:39:07,040 --> 00:39:10,280 Speaker 1: trading right now at about ten to eleven times forward EBITDA. 710 00:39:10,760 --> 00:39:14,759 Speaker 1: So this is obviously a pretty steep ask. Having said that, 711 00:39:14,760 --> 00:39:18,759 Speaker 1: though they do own some really valuable intellectual property. Um, 712 00:39:18,840 --> 00:39:21,000 Speaker 1: I mean, if you just look in general, and one 713 00:39:21,040 --> 00:39:29,560 Speaker 1: of the areas intellectual I mean across the media landscape. 714 00:39:29,640 --> 00:39:32,040 Speaker 1: I think one of the areas that we're pretty bullish on, 715 00:39:32,239 --> 00:39:35,040 Speaker 1: or at least most investors seem fairly bullish on, is 716 00:39:35,040 --> 00:39:36,880 Speaker 1: sports rights. Now, one could argue, I mean, this is 717 00:39:36,960 --> 00:39:41,919 Speaker 1: really fake sports, right, It's it's scripted, but it's still 718 00:39:41,960 --> 00:39:45,480 Speaker 1: pretty valuable. Um And and in general, we've seen about 719 00:39:45,680 --> 00:39:49,719 Speaker 1: you know, seventy percent increase in these rights fees um 720 00:39:50,320 --> 00:39:52,640 Speaker 1: And you know, so one could argue that any of 721 00:39:52,680 --> 00:39:55,680 Speaker 1: the current media partners, which is you know, Fox and 722 00:39:55,800 --> 00:39:58,560 Speaker 1: Comcast could potentially I mean, why would they want to 723 00:39:58,600 --> 00:40:02,200 Speaker 1: rent the rent these uh content rights in perpetuity, right, 724 00:40:02,200 --> 00:40:04,800 Speaker 1: It would make just more sense to own it. UM. 725 00:40:04,840 --> 00:40:06,799 Speaker 1: And so that's kind of you know, some of the 726 00:40:06,840 --> 00:40:09,719 Speaker 1: thinking out there. But again with Vince McMahon, I mean, 727 00:40:09,840 --> 00:40:13,200 Speaker 1: he's he's a fairly brash, outsized personalities. I'm not really 728 00:40:13,200 --> 00:40:15,120 Speaker 1: sure how many people want to get involved here, and 729 00:40:15,200 --> 00:40:18,280 Speaker 1: I never know, UM when I read stories about Vince 730 00:40:18,360 --> 00:40:21,839 Speaker 1: and Stephanie, how much of is that is made up 731 00:40:21,920 --> 00:40:26,480 Speaker 1: drama and how much of that is real? Yeah, I 732 00:40:26,480 --> 00:40:29,000 Speaker 1: don't know too much either. UM. So obviously, his son 733 00:40:29,040 --> 00:40:32,520 Speaker 1: in law still pretty much runs the creative part of 734 00:40:32,560 --> 00:40:35,640 Speaker 1: it UM and I think the the idea is that 735 00:40:35,680 --> 00:40:38,279 Speaker 1: he will continue to run the creative because what we've 736 00:40:38,280 --> 00:40:40,359 Speaker 1: seen is ever since you know, Triple H H has 737 00:40:40,400 --> 00:40:42,799 Speaker 1: been doing the creative process at the company, it's it's 738 00:40:42,840 --> 00:40:46,360 Speaker 1: done really, really well, UM and investors are extremely happy. 739 00:40:46,760 --> 00:40:50,959 Speaker 1: Triple Edge. What what's Triple edge or Triple H Triple H. Yeah, 740 00:40:50,960 --> 00:40:53,520 Speaker 1: that's that's that's the Sun involved, that's the Sun law. 741 00:40:53,600 --> 00:40:56,799 Speaker 1: Triple H got it all right down with that. UM. 742 00:40:56,920 --> 00:40:59,680 Speaker 1: So he you know, he's been in charge, um and 743 00:40:59,760 --> 00:41:02,000 Speaker 1: I I think any any deal will be contingent on 744 00:41:02,120 --> 00:41:05,279 Speaker 1: him kind of pretty much staying on, you know, in 745 00:41:05,280 --> 00:41:07,080 Speaker 1: the media space, one of the things that you when 746 00:41:07,200 --> 00:41:09,200 Speaker 1: investors in media space you're dealing with this is sole 747 00:41:09,200 --> 00:41:13,759 Speaker 1: transition to streaming. How has Worldwide Wrestling? How are they 748 00:41:13,760 --> 00:41:16,839 Speaker 1: positioned themselves for the streaming world. So that's a really 749 00:41:16,840 --> 00:41:18,720 Speaker 1: interesting question. I mean, this was one of the companies 750 00:41:18,760 --> 00:41:23,320 Speaker 1: that made its foray into streaming, way back before Disney 751 00:41:23,360 --> 00:41:24,960 Speaker 1: or any of these other companies had even done it. 752 00:41:25,640 --> 00:41:28,040 Speaker 1: And they created something called the ww E network, and 753 00:41:28,080 --> 00:41:29,640 Speaker 1: they went out and they got about one to two 754 00:41:29,680 --> 00:41:33,439 Speaker 1: million subscribers. However, they did hit a wall, and so 755 00:41:33,520 --> 00:41:35,880 Speaker 1: they realized that after that you know, one and a 756 00:41:35,880 --> 00:41:38,239 Speaker 1: half million subscriber mark, they were really not able to 757 00:41:38,280 --> 00:41:42,120 Speaker 1: get much, you know, much more, and so they actually 758 00:41:42,239 --> 00:41:44,600 Speaker 1: sold all of those streaming rights. They sold the entire 759 00:41:44,719 --> 00:41:47,320 Speaker 1: WWE network, or at least the rights to the ww 760 00:41:47,440 --> 00:41:50,560 Speaker 1: E network to Peacock, which is owned by Comcast. And 761 00:41:50,600 --> 00:41:53,600 Speaker 1: so they have a one billion dollars deal with Comcast 762 00:41:53,800 --> 00:41:58,000 Speaker 1: for that portion of the streaming business. So really, I mean, again, 763 00:41:58,040 --> 00:41:59,839 Speaker 1: if you kind of look at where they make most 764 00:41:59,840 --> 00:42:02,920 Speaker 1: of their money. It is from media rights, both the 765 00:42:02,960 --> 00:42:05,920 Speaker 1: streaming as well as the core TV rights. Oh that's 766 00:42:05,920 --> 00:42:08,960 Speaker 1: about eighty percent of their revenue. Stream wow, and the library. 767 00:42:08,960 --> 00:42:11,440 Speaker 1: I mean, Ken Felio points out they have a massive library, 768 00:42:11,560 --> 00:42:14,560 Speaker 1: right They've They've still own everything that they've ever bought, 769 00:42:14,640 --> 00:42:17,560 Speaker 1: everything that they've ever made. They have the video rights 770 00:42:17,560 --> 00:42:20,840 Speaker 1: to all that, Yes, they do, so you know, basically 771 00:42:21,040 --> 00:42:24,319 Speaker 1: in a sale, all of that kind of comes into play. 772 00:42:24,440 --> 00:42:28,160 Speaker 1: I just wonder how they compete with I do love 773 00:42:28,560 --> 00:42:33,399 Speaker 1: to watch MMA, and I will pay. However, however, much 774 00:42:33,560 --> 00:42:37,320 Speaker 1: like the pay per view fight costs for UFC, I'll 775 00:42:37,400 --> 00:42:42,279 Speaker 1: pay it. Really it's awesome, dude. It is brutal and 776 00:42:42,360 --> 00:42:45,200 Speaker 1: it's real, which is what I like about it. Now. 777 00:42:45,239 --> 00:42:48,319 Speaker 1: I know that I've seen the Mickey Rouric movie, and 778 00:42:48,400 --> 00:42:50,759 Speaker 1: my brother is friends with the CULK and kids, and 779 00:42:50,760 --> 00:42:54,279 Speaker 1: they're all into this WWE. I know it's hard and 780 00:42:54,360 --> 00:42:58,360 Speaker 1: physically taxing, but it's just not to me at the 781 00:42:58,440 --> 00:43:01,600 Speaker 1: level of UFC. They have some big competition in those 782 00:43:01,680 --> 00:43:05,480 Speaker 1: kind of leagues. So, I mean, so here's the big 783 00:43:05,719 --> 00:43:07,960 Speaker 1: you know, you bring up a great point for the UFCUM. 784 00:43:08,200 --> 00:43:13,080 Speaker 1: So UFC is now owned by Endeavor, which actually has 785 00:43:13,120 --> 00:43:14,960 Speaker 1: been a big talent agency, right, Yeah, that's a big 786 00:43:15,000 --> 00:43:16,879 Speaker 1: talent agency, and that's that's just been such a home 787 00:43:16,960 --> 00:43:20,200 Speaker 1: run for them because you know, really the idea there 788 00:43:20,400 --> 00:43:23,200 Speaker 1: was our Emmanuel kind of bought UFC to kind of 789 00:43:23,200 --> 00:43:26,200 Speaker 1: increase the scope of the talent agency's business to live events, 790 00:43:26,880 --> 00:43:29,040 Speaker 1: and so it would make sense. They obviously have a 791 00:43:29,080 --> 00:43:33,719 Speaker 1: lot of interest in acquiring WWE as well, and I 792 00:43:33,760 --> 00:43:35,440 Speaker 1: think it would be a great fit because if you 793 00:43:35,520 --> 00:43:37,719 Speaker 1: just kind of look at McMahon, you look at his personality, 794 00:43:37,760 --> 00:43:40,520 Speaker 1: you look at the relationship between the WWE brand and 795 00:43:40,600 --> 00:43:43,120 Speaker 1: his own brand, it really fits well with you know, 796 00:43:43,239 --> 00:43:47,719 Speaker 1: UFC and Dana White. Um. The problem there is, you know, 797 00:43:47,760 --> 00:43:49,560 Speaker 1: you talked about competition with the UC. I don't I 798 00:43:49,600 --> 00:43:53,399 Speaker 1: don't necessarily think there's going to be competition as such 799 00:43:53,480 --> 00:43:56,400 Speaker 1: for viewership. I think there could be in some nice synergies. 800 00:43:56,760 --> 00:43:59,400 Speaker 1: The problem is, I don't think Endeavor can actually afford 801 00:43:59,440 --> 00:44:03,360 Speaker 1: the deal because they already have about six billion dollars 802 00:44:03,360 --> 00:44:06,520 Speaker 1: in debt, you know, the nine billion dollars asking price, 803 00:44:06,560 --> 00:44:08,200 Speaker 1: it's going to be really really hard. So it's got 804 00:44:08,200 --> 00:44:14,319 Speaker 1: to be Fox or Comcast or Disney. So you know, yes, 805 00:44:14,680 --> 00:44:16,960 Speaker 1: potentially that those are what makes most sense. I mean, 806 00:44:17,040 --> 00:44:20,280 Speaker 1: Comcast makes the most sense just because they're already paying 807 00:44:20,320 --> 00:44:23,319 Speaker 1: them about four hundred and seventy million a year for 808 00:44:23,560 --> 00:44:26,239 Speaker 1: the TV rights as well as the streaming right, and 809 00:44:26,400 --> 00:44:28,640 Speaker 1: in a renewal, they'll probably end up paying them at 810 00:44:28,719 --> 00:44:32,160 Speaker 1: least six hundred and fifty million per year. So you know, 811 00:44:32,320 --> 00:44:34,720 Speaker 1: multiply that by five. They're paying them about three billion 812 00:44:34,760 --> 00:44:37,560 Speaker 1: dollars over a span of about five six years. And 813 00:44:37,600 --> 00:44:39,239 Speaker 1: so it does it really make sense for them to, 814 00:44:39,400 --> 00:44:41,000 Speaker 1: you know, rent that when they can just go and 815 00:44:41,239 --> 00:44:43,839 Speaker 1: buy it out right? But I'm not so sure what 816 00:44:44,000 --> 00:44:46,920 Speaker 1: you know, whether Brian Roberts would want Vince McMahon to 817 00:44:46,920 --> 00:44:49,239 Speaker 1: actually continue on at the company. And I'm just not 818 00:44:49,280 --> 00:44:52,680 Speaker 1: sure how those personalities will mash and with Comcast, one 819 00:44:52,719 --> 00:44:57,279 Speaker 1: always thinks of a much more kind of transformative deal, right, 820 00:44:57,280 --> 00:45:01,080 Speaker 1: They're ambitious. So yeah, not really sure how that's going 821 00:45:01,120 --> 00:45:02,840 Speaker 1: to play out. Well, I can tell I met Githa 822 00:45:02,880 --> 00:45:06,040 Speaker 1: thirteen years ago. She's a data analyst at Bloomberg, one 823 00:45:06,080 --> 00:45:08,239 Speaker 1: of the best. Little did she know then that she 824 00:45:08,280 --> 00:45:12,280 Speaker 1: would be covering a wrestling company thirteen years later. Keithan, 825 00:45:12,280 --> 00:45:14,319 Speaker 1: thanks so much. For joining us. Keith at Ranganathan. She's 826 00:45:14,360 --> 00:45:18,600 Speaker 1: the media anna slash wrestling analyst at Bloomberg. Can tell 827 00:45:18,719 --> 00:45:20,200 Speaker 1: just one of the best out there on the street 828 00:45:20,320 --> 00:45:27,160 Speaker 1: for all things media WWE. Maybe It's for sale. Thanks 829 00:45:27,160 --> 00:45:30,640 Speaker 1: for listening to the Bloomberg Markets podcast. You can subscribe 830 00:45:30,640 --> 00:45:34,400 Speaker 1: and listen to interviews with Apple Podcasts or whatever podcast 831 00:45:34,440 --> 00:45:37,960 Speaker 1: platform you prefer. I'm Matt Miller. I'm on Twitter at 832 00:45:38,040 --> 00:45:41,239 Speaker 1: Matt Miller nineteen seventy three, and I'm fall Sweeney. I'm 833 00:45:41,280 --> 00:45:43,880 Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can 834 00:45:43,920 --> 00:45:46,120 Speaker 1: always catch us worldwide at Bloomberg Radio.