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Speaker 2: So it's bringing on rog Rana. He's a tech analyst
Speaker 2: for Bloomberg Intelligence. You've been following Apple stock for decades here,
Speaker 2: how important is today?
Speaker 3: Anurag?
Speaker 2: I feel like Apple doesn't have the AI juice in
Speaker 2: at stock.
Speaker 3: Is that something they care about?
Speaker 4: No, they have to care about it because that's the
Speaker 4: most important thing investor's mind right now. So there are
Speaker 4: a few things we already kind of know thanks to
Speaker 4: Mark German. Is there's going to be most likely an
Speaker 4: announcement with Open Eyes, some kind of joint agreement with
Speaker 4: them to use their technology into the new operating system.
Speaker 4: So I would say a lot of that is already
Speaker 4: built in. We all know that Apple doesn't have its
Speaker 4: own large language model as good as what's available with
Speaker 4: Opening I or arguably with Google, so but they can
Speaker 4: partner with these two companies. So that's that's the luxury
Speaker 4: Apple has that it does not need to do with
Speaker 4: everything in house and that's what we're going to look
Speaker 4: forward today, is what's the strategy in terms of working
Speaker 4: with partners and then using that technology to fuel the
Speaker 4: operating system.
Speaker 5: It does it? Will it justify their one up in
Speaker 5: the stock?
Speaker 6: How do you make the correlation between the news and
Speaker 6: what we're actually going to get and the actual move
Speaker 6: in the in Apple share price.
Speaker 4: So, Alex, one of the things I would say is
Speaker 4: for the past one and a half to two years,
Speaker 4: there has been nothing but bad news coming for Apple.
Speaker 4: You know, that has been an issue because iPhone growth
Speaker 4: has slowed down, mostly because of China. So I would
Speaker 4: say this is the first liver of good news that
Speaker 4: has the potential to improve iPhone sales next year. It's
Speaker 4: not going to do anything this year. I mean, it's
Speaker 4: it's very difficult to model that out. But if the
Speaker 4: operating system has enough juice for people to figure out
Speaker 4: and say I will go out and change my phone
Speaker 4: next year, I think that's the That is the gas
Speaker 4: that people are looking for, is whether that can go
Speaker 4: back and reignite sales growth.
Speaker 2: And we were talking with Mark Herman earlier this morning
Speaker 2: and he kind of suggested that, you know, it can
Speaker 2: be taken as a little bit of an embarrassment by
Speaker 2: Apple that they do not have, you know, kind of
Speaker 2: their own AI capabilities in house, that they need to
Speaker 2: partner with open Ai. Do you think investors view it
Speaker 2: that way? They're just like, we don't really care how
Speaker 2: you get it, just put it on the device.
Speaker 4: Yeah, but personally I don't care how do you do
Speaker 4: get it on the device? Same thing for search. What
Speaker 4: I really like about that if they partner it is
Speaker 4: then they don't have to spend billions of dollars to
Speaker 4: do it in house. If you look at the capex
Speaker 4: of Apple compared to some of the other companies, it's
Speaker 4: much smaller.
Speaker 7: And you know, I'm.
Speaker 4: Okay with that because it helps out in my free
Speaker 4: cash flow. As long as they can partner with people,
Speaker 4: I'm absolutely fine with it.
Speaker 5: Well, let's go to the idea.
Speaker 6: I mean, you can bring my daughter into this. So
Speaker 6: I'm doing a lot of reading Estrian Apple. I'm taking
Speaker 6: all my notes and doing my homework, and I said, hey, dydn't.
Speaker 6: I was like, you know that Apple's going to have
Speaker 6: this thing tomorrow and they're gonna maybe unveil something that
Speaker 6: will help emojis and you can get better emojis when
Speaker 6: you're typing texts and she's like, that is so cool
Speaker 6: when you need to get the new phone, and I think, anurag,
Speaker 6: that's your point where like people like my daughter are like,
Speaker 6: that's awesome, upgrade your phone now, because I'm like, oh.
Speaker 5: A few years, a few years.
Speaker 6: She's like, no, no, you got to get the phone
Speaker 6: because I need the emojis so I can send texts
Speaker 6: to my friends. That's basically what you're talking about. There's
Speaker 6: a huge install base. You do something that even is
Speaker 6: like semi cool, and that's going to drive sales.
Speaker 4: Yeah, I mean, that's the coolness factor. And frankly speaking,
Speaker 4: one of the things that really caught my attention is
Speaker 4: Mark German reported that the new features would be available
Speaker 4: on iPhone fifteen Pro and the newer one that's coming.
Speaker 4: I mean, that's a big deal because, frankly speaking, if
Speaker 4: that's a very small portion of the total install base,
Speaker 4: even those early adopters, if they go out and rush
Speaker 4: to increase their you know, the refresh the phone in
Speaker 4: a much quicker way, that's going to help out Apple.
Speaker 2: All right, So what else today should we be looking for?
Speaker 3: Anna Raga?
Speaker 2: I mean, is there going to be a new watch
Speaker 2: and do anything or is it just getting everybody to
Speaker 2: focused on AI.
Speaker 4: Yeah, it's all going to be AI. And I think
Speaker 4: one of the things I really like what I've seen
Speaker 4: from Apple in the last six months is now they
Speaker 4: are all focused on this product because one of the things,
Speaker 4: again Mark said that, you know, they shut down the
Speaker 4: cards project, which has been around for you know, so
Speaker 4: many years, taking out massive amount of investments, and then
Speaker 4: they you could say that they diverted that attention and
Speaker 4: not focused on AI completely. But right now the entire
Speaker 4: company is focused on AI, embedding it every product, every
Speaker 4: operating system, every feature. And I think, and you know,
Speaker 4: one of the things we've heard even in China is
Speaker 4: consumers don't like that Apple has been behind in this
Speaker 4: particular one and that has been a reason for them
Speaker 4: not to upgrade their phone. So I think Apple's taking
Speaker 4: this a lot more seriously. I think other tech companies
Speaker 4: are taking it a lot more seriously. Who have been
Speaker 4: you know, I would say, taking their dominant position in
Speaker 4: their respective markets for granted over the last few years.
Speaker 4: And that's what I think open ai has done for
Speaker 4: the rest of the ecosystem.
Speaker 6: Also, honour more of the derivative plays from this. When
Speaker 6: we're hearing the announcements from Apple in your world of software,
Speaker 6: where should we be paying attention to?
Speaker 4: I think see what we think is going to happen
Speaker 4: is over the next one to two years, every software
Speaker 4: company is going to embed more AI features into their
Speaker 4: core software product. Now, the question is some of them
Speaker 4: will have the ability to up charge for that, which
Speaker 4: means they will have a pro model or a premium
Speaker 4: model or a ProPlus model where the average revenue per
Speaker 4: user can go up. This way, they don't have to
Speaker 4: go out and look for a brand new user to
Speaker 4: sell that software. They just have to convince the buyer
Speaker 4: that it is worth your while to upgrade that software
Speaker 4: into the one that has AI features. I think that
Speaker 4: is where bulk of the investments are going to In
Speaker 4: terms of the software industry, we think every major company
Speaker 4: will play a role in it. The ones that we
Speaker 4: have seen so far is that's coming out from Microsoft,
Speaker 4: whether it's in the Office Suite or the one that
Speaker 4: we like quite a bit. Is there coding software where
Speaker 4: you could the software developers can actually do automated coding
Speaker 4: in a much faster way. I think that will have
Speaker 4: a massive upsell rate because the benefits of productivity are
Speaker 4: way too high over there.
Speaker 2: All right, on thirty seconds question of the day, I
Speaker 2: have an iPhone eleven toy upgrade now or wait.
Speaker 4: This winter when the next one comes in, which is
Speaker 4: the iPhone sixteen or so. I think you will be
Speaker 4: very happy with that particular.
Speaker 5: One I found. Did it work? Like can you run stuff?
Speaker 8: Yeah?
Speaker 6: But at some point, like the apps just don't update
Speaker 6: and the software doesn't update, and like you have to
Speaker 6: turn it in.
Speaker 2: Well, the big thing that what always prompts me to
Speaker 2: upgrade is the battery. When a battery starts, that's that's
Speaker 2: the message. All right, Honak, thanks so much for joining us.
Speaker 2: A rag ronnie. He saved me a couple of dollars today.
Speaker 2: I'm not gonna go out and buy a new iPhone.
Speaker 2: He's a senior technologyanels for Bloomberg Intelligence. Yeah, it's always
Speaker 2: the battery that kind of gets me.
Speaker 6: The battery is rough, Yeah, but I do my thing
Speaker 6: on like low battery all day, like you don't do
Speaker 6: they do?
Speaker 5: Yeah, which is fine.
Speaker 6: It just means it instead of like staying up and
Speaker 6: connected for a long time, it just goes to sleep
Speaker 6: and I just have to wake it up.
Speaker 2: Really yeah, but a last like anybody that you're the
Speaker 2: first person that.
Speaker 6: Business track for me, though I don't know, I feel
Speaker 6: like this all makes some cheap sense. Anyway, We're definitely
Speaker 6: watching Apple and looking forward to that announcement coming there
Speaker 6: has a really big run up.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 6: This is Bloomberg Intelligence Radio, where we cover all the
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Speaker 5: Lens of our Bloomberg Intelligence analysts.
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Speaker 6: industries worldwide. We also like to tap our guys over
Speaker 6: Bloomberg Economics, amazing men and women who do the economic
Speaker 6: side of the entire world. David Powell is senior Euro
Speaker 6: Area economist for Bloomberg Economics and he joins us now
Speaker 6: David BTP bund spread right, you have the France versus
Speaker 6: German ten year spread fifty five basis points.
Speaker 5: We haven't seen that all year.
Speaker 6: You have a huge, huge sell off in the bond
Speaker 6: market some of the main countries, even in Italy and
Speaker 6: Spain and Portugal, equities are getting hit. What do you
Speaker 6: make of what unfolded over the last twenty four hours
Speaker 6: in France and the European Parliament.
Speaker 9: Well, the far right parties of Europe had very large
Speaker 9: gains in the European elections. These are the elections for
Speaker 9: the European Parliament, and that wasn't so much of a
Speaker 9: surprise in itself, because Poles were showing that was likely
Speaker 9: to happen. But the big surprise is what's happened in
Speaker 9: France is the reaction of the French President, Emmanuel Marcon
Speaker 9: to the outcome, and he announced a snap parliamentary elections.
Speaker 9: This won't affect his role as president because that's a
Speaker 9: separate election, But soon the French will be going to
Speaker 9: polls to be voting for new members of parliament and
Speaker 9: for American listeners that's similar to the members of the
Speaker 9: House of Representatives, and then the composition of that lower
Speaker 9: house may change, and in fact polls suggest it will
Speaker 9: more in favor of the of the party that just
Speaker 9: won such a such a large number of seats in
Speaker 9: the European Parliament.
Speaker 2: So David in the European Parliament, what were some of
Speaker 2: the contributing factors to that strong performance by the far right.
Speaker 9: Well, Uh, discontent with with the with the way things
Speaker 9: are going. Of course that's not unique to Europe and America.
Speaker 9: A lot of voters of their concerns about inflation, what
Speaker 9: that means for their spending power, and that has the
Speaker 9: that that's that's had a similar impact on the on
Speaker 9: the electorate in Europe where people are upset about these
Speaker 9: high prices. Uh, the the the cost of living crisis
Speaker 9: as they refer to it. But in addition to those
Speaker 9: to those developments in France, but they've also had recently
Speaker 9: is a change to the pension system in order to
Speaker 9: make it more affordable. So they've lifted the retirement age
Speaker 9: and that was done by the French president and it
Speaker 9: was not a popular move as you can imagine. No
Speaker 9: one wants to be told that they have to work
Speaker 9: for longer in order to receive the same benefits, and
Speaker 9: that has been a source of support for this for
Speaker 9: the far right, which has come out which came out
Speaker 9: at the time opposing that that's done. They've also come
Speaker 9: out opposing recent changes that are being discussed to the
Speaker 9: system of unemployment benefits. So it is now a debate
Speaker 9: about shortening the duration of unemployment benefits that the government
Speaker 9: is leading.
Speaker 6: So what I find interesting, David is the idea and
Speaker 6: the more I read about it, the more it's like
Speaker 6: Mattcrol's calling the far right bluff and it's like, all right,
Speaker 6: you guys want those policies, Let's see how much you
Speaker 6: want those policies that What is your assessment as to
Speaker 6: how risky or not that strategy is and the effect
Speaker 6: you could have on the economy.
Speaker 9: Well, some of the things that Macwall's pushed through, like
Speaker 9: raising the retirement age and this debate about shortening the
Speaker 9: duration of employment benefits, Obviously they're not popular, but they're
Speaker 9: necessary because France is a huge budget deficit there under
Speaker 9: a lot of pressure from the European Commission to reduce
Speaker 9: the size of it. Their debt isn't growing increasingly large,
Speaker 9: and these reforms will reduce the amount that the government
Speaker 9: is to pay out to pensioners and the unemployed, and
Speaker 9: they'll also boost the potential size of the economy. So
Speaker 9: it's kind of a win win situation from an economic
Speaker 9: point of view. And even though these aren't popular, macalls saying,
Speaker 9: these are necessary steps in order to get the public
Speaker 9: finances in order. And the far right has been opposed
Speaker 9: to many of these moves, but they haven't they haven't
Speaker 9: proposed other solutions. So I think one of the things
Speaker 9: Macwoll's kind of doing here is saying is you know,
Speaker 9: you like to be opposed to what I'm doing, but
Speaker 9: you're not putting forth any solutions yourself. And while you're
Speaker 9: in opposition, I guess that's your job to oppose the government.
Speaker 9: But let's see if you can put together some policies
Speaker 9: yourselves that would solve the problems instead of just complaining
Speaker 9: about what he has proposed as solutions.
Speaker 2: David, can you give us a kind of an overview
Speaker 2: just maybe how the economic the economies of Europe are
Speaker 2: behaving generally speaking, How are they in terms of growth,
Speaker 2: how are they in terms of inflation these days?
Speaker 3: What are the trends?
Speaker 9: Well, Europe, like the United States, has had an inflation
Speaker 9: problem of the last couple of years, and in Europe
Speaker 9: it was made even worse by the extreme rise and
Speaker 9: commodity prices that resulted after Russia's invasion in Ukraine. They
Speaker 9: have that inflation issue that's causing a cost of living crisis,
Speaker 9: And like the Federal Reserve, the European Central Bank very
Speaker 9: drastically raised interest rates, although unlike the United States, it
Speaker 9: had a major impact on the economy. So when we
Speaker 9: look back to twenty twenty three, I think the US
Speaker 9: economy grew something like three percent and the r Area
Speaker 9: economy did not grow at all. So there's been a
Speaker 9: much weaker economic performance as a result of the monetary
Speaker 9: tightening that's taken place.
Speaker 6: Yes, we got the ECB that did cut rates, we
Speaker 6: don't know when the next one's going to be. And
Speaker 6: then we get this violent move in bonn yields, and
Speaker 6: I appreciate compared the sovereign deck crisis, it's like peanuts,
Speaker 6: But nonetheless it's significant. At what point do bond yields
Speaker 6: effect everything else start to affect the economy, Like how high?
Speaker 6: How long do they have to stay for that to
Speaker 6: feel to that to be implemented into the economy.
Speaker 9: Yeah, I mean higher financing costs for the government. We'll
Speaker 9: have implications for the budget deficit and implications for lots
Speaker 9: of other things that are used as trademark interest rates
Speaker 9: in the economy in many places. However, as you said,
Speaker 9: these are small compared to what you're dealt with in
Speaker 9: the past in terms of the area debt crisis, and
Speaker 9: there's very unlikely to be any intervention from the ECB
Speaker 9: or anything like that, only because not only the movements small,
Speaker 9: but during a period of high inflation it's much more
Speaker 9: difficult for a central bank to intervene and to justify
Speaker 9: those moves than it is during a period of low inflation,
Speaker 9: because of course those interventions require just essentially printing money
Speaker 9: and using that money to buy those bonds. So we
Speaker 9: have had some movement in financial markets, but nothing that's
Speaker 9: screaming crisis, nothing that is screaming for the ECB to
Speaker 9: jump in and come the situation.
Speaker 3: All right, David, thank you so much. We appreciate that.
Speaker 2: David Palm, he's a senior your Area of Congress for
Speaker 2: Bloomberg Economics joining us from London the HQ for Bloomberg
Speaker 2: at Queen Victoria Street via that zoom thing. So again,
Speaker 2: some big moves, as Alex was pointing out earlier, of
Speaker 2: the euro off about a half of one percent sent
Speaker 2: one spot zero seven on the euro. You had the
Speaker 2: CAC fall off pretty substantially as well the French index.
Speaker 2: They're off about one point eight percent in terms of
Speaker 2: the stock market over there on the news of these
Speaker 2: snap elections.
Speaker 6: So my question is, then do we learn anything about
Speaker 6: how other elections will be treated like here in the
Speaker 6: US or not. We know hedging doesn't work with these things,
Speaker 6: as we learn, say with Brexit, so it's going to
Speaker 6: be very interesting to see how long these moves actually last,
Speaker 6: which might give us some insight into when they had
Speaker 6: the elections in July, when the UK has their election
Speaker 6: in July, and when we have our election as well
Speaker 6: in November.
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
Speaker 1: weekdays at ten am Eastern on fo CarPlay and enroud
Speaker 1: Otto with the Bloomberg Business App. Listen on demand wherever
Speaker 1: you get your podcasts, or watch us live on YouTube.
Speaker 6: And Alex Steel alongside Paul's We Need This a Bloomberg
Speaker 6: Intelligence Radio. We're broadcasting to you live from the Interactive
Speaker 6: Broker studio right here and quarters in a beautiful midtown Manhattan.
Speaker 5: Lisa was just giving you a check on the market.
Speaker 6: Also, Apple is down a touch, but it has a
Speaker 6: huge run up since the end of April, and Video
Speaker 6: is also down on that stock split. So we want
Speaker 6: to dig a little deeper here with Carol Pepper, founder
Speaker 6: and CEO of Pepper International. She joins us, Hey, Carol,
Speaker 6: do you want to buy Apple into today? Like, do
Speaker 6: you want to buy in Video on the stock split?
Speaker 10: Definitely buying Video on the stocksplit. I think that that's
Speaker 10: just a great sign. And in Video is going to
Speaker 10: run right back up to over a thousand bucks a share.
Speaker 11: It is the engine right now.
Speaker 10: So I would definitely buy it and tuck it away
Speaker 10: and not look at it, just leave it there on fear.
Speaker 11: Days and I'll go down. So on a fear day,
Speaker 11: buy the stock.
Speaker 2: So can we broad that out Carol to say, continue
Speaker 2: to buy some of these large cap growth stories across
Speaker 2: the border.
Speaker 3: Where do we try to find some value out there?
Speaker 10: No, I definitely feel like the value is long large
Speaker 10: cap growth. Frankly, the leaders and the bigger stocks are
Speaker 10: getting bigger. They're in a position with all the cash
Speaker 10: on their ballad sheet to be very muscular to make
Speaker 10: the innovative deals, to make long term investments where other
Speaker 10: companies are struggling. So in tech, at least, bigger is
Speaker 10: much better and that's where you need to stay. And again,
Speaker 10: if you haven't fully filled out your tech allocation, it's
Speaker 10: something to take a hard look at. In general, I
Speaker 10: think growth continue to outperform value. It has for over
Speaker 10: ten years, and I don't see that trend ending anytime soon.
Speaker 10: Although it's still very prutent to own the entire SMP,
Speaker 10: the US stock market is going to continue to outperform
Speaker 10: the rest of the world, certainly for the foreseeable future.
Speaker 6: You, Carol, you didn't mention Apple. You know you're talking
Speaker 6: about large cap growth. We're talking about tech. I asked
Speaker 6: an Apple you didn't talk about. It makes me think
Speaker 6: that that's not in this thesis you have.
Speaker 10: Well, I mean the problem that I've always had with
Speaker 10: Apple is I feel like their product set is not
Speaker 10: that broad.
Speaker 11: I mean, Okay, how.
Speaker 10: Many iPhones do people really need? Yes, you might upgrade
Speaker 10: the phone that you have, that, are you really going
Speaker 10: to penetrate.
Speaker 11: Larger groups of new users.
Speaker 10: I'm not so sure about that. They're very expensive. We're
Speaker 10: in a high inflation market.
Speaker 11: I'm not as.
Speaker 10: Excited about Apple as I am about the other big
Speaker 10: tech companies like Amazon, certainly Microsoft, in Nvidia.
Speaker 11: We've got Google, even Facebook. You've got companies.
Speaker 10: That are branching out into more areas of growth and expansion.
Speaker 10: And to me, Apple's fairly focused. The car thing was
Speaker 10: a mistake and now they have to backtrack on that.
Speaker 10: I mean, they're still always going to be in the
Speaker 10: top five. Don't get me wrong, you can own them.
Speaker 10: I'm just not in love with them. As let's say
Speaker 10: the leading story.
Speaker 3: So are you in love with Microsoft and Amazon?
Speaker 10: Yes, I've always been in love with Amazon since the beginning,
Speaker 10: since they went public. Microsoft, I think is very very
Speaker 10: strong and will continue to be. So they have a
Speaker 10: much stronger focus on, i think, the corporate side of
Speaker 10: the business, and that's very smart because all of this
Speaker 10: AI innovation will start affecting corporate America and Microsoft will
Speaker 10: most likely be one of the main delivery mechanisms because
Speaker 10: they're embedded in so many corporate systems and so many
Speaker 10: you know, Outlook systems and all the cloud storage that
Speaker 10: they're doing.
Speaker 11: I don't think that that's going to change.
Speaker 6: So there was a great piece on Bloomberg that talked
Speaker 6: about how big text profit growth is going to slow.
Speaker 6: It's not going to go negative or anything. It's just
Speaker 6: going to slow from the kind of growth that we've seen.
Speaker 6: But that other areas like industrials, materials and healthcare can
Speaker 6: see roughly twenty five percent profit growth by the fourth
Speaker 6: quarter after a contraction twenty percent or more in the
Speaker 6: first quarter. So I'm wondering, are you in love with
Speaker 6: stuff outside of tech and maybe in those sectors.
Speaker 10: Well, I certainly think those sectors have room to move,
Speaker 10: which is fantastic. Certainly, you know, the GFLP one story
Speaker 10: is going to continue and expand we're going to see
Speaker 10: new drugs coming on and that is a blockbuster category.
Speaker 10: But I also see that AI is doing tremendous work
Speaker 10: in things like cancer research and coming up with real
Speaker 10: cures in the health tech space. So I think healthcare
Speaker 10: will also always be a good core holding.
Speaker 11: But if you were to say what weight.
Speaker 10: To put it out, I would overweight tack more than
Speaker 10: I would overweight healthcare.
Speaker 1: Though.
Speaker 11: Of course, to me, healthcare is a continued growth story.
Speaker 10: Because we have a lot of aging populations all over
Speaker 10: the world and they just simply need more healthcare. So yes,
Speaker 10: I mean healthcare is always a good sector. Anything growthy
Speaker 10: is your friend. It doesn't mean the other sectors won't
Speaker 10: touch up eventually, because a rising tide will lift all boats.
Speaker 11: Especially when the rates start to go down. That's where
Speaker 11: I think you'll see value start to move some more.
Speaker 10: Because with value, you know, you just have very much
Speaker 10: smaller margins to play with.
Speaker 11: So when you have high interest.
Speaker 10: Rates, you're more squeezed, and it's very hard to get
Speaker 10: out of that squeeze any particular way if you're not
Speaker 10: in a sector that's growing.
Speaker 2: Hey, Carol, one of the themes coming out of the
Speaker 2: pandemic was on shoring and friends shoring, and a lot
Speaker 2: of folks are saying, take a look at Mexico.
Speaker 3: Is that a theme you like? And so how do
Speaker 3: you play that?
Speaker 11: Yeah?
Speaker 10: Absolutely well, As you guys know, I manage money for
Speaker 10: ultra wealthy families with over one hundred million dollars family offices.
Speaker 11: And they're very much looking at Mexico.
Speaker 10: There's a huge real estate play going on now between
Speaker 10: Mexico and the United States because many many businesses are
Speaker 10: relocating their operations out of Asia to Mexico so that
Speaker 10: they can just drive goods right across the border. Into
Speaker 10: the US if they have to, So they're preparing for
Speaker 10: the next pandemic. Frankly, Mexican they had a huge election.
Speaker 10: The election went left. Of course, the wealthy families over
Speaker 10: there are quite nervous, but the incoming president has really
Speaker 10: pledged to not mess with the economy, and so far,
Speaker 10: so good.
Speaker 11: I don't think she.
Speaker 10: Will question becomes how much will the outgoing president pass
Speaker 10: his agenda before he leaves. But having said that, I
Speaker 10: think they're all very happy with the way the economy
Speaker 10: has been growing over there. So yes, Mexico will continue
Speaker 10: to grow. It's only actually just getting started, and there's
Speaker 10: a lot of activity in the real estate section the section.
Speaker 11: There's a lot of joint.
Speaker 10: Venturing between US and Mexican family offices going on, So
Speaker 10: keep your eye on Mexico. It's also a fantastic retirement
Speaker 10: nation for Americans who can't afford to stay here with
Speaker 10: the current retirement I mean, you can live on your
Speaker 10: Social Security beautifully in Mexico and you can't do that
Speaker 10: in the US in retirement. So they were already massive
Speaker 10: communities of retired Americans living across the border. And again
Speaker 10: it's easy for them to get home if they prefer
Speaker 10: to have health care in the US.
Speaker 11: But it's a big trend. It's going to continue to grow.
Speaker 6: Well, my best friend's pushing Costa Rica like that's her thing,
Speaker 6: Like they're going to move her family for a year anyway.
Speaker 6: So yes, that is a trend, Carrol, for sure, just
Speaker 6: a headline that's crossing here. I feel like this is
Speaker 6: for Paul because he'll get into it. BTP boom spread
Speaker 6: ten year gap rises to fifty five basis points, the
Speaker 6: highest in a year, and that's the difference between what
Speaker 6: the ten yere yield in France versus Germany is yielding.
Speaker 6: And since Germany tends to be looked at as the
Speaker 6: risk free rate over in Europe, it's a sign of
Speaker 6: where the stress is. Before the sovereign dead crisis, France
Speaker 6: was really thought of his stable along with Germany, and
Speaker 6: the dead crisis kind of avoid miss that got rid
Speaker 6: of the got rid of that a little bit, and
Speaker 6: there was more political risk over in France. Also, the
Speaker 6: equity market is getting crushed. Did we learn anything, Carol, Like,
Speaker 6: I know you're a US person, but did we learn
Speaker 6: anything about what happened in the European Parliament and Macron's
Speaker 6: choice to call these elections for the lower house in
Speaker 6: relation to how we can trade and expect things here
Speaker 6: in the US in November.
Speaker 11: Oh, that's a really interesting question.
Speaker 10: Well, I would say that, in my opinion, the vote
Speaker 10: in the EU is a one issue vote. It was
Speaker 10: an immigration vote because literally they're intignated. Almost every country
Speaker 10: has massive numbers of people arriving on their shores by
Speaker 10: vote because very close to get to Europe from other countries.
Speaker 11: So you know, the Europeans are sick.
Speaker 10: Of the immigration crisis, and I think his decision to
Speaker 10: call snap elections is worrisome because he may lose even
Speaker 10: more and that's what people don't want to see.
Speaker 11: There is a fear of.
Speaker 10: A return to a World War two kind of fascism
Speaker 10: in Europe in reaction to immigration.
Speaker 11: That's what.
Speaker 10: But having said that, the souter parties still hold the majority,
Speaker 10: so I think for the EU itself, we're still set
Speaker 10: for this for this next cycle. But it's certainly a
Speaker 10: commentary on they're way more enthusiastic on climate change and
Speaker 10: they're way more aggressive on trying to somehow stop all
Speaker 10: of this incoming immigration into the your EU block.
Speaker 11: So I think those two factors are really.
Speaker 10: Driving that vote, because average people are not happy with
Speaker 10: what's happening in Europe. So having said that, when you
Speaker 10: come to the United States, you're definitely seeing a.
Speaker 11: Number of voters very unhappy about immigration.
Speaker 10: And it's something that has to be dealt with in
Speaker 10: this country as well. We just have to have a
Speaker 10: better system that functions better. So it is a big
Speaker 10: election issue. Both sides are trying to grab it. I
Speaker 10: don't know what the outcome will be. It's a split
Speaker 10: decision right now in this country. But I do think
Speaker 10: here people are worried about fascism as well. Fascism is
Speaker 10: a scary rise throughout the developed world right now, and
Speaker 10: I I do think in America we have a real
Speaker 10: allergy to fascism, and when it comes to the voting polls,
Speaker 10: I don't think people are going to tolerate fascist talk
Speaker 10: in the United States.
Speaker 11: That's just my opinion, all right.
Speaker 3: Keerl, thank you so much for joining us.
Speaker 2: Kyle Pepper, founder and CEO of Pepper International, joining us
Speaker 2: New York City via zoom.
Speaker 1: Here you're listening to the Bloomberg Intelligence podcast. Catch us
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Speaker 2: Well, you know, we love these big take stories here
Speaker 2: at Bloomberg News.
Speaker 3: That's where our reporters a Bloomberg.
Speaker 2: News they do some really awesome deep dives and on
Speaker 2: some really interesting stories.
Speaker 3: Today is no different.
Speaker 2: How about this one talent exit at Williams New York
Speaker 2: Fed stokes concern on its way. Alex Harris joins is
Speaker 2: Bloomberg short Term interest rate reporter here. So Alex, thanks
Speaker 2: much for joining us here in our studio. The New
Speaker 2: York Federal Reserve Bank, that's a big one. And so
Speaker 2: what's happening with our friends at the New York Fed
Speaker 2: because we need to pay attention to this.
Speaker 8: Yeah, So what's kind of happened over the last couple
Speaker 8: of years is you've seen an exodus of basically senior management.
Speaker 8: These are people who have been with the bank for
Speaker 8: decades just deciding to exit, either that they retire or
Speaker 8: that they you know, find another opportunity on Wall Street
Speaker 8: or just really but what's ultimately driving it is the
Speaker 8: environment is just not they have found just not conducive
Speaker 8: either that you know, there's been changes in the banks,
Speaker 8: in the bank under the leadership of John Williams that
Speaker 8: they have found, you know, doesn't necessarily work for them anymore.
Speaker 8: And as a result, they're leaving. And what people are
Speaker 8: worried about is the so called brain drain. It leaves
Speaker 8: a vacuum of people who are experienced at fighting crises
Speaker 8: because remember a lot of these people have been there.
Speaker 8: They were there for the financial crisis, they were there
Speaker 8: for the repo market blow up, they were there in
Speaker 8: twenty like, they have crisis fighting experience, and so you're
Speaker 8: leaving a lot of that knowledge is leaving the bank.
Speaker 8: But then also just their ability and the question of
Speaker 8: are they ready for whatever's next, And that's what people
Speaker 8: are really concerned is they're feeling like something must is
Speaker 8: severely lacking in the under the leadership of John Williams.
Speaker 5: Why I love that you wrote this because Alex is
Speaker 5: usually the person that has those.
Speaker 6: Really nerdy rebo market articles where you're like, I know
Speaker 6: this is important. I know I'm going to read it
Speaker 6: three times and I'm still going to understand twenty percent
Speaker 6: of it and I have to email Alex Harris, so
Speaker 6: thank you.
Speaker 5: For writing an article that I understood right off the bat.
Speaker 5: What did they do about that?
Speaker 9: Then?
Speaker 6: I mean, is it as easy as like, hey, we're
Speaker 6: going to offer more work from home?
Speaker 5: Is it not that at all? Is it something very different?
Speaker 8: I think it's very different.
Speaker 5: I think really what.
Speaker 8: People are going to have to start looking at is
Speaker 8: taking a really serious look at the role of the
Speaker 8: New York FED. You know, for some people, they've said, look,
Speaker 8: Lourie William excuse me, got elevated out of the New
Speaker 8: York FED to running the Dallas FED. And she's taken
Speaker 8: a lot of that staff with her. She has this
Speaker 8: experience on the balance sheet. People really trust her. So
Speaker 8: now people are wondering, well, it doesn't necessarily have to
Speaker 8: be New York that carries out, you know, the implementation
Speaker 8: of the Fed's policies when it comes to their balance sheet,
Speaker 8: like this could shift to Dallas. So people are starting
Speaker 8: to ask that question or pose that question. At the
Speaker 8: same time, though, you know, people are pushing back and saying, no, no, no,
Speaker 8: this has to be in New York. We need to
Speaker 8: fix what is happening in New York. We need to
Speaker 8: retain talent in New York because the banks are here,
Speaker 8: and if something happens with the banking system, it's much
Speaker 8: easier to call everyone down to Liberty Street and say, hey,
Speaker 8: get in here, we got to figure this out than
Speaker 8: trying to call people all the way down to Dallas
Speaker 8: and say, hey, we got to figure this out.
Speaker 2: So historically, the New York Fed has been the branch
Speaker 2: that manages the Treasury's balance sheet, correct buying and selling bonds, well.
Speaker 8: The Fed's balance sheet, so there are whole things of
Speaker 8: treasuries and mbs and such.
Speaker 2: So it's been done. And again they have traders there
Speaker 2: and stuff that do this. I mean, this is where
Speaker 2: it happens in New York.
Speaker 8: Well, and you have other like Chicago still has you know,
Speaker 8: market analysis people. They still have all these things coming
Speaker 8: out of the other banks. But it is primarily a
Speaker 8: function of the New York Fed. Their tasked with managing
Speaker 8: their Fed's portfolio. Roberto Pearly is the SOMA manager, so
Speaker 8: he manages the FED securities portfolio. You know, so these things,
Speaker 8: and so the New York Fed really post financial crisis,
Speaker 8: has just taken on such a larger role. They've essentially
Speaker 8: become like a giant broker dealer just given the size
Speaker 8: and the sheer size of their balance sheet. And that's
Speaker 8: you know, someone like Christopher Whalen is making the argument
Speaker 8: that you don't need an academic We don't, you know.
Speaker 8: It's you don't need an academic running the New York Fed.
Speaker 8: You need someone who's comfortable with operations, with the nuts
Speaker 8: and bolts, and can kind of see it from a
Speaker 8: more markets oriented perspective than an academic one.
Speaker 5: So how do they pitch that?
Speaker 6: Because who's going to give up a job at Goldman
Speaker 6: that pays a nice tongue of change. Actually have no
Speaker 6: idea how much the New York Fed does, but I
Speaker 6: have to assume it's less.
Speaker 5: How do I do it?
Speaker 8: It's like I think, when I last look at the
Speaker 8: annual report from twenty twenty three, I think it's like
Speaker 8: a little over half a million dollars that the president
Speaker 8: of the New York Fed makes. But I mean, look, Beth Hammock,
Speaker 8: who ran funding, who ran the Goldman sex fundings?
Speaker 5: Are she's elevated.
Speaker 8: She's taking the role as the Cleveland Fed president. You know,
Speaker 8: Lorie Logan could always you know, people are speculating that
Speaker 8: she could come back to New York and run it.
Speaker 8: You know, these are the kinds of people I think
Speaker 8: that they envision when they're thinking about the role, and
Speaker 8: who could who can you know, possibly you know, helm
Speaker 8: the New York Fed after John Williams, who decides to
Speaker 8: retire a step down.
Speaker 3: Do we have a problem with John Williams.
Speaker 2: Is that a people placing the blame on these departures
Speaker 2: on John Williams and his.
Speaker 8: Style, or you know, I think it's a I think
Speaker 8: it's a bit of both.
Speaker 5: I think, you know, again, you know, when we.
Speaker 8: Spoke to people, the message was always he is a
Speaker 8: brilliant macro economist, but just ill suited for the role.
Speaker 8: I also think culturally, the other sense I got from
Speaker 8: people is that, you know, culturally it's very different than
Speaker 8: the San Francisco Fed, which is what he was running
Speaker 8: for seven years before he came and took the role
Speaker 8: in New York. It's just very different. And you know,
Speaker 8: sometimes culturally people don't fit and that's okay, and so
Speaker 8: that's something to also think about. And so I think
Speaker 8: it's a bit of both. I think it is somewhat
Speaker 8: of the culture and just sort of not meshing you know,
Speaker 8: they were just sort of ill suited for each other.
Speaker 5: Right, We'll keep an eye on good stuff.
Speaker 3: Yeah, Alex Harris, thank you so much for We appreciate it.
Speaker 3: Alex Harrish. She's a short term interest rate reporter working.
Speaker 2: On the big Take story here today, Talent Exit at Williams,
Speaker 2: New York stokes concern on its sway in the marketplace
Speaker 2: about the New York Federal Reserve. And you can catch
Speaker 2: those big take stories Bloomberg dot Com Slash Big Take
Speaker 2: or go on the Bloomberg terminal NI Space Big Take.
Speaker 3: Another good one today.
Speaker 1: Here you're listening to the Bloomberg Intelligence Podcast. Catch us
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Speaker 3: Alex Steel and Paul Sweeney.
Speaker 2: We're live here in our Bloomberg Interactive Broker studio in
Speaker 2: Midtown Manhattan, what I'm going to call an A plus building.
Speaker 2: We're also streaming live on YouTube as well, as you
Speaker 2: can head over to YouTube and search Bloomberg Podcast talking
Speaker 2: about real estate on the commercial side. It is a
Speaker 2: hot topic for a lot of folks, particularly those in
Speaker 2: larger markets, where you're really trying to figure out how
Speaker 2: this commercial real estate, particularly the office real estate market
Speaker 2: is going to shake out here and what the impacts
Speaker 2: that will have across the economy. We have an expert
Speaker 2: with us today, Ken Fisher, joins us. He's a partner
Speaker 2: at Fisher Brothers. Joins us here on our Bloomberg Interactive
Speaker 2: Broker studio. Ken, thanks so much for.
Speaker 3: Joining us here.
Speaker 2: Let's just start right here in New York City office
Speaker 2: real estate.
Speaker 12: That's your view, Well, we're looking at a really a
Speaker 12: bifurcated market. There's the class A trophy market, and there's
Speaker 12: just about everything else. What we've seen in our portfolio
Speaker 12: is a lot of activity. Tours are still fairly robust,
Speaker 12: and we have we've made some very very big deals,
Speaker 12: some of the biggest deals in the country over the
Speaker 12: last year, year and a half.
Speaker 6: Yeah, let's get to some of Yeah, let's get to
Speaker 6: some of that, just to get perspective to the listeners.
Speaker 6: Fisher Brothers has a core commercial portfolio in New York
Speaker 6: City right that includes thirteen forty five Avenue of the
Speaker 6: America's twenty two hundred and ninety nine Park Avenue and
Speaker 6: Park Avenue Plaza like these are like big, huge centers
Speaker 6: that are really iconic in the financial industry. Talk to
Speaker 6: us about the kind of leases that you were signing,
Speaker 6: say last year, and what kind of leases are you
Speaker 6: signing this year.
Speaker 12: Well, that's been fairly consistent. The rents themselves have been
Speaker 12: fairly stag that they've been.
Speaker 7: They haven't moved much.
Speaker 12: What has moved is then effective rents, the rents after
Speaker 12: you factor in tenant improvement allowances and brokerage commissions and
Speaker 12: free rent, that number has gotten hit substantially. The amount
Speaker 12: of landlord worked has also increased. So as part of
Speaker 12: making the deal there's tenant improvement allowance. There's also the
Speaker 12: work that the landlord has to do in terms of
Speaker 12: capital expenditures to make the buildings leasable.
Speaker 2: So take for example, at thirteen forty five Avenue of America's,
Speaker 2: which those of us who have been here for more
Speaker 2: than fifteen minutes called sixth Avenue. Paul Weiss, big New
Speaker 2: York City law firm, just took I guess fifteen year
Speaker 2: one hundred and forty three thousand, square foot lease. So
Speaker 2: is that new space? Are they just kind of repositioning space?
Speaker 2: And what did you have to do? You have to
Speaker 2: put in pool tables and ping pong tables, all that
Speaker 2: kind of selling.
Speaker 12: I wish it was that simple. First it was seven
Speaker 12: hundred and sixty five thousands. Okay, we had a million
Speaker 12: square foot vacant see facing us in twenty twenty five
Speaker 12: with Alliance Bernstein moving out to Nashville, and so, you know,
Speaker 12: year before the pandemic, we actually looked inside the portfolio
Speaker 12: because we knew that we were competing now not only
Speaker 12: with our comp set, but also with new construction. We'd
Speaker 12: seen millions and millions of square feet of new construction
Speaker 12: that we hadn't seen since the sixties. Wow, And so
Speaker 12: we knew we had to invest and reposition the portfolio,
Speaker 12: and so we did so. And then of course the
Speaker 12: pandemic hit. And so in the middle of repositioning these
Speaker 12: assets with you know, massive amenities like we see here
Speaker 12: in this building, we also had to modify our stance
Speaker 12: and start.
Speaker 7: COVID proofing the buildings.
Speaker 12: So we did HVAC work, a touchless experience, bluetooth technology,
Speaker 12: all of that stuff that we hear about we incorporated
Speaker 12: into our portfolio, and the result was, you know, while
Speaker 12: again we said that rents were fairly stable, it was
Speaker 12: the amount of work that it.
Speaker 7: Took to get Paul Weise in.
Speaker 12: So it was not just what we saw in the
Speaker 12: deal itself, but what we had to do the repositioned
Speaker 12: ability to get Paul Weiss.
Speaker 7: To look at it.
Speaker 5: So, was that a healthy commercial real estate market? Is
Speaker 5: that an investment cycle?
Speaker 11: Like?
Speaker 5: How would you then describe it?
Speaker 12: Well, you know, again we're looking at a bifurcated market,
Speaker 12: so you know, we're competing with other Class A assets
Speaker 12: and so we long before the pandemic hit, we just
Speaker 12: knew what we were going to have to do. There
Speaker 12: was a stat that came out years ago that almost
Speaker 12: sixty percent of the market was over sixty years or earther,
Speaker 12: and so we fell into that concept.
Speaker 7: We fell into that grouping, and so.
Speaker 12: It became very very important for us to reinvest in
Speaker 12: the portfolio. And I think we will see that those
Speaker 12: who have reinvested and spent the capital expenditures necessary to
Speaker 12: reposition buildings have had some activity, and those who haven't
Speaker 12: have not.
Speaker 2: One of my first Wall Street interviews was in Park
Speaker 2: Avenue Plaza, the old First Boston Corporation back in.
Speaker 3: The day, and I was like, oh, this.
Speaker 7: Is really real place.
Speaker 3: Yes it does, Yes it does for many reasons. What
Speaker 3: percentage of.
Speaker 2: New York City is a type of quality?
Speaker 7: Oh gee, that's tought. I mean it's it's a It's
Speaker 7: not fifty No, it's not.
Speaker 2: So it's less than that. So I'm just getting to
Speaker 2: the question. Bloomberg News I referenced this article many times.
Speaker 2: A year and a half ago. Two years ago, Bloomberg
Speaker 2: News wrote a story about Third Avenue Times Square to write,
Speaker 2: where we are at Bloomberg's headquarters here fifty eighth Street, what.
Speaker 7: Do you do with that inventory?
Speaker 3: Because that's not a inventory for most of the most.
Speaker 12: Work, it's not if you look at if you look
Speaker 12: at the sub markets, you can you can kind of
Speaker 12: look at it from that. From that perspective, Park Avenue,
Speaker 12: sixth Avenue, these.
Speaker 7: Are the hot market.
Speaker 12: These are the hot places that a lot of deals
Speaker 12: are going because of the flight to quality that exists
Speaker 12: when market conditions take a you know, take a little
Speaker 12: bit of a stump. What we've seen is we have
Speaker 12: a building at six oh five Third Avenue, which straddles
Speaker 12: to sub markets, and so you know, look, it puts
Speaker 12: everything on the table. We've even examined the possibility of
Speaker 12: conversion to residential, which you know, again takes a lot
Speaker 12: of resources to do, so that's something that we've discussed.
Speaker 12: I don't think it's going to be relevant to six
Speaker 12: oh five, but again, you know, it's it's looking at
Speaker 12: this at the market in the form of sub markets
Speaker 12: and what is happening, and you can see the data.
Speaker 12: You know where most of these deals are happening are
Speaker 12: along those.
Speaker 7: To those markets.
Speaker 5: You're sorry, go ahead, but I.
Speaker 2: Guess my question is just pick a building out of
Speaker 2: thin air on Third Avenue, the Lipstick Building, because maybe
Speaker 2: some people are out of town can think about that building.
Speaker 3: That's what we're talking about.
Speaker 2: If that were to trade hands today, discount from pre pandemic.
Speaker 7: Just about it, I would say, wow, pretty close.
Speaker 3: That is amazing. That's to me. We haven't seen that
Speaker 3: market clear, have we No?
Speaker 5: But does it have to I have to, like someone
Speaker 5: going to sell the building tomorrow.
Speaker 2: Loans are coming up to be refinanced, and they have
Speaker 2: to do with a higher interest rate environment, so a
Speaker 2: lot of hands are going to be forced in the
Speaker 2: next couple of years, don't you think.
Speaker 12: I think yeah, I think you're more likely to see
Speaker 12: in a lot of cases, you know, workouts where there
Speaker 12: will be more equity required, you know, be invested back in.
Speaker 12: There'll be stricter covenants, more leasing reserves and reserves in general.
Speaker 12: I think you'll see that rather than the keys being
Speaker 12: handed back, And if it's a B or a C market,
Speaker 12: you might see residential conversions be discussed. I think you know,
Speaker 12: it's going to depend you know, in relation to that,
Speaker 12: it's going to depend a lot on when the loan
Speaker 12: matures as it relates to lease explorations.
Speaker 6: Yeah, in terms of your reinvestment in the equity you
Speaker 6: have to put in, are you done in that cycle
Speaker 6: or are you still putting in a bunch of cash
Speaker 6: to update all your stuff?
Speaker 12: No, we have repositioned our portfolio and I can still eat.
Speaker 7: So that's why he.
Speaker 5: Laughed at himself. When are you talking about it?
Speaker 12: We have we have made a substantial reinvestment and the
Speaker 12: results are that we have you know.
Speaker 5: We have leased, but that cycle's done for us?
Speaker 7: Yes?
Speaker 5: Yes, okay?
Speaker 6: Do you feel like others are really are they also
Speaker 6: starting to do it now? Or do you feel like
Speaker 6: for everyone that cycle is is done.
Speaker 9: No.
Speaker 12: I think I think you'll. It depends again on the
Speaker 12: asset and the sub market. You've got to be very
Speaker 12: careful about the amount of money you have to do
Speaker 12: it surgically. You can't invest the same amount of money
Speaker 12: that you would put into thirteen forty five, say it's
Speaker 12: six oh five as an example. So I think there'll
Speaker 12: be some, you know, some buildings yet to be repositioned,
Speaker 12: and there'll be some buildings that.
Speaker 7: Have gone through the cycle.
Speaker 2: Would you I don't know if you have a speculative
Speaker 2: part of your company that says, I'm going to go
Speaker 2: bid thirty cents on the dollar for this building on
Speaker 2: Third Avenue because I think at that valuation, even if
Speaker 2: I have to put money into that building, I can
Speaker 2: make a good return. Are you guys thinking about that
Speaker 2: or you just kind of focus on your core portfolio?
Speaker 7: No, I think we have enough to focus on right now.
Speaker 12: We've actually developed over the last couple of years about
Speaker 12: twelve hundred multifamily with three hundred yet to come down
Speaker 12: and Winwood in Miami. We're developing that right now. And
Speaker 12: you know, I think as far as we are concerned.
Speaker 12: We also have a major immersive retail experiential development in
Speaker 12: Las Vegas. That's plenty for us right now.
Speaker 2: Okay, Ken Fisher for joining us. Really appreciated, Ken Fisher.
Speaker 2: He's a partner of Fisher Brothers. For those of you
Speaker 2: who don't know it, I mean, particularly I think what
Speaker 2: I've learned about commercial real estate, it is oftentimes a
Speaker 2: family business. And there's a handful of New York real
Speaker 2: estate families, including the Fishers. But you think about the
Speaker 2: Dursts and the Tishman's and the Rudens and all that,
Speaker 2: and the Fishers are right there, and it's kind of
Speaker 2: a family business for a lot of these pies, with
Speaker 2: substantial Wall Street support, of course in terms of financing.
Speaker 2: But you go around New York City and other major
Speaker 2: markets and you see the same names time and time
Speaker 2: again in terms of it. Fourth generation now, yeah, fourth generation,
Speaker 2: just family business. Great stuff, Ken Fisher, Thank you very much.
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