1 00:00:01,440 --> 00:00:05,320 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 2 00:00:05,400 --> 00:00:08,479 Speaker 1: weekdays at ten am Eastern on Apple Car playing Android 3 00:00:08,520 --> 00:00:11,600 Speaker 1: Otto with the Bloomberg Business app. Listen on demand wherever 4 00:00:11,680 --> 00:00:15,520 Speaker 1: you get your podcasts, or watch us live on YouTube. 5 00:00:16,520 --> 00:00:18,560 Speaker 2: We had a lot of the train companies reporting some earning, 6 00:00:18,600 --> 00:00:20,520 Speaker 2: so that means we have to check in with Lee Clasgow. 7 00:00:20,600 --> 00:00:25,360 Speaker 2: He covers all the transportations stuff for US trains, trucks, ships, 8 00:00:25,400 --> 00:00:29,240 Speaker 2: the whole thing, air freight, does it all for Bloomberg Intelligence. 9 00:00:29,560 --> 00:00:32,040 Speaker 2: So a Lee, thanks for much for joining us here again. 10 00:00:32,240 --> 00:00:34,720 Speaker 2: Export coal that's the dirty stuff, will send that to 11 00:00:34,680 --> 00:00:36,760 Speaker 2: the Europe the clean stuff out of the Powder River 12 00:00:36,920 --> 00:00:39,200 Speaker 2: basin in Wyoming, which I've been to, by the way, 13 00:00:39,560 --> 00:00:42,720 Speaker 2: that stays here. What are you hearing from the railroads 14 00:00:43,120 --> 00:00:44,000 Speaker 2: this quarter? 15 00:00:44,479 --> 00:00:44,680 Speaker 1: Lee? 16 00:00:45,000 --> 00:00:45,360 Speaker 3: So far? 17 00:00:46,479 --> 00:00:49,240 Speaker 4: Yeah, so it's been a I wouldn't really call it 18 00:00:49,280 --> 00:00:51,960 Speaker 4: a mixed bag bag. We've had pretty much most of 19 00:00:51,960 --> 00:00:56,200 Speaker 4: the rails beat expectations that have reported. There is one 20 00:00:56,280 --> 00:00:59,440 Speaker 4: left that hasn't reported, a Canadian Pacific but Norfolk Southern 21 00:00:59,480 --> 00:01:02,120 Speaker 4: reported this morning and they missed. They missed by four cents, 22 00:01:02,160 --> 00:01:04,000 Speaker 4: and you can see the stock is down around six 23 00:01:04,040 --> 00:01:07,400 Speaker 4: dollars and fifty cents right now and really driving that weakness. 24 00:01:07,440 --> 00:01:09,520 Speaker 4: There's not so much the miss, but it's their outlook. 25 00:01:09,840 --> 00:01:12,920 Speaker 4: You know, they're expecting their margins to improve one hundred 26 00:01:12,920 --> 00:01:16,000 Speaker 4: and one hundred and fifty basis points annually over the 27 00:01:16,000 --> 00:01:19,240 Speaker 4: next three years, but consensus is at a two hundred 28 00:01:19,280 --> 00:01:22,880 Speaker 4: and fifty basis point improvement, so consensus is pretty much 29 00:01:22,880 --> 00:01:25,880 Speaker 4: in line. We're management is expecting revenue to come in, 30 00:01:25,920 --> 00:01:28,600 Speaker 4: which is around three percent growth, but it's really on 31 00:01:28,640 --> 00:01:31,840 Speaker 4: the cost side. And you know this, this railroad has 32 00:01:31,880 --> 00:01:34,560 Speaker 4: been dealing with a lot of additional costs. They were 33 00:01:34,680 --> 00:01:39,280 Speaker 4: made headlines unfortunately earlier last year due to that devastating 34 00:01:39,560 --> 00:01:43,960 Speaker 4: derailment in Ohio which created a lot of chaos. The 35 00:01:43,959 --> 00:01:47,240 Speaker 4: good news for them is that, you know, they are 36 00:01:47,280 --> 00:01:51,440 Speaker 4: really focused on improving their operations. With improving operations also 37 00:01:52,320 --> 00:01:56,640 Speaker 4: comes improved service and safety. That's all been doing quite well, 38 00:01:56,640 --> 00:01:59,760 Speaker 4: but it also comes with higher costs. Norfolk Southern is 39 00:02:00,000 --> 00:02:03,400 Speaker 4: tying to build a more resilient network so next time, 40 00:02:03,600 --> 00:02:06,720 Speaker 4: you know, something like this happens, and hopefully it never does, 41 00:02:06,800 --> 00:02:11,560 Speaker 4: but you know, it's an outdoor sport and things can 42 00:02:12,040 --> 00:02:15,919 Speaker 4: happen when operating a railroad that are kind of beyond 43 00:02:15,919 --> 00:02:19,680 Speaker 4: their control, but you know, it allows them to kind 44 00:02:19,720 --> 00:02:22,040 Speaker 4: of bounce back. And management did mention on the call 45 00:02:22,080 --> 00:02:25,160 Speaker 4: this morning that they got some kudos. You know, I 46 00:02:25,160 --> 00:02:27,160 Speaker 4: guess they wanted highlight some good news that they had 47 00:02:27,600 --> 00:02:29,959 Speaker 4: from some of their customers because a lot of rails 48 00:02:30,000 --> 00:02:33,519 Speaker 4: face some serious weather in January and they were able 49 00:02:33,600 --> 00:02:37,440 Speaker 4: to snap back a lot sooner than maybe some of 50 00:02:37,480 --> 00:02:40,600 Speaker 4: its peers because of this resiliency that they're building into 51 00:02:40,639 --> 00:02:43,160 Speaker 4: their network, and again that comes with higher costs. 52 00:02:43,280 --> 00:02:45,920 Speaker 5: So leep, that's an R Folks Southern story which which 53 00:02:46,639 --> 00:02:49,320 Speaker 5: in some ways had to use syncratic stuff going on. 54 00:02:49,400 --> 00:02:52,040 Speaker 5: But you also had Union Pacific, you had CSX, and 55 00:02:52,160 --> 00:02:54,600 Speaker 5: both of them had a cloudy outlook also for twenty 56 00:02:54,639 --> 00:02:56,760 Speaker 5: twenty four. What's our macro read through for that. 57 00:02:58,120 --> 00:03:00,760 Speaker 4: Yeah, so, you know, we've been in a freight recession 58 00:03:01,120 --> 00:03:03,560 Speaker 4: for quite some time. You know, there has been no 59 00:03:03,720 --> 00:03:07,680 Speaker 4: soft landing for the freight markets. You know, weakness kind 60 00:03:07,680 --> 00:03:11,239 Speaker 4: of hit in twenty twenty two. The good news is that, 61 00:03:11,400 --> 00:03:13,959 Speaker 4: you know, we could have some growth uh this year 62 00:03:14,000 --> 00:03:16,600 Speaker 4: in twenty twenty four, but that growth is going to 63 00:03:16,639 --> 00:03:20,919 Speaker 4: be probably pretty anemic. It can be anywhere between low 64 00:03:21,120 --> 00:03:26,040 Speaker 4: and mid single digits. Uh So, the the outlook is 65 00:03:26,080 --> 00:03:28,440 Speaker 4: mixed because it really depends on the commodity type. So 66 00:03:28,720 --> 00:03:32,040 Speaker 4: the demand for automotives is still strong, you know. 67 00:03:32,040 --> 00:03:34,520 Speaker 5: In spending and buying lots of stuff. 68 00:03:35,160 --> 00:03:37,760 Speaker 4: We are buying buying lots of stuff, but a lot 69 00:03:37,760 --> 00:03:41,520 Speaker 4: of that stuff is coming from warehouses versus coming from overseas. 70 00:03:41,920 --> 00:03:45,880 Speaker 4: So you know, while inventory levels are getting normalized in 71 00:03:45,920 --> 00:03:48,720 Speaker 4: the de stocking cycle appears to be over. You know, 72 00:03:48,800 --> 00:03:53,240 Speaker 4: it doesn't really seem that retailers or other businesses are 73 00:03:53,240 --> 00:03:56,400 Speaker 4: looking to build inventories just given the uncertainty that we're 74 00:03:56,440 --> 00:03:59,440 Speaker 4: facing from an economic standpoint. I mean, you know, we 75 00:03:59,480 --> 00:04:02,360 Speaker 4: all know that, you know, at least from consensus estimates 76 00:04:02,360 --> 00:04:05,240 Speaker 4: that economic activity is going to be moderating this year 77 00:04:05,320 --> 00:04:08,920 Speaker 4: versus last year. And so you know, again with the 78 00:04:08,960 --> 00:04:12,880 Speaker 4: mixed bag. You know, Paul mentioned the export coal earlier. 79 00:04:12,960 --> 00:04:16,640 Speaker 4: You know, export coal was a fantastic business for a 80 00:04:16,720 --> 00:04:20,760 Speaker 4: lot of these carriers last year. That is expected to 81 00:04:20,839 --> 00:04:23,920 Speaker 4: cool utility coal is really going to depend on the 82 00:04:23,920 --> 00:04:27,800 Speaker 4: weather and where where stockpiles are, so that there's a 83 00:04:27,800 --> 00:04:31,840 Speaker 4: lot of uncertainty around that. And you know, you mentioned 84 00:04:31,880 --> 00:04:35,760 Speaker 4: you know that the idiosyncratic story of Norfolk Southern. The 85 00:04:35,839 --> 00:04:37,760 Speaker 4: thing about railroads is, you know, while there are some 86 00:04:37,839 --> 00:04:42,200 Speaker 4: like macro over arching themes, you know, each railroad operates 87 00:04:42,200 --> 00:04:45,800 Speaker 4: a different network with a different mix of businesses, uh 88 00:04:46,120 --> 00:04:49,839 Speaker 4: and different benefits, and so you know, it's really becomes 89 00:04:49,839 --> 00:04:54,000 Speaker 4: a rail on rail story versus you know, industry story. 90 00:04:54,279 --> 00:04:56,560 Speaker 4: But you know, the one overarching theme that I would 91 00:04:56,600 --> 00:04:59,200 Speaker 4: say is that volume is going to be better this year. 92 00:04:59,720 --> 00:05:03,640 Speaker 4: Our are probably gonna be better this year. Uh, and 93 00:05:04,000 --> 00:05:06,080 Speaker 4: you know that should drive earnings growth. 94 00:05:06,480 --> 00:05:08,599 Speaker 2: You know, Alex, one of my first gigs back in 95 00:05:08,600 --> 00:05:10,880 Speaker 2: the day was I covered the railroad and trucking industries. 96 00:05:11,360 --> 00:05:12,040 Speaker 5: Jobs have you had? 97 00:05:12,400 --> 00:05:16,479 Speaker 3: I've been around. I've been around, and my job apparently 98 00:05:16,520 --> 00:05:19,360 Speaker 3: I can't hold the job. Very That's very true, Lee. 99 00:05:19,480 --> 00:05:21,320 Speaker 2: My first earnings models you could still take a look 100 00:05:21,320 --> 00:05:23,120 Speaker 2: at him, but they're on floppy disc so I'm not. 101 00:05:23,040 --> 00:05:25,560 Speaker 6: Sure how necessarily access to them. 102 00:05:25,839 --> 00:05:28,760 Speaker 3: Lee, do you care? Do you have a preference Eastern 103 00:05:28,800 --> 00:05:29,920 Speaker 3: railroads versus Western? 104 00:05:31,440 --> 00:05:31,560 Speaker 5: Uh? 105 00:05:31,720 --> 00:05:35,520 Speaker 4: That's that's that's a great question. And what I would 106 00:05:35,560 --> 00:05:38,479 Speaker 4: say is that I do like Union Pacific, which is 107 00:05:38,520 --> 00:05:42,960 Speaker 4: the only pure play Western rail that the Eastern rails 108 00:05:42,960 --> 00:05:47,039 Speaker 4: are folk Southern CSX. And the reason why we like 109 00:05:47,160 --> 00:05:49,240 Speaker 4: Union Pacific, and that's one of our focus ideas in 110 00:05:49,240 --> 00:05:53,080 Speaker 4: Bloomberg Intelligence, is that, you know, we believe that their 111 00:05:53,120 --> 00:05:56,600 Speaker 4: new CEO, Jim Venna, can do a lot with the company. 112 00:05:56,640 --> 00:06:00,240 Speaker 4: He joined, I believe back in August uh he as 113 00:06:00,279 --> 00:06:03,240 Speaker 4: their COEO left and he's really known for being a 114 00:06:03,240 --> 00:06:06,160 Speaker 4: great operator at Canadian National. Canadian National was one of 115 00:06:06,200 --> 00:06:10,839 Speaker 4: the first railroads to employ precision scheduling railroading. He's also 116 00:06:11,080 --> 00:06:15,400 Speaker 4: a disciple of the legendary in late Hunter Harrison, who 117 00:06:15,480 --> 00:06:19,400 Speaker 4: is kind of considered the godfather of PSR railroading. So, 118 00:06:19,480 --> 00:06:21,280 Speaker 4: you know, we think he's going to come in and 119 00:06:21,320 --> 00:06:24,360 Speaker 4: do a lot in terms of really improving the operations. 120 00:06:24,600 --> 00:06:26,560 Speaker 4: And not only do we like that aspect of it, 121 00:06:26,640 --> 00:06:29,360 Speaker 4: but we also you know, believe that that company has 122 00:06:29,400 --> 00:06:31,320 Speaker 4: maybe gotten a little bloated over the years, and I 123 00:06:31,400 --> 00:06:34,400 Speaker 4: think there's some you know, cost opportunities there on the 124 00:06:34,440 --> 00:06:37,560 Speaker 4: corporate side, and you know, and it's not just about 125 00:06:37,640 --> 00:06:40,200 Speaker 4: costs and operations, it's really about their network. They have 126 00:06:40,200 --> 00:06:44,120 Speaker 4: a really fantastic network. You know, they have exposure to 127 00:06:44,800 --> 00:06:48,840 Speaker 4: cross border freight between the US and Mexico. You know, 128 00:06:48,960 --> 00:06:52,599 Speaker 4: while near shoring is not going to happen overnight, it 129 00:06:52,720 --> 00:06:55,440 Speaker 4: is a long term secular trend that we really like. 130 00:06:56,320 --> 00:06:59,480 Speaker 4: You know, it might be like watching grass grow or 131 00:06:59,560 --> 00:07:03,039 Speaker 4: paint dry, whatever your analogy is, but you know, in 132 00:07:03,160 --> 00:07:05,279 Speaker 4: terms of that growing, but it is going to grow 133 00:07:05,320 --> 00:07:07,880 Speaker 4: and and up is really good to benefit from that. 134 00:07:09,560 --> 00:07:12,960 Speaker 4: And then also, you know, in addition to their intermodal business, 135 00:07:13,200 --> 00:07:16,080 Speaker 4: Paul alluded to that they truck coal out of the 136 00:07:16,120 --> 00:07:19,280 Speaker 4: patter over basin. It's lower sofur coal, so it's quote 137 00:07:19,320 --> 00:07:22,680 Speaker 4: unquote cleaner. You know, we're not getting away from coal overnight. 138 00:07:23,400 --> 00:07:26,680 Speaker 4: And and that is you know, a good foundation for 139 00:07:26,720 --> 00:07:29,360 Speaker 4: them not to mention some of their other businesses that 140 00:07:29,360 --> 00:07:30,080 Speaker 4: they're involved in. 141 00:07:30,200 --> 00:07:32,600 Speaker 5: Yeah, just don't tell the Biden administration that part. But 142 00:07:33,280 --> 00:07:35,120 Speaker 5: so to that point out to politics for a second, 143 00:07:35,160 --> 00:07:39,080 Speaker 5: if we get a second Trump presidency, what happens to 144 00:07:39,120 --> 00:07:41,440 Speaker 5: like the import export world, and like, does that affect 145 00:07:41,440 --> 00:07:43,160 Speaker 5: the railroads in the same kind of way if we're 146 00:07:43,200 --> 00:07:45,280 Speaker 5: looking at maybe a ten percent tax on all imports, 147 00:07:45,280 --> 00:07:46,280 Speaker 5: for example. 148 00:07:47,080 --> 00:07:51,240 Speaker 4: Yeah, that's that's another great question. The reality is it 149 00:07:51,280 --> 00:07:54,640 Speaker 4: just becomes a tax on the consumer, right because if 150 00:07:54,680 --> 00:07:58,040 Speaker 4: there's not an alternative for a particular product, we are 151 00:07:58,080 --> 00:08:01,200 Speaker 4: going to import it no matter what. So yes, increased 152 00:08:01,240 --> 00:08:05,560 Speaker 4: tariffs do our inflationary, so it's not necessarily a good thing, 153 00:08:06,360 --> 00:08:10,080 Speaker 4: but it certainly complicates complicates things. And what I would 154 00:08:10,120 --> 00:08:12,000 Speaker 4: say on the West Coast is the West Coast could 155 00:08:12,040 --> 00:08:15,200 Speaker 4: benefit at least in the near term from what's going 156 00:08:15,240 --> 00:08:17,720 Speaker 4: on in the Panama Canal as I'm sure you know 157 00:08:17,760 --> 00:08:20,440 Speaker 4: there's low water levels there. I think you've heard of 158 00:08:20,440 --> 00:08:22,400 Speaker 4: something going on in the Red Sea. In terms of 159 00:08:22,520 --> 00:08:25,880 Speaker 4: the Suez Canal. Container liners are not going through the Suez, 160 00:08:25,960 --> 00:08:29,280 Speaker 4: so you know they have to either go along Africa 161 00:08:29,920 --> 00:08:33,000 Speaker 4: and some of that east That freight that was destined 162 00:08:33,000 --> 00:08:36,360 Speaker 4: for the East Coast might just go Transpacific directly to 163 00:08:36,400 --> 00:08:38,880 Speaker 4: the West Coast and then intermodals across the country. So 164 00:08:39,760 --> 00:08:43,640 Speaker 4: you know, there's some some pretty interesting near term opportunities. 165 00:08:43,760 --> 00:08:46,120 Speaker 4: And there's also you know, we like to talk about 166 00:08:46,160 --> 00:08:50,080 Speaker 4: labor a lot. In September, there is a contract that 167 00:08:51,080 --> 00:08:54,599 Speaker 4: expires for the workers all along the East Coast and 168 00:08:54,679 --> 00:08:58,600 Speaker 4: Gulf ports. You know, shippers might want to divert freight 169 00:08:58,640 --> 00:09:02,000 Speaker 4: to the West Coast to kind of avoid any labor 170 00:09:02,080 --> 00:09:05,160 Speaker 4: disputes or labor issues that might arise, which would cause 171 00:09:05,240 --> 00:09:08,360 Speaker 4: would come up supply chains on those ports. 172 00:09:08,440 --> 00:09:10,520 Speaker 3: Yep, we've seen that before. All right, Lee Clascow, great 173 00:09:10,520 --> 00:09:11,600 Speaker 3: stuff as always. 174 00:09:11,880 --> 00:09:15,679 Speaker 2: Lee Clascow, Senior Transportation Logistics Analyst, Bloomberg Intelligence. He was 175 00:09:15,720 --> 00:09:18,920 Speaker 2: over in Asia last week meeting with shippers and investors, 176 00:09:18,920 --> 00:09:22,640 Speaker 2: and so is it a global global story that he follows. 177 00:09:22,679 --> 00:09:28,040 Speaker 1: There you're listening to the Bloomberg Intelligence Podcast. Catch us 178 00:09:28,080 --> 00:09:31,480 Speaker 1: live weekdays at ten am Eastern on applecar Play and 179 00:09:31,480 --> 00:09:34,400 Speaker 1: Android Auto with the Bloomberg Business app. You can also 180 00:09:34,440 --> 00:09:37,640 Speaker 1: listen live on Amazon Alexa from our flagship New York 181 00:09:37,679 --> 00:09:41,839 Speaker 1: station just say Alexa playing Bloomberg eleven thirty. 182 00:09:42,800 --> 00:09:44,960 Speaker 2: You know, as we're talking about the Good Economic Aid, 183 00:09:45,000 --> 00:09:47,120 Speaker 2: it seems like a soft landing is certainly in the 184 00:09:47,120 --> 00:09:49,720 Speaker 2: cards here. I look at the WARP function, the World 185 00:09:49,760 --> 00:09:53,480 Speaker 2: interest rate probability function WRP, go on the terminal, and 186 00:09:53,559 --> 00:09:56,840 Speaker 2: it's got like a forty five percent probability of a 187 00:09:56,960 --> 00:09:58,040 Speaker 2: rate cut in March. 188 00:09:58,360 --> 00:10:01,680 Speaker 3: I don't really care. I don't. I don't care when 189 00:10:01,760 --> 00:10:04,520 Speaker 3: it happens because I know it's gonna happen. I don't 190 00:10:04,559 --> 00:10:08,560 Speaker 3: really need the when, but I don't. People still talking 191 00:10:08,600 --> 00:10:10,280 Speaker 3: about that. I don't know. It just feels like, boy, 192 00:10:10,320 --> 00:10:12,240 Speaker 3: if rates are gonna be cut, I'm in good shape. 193 00:10:12,400 --> 00:10:14,640 Speaker 5: Well yeah, it's not the when, now, it's the how 194 00:10:14,720 --> 00:10:17,400 Speaker 5: much and how Yeah yep, and that really matters to 195 00:10:17,480 --> 00:10:18,319 Speaker 5: like the belly in this. 196 00:10:18,600 --> 00:10:20,640 Speaker 2: But for some people that actually do this for a living, 197 00:10:20,760 --> 00:10:23,200 Speaker 2: it kind of does matter. Dana Dioria, she's one of those. 198 00:10:23,240 --> 00:10:27,840 Speaker 2: I believe co Cio at n vest Net in Berwin, PA. 199 00:10:27,880 --> 00:10:30,560 Speaker 2: I'm a big fan of Berwin, Pa. That whole part 200 00:10:30,559 --> 00:10:33,160 Speaker 2: of the date, Dana, thanks so much for joining us here. 201 00:10:33,240 --> 00:10:37,160 Speaker 2: I mean, do you care when the FED starts cutting rates? 202 00:10:37,440 --> 00:10:37,480 Speaker 4: You? 203 00:10:37,840 --> 00:10:39,719 Speaker 3: How do you viewing the Fed? Because we're going to 204 00:10:39,760 --> 00:10:40,960 Speaker 3: hear from the Fed next Wednesday. 205 00:10:41,800 --> 00:10:42,480 Speaker 7: Next Wednesday. 206 00:10:43,120 --> 00:10:46,880 Speaker 8: I think it's well, I think given the fact that 207 00:10:46,920 --> 00:10:49,840 Speaker 8: the market is pricing and to the point you just 208 00:10:49,880 --> 00:10:52,160 Speaker 8: made sort of this almost fifty to fifty at this point, 209 00:10:53,240 --> 00:10:55,240 Speaker 8: you know, I think we are getting to the point 210 00:10:55,280 --> 00:10:58,920 Speaker 8: where exactly when that cut happens matters a little bit 211 00:10:59,000 --> 00:11:01,280 Speaker 8: less than maybe it did. Obviously we started there and 212 00:11:01,920 --> 00:11:05,520 Speaker 8: you know, end in twenty twenty three with much higher 213 00:11:05,600 --> 00:11:09,080 Speaker 8: expectations of the March rate cut, which I never quite 214 00:11:09,080 --> 00:11:12,640 Speaker 8: could square because we were also very sanguine about the 215 00:11:12,679 --> 00:11:15,840 Speaker 8: possibility of the downturn, and you know that you saw 216 00:11:15,880 --> 00:11:18,199 Speaker 8: more and more the priced in this notion of a 217 00:11:18,280 --> 00:11:21,560 Speaker 8: soft landing. So you know, the Fed, I mean, they 218 00:11:22,160 --> 00:11:24,400 Speaker 8: on the one hand, you know, you've got this massive debt, 219 00:11:24,440 --> 00:11:27,520 Speaker 8: we're caring and there's they're not oblivious to that. So 220 00:11:27,760 --> 00:11:31,520 Speaker 8: cutting rates, you know, it's hopeful there, but looking past 221 00:11:31,559 --> 00:11:34,960 Speaker 8: that and just you know, their mandate unemployment and inflation 222 00:11:35,520 --> 00:11:38,240 Speaker 8: unemployment does not suggest that they need to be cutting 223 00:11:38,280 --> 00:11:40,760 Speaker 8: rates right now, you know. So I'm not one who 224 00:11:40,760 --> 00:11:42,920 Speaker 8: thinks the Fed is oblivious to what's going on in 225 00:11:42,960 --> 00:11:45,400 Speaker 8: markets or that you know, they're they're just but but 226 00:11:45,480 --> 00:11:48,160 Speaker 8: at this point they have they really have breathing room here, 227 00:11:48,960 --> 00:11:51,319 Speaker 8: and so you know, I think it could go away, 228 00:11:51,440 --> 00:11:53,319 Speaker 8: but I don't think they have to go ahead. 229 00:11:53,360 --> 00:11:56,840 Speaker 5: Yes, so Dana, I wonder maybe whether they cut in 230 00:11:56,960 --> 00:12:01,280 Speaker 5: March matters to certain parts of the market, the front end, right, 231 00:12:01,559 --> 00:12:04,360 Speaker 5: maybe like three year notes. Does it matter to the 232 00:12:04,360 --> 00:12:07,640 Speaker 5: stock market. I'm just trying to understand what's trading on 233 00:12:07,720 --> 00:12:10,360 Speaker 5: what so like what's going to be trading to next 234 00:12:10,360 --> 00:12:13,120 Speaker 5: Wednesday at you know, two fifteen pm. 235 00:12:14,800 --> 00:12:19,120 Speaker 8: I do think it matters I mean, there's just you know, fundamentally, right, 236 00:12:19,160 --> 00:12:23,080 Speaker 8: there's the whole. If you have longer dated cash flows, 237 00:12:23,120 --> 00:12:26,360 Speaker 8: and you know, so glowth thier stocks, for example, should 238 00:12:26,720 --> 00:12:31,600 Speaker 8: should tend to react negatively to higher rates because you 239 00:12:31,720 --> 00:12:35,240 Speaker 8: are discounting back these longer dated cash flows at a 240 00:12:35,280 --> 00:12:38,400 Speaker 8: higher rate. And so if I'm doing just a basic 241 00:12:38,440 --> 00:12:41,640 Speaker 8: intrinsic value calculation, it should matter a lot to me 242 00:12:41,760 --> 00:12:43,800 Speaker 8: if I have longer data cash flows, if I have 243 00:12:43,800 --> 00:12:46,320 Speaker 8: a lot of that value of my company is in 244 00:12:46,360 --> 00:12:49,680 Speaker 8: the terminal value that these rates that are higher for 245 00:12:49,800 --> 00:12:54,240 Speaker 8: longer should negatively impact. Of course, that's one input right 246 00:12:54,280 --> 00:12:57,280 Speaker 8: in a million inputs. And then you know, additionally, if 247 00:12:57,320 --> 00:12:59,600 Speaker 8: we look at value stocks, for example, low price stocks, 248 00:13:00,320 --> 00:13:03,680 Speaker 8: you know their shorter duration in nature, so maybe it 249 00:13:03,679 --> 00:13:07,319 Speaker 8: shouldn't impact them as much. But they also compete with bonds, 250 00:13:07,360 --> 00:13:09,839 Speaker 8: for you know, for they tend to be dividing the 251 00:13:09,960 --> 00:13:14,199 Speaker 8: olds and you know they compete with bonds, so you know, 252 00:13:14,320 --> 00:13:16,520 Speaker 8: higher rates impacts there. But I think this is one 253 00:13:16,520 --> 00:13:19,200 Speaker 8: of many things going on. I think, you know, gross stocks, 254 00:13:19,280 --> 00:13:23,400 Speaker 8: you talked about tech, You've been talking about tech communications, 255 00:13:23,440 --> 00:13:28,600 Speaker 8: et cetera, and just where those companies stand in terms 256 00:13:28,640 --> 00:13:32,280 Speaker 8: of like the defensive posture, the fact that they are 257 00:13:33,040 --> 00:13:36,520 Speaker 8: looking at higher income and that they are revising up 258 00:13:36,559 --> 00:13:37,760 Speaker 8: whereas other companies are not. 259 00:13:38,320 --> 00:13:42,040 Speaker 2: So it's one input in many all right, Dan, you 260 00:13:42,120 --> 00:13:43,839 Speaker 2: mentioned fixed income here. 261 00:13:44,440 --> 00:13:46,600 Speaker 3: How do you feel about the bond market here? 262 00:13:46,760 --> 00:13:49,760 Speaker 2: Was just brutally crushed in twenty twenty two, got some 263 00:13:49,880 --> 00:13:52,240 Speaker 2: positive performance in twenty three thanks to the last couple 264 00:13:52,280 --> 00:13:52,880 Speaker 2: of months of the year. 265 00:13:53,559 --> 00:13:56,040 Speaker 3: Kind of soft so far this year. How do you 266 00:13:56,080 --> 00:13:58,199 Speaker 3: think about your allocation to fixed income? 267 00:14:00,040 --> 00:14:02,400 Speaker 8: Yeah, I just I think the starting point is so different, 268 00:14:02,520 --> 00:14:04,560 Speaker 8: and you tend to be talking about it the same 269 00:14:04,679 --> 00:14:08,400 Speaker 8: way as when we were starting at rates being rock bottom, 270 00:14:08,920 --> 00:14:10,920 Speaker 8: and it's not the same, right, I mean, it's very 271 00:14:11,120 --> 00:14:13,079 Speaker 8: it's a very different starting point no matter how you 272 00:14:13,200 --> 00:14:17,160 Speaker 8: cut it. Even you know, the route we kind of 273 00:14:17,200 --> 00:14:19,520 Speaker 8: saw last year a little bit we short lived and 274 00:14:19,560 --> 00:14:22,120 Speaker 8: to your point, you got the money back. If you're 275 00:14:22,160 --> 00:14:25,640 Speaker 8: looking moment to moment at the correlation between stocks and bonds, 276 00:14:25,960 --> 00:14:28,800 Speaker 8: then you're nervous about pat to a certain extent because 277 00:14:28,920 --> 00:14:31,640 Speaker 8: not seeing this hedging effect that maybe you're looking for. 278 00:14:32,240 --> 00:14:34,640 Speaker 8: But if you just open the aperture a little bit 279 00:14:34,680 --> 00:14:37,280 Speaker 8: in terms of the length of time you have but 280 00:14:37,840 --> 00:14:40,320 Speaker 8: I'm I'm a strong believer and still having a robust 281 00:14:40,400 --> 00:14:43,920 Speaker 8: bond allocation, particularly now, because again, I mean, there's only 282 00:14:44,000 --> 00:14:46,040 Speaker 8: so far rates can go one way or the other 283 00:14:46,120 --> 00:14:48,960 Speaker 8: at this point. It's not like it was, you know, 284 00:14:49,160 --> 00:14:52,360 Speaker 8: starting again from a rock bottom and you know, massive 285 00:14:52,440 --> 00:14:55,320 Speaker 8: increases that you have to stomach. So so I see 286 00:14:55,360 --> 00:14:58,520 Speaker 8: that allocation as being necessary, as being good ballast for 287 00:14:59,160 --> 00:15:02,360 Speaker 8: a portfolio, and not there's not the danger there that 288 00:15:02,440 --> 00:15:02,880 Speaker 8: there was. 289 00:15:03,400 --> 00:15:08,040 Speaker 5: Do you like teche? I love the question. 290 00:15:08,560 --> 00:15:09,840 Speaker 9: You can't not like tech? 291 00:15:10,240 --> 00:15:10,440 Speaker 5: You know. 292 00:15:10,720 --> 00:15:13,760 Speaker 10: I'm a person who says, tilt a little because you're 293 00:15:13,760 --> 00:15:16,720 Speaker 10: getting so much tech, whether you're in an index or 294 00:15:16,760 --> 00:15:19,520 Speaker 10: you're you know, even actively managed, they can't get that 295 00:15:19,680 --> 00:15:22,040 Speaker 10: far away. It's too big, it's too much a part 296 00:15:22,080 --> 00:15:24,000 Speaker 10: of the index. So I am a person who will say, 297 00:15:24,120 --> 00:15:27,560 Speaker 10: tilt a little bit towards you know, some companies, lower 298 00:15:27,640 --> 00:15:30,280 Speaker 10: priced companies, just to offset some of that, you know, 299 00:15:30,400 --> 00:15:33,720 Speaker 10: concentration risk. But you can't get away from tech. You 300 00:15:34,240 --> 00:15:35,880 Speaker 10: need it, and you can't be too far on the 301 00:15:35,960 --> 00:15:36,560 Speaker 10: tracking error. 302 00:15:37,160 --> 00:15:39,160 Speaker 2: So Dana, we're kind of just getting to the teeth 303 00:15:39,200 --> 00:15:43,600 Speaker 2: here of earnings. I haven't seen the actual numbers per se, 304 00:15:43,640 --> 00:15:45,200 Speaker 2: but it just feels kind of meant to me. Some 305 00:15:45,320 --> 00:15:48,560 Speaker 2: companies are doing okay, some companies not. What are you 306 00:15:48,720 --> 00:15:50,800 Speaker 2: looking for this earning season? 307 00:15:52,400 --> 00:15:53,240 Speaker 5: No, I think you're right. 308 00:15:53,560 --> 00:15:56,920 Speaker 10: That's the exact right word that I you know, it's 309 00:15:57,320 --> 00:15:59,720 Speaker 10: and I don't think that's a super big surprise, right 310 00:16:00,000 --> 00:16:03,880 Speaker 10: because even if we stick the landing there to some extent, 311 00:16:04,680 --> 00:16:07,280 Speaker 10: you know, we should expect corporate America to have some 312 00:16:07,520 --> 00:16:10,160 Speaker 10: impact from the fact that you've had this massive increase 313 00:16:10,200 --> 00:16:13,960 Speaker 10: in interest rates that they have to contend with inflationary increases. 314 00:16:14,280 --> 00:16:16,400 Speaker 10: A lot of these things can be lagged in terms 315 00:16:16,440 --> 00:16:19,240 Speaker 10: of their effects, So I mean, we can't expect to 316 00:16:19,600 --> 00:16:22,760 Speaker 10: you know, hit the lights out every single time. And 317 00:16:23,200 --> 00:16:25,640 Speaker 10: you know, even if the market is kind of absorbing this, 318 00:16:25,800 --> 00:16:28,400 Speaker 10: and even if we're seeing that, wow, inflation actually is 319 00:16:28,480 --> 00:16:31,040 Speaker 10: coming in, I mean, had another good print, you know, 320 00:16:31,160 --> 00:16:34,960 Speaker 10: in terms of just where we want to be. We're 321 00:16:35,040 --> 00:16:37,600 Speaker 10: moving our way to the two percent, and it's almost 322 00:16:37,640 --> 00:16:39,600 Speaker 10: too good to be tripped to a certain extent. But 323 00:16:39,800 --> 00:16:43,720 Speaker 10: at the end of the day, corporations, it's a varied landscape. 324 00:16:43,760 --> 00:16:48,280 Speaker 10: They're all dealing with different parts of that inflationary increase, 325 00:16:48,400 --> 00:16:50,200 Speaker 10: parts of you know, what it means to go back 326 00:16:50,240 --> 00:16:51,080 Speaker 10: to bond markets. 327 00:16:51,360 --> 00:16:52,600 Speaker 5: So I'm not surprised. 328 00:16:52,920 --> 00:16:55,400 Speaker 10: I think the twenty twenty four forecasts matter a lot. 329 00:16:55,520 --> 00:16:56,960 Speaker 10: You know, what do we expect by the end of 330 00:16:57,040 --> 00:16:59,560 Speaker 10: this year, and that'll tell you something about whether we're 331 00:16:59,600 --> 00:17:01,120 Speaker 10: trending toward receshion. 332 00:17:00,800 --> 00:17:03,160 Speaker 5: After all, all right, Dana, we're gonna leave it there. 333 00:17:03,200 --> 00:17:06,240 Speaker 5: Thank you so much appreciated. Dan and Daria co Cio 334 00:17:06,359 --> 00:17:08,000 Speaker 5: of invest Net joining us. 335 00:17:09,440 --> 00:17:13,280 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 336 00:17:13,400 --> 00:17:16,480 Speaker 1: weekdays at ten am Eastern on Apple Car playing Android 337 00:17:16,520 --> 00:17:19,560 Speaker 1: Otto with the Bloomberg Business app. Listen on demand wherever 338 00:17:19,640 --> 00:17:22,800 Speaker 1: you get your podcasts, or watch us live on YouTube. 339 00:17:25,040 --> 00:17:26,440 Speaker 2: It's time to take a look at some earnings and 340 00:17:26,560 --> 00:17:30,400 Speaker 2: some earnings for the regional banks, because around this time 341 00:17:30,520 --> 00:17:33,479 Speaker 2: last year there were some issues, and around that time 342 00:17:33,520 --> 00:17:35,879 Speaker 2: last year, we've met this guy named Herman Chan, and 343 00:17:35,960 --> 00:17:36,720 Speaker 2: we haven't been able to. 344 00:17:36,720 --> 00:17:37,640 Speaker 3: Get rid of them since. 345 00:17:37,800 --> 00:17:41,600 Speaker 2: Hermit Chan is the regional banks analyst on Wall Street 346 00:17:41,680 --> 00:17:44,920 Speaker 2: worksforce of Bloomberg Intelligence, and boy do we depend upon him. 347 00:17:45,280 --> 00:17:46,919 Speaker 2: Over the last year as we're trying to really get 348 00:17:46,960 --> 00:17:49,200 Speaker 2: a handle on what's happening with the regional banks in 349 00:17:49,320 --> 00:17:53,080 Speaker 2: this country and what types of pressure are they under? Hermit, 350 00:17:53,119 --> 00:17:55,080 Speaker 2: thanks so much for joining us once again here in studio. 351 00:17:55,640 --> 00:17:58,639 Speaker 2: We were back into earning season for some of these banks. 352 00:17:58,680 --> 00:18:01,720 Speaker 2: Tell us what you're seeing and maybe what you're hearing 353 00:18:01,800 --> 00:18:03,600 Speaker 2: from investors in these regional banks. 354 00:18:04,320 --> 00:18:04,480 Speaker 5: Yeah. 355 00:18:04,600 --> 00:18:04,879 Speaker 6: Thanks. 356 00:18:05,320 --> 00:18:08,920 Speaker 11: Regional banks have largely completed fourth quarter earnings at this point, 357 00:18:09,960 --> 00:18:13,639 Speaker 11: I'd say it's more of the same. Revenues are still 358 00:18:14,119 --> 00:18:17,880 Speaker 11: off about two percent on average. Loan growths not really 359 00:18:18,000 --> 00:18:24,680 Speaker 11: there because there's lots of weaker demand, especially from commercial borrowers, 360 00:18:24,760 --> 00:18:27,000 Speaker 11: and banks aren't really doing a lot of commercial real 361 00:18:27,119 --> 00:18:29,760 Speaker 11: estate lending at this point, given a lot of potential 362 00:18:29,880 --> 00:18:34,639 Speaker 11: risk ahead for that particular asset class, and so banks 363 00:18:34,720 --> 00:18:41,080 Speaker 11: are focused on buttoned down expenses and building capital. So 364 00:18:41,680 --> 00:18:45,000 Speaker 11: there's not a lot of good news at least in 365 00:18:45,080 --> 00:18:48,440 Speaker 11: fourth quarter results. But banks are expecting a return of 366 00:18:48,520 --> 00:18:52,240 Speaker 11: lone growth later in twenty twenty four, and that's really 367 00:18:52,280 --> 00:18:54,960 Speaker 11: a function of lower interest rates increasing demand. 368 00:18:55,040 --> 00:18:56,120 Speaker 5: How are their deposits doing. 369 00:18:56,560 --> 00:18:57,800 Speaker 6: The posits are pretty stable. 370 00:18:58,720 --> 00:18:59,879 Speaker 5: That feels like a big bright spot. 371 00:19:00,400 --> 00:19:03,800 Speaker 11: That has been an area of concern, particularly after the 372 00:19:04,320 --> 00:19:07,440 Speaker 11: regional bank failures of SVB, First Republic. 373 00:19:07,160 --> 00:19:08,200 Speaker 6: And Signature Bank. 374 00:19:08,760 --> 00:19:15,080 Speaker 11: But at this point, banks have lifted interest costs and 375 00:19:15,640 --> 00:19:20,840 Speaker 11: made deposit pricing more enticing for you know, depositors across 376 00:19:20,880 --> 00:19:24,440 Speaker 11: the board in money markets and CDs. So that's really 377 00:19:24,600 --> 00:19:27,840 Speaker 11: the area of growth for the regional banks. But they're 378 00:19:27,920 --> 00:19:31,800 Speaker 11: still seeing attrition in those you know, zero cost deposits, 379 00:19:31,840 --> 00:19:34,720 Speaker 11: the deposits that are in checking accounts that aren't generating 380 00:19:34,800 --> 00:19:37,800 Speaker 11: any sort of interest for customers. 381 00:19:38,119 --> 00:19:39,960 Speaker 2: So one of the tickers I learned a year ago 382 00:19:40,320 --> 00:19:43,320 Speaker 2: from Herman was kr E. That's the spider s and 383 00:19:43,400 --> 00:19:47,360 Speaker 2: p Regional Banking ETF, a great proxy for regional bankings 384 00:19:47,440 --> 00:19:51,280 Speaker 2: in the US. You're to date that's flat trailing twelve months, 385 00:19:51,320 --> 00:19:54,440 Speaker 2: down about ten to eleven percent. So the question I 386 00:19:54,480 --> 00:19:57,600 Speaker 2: always have for you is, I work for a hedge fund. 387 00:19:57,920 --> 00:19:59,720 Speaker 2: I want to go into my hedge fund manager. I'm 388 00:19:59,720 --> 00:20:02,200 Speaker 2: a hot shot young animals covering in regional banks. I 389 00:20:02,280 --> 00:20:03,840 Speaker 2: want to go on and say, give me another fifty 390 00:20:03,840 --> 00:20:05,800 Speaker 2: another one hundred million dollars getting I think it's time 391 00:20:06,320 --> 00:20:07,480 Speaker 2: to go long regional banks. 392 00:20:07,960 --> 00:20:08,720 Speaker 3: Are we there yet? 393 00:20:09,119 --> 00:20:11,800 Speaker 6: If you went long at the end of October, that 394 00:20:12,040 --> 00:20:15,120 Speaker 6: was that was the that was the time. 395 00:20:15,200 --> 00:20:18,359 Speaker 11: That was like sort of the uh, the inflection point, 396 00:20:18,520 --> 00:20:22,640 Speaker 11: the banks were at the trough valuation levels, and then 397 00:20:23,119 --> 00:20:27,200 Speaker 11: the market sort of turned around and expected robust interest 398 00:20:27,280 --> 00:20:30,879 Speaker 11: rate cuts, and so the the the valuations of the 399 00:20:30,920 --> 00:20:33,160 Speaker 11: banks have started reflecting those rate cuts. 400 00:20:33,200 --> 00:20:34,640 Speaker 6: In the market's a bit more. 401 00:20:36,160 --> 00:20:41,200 Speaker 11: Optimistic, uh for regional banks, largely because when rates cuts happen, 402 00:20:41,560 --> 00:20:44,880 Speaker 11: you have lower funding costs and sort of potential growth 403 00:20:44,960 --> 00:20:47,520 Speaker 11: in the balance sheet, as I mentioned earlier, So that could. 404 00:20:47,359 --> 00:20:50,239 Speaker 3: Help move off that October low. 405 00:20:50,400 --> 00:20:52,320 Speaker 11: That's right, So that that was the time to get 406 00:20:52,400 --> 00:20:55,080 Speaker 11: in at this point. A lot of the easy money 407 00:20:55,320 --> 00:20:56,080 Speaker 11: you should have brought me. 408 00:20:56,320 --> 00:20:59,480 Speaker 5: Yes, I want wants to talk about when they're doing well. Yeah, 409 00:21:00,640 --> 00:21:03,439 Speaker 5: so Herman. Another issue was that was holding maturity bonds 410 00:21:03,520 --> 00:21:06,520 Speaker 5: right and the disconnect between deposit and the short versus 411 00:21:06,640 --> 00:21:10,240 Speaker 5: long term maturities. What are they doing to fix that? 412 00:21:10,480 --> 00:21:12,920 Speaker 5: I mean they need to. Are they offloading loans to 413 00:21:13,280 --> 00:21:14,840 Speaker 5: say other big banks? What are they doing? 414 00:21:15,080 --> 00:21:18,399 Speaker 6: Yes, So there's a few dynamics going on. One is that. 415 00:21:19,920 --> 00:21:23,919 Speaker 11: With the longer term rates coming down, those unrealized losses 416 00:21:24,000 --> 00:21:28,119 Speaker 11: are actually improving. So you've seen book value growth because 417 00:21:28,160 --> 00:21:31,680 Speaker 11: of the lower paper losses across. 418 00:21:31,359 --> 00:21:33,760 Speaker 6: The board for the industry. In the fourth quarter. 419 00:21:34,480 --> 00:21:38,600 Speaker 11: A few of the banks have recently started selling these 420 00:21:38,720 --> 00:21:44,040 Speaker 11: loans at a loss and then reinvesting at higher prevailing rates. 421 00:21:44,080 --> 00:21:47,400 Speaker 11: So you take the upfront hit, but then you improve 422 00:21:48,000 --> 00:21:50,840 Speaker 11: your nd interest margin and your earnings power going forward 423 00:21:50,880 --> 00:21:54,840 Speaker 11: by reinvesting at current yields. So that's a strategy that's happening. 424 00:21:56,280 --> 00:21:59,200 Speaker 11: Maybe that that happens a little bit less with interest 425 00:21:59,280 --> 00:22:01,080 Speaker 11: rates potentially coming down going forward. 426 00:22:01,560 --> 00:22:04,600 Speaker 2: So other than that spate of a handful of banks 427 00:22:04,880 --> 00:22:08,960 Speaker 2: roughly a year ago, have we had any other notable 428 00:22:09,480 --> 00:22:11,800 Speaker 2: bank I don't know, not failures, but. 429 00:22:12,000 --> 00:22:16,480 Speaker 6: Just yeah, the angst was really relegated to those three. 430 00:22:16,680 --> 00:22:18,720 Speaker 11: There were a couple of banks like PacWest that was 431 00:22:18,800 --> 00:22:21,440 Speaker 11: in the headlines and that found a buyer in Bank 432 00:22:21,520 --> 00:22:26,320 Speaker 11: of California. Another bank that that was definitely in the 433 00:22:26,400 --> 00:22:29,720 Speaker 11: headlines was a bank as you recall, Western Alliance that 434 00:22:30,359 --> 00:22:33,719 Speaker 11: they have done a tremendous job of shoring up their 435 00:22:33,840 --> 00:22:37,399 Speaker 11: deposits and really getting back to the good graces of 436 00:22:37,480 --> 00:22:37,919 Speaker 11: the market. 437 00:22:38,040 --> 00:22:42,440 Speaker 6: So there's no real concerns there. 438 00:22:42,840 --> 00:22:46,720 Speaker 11: And they actually reported yesterday after the close and that 439 00:22:46,840 --> 00:22:50,280 Speaker 11: stocks up two percent, so favorable results in the fourth quarter. 440 00:22:50,480 --> 00:22:54,399 Speaker 11: So at this point at the stage, it seems like 441 00:22:55,440 --> 00:22:57,959 Speaker 11: the rest of the regional banks seemed pretty good standing. 442 00:22:58,040 --> 00:22:59,920 Speaker 5: All right, let's talk about one of my favorite topic, 443 00:23:00,520 --> 00:23:03,639 Speaker 5: Basel three and games. Yeah, mostly because it just reminds 444 00:23:03,720 --> 00:23:06,600 Speaker 5: me of The Avengers and I love that movie. But okay, 445 00:23:06,640 --> 00:23:09,879 Speaker 5: so this is basically higher capital requirements for certain banks, 446 00:23:10,200 --> 00:23:11,840 Speaker 5: and if you're the big, big guys, you got to 447 00:23:11,880 --> 00:23:13,359 Speaker 5: put in a certain amount, and if you're sort of 448 00:23:13,359 --> 00:23:15,200 Speaker 5: the medium players, you got to put in a certain amount. 449 00:23:15,240 --> 00:23:18,199 Speaker 5: What's going to be the hit to the let's call 450 00:23:18,240 --> 00:23:20,000 Speaker 5: it one hundred billion to two hundred and fifty billion 451 00:23:20,000 --> 00:23:21,040 Speaker 5: dollars regional banks. 452 00:23:21,200 --> 00:23:22,440 Speaker 6: Yeah, that's a very good question. 453 00:23:23,480 --> 00:23:27,359 Speaker 11: You hear of the bank CEOs like Jamie Diamond be 454 00:23:27,720 --> 00:23:33,200 Speaker 11: very vocal about it being the Basil three end game, 455 00:23:33,280 --> 00:23:36,840 Speaker 11: being very negative for the US economy and hurtful in 456 00:23:36,960 --> 00:23:41,800 Speaker 11: areas like mortgage lending, et cetera. But for the regionals 457 00:23:41,880 --> 00:23:45,840 Speaker 11: it's fairly you know, digestible. The big hit for the 458 00:23:45,920 --> 00:23:51,040 Speaker 11: regionals is that they their capital ratios will suffer from 459 00:23:51,200 --> 00:23:53,920 Speaker 11: these unrealized paper losses that you asked about earlier, so 460 00:23:54,040 --> 00:23:58,600 Speaker 11: that will be incorporated into their capital calculations, whereas that 461 00:23:59,320 --> 00:24:02,480 Speaker 11: aspect is already in the big banks capital. So some 462 00:24:02,640 --> 00:24:05,480 Speaker 11: of the tailoring issues that happened during the Trump administration 463 00:24:05,560 --> 00:24:09,960 Speaker 11: will go away and be detrimental for regional banks. But 464 00:24:10,160 --> 00:24:13,080 Speaker 11: outside of that, the issues that the big banks complain about, 465 00:24:13,160 --> 00:24:18,040 Speaker 11: it's more manageable for the regionals and for the management 466 00:24:18,080 --> 00:24:21,160 Speaker 11: team for the regions. I've talked about, you know, risk 467 00:24:21,240 --> 00:24:25,000 Speaker 11: weighted assets growing you know in the low single digits, 468 00:24:25,080 --> 00:24:29,119 Speaker 11: the mid single digits, So that's much more digestible or 469 00:24:29,200 --> 00:24:33,080 Speaker 11: relative to a forty percent growth in art every ways 470 00:24:33,280 --> 00:24:34,760 Speaker 11: that JPM Morgan has talked about. 471 00:24:35,240 --> 00:24:37,560 Speaker 2: So you you mentioned during the again a year ago, 472 00:24:37,600 --> 00:24:39,560 Speaker 2: when we're really people are really concerned about this group, 473 00:24:39,600 --> 00:24:42,119 Speaker 2: it's really going to be an earnings issue as opposed 474 00:24:42,160 --> 00:24:43,960 Speaker 2: to kind of a balance get issue. Where are we 475 00:24:44,160 --> 00:24:47,640 Speaker 2: kind of getting through that earnings pressure, if you will, 476 00:24:47,840 --> 00:24:50,119 Speaker 2: and maybe getting back to more normalized earnings power for 477 00:24:50,200 --> 00:24:50,719 Speaker 2: these companies. 478 00:24:50,880 --> 00:24:51,520 Speaker 6: Yeah, that's right. 479 00:24:52,440 --> 00:24:56,800 Speaker 11: There's still pressure on the margin because even though short 480 00:24:56,880 --> 00:25:01,040 Speaker 11: term rates so i FED stopped raising rates at this point, 481 00:25:01,119 --> 00:25:04,080 Speaker 11: there is still a trickle down effect. Where As I 482 00:25:04,160 --> 00:25:07,440 Speaker 11: mentioned before, there is a mixshift happening from your your 483 00:25:08,400 --> 00:25:11,520 Speaker 11: your demand deposit, your you're checking accounts and moving into 484 00:25:11,560 --> 00:25:15,000 Speaker 11: areas like CDs, so that that deposit remixing is a 485 00:25:15,080 --> 00:25:20,800 Speaker 11: negative for earnings and revenues, but that's petering out. Offsetting 486 00:25:20,880 --> 00:25:26,840 Speaker 11: that is fixed rates repricing of their of loans and security, 487 00:25:26,960 --> 00:25:27,960 Speaker 11: so that's beneficial. 488 00:25:28,080 --> 00:25:30,480 Speaker 6: So overall revenues. 489 00:25:30,160 --> 00:25:35,200 Speaker 11: Are going to stabilize and are starting to stabilize. That's happening. Potentially, 490 00:25:35,320 --> 00:25:38,640 Speaker 11: that's going to be a second half events. So you're 491 00:25:38,680 --> 00:25:42,720 Speaker 11: going to still see some headwinds, but manageable with the 492 00:25:42,800 --> 00:25:47,160 Speaker 11: second half potential growing from better margins and balance sheet growth. 493 00:25:47,440 --> 00:25:50,679 Speaker 5: Herman so great, so smart, best stuff out there. We're 494 00:25:50,720 --> 00:25:53,480 Speaker 5: star We only have you on when there's a disasters. 495 00:25:53,720 --> 00:25:56,800 Speaker 5: Herman chand Bloomberg Intelligence Senior US Regional banks analyst. 496 00:25:58,359 --> 00:26:01,879 Speaker 1: You're listening to the Bloomberg and Intelligence Podcast. Catch us 497 00:26:01,960 --> 00:26:05,200 Speaker 1: live weekdays at ten am Eastern on applecar Play and 498 00:26:05,359 --> 00:26:08,600 Speaker 1: Android Auto with the Bloomberg Business. You can also listen 499 00:26:08,760 --> 00:26:11,800 Speaker 1: live on Amazon Alexa from our flagship New York station 500 00:26:12,200 --> 00:26:14,960 Speaker 1: Just Say Alexa playing Bloomberg eleven thirty. 501 00:26:17,000 --> 00:26:20,320 Speaker 2: Eric Zaski joins his senior US municipal strategist for Bloomberg 502 00:26:20,359 --> 00:26:25,280 Speaker 2: Intelligence joins us here from the Bloomberg Intelligence HQ in Princeton, 503 00:26:25,640 --> 00:26:27,240 Speaker 2: New Jersey. It used to be New York, which we 504 00:26:27,280 --> 00:26:29,480 Speaker 2: fought so hard for, but now they've retreated to Princeton. 505 00:26:29,840 --> 00:26:32,320 Speaker 3: Eric, thanks so much for joining us here. What's going 506 00:26:32,359 --> 00:26:34,639 Speaker 3: on in municipal bond market here these days? What are 507 00:26:34,640 --> 00:26:35,120 Speaker 3: the headlines? 508 00:26:36,160 --> 00:26:36,399 Speaker 7: You know what? 509 00:26:36,520 --> 00:26:38,639 Speaker 9: We're just enjoying the starts of this new year and 510 00:26:38,960 --> 00:26:41,280 Speaker 9: trying to noodle on the different headlines that we've been 511 00:26:41,640 --> 00:26:42,560 Speaker 9: sort of throwing our way. 512 00:26:42,680 --> 00:26:42,800 Speaker 7: Right. 513 00:26:42,960 --> 00:26:45,920 Speaker 9: So, we had some speculation that there was some credit 514 00:26:46,000 --> 00:26:48,200 Speaker 9: issues with Harvard. I think we've sort of safely put 515 00:26:48,240 --> 00:26:50,320 Speaker 9: that to rest at this point that they're going to 516 00:26:50,359 --> 00:26:53,560 Speaker 9: be around for probably another several hundred years. And obviously 517 00:26:53,560 --> 00:26:55,080 Speaker 9: we're getting a lot of questions on what's going on 518 00:26:55,160 --> 00:26:57,480 Speaker 9: in the southern border and how that would impact the states. 519 00:26:57,600 --> 00:26:57,760 Speaker 4: You know. 520 00:26:58,600 --> 00:27:00,560 Speaker 9: You know, obviously we're not of the opinion that there's 521 00:27:00,600 --> 00:27:03,040 Speaker 9: going to be a secession issue on the behalf of Texas, 522 00:27:03,160 --> 00:27:05,359 Speaker 9: but it does bring up a larger conversation, you know, 523 00:27:05,480 --> 00:27:08,280 Speaker 9: what could happen when you have states sort of you know, 524 00:27:08,720 --> 00:27:11,359 Speaker 9: going with battle to the federal government when there's so 525 00:27:11,480 --> 00:27:13,320 Speaker 9: much a play as far as tax revenue is going 526 00:27:13,320 --> 00:27:13,960 Speaker 9: in each direction. 527 00:27:14,440 --> 00:27:16,800 Speaker 5: I love Eric because he can have energy and excitement 528 00:27:16,800 --> 00:27:22,080 Speaker 5: about Munich sure unrivaled my seventeen r career covering stuff 529 00:27:22,320 --> 00:27:24,440 Speaker 5: in the markets. Eric, can we go to the fun 530 00:27:24,520 --> 00:27:26,200 Speaker 5: topic of the election, because it also kind of ties 531 00:27:26,240 --> 00:27:28,840 Speaker 5: into the border issue, And I'm just wondering, how are 532 00:27:29,000 --> 00:27:31,160 Speaker 5: we sort of prepping. How's the muni market thinking about 533 00:27:31,160 --> 00:27:32,440 Speaker 5: a possible President Trump again? 534 00:27:33,560 --> 00:27:34,920 Speaker 9: You know what, I don't think it would be the 535 00:27:35,040 --> 00:27:37,200 Speaker 9: worst thing for the muni market in the fact that 536 00:27:37,240 --> 00:27:39,320 Speaker 9: we already sort of know what we're going to get, Right, So, 537 00:27:39,520 --> 00:27:42,160 Speaker 9: Tax Cuts and Jobs Act came into play twenty seventeen, 538 00:27:42,200 --> 00:27:44,240 Speaker 9: we're still dealing with that. A lot of the provisions 539 00:27:44,280 --> 00:27:46,840 Speaker 9: are set to sunset in twenty twenty five. So if 540 00:27:46,920 --> 00:27:49,119 Speaker 9: the fact that we do have another dose of President 541 00:27:49,160 --> 00:27:51,760 Speaker 9: Trump coming in, we can expect a lot of those 542 00:27:51,800 --> 00:27:54,320 Speaker 9: provisions to you know, become permanent and stay in place. 543 00:27:54,680 --> 00:27:56,560 Speaker 9: Not great for the muni market in the sense that 544 00:27:56,680 --> 00:27:58,840 Speaker 9: corporate tax rates will stay low, and that really does 545 00:27:58,880 --> 00:28:01,040 Speaker 9: tamper demand from some of those buyers who used to 546 00:28:01,119 --> 00:28:02,000 Speaker 9: really plan our market. 547 00:28:02,720 --> 00:28:05,800 Speaker 2: Hey, Eric, talking to you and reading your research, you know, 548 00:28:05,880 --> 00:28:08,600 Speaker 2: I learned about taxable municipal bonds. I didn't know that 549 00:28:08,720 --> 00:28:12,680 Speaker 2: was a thing until really, Yes, talk to us about 550 00:28:12,680 --> 00:28:14,359 Speaker 2: that market. How's that performing here? 551 00:28:15,240 --> 00:28:18,400 Speaker 9: Yeah, on a performance basis, you know, slightly outperforming corporates. 552 00:28:18,600 --> 00:28:20,119 Speaker 9: But I think the real thing to focus on when 553 00:28:20,160 --> 00:28:23,480 Speaker 9: you're looking at taxable munis is the different credit aspect, 554 00:28:23,600 --> 00:28:27,080 Speaker 9: right so, totally asymmetric credit risk bucket to corporates and 555 00:28:27,160 --> 00:28:29,320 Speaker 9: the fact that you're picking up another like twenty thirty 556 00:28:29,359 --> 00:28:31,679 Speaker 9: basis points of yield right now. So if we think 557 00:28:31,720 --> 00:28:33,680 Speaker 9: the Fed's going to cut you know, now's the time 558 00:28:33,760 --> 00:28:36,040 Speaker 9: to sort of jump into bonds because of a scarcity issue. 559 00:28:36,080 --> 00:28:38,120 Speaker 9: I want to be grabbing more yield in a safer 560 00:28:38,200 --> 00:28:40,160 Speaker 9: area to play in. Taxable munis would check off a 561 00:28:40,200 --> 00:28:41,040 Speaker 9: bunch of those boxes. 562 00:28:42,080 --> 00:28:44,200 Speaker 5: What do you think the tax code will be that 563 00:28:44,520 --> 00:28:46,160 Speaker 5: may or may not impact munis though I thought the 564 00:28:46,200 --> 00:28:48,600 Speaker 5: whole point. Wouldn't they tax free? Is that the whole point? 565 00:28:49,400 --> 00:28:51,360 Speaker 9: Well, sure they are tax free, right, But I think 566 00:28:51,440 --> 00:28:54,400 Speaker 9: what we're expecting, regardless if it's a Republican or Democrat 567 00:28:54,440 --> 00:28:56,440 Speaker 9: to come into the White House, is that individual tax 568 00:28:56,560 --> 00:28:58,600 Speaker 9: rates are most likely going to go higher with the 569 00:28:58,640 --> 00:29:01,040 Speaker 9: amount of federal deficits that they're tending with. It really 570 00:29:01,080 --> 00:29:02,880 Speaker 9: only makes sense that that's the path that we're going 571 00:29:02,960 --> 00:29:04,600 Speaker 9: to head on and at the end of the day, 572 00:29:04,720 --> 00:29:07,200 Speaker 9: if taxes go higher, it's going to make municipal bonds 573 00:29:07,240 --> 00:29:09,360 Speaker 9: a lot more desirable. It's sort of the last bashon 574 00:29:09,440 --> 00:29:12,040 Speaker 9: of sort of you know, seeking a tax exemption for individuals. 575 00:29:13,000 --> 00:29:15,800 Speaker 2: You mentioned higher education here and you have a noeubt. 576 00:29:15,960 --> 00:29:19,680 Speaker 2: Muni's might have ninety nine problems, but Ivy League schools 577 00:29:19,760 --> 00:29:22,720 Speaker 2: aren't one of them. Talk to us about that part 578 00:29:22,760 --> 00:29:27,320 Speaker 2: of the market, that issuance category higher education. How often 579 00:29:27,360 --> 00:29:30,400 Speaker 2: do they use them muni market? And are they good investments? 580 00:29:31,320 --> 00:29:31,520 Speaker 1: Yeah? 581 00:29:31,640 --> 00:29:34,160 Speaker 9: So you know, it really is sort of a bifurcated 582 00:29:34,200 --> 00:29:35,920 Speaker 9: world when it comes to higher education, and it was 583 00:29:35,960 --> 00:29:37,600 Speaker 9: one of the areas that we had a little bit 584 00:29:37,640 --> 00:29:39,840 Speaker 9: of concern going into the year. But it's a story 585 00:29:39,880 --> 00:29:41,680 Speaker 9: of have and have nots. Right, So you have the 586 00:29:41,720 --> 00:29:44,160 Speaker 9: Triple A credits of the world, the Harvard's, the Yales 587 00:29:44,600 --> 00:29:47,000 Speaker 9: who have tens of billions of dollars in endowments, and 588 00:29:47,040 --> 00:29:49,760 Speaker 9: then you have schools like you know, Penn State, who 589 00:29:49,800 --> 00:29:52,080 Speaker 9: are now five o'h one C three. No, I'm a 590 00:29:52,120 --> 00:29:54,080 Speaker 9: state school guy myself, his pit. 591 00:29:54,800 --> 00:29:56,560 Speaker 3: I wrote a lot of tuition checks to Penn State. 592 00:29:57,120 --> 00:29:59,800 Speaker 9: There you go so you know, look, I mean the 593 00:30:00,040 --> 00:30:02,760 Speaker 9: credit profile of those two different schools is very, very different. 594 00:30:03,480 --> 00:30:06,800 Speaker 9: We think their concern is really the less funded private 595 00:30:06,920 --> 00:30:10,880 Speaker 9: education for your institutions who really can't withstand, you know, 596 00:30:11,040 --> 00:30:13,719 Speaker 9: sort of a drop in enrollment year after year after year. 597 00:30:13,720 --> 00:30:15,600 Speaker 9: That's where we're going to see some spread widening. 598 00:30:15,920 --> 00:30:17,960 Speaker 5: Spread widening. I like that you took us there, because 599 00:30:18,040 --> 00:30:20,600 Speaker 5: what we've seen in the investment grade market, for example, 600 00:30:20,800 --> 00:30:23,720 Speaker 5: is just compression, compression, compression in this in the spread, Like, 601 00:30:23,800 --> 00:30:26,840 Speaker 5: no matter what, there's been that compression. Why are we 602 00:30:26,840 --> 00:30:29,360 Speaker 5: seeing unies widening? Like, what's going on there? Walk us 603 00:30:29,360 --> 00:30:29,600 Speaker 5: through that? 604 00:30:30,520 --> 00:30:32,680 Speaker 9: Yeah, I mean, I think it's a race to quality 605 00:30:32,800 --> 00:30:34,920 Speaker 9: this year, and that's why we're seeing you know, much 606 00:30:34,960 --> 00:30:37,440 Speaker 9: of the grabbiness going on is going to be in 607 00:30:37,480 --> 00:30:39,240 Speaker 9: the double A and triple A names that are coming 608 00:30:39,320 --> 00:30:42,440 Speaker 9: to market. You know, Washington g O was an issue 609 00:30:42,440 --> 00:30:45,040 Speaker 9: that just came did very well both in the primary 610 00:30:45,080 --> 00:30:47,560 Speaker 9: and secondary. But I think what's happening in our market 611 00:30:47,680 --> 00:30:49,520 Speaker 9: and sort of echo with corporates, is that, you know, 612 00:30:49,640 --> 00:30:52,400 Speaker 9: you are seeing an overall tightening of spreads just due 613 00:30:52,400 --> 00:30:54,440 Speaker 9: to supply and demand imbalance. And it's really been a 614 00:30:54,480 --> 00:30:57,320 Speaker 9: theme for Unie's I would say, dating back to twenty seventeen. 615 00:30:57,360 --> 00:30:59,200 Speaker 9: At this point, Eric, I'm. 616 00:30:59,200 --> 00:31:01,680 Speaker 2: Thinking about my buddies on the new issue in some market. 617 00:31:01,760 --> 00:31:04,320 Speaker 2: How's the new issue ins market look for twenty twenty four? 618 00:31:04,360 --> 00:31:05,480 Speaker 2: How's a calendar look? 619 00:31:06,320 --> 00:31:09,360 Speaker 9: I mean, pretty full and surprisingly so, I think a 620 00:31:09,400 --> 00:31:11,640 Speaker 9: lot of the estimates for supply coming into this year 621 00:31:11,720 --> 00:31:13,520 Speaker 9: across the board where it was going to be on 622 00:31:13,600 --> 00:31:16,480 Speaker 9: the quieter side, But I been surprised by the amount 623 00:31:16,480 --> 00:31:18,680 Speaker 9: of you know, preliminary new issue filings that have come 624 00:31:18,760 --> 00:31:21,200 Speaker 9: out and pretty sizeable deals as well. Right, we have 625 00:31:21,680 --> 00:31:24,000 Speaker 9: some stuff in the high yield space. Another bright line 626 00:31:24,120 --> 00:31:27,200 Speaker 9: train issue coming, you know, bridging the gap between California 627 00:31:27,240 --> 00:31:29,960 Speaker 9: and Vegas. So that's going to be interesting to watch. Yeah, 628 00:31:30,000 --> 00:31:32,800 Speaker 9: and that's just it's children's hospital deal, you know, a 629 00:31:32,840 --> 00:31:35,480 Speaker 9: subsector of healthcare that we always find interesting. So definitely 630 00:31:35,520 --> 00:31:36,760 Speaker 9: something for everyone on the calendar. 631 00:31:38,000 --> 00:31:40,680 Speaker 5: What happens to the FED cuts rates? More issues like 632 00:31:40,760 --> 00:31:42,000 Speaker 5: what's the knock on effect? 633 00:31:42,080 --> 00:31:45,200 Speaker 9: Yeah, well, I mean, look, our market can't do advanced refunding, 634 00:31:45,240 --> 00:31:47,280 Speaker 9: so it's not like if I have a mortgage and ratesdrop, 635 00:31:47,320 --> 00:31:50,640 Speaker 9: I can refine anything, right, So on that aspect, you know, 636 00:31:50,680 --> 00:31:51,840 Speaker 9: we're not going to see a lot, but I do 637 00:31:51,960 --> 00:31:54,040 Speaker 9: think the's some degree that there's market timing going on 638 00:31:54,120 --> 00:31:55,640 Speaker 9: in our space, and a lot of people didn't like 639 00:31:55,680 --> 00:31:57,800 Speaker 9: the market last year. So if we have you know, 640 00:31:58,040 --> 00:32:00,760 Speaker 9: three four rate cuts, you know, yeah, you could definitely 641 00:32:00,760 --> 00:32:02,200 Speaker 9: see some more stuff pop on the calendar. 642 00:32:02,880 --> 00:32:06,880 Speaker 3: So what's the credit quality like out there a municipal 643 00:32:06,920 --> 00:32:11,680 Speaker 3: bond land. I haven't heard of any big blow ups recently, and. 644 00:32:11,760 --> 00:32:14,640 Speaker 9: You probably won't, right at least from the credit raiders perspective, 645 00:32:15,280 --> 00:32:17,800 Speaker 9: they continue to sort of march higher as far as 646 00:32:17,840 --> 00:32:20,960 Speaker 9: positive outlooks on the credits that we long have held 647 00:32:21,000 --> 00:32:23,240 Speaker 9: to sort of be the bad boys of the municipal space, 648 00:32:23,360 --> 00:32:26,400 Speaker 9: right the Illinois and Chicago's of the worlds. So as 649 00:32:26,440 --> 00:32:28,320 Speaker 9: long as sort of the opinion over the next several 650 00:32:28,440 --> 00:32:30,560 Speaker 9: fiscal periods is that they're going to continue to pay 651 00:32:30,560 --> 00:32:32,280 Speaker 9: their bonds, I think all is going to be well 652 00:32:32,320 --> 00:32:34,040 Speaker 9: when it comes to credit quality in our space. 653 00:32:34,840 --> 00:32:38,360 Speaker 5: Here's the question that may tighten politics also. So clearly 654 00:32:38,600 --> 00:32:42,880 Speaker 5: the Inflation Reduction Act is trying to be a catalyst 655 00:32:43,040 --> 00:32:45,240 Speaker 5: for investment, and you're seeing a lot of red states 656 00:32:45,480 --> 00:32:47,200 Speaker 5: get a lot of that investment, whether it's even with 657 00:32:47,280 --> 00:32:49,400 Speaker 5: the Chips Act, or it's building a new facility or 658 00:32:49,440 --> 00:32:52,360 Speaker 5: a battery storage, et cetera. And I'm just wondering with 659 00:32:52,480 --> 00:32:54,760 Speaker 5: Republicans talking a lot about wanting to repeal that, whether 660 00:32:54,800 --> 00:32:56,640 Speaker 5: or not it actually happens, what would like a South 661 00:32:56,680 --> 00:32:59,360 Speaker 5: Carolina do if all of a sudden they lost all 662 00:32:59,400 --> 00:33:04,120 Speaker 5: this investment helped buy the IRA and the Chips Act. 663 00:33:04,880 --> 00:33:07,240 Speaker 9: Yeah, I mean, well to speaking to the fact that 664 00:33:07,320 --> 00:33:09,880 Speaker 9: they haven't done a lot of issuance even with those 665 00:33:09,920 --> 00:33:12,720 Speaker 9: matching funds available to this point, speaks to the fact 666 00:33:12,760 --> 00:33:14,840 Speaker 9: of that market timing we just mentioned. But if they 667 00:33:14,920 --> 00:33:16,680 Speaker 9: had to go at it alone, I think they find 668 00:33:16,720 --> 00:33:20,000 Speaker 9: a very receptive municipal market who'd be happy to finance 669 00:33:20,080 --> 00:33:23,280 Speaker 9: them at very competitive rates. So, you know the availability 670 00:33:23,320 --> 00:33:25,480 Speaker 9: of money to finance the amount of things that actually 671 00:33:25,480 --> 00:33:27,760 Speaker 9: need to get finance in our space, there's no shortage 672 00:33:27,800 --> 00:33:27,920 Speaker 9: of that. 673 00:33:28,680 --> 00:33:28,920 Speaker 4: Wow. 674 00:33:29,400 --> 00:33:32,479 Speaker 3: So what are the sectors you like here? 675 00:33:32,560 --> 00:33:34,680 Speaker 2: I mean is that do investors in your world that 676 00:33:34,760 --> 00:33:36,520 Speaker 2: they look at sectors like I want to be in 677 00:33:36,720 --> 00:33:39,120 Speaker 2: healthcare or I want to be in transportation. 678 00:33:39,480 --> 00:33:40,440 Speaker 3: How does that to really work? 679 00:33:41,200 --> 00:33:42,720 Speaker 9: Yeah? I mean, look, a lot of the products in 680 00:33:42,760 --> 00:33:46,160 Speaker 9: our area they're trying to be an index, right, and 681 00:33:46,200 --> 00:33:48,160 Speaker 9: it's sort of broad base, but yeah, there are definitely 682 00:33:48,200 --> 00:33:50,600 Speaker 9: investment vehicles that are focused on sectors. Some of the 683 00:33:50,640 --> 00:33:52,760 Speaker 9: sectors that we think are going to be more interesting 684 00:33:52,800 --> 00:33:55,560 Speaker 9: this year are healthcare, right, shaking off some of that 685 00:33:55,680 --> 00:33:58,440 Speaker 9: pandemic pain they've been dealing with the past several periods. Right, 686 00:33:58,680 --> 00:34:00,680 Speaker 9: And hopefully what we think is going to happen is 687 00:34:00,760 --> 00:34:03,040 Speaker 9: a little bit of spread tightening based on some you know, 688 00:34:03,280 --> 00:34:05,320 Speaker 9: more normal margins coming back to the space. 689 00:34:05,960 --> 00:34:06,640 Speaker 3: All right, very good. 690 00:34:07,080 --> 00:34:11,759 Speaker 2: Eric Kazaski joins us senior US Municipals strategist for Bloomberg Intelligence. 691 00:34:13,400 --> 00:34:17,279 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 692 00:34:17,400 --> 00:34:20,920 Speaker 1: weekdays at ten am Eastern on applecard Play and Android 693 00:34:20,920 --> 00:34:23,680 Speaker 1: Auto with the Bloomberg Business app. You can also listen 694 00:34:23,840 --> 00:34:26,879 Speaker 1: live on Amazon Alexa from our flagship New York station, 695 00:34:27,280 --> 00:34:30,040 Speaker 1: Just say Alexa playing Bloomberg eleven thirty. 696 00:34:32,000 --> 00:34:34,919 Speaker 2: Brian Egger he is our senior gaming analyst. He covers 697 00:34:34,920 --> 00:34:37,080 Speaker 2: all those casinos, all the hotels, the cruise lines, all 698 00:34:37,120 --> 00:34:39,080 Speaker 2: that kind of good stuff. He's been doing it for 699 00:34:39,239 --> 00:34:41,080 Speaker 2: decades on Wall Street. 700 00:34:42,480 --> 00:34:46,000 Speaker 3: We got a super Bowl coming up. Super Bowls in Vegas, 701 00:34:46,800 --> 00:34:49,600 Speaker 3: that's got to be good for Vegas, Brian, how big? 702 00:34:49,800 --> 00:34:51,640 Speaker 7: Yeah, it's big. I mean it's the first time Vegas 703 00:34:51,680 --> 00:34:53,239 Speaker 7: as a host city, you know. I think if you 704 00:34:53,320 --> 00:34:56,360 Speaker 7: look at other analogous types of big events, the formul 705 00:34:56,400 --> 00:34:59,200 Speaker 7: One Grand Prix back in November, well we saw for 706 00:34:59,320 --> 00:35:03,040 Speaker 7: that event November twenty three versus twenty two, as you had, 707 00:35:03,560 --> 00:35:06,359 Speaker 7: table game revenue shot up, room rates shot up, slot 708 00:35:06,440 --> 00:35:08,719 Speaker 7: revenues are a little weaker, but all the high end 709 00:35:08,800 --> 00:35:12,279 Speaker 7: business for both gaming and hotel certainly benefited. We'll see 710 00:35:12,320 --> 00:35:13,920 Speaker 7: what it does to the bottom line in terms of 711 00:35:14,520 --> 00:35:16,480 Speaker 7: how many rooms they gave away. We'll get a better 712 00:35:16,560 --> 00:35:18,600 Speaker 7: sense of that during earning season. But certainly from a 713 00:35:18,680 --> 00:35:22,880 Speaker 7: top line perspective. You know, these big events are really powerful, 714 00:35:22,880 --> 00:35:25,600 Speaker 7: and the Super Bowl in Vegas, well we expect the same. 715 00:35:25,800 --> 00:35:29,400 Speaker 5: So Brian, we keep getting really solid economic data. The 716 00:35:29,400 --> 00:35:33,160 Speaker 5: consumer is definitely spending. Are they still spending on experiences 717 00:35:33,239 --> 00:35:36,000 Speaker 5: and stuff? Is that helping gambling and casinos? 718 00:35:37,040 --> 00:35:40,320 Speaker 7: They are, They're definitely spending on experiences. Vegas is a 719 00:35:40,320 --> 00:35:43,279 Speaker 7: big beneficiary that, both on the gaming side and the 720 00:35:43,320 --> 00:35:45,799 Speaker 7: hotel side. And you know, the connection business being back 721 00:35:45,840 --> 00:35:50,000 Speaker 7: as well, US is certainly up Vegas is up very 722 00:35:50,080 --> 00:35:52,759 Speaker 7: significantly versus twenty nineteen, but it is up also year. 723 00:35:52,760 --> 00:35:55,840 Speaker 7: Every year the comps get tougher, but it's definitely benefited. 724 00:35:56,360 --> 00:35:59,400 Speaker 2: I mean, so Vegas one of my favorite towns of 725 00:35:59,480 --> 00:36:03,360 Speaker 2: all time. Really, oh yeah, three nights, it is my 726 00:36:03,400 --> 00:36:04,279 Speaker 2: favorite place in the world. 727 00:36:04,360 --> 00:36:07,920 Speaker 3: Fourth night, I'm like, I'm done. So, I mean the 728 00:36:08,000 --> 00:36:11,000 Speaker 3: convention business. That's how I most people get introduced to 729 00:36:11,120 --> 00:36:13,680 Speaker 3: Vegas here at this convention business. So I know that's 730 00:36:13,680 --> 00:36:15,600 Speaker 3: such a big part, and that I know that that's back. 731 00:36:16,239 --> 00:36:19,279 Speaker 3: Is Vegas at the point where it always seems like they. 732 00:36:19,320 --> 00:36:22,680 Speaker 2: Can't possibly think about building another big resort, yet they 733 00:36:22,760 --> 00:36:25,200 Speaker 2: do yes, and they sell their rooms and they get 734 00:36:25,239 --> 00:36:25,560 Speaker 2: their rates. 735 00:36:25,600 --> 00:36:27,160 Speaker 3: It's just amazing. Where are we in kind of the 736 00:36:27,239 --> 00:36:28,640 Speaker 3: development of Vegas. 737 00:36:28,719 --> 00:36:30,880 Speaker 7: So the big recent opening was the Fontablue open in 738 00:36:31,440 --> 00:36:33,800 Speaker 7: December thirteenth, So that's a recent opening. 739 00:36:33,920 --> 00:36:34,480 Speaker 3: And where is that. 740 00:36:35,040 --> 00:36:37,239 Speaker 7: That's also the north part of the Las Vegas Strip. 741 00:36:37,360 --> 00:36:38,680 Speaker 3: Okay, yeah, so. 742 00:36:38,920 --> 00:36:42,399 Speaker 7: It's you know, and also we had back in two 743 00:36:42,480 --> 00:36:45,400 Speaker 7: years earlier, you know, we had another major opening with 744 00:36:45,640 --> 00:36:49,000 Speaker 7: Genting's Resorts World. So we are seeing some development in 745 00:36:49,239 --> 00:36:52,000 Speaker 7: percentage growth terms. Each of those openings is maybe a 746 00:36:52,080 --> 00:36:53,520 Speaker 7: two percent increase in room supply. 747 00:36:53,680 --> 00:36:53,839 Speaker 1: Yep. 748 00:36:53,960 --> 00:36:55,840 Speaker 7: So it's nothing white back in the nineties when you 749 00:36:55,920 --> 00:36:59,440 Speaker 7: had several openings in a quarter. But nevertheless, it is 750 00:36:59,560 --> 00:37:00,319 Speaker 7: kind of feel out. 751 00:37:00,360 --> 00:37:02,840 Speaker 3: So that way, he was a dl jake killing it 752 00:37:02,960 --> 00:37:04,440 Speaker 3: on the street, doing all kinds of this. 753 00:37:04,600 --> 00:37:06,600 Speaker 7: It's the opening parties for the Luxer in. 754 00:37:06,600 --> 00:37:08,640 Speaker 5: Nineteen ninety four, okay, so seeking of the opening parties, 755 00:37:09,160 --> 00:37:11,680 Speaker 5: Jody Lourie, who covers cruise lines and stuff, went on 756 00:37:11,880 --> 00:37:15,000 Speaker 5: what was it again, Yes, Icon of Seas, right, and 757 00:37:15,120 --> 00:37:18,480 Speaker 5: when to talk about like here something's opening, come join us. 758 00:37:18,760 --> 00:37:20,319 Speaker 5: And she was saying, the whole point of this cruise 759 00:37:20,360 --> 00:37:22,160 Speaker 5: lines is they want to be Vegas on the seas. 760 00:37:22,200 --> 00:37:25,200 Speaker 5: I mean I'm extrapolating, but is the cruise line industry 761 00:37:25,239 --> 00:37:26,560 Speaker 5: eating away at Vegas? 762 00:37:26,840 --> 00:37:28,480 Speaker 7: Yeah? So they all first of all have to say, 763 00:37:28,600 --> 00:37:30,520 Speaker 7: you know, Jody went on a cruise and all he 764 00:37:30,520 --> 00:37:33,120 Speaker 7: got is the slousy T shirt. Yes, that's like, not 765 00:37:33,200 --> 00:37:34,680 Speaker 7: go on that cruise, right, I didn't get a T 766 00:37:34,800 --> 00:37:37,680 Speaker 7: shirt actually, But I mean to the point, yes, I 767 00:37:37,719 --> 00:37:40,600 Speaker 7: mean they're all competing for the same discretioning dollar. Cruise 768 00:37:40,640 --> 00:37:43,839 Speaker 7: lines are doing well, Vegas is doing well. In essence, 769 00:37:43,880 --> 00:37:46,600 Speaker 7: they compete for a similar customer. The penetration expansion is 770 00:37:46,600 --> 00:37:49,800 Speaker 7: a lot lower for cruise lines, but they're all benefiting 771 00:37:49,960 --> 00:37:52,520 Speaker 7: and we've yet to see the consumer roll over. Comps 772 00:37:52,600 --> 00:37:55,920 Speaker 7: do get tougher, but you know, the the appetite for 773 00:37:56,080 --> 00:37:59,720 Speaker 7: experiences and leisure travel remains very strong. 774 00:38:00,080 --> 00:38:01,720 Speaker 3: Talk to us about the sports betting business. 775 00:38:02,239 --> 00:38:05,279 Speaker 2: It's legalized in so many states now, it's gotten so big, 776 00:38:05,400 --> 00:38:07,399 Speaker 2: and it's you know, listening to sports radio, it's every 777 00:38:07,480 --> 00:38:08,600 Speaker 2: single ad, it's on. 778 00:38:08,719 --> 00:38:11,040 Speaker 3: Television and all the big sporting events. It's just exploding. 779 00:38:11,320 --> 00:38:14,320 Speaker 2: Talk to us about that business as a business of itself, 780 00:38:14,360 --> 00:38:17,480 Speaker 2: and then maybe is that impacting kind of the sports 781 00:38:17,520 --> 00:38:18,640 Speaker 2: books at some of these casinos. 782 00:38:18,840 --> 00:38:20,600 Speaker 7: Yeah, I think, first of all, in terms of the business. 783 00:38:20,640 --> 00:38:23,560 Speaker 7: You know, Vermont just started up mobile sports betting this month. 784 00:38:23,640 --> 00:38:26,560 Speaker 7: You have North Carolina recently, We're filling in all the states. 785 00:38:26,600 --> 00:38:28,560 Speaker 7: There's more and more of it. The big challenge has 786 00:38:28,600 --> 00:38:32,280 Speaker 7: been gaining profitability. So what they are doing is targeting 787 00:38:32,600 --> 00:38:36,279 Speaker 7: promotions more effectively. They're reaching now the point of actual profitability, 788 00:38:36,640 --> 00:38:38,279 Speaker 7: a much better point than they were a year ago. 789 00:38:38,320 --> 00:38:41,920 Speaker 7: Companies like DraftKings, I don't really think it competes directly 790 00:38:42,000 --> 00:38:45,240 Speaker 7: against brick and mortar sportsbooks. Maybe it does to some degree, 791 00:38:46,160 --> 00:38:48,279 Speaker 7: but in markets where you do have both mobile and 792 00:38:48,320 --> 00:38:50,719 Speaker 7: brick and mortar, mobile gets to such a bigger part 793 00:38:50,760 --> 00:38:51,160 Speaker 7: of the pie. 794 00:38:52,280 --> 00:38:53,800 Speaker 5: Can I just share my story about gambling? 795 00:38:53,920 --> 00:38:54,120 Speaker 1: Sure? 796 00:38:54,400 --> 00:38:56,560 Speaker 5: So I went to the Mohammas with my husband and 797 00:38:56,640 --> 00:38:59,160 Speaker 5: we were at an Ultimate Texas holding table. A twenty 798 00:38:59,239 --> 00:39:04,879 Speaker 5: one year old got quad queens. Wow, and it was amazing. 799 00:39:05,360 --> 00:39:07,320 Speaker 5: I know it's not sports betting, but that's like the 800 00:39:07,440 --> 00:39:10,040 Speaker 5: moment you live for, Like, that's so cool. He tried 801 00:39:10,120 --> 00:39:10,919 Speaker 5: and called his mom. 802 00:39:11,120 --> 00:39:12,040 Speaker 6: It was so great. 803 00:39:13,160 --> 00:39:17,040 Speaker 5: So, but for sports betting, how hard is it to understand? Like, Okay, 804 00:39:17,080 --> 00:39:19,200 Speaker 5: it's legal here, it's not legal here, Like does that 805 00:39:19,239 --> 00:39:21,600 Speaker 5: get into difficulty when you're there an inmustry? 806 00:39:21,680 --> 00:39:25,440 Speaker 7: Generally, you're right that gaming is legalized and regulated on 807 00:39:25,520 --> 00:39:27,840 Speaker 7: a state by state basis. It's true of casino its, 808 00:39:27,840 --> 00:39:32,240 Speaker 7: it's true of sports books. And now we're seeing online 809 00:39:32,239 --> 00:39:35,359 Speaker 7: sports books, online sports betting legal in north of twenty 810 00:39:35,400 --> 00:39:38,120 Speaker 7: five states, right, So it's it's really a significant Something 811 00:39:38,200 --> 00:39:41,080 Speaker 7: like forty five percent of the US population has access 812 00:39:41,080 --> 00:39:43,200 Speaker 7: to an online sports book. There are some states where 813 00:39:43,200 --> 00:39:47,480 Speaker 7: it's not there yet, but since the Supreme Court blockade 814 00:39:47,480 --> 00:39:51,240 Speaker 7: against this was lifted a few years back in twenty eighteen. 815 00:39:51,320 --> 00:39:54,919 Speaker 7: We're really significantly expanded the industry, so it is maybe 816 00:39:55,000 --> 00:39:58,600 Speaker 7: some confusion, but more and more it's becoming ubiquitous. 817 00:39:58,760 --> 00:40:01,839 Speaker 2: Yeah, I'm looking at the FA function for DraftKings. They're 818 00:40:01,880 --> 00:40:05,200 Speaker 2: not even they're gonna be I guess finally turned Ebatha 819 00:40:05,360 --> 00:40:07,879 Speaker 2: positive this year for the first time. So these guys 820 00:40:07,880 --> 00:40:09,920 Speaker 2: aren't even making any net incomes a while. 821 00:40:09,960 --> 00:40:11,960 Speaker 7: And what happens is you introduced a sports book, takes 822 00:40:12,000 --> 00:40:15,640 Speaker 7: a couple of years to reach maturation. You eventually build 823 00:40:15,680 --> 00:40:18,839 Speaker 7: an audience and you can take the promotions and giveaways down. 824 00:40:19,160 --> 00:40:20,719 Speaker 7: And that's what they've done. So in states that are 825 00:40:20,719 --> 00:40:24,080 Speaker 7: really mature, like New Jersey been around five years, they're 826 00:40:24,160 --> 00:40:26,719 Speaker 7: much more profitable than Newer State. But overall, you know, 827 00:40:27,080 --> 00:40:29,479 Speaker 7: look in the UK and Europe you've got online gaming 828 00:40:29,560 --> 00:40:31,680 Speaker 7: is more profitable, but that's a much more mature business. 829 00:40:33,200 --> 00:40:34,000 Speaker 5: So interesting, I know. 830 00:40:34,120 --> 00:40:35,840 Speaker 3: So I mean, how about that. You also do some 831 00:40:35,960 --> 00:40:38,720 Speaker 3: work on the regional casino companies that aren't in Vegas. 832 00:40:38,960 --> 00:40:39,839 Speaker 3: How's that business doing? 833 00:40:39,920 --> 00:40:41,319 Speaker 7: You know, they're they're doing well. 834 00:40:41,400 --> 00:40:44,919 Speaker 2: I mean, it's still think think riverboat casinos, but not really, 835 00:40:44,960 --> 00:40:46,240 Speaker 2: but usually not on riverboat. 836 00:40:46,680 --> 00:40:52,040 Speaker 1: But they're still ajacent. 837 00:40:51,680 --> 00:40:52,120 Speaker 3: Depressing. 838 00:40:52,440 --> 00:40:55,160 Speaker 5: No, I didn't finally see that depressing last time. Yeah, 839 00:40:55,160 --> 00:40:57,560 Speaker 5: I want to see Amy Plarentina fe It was really fun. 840 00:40:57,719 --> 00:41:00,200 Speaker 3: I saw Sinatra don there eight times during heigh going 841 00:41:00,200 --> 00:41:03,600 Speaker 3: to college. Gun, okay, that's okay. Yes, it's easy. We 842 00:41:03,719 --> 00:41:04,200 Speaker 3: drive down. 843 00:41:04,360 --> 00:41:05,520 Speaker 5: It's a whole other convers yeahs a. 844 00:41:05,480 --> 00:41:07,320 Speaker 7: Whole lot of convers we're from the same rasid. 845 00:41:07,400 --> 00:41:08,920 Speaker 6: Yeah, Troy did too back then. 846 00:41:09,800 --> 00:41:11,960 Speaker 7: So you know, I think the original game business is 847 00:41:12,000 --> 00:41:14,760 Speaker 7: doing well. It's still up well over the pre pandemic. 848 00:41:15,160 --> 00:41:17,000 Speaker 7: It's up your over the year. I think the comps 849 00:41:17,080 --> 00:41:19,040 Speaker 7: do get tougher, you know, I mean just because we've 850 00:41:19,080 --> 00:41:22,640 Speaker 7: seen so much growth, particularly, so you'll comps a little tougher. 851 00:41:22,680 --> 00:41:24,480 Speaker 7: But it's still it's still doing well. I think the 852 00:41:24,560 --> 00:41:26,200 Speaker 7: Margins story gets tougher. 853 00:41:26,120 --> 00:41:29,120 Speaker 3: Ten seconds on ABC. You know, how's AC doing ten second? 854 00:41:29,120 --> 00:41:31,319 Speaker 7: He's doing okay, man, It's like other regional markets. It's 855 00:41:31,440 --> 00:41:34,239 Speaker 7: it's it's up your over year. You know. The big 856 00:41:34,320 --> 00:41:36,160 Speaker 7: challenge for all these regionals, I'll throw AC in there 857 00:41:36,160 --> 00:41:38,360 Speaker 7: as well, is is costs competition. 858 00:41:38,600 --> 00:41:41,399 Speaker 3: Yeah, all right, okay, John, I got a little ac 859 00:41:41,680 --> 00:41:44,080 Speaker 3: talking there for you. It's not Vegas, I don't The 860 00:41:44,160 --> 00:41:46,200 Speaker 3: people there just aren't as friendly as. 861 00:41:46,120 --> 00:41:46,920 Speaker 1: The people in Vegas. 862 00:41:47,040 --> 00:41:49,240 Speaker 2: Now that just you know, the pit bosses, the dealers. 863 00:41:49,280 --> 00:41:50,400 Speaker 2: They yell at you and stuff. But I have good 864 00:41:50,440 --> 00:41:51,719 Speaker 2: time when I go down there, so it's all good. 865 00:41:51,840 --> 00:41:53,440 Speaker 2: Brianegger covers all the gaming stuff. 866 00:41:54,200 --> 00:41:58,799 Speaker 1: This is the Bloomberg Intelligence podcast, available on Apples, Spotter, Pye, 867 00:41:58,920 --> 00:42:02,080 Speaker 1: and anywhere else you at your podcasts. Listen live each 868 00:42:02,160 --> 00:42:05,680 Speaker 1: weekday ten am toanoon Eastern on Bloomberg dot com, the 869 00:42:05,800 --> 00:42:09,200 Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You 870 00:42:09,280 --> 00:42:12,440 Speaker 1: can also watch us live every weekday on YouTube and 871 00:42:12,640 --> 00:42:14,200 Speaker 1: always on the Bloomberg terminal