Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
Speaker 1: Tim Snanevik. We're here every day bringing you the latest
Speaker 1: news from the world's of business and finance, clus technology, politics, economics,
Speaker 1: all harnessing the power of Business Week reporters and editors,
Speaker 1: not to mention our journalists and analysts in more than
Speaker 1: one twenty countries. You can download Bloomberg Business weekend iTunes, SoundCloud,
Speaker 1: or Bloomberg dot com. You can also listen to our
Speaker 1: radio show at two pm Eastern Time on Bloomberg Radio
Speaker 1: or stream us live on YouTube and Bloomberg dot com. Alright,
Speaker 1: let's take a little bit deeper into the markets. You've
Speaker 1: got a good guest to do that. Lorene Gilbert is
Speaker 1: with us. She is the CEO Wealthwise Financial Services, joining
Speaker 1: us via zoom Lorene, So, you know, how do you
Speaker 1: assess this market? Is it a technical thing that you
Speaker 1: look at the technical indicators? Is it fundamentally how do
Speaker 1: you view kind of where we go from here? I
Speaker 1: think we're still seeing right now tax less harvesting. It's
Speaker 1: people have been doing it all during the year, and
Speaker 1: now once again we have another opportunity to do some
Speaker 1: tax loss harvesting. So I think that's what's how opening.
Speaker 1: I'm not giving up on the Santa Claus rally. It
Speaker 1: could still happen. Uh, that's why people say Tesla people
Speaker 1: were messaging us on the Bloomberg as to why Tesla
Speaker 1: was down, and that was kind of end of year
Speaker 1: tax law selling. I mean, is that some of what
Speaker 1: is going on? Yeah, it definitely could be, although that's
Speaker 1: also a sentiment that has changed with regard to Tesla stock.
Speaker 1: But I would say, looking at three it's very unlikely
Speaker 1: that we have another negative in the SMP since so
Speaker 1: that's ninety four years. That has only happened four times.
Speaker 1: So what I say to investors is typically after this
Speaker 1: kind of market that we've seen this year, we tend
Speaker 1: to see a much better spople hundred market in the
Speaker 1: following year, unless it's the Great Depression, the start of
Speaker 1: World War two, the nine seventies oil crisis, or what
Speaker 1: the dot com bust of the late nineties early two thousands.
Speaker 1: So you don't think we're in any sort of situation
Speaker 1: or scenario or on the precipice of any scenario that
Speaker 1: is that could be that bad brain. No, I think
Speaker 1: when we look at what the n b e R
Speaker 1: looks at as far as a recession is concerned. We
Speaker 1: see some softening most definitely, but the only area that's
Speaker 1: negative year over year is industrial production. So while we
Speaker 1: do see and we look at the leading economic indicators
Speaker 1: are negative, so we have to know that a recession
Speaker 1: is probable, but it's not here yet. And I would
Speaker 1: say to investors that remember that the market goes ahead
Speaker 1: of a recession, so most likely a recession in three,
Speaker 1: but the market will be ahead of that, and we
Speaker 1: think that we still have optimism in three as far
Speaker 1: as the markets are concerned. Talk a little bit more
Speaker 1: about that forward outlook, because I've talked to a few
Speaker 1: people who have basically said, the recession that's basically yesterday's story.
Speaker 1: Whether it happens or not, the sort of immaterial because
Speaker 1: it was already priced in. And now everyone's sort of
Speaker 1: looking past, or at least past the first half of
Speaker 1: the year and maybe even deeper into. Let's assume we
Speaker 1: get to that without a major recession or at least
Speaker 1: anything that really sort of just drives us off the cliff.
Speaker 1: What does sort of the new normal look like on
Speaker 1: the back end of that, What is investable right, Well,
Speaker 1: we still like value most definitely overgrowth, and sentiment would
Speaker 1: concur with that as well. So I'd say to investors
Speaker 1: to be leaning towards value stocks. Um, they're paying dividends,
Speaker 1: that's that's good. And then also looking at international again,
Speaker 1: when we look at the dollar kind of rolling over now,
Speaker 1: we see opportunities both developed markets as well as emerging markets,
Speaker 1: and especially emerging markets. As we now see it looks
Speaker 1: like China is reopening, and of course we want to
Speaker 1: wait and see if that's more permanent or not, but
Speaker 1: we do see opportunities in emerging markets. How do you
Speaker 1: determine if China is really reopened permanently. I think we
Speaker 1: have to wait and see most definitely. And then now
Speaker 1: with the news about the US and letting people in
Speaker 1: with COVID tests, so all of that has put a
Speaker 1: negative slam it. But the positive side of it is
Speaker 1: China does in factory open, the consumer will have more
Speaker 1: of an ability to spend. Okay, well, if the consumer
Speaker 1: has more of an ability to spend, obviously a good thing.
Speaker 1: But concerns about what the Federal Reserve does. In response
Speaker 1: to to what you're saying, I mean, what do you
Speaker 1: anticipate the feed is going to do. I think we
Speaker 1: still have more rates to come at least one, perhaps
Speaker 1: two basis points. What are you thinking? I think, I mean,
Speaker 1: I think what we'll see in February. I think it's
Speaker 1: gonna be twenty five. It will be, But I think
Speaker 1: the feed at this point is seeing that slow down.
Speaker 1: When we look at inflation expectations going forward, they've come
Speaker 1: way down to below three pent. So we're looking at
Speaker 1: good things going forward as far as inflation coming down. However,
Speaker 1: we haven't seen demand slow down enough yet, and so
Speaker 1: that the pain that they're talking about is to slow
Speaker 1: down demand at this point, and so there's still more
Speaker 1: work to do there. And I do think we're going
Speaker 1: to see unemployment continue to go up as we hear
Speaker 1: more and more companies laying off people, so that will
Speaker 1: slow down employment. Lorine, Technology, are you touching at all
Speaker 1: and if so, what specifically? Yeah? I think you know,
Speaker 1: we were just talking about Tesla, and Tesla is really
Speaker 1: a technology stock, and when we look at it in
Speaker 1: that regard as far as technology, we think that they
Speaker 1: have promising, promising future ahead, even though there are concerns
Speaker 1: about demand next year from China and the US and
Speaker 1: their quarterly earnings and then negative sentiment about UH specifically
Speaker 1: what's going on there and is Elon Musk paying attention.
Speaker 1: I think we still can see opportunities and companies like that.
Speaker 1: So we're looking to companies that are innovative, companies that
Speaker 1: are using AI and implementing AI. I think those are
Speaker 1: some good opportunities on the technology side. So I've got
Speaker 1: to ask you you do deal with you know, well,
Speaker 1: fear clients. I think a minimum of a million dollars
Speaker 1: and investable assets. So a new client comes in says,
Speaker 1: I've got a million dollars. Do you put it in
Speaker 1: the public markets? Are you putting in the private markets?
Speaker 1: Where do you put it? And just got about thirty
Speaker 1: forty seconds right, Well, definitely a diversified portfolio. Most people
Speaker 1: have fixed income and equities and balance that out and
Speaker 1: it depends on their risk tolerance and that how long
Speaker 1: they're going to be invested. But with that, certainly we
Speaker 1: do see opportunities. And the time is now, even though
Speaker 1: we might see some more downside if we do go
Speaker 1: into recession, going in now and looking out, if somebody
Speaker 1: has a three year time horizon or longer. I think
Speaker 1: that it's definitely investible. All right, Lauren A great to
Speaker 1: catch up with you. Laurene Gilbert there, founder of Wealthwise
Speaker 1: Financial Services. All right, that's on our radar, so too
Speaker 1: is the continuation of carnage when it comes to the
Speaker 1: crypto space. We're focusing today and Salana, although I should
Speaker 1: say that there's a flurry of headlines, uh Slona of course,
Speaker 1: the cryptocurrency back by Sam Bankman Freed tell Link today
Speaker 1: and made concerns that large holders may be about to
Speaker 1: offload the token. So let's bring it all down with
Speaker 1: Limbricks Hanna Miller. She covers crypto for us, so kind
Speaker 1: of good to have you here with the team. Let's
Speaker 1: start with Salana. What's the latest? What are you hearing? Yeah?
Speaker 1: So Salona has close ties to Sam Bankman Freed. He
Speaker 1: was a huge champion of the cryptocurrency prior to his arrest.
Speaker 1: Um He also helped build platforms on Salana like f
Speaker 1: t x is and f t Marketplace, So they've had
Speaker 1: these close ties. I think investors are getting nervous whether
Speaker 1: you know, maybe this blockchain network can overcome this association
Speaker 1: with Sam Bankman Freed and the Salauna network itself has
Speaker 1: also experienced multiple outages in the past year. So this
Speaker 1: has kind of created a perfect storm where, you know,
Speaker 1: projects and investors are getting a little bit nervous about
Speaker 1: this blockchain. Yeah. I mean that nervousness has been there
Speaker 1: for quite some time, I think, even before the collapse
Speaker 1: of f t X and and Alameda. I am curious
Speaker 1: here about the general crisis of competence we have right now,
Speaker 1: the true believers who are still left here in this
Speaker 1: space right now, Hannah, and what they they think. I
Speaker 1: guess this world will look like when we finally sort
Speaker 1: of uh, I guess to get done with this shakeout. Yeah,
Speaker 1: So there are definitely people who are still having huge
Speaker 1: amounts of faith in blockchain. Uh. They believe that the
Speaker 1: collapse of f t X shows the importance of decentralized finance,
Speaker 1: where you wouldn't have a centralized entity like f t
Speaker 1: X managing transactions. So some advocates believe that this just
Speaker 1: shows the importance of defied that there actually is an
Speaker 1: important use case for blockchain. Well, we'll go ahead, right Well,
Speaker 1: I just I mean, just to push back though, I mean,
Speaker 1: there was also an important case for that centralization with
Speaker 1: the guards to trying to scale up this industry. Wasn't
Speaker 1: that Wasn't that sort of the argument as well? Yes,
Speaker 1: So there are definitely a lot of people, you know,
Speaker 1: calling for more oversight for this industry, especially for regulators.
Speaker 1: So I think regulars are still figuring out how they
Speaker 1: can manage defy and that does put people on edge
Speaker 1: a bit in terms of like what do you think
Speaker 1: can do in the future. All Right, Hannah, I want
Speaker 1: to talk a little bit more about Sam Bateman Freed
Speaker 1: because right now there's some questions about where he exactly
Speaker 1: got the money for investing in robin Hood earlier this year.
Speaker 1: New report that we came out yesterday based on court documents,
Speaker 1: says that he actually got the money loaned to him
Speaker 1: from Alameda, and that money is kind of up in
Speaker 1: the air right now because there are lots of different
Speaker 1: parties that want claim to it and claimed to those shares.
Speaker 1: Give us the latest on what's going on with SPF
Speaker 1: and and those robin Hood shares that he brought into. Yeah, So,
Speaker 1: Bateman Freed's alleged that he and his f t X
Speaker 1: co founder Gary Wang borrowed more than five hundred million
Speaker 1: dollars from Alameda to purchase an eight percent stake in
Speaker 1: robin Hood, and those shares are up in the air
Speaker 1: right now in terms of who actually owns them. We
Speaker 1: have the crypto under Block five, which foiled from bankruptcy
Speaker 1: and the wake of ft x's collapse. Lane Klane to
Speaker 1: those block By shares um you know, they were pledged
Speaker 1: as collateral in loans that blocked By gave to Alameda.
Speaker 1: So there is a lot of uncertainty here, and it
Speaker 1: just shows how this case is still unfolding and how
Speaker 1: there are still many questions that we need answered. Yes,
Speaker 1: so many different questions that need to be answered. I
Speaker 1: do wonder too, you know, as you think about this story, Hanna,
Speaker 1: and how it's come out just the last year in
Speaker 1: terms of the crypto universe, I mean, how are investors,
Speaker 1: not investors, but regulators kind of evolving their thinking about
Speaker 1: what needs to be done in this space? Have they
Speaker 1: moved forward and gotten more specific in terms of what
Speaker 1: needs to be done. Yeah, we already have regulators and lawmakers,
Speaker 1: you know, calling for more oversight in this of the
Speaker 1: space following ft X. But that sounds so easy, you
Speaker 1: know what I mean? Like, yeah, we all know that
Speaker 1: it needs oversight, but what specifically needs to be done
Speaker 1: when we still have a debate about what kind of
Speaker 1: cryptocurrencies really are. Yeah, I think the big question here
Speaker 1: is putting better protections in place for consumers. And the
Speaker 1: collapse of ft X just shows how people are risk
Speaker 1: in this industry, that investors might not have the wherewithal
Speaker 1: or the knowledge or even or just outright being taken
Speaker 1: advantage of in this space. So I think that's the
Speaker 1: first area focus. And and to Carol's point though too,
Speaker 1: I mean it's almost mood right. I mean, I mean
Speaker 1: even when you talk to some of the regulators, they
Speaker 1: kind of point out that at the end of the day,
Speaker 1: fraud is fraud, and uh and and other sort of mauthfeasances,
Speaker 1: mauthfeasance as sell falls under their umbrella, even if you
Speaker 1: don't have a clear cut definition of what crypto is,
Speaker 1: whether it's you know, security or commodity or whatever it else.
Speaker 1: And these guys had to know what they were doing
Speaker 1: was not open, didn't it doesn't matter what it was
Speaker 1: treated as. What they were doing, what they were alleged
Speaker 1: to have been doing, was fraudulent. Yeah, And I mean, Tim,
Speaker 1: I know you used to host the Crypto show that
Speaker 1: went off the air after the eight episodes? Is that
Speaker 1: one it's seasonal romance. We got seasons. Well, we'll give
Speaker 1: us a preview of what's coming up in the next
Speaker 1: season because in all serious is I mean and to Hannah,
Speaker 1: what handle has been reporting on? I mean, it's not
Speaker 1: just crypto. You had a huge collapse in other markets
Speaker 1: that are tied to this n f T market is
Speaker 1: just nothing now right, It's actually it is nothing yet.
Speaker 1: Hannah's reported on this. It's down or something Hannah so
Speaker 1: far this year. But I think that's a perfect segue
Speaker 1: to my next question for Hannah, because we did start
Speaker 1: our Crypto I r L show kind of unpacking what
Speaker 1: happened with Three Arrows Capital and the contagion related to
Speaker 1: this cryptohedge fund. And you're laughing now because up until
Speaker 1: f t X collapse in November, that was the biggest
Speaker 1: story in crypto, but that was blown out of the
Speaker 1: water by f t X and the contagion there. And
Speaker 1: I referred to this earlier in the program. Hannah, it
Speaker 1: seems like there's this fundamental shift in crypto, like the
Speaker 1: before SPF collapse and after you know, SPF f t
Speaker 1: X collapse. What does look like if this is the aftermath? Yeah,
Speaker 1: I mean the collapse of f t X is monumental
Speaker 1: for the industry. People aren't going to forget this anytime soon.
Speaker 1: So I think is all going to be about recovery,
Speaker 1: how products are going to move forward, how regulators are
Speaker 1: looking at the space, and whether you know, the industry
Speaker 1: can get investors back on board, can they regain that
Speaker 1: trust um and is there any way forward for you know,
Speaker 1: box chain gaining traction among mainstream users. Okay, I just
Speaker 1: want to end Hannah talking a little bit about micro
Speaker 1: Strategy here, because for the first time ever you had
Speaker 1: micro Strategy. It's so called enterprise software company, but really
Speaker 1: it's gone to it for bitcoin. I can hear you laughing,
Speaker 1: Romain and see you out of the corner of my
Speaker 1: eye laughing. But you did see micro Strategy actually sell
Speaker 1: bitcoin for the first time ever. What can you tell
Speaker 1: us about what's going on there? Yeah, this is a
Speaker 1: pretty insane because micro Strategy and UH has been one
Speaker 1: of Bitcoin's biggest bowls and has very much promoted the
Speaker 1: cryptocurrency over the past few years. And you know Michael Sailor,
Speaker 1: who helped found. The company is also just a major
Speaker 1: bitcoin bowl, so the fact that they have sold part
Speaker 1: of their holdings isn't necessarily a good sign for bitcoin
Speaker 1: and the broader digital asset. And they do say it's
Speaker 1: for tax loss harvesting purposes or for tax purposes, but
Speaker 1: you know, and they bought more too, so we'll see.
Speaker 1: They coin really danced extensive evercent only today. Alright, a
Speaker 1: little ways to go before it gets a million, I
Speaker 1: thinks there to Hannah Miller. Well, let's get more on
Speaker 1: markets overall. We're pleased to have with us now. Jonathan Gala,
Speaker 1: the chief US equity strategist and head of quantitative research
Speaker 1: at Credit Suites. Jonathan, good to have you with us
Speaker 1: this afternoon. I just want to start with the recession
Speaker 1: outlook for three and what you're forecasting, because I don't
Speaker 1: know about you with you know, the smp F I
Speaker 1: founder down more than so far this year. I'm ready
Speaker 1: to look ahead to Yeah, and the data actually looks
Speaker 1: a lot less recessionary than it did, you know, three
Speaker 1: or four months ago. I mean, the big story here
Speaker 1: is that inflation expectations are falling, which means people are
Speaker 1: gonna spend less money on the things they want to buy,
Speaker 1: but wages don't look like they're gonna fall as much.
Speaker 1: So for the average consumer, they're gonna get a stronger
Speaker 1: um wage increase. The things they buy are gonna be
Speaker 1: going down in price, not going down to price, but
Speaker 1: aren't going to go up as much as their wages.
Speaker 1: And yet jobs are really plentiful. And when you add
Speaker 1: that all together, it means a consumer is stronger. And
Speaker 1: if the consumer is stronger, the likelihood of recession in
Speaker 1: the next six months or so is less than everybody
Speaker 1: thought it would be. And and you know it's and
Speaker 1: that ultimately is why we had this big jump of
Speaker 1: a stock market rally since early October obviously December it's
Speaker 1: rolled over a little bit. What what What explained that? Though? Uh, Jonathan,
Speaker 1: I mean, why why do you think sentiment shifted so
Speaker 1: much coming out of that rally that we saw a
Speaker 1: late summer early fall into where we are now. Well,
Speaker 1: it's it's more than anything else. It's as like I said,
Speaker 1: it's this this twin issue of the job market being
Speaker 1: so strong that people are feeling really confident in their
Speaker 1: ability to um to make a you know, a capital purchase,
Speaker 1: whether that's you know, remodeling their kitchen or buying a
Speaker 1: new home or whatever it is. And then the second
Speaker 1: thing is CPI is expected to fall to two percent
Speaker 1: UM roughly this time next year, And that means the
Speaker 1: market is is of the belief that no matter what
Speaker 1: the FED says, the likelihood is that the Fed is
Speaker 1: going to ultimately getting close to get closer to their
Speaker 1: inflation target when we leave twenty three. And that's a positive,
Speaker 1: and that's what the market is ultimately fixated on, and
Speaker 1: I think that's why stocks are gonna do pretty pretty well.
Speaker 1: But over the next you know, you know, over the
Speaker 1: next several months, Jonathan to do you have a forecast
Speaker 1: after the SNP. We do. We have a forty fifty forecast, Carol.
Speaker 1: But I think the I think the more interesting story
Speaker 1: is that while initially there's going to be this optimism
Speaker 1: um that I just talked about, ultimately, if wages stay high,
Speaker 1: which is what I also said, the FED is gonna
Speaker 1: eventually have to get involved and and bring that down.
Speaker 1: So the you know, the general public, even investors on
Speaker 1: Wall Street, I think, are gonna be really happy with
Speaker 1: falling inflation. But the FED has a longer term issue
Speaker 1: with sticky wages, which ultimately is gonna prove to be
Speaker 1: a problem, but probably later in rather than earlier. Okay, So,
Speaker 1: how given what you've told us and the research that
Speaker 1: you've done at Credit Suite of late, give us a
Speaker 1: understanding of how this kind of translates into what happens
Speaker 1: to tech stocks because two has been a brutal year,
Speaker 1: and look, if right to stay high, that could be
Speaker 1: tough for growth stocks. Yeah. You know, I think a
Speaker 1: lot of people tim are are focused on the idea
Speaker 1: that that tech was down because of interest rates or
Speaker 1: a sentiment, and I don't think it's at at all.
Speaker 1: They're really having a hard time um on the earnings front.
Speaker 1: I mean, and the story there is pretty simple. When
Speaker 1: we were, you know, all staying at home because the pandemic,
Speaker 1: what do we do. We bought laptops, and we bought tablets,
Speaker 1: and we bought streaming services, and we bought home exercise equipment,
Speaker 1: and we did all these things. But when we pulled
Speaker 1: forward all that activity, what you're left with once the
Speaker 1: economy opens up, that we start going on vacation and
Speaker 1: doing other things, and those purchases have a shortfall and
Speaker 1: then and you've seen a real softening in demand for technology,
Speaker 1: and that has ultimately and you're seeing that in the
Speaker 1: chip market, you're seeing that elsewhere, And I think, what
Speaker 1: what's gonna happen is it probably has another several quarters
Speaker 1: to go before it runs its course. And that means
Speaker 1: that earnings are gonna be rough again for the next
Speaker 1: several quarters per Tech and that and which is one
Speaker 1: of the reasons why I'm not upgrading the group. We
Speaker 1: up we downgraded in early two and we're gonna leave
Speaker 1: it there. Okay, Well, so where are the overweight positions?
Speaker 1: I mean, where do you think people might actually find
Speaker 1: better opportunities for that price return. Well, so let's go flow.
Speaker 1: Me start with what we what we don't want to do.
Speaker 1: So I would love to buy tech, but the earnings,
Speaker 1: like I said, are a problem. And if I don't
Speaker 1: think there's a recession, you don't want to buy defensive
Speaker 1: share See what do you You don't want to buy
Speaker 1: summer staples or healthcare or utilities because they do well
Speaker 1: if you're going into a session. So the first thing
Speaker 1: is it forces you into more cyclical parts of the market.
Speaker 1: My favorite by far is the energy sector. Um even
Speaker 1: even after two years of crazy gains and way out performance. Johnathan,
Speaker 1: do you think that's still a play? Yeah, And Carol,
Speaker 1: it's not a look at what the what were there?
Speaker 1: You know, what was the stock price movement moment? Take
Speaker 1: a look at what the pe is on these these
Speaker 1: energy companies. The reason the stocks are up is because
Speaker 1: their earnings have been insanely strong. And what's probably the
Speaker 1: most interesting, in the last two months, when oil prices
Speaker 1: have generally been falling, the earnings expectations for oil companies
Speaker 1: have actually been rising. So there's there's I think there's
Speaker 1: a lot of good news on the energy side. And
Speaker 1: the second area, like I mentioned you before, was the
Speaker 1: consumer we think actually holds up pretty well. So I
Speaker 1: like the cyclical group in general would include industrials, but
Speaker 1: my two favorite in that area would be energy and consumer.
Speaker 1: Hey just quickly, um, would you buy airlines? You even
Speaker 1: talk a lot about airlines and Romayne was, you know,
Speaker 1: highlighting that despite everybody's saying we're all flying, those stocks
Speaker 1: are really beaten down. Would you be a buyer of
Speaker 1: airline stocks? I would be. I would be a buyer
Speaker 1: in general of travel companies. I mean there's a there's
Speaker 1: a very different dynamic in airlines. You know, one of
Speaker 1: them um which you know you folks are saying, is
Speaker 1: why have hotels and so much um better And there's
Speaker 1: different issues with capacity. But if oil prices do go up,
Speaker 1: that is a drag on the airlines in a way
Speaker 1: that it wouldn't be a drag on a hotel. So
Speaker 1: I'm not sure. I'm you know, not being a consumer analyst.
Speaker 1: I'm not sure that I have the ability to say
Speaker 1: is it restaurants, is it hotels? Is it cruises, casinos? Airlines?
Speaker 1: But I like the group in general. Yes, all right, well,
Speaker 1: always great to check in with you and catch up.
Speaker 1: Jonathan galab He is the chief US equity strategist over
Speaker 1: at Credit Suite. All right, as we walked through and
Speaker 1: look ahead read, one of the biggest stories of this
Speaker 1: year and maybe one of the biggest stories of next
Speaker 1: year is going to be the US housing market, of course,
Speaker 1: battered around this year as prices, which are already elevated,
Speaker 1: ran into rising rates, which effectively shut a lot of
Speaker 1: folks out of the market. The home builders overall, I've
Speaker 1: actually held up pretty well so far this year. Most
Speaker 1: of the stocks a lot of investors look at more
Speaker 1: long term past this year, past next year, and they see, well,
Speaker 1: I guess the potential the potential for more growth not
Speaker 1: only for those companies, but for the housing market overall.
Speaker 1: Please just say, joining us right now to talk a
Speaker 1: little bit more about this is the head of Pulty
Speaker 1: uh Group, Pulty Capital, the CEO and former Pulti Group director,
Speaker 1: Bill Poulty, joining us right now to talk a little
Speaker 1: bit more about this. And Bill, let's just start off
Speaker 1: before we get into some of the I guess shorter
Speaker 1: term issues that you're going through here in this industry,
Speaker 1: some of the longer term issues and the longer term planning,
Speaker 1: and how much more complicated it's gotten given that we
Speaker 1: are kind of at this major inflection point, this major
Speaker 1: structural shift in interest rates, in economic policy and fiscal
Speaker 1: policy as well well. The big problems that I see
Speaker 1: and a lot of we'll talk about inventory and inventory
Speaker 1: being a problem. I think the big problem is zoning.
Speaker 1: Zoning has just become almost impossible in many municipalities. And
Speaker 1: as you know, even if builders want to get inventory up,
Speaker 1: they still need to be able to be legally permitted
Speaker 1: to build these structures. So I think it's a little
Speaker 1: bit of a misnomer or misleading thing to say, oh,
Speaker 1: you know we're low on inventory. Well, sure, but we're
Speaker 1: also low on inventory for a big reason. And I
Speaker 1: think that's zoning. And I think Romaine, you're gonna be
Speaker 1: seeing in years to come more and more talk about
Speaker 1: what can we do at a local level to fix
Speaker 1: some of this zoning problem. Do you think, though, is
Speaker 1: an appetite there. I mean, you're I mean, obviously you're
Speaker 1: running a business, but you're also talking about something that
Speaker 1: is inherently very political, and obviously those politics differ, can
Speaker 1: differ dramatically from state to state and city to city. Here,
Speaker 1: do you think there's a political will on a mass
Speaker 1: scale to sort of address some of those zoning issues
Speaker 1: you just highlighted, I would hope so. But again, remember
Speaker 1: real estate is location, location, location, So that means that
Speaker 1: zoning is local, local, local. So if you have local governments,
Speaker 1: it could be different ten miles apart, it could be
Speaker 1: different one mile apart, right, it could be different for
Speaker 1: one property next door to another. So it's really a problem,
Speaker 1: and I don't think it's going away anytime soon. And
Speaker 1: I think that's actually in part why the home building
Speaker 1: stock prices have kind of stayed where they're at because
Speaker 1: they do own or at least have option to a
Speaker 1: lot of property, many cases that's already been zoned. Yeah,
Speaker 1: if we take a look at the SNP supercomposite home
Speaker 1: building there down those stocks as a group overall down
Speaker 1: about this year built. So let's talk about we're watching
Speaker 1: prices come down. Right. We are seeing a sloan in
Speaker 1: the market because of higher rates thanks to the US
Speaker 1: Central Bank, higher mortgage rates. How do you see the
Speaker 1: housing market ine, you have a special vantage point. I
Speaker 1: think it's gonna be a tough hill decline because I
Speaker 1: think that for so long we had so low of
Speaker 1: interest rates that anybody in their mom excuse the phrase
Speaker 1: could make money in the market. Now you a situation
Speaker 1: where you have high interest rates. You have to be
Speaker 1: dynamic in terms of the sale process. For a lot
Speaker 1: of these builders that have moved up homes, people aren't
Speaker 1: gonna want to give up there to three percent mortgage
Speaker 1: rate to get into these move up homes that are expensive,
Speaker 1: that have all these kind of bells and whistles on them,
Speaker 1: so to speak. At a six percent mortgage rates, So
Speaker 1: it's gonna be tough. One of the good things that's
Speaker 1: going on, frankly, is that inflation as it pertains to
Speaker 1: lumber as it pertains, so many of the costs that's
Speaker 1: sold to go into home building is actually going down.
Speaker 1: I mean, lumber was sky high. It's now kind of
Speaker 1: gotten back to pre COVID levels. So I think that
Speaker 1: you've seen some pressure come off of the builders. But
Speaker 1: again you're gonna have a different kind of pressure, and
Speaker 1: in this case, it's very important pressure, and that is
Speaker 1: higher interest rates. To remember, all we were talking about
Speaker 1: is lumber. Yeah, that was like it was like it
Speaker 1: was like we were doing and we we found some
Speaker 1: great guests out of there. I mean we're talking abou
Speaker 1: lumberjacks thing. Everybody thought it just keep going up, keep
Speaker 1: going through the roof, and now it's interest rates. Hey Bill,
Speaker 1: I'm really curious about what you said about zoning. I
Speaker 1: want to go back to that, and I'm wondering if
Speaker 1: you're talking about single family homes, land zone for single
Speaker 1: family homes, or if you're thinking more multi family and
Speaker 1: density in our cities. And what we really need to
Speaker 1: do is rethink here in the United States the idea
Speaker 1: of density. I mean, we saw what happened in California
Speaker 1: over the last year with the debate around accessory dwelling units,
Speaker 1: the so called grandmother units right a d r s,
Speaker 1: and the way that that's adding hundreds of thousands of
Speaker 1: potential places for people to live in California. Um, what
Speaker 1: are your thoughts around density? Well, think about it this way.
Speaker 1: You have social media these days, So when people have problems,
Speaker 1: let's say it's a local area and they don't want
Speaker 1: more traffic, whether it's single family or multifamily like you're
Speaker 1: talking about, I think it's a problem for both d
Speaker 1: all the above, and people can get on social media
Speaker 1: these days, they can speak up. They can say, look,
Speaker 1: we have this quiet neighborhood, we have good schools. We
Speaker 1: don't want these builders coming in. I'm not saying that's
Speaker 1: what I say, but I'm saying, you know, people in
Speaker 1: their own local municipal right, nimbies, right, not in my
Speaker 1: backyard is sort of the pejorative term that's used for this, correct, correct?
Speaker 1: All right? So look, I mean we talk about sort
Speaker 1: of the structural issues here that uh, you and the
Speaker 1: rest of your industry has to navigate here. I am
Speaker 1: curious here about just overall demand. There's sort of been
Speaker 1: this narrative that obviously we have a housing shortage, and
Speaker 1: the idea is that it's only gonna get worse, it's
Speaker 1: not going to get better. Population is going to continue
Speaker 1: to grow here. Is there a sense here that there
Speaker 1: will be geographical shifts that could potentially maybe ease some
Speaker 1: of those issues. Are we still going to be kind
Speaker 1: of concentrated in the same you know, metropolis is that
Speaker 1: have dominated the housing market for so many years, great question.
Speaker 1: Most of the market frankly has changed compared to a
Speaker 1: year or two ago. For instance, the Southeast is doing
Speaker 1: phenomenal compared to many other parts of the country. But frankly,
Speaker 1: if you're a home builder right now, you have to
Speaker 1: be very dynamic. In fact, that's kind of why I've
Speaker 1: been tough on our legacy family business, Pulty Holmes. Recently
Speaker 1: they had a rogue executive doing some nonsense, and I
Speaker 1: hope it's a rogue rogue executive. Yeah, you have to
Speaker 1: be a top performer right now. And you know, if
Speaker 1: you're one of these big public builders, now is the
Speaker 1: time to make money and to take market share, and
Speaker 1: a lot of these smaller builders, frankly aren't able to
Speaker 1: move inventory like they were able to move a year
Speaker 1: or two ago. So you really have to be on
Speaker 1: the top of your game. So I just want to
Speaker 1: go back a bill, I mean, since you brought it up,
Speaker 1: I mean, we've been sort of captivated by some of
Speaker 1: the drama between you and I guess Brandon Jones, uh,
Speaker 1: the CEO over there, can you guess give us a
Speaker 1: longer today? They removed him as you know, yes, yes, sorry,
Speaker 1: thank thank you for that that correction. But give us
Speaker 1: a sense here of what exactly was going on. What
Speaker 1: was the disconnect between the management there and you over
Speaker 1: there at the Pulty Capital Well, I hope it wasn't
Speaker 1: the management. I hope it was just this Brandon Jones,
Speaker 1: who was the CEO of number two in this entire company,
Speaker 1: Pulty Group, which as you know, our family founded and
Speaker 1: I was on the board there for many years. I
Speaker 1: don't know what it was about. We need an independent
Speaker 1: investigation and hired this King and Spalling law firm. Need
Speaker 1: an independent investigation to see what went on here. But
Speaker 1: to answer your question, there were at least, as far
Speaker 1: as we know, six or seven different thoughts, as we
Speaker 1: call them, fictitious accounts that were attacking me and my
Speaker 1: family and stuff being operated by the number two in
Speaker 1: this fortune company. We can't have this kind of nonsense
Speaker 1: in a publicly traded company. We can't have this kind
Speaker 1: of nonsense in a fortune company. We had to turn
Speaker 1: around the company. We don't want to have that happen again.
Speaker 1: And hopefully, uh, hopefully, you know, we're getting to the
Speaker 1: bottom of it alright, just going down Ahead's hard for
Speaker 1: people to understand that somebody could be number two in
Speaker 1: a fortune company doing this kind of stuff. I mean,
Speaker 1: they're attacking my dead grandfather who founded the fortune company,
Speaker 1: and it's really a shame. Yeah, certainly, if you think
Speaker 1: about kind of the social market, social media market, there
Speaker 1: are a lot of things that go on that make
Speaker 1: it very difficult for individuals and companies alike. Hey, Bill,
Speaker 1: just running out of a little bit of a time here.
Speaker 1: But when you look ahead year, it's interesting how you say,
Speaker 1: you know, we talked about housing stock being down. I
Speaker 1: think about after the financial crisis, the mortgage meltdown, we
Speaker 1: had so much housing supply. Help me understand in about
Speaker 1: a minute or so here the housing cycles. Well, I
Speaker 1: think that you're gonna have and you've already experienced a
Speaker 1: housing cycle. In fact, one of the reasons that at
Speaker 1: least we were more cautious on the general market is
Speaker 1: because housing, in our opinion, tends to lead, uh, you know,
Speaker 1: the market into a recession, which I think we're headed
Speaker 1: towards um and then it tends to lead it actually out.
Speaker 1: So to answer your question, I think we've already seen
Speaker 1: somewhat of a cycle down at least in housing that's
Speaker 1: obviously been reflected and was first reflected in housing stocks
Speaker 1: and then was reflected in some of these other stocks. Now,
Speaker 1: I'll say this one of the wild cards we have here, Carol,
Speaker 1: and it's a great question, is this inflation picture Because
Speaker 1: many of these builders own these land and this land,
Speaker 1: you can't make more of it, you can't zone in
Speaker 1: many cases for the reasons we discussed, right, and so
Speaker 1: there is real value in the assets that these builders
Speaker 1: have a right. Gonna leave it on that note, Listen,
Speaker 1: have a good new year. Bill. We really appreciate Bill Pulty,
Speaker 1: of course CEO Pulty Capital, former Pulty Group Director. Thanks
Speaker 1: for listening to Bloomberg Business Week. Download the podcast on iTunes,
Speaker 1: SoundCloud or Bloomberg dot Com. You can also listen to
Speaker 1: our radio show at two pm Eastern on Bloomberg Radio,
Speaker 1: or stream us live on YouTube and Bloomberg dot com