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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 2: weekdays at ten am Eastern on Apple car Playing and

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Speaker 2: broud Auto with the Bloomberg Business App. Listen on demand

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Speaker 2: wherever you get your podcasts, or watch us live on YouTube.

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Speaker 3: Well, all right, here's a little trick, folks.

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Speaker 4: If you want to have the most red story on

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Speaker 4: the Bloomberg terminal, this is what you're right. Bonus is

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Speaker 4: set to grow across Wall Street for first time since

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Speaker 4: twenty twenty one. Every single Bloomberg user out there on

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Speaker 4: the planet clicked on that story, Captain.

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Speaker 5: Nip for readers.

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Speaker 3: Really, it is awesome. It is great stuff.

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Speaker 4: Katherine Daughertydherty, she's responsible for this one. She's a financi

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Speaker 4: reporter for Bloomberg News, joining us live here in our

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Speaker 4: Bloomberg Interactive Brokers studio.

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Speaker 3: So we're going to get bonus increases this year for

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Speaker 3: our friends in Walt Wall Street.

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Speaker 6: It seems like everyone is going to be going out

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Speaker 6: of twenty twenty four with ale on their face hopefully.

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Speaker 7: Yeah.

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Speaker 4: So what I mean, I guess it's just simply a

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Speaker 4: function of profitability on the street. I mean just huge

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Speaker 4: profits is he coming out of these big investment banks.

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Speaker 6: So it shouldn't come as a surprise because we've seen

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Speaker 6: the banks report more activity across trading, even deals are

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Speaker 6: starting to show signs of a return to more m

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Speaker 6: and A. It just means more fees and so when

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Speaker 6: there's more revenue coming into these banks, they're able to

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Speaker 6: pay their bankers more, and so across Wall Street, we're

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Speaker 6: likely to see double digit pay increases, some as much

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Speaker 6: as twenty five to thirty five percent, others closer to ten.

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Speaker 6: But it does look like this is going to be

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Speaker 6: a bigger bump close to the twenty twenty one highs

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Speaker 6: so's it's been three years, but we're starting to see

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Speaker 6: a turnaround.

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Speaker 5: Talk to us.

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Speaker 8: About corporate clients specifically returning to the market because I

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Speaker 8: know obviously the Federal Reserve and previously in those three

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Speaker 8: year span where rates were the highest they'd been about

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Speaker 8: a generation. Kind of the difference there when your to

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Speaker 8: see that ease now.

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Speaker 6: When it comes to borrowing costs, yeap, So we see

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Speaker 6: a return to companies tapping both the equity and debt markets.

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Speaker 6: Debt especially as rates are coming down, and this is

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Speaker 6: also a reflection of just we had a period of

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Speaker 6: uncertainty and now that there's more clarity on what the

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Speaker 6: Fed is going to do with rates, Now that we

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Speaker 6: have gotten through the election and we know who the

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Speaker 6: new administration is going to be, that is probably going

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Speaker 6: to just mean more deal activity and more companies that

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Speaker 6: are tapping their bankers and asking what they might be

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Speaker 6: able to do to increase their earnings or to help

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Speaker 6: with their balance sheets if they have been stressed over

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Speaker 6: the past few months or years.

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Speaker 4: Back in my day on Wall Street, my bonus would

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Speaker 4: make up many years ninety six percent of my total

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Speaker 4: annual compensation.

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Speaker 3: Really my bonus. Wow.

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Speaker 4: But what's happened now is they've increased the base pay

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Speaker 4: and reduced the amount of incentive compensation, okay to kind

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Speaker 4: of you know, get away from those big bonus numbers.

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Speaker 8: But catalysts to shift that.

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Speaker 4: I think it was just some of the public backlash

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Speaker 4: to the big bonus numbers out there, so it created

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Speaker 4: the exact wrong incentive in my opinion. But anyway, dead underwriting,

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Speaker 4: equity underwriting, they're going to get the big winners, right.

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Speaker 6: Yes, it seems like that's where we've seen a lot

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Speaker 6: of the activity right behind them trading and M and A.

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Speaker 6: It's returning. So that wasn't the strongest sector in the past,

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Speaker 6: especially the last two years. But twenty twenty four is

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Speaker 6: looking up. There's those green shoots are starting to actually

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Speaker 6: show some activity and looking ahead. We've even got some

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Speaker 6: indicators for twenty twenty five. I know that is it

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Speaker 6: seems far away, but it's really not. It's right around

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Speaker 6: the corner, and all indicators are pointing to positive growth

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Speaker 6: in the new year as well as to end this year.

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Speaker 8: Were there any sectors that were left out?

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Speaker 6: Well, retail and commercial banking. I don't know what you

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Speaker 6: mean by left out, but those are actually the only

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Speaker 6: two that we are projected to be flat or even

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Speaker 6: slightly down, So not catastrophic, but not the payout and

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Speaker 6: the boon that you might see with debt and equity

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Speaker 6: underwriting bankers.

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Speaker 4: And is it expected that'll be pretty much across most

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Speaker 4: firms be pretty pretty similar. Do you think we're gonna

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Speaker 4: have some firms that are gonna do really better in

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Speaker 4: terms of paying people versus some are that are gonna

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Speaker 4: be lagrags. I know some companies, some firms have some

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Speaker 4: pressure from their shareholders to keep that expense ratio in

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Speaker 4: line and things like that.

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Speaker 6: That's right, but I would say that across the big

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Speaker 6: six Wall Street banks, they have to they remain competitive,

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Speaker 6: so they have to pay their people so that they

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Speaker 6: don't if you are thinking about your expenses, and they

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Speaker 6: need to be. But if you skimp and you're not

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Speaker 6: paying your people what they expect to be paid, they

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Speaker 6: might go across the street and then we'll start to

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Speaker 6: see some jumping, which we saw during twenty twenty one,

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Speaker 6: and that has pulled back just with compensation. So competition

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Speaker 6: was not as much of a problem for the banks.

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Speaker 6: But it's a really great point. It's something that we'll

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Speaker 6: pay attention to. Will this mean that there'll be more

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Speaker 6: shifting of the chair, as we say, across Wall Street firms.

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Speaker 4: And we'll talk I mean, at two pm Wall Street today,

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Speaker 4: Shanali bask interviewing Jane Fraser, CEO of City Tune in

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Speaker 4: so that'll be some good conversation about the state of

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Speaker 4: global Wall Street. The average salary including bonuses was four

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Speaker 4: hundred and seventy three hundred and seventy dollars last year,

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Speaker 4: down five point two percent, largely due to smaller annual payouts.

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Speaker 4: That's what the New York State comptroll or Thomas D.

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Speaker 4: Napoli said last month. So folks whould really pay attention

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Speaker 4: to how much Wall Street's getting paid is the City

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Speaker 4: of New York for the other taxes.

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Speaker 5: Whenever you're speaking with your sources, what's their thoughts on

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Speaker 5: a market volatility when you have a new administration coming

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Speaker 5: in and what this could potentially shape when you're thinking

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Speaker 5: about how bonuses could potentially change next year.

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Speaker 6: So I think what is what was interesting in talk

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Speaker 6: to folks leading up to the election, Many bankers that

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Speaker 6: I talked to said that this was not a decision

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Speaker 6: or trading firms, investment managers. They weren't making the decision

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Speaker 6: of where to move their money the week of the election.

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Speaker 6: That decision had made over the summer or weeks even

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Speaker 6: months before. So we saw a lot of activity which

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Speaker 6: will likely be reflected in the next earning cycle for

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Speaker 6: banks when they report how much of their trading activity,

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Speaker 6: which we expect to be up. And now that the

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Speaker 6: administration is you even see some of the folks that

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Speaker 6: are being picked to lead in the Trump administration. As

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Speaker 6: that becomes more clear, you'll see probably people taking even

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Speaker 6: more bets on where the economy is headed, maybe some

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Speaker 6: geopolitical tensions that people will start to make decisions based

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Speaker 6: on the new leaders that are in place, so you

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Speaker 6: can expect to probably see even more trading activity. This

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Speaker 6: is not the end, it's probably just the beginning, or

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Speaker 6: the way that I see it, and from the conversations

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Speaker 6: that I'm having with traders on Wall Street.

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Speaker 4: Catherine, thank you so much for joining us. Really appreciate it.

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Speaker 4: Excellent reporting. Most read story on the Bloomberg terminal. How

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Speaker 4: about that, Catherinedarerty. Of course I could have written it

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Speaker 4: become the most you know, But that's how you write it.

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Speaker 3: You write anything about Wall Street and bonuses.

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Speaker 4: Boom Techo Catherin Dherty Financial Report of Bloomberg News joining

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Speaker 4: us here in our Bloomberg Interactive Broker's studio. So again,

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Speaker 4: our friends on Wall Street looks like they're gonna have

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Speaker 4: a pretty good year this year. Maybe that means it'll

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Speaker 4: be buying more terminals, leasing more terminals. That's how I

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Speaker 4: think about it.

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Speaker 8: The Bloomberg connecting it back, you connect it all back

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Speaker 8: to us circle there.

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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us Live

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Speaker 2: weekdays at ten am Eastern on Apple card Play and

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Speaker 2: Android Auto with the Bloomberg Business. You can also listen

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Speaker 2: live on Amazon Alexa from our flagship New York station,

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Speaker 2: Just Say Alexa playing Bloomberg eleven thirty.

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Speaker 3: Home Depot put out some numbers.

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Speaker 4: Apparently some of the hurricanes have caused people to have

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Speaker 4: to get a bunch of supplies to repair their homes,

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Speaker 4: and that kind of boat that worked out well for

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Speaker 4: the folks.

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Speaker 3: At Home Depot.

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Speaker 4: Drew writing home builder analysis for Bloomberg Intelligence joints us

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Speaker 4: here Drew talk to us about Home Depot. I guess

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Speaker 4: raising its outlook here. What did you hear from the company?

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Speaker 9: Yeah, solid quarter, a beaten raise on same store sales,

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Speaker 9: which is their key metric everybody pays attention to. It

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Speaker 9: looks like they got a little bit of benefit from

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Speaker 9: warmer weather across the country, and at the same time

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Speaker 9: they also benefited from some of the recent hurricane activity

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Speaker 9: that we had in the South. They mentioned about a

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Speaker 9: two hundred million dollar sales benefit or fifty five basis

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Speaker 9: point impact to same store sales. I think that the

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Speaker 9: main takeaway is that the underlying trends of the business

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Speaker 9: really haven't changed all that much despite the race to

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Speaker 9: the full year guidance, which really just reflects the outperformances

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Speaker 9: quarter due to weather. You know, their customers are still

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Speaker 9: battling with the cumulative impact of inflation over the land

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Speaker 9: several years. One thing they continue to call out is

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Speaker 9: general economic uncertainty. And you also have the housing market

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Speaker 9: which is extremely depressed. If you look at resale volumes

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Speaker 9: in the existing home market, we're at the lowest levels

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Speaker 9: in fourteen years. So you know, it's it's hard to

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Speaker 9: get a turn around in the home improvement retelligence until

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Speaker 9: we start to see a little bit more activity on

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Speaker 9: the housing front.

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Speaker 8: And we're also going to have Low's earnings next week.

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Speaker 8: As you know, it's interesting just looking at Home Depot

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Speaker 8: stock ticker simple AHDS down about five tens of a

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Speaker 8: percent right now. It's actually up seventeen percent year to date,

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Speaker 8: but it's still under performing Lows that's actually up about

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Speaker 8: twenty two percent. Why the divergence here, because we do

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Speaker 8: know there comes to there's some differences between both companies.

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Speaker 9: Yeah, I think the primary reason for the outperformance just

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Speaker 9: has to do with kind of a technical situation where

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Speaker 9: Home depots, valuation premium over Lows kind of got a

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Speaker 9: little stretch versus history, so part of that was just

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Speaker 9: playing catch up. You know, Low's is also viewed as

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Speaker 9: more of a turnaround story than Home Depot, so they're

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Speaker 9: doing some company specific things on the margin side, on

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Speaker 9: the cost takeout side that are kind of lifting their

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Speaker 9: margins up to where home depots are. So I think

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Speaker 9: part of it is just where the multiples were between

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Speaker 9: the two companies, and part of it is investors placing

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Speaker 9: their bets on a turnaround story with Lows and.

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Speaker 4: Just remind us the differing customer bases. Lows versus Home

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Speaker 4: Depot is one more professional than the other.

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Speaker 9: Sure, so home Depot is about fifty percent DIY fifty

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Speaker 9: percent professional contractor. Low's is about seventy five percent DIY

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Speaker 9: twenty five percent pro customer. You know, that mix has

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Speaker 9: really been a benefit to Home Depot because, as we know,

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Speaker 9: the professional contractor has held up relatively stronger than the

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Speaker 9: DIY market. They're still operating backlogs over the last several months,

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Speaker 9: so they continue to have that stream of business. Now,

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Speaker 9: it's certainly we're not seeing those those big ticket projects

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Speaker 9: being replenished at the rate they were over the last

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Speaker 9: couple of years, but they're still working with pretty strong backlogs.

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Speaker 9: You know, home Depot has made a point of emphasis

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Speaker 9: to go after an untapped market within the broader professional

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Speaker 9: contractor space, and that's really in the market for larger

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Speaker 9: complex projects. You know, they pigot at about two hundred billion,

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Speaker 9: and it's really what they want to do is become

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Speaker 9: a one stop shop for contractors who have historically gone

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Speaker 9: to multiple suppliers for their products. They want to bring

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Speaker 9: all that in house and all for all the capabilities

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Speaker 9: to those contractors that they're getting at the independent level.

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Speaker 8: We only have about a minute left, but as curious,

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Speaker 8: if you're on the earnings call for them, what would

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Speaker 8: you want to ask their c suit executives.

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Speaker 9: So it actually just wrapped up, and I think the

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Speaker 9: biggest takeaway is really, you know, what we need to

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Speaker 9: see on the existing home sales front in order to

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Speaker 9: see a broader rebound in the home improvement space. And

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Speaker 9: it's you know, it's not just impact rates are having

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Speaker 9: on house and turnover, but it's the impact that rates

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Speaker 9: are having on big ticket discretionary products. So really the

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Speaker 9: color that they provide it in terms of what they

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Speaker 9: need to see on rates in order to unlock that

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Speaker 9: big ticket discretionary category is what I think a lot

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Speaker 9: of people are paying attention to. And until you know,

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Speaker 9: we see something probably in the six percent range, we

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Speaker 9: don't think you start to unlock sales or that that

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Speaker 9: capital home equity that's built up over the last couple

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Speaker 9: of years.

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Speaker 4: Yeah, mortgage mortgage rates are going the wrong way. Mortgage

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Speaker 4: Bankers Association thirty year fixed rate six point eight one percent.

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Speaker 4: That's the hew as it's been since kind of back

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Speaker 4: in the.

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Speaker 3: In the summer. So no boinno if you're looking to

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Speaker 3: refinance a mortgage.

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Speaker 4: There Drew reading, home building analysts for Bloomberg Intelligence, joining

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Speaker 4: us from Princeton.

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Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 2: weekdays at ten am Eastern on Apple car Playing and

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Speaker 2: Broun Auto with the Bloomberg Business App. Listen on demand

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Speaker 2: wherever you get your podcasts, or watch us live on YouTube.

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Speaker 4: Bitcoin earlier in the sech session, so pushing up ninety

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Speaker 4: thousand dollars per token. We're now at just under eighty

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Speaker 4: seven thousand per token. But weren't we just like sixty

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Speaker 4: thousand a week ago or fromth so.

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Speaker 8: In the last ten sessions it's rallied twenty seven percent

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Speaker 8: through yesterday's close.

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Speaker 1: So there you go.

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Speaker 4: All right, I'm blaming Miami Beach for that. Mike mcgloone

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Speaker 4: senior commodity strategist for Bloomberg Intelligence, he's down there in Miami, Mike,

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Speaker 4: is this just is this a trading technical thing?

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Speaker 3: Is it overdone? What do you make a bitcoin these days?

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Speaker 10: I think the best answer is yes, there's there's a

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Speaker 10: lot of that going on. The key thing is is

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Speaker 10: ETF flows. Right now, Bitcoin just as of yesterday just

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Speaker 10: crossed the threshold of one hundred billion, and total ETF

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Speaker 10: holdings to put that in context, a year ago, was

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Speaker 10: about eight billion. So the launch of US ETFs is

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Speaker 10: brought into the mainstream has really kicked it in. And

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Speaker 10: also to put that into context, total holdings of gold

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Speaker 10: etaffs are around two hundred and thirty billions, so Bitcoin's

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Speaker 10: almost halfway there and it's only been less than a

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Speaker 10: year of actual physical ETFs. So there's a lot of

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Speaker 10: physical We all know about the diminishing supply, and right

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Speaker 10: now it's a bit of animal spirits.

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Speaker 11: What I'm concerned about.

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Speaker 10: Is you look at the correlation of Bitcoin the s

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Speaker 10: and B five hundred the sixty days, it's the most

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Speaker 10: ever on the way up. So the fastest horse in

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Speaker 10: the race is leading everything up. And remember the world

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Speaker 10: changed a week ago when President Donald Trump was elected

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Speaker 10: member and first Donald Trump's administration is really pushing against crypto,

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Speaker 10: is bad for the dollar, and now it completely flipped

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Speaker 10: and he's making a bitcoin in the crypto people very happy.

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Speaker 8: So bitcoin has been treating more like a leveraged version

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Speaker 8: of beta, the digital version of gold. I know that's

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Speaker 8: what you were writing about. So what do you think

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Speaker 8: this could tell us also, maybe more broadly about US equities.

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Speaker 8: When you have a big run like this in the

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Speaker 8: crypto space, well, well.

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Speaker 11: It's catching up.

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Speaker 10: So it's pumped early in the year when the US

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Speaker 10: ETFs were launched, it pumped up around sixty three or

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Speaker 10: seventy three and then went back down to fifty. And

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Speaker 10: now with this paradigm shift of the new administration be

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Speaker 10: completely favorable, probably going to get again get rid of

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Speaker 10: the old SEC Chairman Gary Ginstl, I have one much

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Speaker 10: more favorable. So it really shifted the narrative in this space.

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Speaker 10: Towards positive inklings and positive regulation. So we have those

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Speaker 10: animal spares go into questions how much further? And I

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Speaker 10: grat you mentioned that because I look at bitcoin is

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Speaker 10: it basically trades three times a volatility of gold in

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Speaker 10: S and P five hundred. Now, five years ago it

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Speaker 10: traded almost nine times of VALTI.

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Speaker 11: So it's coming. It's volatility is declining.

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Speaker 10: But right now it's in that stage that oh boy,

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Speaker 10: we have a complete flip over the administration's positive. We're

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Speaker 10: seen massive buying. Everybody's looking at one hundred thousand is

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Speaker 10: the next key resistance. A lot of people are saying

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Speaker 10: buying an inauguration. I don't really know for sure it's

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Speaker 10: going to get there. But the key thing I want

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Speaker 10: to point out is what I could say is bitcoin

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Speaker 10: will do fine as long as the stock market goes up.

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Speaker 10: We have not seen a big test yet of stock

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Speaker 10: markeling going down in bitcoin going up. And it's it's

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Speaker 10: you know, it's a much higher Volatili says a tendency

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Speaker 10: to be a leading indicator. Again, it trades twenty four

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Speaker 10: to seven. So during the you know, even this weekend

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Speaker 10: a lot of times last weekend it up almost ten

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Speaker 10: percent on just over the weekend.

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Speaker 4: Who's the marginal buyer of bitcoin here, Mike, Do we

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Speaker 4: think it's just the retail investor via his or her.

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Speaker 11: ETF right now? It is it's that allocation of capital pality.

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Speaker 10: People are telling me, oh, you just got to get

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Speaker 10: off zero, and by getting off zero, maybe one to

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Speaker 10: two percent. And that's what's happening on a pretty significant scale.

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Speaker 10: And people look at it as Okay, if I can

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Speaker 10: hold one hundred units of saying the Nasdaq or S

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Speaker 10: and B five hundred and put in maybe one unit

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Speaker 10: of the bigcoin, I can actually have the same type

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Speaker 10: of upward trajectory with less risk.

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Speaker 11: I can sell more of those higher the low volt.

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Speaker 10: To the assets and buy this you know, rapidly advancing

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Speaker 10: speculative digital asset. But the risk is it still is

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Speaker 10: a very much of his speculative digits. And just right

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Speaker 10: now we're only a week away from this paradigm shift

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Speaker 10: of President Trump's decisive election, and I was delighted to

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Speaker 10: see him switch back over to favor of the cryptos

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Speaker 10: because I like to point out is on a one

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Speaker 10: day basis, right now, on twenty four hour basis, the

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Speaker 10: number one trade of crypto is not bitcoin. It's actually

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Speaker 10: tether and that's the US dollar. So our regulators and

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Speaker 10: our leaders are figuring that out. It's good to see that.

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Speaker 8: What are the technicals tell us about bitcoin? What's resistance?

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Speaker 3: What's support?

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Speaker 10: At this point, Yeah, eybody's looking at one hundred grand,

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Speaker 10: it is kind of the key level. The key support

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Speaker 10: is seventy That's kind of where it broke out from.

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Speaker 10: So seventy two hundred are the key levels. And we

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Speaker 10: all know it's bitcoin. It can be quite you know,

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Speaker 10: can make you lose your hair as people and the

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Speaker 10: viewers can see. I did that. But yeah, so seventy

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Speaker 10: two hundred thousand of the key levels. After that we'll

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Speaker 10: have to see.

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Speaker 9: All right.

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Speaker 4: For Alex Steele, I know she's listening talk to us

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Speaker 4: about oil. We're dat got WTI crude oil down here

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Speaker 4: at sixty eight bucks a barrel? Is that just expectation

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Speaker 4: that we're going to drill, baby, drill.

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Speaker 10: I'll see at fifty six, it's just a matter of time.

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Speaker 10: Fifty six is the average cost of production in the

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Speaker 10: US based from benef Bloomberger New Energy Finance, and every

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Speaker 10: day that goes by, we stay above that level. You

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Speaker 10: see rapidly increasing access as a supply in the US

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Speaker 10: and Canada, decreasing demand in China, most notably in diesel.

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Speaker 11: Diesel demand is inclined in the.

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Speaker 10: US, in Europe, in India, China, and we see that

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Speaker 10: that's the growing spare capacity out of opex. So crude,

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Speaker 10: I think, is going to do what natural gas did.

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Speaker 10: It had to get below its cost of production. They

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Speaker 10: did that Q one and it's bounced. The grains have

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Speaker 10: basically done it in just the amount of time. And

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Speaker 10: what's happening with the potential for tariffs is as you

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Speaker 10: see the headlines in the terminal that China's potentially enemy

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Speaker 10: number one for Trump two point zero. This is really

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Speaker 10: bad for that number one demand force for commodities in

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Speaker 10: the planet, which means we should do what's normal in

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Speaker 10: commandits get blow that cost production. That's why I point

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Speaker 10: out typically it's blow fifty six and for WTI and

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Speaker 10: then I think it's put in pretty good ceiling just

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Speaker 10: below eighty and questions what stops that I don't know

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Speaker 10: right now.

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Speaker 8: Switching gears and looking at precious metals, I know gold

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Speaker 8: you were pointing out me actually have a foundation from

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Speaker 8: a technical perspective, around twenty four hundred ounce on track

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Speaker 8: toward three thousand. Walls talk us more about that, So I.

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Speaker 11: Like to creator it what I've been saying for I

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Speaker 11: hate to say how long. A couple of years.

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Speaker 10: It's a matter of time it gets to three thousand.

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Speaker 10: The high this year is around twenty eight hundred. That

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Speaker 10: was very expensive. It's just pulling back for good reason,

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Speaker 10: the decisive election, the potential daytunt and global geopolitical risks,

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Speaker 10: which is probably not going to happen. But the bottom

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Speaker 10: line for goldie is a bull market. It's bucking, it's

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Speaker 10: backing up a little. The difference is we haven't seen

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Speaker 10: that in the stock market in a while. They've been

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Speaker 10: kind of going up. Predict on a one year basis,

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Speaker 10: Gold's up about thirty three percent, SMB five hundreds about

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Speaker 10: thirty seven percent. So it's just a question of what

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Speaker 10: will drive it next to bottom line, as we have

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Speaker 10: rising geopolitical tensions and the number one source of demand

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Speaker 10: for gold has been central banks ETFs are just starting

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Speaker 10: to turn upward. But what I've been saying about gold

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Speaker 10: is there's really not a reason for US investors to

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Speaker 10: buide until we see that US stock market tear end

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Speaker 10: and or rates to go down. But for now, maybe

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Speaker 10: it gets down a twenty four hundred. That would be

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Speaker 10: a decent backup, normal backup in a bull market.

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Speaker 11: Otherwise it's still a bull market. It's just bucking a little.

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Speaker 4: Mike mclone great stuff. As always, We'll talk pork bellies

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Speaker 4: next time. Mike McLoone, senior commodity strategist for Bloomberg Intelligence.

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Speaker 4: He's down there in Miami. I don't know how he

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Speaker 4: got in Miami, but he's.

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Speaker 5: A pretty sweet deal.

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Speaker 3: He's got it. He's got a sweet Yeah. But you

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Speaker 3: get to be Mike McLoone. You can do whatever you want.

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Speaker 4: He said, Hey, I'm going to Miami. I said, okay,

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Speaker 4: enjoy it, you know, have fun.

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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

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Speaker 2: weekdays at ten am Eastern on applecar Play and Android

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Speaker 4: Jess Meant sitting in for Alex Steel on Paul Sweeney.

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Speaker 4: You live here in our Bloomberg Interactive Broker studio. We're

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Speaker 4: streaming live on YouTube. That's the Internet, So head over

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Speaker 4: to YouTube dot com search Bloomberg Podcast and that's where

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Speaker 4: you'll find us. Do you believe that they allow people

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Speaker 4: to manage money in Santa Fe?

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Speaker 1: I believe that.

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Speaker 3: Can you believe that?

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Speaker 5: Hey, they let us do it in Texas.

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Speaker 3: So Emily Lavelle, she joins is.

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Speaker 4: She's a portfolio manager Thornberg Investment Management. They are based

440
00:21:05,440 --> 00:21:06,760
Speaker 4: in Santa Fe, New Mexico.

441
00:21:07,119 --> 00:21:09,359
Speaker 3: It's a thing. I confirmed it. It's really the case.

442
00:21:09,480 --> 00:21:11,200
Speaker 4: They got a lot of money forty six billion dollars

443
00:21:11,200 --> 00:21:13,120
Speaker 4: in client assets based in Santa Fe.

444
00:21:13,480 --> 00:21:19,560
Speaker 3: Emily, you look at international growth, correct, Okay? Is China?

445
00:21:19,840 --> 00:21:22,320
Speaker 3: It's international? But is the growth? How do you guys

446
00:21:22,320 --> 00:21:23,240
Speaker 3: think about China?

447
00:21:23,960 --> 00:21:29,880
Speaker 7: So thanks for having me. We invest in companies, not countries, Okay.

448
00:21:30,400 --> 00:21:33,840
Speaker 7: We're a concentrated portfolio. Most of the portfolios at Thornberg are,

449
00:21:34,440 --> 00:21:37,280
Speaker 7: and you know, we do deep fundamental analysis on all

450
00:21:37,280 --> 00:21:40,320
Speaker 7: the companies that we have in the portfolio. So I

451
00:21:40,359 --> 00:21:44,480
Speaker 7: think that there are selective, really interesting opportunities in China.

452
00:21:44,840 --> 00:21:47,000
Speaker 1: We have been staying.

453
00:21:46,600 --> 00:21:50,000
Speaker 7: Away for the last couple of years on policy uncertainty,

454
00:21:50,560 --> 00:21:54,240
Speaker 7: on growth concerns. As you mentioned, growth has been you know,

455
00:21:54,400 --> 00:21:57,520
Speaker 7: buy and large GDP growth has been very weak in China,

456
00:21:58,160 --> 00:22:01,240
Speaker 7: You've had price deflation. But you know, we see early

457
00:22:01,359 --> 00:22:05,200
Speaker 7: signs from some of the stimulus measures announced from September

458
00:22:05,440 --> 00:22:08,119
Speaker 7: through the end of October that the Chinese government is

459
00:22:08,200 --> 00:22:12,400
Speaker 7: really focused on bringing growth back to the economy. They

460
00:22:12,400 --> 00:22:17,040
Speaker 7: see it as a priority, obviously, and we do think

461
00:22:17,080 --> 00:22:21,080
Speaker 7: therefore that there are selective places to invest there, and

462
00:22:21,320 --> 00:22:23,880
Speaker 7: you know, we think it's really important for the global economy.

463
00:22:23,880 --> 00:22:25,520
Speaker 7: I mean, it's the second largest economy in the world.

464
00:22:25,720 --> 00:22:29,199
Speaker 7: Twenty percent of Apple revenues are there, so we do

465
00:22:29,240 --> 00:22:31,639
Speaker 7: see opportunity. And look, when you're priced at you know,

466
00:22:32,160 --> 00:22:37,159
Speaker 7: sub ten times earnings, it doesn't take much. Expectations are

467
00:22:37,280 --> 00:22:39,400
Speaker 7: very low, and so we want to be very mindful

468
00:22:39,400 --> 00:22:39,639
Speaker 7: of that.

469
00:22:40,119 --> 00:22:42,720
Speaker 8: I want to talk to you about positioning in particular

470
00:22:42,760 --> 00:22:44,840
Speaker 8: in the US just because of Bank of America. As

471
00:22:44,840 --> 00:22:46,919
Speaker 8: you know, they put out their Fund Manager survey this morning.

472
00:22:47,240 --> 00:22:49,800
Speaker 8: In each month, they always have interesting statistics in there,

473
00:22:49,840 --> 00:22:51,800
Speaker 8: and so something that really jumped out was that US

474
00:22:51,840 --> 00:22:55,240
Speaker 8: equity positioning had actually surged two an eleven year high,

475
00:22:55,280 --> 00:22:58,160
Speaker 8: on the back of Trump winning the US presidential race,

476
00:22:58,200 --> 00:23:01,080
Speaker 8: and I was curious, where are you seeing particular points

477
00:23:01,080 --> 00:23:03,199
Speaker 8: in the equity market that looks stretched, whether it's an

478
00:23:03,200 --> 00:23:05,639
Speaker 8: index level or a sector level, and how are you

479
00:23:05,720 --> 00:23:07,000
Speaker 8: talking to your clients about that.

480
00:23:07,600 --> 00:23:10,160
Speaker 7: Well, we're international investors, so we're going to be biased

481
00:23:10,280 --> 00:23:13,600
Speaker 7: to begin with. But look, you know we and we've

482
00:23:13,680 --> 00:23:16,280
Speaker 7: been you know, we've been saying this for a number

483
00:23:16,320 --> 00:23:18,920
Speaker 7: of years. I think it continues to be true. US

484
00:23:19,000 --> 00:23:21,600
Speaker 7: equity markets are are stretched. And you know, after the

485
00:23:21,600 --> 00:23:24,000
Speaker 7: recent movies saw last week, look very little about the

486
00:23:24,000 --> 00:23:28,199
Speaker 7: fundamentals has actually changed. You might get some deregulation that

487
00:23:28,240 --> 00:23:30,320
Speaker 7: could be a boost to earnings growth in certain sectors

488
00:23:30,320 --> 00:23:33,000
Speaker 7: of the US economy, but there are other policies that

489
00:23:33,000 --> 00:23:36,920
Speaker 7: the Trump administration is is putting forward which are inflationary,

490
00:23:37,080 --> 00:23:43,400
Speaker 7: they're contractionary, and so I'm not convinced that that move

491
00:23:43,520 --> 00:23:47,080
Speaker 7: higher is going to be you know, sort of fulfilled

492
00:23:47,119 --> 00:23:50,439
Speaker 7: with greater EPs growth in the next couple of years.

493
00:23:50,520 --> 00:23:54,119
Speaker 7: So when we look outside the US, we find really

494
00:23:54,119 --> 00:23:57,760
Speaker 7: interesting opportunities to invest in businesses that are exposed to

495
00:23:57,800 --> 00:24:00,600
Speaker 7: the same sort of structural growth trends of the companies

496
00:24:00,600 --> 00:24:02,399
Speaker 7: that you see here in the US, but they typically

497
00:24:02,400 --> 00:24:04,160
Speaker 7: traded a lower at a lower evaluation.

498
00:24:04,359 --> 00:24:06,680
Speaker 8: And something else I'm curious about is emerging markets because

499
00:24:06,680 --> 00:24:09,040
Speaker 8: some of them are more commodity driven than others. So

500
00:24:09,200 --> 00:24:11,720
Speaker 8: which ones do you see position more well in twenty

501
00:24:11,760 --> 00:24:12,359
Speaker 8: twenty five?

502
00:24:13,200 --> 00:24:17,080
Speaker 7: Again, companies not countries for US, you know, positioning into

503
00:24:17,080 --> 00:24:19,280
Speaker 7: twenty twenty five. You know, we're really focused again on

504
00:24:19,359 --> 00:24:23,320
Speaker 7: these long term structural winners Latin America for example. You

505
00:24:23,320 --> 00:24:26,040
Speaker 7: know we've got I called the dynamic duo Marcata Libre

506
00:24:26,680 --> 00:24:28,760
Speaker 7: and New Bank because you know you've got mag seven here,

507
00:24:28,800 --> 00:24:32,600
Speaker 7: and we talk about the Fantastic five in Europe as well.

508
00:24:33,400 --> 00:24:35,280
Speaker 7: But look, these are businesses that are that are going

509
00:24:35,359 --> 00:24:38,479
Speaker 7: to win regardless of the environment. I invested in emerging

510
00:24:38,520 --> 00:24:41,119
Speaker 7: markets for a good part of my career. And you

511
00:24:41,359 --> 00:24:44,360
Speaker 7: just have to be focused on the companies because the

512
00:24:44,440 --> 00:24:48,119
Speaker 7: macro is so volatile, you've got to be able to

513
00:24:48,119 --> 00:24:50,040
Speaker 7: find companies that are in control of their own destiny.

514
00:24:51,200 --> 00:24:55,480
Speaker 4: Shopify having a ripping day indeed two week we love

515
00:24:55,480 --> 00:24:58,400
Speaker 4: it up twenty five percent. You guys own it? Why

516
00:24:58,400 --> 00:24:59,439
Speaker 4: do you own it?

517
00:24:59,800 --> 00:24:59,840
Speaker 5: We?

518
00:25:00,280 --> 00:25:02,119
Speaker 7: So Shopify is a perfect example of what I was

519
00:25:02,160 --> 00:25:04,920
Speaker 7: just talking about, a company that is in control of

520
00:25:04,960 --> 00:25:08,359
Speaker 7: its own destiny. This is a you know, consumer focused company,

521
00:25:08,640 --> 00:25:10,320
Speaker 7: the majority of its business in the US, but a

522
00:25:10,320 --> 00:25:12,680
Speaker 7: growing presence outside the US as well. Obviously a Canadian

523
00:25:12,720 --> 00:25:19,800
Speaker 7: based business, Shopify has been taking share from sleepy incumbents Magentos, Salesforce,

524
00:25:20,200 --> 00:25:23,600
Speaker 7: you know, big software providers that where e commerce was

525
00:25:24,160 --> 00:25:26,040
Speaker 7: or e commerce services were just a small portion of

526
00:25:26,040 --> 00:25:28,480
Speaker 7: what they offered. Shopify has been laser focused on that.

527
00:25:28,960 --> 00:25:31,760
Speaker 7: They've been taking share with better product rollouts, they've been

528
00:25:31,760 --> 00:25:33,560
Speaker 7: moving up market. You know, they used to be really

529
00:25:33,600 --> 00:25:36,479
Speaker 7: focused on this SMB segment. Now they're moving into enterprise

530
00:25:36,560 --> 00:25:39,400
Speaker 7: and they're winning. So, you know, we saw top line

531
00:25:39,400 --> 00:25:41,760
Speaker 7: growth was twenty six percent. The market was looking for

532
00:25:41,840 --> 00:25:45,360
Speaker 7: twenty free castional margins of nineteen percent, so they're they're

533
00:25:45,400 --> 00:25:50,200
Speaker 7: they're achieving this this balance of continued growth and share

534
00:25:50,240 --> 00:25:53,560
Speaker 7: gains and profitability, and that's exactly what we want to see.

535
00:25:53,600 --> 00:25:56,159
Speaker 7: And we believe that a business like Shopify, you know,

536
00:25:56,200 --> 00:25:58,440
Speaker 7: because they have this better value proposition, is going to

537
00:25:58,480 --> 00:26:00,399
Speaker 7: continue to grow and take share regards less of the

538
00:26:00,400 --> 00:26:01,240
Speaker 7: consumer environment.

539
00:26:01,400 --> 00:26:04,040
Speaker 8: Talk to us about those Chinese internet giants that you're

540
00:26:04,040 --> 00:26:06,439
Speaker 8: looking at more selectively, and then how in turn that

541
00:26:06,440 --> 00:26:10,560
Speaker 8: could end up impacting more of those international consumer type names.

542
00:26:11,160 --> 00:26:13,320
Speaker 7: So the Chinese internet companies are really interesting. I mean, look,

543
00:26:13,359 --> 00:26:15,880
Speaker 7: if you look at you know, companies like Mayton, which

544
00:26:15,920 --> 00:26:18,840
Speaker 7: is a food delivery business in China. Mayiton has actually

545
00:26:18,920 --> 00:26:23,560
Speaker 7: been growing earnings throughout the last two years and really

546
00:26:23,640 --> 00:26:29,720
Speaker 7: delivering on a promise to balance growth and profitability and

547
00:26:29,840 --> 00:26:33,639
Speaker 7: so you know, on a fundamental basis, and again as

548
00:26:33,640 --> 00:26:35,760
Speaker 7: fundamental investors, we believe that's really what's going to drive

549
00:26:35,800 --> 00:26:37,639
Speaker 7: stocks in the long term is can you grow your earnings,

550
00:26:37,640 --> 00:26:39,800
Speaker 7: can you grow your EPs, and can you generate a

551
00:26:39,800 --> 00:26:42,119
Speaker 7: return above your cost of capital? And we see with

552
00:26:42,160 --> 00:26:43,800
Speaker 7: a business like mait One that they have been able

553
00:26:43,840 --> 00:26:47,960
Speaker 7: to deliver that. You know, other companies JD, Baba, there's

554
00:26:48,000 --> 00:26:52,480
Speaker 7: been a blood bath of competition in China over the

555
00:26:52,560 --> 00:26:57,199
Speaker 7: last few years. We are looking for early stages of

556
00:26:57,320 --> 00:26:59,520
Speaker 7: how that might shake out. You know, if these companies

557
00:26:59,520 --> 00:27:01,840
Speaker 7: are going to try to focus on their lanes and

558
00:27:02,640 --> 00:27:07,280
Speaker 7: focus on that growth plus profitability. I really think what's

559
00:27:07,320 --> 00:27:10,399
Speaker 7: going to drive an improvement for JD and BABA is

560
00:27:10,520 --> 00:27:14,159
Speaker 7: going to be the macro dynamics. I mean, Baba more

561
00:27:14,200 --> 00:27:17,240
Speaker 7: specifically has a number of assets that they can divest

562
00:27:17,359 --> 00:27:19,560
Speaker 7: and monetize as well, which could be very impactful for

563
00:27:19,600 --> 00:27:23,720
Speaker 7: total shareholder return. But that's a very China specific part

564
00:27:23,720 --> 00:27:25,880
Speaker 7: of the business. Now, you know, the company in China

565
00:27:25,920 --> 00:27:29,720
Speaker 7: that's really moved away from China specifically is PDD, which

566
00:27:29,800 --> 00:27:32,320
Speaker 7: owns Timu, which you know many of us as US

567
00:27:32,359 --> 00:27:35,440
Speaker 7: consumers know. And again that is just an incredible value

568
00:27:35,440 --> 00:27:36,639
Speaker 7: proposition for customers.

569
00:27:37,000 --> 00:27:39,480
Speaker 3: All right, Jesse, you can fill an ocean with what.

570
00:27:39,560 --> 00:27:40,000
Speaker 3: I don't know.

571
00:27:40,200 --> 00:27:43,479
Speaker 4: I don't know anything about New Bank and it's got

572
00:27:43,560 --> 00:27:45,480
Speaker 4: a seventy five billion dollar market cap.

573
00:27:45,520 --> 00:27:49,000
Speaker 3: How did I miss this? It's up ninety year to day.

574
00:27:49,160 --> 00:27:51,320
Speaker 3: What is New Bank and why do you guys own it?

575
00:27:51,840 --> 00:27:55,879
Speaker 7: So? New Bank is a digital bank started in Brazil

576
00:27:55,960 --> 00:27:56,680
Speaker 7: by a Columbian.

577
00:27:56,720 --> 00:27:59,160
Speaker 3: I used my appalls Fargo app.

578
00:27:59,359 --> 00:28:04,480
Speaker 7: Yeah, you should check out the New Bank out. No,

579
00:28:04,640 --> 00:28:08,680
Speaker 7: I mean New Bank is an incredible business. Here's what

580
00:28:08,800 --> 00:28:12,520
Speaker 7: New banks and competitive advantages. They are the low cost

581
00:28:12,600 --> 00:28:17,800
Speaker 7: supplier of financial services in starting in Brazil, in Mexico,

582
00:28:18,320 --> 00:28:21,760
Speaker 7: in Colombia, and they have taken tremendous share because they

583
00:28:21,800 --> 00:28:25,919
Speaker 7: are offering a better value proposition to customers at a

584
00:28:25,960 --> 00:28:31,280
Speaker 7: lower price. They've managed to maintain good asset quality as

585
00:28:31,320 --> 00:28:33,080
Speaker 7: they've done this, which is you know, always the Achilles

586
00:28:33,119 --> 00:28:35,120
Speaker 7: heel of a bank. Right, it's all well and good,

587
00:28:35,119 --> 00:28:37,320
Speaker 7: you can attract customers, et cetera, you blow yourself up

588
00:28:37,320 --> 00:28:40,840
Speaker 7: on lending. They've got a number of executives that are

589
00:28:41,000 --> 00:28:45,400
Speaker 7: ex capital one executives, so really focused their early products

590
00:28:45,400 --> 00:28:48,640
Speaker 7: on credit card and just offering great value for the consumer.

591
00:28:48,920 --> 00:28:50,320
Speaker 7: Just to give you a sense, they've got over one

592
00:28:50,400 --> 00:28:55,080
Speaker 7: hundred million clients in Latin America. Now in Mexico where

593
00:28:55,080 --> 00:28:58,280
Speaker 7: they're just starting to grow their lending products, half of

594
00:28:58,400 --> 00:29:01,560
Speaker 7: Mexicans don't even have a bank account. Eighty five percent

595
00:29:01,560 --> 00:29:03,600
Speaker 7: of them don't have a credit card. This is a

596
00:29:03,720 --> 00:29:08,040
Speaker 7: classic market that has been underserved by sleepy incumbents. A

597
00:29:08,080 --> 00:29:10,240
Speaker 7: low cost supplier comes in and says, you know what,

598
00:29:10,560 --> 00:29:12,760
Speaker 7: We're going to disrupt this with a better product that

599
00:29:12,840 --> 00:29:15,320
Speaker 7: customers are going to love. And they are maniacally focused

600
00:29:15,720 --> 00:29:19,360
Speaker 7: on their customer experience and product development. And I think

601
00:29:19,360 --> 00:29:21,680
Speaker 7: it's a tremendous business. I think it's a tremendous business

602
00:29:21,680 --> 00:29:25,080
Speaker 7: that has runway to compete in a number of different

603
00:29:25,080 --> 00:29:26,480
Speaker 7: markets outside of just Latin America.

604
00:29:26,520 --> 00:29:28,480
Speaker 8: In the long run, I have to ask you about

605
00:29:28,600 --> 00:29:31,479
Speaker 8: chip stocks and have a position there because, I mean,

606
00:29:31,720 --> 00:29:34,440
Speaker 8: we know that's been such much fervor over the last year.

607
00:29:35,480 --> 00:29:37,960
Speaker 7: There's been a little bit of a fervor and then

608
00:29:38,000 --> 00:29:39,640
Speaker 7: a little bit of a tracement in the last couple

609
00:29:39,680 --> 00:29:42,920
Speaker 7: of quarters. We've remain invested. We're long term investors. Look,

610
00:29:42,960 --> 00:29:48,640
Speaker 7: we think, you know, AI is a platform shift that

611
00:29:48,960 --> 00:29:52,040
Speaker 7: is potentially one of the more impactful ones that we've

612
00:29:52,080 --> 00:29:54,640
Speaker 7: seen over the last forty years really since we moved

613
00:29:54,680 --> 00:29:59,720
Speaker 7: from mainframe to PC. And the scale and the implications

614
00:29:59,760 --> 00:30:04,760
Speaker 7: of it are i think still underestimated, underestimated by the market.

615
00:30:05,120 --> 00:30:08,400
Speaker 7: The way that we are invested in this space is

616
00:30:08,440 --> 00:30:11,760
Speaker 7: still through the picks and shovels. It's the semiconductor industry.

617
00:30:11,760 --> 00:30:15,400
Speaker 7: And the reason for that is that we still don't

618
00:30:15,440 --> 00:30:18,200
Speaker 7: have a clear picture of what the applications are going

619
00:30:18,240 --> 00:30:20,520
Speaker 7: to be on the top there. It's tough to invest

620
00:30:20,520 --> 00:30:25,040
Speaker 7: as a public market investor in that space. Anyways. We

621
00:30:25,200 --> 00:30:29,560
Speaker 7: also see, you know, incredible benefits of scale in this industry.

622
00:30:29,640 --> 00:30:31,720
Speaker 7: So the big are going to get bigger. So you're

623
00:30:32,160 --> 00:30:37,400
Speaker 7: semiconductor manufacturers, designers, the cloud service providers that are actually

624
00:30:37,400 --> 00:30:40,320
Speaker 7: buying the GPUs, and the two interesting points that I

625
00:30:40,320 --> 00:30:45,000
Speaker 7: think are are you know, continue to warrant staying invested,

626
00:30:45,080 --> 00:30:48,719
Speaker 7: is that you continue to see capex growth. But it's sustainable, right.

627
00:30:48,920 --> 00:30:51,080
Speaker 7: This is all self funded by the cloud service PRODUCTCE.

628
00:30:51,120 --> 00:30:53,480
Speaker 7: This is not like the two thousands where you've got

629
00:30:53,680 --> 00:30:56,120
Speaker 7: you know, companies that are spending two to three times

630
00:30:56,160 --> 00:30:58,760
Speaker 7: there operating cash flow. This is you know, well in

631
00:30:58,760 --> 00:31:03,120
Speaker 7: line with their historical spend and utilization levels are ninety

632
00:31:03,200 --> 00:31:05,760
Speaker 7: nine percent and so you know they're getting a return

633
00:31:05,760 --> 00:31:08,120
Speaker 7: on this investment. So that's really where we see and

634
00:31:08,320 --> 00:31:13,000
Speaker 7: outside of the US, this is a global value chain TSMC, ASML,

635
00:31:14,560 --> 00:31:18,040
Speaker 7: you know, Disco AMD obviously in the US, but this

636
00:31:18,160 --> 00:31:22,480
Speaker 7: is really where the best quality businesses, the winners globally

637
00:31:22,640 --> 00:31:24,400
Speaker 7: are actually a lot of them are outside the US.

638
00:31:24,400 --> 00:31:26,680
Speaker 4: Interesting, Emily, thank you so much for joining us. As always,

639
00:31:26,680 --> 00:31:30,440
Speaker 4: Emily Level, she's a portfolio manager, one of the smarter people,

640
00:31:30,840 --> 00:31:32,840
Speaker 4: young people that we speaking. I'm just blown away every

641
00:31:32,880 --> 00:31:36,920
Speaker 4: time for folio mantgro Thurnberg Investment Management. Somehow at sconstin

642
00:31:37,000 --> 00:31:38,800
Speaker 4: Santa Fe, New Mexico.

643
00:31:38,880 --> 00:31:39,160
Speaker 3: I don't know.

644
00:31:39,200 --> 00:31:41,160
Speaker 4: Watch she's not riding the subways here in Manhattan like

645
00:31:41,280 --> 00:31:44,280
Speaker 4: with the rest of us down down in the subways, but.

646
00:31:45,720 --> 00:31:49,600
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live

647
00:31:49,680 --> 00:31:53,200
Speaker 2: weekdays at ten am Eastern on applecar Play and Android

648
00:31:53,240 --> 00:31:56,000
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649
00:31:56,120 --> 00:31:59,200
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650
00:31:59,560 --> 00:32:04,640
Speaker 2: Just Say Alexa, playing Bloomberg eleven, Just Meant.

651
00:32:04,560 --> 00:32:06,040
Speaker 3: And sitting in for Alex Steel on Paul Swinging.

652
00:32:06,040 --> 00:32:08,280
Speaker 4: You're live here in our Bloomberg Interactive Broker Studio, streaming

653
00:32:08,320 --> 00:32:10,520
Speaker 4: live on YouTube as well. Here's the mistake I make

654
00:32:10,520 --> 00:32:12,000
Speaker 4: when thinking about commercial real estate.

655
00:32:12,240 --> 00:32:13,760
Speaker 3: I just think about offices.

656
00:32:13,440 --> 00:32:16,320
Speaker 8: And that's just such a big are about, especially people

657
00:32:16,360 --> 00:32:17,240
Speaker 8: coming back in office.

658
00:32:17,360 --> 00:32:17,520
Speaker 11: Yeah.

659
00:32:18,080 --> 00:32:20,880
Speaker 4: I don't know, but it's there's lots of opportunities, opportunities,

660
00:32:20,880 --> 00:32:21,760
Speaker 4: there's risks out there.

661
00:32:22,080 --> 00:32:23,440
Speaker 3: Our next guest is going to walk us through it.

662
00:32:23,560 --> 00:32:24,960
Speaker 3: Robin Potts joins us here.

663
00:32:25,000 --> 00:32:29,680
Speaker 4: She's Cio Canyon Partners real estate based in Los Angeles,

664
00:32:29,680 --> 00:32:31,520
Speaker 4: but she's here in the world's financial capital.

665
00:32:31,520 --> 00:32:33,400
Speaker 3: Why wouldn't you be, I mean, this is where it

666
00:32:33,400 --> 00:32:34,440
Speaker 3: all happens. Let's be honest.

667
00:32:34,640 --> 00:32:37,640
Speaker 4: Robin, thank you for joining us in our studio here. Okay,

668
00:32:37,720 --> 00:32:40,400
Speaker 4: for you know, simpletons like me, I think about commercial

669
00:32:40,400 --> 00:32:40,760
Speaker 4: real estate.

670
00:32:40,840 --> 00:32:41,400
Speaker 3: Let's just get that.

671
00:32:41,440 --> 00:32:43,000
Speaker 4: When I think about commercial real estate, I just think

672
00:32:43,000 --> 00:32:44,800
Speaker 4: about office. Let's just get that out of the way.

673
00:32:44,800 --> 00:32:49,280
Speaker 4: First office space in LA, in San Francisco, in New

674
00:32:49,360 --> 00:32:53,040
Speaker 4: York and Boston. Any hope, any hope for office space.

675
00:32:53,600 --> 00:32:55,719
Speaker 1: Office space on the West Coast, like you just mentioned,

676
00:32:55,840 --> 00:32:58,000
Speaker 1: is in a world of hurt. You know, LA and

677
00:32:58,040 --> 00:33:02,000
Speaker 1: San Francisco are approaching thirty percent vacancies, which is extraordinary, and

678
00:33:02,040 --> 00:33:04,880
Speaker 1: when you look forward, to get to that equilibrium between

679
00:33:04,920 --> 00:33:07,880
Speaker 1: supply and demand is going to take years. But you

680
00:33:07,920 --> 00:33:11,120
Speaker 1: do have bright spots within each of these markets, depending

681
00:33:11,200 --> 00:33:13,960
Speaker 1: on the class of office that you're in. So you know,

682
00:33:14,000 --> 00:33:16,400
Speaker 1: the flight to quality theme that you've seen from tenants

683
00:33:16,800 --> 00:33:20,360
Speaker 1: preferring newer build office space versus the older space that's

684
00:33:20,400 --> 00:33:21,880
Speaker 1: becoming obsolete as a real trend.

685
00:33:22,240 --> 00:33:24,360
Speaker 8: So talk to us more about that newer space. What

686
00:33:24,440 --> 00:33:26,680
Speaker 8: kind of particular industries are jumping into that.

687
00:33:27,720 --> 00:33:29,800
Speaker 1: It depends on which city you live in and which

688
00:33:29,840 --> 00:33:33,040
Speaker 1: industries kind of underlie that that fundamental city. So obviously,

689
00:33:33,160 --> 00:33:35,000
Speaker 1: you know, in San Francisco you've seen a lot of

690
00:33:35,000 --> 00:33:38,520
Speaker 1: news about AI really jumping into take leasing an absorption.

691
00:33:38,960 --> 00:33:41,520
Speaker 1: In LA, we're still dealing with the after effects of

692
00:33:41,600 --> 00:33:43,920
Speaker 1: the strikes and kind of pulled back by tech tenants.

693
00:33:44,160 --> 00:33:46,800
Speaker 1: So again it's just going to take time where.

694
00:33:46,720 --> 00:33:48,400
Speaker 3: All right, So that's office we get that out of

695
00:33:48,400 --> 00:33:49,080
Speaker 3: the way in New York.

696
00:33:49,200 --> 00:33:52,360
Speaker 4: My personal metric for New York is when a building

697
00:33:52,400 --> 00:33:55,640
Speaker 4: on Third Avenue trades, a big, big office building on

698
00:33:55,680 --> 00:33:57,600
Speaker 4: Third Avenue trades, what's the discount going to be.

699
00:33:59,600 --> 00:34:01,000
Speaker 3: Fifty per sixty percent?

700
00:34:01,040 --> 00:34:02,880
Speaker 4: I don't know what that number is, but that'll be

701
00:34:02,880 --> 00:34:05,120
Speaker 4: the clearing thing for me. How about the rest of

702
00:34:05,120 --> 00:34:05,880
Speaker 4: commercial real estate?

703
00:34:05,880 --> 00:34:08,400
Speaker 3: Where do you guys see the best opportunity these days?

704
00:34:08,920 --> 00:34:11,720
Speaker 1: So from an asset class perspective, as we look forward,

705
00:34:11,800 --> 00:34:15,319
Speaker 1: multifamily we think has a lot of positive fundamentals. Right now,

706
00:34:15,400 --> 00:34:19,200
Speaker 1: multifamily is enduring a supply wave, but as you look

707
00:34:19,239 --> 00:34:21,720
Speaker 1: forward over the next three to four years, you essentially

708
00:34:21,719 --> 00:34:25,240
Speaker 1: have new supply for multifamily falling off about fifty percent

709
00:34:25,320 --> 00:34:27,719
Speaker 1: depending on which market you're in. So it really sets

710
00:34:27,760 --> 00:34:31,680
Speaker 1: the stage for positive rent growth across the board, which

711
00:34:31,760 --> 00:34:34,719
Speaker 1: we think is a really interesting play, especially as you

712
00:34:34,760 --> 00:34:38,080
Speaker 1: have home ownership affordability continuing to be a real challenge.

713
00:34:38,320 --> 00:34:40,560
Speaker 1: It really underpins the rentorship demand.

714
00:34:40,719 --> 00:34:43,040
Speaker 8: So how does the FED and rate cuts play into

715
00:34:43,080 --> 00:34:46,040
Speaker 8: this when you think about CIREE transaction activity, because there

716
00:34:46,120 --> 00:34:48,799
Speaker 8: was that indication that people were thinking rate cuts would

717
00:34:48,840 --> 00:34:50,799
Speaker 8: be even more steeper, say over the next year. But

718
00:34:50,840 --> 00:34:52,560
Speaker 8: it's changed a little bit on the back of the

719
00:34:52,600 --> 00:34:54,160
Speaker 8: election and the trajectory of that.

720
00:34:55,000 --> 00:34:58,200
Speaker 1: So the FED rate cuts, it's a major milestone that

721
00:34:58,200 --> 00:35:00,919
Speaker 1: we're on the other side of the strictive cycle into

722
00:35:00,920 --> 00:35:04,320
Speaker 1: the easing cycle, and so that actually has instilled a

723
00:35:04,360 --> 00:35:06,920
Speaker 1: fair amount of confidence into the commercial real estate industry.

724
00:35:07,160 --> 00:35:10,560
Speaker 1: You've seen a stabilization of transaction activity volume, You've seen

725
00:35:10,600 --> 00:35:14,279
Speaker 1: a stabilization from a pricing perspective. So after things really

726
00:35:14,280 --> 00:35:16,560
Speaker 1: fell off a cliff in twenty twenty three twenty twenty four,

727
00:35:16,640 --> 00:35:18,880
Speaker 1: there are some bright spots and you did see in

728
00:35:19,239 --> 00:35:22,000
Speaker 1: the third quarter transactions being able to get done with

729
00:35:22,040 --> 00:35:25,799
Speaker 1: the creative leverage. Since the last couple of months have

730
00:35:25,800 --> 00:35:28,120
Speaker 1: occurred and the rate trajectory path is a little bit

731
00:35:28,200 --> 00:35:30,759
Speaker 1: less uncertain. Obviously, it's going to take time to play

732
00:35:30,800 --> 00:35:33,759
Speaker 1: out for people to really grasp what that means for

733
00:35:33,840 --> 00:35:37,400
Speaker 1: real estate economics, but overall, I would say the incremental

734
00:35:37,440 --> 00:35:40,479
Speaker 1: easing that's anticipated is a big positive for commercial real estate.

735
00:35:40,840 --> 00:35:41,120
Speaker 11: All right.

736
00:35:41,200 --> 00:35:44,440
Speaker 4: Let's say I've got an idea for great multifamily or

737
00:35:44,640 --> 00:35:46,680
Speaker 4: multi whatever kind of unit thing, and I want to

738
00:35:46,719 --> 00:35:48,000
Speaker 4: go build it in my local town.

739
00:35:48,440 --> 00:35:50,319
Speaker 3: Is my bank going to finance me? Can I get

740
00:35:50,320 --> 00:35:52,000
Speaker 3: financing for real estate these days?

741
00:35:52,760 --> 00:35:55,840
Speaker 1: So there's been a huge shift in the financing landscape

742
00:35:55,840 --> 00:35:58,919
Speaker 1: because banks have had to pull back very significantly. You've

743
00:35:58,920 --> 00:36:02,040
Speaker 1: seen bank loan and redge nation volume drop twenty six percent

744
00:36:02,120 --> 00:36:07,239
Speaker 1: year over year, which creates a tremendous opportunity for private capital.

745
00:36:07,760 --> 00:36:10,320
Speaker 1: We're active in the lending space, and we finance multi

746
00:36:10,320 --> 00:36:13,560
Speaker 1: family development, for example. So in our view, you guys

747
00:36:13,600 --> 00:36:18,360
Speaker 1: know about lending money one through the credit training program.

748
00:36:18,360 --> 00:36:19,800
Speaker 3: You guys are like real estate people, What do you

749
00:36:19,840 --> 00:36:20,720
Speaker 3: know about lending money?

750
00:36:21,239 --> 00:36:23,920
Speaker 1: We've been a very active direct lender for decades, in

751
00:36:23,920 --> 00:36:26,880
Speaker 1: addition to what we do on the equity investment side.

752
00:36:27,120 --> 00:36:30,800
Speaker 1: And so there's we think kind of a permanent shift

753
00:36:31,239 --> 00:36:34,160
Speaker 1: an opportunity for private capital because the banks have to

754
00:36:34,200 --> 00:36:37,560
Speaker 1: reduce their commercial real estate exposure, and regional banks of

755
00:36:37,600 --> 00:36:40,640
Speaker 1: course currently have about thirty percent exposure, which is way

756
00:36:40,680 --> 00:36:41,120
Speaker 1: too high.

757
00:36:41,239 --> 00:36:44,160
Speaker 8: Interesting, so how do tax policies fit into this?

758
00:36:46,080 --> 00:36:51,200
Speaker 1: So you can expect obviously Trump's policies to be generally

759
00:36:51,320 --> 00:36:56,040
Speaker 1: very favorable for commercial real estate given his background. He's proposed,

760
00:36:56,080 --> 00:36:58,720
Speaker 1: of course, an extension of the twenty seventeen tax cuts,

761
00:36:58,760 --> 00:37:03,400
Speaker 1: an additional tax cut. You would expect that he preserves

762
00:37:03,440 --> 00:37:06,200
Speaker 1: real estate tax benefits like ten thirty one exchanges, which

763
00:37:06,239 --> 00:37:09,760
Speaker 1: is quite positive for the industry. But overall, tax cuts

764
00:37:09,800 --> 00:37:14,520
Speaker 1: are stimulative from an economic growth and consumption perspective, and

765
00:37:14,560 --> 00:37:17,440
Speaker 1: when you have a stimulated economy, that's generally good for

766
00:37:17,440 --> 00:37:18,320
Speaker 1: real estate fundamental.

767
00:37:18,400 --> 00:37:20,320
Speaker 8: So then on the flip side of that, what about

768
00:37:20,480 --> 00:37:24,520
Speaker 8: trade policies as far as those impacting supply constraints.

769
00:37:25,480 --> 00:37:29,280
Speaker 1: The trade policies that he proposed, you know in putting

770
00:37:29,480 --> 00:37:32,480
Speaker 1: you know, ten percent tariffs on all imports and sixty

771
00:37:32,480 --> 00:37:37,000
Speaker 1: percent tariffs on Chinese imports, that could have an inflationary impact,

772
00:37:37,560 --> 00:37:41,240
Speaker 1: driving up material costs, which on balance would be negative

773
00:37:41,239 --> 00:37:43,880
Speaker 1: for commercial real estate. Obviously, if the cost to construct

774
00:37:43,920 --> 00:37:47,080
Speaker 1: buildings is higher, that's a challenge. And if you have

775
00:37:47,120 --> 00:37:49,879
Speaker 1: an inflationary backdrop as well, that potentially sets the FED

776
00:37:49,920 --> 00:37:53,120
Speaker 1: on a different path. And higher interest rates are not

777
00:37:53,160 --> 00:37:55,560
Speaker 1: great for commercial real estate. So it'll be interesting to

778
00:37:55,560 --> 00:37:56,319
Speaker 1: see these play out.

779
00:37:57,080 --> 00:37:59,960
Speaker 4: What markets are you guys most interested in these days,

780
00:38:00,000 --> 00:38:02,839
Speaker 4: they've been focused on any individual regions of the country.

781
00:38:02,600 --> 00:38:06,880
Speaker 1: Or we're very active across the sun Belt and coastal markets,

782
00:38:06,920 --> 00:38:09,480
Speaker 1: but you know, we dial up and down our activities

783
00:38:09,520 --> 00:38:13,200
Speaker 1: depending on what's happening in given cities. So obviously post COVID,

784
00:38:13,320 --> 00:38:16,040
Speaker 1: certain markets within the West Coast have been very effective,

785
00:38:16,360 --> 00:38:18,600
Speaker 1: so we've been watching to see and waiting for the

786
00:38:18,640 --> 00:38:21,759
Speaker 1: rebound there. But within the sun Belt, where you've had

787
00:38:22,040 --> 00:38:24,400
Speaker 1: you know, significant job growth and demand drivers, we've been

788
00:38:24,480 --> 00:38:25,040
Speaker 1: quite active.

789
00:38:25,239 --> 00:38:27,239
Speaker 8: Are there any particular cities that stand out to you

790
00:38:27,280 --> 00:38:30,719
Speaker 8: in recent years weather ones that are strengthening versus other

791
00:38:30,800 --> 00:38:32,640
Speaker 8: ones that are still having issues.

792
00:38:32,360 --> 00:38:35,000
Speaker 1: Here, I would say, you know, at the top of

793
00:38:35,000 --> 00:38:38,279
Speaker 1: the list, San Francisco has been obviously kind of the

794
00:38:38,320 --> 00:38:41,520
Speaker 1: poster child where they distress the cycle, and we continue

795
00:38:41,560 --> 00:38:46,280
Speaker 1: to see throughout San Francisco and certainly downtown Los Angeles

796
00:38:46,280 --> 00:38:51,520
Speaker 1: obviously the incredible distressed office trades. And it's not just

797
00:38:51,640 --> 00:38:55,120
Speaker 1: office because you've had you know, the exit of the

798
00:38:55,160 --> 00:38:59,000
Speaker 1: employment base from those areas. It's also affecting hotel assets,

799
00:38:59,040 --> 00:39:02,720
Speaker 1: it's affecting multi family rents and vacancies. It's broadly affecting

800
00:39:02,719 --> 00:39:06,239
Speaker 1: commercial real estate negatively, So we're looking out for essentially

801
00:39:06,680 --> 00:39:09,320
Speaker 1: the resurgence of those areas to be able to reinvest

802
00:39:09,880 --> 00:39:10,720
Speaker 1: student housing.

803
00:39:10,880 --> 00:39:12,600
Speaker 4: Do you guys have exposure there, because we had some

804
00:39:12,719 --> 00:39:14,400
Speaker 4: guests come in a couple of days ago that was

805
00:39:14,680 --> 00:39:17,040
Speaker 4: they were really focusing on student housing.

806
00:39:17,320 --> 00:39:20,799
Speaker 1: We are active in student housing and that continues to

807
00:39:20,840 --> 00:39:24,160
Speaker 1: be an area of strength. Actually, so you've seen across

808
00:39:24,239 --> 00:39:28,720
Speaker 1: the top tier university's incredible rent growth within the student

809
00:39:28,760 --> 00:39:33,480
Speaker 1: housing space because primarily the supply has been quite restricted

810
00:39:33,800 --> 00:39:37,080
Speaker 1: and the university enrollments have been growing. So that's been

811
00:39:37,200 --> 00:39:39,680
Speaker 1: a bright spot. You've seen a lot more institutional investors

812
00:39:39,680 --> 00:39:40,560
Speaker 1: interested in the space.

813
00:39:41,640 --> 00:39:44,719
Speaker 8: And whenever you're speaking with either different clients, what are

814
00:39:44,719 --> 00:39:45,839
Speaker 8: they telling you right now?

815
00:39:45,880 --> 00:39:48,000
Speaker 5: What are some of you are positives versus some of.

816
00:39:48,000 --> 00:39:50,160
Speaker 8: The negatives they feel like when they're looking maybe more

817
00:39:50,160 --> 00:39:51,400
Speaker 8: broadly about the economy.

818
00:39:52,840 --> 00:39:55,440
Speaker 1: In terms of I would say investor clients right now,

819
00:39:56,640 --> 00:40:00,279
Speaker 1: yield is incredibly important. So there's been a lot lot

820
00:40:00,280 --> 00:40:03,440
Speaker 1: of interest in investors who historically had invested only in

821
00:40:03,480 --> 00:40:07,759
Speaker 1: the equity side to now pursue real estate debt strategies

822
00:40:07,800 --> 00:40:10,799
Speaker 1: because yields are you know, two and three times more

823
00:40:10,800 --> 00:40:13,640
Speaker 1: attractive than they were back in the zero interest rate environment.

824
00:40:13,760 --> 00:40:16,160
Speaker 1: So when you have the opportunity to earn equity like

825
00:40:16,239 --> 00:40:19,320
Speaker 1: returns on debt, that's something that gets people's attention. And

826
00:40:19,360 --> 00:40:22,719
Speaker 1: then I would also say investors from an equity perspective,

827
00:40:22,880 --> 00:40:25,840
Speaker 1: are you starting to poke their heads back up based

828
00:40:25,840 --> 00:40:28,600
Speaker 1: on the interest rate easing path and thinking about how

829
00:40:28,600 --> 00:40:31,080
Speaker 1: they can be deploying capital at risk from an equity

830
00:40:31,120 --> 00:40:32,240
Speaker 1: perspective in the future.

831
00:40:33,320 --> 00:40:35,640
Speaker 4: So, are you guys in the market for capital right

832
00:40:35,680 --> 00:40:37,719
Speaker 4: now or are you in a fundraising mode now?

833
00:40:38,920 --> 00:40:41,880
Speaker 1: We're generally you guys are.

834
00:40:41,760 --> 00:40:45,360
Speaker 4: Always in the fundraising people in private equities, in private credit.

835
00:40:46,000 --> 00:40:48,400
Speaker 1: We're actively pursuing new strategies.

836
00:40:48,440 --> 00:40:50,280
Speaker 3: Yes, actively pursuing new strategies.

837
00:40:50,360 --> 00:40:52,719
Speaker 4: Okay, can you answer the question why do we have

838
00:40:52,760 --> 00:40:54,120
Speaker 4: a housing shortage in this country?

839
00:40:54,280 --> 00:40:55,040
Speaker 3: How did that happen?

840
00:40:56,239 --> 00:41:01,160
Speaker 1: So it's estimated round numbers about four million in units

841
00:41:01,280 --> 00:41:03,359
Speaker 1: short for US housing.

842
00:41:03,520 --> 00:41:06,279
Speaker 3: Population is not growing that much. What's what's going on

843
00:41:07,200 --> 00:41:08,560
Speaker 3: in all those units? Where did they go?

844
00:41:09,680 --> 00:41:09,799
Speaker 5: Well?

845
00:41:09,800 --> 00:41:09,840
Speaker 7: Like?

846
00:41:10,000 --> 00:41:11,400
Speaker 8: Is how much of that had to do with like

847
00:41:11,480 --> 00:41:15,560
Speaker 8: post housing crisis versus getting exacerbated by the pandemic, Because

848
00:41:15,600 --> 00:41:17,160
Speaker 8: it seems like there was a there was already an

849
00:41:17,160 --> 00:41:18,719
Speaker 8: issue and then it just blew up.

850
00:41:18,840 --> 00:41:22,280
Speaker 1: That's right, it's been an extended issue post GFC. Essentially

851
00:41:22,320 --> 00:41:25,400
Speaker 1: you had a dramatic drop off and the ability to

852
00:41:25,440 --> 00:41:28,560
Speaker 1: get housing developed and financed. So we've been in a

853
00:41:28,600 --> 00:41:33,319
Speaker 1: structural undersupply kind of regime ever since the GFC, and

854
00:41:34,080 --> 00:41:37,120
Speaker 1: there's very little that that's kind of changing in the

855
00:41:37,120 --> 00:41:38,319
Speaker 1: outlook to correct that.

856
00:41:39,040 --> 00:41:40,880
Speaker 8: Well, you don't need to happen to fix that.

857
00:41:41,239 --> 00:41:46,400
Speaker 1: Realistically, you need the economics of developing new housing to

858
00:41:46,480 --> 00:41:50,520
Speaker 1: be highly profitable and that will incentivize developers and capital

859
00:41:50,600 --> 00:41:54,040
Speaker 1: providers to jump in in a more meaningful way. And

860
00:41:54,080 --> 00:41:56,400
Speaker 1: you saw that over the last few years with the

861
00:41:56,480 --> 00:41:59,600
Speaker 1: zero interest rate environment. But essentially that supply pipeline has

862
00:41:59,640 --> 00:42:02,759
Speaker 1: fallen off a cliff. Basically, starting in the second half

863
00:42:02,800 --> 00:42:06,480
Speaker 1: of twenty twenty two, news starts really plummeted because economically,

864
00:42:06,480 --> 00:42:09,280
Speaker 1: in a high rate environment, it just stopped making sense.

865
00:42:09,600 --> 00:42:11,000
Speaker 3: Robin, thank you so much for joining us.

866
00:42:11,040 --> 00:42:14,720
Speaker 4: Really appreciate it, Robin pot She's this Cio Kenyon Partners

867
00:42:14,719 --> 00:42:17,400
Speaker 4: real Estate based in Los Angeles, but stopping by our

868
00:42:17,400 --> 00:42:21,000
Speaker 4: Bloomberg in Director Brooker Studio here in midtown Manhattan.

869
00:42:21,440 --> 00:42:25,960
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870
00:42:26,160 --> 00:42:29,840
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871
00:42:29,960 --> 00:42:32,920
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872
00:42:33,040 --> 00:42:36,480
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873
00:42:36,520 --> 00:42:39,680
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874
00:42:39,840 --> 00:42:41,480
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