WEBVTT - Markets, Yellow, ETFs, and Jeff Currie 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:05.280 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moven news. 0:00:14.160 --> 0:00:17.279 I'm the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.480 you listen to podcasts, and at Bloomberg dot com Slash podcast. 0:00:20.600 --> 0:00:22.840 It's Matt Nolla Paul Sweeney here in a Bloomberg Interactive 0:00:22.880 --> 0:00:23.760 Brokers studio. 0:00:24.800 --> 0:00:26.080 It's not every. 0:00:25.880 --> 0:00:29.440 Day that a ninety nine year old company coast bankrupt, 0:00:29.480 --> 0:00:31.800 but that's what happened in the trucking business, Yellow corpor 0:00:31.840 --> 0:00:34.080 I'm going to use Yellow Freight. That's how I know 0:00:34.159 --> 0:00:36.800 this company used to cover the stock back in the eighties, 0:00:36.800 --> 0:00:38.519 back in the day when I was a pain weber 0:00:38.960 --> 0:00:41.880 Y E l L is your ticker. Our good friends 0:00:41.920 --> 0:00:45.959 at yellowfrate tough going at it. Lee Klaskal joins is here. 0:00:46.040 --> 0:00:47.880 Is he's a sector head in senior analyst. He cares 0:00:47.960 --> 0:00:51.600 all the freight transportation, all the logistics that supply chain. 0:00:51.640 --> 0:00:53.720 We blamed it on him in the last couple of years. 0:00:54.120 --> 0:00:56.000 He's with Bloomberg Intelligence. He joins us here on our 0:00:56.000 --> 0:00:59.120 Bloomberg Interactive Broker studio. So Lee Yellow Frate's been out 0:00:59.120 --> 0:01:01.280 there for literally ninety nine years. 0:01:01.320 --> 0:01:01.960 What happened? 0:01:02.200 --> 0:01:05.280 Yeah, well, this bankruptcy is decades in the making, at 0:01:05.360 --> 0:01:08.720 least twenty five years when they acquired my time, when 0:01:08.760 --> 0:01:11.640 they acquired Roadway, I think it was back in two 0:01:11.680 --> 0:01:14.800 thousand and three, and since then, you know, they just 0:01:14.880 --> 0:01:18.040 really haven't been able to integrate all these networks that 0:01:18.080 --> 0:01:20.479 they've acquired. You know, usually when you do an acquisition, 0:01:20.560 --> 0:01:23.640 one plus one should at least equal three. This was 0:01:23.720 --> 0:01:25.720 one plus one equal maybe. 0:01:25.440 --> 0:01:28.119 One and a half. And a lot of that had 0:01:28.160 --> 0:01:29.479 to do with, you know. 0:01:29.440 --> 0:01:34.479 The fact that the company is a Teamster unionized employer, so. 0:01:34.400 --> 0:01:36.679 They was that unusual in a trucking business. 0:01:36.360 --> 0:01:39.160 Today it is, ok, it's even more unusual now that 0:01:39.360 --> 0:01:41.440 one of the largest ones is going under. You know, 0:01:41.560 --> 0:01:44.880 UPS was a Teamster LTL player and they sold their 0:01:44.880 --> 0:01:48.240 business to TFI. It was a very highly unprofitable business 0:01:48.240 --> 0:01:52.320 of very thin margins, and you know, they're they're competing 0:01:52.480 --> 0:01:56.840 against companies that don't have work rules, stringent work rules 0:01:56.920 --> 0:01:59.440 like some unions do, and so they're just able to 0:01:59.440 --> 0:02:02.400 be more flexile, more nimble, you know, it's not to 0:02:02.400 --> 0:02:06.200 say that it couldn't become a better trucking company. And 0:02:06.240 --> 0:02:09.880 again there's blame to be spread across the board, whether 0:02:10.000 --> 0:02:14.440 it's management early in two thousand and three, or you know, 0:02:14.520 --> 0:02:17.520 maybe you know the fact that some of the things 0:02:17.520 --> 0:02:20.680 that the union did recently, like threatening to go on strike, 0:02:20.840 --> 0:02:24.720 kind of accelerated this bankruptcy again, like you know, twenty 0:02:24.720 --> 0:02:25.720 plus years in the making. 0:02:26.040 --> 0:02:29.520 So is this the case of a union putting itself 0:02:29.560 --> 0:02:30.320 out of a job. 0:02:30.760 --> 0:02:32.400 You know, I don't want to put the blame squarely 0:02:32.440 --> 0:02:34.200 on union. I think like I said, I think there's 0:02:34.240 --> 0:02:38.520 there's there's there's a blame to go around. But you know, 0:02:38.639 --> 0:02:41.760 they the company said that they were going to hold 0:02:41.800 --> 0:02:45.680 off on a fifty million dollar pension payment, and the 0:02:45.800 --> 0:02:47.760 union said, well, if you do that, you know we're 0:02:47.800 --> 0:02:50.799 going to strike. And then the problem is with an LTL, 0:02:50.840 --> 0:02:52.280 a lesson truckload carrier, it's. 0:02:52.240 --> 0:02:53.360 Kind of like a run on the bank. 0:02:53.600 --> 0:02:57.280 Shippers will move away from you, and then once that happens, 0:02:57.280 --> 0:02:59.240 you have a de leveraging effect of your network. That 0:02:59.320 --> 0:03:02.240 means your business becomes less and less profitable. And then 0:03:02.280 --> 0:03:04.720 as more people move away because they're scared that their 0:03:04.760 --> 0:03:07.079 freight might be stuck in your system. 0:03:07.320 --> 0:03:09.600 It just it just becomes a snowballing effect. 0:03:10.120 --> 0:03:12.080 And that's why usually when there's a bankruptcy in the 0:03:12.200 --> 0:03:16.480 LTL industry, it's always always a liquidation, never restructuring. 0:03:16.520 --> 0:03:18.560 I was going to ask, so there's no ongoing concern. 0:03:18.600 --> 0:03:21.080 It's not like these truckers are going to still have jobs. 0:03:21.400 --> 0:03:24.200 Just have you know, an executor running the company. 0:03:24.400 --> 0:03:27.200 Now there's obviously you know, there's I guess there's some 0:03:27.240 --> 0:03:30.240 good news. Some of these folks are obviously going to rebound. 0:03:30.240 --> 0:03:34.079 You know, XBO is hiring, FedEx Freight is hiring. There's 0:03:34.080 --> 0:03:35.560 a lot of other companies that are going to be 0:03:35.600 --> 0:03:37.160 hiring and looking for people. 0:03:37.040 --> 0:03:40.000 But not giving them union jobs and benefits. 0:03:40.400 --> 0:03:40.480 No. 0:03:40.760 --> 0:03:44.360 But the interesting thing the the yellow employees actually make 0:03:44.480 --> 0:03:49.400 less than the non union companies just because of the market. Yeah, 0:03:49.680 --> 0:03:51.600 from a from a pay standpoint, maybe not from an 0:03:51.600 --> 0:03:52.880 olden benefit standpoint. 0:03:52.920 --> 0:03:55.480 From a pay standpoint, so that make a little less, 0:03:55.480 --> 0:03:57.680 but maybe they have higher benefits and air conditioning in 0:03:57.720 --> 0:03:58.080 the cab. 0:03:58.240 --> 0:03:58.400 Right. 0:03:58.680 --> 0:04:00.320 That was one of the shocking things to me about 0:04:00.320 --> 0:04:02.640 the ups and I ever since never do it ever 0:04:02.680 --> 0:04:04.960 since then I've been looking at ups delivery guys all 0:04:04.960 --> 0:04:07.280 over the place and they are sweating bullets. 0:04:07.360 --> 0:04:09.400 Yeah, it's a hot job. They work hard. 0:04:09.680 --> 0:04:11.360 All right, Let's step back and take a look at 0:04:11.440 --> 0:04:12.840 the trucking business in the United States. 0:04:12.920 --> 0:04:15.720 Kind of where are we these days? Again? We came 0:04:15.760 --> 0:04:16.400 through the pandemic. 0:04:16.400 --> 0:04:18.880 There were definitely some supply chain issues that just went 0:04:18.960 --> 0:04:21.120 all the way back, you know it from the ships 0:04:21.200 --> 0:04:23.359 until it gets to the to the warehouse. You know 0:04:23.400 --> 0:04:25.560 how that works. Talk to us about how the trucking 0:04:25.560 --> 0:04:26.520 industry is these days. 0:04:26.680 --> 0:04:28.760 Yeah, So there's there's two types of trucking that I 0:04:28.800 --> 0:04:30.880 look at. I look at the truckload industry, and those 0:04:30.880 --> 0:04:33.719 are companies like night Swift, Schneider. You probably see all 0:04:33.720 --> 0:04:36.320 those trucks on the road. Then you have the LTL carriers, 0:04:36.680 --> 0:04:40.040 the Yellow xbo, Saya, FedEx. 0:04:39.680 --> 0:04:42.080 Freight our best LTL by the way, just started it 0:04:42.080 --> 0:04:44.000 interrupt because I don't know as much about this as 0:04:43.640 --> 0:04:46.960 you guys do. LTL just means they're gonna go and 0:04:47.000 --> 0:04:50.559 pick up your load and ship only truck only your load, 0:04:50.680 --> 0:04:53.080 even if it doesn't fill up their hauler. 0:04:53.200 --> 0:04:53.400 Right. 0:04:53.520 --> 0:04:56.080 It's usually, I mean, how most of the LTL carriers 0:04:56.160 --> 0:04:58.840 like it, which is less than truckloads, less than truckl sorry, yes, 0:04:58.960 --> 0:04:59.760 less than truckload. 0:05:00.200 --> 0:05:00.320 Uh. 0:05:00.640 --> 0:05:02.400 They like it on pallets, so you can get a 0:05:02.440 --> 0:05:06.280 forklift in, pull it out, and then go across the dock, 0:05:06.320 --> 0:05:08.280 put it in another truck, and then keep on doing 0:05:08.320 --> 0:05:11.880 that in the olden days. You know, I actually, a long, long, 0:05:11.920 --> 0:05:14.560 long time ago, I worked at an LTL carrier unloading 0:05:14.560 --> 0:05:17.960 and loading trucks in the summer graveyard shift. Hardest job 0:05:17.960 --> 0:05:20.320 I ever had in my life. These jobs a little easier, 0:05:21.120 --> 0:05:22.320 and that was very hot. 0:05:22.160 --> 0:05:24.640 As well, and nothing was palatized. 0:05:24.680 --> 0:05:28.000 You had to take everything off the truck, some of 0:05:28.120 --> 0:05:30.040 yellow stuff, a lot of the yellow freight. I mean 0:05:30.040 --> 0:05:32.120 not to keep on going back to yellow because like 0:05:32.200 --> 0:05:33.760 you know, a lot of the carriers that are going 0:05:33.800 --> 0:05:35.800 to be left, they're going to be going after. 0:05:35.600 --> 0:05:37.440 Some of this business. But not all of this business 0:05:37.520 --> 0:05:38.119 is good freight. 0:05:38.200 --> 0:05:40.600 Some of it is not palatized, so it's more expensive 0:05:40.640 --> 0:05:43.920 to move. A lot of it might have high cargo claim, 0:05:44.040 --> 0:05:47.280 so it could be glass, it could be TVs, things 0:05:47.279 --> 0:05:50.160 that tend to break when you move them around. So 0:05:50.360 --> 0:05:52.719 you know, they have about six point eight percent of 0:05:52.760 --> 0:05:57.120 the shipments in the us XPO FedEx freight the other ones. 0:05:57.160 --> 0:05:59.320 They're not going to want all six point eight percent 0:05:59.360 --> 0:06:01.479 of that, So it's going to be interesting to see 0:06:01.520 --> 0:06:04.640 where that kind of the not so great freight ends 0:06:04.720 --> 0:06:08.120 up going. But it'll be a real great opportunity for 0:06:08.240 --> 0:06:10.960 the carriers that are left because they're going to probably 0:06:11.000 --> 0:06:14.560 have good freight at good rates, at good margin, and 0:06:14.600 --> 0:06:19.159 it should be really good incremental margins for the LTL carriers. 0:06:18.720 --> 0:06:22.440 And trucker LINGO, could you explain to Matt what reefer means? 0:06:23.640 --> 0:06:24.720 I know what means. 0:06:25.680 --> 0:06:28.880 No, for the trucking industry has a specific. 0:06:28.560 --> 0:06:32.960 Different it's temperature controlled, so food pharmacutic. 0:06:34.839 --> 0:06:36.680 I wanted to get that out trucks. 0:06:36.760 --> 0:06:39.599 Yes, all right, So Lee, your company is not the 0:06:39.640 --> 0:06:42.120 same as the one in Cheech and chong up and smoke. 0:06:42.360 --> 0:06:44.279 Or at the fish show that you fish that you 0:06:44.360 --> 0:06:47.400 tend to go to. So all right, Lee, your companies, 0:06:47.440 --> 0:06:53.599 the truckers, the railroads, the global ocean shippers. I can't 0:06:53.600 --> 0:06:54.960 think of an industry it's got a better look on 0:06:55.000 --> 0:06:57.479 the economy than those types of companies. What are those 0:06:57.480 --> 0:07:00.280 companies saying about their economic out look? 0:07:00.640 --> 0:07:00.919 Yeah? 0:07:00.960 --> 0:07:03.000 So I think you know, we actually just spoke to 0:07:03.000 --> 0:07:05.960 one of our companies this morning. We spoke with DHL 0:07:06.040 --> 0:07:07.680 and then they were telling us that, you know, they're 0:07:07.720 --> 0:07:10.880 not expecting much of a peak season this year really, 0:07:11.080 --> 0:07:12.840 and if they do see it, they'll probably see it 0:07:13.080 --> 0:07:15.800 in the air freight on their forwarding business versus their 0:07:15.800 --> 0:07:18.840 ocean business. A lot of the other carriers like night Swift, 0:07:18.880 --> 0:07:21.400 you know, they're all talking about your seeing the d 0:07:21.560 --> 0:07:22.440 stocking happen. 0:07:22.840 --> 0:07:25.920 So d stocking that's just retailers just bringing down their. 0:07:25.760 --> 0:07:29.600 Inventory exactly, and they're not seeing the restocking where they're 0:07:29.640 --> 0:07:32.960 filling up the inventories. So we're at a situation where 0:07:33.000 --> 0:07:36.520 a the consumer is obviously pretty resilient, but we're just 0:07:36.600 --> 0:07:39.080 not seeing the normal seasonal patterns. 0:07:39.120 --> 0:07:39.400 Yet. 0:07:39.680 --> 0:07:42.160 We're pretty optimistic, where I guess we're probably a little 0:07:42.200 --> 0:07:44.760 more bullish. You know, we think we're going to see 0:07:45.120 --> 0:07:47.160 not a peak peak season, but we are going to 0:07:47.200 --> 0:07:51.080 see an incremental increase in demand and that's going to 0:07:51.200 --> 0:07:55.440 have a really positive impact on the truckload industry. We've 0:07:55.480 --> 0:07:58.280 been calling a bottom for that industry for quite some 0:07:58.400 --> 0:08:00.480 time on the rate side, and so far has. 0:08:00.400 --> 0:08:01.200 Been playing out. 0:08:01.760 --> 0:08:03.800 We think that as we go into the fourth quarter, 0:08:04.000 --> 0:08:06.880 they're going to slowly increase. Now, a lot of the 0:08:06.920 --> 0:08:09.000 trucking companies that we cover, they don't play in the 0:08:09.000 --> 0:08:12.000 spot market, but it's kind of like this. It tells 0:08:12.000 --> 0:08:14.200 you where contract rates are going to be six to 0:08:14.320 --> 0:08:16.880 nine months out. And so what we're looking closely at 0:08:16.880 --> 0:08:19.040 the spot market. We look at it every week, try 0:08:19.040 --> 0:08:21.520 to figure out where it's going. You know, we think 0:08:21.560 --> 0:08:23.560 that's going to set up next year a pretty good 0:08:23.800 --> 0:08:27.600 for the truckload industry for contracts. This year, contract rates 0:08:27.600 --> 0:08:31.960 are down anywhere between mid to high single digits. Some 0:08:32.080 --> 0:08:35.679 companies are even seeing them down low double digits. But 0:08:35.720 --> 0:08:37.960 you know they can't come down much more because they've 0:08:38.000 --> 0:08:40.600 had all the inflationary pressures that every other company has. 0:08:40.600 --> 0:08:43.560 You know, they're paying their people more, equipment costs more, 0:08:43.600 --> 0:08:48.280 insurance costs more. So you know, eventually people are the 0:08:48.400 --> 0:08:50.680 larger companies we're just going to say, you know, we'd 0:08:50.760 --> 0:08:52.679 rather not take your freight because it just doesn't make 0:08:52.720 --> 0:08:53.400 sense for us. 0:08:53.960 --> 0:08:55.680 How about if I own a truck and it's parked 0:08:55.679 --> 0:08:58.400 in my backyard, a big, you know, eighteen wheeler. Can 0:08:58.440 --> 0:09:00.720 I get business anytime I want? Can I work anytime 0:09:00.720 --> 0:09:03.040 I want? You can't you can't. 0:09:03.080 --> 0:09:06.640 You can because there's an app for that. I mean, 0:09:06.679 --> 0:09:09.040 everyone and their mother has an app. Every large trucking 0:09:09.080 --> 0:09:11.280 company has an app. You have the Uber Freights of 0:09:11.320 --> 0:09:13.560 the world. You have load boards like truck Stop or 0:09:13.640 --> 0:09:16.400 dat so alls you need is a smartphone and a 0:09:16.440 --> 0:09:19.080 truck and a CDL and you can move freight. The 0:09:19.160 --> 0:09:21.320 problem is you might be moving freight at a loss. 0:09:21.520 --> 0:09:23.600 And that's what a lot of truckers are dealing with now. 0:09:23.960 --> 0:09:27.560 So as time goes on, some of the truckers, we'll 0:09:27.559 --> 0:09:30.880 call them high high, high cost truckers that are that 0:09:31.080 --> 0:09:33.080 kind of came into the market at the peak and 0:09:33.160 --> 0:09:36.319 their equipment's more expensive and their insurance is more expensive, 0:09:36.480 --> 0:09:38.120 and they thought they were going to get these great 0:09:38.200 --> 0:09:40.480 rates that they were getting during the pandemic. Now that 0:09:40.600 --> 0:09:43.280 rates are down considerably, you know, twenty some percent from 0:09:43.360 --> 0:09:45.800 last year. You know, they're not making money and eventually 0:09:46.480 --> 0:09:48.640 you can only operate for cash flow for so long 0:09:48.760 --> 0:09:50.760 until you're just like, I'm going to go do something else. 0:09:51.040 --> 0:09:53.440 And a lot of truckers, you know, the owner operators, come. 0:09:53.320 --> 0:09:54.480 In and out of this business. 0:09:54.679 --> 0:09:56.840 You know, they might work, they might they might drive 0:09:56.880 --> 0:09:58.920 their truck as a long haul trucker, or they might 0:09:58.960 --> 0:10:01.000 do construction, or they might work in warehousing. 0:10:01.920 --> 0:10:04.079 So it's my neighbor in North Carolina had his eighteen 0:10:04.120 --> 0:10:07.280 Miller Park Beautiful truck parked next to his little house 0:10:07.320 --> 0:10:09.280 in Durham Nor, North Carolina. He's like, I feel like 0:10:09.320 --> 0:10:10.760 working for the next three or four weeks, and he 0:10:10.920 --> 0:10:12.040 just go out and do it. 0:10:12.080 --> 0:10:14.160 So I don't know sal work. That's my dream, as 0:10:14.200 --> 0:10:14.880 you know exactly. 0:10:15.000 --> 0:10:17.120 All right, Lee Clasical, thanks so much for joining us. 0:10:17.200 --> 0:10:20.079 Lee does all the transportation stuff. 0:10:20.120 --> 0:10:23.520 You're listening to the teenth Ken's Are Live program Bloomberg 0:10:23.559 --> 0:10:26.920 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:10:27.000 --> 0:10:30.160 the iHeartRadio app, and the Bloomberg Business App, or listen 0:10:30.240 --> 0:10:32.360 on demand wherever you get your podcasts. 0:10:34.880 --> 0:10:38.640 Matt Miller, Paul Sweeney here in the Bloomberg Interactive Brokers studio. 0:10:38.679 --> 0:10:40.120 All right, we got the s and p up. 0:10:40.240 --> 0:10:43.760 Let's call it eighteen percent. Year to date, the tech 0:10:43.800 --> 0:10:48.480 heavy Nasdaq is up over thirty percent. I mean, you know, 0:10:48.520 --> 0:10:50.440 the back half of August and September some of the 0:10:50.440 --> 0:10:52.520 best times of the Jersey Shore. I think I'm just 0:10:52.600 --> 0:10:54.400 packing it in. I'm done, and I'm just gonna go 0:10:54.400 --> 0:10:56.480 down to short because I've got a great first half. 0:10:56.559 --> 0:10:58.800 I don't need to do anymore. But let's see what 0:10:58.840 --> 0:11:01.760 the professionals are out there doing. David cast, president and 0:11:01.840 --> 0:11:07.880 CIO at Matrix Asset Management or Advisors Matrix Asset Advisors. David, 0:11:08.240 --> 0:11:10.480 I mean, boy, that's a heck of a first seven 0:11:10.520 --> 0:11:12.800 months here in this market. Is there anything left in 0:11:12.800 --> 0:11:13.360 this market? 0:11:14.720 --> 0:11:17.920 We do think there's still a batch more left book. 0:11:18.000 --> 0:11:19.960 We think that it's going to come from different places. 0:11:19.960 --> 0:11:21.920 If you look at the first five months of the year, 0:11:22.360 --> 0:11:26.320 the largest seven technology companies were up over sixty five percent. 0:11:26.640 --> 0:11:29.400 The rest of the market was flat. Since that time, 0:11:29.480 --> 0:11:31.679 the broader market's been doing better. There's been a lot 0:11:31.720 --> 0:11:33.280 of catch up. We think when you look for the 0:11:33.320 --> 0:11:35.520 balance of the year, you're going to continue to have 0:11:35.600 --> 0:11:37.640 catch up with things that have not done as well 0:11:37.880 --> 0:11:39.559 in the first seven months of the year. We think 0:11:39.559 --> 0:11:41.760 they will start to rally, and we think the things 0:11:41.800 --> 0:11:44.760 that did great can still do okay. But we would 0:11:44.800 --> 0:11:46.480 agree with you there there's not going to be a 0:11:46.520 --> 0:11:47.160 repeat of that. 0:11:47.720 --> 0:11:50.240 So are you not concerned that we're going to have 0:11:50.280 --> 0:11:52.840 her recession? We just talked to Bloomberg Economics Anna Wong. 0:11:53.000 --> 0:11:57.200 She says October is now her prediction for the beginning, 0:11:57.280 --> 0:11:58.960 and she says it's going to start slow and then 0:11:59.000 --> 0:11:59.800 get really steep. 0:12:01.280 --> 0:12:03.080 But we don't think it's going to be steep. We 0:12:03.120 --> 0:12:05.000 think that it's even money. 0:12:04.760 --> 0:12:08.760 Whether we have a short, shallow, modest recession, or a 0:12:08.800 --> 0:12:13.280 soft landing. We think the economy has been unbelievably resilient, 0:12:13.480 --> 0:12:15.160 but you have to upset that with the fact that 0:12:15.160 --> 0:12:16.680 the BET has been increasing rates. 0:12:16.440 --> 0:12:18.880 For the last year and a half. We think that 0:12:18.920 --> 0:12:19.880 the FED is close to. 0:12:19.840 --> 0:12:21.640 An end, but a lot of the things that they 0:12:21.679 --> 0:12:23.800 did have lagging impact. So we think you could have 0:12:23.800 --> 0:12:26.800 a modest recession, but we think a modest recession or 0:12:26.800 --> 0:12:29.720 a soft landing would be bullish for stocks. Deep recession, 0:12:29.760 --> 0:12:32.680 which we don't expect, would be bearish for stocks. 0:12:32.960 --> 0:12:36.160 All Right, So I'm just looking at some of your 0:12:36.200 --> 0:12:39.640 picks because interesting because again we've talked about it before, 0:12:39.800 --> 0:12:43.080 a lot of the big cap tech names have really 0:12:43.120 --> 0:12:43.959 led the market. 0:12:44.000 --> 0:12:44.120 Here. 0:12:44.120 --> 0:12:46.760 If I wanted to broaden it out, Metronic is one 0:12:46.800 --> 0:12:49.959 of your names. You know, a healthcare device company. Talk 0:12:50.000 --> 0:12:50.840 to U about Metronic. 0:12:52.000 --> 0:12:54.800 So healthcare did very well on a relative basis in 0:12:54.840 --> 0:12:58.600 twenty twenty two and has been miserable in twenty twenty three. Again, 0:12:58.640 --> 0:13:00.680 we think there's going to be a rotation in terms 0:13:00.720 --> 0:13:05.880 of Metronic. The procedures for cardiovascular are finally starting to 0:13:05.920 --> 0:13:06.640 get better. 0:13:06.920 --> 0:13:07.920 You had United. 0:13:07.600 --> 0:13:09.880 Healthcare say that more people are going to the hospitals 0:13:09.920 --> 0:13:10.800 for these procedures. 0:13:11.120 --> 0:13:13.560 Metronic has had a number of disappointing quarters. They set 0:13:13.559 --> 0:13:15.240 the bar particularly low this year. 0:13:15.520 --> 0:13:17.719 We think this quarter, for the first time in the 0:13:17.800 --> 0:13:20.680 last four to six they're going to have good numbers 0:13:20.720 --> 0:13:23.160 and there's a reasonable chance that they beat and can 0:13:23.240 --> 0:13:26.600 raise expectations. You're getting it at a pretty reasonable price 0:13:26.640 --> 0:13:28.760 and a very nice dividend deal. We think you have 0:13:28.800 --> 0:13:31.800 a twelve month time horizon. You easily have twenty to 0:13:31.840 --> 0:13:33.439 twenty five percent of the upside. 0:13:35.120 --> 0:13:37.360 Why do you think these stocks haven't done better though? 0:13:38.880 --> 0:13:39.160 Well? 0:13:39.160 --> 0:13:41.400 Again, certain stocks did well last year and there was 0:13:41.440 --> 0:13:43.440 a rotation. The things that did well last year have 0:13:43.520 --> 0:13:47.240 slowed down this year, and vice versa. Financials also did 0:13:47.280 --> 0:13:50.240 particularly poorly this year. The drug companies had been doing 0:13:50.280 --> 0:13:52.439 poorly up to last week, and then you had companies 0:13:52.720 --> 0:13:56.040 like abd Amgen that had very good numbers and the 0:13:56.080 --> 0:13:58.280 stock really spiked on that, so we think it's going 0:13:58.360 --> 0:14:00.400 to spread out. So we don't I think that you 0:14:00.400 --> 0:14:03.120 want to question that they haven't done well in terms of, hey, 0:14:03.160 --> 0:14:04.920 I'm not going to buy them. They haven't done well, 0:14:05.040 --> 0:14:06.439 and we think you want to look at them as 0:14:06.679 --> 0:14:08.440 what's going to be the next thing that rallies. And 0:14:08.480 --> 0:14:10.800 we think a lot of those drug companies and medtech 0:14:10.880 --> 0:14:13.720 companies are going to start to do better because their 0:14:13.720 --> 0:14:14.800 fundamentals are strong. 0:14:15.000 --> 0:14:16.680 But the stock prices haven't moved yet. 0:14:16.880 --> 0:14:19.120 Hey, David, I want to I can't remember the last 0:14:19.160 --> 0:14:21.520 time on this show we ever talked about it. An 0:14:21.760 --> 0:14:25.680 electric power company utility company. But you've got American Electric 0:14:25.920 --> 0:14:31.520 Power AEP based in Columbus, Ohio that's on your list. 0:14:32.160 --> 0:14:34.200 What's the play on the electric business? 0:14:34.200 --> 0:14:35.920 Socks down fourteen percent year to date. 0:14:35.840 --> 0:14:39.760 YEP, So that's exactly it. So they're a very well 0:14:39.840 --> 0:14:40.520 run company. 0:14:40.520 --> 0:14:43.000 We like management. They're going to grow the earnings from 0:14:43.120 --> 0:14:45.080 five to seven eight percent. They're going to grow the 0:14:45.080 --> 0:14:47.760 dividend from five to seven eight percent. It's a fifteen 0:14:47.760 --> 0:14:49.840 and a half times earnings, so it's at the lower 0:14:49.960 --> 0:14:52.800 end of its valuation range. The yield is four percent, 0:14:53.000 --> 0:14:54.480 So if you go back to your last guest that 0:14:54.600 --> 0:14:57.480 was looking for a recession. These are the type that's 0:14:57.520 --> 0:14:59.120 the type of business you want to own in an 0:14:59.120 --> 0:15:02.000 economic slowdown or recession. And we just think you want 0:15:02.000 --> 0:15:04.560 to balance your portfolio. We think the economy is going 0:15:04.600 --> 0:15:06.800 to be okay, but if it's not, AEP is going 0:15:06.840 --> 0:15:07.000 to be. 0:15:07.000 --> 0:15:09.560 A very good place to be. We think that they 0:15:09.600 --> 0:15:10.480 haven't done anything. 0:15:10.520 --> 0:15:13.240 The stocks down it shouldn't be, so we're not looking 0:15:13.280 --> 0:15:14.840 for a home run here. But you could get a 0:15:14.840 --> 0:15:17.920 four percent yield and a fifteen to twenty percent. 0:15:17.640 --> 0:15:18.920 Gain over the next twelve months. 0:15:18.960 --> 0:15:24.320 So again conservative place, balance out your portfolio. 0:15:22.040 --> 0:15:25.280 And in a great place. Yeah, you need to do 0:15:25.400 --> 0:15:26.000 channel checks. 0:15:26.040 --> 0:15:26.720 I'm your man. 0:15:27.600 --> 0:15:30.800 In terms of screening, I see air products and chemicals 0:15:30.800 --> 0:15:31.120 as well. 0:15:31.160 --> 0:15:36.160 So they sell oxygen, which we need, nitrogen, argon, helium, 0:15:36.200 --> 0:15:39.720 stuff like that. How do you pick these companies, David? 0:15:39.720 --> 0:15:40.720 How do you screen for those? 0:15:41.760 --> 0:15:44.080 So we have eight valuation models that look at the 0:15:44.120 --> 0:15:46.880 companies earnings and dividends and return inequity, and we try 0:15:46.880 --> 0:15:49.080 to value what the business is worth and then buy 0:15:49.080 --> 0:15:52.240 it at a discount. We also focus on dividends, sustainability 0:15:52.280 --> 0:15:54.560 of dividends, and in terms of air products, they are 0:15:54.640 --> 0:15:58.240 really consistent earnings for over time. They've grown the dividend 0:15:58.280 --> 0:16:01.320 at North in ten to twelve percent. The expectation is 0:16:01.360 --> 0:16:04.480 that that's going to continue. The stock did well last year, 0:16:04.720 --> 0:16:06.760 has not done a whole lot this year. But I 0:16:06.800 --> 0:16:10.480 think what's very interesting here is it's a green energy play, 0:16:11.080 --> 0:16:12.760 but you're not paying too much for you and you're 0:16:12.760 --> 0:16:14.360 getting a good yield while you're waiting. 0:16:15.600 --> 0:16:17.800 David, how concerned are you about this Federal Reserve? 0:16:17.800 --> 0:16:20.640 We're going to get a bunch of economic data this week, 0:16:20.680 --> 0:16:23.200 and if the market seems to be saying maybe one 0:16:23.240 --> 0:16:27.480 more rate increase or maybe even just hold steady, how 0:16:27.600 --> 0:16:29.320 concerned are you a bet our federal reserve? 0:16:30.640 --> 0:16:33.400 Well, we think the Federal Reserve has overshot in terms 0:16:33.400 --> 0:16:35.400 of raising rates, so we're a little bit fearful that 0:16:35.440 --> 0:16:37.600 they continue to do that. You did have one Fed 0:16:37.640 --> 0:16:41.600 governor say that she thinks there could be additional multiple 0:16:41.720 --> 0:16:44.200 raises this year, So that's a worry. We don't think 0:16:44.280 --> 0:16:47.320 they have to. We think inflation is definitely breaking lower. 0:16:47.800 --> 0:16:51.080 Your last guests just talked about inflation going lower. If 0:16:51.080 --> 0:16:53.760 you look at this quarter's earning season, we agree most 0:16:53.760 --> 0:16:57.240 companies are talking about not having issues with supply anymore, 0:16:57.640 --> 0:17:01.560 logistics shipping, all prices coming down. So we think the 0:17:01.720 --> 0:17:03.840 Federal Reserve doesn't have to increase more. 0:17:04.400 --> 0:17:06.760 They could do one. It's either one or done or 0:17:06.840 --> 0:17:07.680 none and done. 0:17:08.480 --> 0:17:11.960 And if that's the case and the economy holds in Okay, 0:17:11.960 --> 0:17:14.000 which we think it will, stock should be a pretty 0:17:14.000 --> 0:17:16.000 good place to be. If we're wrong and the Federal 0:17:16.000 --> 0:17:18.800 Reserve raises four more times, that's problematic. 0:17:18.880 --> 0:17:20.280 We don't think that app that's. 0:17:20.119 --> 0:17:22.400 A problem for a lot of people there. All right, David, 0:17:22.440 --> 0:17:23.000 thank you so much. 0:17:23.040 --> 0:17:25.760 We appreciate it as always, David Katz, He's a president 0:17:25.880 --> 0:17:30.960 and chief investment officer Matrix Asset Advisors. Still bullish on 0:17:31.040 --> 0:17:33.600 this market, even after the run we've had in the 0:17:33.760 --> 0:17:36.760 S and P in particularly in the Nasdaq and Nasdaq 0:17:36.800 --> 0:17:37.320 one hundred. 0:17:37.600 --> 0:17:40.679 You're listening to the tape Cat's are live program Bloomberg 0:17:40.760 --> 0:17:44.359 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:17:44.400 --> 0:17:47.640 tune in app, Bloomberg dot Com, and the Bloomberg Business app. 0:17:47.680 --> 0:17:50.479 You can also listen live on Amazon Alexa from our 0:17:50.480 --> 0:17:55.639 flagship New York station, Just say Alexa Play Bloomberg eleven thirty. 0:17:57.320 --> 0:17:59.480 I want to talk Goldvin Sachs. 0:17:59.520 --> 0:17:59.760 Jeff. 0:18:00.480 --> 0:18:02.720 Do we have shri? I mean he's a year round 0:18:02.760 --> 0:18:03.560 I mean got it. 0:18:04.080 --> 0:18:06.040 I heard he was going to be in studio And 0:18:06.080 --> 0:18:07.680 the reason we like to talk to this guy because 0:18:07.680 --> 0:18:10.679 he is all over the Goldman Sachs beat. So two 0:18:10.800 --> 0:18:13.240 questions about Jeff Curry. He's only one person. He's a 0:18:13.240 --> 0:18:16.280 commodity strategist. Okay, he's not a key man risk in 0:18:16.280 --> 0:18:18.960 my opinion, but high profile guy. I like to know 0:18:19.040 --> 0:18:20.879 two things, neither which I think we know. 0:18:21.359 --> 0:18:23.600 A why did he leave? And B where's he going? 0:18:24.520 --> 0:18:27.040 So, yes, you're right, he's not key man risk. But 0:18:28.000 --> 0:18:30.760 Jeff Curry is the name that the Bloomberg listeners, the 0:18:30.800 --> 0:18:34.399 Bloomberg readers certainly know really well. He has been the 0:18:34.440 --> 0:18:38.440 face of commodities research at Goldman Sachs for nearly thirty 0:18:38.600 --> 0:18:42.359 years now, and he truly has craft a brand for 0:18:42.480 --> 0:18:46.800 himself as one of the most recognizable commodities analysts out there. 0:18:46.840 --> 0:18:51.600 He makes bold calls, he describes it in an entertaining 0:18:51.640 --> 0:18:54.440 in a very easy to understand manner, and he has 0:18:54.480 --> 0:18:56.880 won his followers. He may not always have been right. 0:18:57.080 --> 0:19:00.800 Remember right now he's called for another super cycling that 0:19:00.840 --> 0:19:05.280 has not quite panned out. But agree with him or not, 0:19:05.760 --> 0:19:07.960 everyone in the market will tell you that he is 0:19:08.000 --> 0:19:11.159 someone you must at least pay attention to. That's Jeff Curry. 0:19:11.320 --> 0:19:13.879 Of course, there is the broader Goldman Sachs then that 0:19:13.920 --> 0:19:19.080 we always wonder about, another very recognizable name brand leaving 0:19:19.080 --> 0:19:21.760 Goldman Sachs the sixth partner in the last couple of weeks. 0:19:21.960 --> 0:19:25.439 I would argue that it's a little different from the 0:19:25.480 --> 0:19:27.960 sort of tug of war you've seen in the other 0:19:28.000 --> 0:19:31.600 parts of Goldman, where there are bigger issues over strategy 0:19:31.680 --> 0:19:34.400 and some of the reorganizations that they've done that has 0:19:34.480 --> 0:19:37.760 led to a flow of talent. I can't really attribute 0:19:37.800 --> 0:19:40.120 that being the chief reason for Jeff Curry in any 0:19:40.160 --> 0:19:42.280 way that we understand. And look, it doesn't look like 0:19:42.320 --> 0:19:44.760 he's looking to take any other job immediately. He's going 0:19:44.800 --> 0:19:46.800 to spend some time with family. He has two young kids. 0:19:46.880 --> 0:19:48.359 He's only fifty six years old. 0:19:48.400 --> 0:19:50.879 I was about to say that, but he's still only 0:19:50.920 --> 0:19:53.399 fifty six years old, so it would be hard to 0:19:53.480 --> 0:19:55.360 bet against a second act. 0:19:55.480 --> 0:19:58.960 Here's a quote I like, and is this Yeah, it's 0:19:58.960 --> 0:20:01.480 in your story, Stree, you got it. From Colleen Foster 0:20:01.600 --> 0:20:03.440 is like a senior salesperson in commodities. 0:20:03.440 --> 0:20:06.680 And this is like the best anybody could say about 0:20:06.680 --> 0:20:07.680 an analyst. 0:20:07.760 --> 0:20:09.679 There's never a time I couldn't get a meeting with 0:20:09.720 --> 0:20:13.360 a CEO, an oil minister, or a hedge fund founder 0:20:13.760 --> 0:20:15.080 if Jeff Curry was with me. 0:20:15.560 --> 0:20:17.239 That's the sway this guy had it. 0:20:17.240 --> 0:20:18.919 He gets you in the door. I actually had a 0:20:18.920 --> 0:20:22.400 prominent dream about Jeff Curry. Remember last year. 0:20:23.680 --> 0:20:23.760 Now. 0:20:23.840 --> 0:20:25.760 We were sitting at a diner and he was selling 0:20:25.840 --> 0:20:28.280 me on the commodity supercycle and he was like, listen, 0:20:28.320 --> 0:20:30.159 Europe hasn't gone into the recession that we thought it 0:20:30.200 --> 0:20:33.280 was going to. China's about to come roaring back, you know, 0:20:33.359 --> 0:20:35.560 and a US driving season is going to kick. 0:20:35.400 --> 0:20:36.240 A lot of that stuff. 0:20:37.160 --> 0:20:40.720 Europe doesn't look great anymore. China hasn't come roaring back, 0:20:41.000 --> 0:20:43.480 and the US we're just not using as much gas. 0:20:43.520 --> 0:20:44.640 There's not as much demand as they. 0:20:44.680 --> 0:20:47.840 Okay, let's not leave Matt hanging here. Yes, you knew 0:20:47.920 --> 0:20:50.520 Jeff Curry for his commodities research, and maybe that was 0:20:50.560 --> 0:20:52.600 something he did on the side, But what was he 0:20:52.640 --> 0:20:56.720 more famous for? Matt He helped co produce a documentary 0:20:56.840 --> 0:20:59.640 on the British drug band the Kings, trying to bring 0:20:59.680 --> 0:21:00.560 them back together. 0:21:01.200 --> 0:21:02.320 That is pretty cool. 0:21:02.520 --> 0:21:05.160 Hey, just stepping away from Goldman, I don't think there's 0:21:05.200 --> 0:21:08.000 any to me, any turnover that we're seeing in Goldman 0:21:08.080 --> 0:21:10.119 or anywhere else on the street is any different than 0:21:10.160 --> 0:21:10.919 any past. 0:21:11.000 --> 0:21:13.040 Cycles to me. Do you sense that there's anything. 0:21:12.840 --> 0:21:16.320 Unusual going on in turnover or it's just business as usual? 0:21:16.480 --> 0:21:19.359 No, I mean there's certainly a different story at Goldman Sachs. Yes, 0:21:19.440 --> 0:21:21.720 maybe there's not much in terms of the quantity in 0:21:21.760 --> 0:21:23.280 terms of the number of people who are leaving, but 0:21:23.359 --> 0:21:24.920 the type of people who are leaving. Some of these 0:21:24.920 --> 0:21:27.440 people who were handpicked for a bigger and greater role 0:21:27.480 --> 0:21:29.760 at Goldman sacks for them to be leaving so soon 0:21:29.800 --> 0:21:32.280 after they've been on the up and you know, Goldman's 0:21:32.280 --> 0:21:34.679 always had an upper out culture. But but the but 0:21:34.800 --> 0:21:37.080 the weird part is some of these people were on 0:21:37.119 --> 0:21:40.040 the up, you know, either they were kneecapped or they 0:21:40.040 --> 0:21:41.720 didn't sort of fit in the new plans. They have 0:21:41.760 --> 0:21:44.119 been getting frustrated and leaving. So it's the type of 0:21:44.240 --> 0:21:46.359 names that are leaving the building that have caught our 0:21:46.359 --> 0:21:49.080 attention more than the number of people leaving two hundred 0:21:49.040 --> 0:21:50.360 Wes Street, So. 0:21:50.720 --> 0:21:53.639 We have no idea what Curry's going to do then later, 0:21:53.800 --> 0:21:57.000 is anyone speculating, like. 0:21:56.920 --> 0:21:59.120 I said, I mean, if he seems to have told 0:21:59.119 --> 0:22:01.679 confidence that for the moment he wants to spend some 0:22:01.760 --> 0:22:04.199 time with family. But again, if you've been in the 0:22:04.240 --> 0:22:06.400 game for so long, the itch to get back there 0:22:06.840 --> 0:22:10.160 will overcome your desire to just relax on the beat. 0:22:10.280 --> 0:22:12.520 So I will be very surprised if a year later 0:22:12.560 --> 0:22:15.159 you don't see Jeff Curry pop up somewhere else again. 0:22:15.400 --> 0:22:19.840 David Solomon just characterize kind of the feeling on the 0:22:19.840 --> 0:22:22.800 street about David Solomon these days. I mean, I would 0:22:22.920 --> 0:22:27.560 argue that Goldman's doing well, and I would also argue 0:22:27.600 --> 0:22:30.720 that the foray into commercial banking wasn't his call. 0:22:31.200 --> 0:22:32.360 That's a blank fine call. 0:22:32.480 --> 0:22:36.080 He inherited, he committed hard though blank Fine dated Consumer Bank, 0:22:36.240 --> 0:22:39.240 the consumer business, and Solomon married it. 0:22:39.640 --> 0:22:42.199 Is that is that accurate? That is accurate? Okay? So 0:22:42.280 --> 0:22:44.280 he does in fact bear Look. 0:22:44.119 --> 0:22:46.360 They had a banking charter after two thousand and eight, 0:22:46.400 --> 0:22:48.280 so it made sense for them to do something as 0:22:48.320 --> 0:22:50.240 basic as what they were doing off of some deposits 0:22:50.240 --> 0:22:52.560 make out some loans. But then there was this desire 0:22:52.600 --> 0:22:54.840 to push in and make something bigger. And they will 0:22:54.880 --> 0:22:56.800 always tell you such a big deal has been made 0:22:56.800 --> 0:22:59.320 about consumer It was just three percent of revenues. Yes, 0:22:59.359 --> 0:23:01.439 it was three percent of revenues. But you racked up 0:23:01.480 --> 0:23:04.000 losses at a time when you really don't didn't want 0:23:04.040 --> 0:23:07.040 those losses, right when the cycle was turning, right, when 0:23:07.080 --> 0:23:09.480 your engines of investment, banking and trading were slowing down, 0:23:09.760 --> 0:23:13.280 you had this. Add that to all of the disagreements 0:23:13.320 --> 0:23:15.880 people have with his leadership style and how he goes 0:23:15.920 --> 0:23:20.359 about his business, you create a little bit of environment 0:23:20.600 --> 0:23:24.000 that feels like there is this air of dissatisfaction that 0:23:24.080 --> 0:23:25.560 is settled in on Goldman Saxe. 0:23:25.600 --> 0:23:28.240 Is that is that accurate? Because I hear that, Do 0:23:28.240 --> 0:23:29.640 you think that's fair? I mean, you're right. 0:23:29.800 --> 0:23:31.960 I would trust you more than anyone else. You're right. 0:23:32.040 --> 0:23:33.679 And the thing I'm just wondering, you know, because it 0:23:33.720 --> 0:23:36.960 seems like Goldman Sacks and I can have competed against 0:23:36.960 --> 0:23:40.800 them for thirty plus years, they just win every single year. 0:23:40.920 --> 0:23:43.240 And let's get this right. I think when you look 0:23:43.280 --> 0:23:46.320 at the broader dynamics and global banking, you know, the 0:23:46.840 --> 0:23:49.760 retreat of European banks, what is happening with credit SWAICE 0:23:49.800 --> 0:23:52.440 and all of that. What that ultimately does is leave 0:23:52.480 --> 0:23:55.719 a few very strong players who continue to benefit. And 0:23:55.760 --> 0:23:58.520 the three biggies that we have JP Morgan, Morgan Stanley, 0:23:58.520 --> 0:24:02.879 Goldman Sacks, they have a big, large, growing, deep competitive 0:24:02.960 --> 0:24:06.000 mode that ensures that they continue to do better in 0:24:06.040 --> 0:24:08.760 stuff that they're really good at, banking and trading for 0:24:09.400 --> 0:24:13.520 Goldman Sachs, the investment bank sites for JP Morgan and 0:24:13.960 --> 0:24:16.560 Morgan Sandy as well, but also the consumer side, the 0:24:16.560 --> 0:24:20.160 wealth management side at Morgan Sandy, they are certainly benefiting there. 0:24:20.800 --> 0:24:23.480 There is this palace Insriegan, there is this issue with 0:24:23.520 --> 0:24:25.960 the CU and there is this sort of growing noise 0:24:26.000 --> 0:24:28.200 that you hear out of Goldman Sax and one does 0:24:28.240 --> 0:24:30.280 feel that there's no way that's going to turn around 0:24:30.480 --> 0:24:32.800 in a minute, even if business recovers. So you don't 0:24:32.800 --> 0:24:33.560 have to find a solution. 0:24:33.640 --> 0:24:35.800 I'm just looking at the stocks Goldman Sacks. You're to 0:24:35.880 --> 0:24:38.879 date stocks up three point six percent, Morgan Stanley up 0:24:38.920 --> 0:24:41.960 five percent trailing twelve months, Goldman Sacks up nine percent, 0:24:42.119 --> 0:24:43.320 Morgan Stanley up eight percent. 0:24:43.680 --> 0:24:46.080 So here I always pull up my five year comp 0:24:46.160 --> 0:24:48.879 chart I know you do. And Goldman Sachs over the 0:24:48.960 --> 0:24:52.840 last five years, they're the second best bank of the 0:24:53.000 --> 0:24:56.920 Big six, right only Morgan Stanley has done better over 0:24:56.960 --> 0:25:00.520 the last five years because they compete big time, right now, 0:25:00.640 --> 0:25:00.880 you know. 0:25:00.960 --> 0:25:02.960 That that hurts a lot. But also remember when we 0:25:02.960 --> 0:25:04.879 think about the Big six, we think about Wells Fargo 0:25:04.920 --> 0:25:07.160 as the sixth name in that list, right, but they're 0:25:07.200 --> 0:25:09.480 not a true, true comp Goldman Sack. So I always 0:25:09.480 --> 0:25:11.520 like to also throwing someone like a Jeffries into the mix. 0:25:11.640 --> 0:25:13.919 Okay and Jeffries, which is a pure play in Masson 0:25:13.920 --> 0:25:16.960 Bank yep, at least right now, it's done extraordinarily well 0:25:16.960 --> 0:25:18.439 in the same time period. So if you add them 0:25:18.440 --> 0:25:20.879 to the list, they are three in the number seven. 0:25:21.200 --> 0:25:22.600 Not bad, not great. 0:25:22.720 --> 0:25:25.159 If you're inside Goldman Sacks, you don't like listening to 0:25:25.200 --> 0:25:27.720 the fact that you're behind Morgan Stanley. But they're getting 0:25:27.760 --> 0:25:31.159 around to the idea of a praising their rival, praising 0:25:31.160 --> 0:25:34.280 their competitor, and be hoping to recover that lost crownd. 0:25:34.040 --> 0:25:36.240 All Right, Tree, thanks so much, we appreciate it. As always. 0:25:36.240 --> 0:25:41.480 Three in Niagen, you're listening to the teenth Can't Live 0:25:41.560 --> 0:25:45.480 program Bloomberg Markets Weekdays at ten am Eastern on Bloomberg 0:25:45.520 --> 0:25:48.840 dot Com, the iHeartRadio app and the Bloomberg Business App, 0:25:49.000 --> 0:25:51.520 or listen on demand wherever you get your podcasts. 0:25:53.880 --> 0:25:56.480 Matt Noer, Paulsweeni here in the Bloomberg Interactive Broker Studio, 0:25:56.520 --> 0:25:57.879 I want to bring in our next guest, because he 0:25:57.920 --> 0:26:00.280 traveled all the way from Newport Pach, California. David and 0:26:00.359 --> 0:26:04.280 Cio of the Bonson Group. All right, So David, I 0:26:04.320 --> 0:26:06.560 got the S and p up. I don't know, seventeen 0:26:06.640 --> 0:26:09.760 eighteen percent. I got NASDAK up thirty two, thirty three percent, 0:26:10.000 --> 0:26:13.800 I got the Nasdaq one hundred up darn near forty percent. 0:26:14.440 --> 0:26:18.280 Are we called a tech bubble here? Well, yes, AI bubble. Maybe, 0:26:18.280 --> 0:26:18.639 I don't know. 0:26:18.760 --> 0:26:20.800 Most certainly we're in a tech bubble if you were 0:26:20.840 --> 0:26:24.960 looking at valuations relative to history, okay, and that premium 0:26:25.119 --> 0:26:30.359 to historical valuation calls for a mean reversion, and I 0:26:30.400 --> 0:26:33.120 think that that's inevitably going to happen right now. It's 0:26:33.160 --> 0:26:35.919 interesting you have Apple and Microsoft below their fifty day 0:26:36.000 --> 0:26:39.040 moving average, and there are more energy names as a 0:26:39.080 --> 0:26:41.880 percentage of the index above their two under. 0:26:41.760 --> 0:26:44.000 Day than there are tech names. 0:26:44.440 --> 0:26:46.640 Interesting, Well, we got w tach crude oilly eighty two 0:26:46.640 --> 0:26:48.880 dollars has had a nice runoff of that sixty seven 0:26:48.960 --> 0:26:50.680 low from four or five weeks ago. 0:26:50.720 --> 0:26:52.399 So where should where you looking at? 0:26:52.480 --> 0:26:54.600 Where are you talking to your clients about where they 0:26:54.600 --> 0:26:56.159 should be looking for some opportunities here? 0:26:56.240 --> 0:26:57.680 Well, it's funny, is I was listening to guys talking 0:26:57.680 --> 0:27:00.399 about McDonald's. I was thinking not about the quarter pounder 0:27:00.520 --> 0:27:05.040 or the calories, but the sixty seven thousand percent return 0:27:05.480 --> 0:27:08.080 it has had since nineteen sixty seven. And it's a 0:27:08.119 --> 0:27:12.520 real number compounded reinvesting those dividends. MacDonald's is the best 0:27:12.560 --> 0:27:15.040 real estate company that happens to such. 0:27:15.119 --> 0:27:16.920 I didn't know that, so I watched the movie. Now 0:27:16.960 --> 0:27:17.479 I got it. 0:27:18.119 --> 0:27:20.360 We've owned it for many, many years, and it's interesting. 0:27:20.400 --> 0:27:22.640 We bought at the financial crisis at fifty it's now 0:27:22.640 --> 0:27:26.360 at three hundred. Wow, and the dividend is increased six times, 0:27:26.400 --> 0:27:28.240 just as the stock has gone up six times. 0:27:28.280 --> 0:27:29.359 How important dividends do you? 0:27:29.520 --> 0:27:29.600 Just? 0:27:29.600 --> 0:27:31.439 In general, it's what we do, what you do, And 0:27:31.800 --> 0:27:34.480 it's not just dividends, it's the growth of dividends. So 0:27:34.520 --> 0:27:37.360 that's why I use MacDonald's example. But I can't think 0:27:37.400 --> 0:27:39.639 of a better environment than the one room right now, 0:27:40.119 --> 0:27:43.240 where the growth of the income is more important, while 0:27:43.280 --> 0:27:47.639 you also get better stabilized business models. People too dependent 0:27:48.240 --> 0:27:52.399 on AI, too dependent on momentum, two dependent on multiple expansion. 0:27:52.760 --> 0:27:55.320 They're the most vulnerable right now. So it's interesting. 0:27:55.359 --> 0:27:58.440 I was talking to somebody, an investor yesterday, large cap 0:27:58.480 --> 0:28:01.760 growth guy, and he said we were talking about Goldman 0:28:01.800 --> 0:28:04.879 Sachs and the other big public investment banks. He doesn't 0:28:04.880 --> 0:28:07.919 want to buy them because they still pay their people 0:28:08.000 --> 0:28:08.480 as if. 0:28:08.320 --> 0:28:09.359 They were a partnership. 0:28:09.440 --> 0:28:12.320 Right. Every time they have a bad year, they say, 0:28:12.320 --> 0:28:14.719 we got to pay these guys because they're the talent 0:28:14.800 --> 0:28:16.520 and it's the most important thing. When they have a 0:28:16.520 --> 0:28:18.080 good year, they're like, we have to pay these guys 0:28:18.080 --> 0:28:18.760 because they're the talent. 0:28:18.760 --> 0:28:19.680 That's the most important thing. 0:28:19.960 --> 0:28:22.159 And they never give money back to the shareholders, or 0:28:22.200 --> 0:28:24.200 not as much as they should for a public company. 0:28:24.200 --> 0:28:24.800 Do you agree. 0:28:25.000 --> 0:28:26.679 Well, see, I have a name for him that is 0:28:26.720 --> 0:28:29.840 the exact same business, but a totally different outcome. It's 0:28:29.840 --> 0:28:33.480 a little investment bank called Molus and Tickers MC, where 0:28:33.480 --> 0:28:36.080 all they do is an is Ken Mollis was old 0:28:36.119 --> 0:28:38.760 vice share at UBS started this investment bank. They give 0:28:38.760 --> 0:28:40.960 our deal j back in the day, one hundred percent 0:28:41.120 --> 0:28:44.000 of free cash flow goes back to shareholders as dividends. 0:28:44.480 --> 0:28:46.360 And that's all they are is a deal company. I'm 0:28:46.400 --> 0:28:48.760 like Goldman Sachs, which is a balance sheet company to 0:28:48.840 --> 0:28:52.160 some degree. They have to maintain capital for especially at 0:28:52.160 --> 0:28:55.960 fixed income trading mols more pure advisories. So that's what 0:28:56.040 --> 0:28:58.800 we're really going to do. Look, we own Blackstone and Apollo. 0:28:59.160 --> 0:29:00.760 All we are is get a piece of. 0:29:00.760 --> 0:29:04.200 The management fees that they're charging, and clients don't seem 0:29:04.200 --> 0:29:06.840 to mind paying it. The results haven't done anything to 0:29:06.920 --> 0:29:09.080 keep people from paying it. And so when you own 0:29:09.080 --> 0:29:12.200 those companies, it's not balance sheet risk. Yes, they pay 0:29:12.240 --> 0:29:15.320 their people well, but it's very performance driven. I think 0:29:15.480 --> 0:29:18.000 Wall Street's one of the few meritocratic areas left, to 0:29:18.040 --> 0:29:19.360 be honest, I see that as a good thing. 0:29:19.560 --> 0:29:21.720 Well, one of the things that Goldman Sacks that David 0:29:21.760 --> 0:29:24.200 Soloman is doing right now. He's selling, you know, their 0:29:24.200 --> 0:29:26.800 big balance sheet business the investments they've made in real 0:29:26.920 --> 0:29:29.840 estate over years because the returns have been volatile. But 0:29:29.880 --> 0:29:31.600 I was just talking to Shrie Nata Rojin about this. 0:29:31.920 --> 0:29:35.120 He said, one year they'll make six billion on those investments. 0:29:35.240 --> 0:29:37.040 Next year they'll lose a billion, the next year they'll 0:29:37.080 --> 0:29:39.480 lose lose two, but then they'll make six again. So 0:29:39.520 --> 0:29:43.080 over four years, you know they've made net positive nine 0:29:43.120 --> 0:29:46.640 billion dollars. But since investors are so worried about quarterly 0:29:46.840 --> 0:29:50.920 or annual reports, they don't care about the longer term picture. 0:29:51.400 --> 0:29:54.880 Well, I am a good investor then, because I couldn't 0:29:54.880 --> 0:29:58.240 care less about quarterly smoothness of those things. But with 0:29:58.320 --> 0:30:00.680 balance sheet businesses, it's not just that it's going to 0:30:00.720 --> 0:30:03.600 be voll at all. You're going to evaporate capital at times, 0:30:03.680 --> 0:30:06.280 you're going to take on big losses. Dodd Frank took 0:30:06.280 --> 0:30:08.640 away their ability to do much of that. But see, 0:30:08.640 --> 0:30:09.560 that's not just a good thing. 0:30:09.680 --> 0:30:11.360 Is there's less risk. It's a bad thing. Is there's 0:30:11.400 --> 0:30:12.200 less upside. 0:30:12.320 --> 0:30:14.720 Morgan Stanley remedied it by becoming more of a fee 0:30:14.760 --> 0:30:19.800 based wealth management business. But we believe that these Blackstones, Apollos, 0:30:19.920 --> 0:30:23.960 al Rock, they're able to take huge fees around being 0:30:23.960 --> 0:30:26.640 an asset manager in a space that has huge growth 0:30:26.680 --> 0:30:27.200 in front of it. 0:30:27.680 --> 0:30:30.640 So, David, the importance of dividends to you when your 0:30:30.680 --> 0:30:31.800 firm and your investment outlook. 0:30:31.800 --> 0:30:33.480 If I got you in a room with Tim Cook 0:30:33.480 --> 0:30:36.240 at Apple, what would you say to him? 0:30:36.360 --> 0:30:38.280 I would be very respectful, because how could you not 0:30:38.360 --> 0:30:40.800 be with someone who's created that kind of wealth. And 0:30:40.800 --> 0:30:43.400 then I would simply point out that the day and 0:30:43.480 --> 0:30:45.640 age of them saying we can do better with your 0:30:45.680 --> 0:30:49.680 money is long gone, that there must be a greater 0:30:49.760 --> 0:30:53.320 return of capital shareholders. That they have proven that for 0:30:53.480 --> 0:30:56.360 years by holding on to hundreds of billions of dollars. 0:30:57.440 --> 0:31:00.280 If they had found better opportunities to deploy it, would 0:31:00.320 --> 0:31:03.280 have deployed it. And so by keeping a yield somewhere 0:31:03.280 --> 0:31:06.840 around half of a percentage point, I think it is 0:31:06.880 --> 0:31:10.640 a very very good opportunity for them to increase return 0:31:10.640 --> 0:31:13.840 on equity by paying more back to shareholders. In the meantime, 0:31:13.880 --> 0:31:17.320 they have abundant resources to still go do R and 0:31:17.400 --> 0:31:20.160 D and consumer product expansion. 0:31:21.920 --> 0:31:24.040 The great thing to do is fine stocks that are 0:31:24.040 --> 0:31:25.360 misunderstood by the market. 0:31:25.440 --> 0:31:25.640 Right. 0:31:25.720 --> 0:31:28.960 And Simon, Property Group is one you like. When I 0:31:29.000 --> 0:31:32.360 looked at that, my instant, you know, my brain's at oops. 0:31:32.680 --> 0:31:35.800 You know, commercial real estate. That must be a bad thing. 0:31:36.560 --> 0:31:38.080 You think a lot of people make that mistake. 0:31:38.200 --> 0:31:40.080 I think a lot of people do. And Simon Property 0:31:40.160 --> 0:31:42.960 is a great example. It was at fifty dollars during COVID, 0:31:42.960 --> 0:31:44.640 people said, no one's ever going in the mall again. 0:31:44.960 --> 0:31:46.840 Now it's at one hundred and twenty five dollars, and 0:31:46.880 --> 0:31:51.000 people don't realize they have a higher occupancy rate now 0:31:51.040 --> 0:31:52.960 than they've ever had in the history of the company. 0:31:53.360 --> 0:31:55.000 Basically, about ninety five. 0:31:54.840 --> 0:31:57.320 Percent of their square footage across two hundred and eighty 0:31:57.360 --> 0:32:01.520 seven high end malls is occupied. They bought Jcpenny basically 0:32:01.560 --> 0:32:04.560 for free and are now selling the old jcpenny buildings. 0:32:05.120 --> 0:32:06.040 You know, I forgot about that. 0:32:06.400 --> 0:32:08.840 I mean, they paid something like five hundred thousand dollars 0:32:08.840 --> 0:32:11.240 a box when they were selling for twenty million a box, 0:32:11.720 --> 0:32:14.600 and they are selling them to Amazon to be fulfillment warehouses. 0:32:14.640 --> 0:32:19.400 They're repurposing them into hotels and more entertainment oriented malls. 0:32:19.960 --> 0:32:22.760 Cymon Property has a ton of unleashed value that will 0:32:22.760 --> 0:32:25.520 get developed over time. And while you wait, you're getting 0:32:25.520 --> 0:32:28.280 a six to seven percent dividend yield that's coming straight 0:32:28.280 --> 0:32:30.920 from net operating income. And they just have a very 0:32:30.920 --> 0:32:34.680 well run balance sheet, about forty seven percent debt to value. 0:32:34.760 --> 0:32:37.680 It's really low. And to the extent they've had about 0:32:37.680 --> 0:32:39.840 five malls that have done poorly. Out of two hundred 0:32:39.840 --> 0:32:42.080 and eighty seven, those were non recourse. They gave them 0:32:42.080 --> 0:32:44.960 back and the CMBs people had to fight over the assets. 0:32:46.280 --> 0:32:49.200 I wonder what I see one of your books, or 0:32:49.200 --> 0:32:51.600 your most recent book. I guess There's no Free Lunch 0:32:51.640 --> 0:32:54.480 two hundred and fifty Economic Truths. I love the title. I 0:32:54.520 --> 0:32:56.120 was hanging out with Gary Shilling as I was telling 0:32:56.120 --> 0:32:58.640 these guys yesterday, and he said, that's his one main takeaway, 0:32:58.680 --> 0:33:01.000 there's no free lunch. What do you think about these 0:33:01.040 --> 0:33:05.200 trillion dollar deficits that we're running? You know, what do 0:33:05.200 --> 0:33:08.560 you think about the magic money tree that everybody seems 0:33:08.600 --> 0:33:09.880 to have bought into in government? 0:33:09.920 --> 0:33:11.360 Does that ever catch up to us? 0:33:11.760 --> 0:33:13.959 Well, it does, and the question is how it catches up. 0:33:14.000 --> 0:33:16.320 And so Japan's been about two hundred and thirty percent 0:33:16.400 --> 0:33:20.080 debt to GDP, and what it's done there is basically 0:33:20.120 --> 0:33:23.160 thirty years of no economic growth. So we're now at 0:33:23.160 --> 0:33:26.680 fifteen years of one point six economic growth. We had 0:33:26.680 --> 0:33:30.600 had seventy years of over three percent economic growth before that. 0:33:31.040 --> 0:33:33.640 So the cost so far seems to be a downward 0:33:33.720 --> 0:33:37.400 trend on growth, a kind of stagnation in the economy. 0:33:37.800 --> 0:33:39.800 But do I think that there's a moment in which 0:33:39.800 --> 0:33:42.720 the apocalypse comes. It's very difficult to predict that. My 0:33:43.120 --> 0:33:45.400 real quick comment though on the trillion dollar deficits is 0:33:45.640 --> 0:33:48.160 I don't like it when we spend five trillion during COVID. 0:33:48.360 --> 0:33:50.920 I don't like it when there's two trillion of spending 0:33:50.920 --> 0:33:52.680 in the aftermath of financial crisis. 0:33:52.800 --> 0:33:53.320 But I do. 0:33:53.280 --> 0:33:57.200 Understand there's a Keynesian school of thought that believes it's necessary. 0:33:57.440 --> 0:34:00.360 My problem is during peace time and during i'm an 0:34:00.440 --> 0:34:03.920 expansion time, when we're running one to two trillion dollar deficits, 0:34:04.120 --> 0:34:06.920 and that seems to be accepted by both sides of 0:34:06.920 --> 0:34:09.680 the aisle. And the only time anyone fights against it 0:34:09.719 --> 0:34:11.280 is when the other guy is the president. 0:34:12.400 --> 0:34:14.080 That brings it home. That brings it home. 0:34:14.160 --> 0:34:16.040 David, thanks so much for joining us. You can get 0:34:16.040 --> 0:34:19.080 back to Newport Beach. You know they can't be doing 0:34:19.160 --> 0:34:22.000 work out there Pinco people. I think it's all smoking mirror. 0:34:22.080 --> 0:34:25.280 I don't know, because maybe it's just too warm outside 0:34:25.320 --> 0:34:27.320 and you have to spend time in your air conditioned office. 0:34:27.320 --> 0:34:30.200 Perfect outside, seventy five degrees there all the time. All 0:34:30.239 --> 0:34:33.680 that's like that, and that sounds perfect to me all right, David. 0:34:33.480 --> 0:34:36.000 Say Cio at the Boxing Group, we always appreciate getting 0:34:36.000 --> 0:34:37.879 a few minutes of his time. I was a saint 0:34:37.920 --> 0:34:40.920 to our producer, a unique view on investing. 0:34:41.360 --> 0:34:44.480 You're listening to the tape Cat's are Live program Bloomberg 0:34:44.520 --> 0:34:48.120 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:34:48.160 --> 0:34:51.399 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:34:51.440 --> 0:34:54.279 You can also listen live on Amazon Alexa from our 0:34:54.280 --> 0:34:58.680 flagship New York station, Just Say Alexa play Bloomberg eleven thirty. 0:35:00.160 --> 0:35:03.120 Natalie want Joints is real estate reporter with Bloomberg News. 0:35:03.719 --> 0:35:05.960 Natalie talk to us about kind of that commercial real 0:35:06.040 --> 0:35:09.040 estate market. I mean, if I'm a bank and I 0:35:09.160 --> 0:35:12.239 try to sell off some of these commercial real estate 0:35:12.280 --> 0:35:14.279 loans I have in my books, am I finding any 0:35:14.280 --> 0:35:15.040 buyers out there? 0:35:15.280 --> 0:35:17.520 Thanks for having me. It's really hard for banks these 0:35:17.600 --> 0:35:20.480 days to find buyers out there, not because there aren't 0:35:20.480 --> 0:35:23.640 buyers that might want to snatch up heavily discounted loans, 0:35:23.640 --> 0:35:26.560 but because the pricing isn't there yet. Right, There's a 0:35:26.600 --> 0:35:29.360 lot of liquidity out there, a lot of dry powder 0:35:29.440 --> 0:35:32.560 out there for opportunistic buyers and funds that are raised 0:35:32.600 --> 0:35:36.520 to specifically target distressed opportunities. But the problem is banks 0:35:36.520 --> 0:35:39.360 aren't ready to meet them at the price that they 0:35:39.440 --> 0:35:43.239 want to pay. Yet the prices haven't necessarily fallen down 0:35:43.560 --> 0:35:46.200 far enough, although it is starting to. And this is 0:35:46.239 --> 0:35:48.120 what the story kind of talks about, which is there's 0:35:48.160 --> 0:35:50.600 been so much pressure building on the commercial real estate 0:35:50.640 --> 0:35:53.279 market and on the debt market for so long, and 0:35:53.360 --> 0:35:56.359 finally we're starting to see that banks are under more 0:35:56.440 --> 0:36:00.160 pressure to try to sell their loans, to try to 0:36:00.200 --> 0:36:02.879 add a bit more discount to their deals and find 0:36:02.920 --> 0:36:04.960 buyers so they can reduce their exposure to some of 0:36:04.960 --> 0:36:06.120 the riskier properties. 0:36:06.160 --> 0:36:09.440 We've heard a similar story with residential with existing homes, 0:36:09.480 --> 0:36:13.440 right Natalie, The people who own them aren't willing to 0:36:13.480 --> 0:36:16.439 sell them at the discounted price that buyers are looking 0:36:16.480 --> 0:36:19.600 to pay in that case, because buyers are having to 0:36:19.600 --> 0:36:23.200 take a higher mortgage in the in the in the 0:36:23.480 --> 0:36:26.160 retail market or in the residential market. 0:36:26.239 --> 0:36:27.000 We call this the. 0:36:26.960 --> 0:36:30.480 Great reset, That's what they'll call it when it actually happens. 0:36:31.200 --> 0:36:34.480 What is needed for the great reset to happen in 0:36:34.920 --> 0:36:38.040 commercial property, It's going. 0:36:38.000 --> 0:36:40.640 To be a year's long process. I mean sources that 0:36:40.680 --> 0:36:43.680 we've spoken to, brokers investors all say this is kind 0:36:43.680 --> 0:36:47.160 of like what happened with the malls. And I'm specifically 0:36:47.160 --> 0:36:50.120 talking about offices because that is the one sector where 0:36:50.120 --> 0:36:53.279 it's getting hit by boring rates and also the fundamental 0:36:53.360 --> 0:36:56.839 values are falling. It's kind of similar to malls where 0:36:56.840 --> 0:36:59.200 we've seen that unfold for the past decade, right, and 0:36:59.200 --> 0:37:02.560 we're still seeing that some of the better retail properties 0:37:02.640 --> 0:37:05.759 are under high demand. They're selling for good prices, but 0:37:05.800 --> 0:37:07.560 you have a lot of dead malls in places that 0:37:08.200 --> 0:37:11.160 still sit empty, and it'll be a process that could 0:37:11.200 --> 0:37:14.000 be you know, anywhere from five to ten years, but 0:37:14.040 --> 0:37:18.320 we're starting to see that it's happening now, and in 0:37:18.440 --> 0:37:21.280 talking to brokers, they think that maybe heading into the third, 0:37:21.360 --> 0:37:23.479 the fourth quarter and next year, we're going to start 0:37:23.480 --> 0:37:26.920 to see more banks put up loans for sale and 0:37:27.400 --> 0:37:31.080 you know, acquiess to better discounts for potential buyers out there. 0:37:31.320 --> 0:37:33.839 So, Natalie, I guess you know, one of the challenges 0:37:34.080 --> 0:37:36.640 for both sides of a trade is I don't really 0:37:36.640 --> 0:37:39.279 know what the underlying value is of commercial real estate 0:37:39.440 --> 0:37:42.640 in New York. Have we seen any big transactions that 0:37:42.680 --> 0:37:44.520 we can use to kind of mark the market. Have 0:37:44.600 --> 0:37:46.480 we seen anything really come to market in New York 0:37:46.520 --> 0:37:47.040 for example. 0:37:48.080 --> 0:37:51.120 That's the problem is we haven't necessarily seen a lot 0:37:51.120 --> 0:37:53.920 of asset sales yet, so it's really hard for people 0:37:53.960 --> 0:37:57.160 to figure out where the values of certain properties stand 0:37:57.200 --> 0:38:00.400 right now. We've seen some cases of distress sales, but 0:38:00.440 --> 0:38:03.719 these are one off cases. One example that people are 0:38:03.760 --> 0:38:07.600 really looking at right now is you know the Signature 0:38:07.680 --> 0:38:10.440 Bank loans. The FDIC is selling a big chunk of 0:38:10.480 --> 0:38:12.640 commercial real estate loans. Many of them are in New 0:38:12.719 --> 0:38:16.799 York apartments, some offices, and a lot of stakeholders are 0:38:16.800 --> 0:38:19.040 looking at that to see what the market to market 0:38:19.320 --> 0:38:22.440 might be. But the problem is, especially again for offices, 0:38:23.160 --> 0:38:26.479 people don't necessarily know where office demand and remote work, 0:38:26.520 --> 0:38:28.239 how that's going to shake out. Right We're starting to 0:38:28.239 --> 0:38:30.480 see some of the finance firms bring people back to 0:38:30.560 --> 0:38:32.560 the office four days a week, five days a week, 0:38:32.760 --> 0:38:35.080 but at the end of the day, there's still disagreements 0:38:35.120 --> 0:38:37.000 as to how that's going to shake out and what 0:38:37.040 --> 0:38:40.960 the overall demand will be a few years from now. 0:38:41.040 --> 0:38:43.719 And that is how people write down the income for 0:38:43.800 --> 0:38:45.759 those types of loans and those types of deals. So 0:38:46.040 --> 0:38:47.919 if you don't know how that's going to shake out. 0:38:48.120 --> 0:38:50.920 It's really hard to value what those loans will be 0:38:51.080 --> 0:38:52.239 several years out from now. 0:38:52.520 --> 0:38:55.680 What are you seeing, Natalie, in terms of defaults, you know, 0:38:55.719 --> 0:39:00.960 because a lot of these a lot of these lenders 0:39:01.040 --> 0:39:04.040 are going to be facing that situation, and some of 0:39:04.080 --> 0:39:07.440 them are some of the borrowers are defaulting just to 0:39:07.440 --> 0:39:08.480 try and renegotiate. 0:39:10.719 --> 0:39:13.279 We've seen that defaults have really picked up over the 0:39:13.320 --> 0:39:16.600 past i'd say, you know, starting this year, and that's 0:39:16.680 --> 0:39:18.160 kind of been the next two to drop in this 0:39:18.200 --> 0:39:21.360 whole commercial real estate saga is that owners, you know, 0:39:21.480 --> 0:39:24.040 people that are our sponsors of this debt are just 0:39:24.160 --> 0:39:26.759 looking at their property and looking at, you know, whether 0:39:26.840 --> 0:39:28.880 or not it's even worth trying to throw money in 0:39:29.040 --> 0:39:33.120 to renovate it or to invest in a long term. 0:39:33.160 --> 0:39:37.279 And we've seen even the biggest sponsors and owners like Brookfield, 0:39:37.440 --> 0:39:40.680 like Pimpo, like Blackstone just walk away from their properties, 0:39:40.719 --> 0:39:44.359 hand back the keys. And if the biggest investors are 0:39:44.360 --> 0:39:46.959 doing this, the smaller guys are looking at them and saying, Okay, 0:39:46.960 --> 0:39:48.759 it's appropriate for us to do this right now. We 0:39:48.840 --> 0:39:51.120 just don't have the money. And that's a big concern 0:39:51.200 --> 0:39:54.400 for the lenders and the banks, because they didn't write 0:39:54.400 --> 0:39:57.759 down these loans with the expectation that they're going to 0:39:57.840 --> 0:40:00.440 take it over and become managers and landlord cards. Right, 0:40:00.719 --> 0:40:02.719 So for a lot of these guys, they probably want 0:40:02.760 --> 0:40:07.360 to get ahead of any potential default, any potential loan maturities, 0:40:07.600 --> 0:40:10.120 and maybe sell off the loans at a slight discount 0:40:10.160 --> 0:40:12.920 instead of having to foreclose and end up having to 0:40:12.960 --> 0:40:15.800 sell the asset for distress values down the line. 0:40:16.120 --> 0:40:18.160 And that's what really surprised me. 0:40:18.200 --> 0:40:21.400 Shocked me actually to see a company affirm of the 0:40:21.560 --> 0:40:25.160 quality and the size of Brookfield walk away from something. 0:40:25.440 --> 0:40:27.759 I mean, I didn't even think that was even possible. 0:40:27.920 --> 0:40:29.560 I mean, you know from a like how do I 0:40:29.560 --> 0:40:32.280 walk away from JP Morgan Chase? Why I've got a 0:40:32.320 --> 0:40:34.960 good jillions of dollars where the deals I'm doing with 0:40:35.000 --> 0:40:36.040 these guys every year. 0:40:36.600 --> 0:40:37.480 But that's what happened. 0:40:38.520 --> 0:40:40.360 Yeah, I mean, it's simple economics for a lot of 0:40:40.360 --> 0:40:43.960 these bigger folks. You know, they have distressed funds. Actually 0:40:43.960 --> 0:40:48.319 they've raised distress funds to target opportunities across real estate 0:40:48.360 --> 0:40:50.799 as well for this particular cycle. And you know, for them, 0:40:50.840 --> 0:40:53.439 it's a lot of these loans are non recourse, meaning 0:40:53.440 --> 0:40:55.919 they can walk away from it and the lender can't 0:40:55.920 --> 0:40:57.960 go after their other properties. So it's easy for them 0:40:58.000 --> 0:41:00.799 to just look at the economics of the building. They 0:41:00.840 --> 0:41:02.719 think that the demand might not come back, or it 0:41:02.760 --> 0:41:05.240 might cost more than it's worth, and it's just simpler 0:41:05.239 --> 0:41:07.800 to hand the keys back and to refocus their money 0:41:08.120 --> 0:41:09.880 on something that's a bit more valuable. 0:41:10.280 --> 0:41:13.719 Can they repurpose the buildings that they've got. I mean, 0:41:13.800 --> 0:41:18.680 offices seem to be the real problem here, right, but 0:41:19.440 --> 0:41:22.120 you're not having you're not seeing nearly as much of 0:41:22.120 --> 0:41:24.920 a problem in malls. Surprisingly, We're just talking to an 0:41:24.960 --> 0:41:30.840 investor who likes Simon properties and they've done pretty well. 0:41:30.920 --> 0:41:31.120 Right. 0:41:31.239 --> 0:41:35.080 Offices are the worst performing properties right now. Malls already 0:41:35.080 --> 0:41:37.360 bottomed up out a couple of years ago, so the 0:41:37.440 --> 0:41:41.839 values have already fallen. Hotels have stayed relatively flat, and 0:41:42.200 --> 0:41:46.320 we've seen some stress happening in apartments, but that's mostly 0:41:46.400 --> 0:41:50.040 due to a function of the interest rates, not so 0:41:50.160 --> 0:41:51.560 much that there's no demand there. 0:41:51.640 --> 0:41:51.799 Right. 0:41:51.800 --> 0:41:54.040 There's a shortage of housing demand across the country. But 0:41:54.080 --> 0:41:56.480 with offices, that's really where the glood is, that's really 0:41:56.480 --> 0:41:59.600 where values have fallen twenty seven percent across the US 0:41:59.640 --> 0:42:01.920 just in the last year and set to fall more. 0:42:03.280 --> 0:42:04.719 And you know, a lot of people are looking at 0:42:04.760 --> 0:42:07.799 potential ways to convert properties. But the problem today in 0:42:07.840 --> 0:42:11.640 the US is that, you know, the regulation isn't there 0:42:11.800 --> 0:42:15.080 necessarily to allow for zoning in many cities, and it's 0:42:15.120 --> 0:42:19.719 extremely costly to repurpose a building into residential if you're 0:42:19.760 --> 0:42:23.279 able to do it, due to the structural you know, 0:42:23.600 --> 0:42:26.040 standards of the building and whether or not's even able 0:42:26.080 --> 0:42:26.640 to convert it. 0:42:26.680 --> 0:42:29.840 I mean, I'd always thought about a residential conversion as well, Natalie, 0:42:29.920 --> 0:42:32.600 especially you know, the Third Avenue corridor here in New 0:42:32.719 --> 0:42:36.360 York has a lot of office buildings that nobody wants 0:42:36.719 --> 0:42:40.040 and are impossible to convert into residential unless people all 0:42:40.040 --> 0:42:43.239 of a sudden are demanding apartments with no windows. I 0:42:43.520 --> 0:42:46.160 just I had never thought about converting the self storage. 0:42:46.200 --> 0:42:48.480 That might be a great idea for some of these buildings. Yes, 0:42:48.560 --> 0:42:51.480 and they haven't faired as poorly either, self storage spaces. 0:42:52.680 --> 0:42:55.920 Some people are exploring that, but that's definitely not happening, 0:42:57.200 --> 0:42:59.680 you know, on the masses at all, because again of 0:42:59.760 --> 0:43:02.760 zone right. New York City in particular has very specific 0:43:02.840 --> 0:43:06.360 zoning about what buildings can be designateds for certain uses. 0:43:06.600 --> 0:43:09.360 And again, self storage is the very particular type of 0:43:09.400 --> 0:43:14.400 properties that many of these midtown nineteen sixties to nineteen 0:43:14.440 --> 0:43:17.200 eighties buildings just might not work out for. 0:43:17.640 --> 0:43:19.759 Hey, the nineteen sixties to the nineteen eighties was a 0:43:19.760 --> 0:43:21.800 pretty good ear for me, So I'm just going to 0:43:21.920 --> 0:43:24.040 leave it to that. Natalie, thanks so much for joining us. 0:43:24.120 --> 0:43:27.480 Natalie Wong, real estate reporter for Bloomberg News. Yeah, that's 0:43:27.480 --> 0:43:28.839 gonna be a tough conversion there. 0:43:29.000 --> 0:43:32.080 Thanks for listening to the Bloomberg Markets podcasts. You can 0:43:32.120 --> 0:43:35.920 subscribe and listen to interviews at Apple Podcasts or whatever 0:43:36.000 --> 0:43:39.720 podcast platform you prefer. I'm Matt Miller. I'm on Twitter 0:43:39.920 --> 0:43:42.560 at Matt Miller nineteen seventy three and on. 0:43:42.640 --> 0:43:45.719 Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast. 0:43:45.760 --> 0:43:49.240 You can always catch us worldwide at Bloomberg Radio.