1 00:00:00,120 --> 00:00:04,360 Speaker 1: Bloomberg is now on your dashboard with Apple CarPlay and 2 00:00:04,360 --> 00:00:08,160 Speaker 1: Android Auto. It gives you access to every Bloomberg podcast, 3 00:00:08,280 --> 00:00:11,560 Speaker 1: live audio feeds from Bloomberg Radio, print stories from Bloomberg 4 00:00:11,640 --> 00:00:14,920 Speaker 1: News in audio form, and the latest headlines of the 5 00:00:14,920 --> 00:00:18,640 Speaker 1: click of a button with Bloomberg News. Now it's free 6 00:00:18,680 --> 00:00:21,439 Speaker 1: with the latest version of the Bloomberg Business App. That's 7 00:00:21,680 --> 00:00:24,400 Speaker 1: the Bloomberg Business App. Get it on your phone in 8 00:00:24,440 --> 00:00:27,760 Speaker 1: the Apple App Store or on Google Play. Just download 9 00:00:27,800 --> 00:00:30,560 Speaker 1: the app, connect your phone to your car and get started. 10 00:00:30,960 --> 00:00:34,400 Speaker 1: And it's all presented by our sponsor, Interactive Brokers. 11 00:00:35,400 --> 00:00:38,600 Speaker 2: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney. Alongside 12 00:00:38,640 --> 00:00:39,800 Speaker 2: my co host Matt Miller. 13 00:00:40,200 --> 00:00:44,279 Speaker 1: Every business day we bring you interviews from CEOs, market pros, 14 00:00:44,320 --> 00:00:48,160 Speaker 1: and Bloomberg experts, along with essential market moven News. 15 00:00:48,720 --> 00:00:51,839 Speaker 2: I'm the Bloomberg Markets podcast called Apple Podcasts or wherever 16 00:00:51,960 --> 00:00:54,560 Speaker 2: you listen to podcasts, and at Bloomberg dot Com Slash 17 00:00:54,600 --> 00:00:58,000 Speaker 2: podcast it is I guess kind of m and a Tuesday, 18 00:00:58,200 --> 00:01:04,400 Speaker 2: Just Choice Hotels launches a hostile bid for Windom. You 19 00:01:04,440 --> 00:01:06,480 Speaker 2: don't see this very often, so are you gonna exchange 20 00:01:06,480 --> 00:01:07,759 Speaker 2: off for Gone? I don't know what's going on. 21 00:01:07,720 --> 00:01:09,399 Speaker 3: With the Wall Street Journal putting out the story? 22 00:01:09,480 --> 00:01:12,000 Speaker 2: Yep, Jody Lourie. She joins she's a credit analyst for 23 00:01:12,000 --> 00:01:15,000 Speaker 2: Bloomberg Intelligence. Jody, can you explain what's happening here with 24 00:01:15,160 --> 00:01:18,160 Speaker 2: Choice Hotels and Windom? 25 00:01:18,200 --> 00:01:21,039 Speaker 4: Sure, Paul, So, I think the Choice situation is one 26 00:01:21,120 --> 00:01:24,880 Speaker 4: of the more interesting ones that we've been following. Just 27 00:01:24,920 --> 00:01:27,920 Speaker 4: as a quick recap, since the spring, Choice has been 28 00:01:27,920 --> 00:01:31,360 Speaker 4: trying to court Windom into merging and Wyndham has said 29 00:01:31,360 --> 00:01:34,160 Speaker 4: no multiple times. October seventeenth, they made it public and 30 00:01:34,160 --> 00:01:37,880 Speaker 4: Wyndham said absolutely not. And now they're they're doing the 31 00:01:38,040 --> 00:01:41,200 Speaker 4: nineteen eighty style hostile takeover. They're doing, you know, they're 32 00:01:41,280 --> 00:01:44,920 Speaker 4: they're asking shareholders to feel free to exchange and get 33 00:01:44,920 --> 00:01:46,920 Speaker 4: some cash or get stocked for the new company, and 34 00:01:47,160 --> 00:01:48,080 Speaker 4: we'll see what happens. 35 00:01:49,080 --> 00:01:52,840 Speaker 3: If you look at Wyndham stock ticker symbol w H here, 36 00:01:53,280 --> 00:01:56,360 Speaker 3: it's just down about five tenths of a percent, up 37 00:01:56,400 --> 00:01:59,080 Speaker 3: all about eleven percent year to deep. The walk is 38 00:01:59,120 --> 00:02:01,640 Speaker 3: through the thought prop of shareholders right now. 39 00:02:03,080 --> 00:02:05,640 Speaker 4: I mean, I think shareholders have to decide really what 40 00:02:05,840 --> 00:02:07,120 Speaker 4: at the end of the day they want to get 41 00:02:07,120 --> 00:02:08,560 Speaker 4: out of it. You know, if they think this is 42 00:02:08,600 --> 00:02:11,000 Speaker 4: a good exit point, they'll they'll do it. If they 43 00:02:11,120 --> 00:02:15,080 Speaker 4: really think that it's something that they'd rather just continue 44 00:02:15,120 --> 00:02:16,200 Speaker 4: staying with Wyndham, they will. 45 00:02:16,480 --> 00:02:19,280 Speaker 5: I mean from the bondholder's perspective, the key is. 46 00:02:19,200 --> 00:02:23,160 Speaker 4: That for Choice, it's definitely a much less savory situation 47 00:02:23,280 --> 00:02:25,959 Speaker 4: for bondholders because obviously they're going to take on debt 48 00:02:26,000 --> 00:02:27,680 Speaker 4: in order to finance this, So they don't have enough 49 00:02:27,680 --> 00:02:30,160 Speaker 4: cash on the Ballanjeet, nor do they generate enough cash 50 00:02:30,160 --> 00:02:31,600 Speaker 4: flow to be able to pay for this. I mean, 51 00:02:31,600 --> 00:02:34,880 Speaker 4: we're talking four or five could be up to seven 52 00:02:35,000 --> 00:02:37,359 Speaker 4: or eight billion dollars if you know, in theory, if 53 00:02:37,639 --> 00:02:40,200 Speaker 4: the whole entire offer gets accepted, you know, and they 54 00:02:40,200 --> 00:02:41,720 Speaker 4: need to pay it in cash. 55 00:02:41,840 --> 00:02:43,080 Speaker 5: I don't think it would get to that point. 56 00:02:43,080 --> 00:02:45,520 Speaker 4: We've been saying about four billion dollars and we're talking 57 00:02:45,560 --> 00:02:47,240 Speaker 4: about six times leverage at least. 58 00:02:47,600 --> 00:02:50,160 Speaker 2: Wow, that's higher than I'm sure you would like, and 59 00:02:50,200 --> 00:02:53,680 Speaker 2: a lot of the bondholders would like, what's this, what's 60 00:02:53,720 --> 00:02:57,280 Speaker 2: the rationale for Windom rebuffing Choice Hotels here? 61 00:02:58,840 --> 00:03:02,760 Speaker 4: So I think for it's a less slam dunk of 62 00:03:02,760 --> 00:03:05,600 Speaker 4: a situation, not that it's necessarily some dunk for Choice, 63 00:03:05,800 --> 00:03:08,480 Speaker 4: but they see themselves as having a better company to 64 00:03:08,480 --> 00:03:10,480 Speaker 4: some extent, you know, at least from a margin perspective. 65 00:03:10,520 --> 00:03:15,160 Speaker 5: From a global reach, they definitely have different brands. You know, Choice. 66 00:03:15,240 --> 00:03:17,359 Speaker 4: Choice is a little bit more concentrated in the US, 67 00:03:17,720 --> 00:03:20,080 Speaker 4: and so for Choices perspective, they're saying, Okay, how do 68 00:03:20,120 --> 00:03:23,920 Speaker 4: we grow globally? Well, Windom's a natural step for Windom, 69 00:03:23,919 --> 00:03:26,079 Speaker 4: They say, well, we don't really see that as as 70 00:03:26,160 --> 00:03:28,720 Speaker 4: much of an attractive situation for US, just to be 71 00:03:28,760 --> 00:03:30,480 Speaker 4: the biggest in the US and then also have some 72 00:03:30,560 --> 00:03:32,600 Speaker 4: international presence not really as compelling. 73 00:03:33,000 --> 00:03:36,960 Speaker 3: What could be the potential regulatory issues that would be 74 00:03:37,000 --> 00:03:39,720 Speaker 3: required for a potential combination like this? 75 00:03:41,160 --> 00:03:45,400 Speaker 4: Sure, and Brian Eger and Jenrie actually wrote something on 76 00:03:45,520 --> 00:03:49,120 Speaker 4: antitrust a few months ago, which is a fantastic piece, 77 00:03:49,160 --> 00:03:51,240 Speaker 4: basically talking about the fact that you know, the deal 78 00:03:51,320 --> 00:03:51,920 Speaker 4: might not go through. 79 00:03:52,000 --> 00:03:52,800 Speaker 5: From that standpoint. 80 00:03:53,000 --> 00:03:55,080 Speaker 4: Choice has made comments that they've been talking with the 81 00:03:55,120 --> 00:03:58,120 Speaker 4: FTC and sort of trying to put that to rest, saying, hey, listen, 82 00:03:58,200 --> 00:04:01,720 Speaker 4: this could get blessed by the trust regulator. Gods, But 83 00:04:02,320 --> 00:04:05,320 Speaker 4: I think the key concern here is when you deal 84 00:04:05,400 --> 00:04:08,840 Speaker 4: with hotels, if you have a consolidation of hotels, It 85 00:04:08,920 --> 00:04:12,800 Speaker 4: certainly could potentially affect the consumer, right, the end consumer 86 00:04:12,840 --> 00:04:14,800 Speaker 4: has less choice in the matter, no pun intended. 87 00:04:15,640 --> 00:04:19,400 Speaker 2: Right, So I mean, just give us a what would 88 00:04:19,440 --> 00:04:22,360 Speaker 2: this balance sheet look like if you were to kind 89 00:04:22,400 --> 00:04:25,800 Speaker 2: of merge these two companies, because I'm just looking at 90 00:04:25,839 --> 00:04:28,520 Speaker 2: it now, it looks like they're kind of three three 91 00:04:28,520 --> 00:04:32,359 Speaker 2: and a half times that the ebitthought today. But what 92 00:04:32,360 --> 00:04:34,520 Speaker 2: would it look like pro forman? Is that a problem? 93 00:04:35,480 --> 00:04:35,760 Speaker 5: Sure? 94 00:04:35,880 --> 00:04:38,120 Speaker 4: So, you know, we did a calculation a few weeks 95 00:04:38,120 --> 00:04:40,839 Speaker 4: ago where you were talking about choice, just the inevitable 96 00:04:40,920 --> 00:04:44,360 Speaker 4: potential that they could fall to high yield. And one 97 00:04:44,360 --> 00:04:46,520 Speaker 4: of the things we looked at is from a leverage standpoint. 98 00:04:46,560 --> 00:04:49,080 Speaker 4: If you look at Bloomberg's MDL screen, So if you 99 00:04:49,120 --> 00:04:52,200 Speaker 4: look at what consensus estimates are for twenty twenty four 100 00:04:52,240 --> 00:04:54,320 Speaker 4: to twenty five, on the high end, we have over 101 00:04:54,400 --> 00:04:57,560 Speaker 4: six times. Low end mid five times, both of which 102 00:04:57,600 --> 00:05:00,400 Speaker 4: are above what the raiders have as their you know, 103 00:05:00,480 --> 00:05:04,120 Speaker 4: their their threshold into high yield. And so that's you know, 104 00:05:04,320 --> 00:05:08,400 Speaker 4: if we assume that four times that four billion dollars 105 00:05:08,480 --> 00:05:11,480 Speaker 4: of debt that they could take on that could easily 106 00:05:11,520 --> 00:05:13,640 Speaker 4: get them there. That would take quite a few years 107 00:05:13,680 --> 00:05:16,440 Speaker 4: to repay, and I don't know if the regulators would 108 00:05:16,480 --> 00:05:20,359 Speaker 4: be as or sorry the raiders would be as accepting 109 00:05:20,560 --> 00:05:23,320 Speaker 4: of their story as they were with with Hyatt when 110 00:05:23,360 --> 00:05:25,039 Speaker 4: Hyatt did the Apple Leisure acquisition. 111 00:05:25,760 --> 00:05:30,200 Speaker 3: How would this merger better position the potentially combined company 112 00:05:30,240 --> 00:05:35,320 Speaker 3: to better compete with other larger lodging rivals, including Marriott 113 00:05:35,400 --> 00:05:36,200 Speaker 3: as well as Hilton. 114 00:05:37,680 --> 00:05:40,880 Speaker 4: That is a great question, just so I think really 115 00:05:41,000 --> 00:05:43,320 Speaker 4: at the end of the day, when you think about 116 00:05:43,680 --> 00:05:47,440 Speaker 4: what's going on in this mid tier low tier, Marriott 117 00:05:47,480 --> 00:05:51,000 Speaker 4: and Hilton are really expanding in big ways, both internationally 118 00:05:51,120 --> 00:05:54,640 Speaker 4: as well as domestically, and they have been really just 119 00:05:55,320 --> 00:05:58,640 Speaker 4: taking on three hundred four hundred new locations easily over 120 00:05:58,680 --> 00:06:01,440 Speaker 4: the next year or so, and the brand new businesses 121 00:06:01,440 --> 00:06:04,960 Speaker 4: that they have, and so they are blanketing the space 122 00:06:05,160 --> 00:06:08,880 Speaker 4: and trying to really aggressively enter it. On the flip side, 123 00:06:08,960 --> 00:06:11,240 Speaker 4: Choice has been entering the upscale, and so we have 124 00:06:11,480 --> 00:06:13,800 Speaker 4: been seeing that a little bit mid tier upscale. You know, 125 00:06:13,839 --> 00:06:16,159 Speaker 4: they bought Ratus in Americas. That was a big win 126 00:06:16,240 --> 00:06:18,200 Speaker 4: for them in terms of that. But I think the 127 00:06:18,240 --> 00:06:21,200 Speaker 4: industry as a whole is definitely getting a bit more competitive, 128 00:06:21,320 --> 00:06:23,880 Speaker 4: particularly as we get to this post COVID time and 129 00:06:24,120 --> 00:06:28,160 Speaker 4: consumers preferences has changed, Right, consumers are looking at airbnbs, 130 00:06:28,160 --> 00:06:31,200 Speaker 4: but they're looking at these ability to be able to 131 00:06:31,360 --> 00:06:34,160 Speaker 4: live in a more comfortable environment, have a kitchen if 132 00:06:34,160 --> 00:06:37,440 Speaker 4: they want to have a little bit more affordability in 133 00:06:37,520 --> 00:06:40,240 Speaker 4: terms of what they're doing. So I think we're seeing 134 00:06:40,279 --> 00:06:44,000 Speaker 4: this amalgamation of businesses across the board. No one's going 135 00:06:44,040 --> 00:06:46,600 Speaker 4: to stay in that upper tier only. They're going to 136 00:06:46,640 --> 00:06:49,279 Speaker 4: try to span the whole entire economic scale. 137 00:06:49,800 --> 00:06:53,040 Speaker 2: So stepping back, I mean I just booked a trip 138 00:06:53,120 --> 00:06:57,120 Speaker 2: for Ireland in September of next year and there's only 139 00:06:57,160 --> 00:06:59,960 Speaker 2: one slot left. I mean, it is out of control. 140 00:07:00,200 --> 00:07:03,320 Speaker 2: So what generally speaking, I'm going back to the Homeland 141 00:07:03,400 --> 00:07:07,320 Speaker 2: to see this. The peeps, yeah, they're psyched. I'm sure. 142 00:07:07,960 --> 00:07:10,240 Speaker 2: Talk to us about the hotel business in general here, 143 00:07:09,960 --> 00:07:15,200 Speaker 2: where are we now and kind of the recovery So, Paul, I. 144 00:07:15,240 --> 00:07:16,560 Speaker 5: Mean, I think for hotels. 145 00:07:16,600 --> 00:07:18,160 Speaker 4: So first of all, you bring up a good point 146 00:07:18,200 --> 00:07:21,760 Speaker 4: that people are definitely international traveling much more this year 147 00:07:22,000 --> 00:07:24,600 Speaker 4: into next year than they were last year. Right, people 148 00:07:24,640 --> 00:07:27,400 Speaker 4: feel much more comfortable getting on the road going internationally 149 00:07:27,680 --> 00:07:30,760 Speaker 4: and are doing so significantly while they can get you know, 150 00:07:31,400 --> 00:07:33,760 Speaker 4: do it while you can and while you're living and healthy. 151 00:07:34,360 --> 00:07:37,920 Speaker 4: So that said, I mean, I think for hotels, a 152 00:07:38,000 --> 00:07:41,480 Speaker 4: lot of them were affected very quickly by the pandemic, 153 00:07:41,520 --> 00:07:46,080 Speaker 4: but recovered pretty quickly by the pandemic. Case in point, Marriott, Hilton, Hyatt, 154 00:07:46,080 --> 00:07:49,120 Speaker 4: they all levered up with their revolvers and then. 155 00:07:49,280 --> 00:07:50,400 Speaker 5: Quickly paid them back. 156 00:07:50,640 --> 00:07:54,480 Speaker 4: Now, Hilton has stayed high yield rated because they haven't 157 00:07:54,520 --> 00:07:56,720 Speaker 4: really made the commitment to want to be investment. 158 00:07:56,400 --> 00:07:59,000 Speaker 5: Grade, but Hyatt and Marriott have. 159 00:07:59,080 --> 00:08:02,240 Speaker 4: Gotten multiple notches of upgrade and have been in a 160 00:08:02,320 --> 00:08:05,840 Speaker 4: much better spot. That said, there is some concern for 161 00:08:05,920 --> 00:08:09,800 Speaker 4: the overall industry, particularly in the US, about financing. So 162 00:08:10,440 --> 00:08:14,240 Speaker 4: these hotel companies are you know, they're just brands. They're 163 00:08:14,280 --> 00:08:17,880 Speaker 4: managing these businesses, right, most of them are so asset light, 164 00:08:17,960 --> 00:08:21,640 Speaker 4: I mean choices one hundred percent asset light. But Marriott 165 00:08:21,640 --> 00:08:24,000 Speaker 4: and Hilton and Hyatt have moved that way and are 166 00:08:24,000 --> 00:08:27,480 Speaker 4: about ninety or so you know in terms of assets 167 00:08:27,520 --> 00:08:31,280 Speaker 4: that they don't own but manage. That said, they are 168 00:08:31,320 --> 00:08:34,000 Speaker 4: all sort of looking at ways to sort of grow 169 00:08:34,080 --> 00:08:37,040 Speaker 4: their businesses, think about their businesses and think about their 170 00:08:37,080 --> 00:08:39,920 Speaker 4: ballon sheets at the same time, but also trying to 171 00:08:39,960 --> 00:08:46,240 Speaker 4: help out the the hotel owners, meaning those you know 172 00:08:46,360 --> 00:08:50,120 Speaker 4: a mom and popper rite who owns a hotel decides 173 00:08:50,160 --> 00:08:53,320 Speaker 4: to go with Marriott. Marriott then manages it. They have 174 00:08:53,360 --> 00:08:55,719 Speaker 4: to get financing. They do it from local banks and 175 00:08:55,800 --> 00:08:58,800 Speaker 4: credit unions, and so earlier this year we definitely saw 176 00:08:58,840 --> 00:09:01,600 Speaker 4: a little bit of a concern related to them getting financing. 177 00:09:01,880 --> 00:09:04,720 Speaker 4: That is certainly eased, but it's in the back of 178 00:09:04,720 --> 00:09:05,520 Speaker 4: people's minds. 179 00:09:05,920 --> 00:09:08,559 Speaker 3: Talk to us about how much the extended stay and 180 00:09:08,600 --> 00:09:11,160 Speaker 3: economy lodging competition has heated up. 181 00:09:12,480 --> 00:09:16,120 Speaker 4: Yeah, so extended stay and economy lodging certainly areas of 182 00:09:16,200 --> 00:09:19,760 Speaker 4: growth these days. Maybe less so as we head into 183 00:09:19,800 --> 00:09:22,160 Speaker 4: next year the following year, but there is that narrative 184 00:09:22,200 --> 00:09:25,760 Speaker 4: around the infrastructure bill and the fact that we'll have 185 00:09:25,880 --> 00:09:29,400 Speaker 4: so many people working on projects and using these extended 186 00:09:29,440 --> 00:09:30,400 Speaker 4: stays as that option. 187 00:09:30,720 --> 00:09:32,440 Speaker 5: There's different types of extended stays. 188 00:09:32,480 --> 00:09:35,160 Speaker 4: There's the one that are ten days or more, and 189 00:09:35,200 --> 00:09:38,040 Speaker 4: then there's the ones that are more shorter term extended stays. 190 00:09:38,280 --> 00:09:40,079 Speaker 4: A lot of people like to lump them in together. 191 00:09:40,400 --> 00:09:43,000 Speaker 4: Choice and Windham like to talk about how their extended 192 00:09:43,000 --> 00:09:45,640 Speaker 4: stay is different than what Marriott and helt in our building, 193 00:09:45,679 --> 00:09:47,360 Speaker 4: but I think it's a matter of time before you 194 00:09:47,440 --> 00:09:51,280 Speaker 4: have these larger companies sort of looking into those areas. 195 00:09:52,080 --> 00:09:54,200 Speaker 2: Jody, thanks so much for joining us. I always appreciate 196 00:09:54,200 --> 00:09:56,840 Speaker 2: getting your thoughts there. Jody Louri. She's a credit analyst 197 00:09:56,840 --> 00:09:59,920 Speaker 2: a Bloomberg Intelligence covering the lodging space, amongst others. 198 00:10:01,600 --> 00:10:04,960 Speaker 6: You're listening to the team Ken's are Live program Bloomberg 199 00:10:05,080 --> 00:10:08,480 Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com, 200 00:10:08,520 --> 00:10:11,679 Speaker 6: the iHeartRadio app, and the Bloomberg Business App, or listen 201 00:10:11,720 --> 00:10:14,000 Speaker 6: on demand wherever you get your podcasts. 202 00:10:15,640 --> 00:10:17,720 Speaker 2: We all learned a new term, which is supply chain, 203 00:10:17,760 --> 00:10:21,160 Speaker 2: and how fragile the global supply chain is, and we 204 00:10:21,240 --> 00:10:25,280 Speaker 2: had no idea what was going on. Thankfully, we started 205 00:10:25,280 --> 00:10:28,320 Speaker 2: talking to somebody he really does and he was very 206 00:10:28,440 --> 00:10:31,280 Speaker 2: very good to us during the whole pandemic, giving us 207 00:10:31,440 --> 00:10:33,760 Speaker 2: kind of a real explanation what's going on the global 208 00:10:33,760 --> 00:10:36,360 Speaker 2: supply chain. That person is Gene Soroka. He's the executive 209 00:10:36,360 --> 00:10:39,120 Speaker 2: director of the Port of Los Angeles. He joins us 210 00:10:39,160 --> 00:10:41,880 Speaker 2: live here in the Bloomberg Interactive Brokers studio. Port of 211 00:10:41,920 --> 00:10:46,120 Speaker 2: Los Angeles, the busiest container port in North America, so 212 00:10:46,280 --> 00:10:48,319 Speaker 2: absolutely right on the front lines. Jane, thanks so much 213 00:10:48,320 --> 00:10:51,199 Speaker 2: for joining us here. It seems like, well, let me 214 00:10:51,240 --> 00:10:53,840 Speaker 2: ask you, are we back to quote unquote normal in 215 00:10:53,920 --> 00:10:55,600 Speaker 2: terms of that global supply chain? 216 00:10:56,040 --> 00:10:58,319 Speaker 7: Yeah, Happy holidays, just and Paul. Great to be back 217 00:10:58,360 --> 00:11:02,640 Speaker 7: in New York. Generally speaking, Yes, All the vital statistics 218 00:11:02,679 --> 00:11:05,080 Speaker 7: in Los Angeles, just use that as a barometer of 219 00:11:05,120 --> 00:11:08,440 Speaker 7: the nation's supply chain look great. Cargo is flowing smoothly, 220 00:11:08,520 --> 00:11:12,080 Speaker 7: and there is capacity available as the market picks up, 221 00:11:12,120 --> 00:11:14,760 Speaker 7: which we project at will again in twenty twenty four. 222 00:11:15,320 --> 00:11:18,439 Speaker 7: Overall global trade is down about five percent. Here in 223 00:11:18,480 --> 00:11:21,520 Speaker 7: the US, imports are down about eighteen percent. So some 224 00:11:21,559 --> 00:11:25,160 Speaker 7: of the entanglements we witness during the pandemic have been 225 00:11:25,240 --> 00:11:27,280 Speaker 7: worked out. A lot of thought went into it, but 226 00:11:27,360 --> 00:11:30,760 Speaker 7: also eased by that lower volume gives us a chance 227 00:11:30,800 --> 00:11:32,520 Speaker 7: to kind of catch our breath and fix some of 228 00:11:32,520 --> 00:11:33,679 Speaker 7: the things that needed work. 229 00:11:34,040 --> 00:11:36,400 Speaker 3: What does holidays shipping look like right now? And what 230 00:11:36,400 --> 00:11:39,240 Speaker 3: does that tell us about the direction of the economy. 231 00:11:39,640 --> 00:11:43,800 Speaker 7: Yeah, compared to years pastes even in recent memory, inventory 232 00:11:43,880 --> 00:11:48,359 Speaker 7: levels across the nation look good. In store fulfillment. Fulfillment 233 00:11:48,360 --> 00:11:50,840 Speaker 7: centers themselves also look good as far as getting the 234 00:11:50,880 --> 00:11:53,440 Speaker 7: products that we want when we order them or go 235 00:11:53,520 --> 00:11:55,839 Speaker 7: to the store. At the Port of Los Angeles, we've 236 00:11:55,840 --> 00:12:00,000 Speaker 7: seen four consecutive months of year on year gains, steady 237 00:12:00,120 --> 00:12:03,400 Speaker 7: improvement trying to fuel that US economy and what we 238 00:12:03,400 --> 00:12:06,560 Speaker 7: hear from the retailers, we had a good Thanksgiving weekend 239 00:12:06,679 --> 00:12:11,040 Speaker 7: from Black Friday through Cyber Monday, about an eight percent uptick, 240 00:12:11,360 --> 00:12:13,600 Speaker 7: and those experts are calling for about a three to 241 00:12:13,720 --> 00:12:17,079 Speaker 7: four percent gain in overall holiday sales when everything is 242 00:12:17,080 --> 00:12:17,920 Speaker 7: said and done. 243 00:12:18,120 --> 00:12:20,559 Speaker 2: So we hear on Global Wall Street have been hearing 244 00:12:20,559 --> 00:12:23,640 Speaker 2: about a recession for eighteen months that hasn't really shown up. 245 00:12:23,960 --> 00:12:25,719 Speaker 2: What do you see in your data? What do your 246 00:12:25,760 --> 00:12:26,760 Speaker 2: customers tell you? 247 00:12:27,080 --> 00:12:29,600 Speaker 7: We don't And if you keep talking about it, you 248 00:12:29,720 --> 00:12:32,200 Speaker 7: probably talk yourself into it, as you both have seen 249 00:12:32,240 --> 00:12:37,360 Speaker 7: for a long time. But by technical standards and the definition, 250 00:12:37,559 --> 00:12:39,800 Speaker 7: we had a recession last year Q one and Q 251 00:12:39,920 --> 00:12:43,880 Speaker 7: two with GDP declines in that first and second quarter. 252 00:12:44,240 --> 00:12:47,040 Speaker 7: Since then, the numbers are all over the board, unlike 253 00:12:47,120 --> 00:12:50,840 Speaker 7: what we've witnessed in recent memory. But the jobs report 254 00:12:50,880 --> 00:12:55,000 Speaker 7: easing inflation. We think that interest rates have peaked now 255 00:12:55,280 --> 00:12:58,720 Speaker 7: and with eight point seven million jobs open around the country, 256 00:12:58,760 --> 00:13:01,720 Speaker 7: although off their highs, still a lot for that US 257 00:13:01,760 --> 00:13:04,520 Speaker 7: economy to fuel in servicing those of us who are 258 00:13:04,559 --> 00:13:08,360 Speaker 7: buying and going out for experiential plans with our family 259 00:13:08,440 --> 00:13:08,920 Speaker 7: and friends. 260 00:13:09,360 --> 00:13:13,400 Speaker 3: What lingering issues still haven't been resolved yet from COVID 261 00:13:13,400 --> 00:13:15,600 Speaker 3: when it does come to those supply chains. 262 00:13:15,960 --> 00:13:20,040 Speaker 7: The interconnectivity, the dependencies that we all have on each 263 00:13:20,040 --> 00:13:23,240 Speaker 7: other in our business jes, there are about twelve nodes 264 00:13:23,280 --> 00:13:25,360 Speaker 7: in the supply chain that have an impact of what 265 00:13:25,440 --> 00:13:28,200 Speaker 7: we do with the ports, yet we're so visible, So 266 00:13:28,400 --> 00:13:32,640 Speaker 7: drawing people together for better collaboration absolutely key. We cannot 267 00:13:32,640 --> 00:13:36,600 Speaker 7: work in silos. Second, this information sharing concept that we 268 00:13:36,720 --> 00:13:40,160 Speaker 7: pioneer at almost a decade ago has to become mainstream. 269 00:13:40,480 --> 00:13:42,920 Speaker 7: And if you're going to share information to make sure 270 00:13:42,920 --> 00:13:45,800 Speaker 7: that those handoffs are succinct, you've got to protect that 271 00:13:45,920 --> 00:13:48,600 Speaker 7: data through cybersecurity and resiliency. 272 00:13:48,800 --> 00:13:49,080 Speaker 3: All right. 273 00:13:49,240 --> 00:13:53,120 Speaker 2: Map go, which was just critical during the pandemic. We're 274 00:13:53,160 --> 00:13:56,120 Speaker 2: talking about the supply chain. You can filter it to 275 00:13:56,120 --> 00:13:58,319 Speaker 2: see the ships at port all around the world, including 276 00:13:58,320 --> 00:14:01,199 Speaker 2: Los Angeles and Long Beach. You guys look pretty good there. 277 00:14:01,240 --> 00:14:03,320 Speaker 2: I mean, it's a wholly different story than what it was. 278 00:14:03,800 --> 00:14:06,640 Speaker 2: You know, at the peak of the supply chain issue. 279 00:14:07,520 --> 00:14:09,160 Speaker 2: Talk to us about that. When stuff gets on the 280 00:14:09,559 --> 00:14:13,240 Speaker 2: gets into your port, I kind of forgotten you, you explained 281 00:14:13,280 --> 00:14:15,880 Speaker 2: to us before it's got to get loaded, unloaded, put 282 00:14:15,920 --> 00:14:18,640 Speaker 2: on a transport. How is that whole supply chain working, 283 00:14:18,720 --> 00:14:21,040 Speaker 2: getting stuff once it's off one of those big ships 284 00:14:21,080 --> 00:14:22,280 Speaker 2: out to America. 285 00:14:22,400 --> 00:14:24,320 Speaker 7: Yeah, better, Paul, but still a lot of work to do. 286 00:14:24,920 --> 00:14:27,920 Speaker 7: And if you've seen one port, you've seen one port. 287 00:14:28,040 --> 00:14:31,120 Speaker 7: We're a gateway. We unload that entire vessel when it 288 00:14:31,160 --> 00:14:33,440 Speaker 7: comes in, load it back up to head to Asia. 289 00:14:33,760 --> 00:14:37,920 Speaker 7: Our productivity at twelve thousand container units loaded on and 290 00:14:38,120 --> 00:14:40,480 Speaker 7: off a vessel at Los Angeles is the best in 291 00:14:40,520 --> 00:14:43,240 Speaker 7: the business today. But that cargo has to move off 292 00:14:43,240 --> 00:14:46,320 Speaker 7: that terminal tarmac, and with the benefit of history, that's 293 00:14:46,360 --> 00:14:49,280 Speaker 7: what slowed us down the most. During COVID, cargo was 294 00:14:49,320 --> 00:14:51,960 Speaker 7: sitting at the port. Some used it as a warehouse 295 00:14:52,000 --> 00:14:54,880 Speaker 7: because they were buying their goods just in case, not 296 00:14:54,960 --> 00:14:58,320 Speaker 7: necessarily just in time. But all the vitals today look great. 297 00:14:58,360 --> 00:15:00,880 Speaker 7: If we can get that cargo off the property in 298 00:15:00,960 --> 00:15:04,120 Speaker 7: two to four days by rail and truck, then you're 299 00:15:04,160 --> 00:15:07,680 Speaker 7: really starting to see the capacity gains that we all look. 300 00:15:07,560 --> 00:15:10,400 Speaker 3: For when it comes to inflation, everyone talks about obviously 301 00:15:10,440 --> 00:15:13,480 Speaker 3: goods versus services. Do you have a gauge whenever it 302 00:15:13,560 --> 00:15:16,320 Speaker 3: comes to shipping to tell us what exactly that looks 303 00:15:16,400 --> 00:15:18,360 Speaker 3: like when it comes to the difference between those two 304 00:15:18,680 --> 00:15:20,800 Speaker 3: and how that obviously impacts inflation. 305 00:15:21,240 --> 00:15:25,120 Speaker 7: Yeah, big topic today just supply versus demand to capacity. 306 00:15:25,560 --> 00:15:28,600 Speaker 7: Right now, we've got the liner shipping companies who are 307 00:15:28,640 --> 00:15:32,920 Speaker 7: based in Asia and Europe bringing in new capacity, larger ships, 308 00:15:32,960 --> 00:15:36,920 Speaker 7: more fuel efficient, more clean for the environment, and those 309 00:15:36,960 --> 00:15:39,200 Speaker 7: purchases were made with a cycle time of about three 310 00:15:39,240 --> 00:15:41,280 Speaker 7: and a half four years. We're starting to see that 311 00:15:41,320 --> 00:15:44,560 Speaker 7: tonnage come in as global trade has moderated and in 312 00:15:44,600 --> 00:15:48,520 Speaker 7: some cases declined. So you've got excess capacity, lower demand. 313 00:15:48,760 --> 00:15:51,200 Speaker 7: Prices are in the favor of the American importer and 314 00:15:51,200 --> 00:15:52,320 Speaker 7: exporter this coming year. 315 00:15:52,760 --> 00:15:55,080 Speaker 2: So, Gene, you guys at your port have a great 316 00:15:55,200 --> 00:15:57,840 Speaker 2: view on China. So much of that trade comes into 317 00:15:57,880 --> 00:16:02,520 Speaker 2: your port from China. It's route. What's your view? What 318 00:16:02,560 --> 00:16:04,280 Speaker 2: are you seeing from China in the activity coming out 319 00:16:04,320 --> 00:16:05,360 Speaker 2: of China in terms of trade. 320 00:16:05,440 --> 00:16:08,720 Speaker 7: Yeah, on the business side, many of the folks that 321 00:16:08,760 --> 00:16:11,960 Speaker 7: we deal with are talking about a China plus one strategy, 322 00:16:12,040 --> 00:16:15,680 Speaker 7: not putting all your eggs in one basket. The geopolitical 323 00:16:15,760 --> 00:16:18,400 Speaker 7: issues scare a lot of people and make them nervous, 324 00:16:18,480 --> 00:16:21,520 Speaker 7: but also just good business practice, says I got to 325 00:16:21,520 --> 00:16:23,200 Speaker 7: be able to move my sourcing out a little bit, 326 00:16:23,280 --> 00:16:26,320 Speaker 7: similar to when I lived in China during SARS twenty 327 00:16:26,400 --> 00:16:29,320 Speaker 7: years ago, a lot of the same discussion. So we 328 00:16:29,360 --> 00:16:33,040 Speaker 7: are seeing growth in Southeast and South Asia. The Port 329 00:16:33,080 --> 00:16:36,200 Speaker 7: of Los Angeles year end twenty twenty two, about fifty 330 00:16:36,280 --> 00:16:38,800 Speaker 7: seven percent of all of its cargo emanated from her 331 00:16:38,920 --> 00:16:41,320 Speaker 7: was destined to China. We'll close this year at about 332 00:16:41,360 --> 00:16:44,160 Speaker 7: fifty three percent of our business with China, so it's 333 00:16:44,160 --> 00:16:46,280 Speaker 7: moved down a little bit, but has not fallen off 334 00:16:46,320 --> 00:16:48,160 Speaker 7: a cliff like some had imagined. 335 00:16:48,280 --> 00:16:50,600 Speaker 3: What about Europe? 336 00:16:50,680 --> 00:16:55,120 Speaker 7: Europe very small percentage. Our theater is the Transpacific. Second 337 00:16:55,160 --> 00:16:58,200 Speaker 7: market is the West coast of South America. With respect 338 00:16:58,280 --> 00:17:01,440 Speaker 7: to perishable fruits and vegetables, that's really our strong point. 339 00:17:01,560 --> 00:17:03,880 Speaker 7: About three to four percent of all the products that 340 00:17:03,920 --> 00:17:06,800 Speaker 7: we move in and out emanate from Europe. More natural 341 00:17:06,800 --> 00:17:09,720 Speaker 7: trade lane is across the Atlantic to the East Coast 342 00:17:09,800 --> 00:17:11,240 Speaker 7: and Gulf Coast ports of the US. 343 00:17:11,400 --> 00:17:15,080 Speaker 2: So when the West Coast ports were having some challenges 344 00:17:15,119 --> 00:17:17,560 Speaker 2: with pro productivities. I remember you coming in here saying 345 00:17:17,880 --> 00:17:20,040 Speaker 2: some shippers were even going to take the extra costing 346 00:17:20,080 --> 00:17:22,399 Speaker 2: maybe go through the Panama Canal and go to the 347 00:17:22,400 --> 00:17:25,600 Speaker 2: eastern ports, like you know, Savannah or New York or whatever, 348 00:17:25,960 --> 00:17:29,320 Speaker 2: New Orleans A. Have you got that business back, because 349 00:17:29,560 --> 00:17:31,879 Speaker 2: we were just mentioning off air. I just saw a 350 00:17:31,920 --> 00:17:35,240 Speaker 2: photo of a gazillion ships trying to get in and 351 00:17:35,280 --> 00:17:37,800 Speaker 2: out of the Panama Canal because it's low water level. 352 00:17:37,880 --> 00:17:40,680 Speaker 2: So that's not an option anymore, is it really? 353 00:17:40,800 --> 00:17:40,919 Speaker 6: Now? 354 00:17:41,119 --> 00:17:43,360 Speaker 7: Issues are popping up left and right, and now we're 355 00:17:43,400 --> 00:17:45,000 Speaker 7: just a little more attuned to them in the supply 356 00:17:45,119 --> 00:17:48,040 Speaker 7: chain with so many eyes on the system. We completed 357 00:17:48,040 --> 00:17:51,240 Speaker 7: a thirteen month contract negotiation with our dock workers back 358 00:17:51,240 --> 00:17:54,440 Speaker 7: in the summertime. Since that contract was ratified, we've seen 359 00:17:54,480 --> 00:17:56,520 Speaker 7: about four and a half to five points of market 360 00:17:56,520 --> 00:17:58,879 Speaker 7: share come back to the West coast of the US. 361 00:17:59,280 --> 00:18:01,600 Speaker 7: There is good events from importers that they're moving a 362 00:18:01,600 --> 00:18:04,080 Speaker 7: little bit more cargo via the West Coast because the 363 00:18:04,200 --> 00:18:07,560 Speaker 7: transit uncertainty going through the canal with its low water 364 00:18:07,680 --> 00:18:09,679 Speaker 7: levels right now is a little bit too much of 365 00:18:09,680 --> 00:18:11,840 Speaker 7: a risk. Even though you can buy yourself up in 366 00:18:11,880 --> 00:18:15,040 Speaker 7: the queue A little bit. That doesn't apply to everybody 367 00:18:15,080 --> 00:18:18,400 Speaker 7: going through there, and coming up election year, a lot 368 00:18:18,440 --> 00:18:21,119 Speaker 7: of folks will be looking at that policy and perspective. 369 00:18:21,600 --> 00:18:23,480 Speaker 7: And the dock workers on the East and Gulf Coast 370 00:18:23,520 --> 00:18:26,720 Speaker 7: will be negotiating their contract coming up this summertime. So 371 00:18:26,760 --> 00:18:27,960 Speaker 7: a lot to keep in view, right. 372 00:18:27,920 --> 00:18:30,840 Speaker 3: Especially when it comes to those contract negotiations. Do you 373 00:18:30,960 --> 00:18:33,240 Speaker 3: see any sort of sticking points that could cause any 374 00:18:33,240 --> 00:18:36,919 Speaker 3: sort of concerns and potentially what that can affect when 375 00:18:36,960 --> 00:18:40,000 Speaker 3: it comes to obviously the port and what that means 376 00:18:40,040 --> 00:18:41,040 Speaker 3: for shipping. 377 00:18:40,880 --> 00:18:44,159 Speaker 7: Well across America, we saw a summer of discontent Jess, 378 00:18:44,560 --> 00:18:48,879 Speaker 7: and a lot of final negotiations and contracting in the 379 00:18:48,920 --> 00:18:52,159 Speaker 7: favor of labor and the employee. I don't see that 380 00:18:52,200 --> 00:18:54,800 Speaker 7: any different on the East Coast. It's folks that work 381 00:18:54,840 --> 00:18:58,399 Speaker 7: through the pandemic day and night, fearless of health and 382 00:18:58,480 --> 00:19:01,520 Speaker 7: safety issues, trying to keep the American economy moving, and 383 00:19:01,560 --> 00:19:02,880 Speaker 7: their payday is due. 384 00:19:03,080 --> 00:19:05,320 Speaker 2: Yep, thirty seconds. What brings you to New York Other 385 00:19:05,359 --> 00:19:06,080 Speaker 2: than New York? 386 00:19:06,200 --> 00:19:08,479 Speaker 7: A couple of industry events wanted to talk with you 387 00:19:08,560 --> 00:19:11,320 Speaker 7: all and kind of give you a layout here of 388 00:19:11,440 --> 00:19:13,040 Speaker 7: what we're looking like towards the end of the year, 389 00:19:13,119 --> 00:19:16,320 Speaker 7: the holiday season, and I'm optimistic about twenty twenty four. 390 00:19:16,440 --> 00:19:19,639 Speaker 7: We've got a relatively early lunar New Year February tenth, 391 00:19:19,800 --> 00:19:22,359 Speaker 7: and I see the calendar of supply chain falling a 392 00:19:22,359 --> 00:19:25,119 Speaker 7: little bit more normally next year with an uptick in 393 00:19:25,119 --> 00:19:26,399 Speaker 7: cargo through the port of La. 394 00:19:26,440 --> 00:19:28,199 Speaker 2: Jeane Sroka, thank you so much for joining us. We 395 00:19:28,280 --> 00:19:30,280 Speaker 2: really appreciate you coming in today and during really the 396 00:19:30,320 --> 00:19:32,439 Speaker 2: last several years when everybody was trying to get a 397 00:19:32,440 --> 00:19:34,840 Speaker 2: handle on what the supply chain issues, what the issues were, 398 00:19:35,400 --> 00:19:37,159 Speaker 2: and how they were going to play out. Jeans Chorroka, 399 00:19:37,200 --> 00:19:39,240 Speaker 2: Executive Director, Report of Los Angeles. 400 00:19:39,359 --> 00:19:42,440 Speaker 6: You're listening to the tape Kent's are Live program Bloomberg 401 00:19:42,560 --> 00:19:46,159 Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the 402 00:19:46,200 --> 00:19:49,440 Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App. 403 00:19:49,480 --> 00:19:52,280 Speaker 6: You can also listen live on Amazon Alexa from our 404 00:19:52,320 --> 00:19:56,720 Speaker 6: flagship New York station, Just say Alexa, play Bloomberg eleven thirty. 405 00:19:58,000 --> 00:20:00,600 Speaker 2: So, Jess, when I bought the Jersey Shore compound earlier 406 00:20:00,600 --> 00:20:03,320 Speaker 2: this year, I mortgage rate six percent. 407 00:20:03,400 --> 00:20:06,199 Speaker 8: I feel like a knucklehead. But now they got to 408 00:20:06,280 --> 00:20:09,159 Speaker 8: over eight pretty good. Now, yeah, I'm like, I'm a 409 00:20:09,160 --> 00:20:12,280 Speaker 8: real estate mogul. They're back down to seven point three 410 00:20:12,280 --> 00:20:15,160 Speaker 8: to two percent. That's the h the bankrate dot Com 411 00:20:15,200 --> 00:20:16,160 Speaker 8: thirty year fixed. 412 00:20:16,240 --> 00:20:18,320 Speaker 2: So turning down a little bit better about I don't 413 00:20:18,359 --> 00:20:20,600 Speaker 2: know what's happening out there, because nothing's moving out there 414 00:20:20,640 --> 00:20:23,199 Speaker 2: because nobody's gonna get out of their three percent mortgage 415 00:20:23,240 --> 00:20:25,160 Speaker 2: and go take on a seven point three percent mortgage. 416 00:20:25,200 --> 00:20:27,280 Speaker 2: Let's talk to somebody who does this stuff for a living, 417 00:20:27,280 --> 00:20:30,679 Speaker 2: a professional. Cory Sas Hour principal broker Compas joins us 418 00:20:30,680 --> 00:20:34,120 Speaker 2: here in a Bloomberg Interactive Broker studio, suspicious last name. 419 00:20:34,119 --> 00:20:36,320 Speaker 2: I'm just gonna assume there's nerve relation for the best 420 00:20:36,880 --> 00:20:38,879 Speaker 2: sold for the best that she doesn't talk, you know, 421 00:20:39,280 --> 00:20:43,080 Speaker 2: emerging markets, Corey. So there's just nobody's selling their house. 422 00:20:43,119 --> 00:20:45,359 Speaker 2: I mean, what do you say to us, somebody that 423 00:20:45,359 --> 00:20:47,679 Speaker 2: you're trying to get drum up some business here because 424 00:20:47,840 --> 00:20:49,840 Speaker 2: they're sitting on a mortgage that's three or four percent 425 00:20:49,840 --> 00:20:51,840 Speaker 2: and if they go anywhere then I have to pay 426 00:20:51,880 --> 00:20:54,120 Speaker 2: so much more. How does that? How's that market playing out? 427 00:20:54,400 --> 00:20:57,160 Speaker 9: Absolutely so, a lot of those guys are going into rentals, 428 00:20:57,200 --> 00:20:58,640 Speaker 9: and that's kind of what they're doing. There's a lot 429 00:20:58,640 --> 00:21:01,000 Speaker 9: of rentals out there. The rental price says have definitely 430 00:21:01,000 --> 00:21:04,320 Speaker 9: come down because more people are developing rentals. So what 431 00:21:04,359 --> 00:21:06,960 Speaker 9: we're doing is we're going into listing presentations and we're 432 00:21:06,960 --> 00:21:09,199 Speaker 9: talking to them and they're worried that their house is 433 00:21:09,240 --> 00:21:11,000 Speaker 9: at its height right now, that the most money they're 434 00:21:11,000 --> 00:21:11,800 Speaker 9: going to get is right now. 435 00:21:11,800 --> 00:21:13,359 Speaker 10: They're afraid that it's going to get less. 436 00:21:13,520 --> 00:21:15,560 Speaker 2: Do you think that's that's a fair way to think 437 00:21:15,560 --> 00:21:15,960 Speaker 2: about it. 438 00:21:16,000 --> 00:21:17,560 Speaker 10: I think in the next few years. 439 00:21:17,640 --> 00:21:19,960 Speaker 9: I don't think right away we are in a massive 440 00:21:20,119 --> 00:21:23,600 Speaker 9: underbuilding situation. There's not enough homes for the people that 441 00:21:23,720 --> 00:21:25,880 Speaker 9: need it. So I think it depends on your location 442 00:21:26,280 --> 00:21:28,880 Speaker 9: real estate. If I've learned anything in my many years, 443 00:21:28,920 --> 00:21:32,240 Speaker 9: and it is super hyper local, so every market is different. 444 00:21:32,280 --> 00:21:34,240 Speaker 10: You know, I'm really speaking more Tri State area. 445 00:21:34,560 --> 00:21:36,280 Speaker 9: But we say, all right, they're ready to go, they 446 00:21:36,320 --> 00:21:38,239 Speaker 9: can't do the stairs anymore, or they kind of want 447 00:21:38,280 --> 00:21:40,200 Speaker 9: to get out. They want to make their money somewhere else. 448 00:21:40,520 --> 00:21:42,640 Speaker 9: So we're putting them into rentals while they figure out 449 00:21:42,680 --> 00:21:44,600 Speaker 9: what the right lifestyle is. Are they going to write size? 450 00:21:44,640 --> 00:21:46,000 Speaker 9: Do they want a different house, they want to go 451 00:21:46,040 --> 00:21:48,720 Speaker 9: near their kids. Do they want to go somewhere warm 452 00:21:48,800 --> 00:21:50,560 Speaker 9: or do they want to go somewherehere the tax rates 453 00:21:50,560 --> 00:21:52,920 Speaker 9: are more favorable, So they need to kind of figure 454 00:21:52,920 --> 00:21:55,000 Speaker 9: out their life and a rental is the best option 455 00:21:55,119 --> 00:21:57,560 Speaker 9: for them to do that. And you know, they'll do 456 00:21:57,640 --> 00:21:59,399 Speaker 9: six month rentals, a year rental, and they have a 457 00:21:59,440 --> 00:22:01,320 Speaker 9: good idea a year where they really want to go. 458 00:22:01,640 --> 00:22:04,960 Speaker 3: Talk to us more about the low inventory that you 459 00:22:05,040 --> 00:22:07,520 Speaker 3: were alluding to you, because that was an issue well 460 00:22:07,640 --> 00:22:10,920 Speaker 3: before the pandemic coming out of the Great Financial Crisis, 461 00:22:10,960 --> 00:22:13,879 Speaker 3: but obviously was exacerbated by the pandemic. What kind of 462 00:22:13,920 --> 00:22:17,160 Speaker 3: regions have more issues when it comes to low inventory 463 00:22:17,280 --> 00:22:19,440 Speaker 3: or is it more broad based around the country where 464 00:22:19,440 --> 00:22:20,080 Speaker 3: it's a problem. 465 00:22:20,280 --> 00:22:21,840 Speaker 9: Yeah, so I don't think it's broad based. I think 466 00:22:21,840 --> 00:22:24,399 Speaker 9: there are some areas that inventory. I think in the 467 00:22:24,400 --> 00:22:28,399 Speaker 9: Tri State area, our inventory is really really tight. We 468 00:22:28,480 --> 00:22:31,280 Speaker 9: sold twenty five percent less as a county. And that's 469 00:22:31,320 --> 00:22:34,879 Speaker 9: not because the demand was lower up in Westchester. And 470 00:22:34,920 --> 00:22:37,600 Speaker 9: that's not because the demand was lower. It's really because 471 00:22:37,640 --> 00:22:41,280 Speaker 9: there wasn't enough houses to go around, so there was 472 00:22:41,320 --> 00:22:44,040 Speaker 9: bidding wars everywhere. The prices have definitely gone up, and 473 00:22:44,080 --> 00:22:47,359 Speaker 9: they've maintained that prices that are price Homes that are 474 00:22:47,359 --> 00:22:50,360 Speaker 9: priced right are going way above asking, hundreds of thousands 475 00:22:50,359 --> 00:22:53,679 Speaker 9: over asking. If they're overpriced, they're sitting people. Do not 476 00:22:53,760 --> 00:22:56,000 Speaker 9: overprice your house. Price it right, you will get a 477 00:22:56,000 --> 00:22:58,919 Speaker 9: bidding war. It happens every time. But if it's overpriced, 478 00:22:58,960 --> 00:23:01,960 Speaker 9: it sits. So it's still happening. Contingencies in our area 479 00:23:01,960 --> 00:23:04,199 Speaker 9: are still being waved. People are very used to the 480 00:23:04,240 --> 00:23:08,280 Speaker 9: no mortgage contingency anymore, and appraisal contingencies are going away 481 00:23:08,280 --> 00:23:10,280 Speaker 9: because now we have two years of strong data of 482 00:23:10,280 --> 00:23:11,800 Speaker 9: home sales that are higher priced. 483 00:23:12,080 --> 00:23:13,800 Speaker 10: In the beginning of the pandemic, it was harder. 484 00:23:13,840 --> 00:23:17,680 Speaker 9: Homes weren't appraisings because yeah, because you know, we didn't 485 00:23:17,680 --> 00:23:19,280 Speaker 9: have any data. It was so much lower than it 486 00:23:19,320 --> 00:23:22,639 Speaker 9: was six months ago. Now houses are really appraising, so 487 00:23:22,680 --> 00:23:25,399 Speaker 9: people are willing to wave those contingencies, telling my guys 488 00:23:25,440 --> 00:23:27,680 Speaker 9: get in now. When the rates start going down, there's 489 00:23:27,680 --> 00:23:29,920 Speaker 9: going to be even more demand and you can refinance 490 00:23:30,320 --> 00:23:32,479 Speaker 9: as time goes on, a lot of the lenders are 491 00:23:32,520 --> 00:23:35,840 Speaker 9: now offering one free refinance within the year that you 492 00:23:36,240 --> 00:23:38,320 Speaker 9: lock into a rate. So if rates do go down 493 00:23:38,320 --> 00:23:40,359 Speaker 9: a half a point, you can refinance without all the 494 00:23:40,400 --> 00:23:41,080 Speaker 9: extra costs. 495 00:23:41,119 --> 00:23:42,920 Speaker 2: So is there a rate I mean, when you sit 496 00:23:42,960 --> 00:23:45,959 Speaker 2: around with your real estate buddies talking about the biz, 497 00:23:46,119 --> 00:23:48,280 Speaker 2: is there a rate on the mortgage that you think 498 00:23:48,320 --> 00:23:52,440 Speaker 2: will magically cause sellers to say, okay, now I'll put 499 00:23:52,480 --> 00:23:54,480 Speaker 2: my house on the market if it's I don't know 500 00:23:54,480 --> 00:23:56,879 Speaker 2: if that rate. Again, we're still north of seven percent 501 00:23:56,920 --> 00:23:58,760 Speaker 2: on the thirty year fixes that six percent? Is that 502 00:23:58,800 --> 00:24:00,879 Speaker 2: five percent right the catalyst rate? 503 00:24:01,040 --> 00:24:01,200 Speaker 6: Yes? 504 00:24:01,320 --> 00:24:04,679 Speaker 9: Right, absolutely, yeah, I think it's like five and a half. Okay, 505 00:24:04,720 --> 00:24:06,760 Speaker 9: I think that's kind of the magic number. The seven 506 00:24:06,840 --> 00:24:09,359 Speaker 9: year arms are at six percent now or even a 507 00:24:09,400 --> 00:24:11,119 Speaker 9: little bit lower. You can get it if you can 508 00:24:11,160 --> 00:24:13,080 Speaker 9: put money into a bank. You know, they give you 509 00:24:13,119 --> 00:24:16,840 Speaker 9: like a favorable discount. So there's a lot of lenders 510 00:24:16,840 --> 00:24:18,840 Speaker 9: out there, there's a lot of people. It's a very 511 00:24:18,880 --> 00:24:22,040 Speaker 9: competitive marketplace right now. You can definitely get a better 512 00:24:22,160 --> 00:24:24,280 Speaker 9: rate than what you're hearing on like the national average. 513 00:24:24,280 --> 00:24:26,680 Speaker 9: And it's very county based, so some counties have lower 514 00:24:26,760 --> 00:24:29,760 Speaker 9: rates than others. But I think five and a half 515 00:24:29,840 --> 00:24:31,520 Speaker 9: is like the right number where you're going to see 516 00:24:31,560 --> 00:24:33,000 Speaker 9: kind of the floodgates open up. 517 00:24:33,200 --> 00:24:34,480 Speaker 10: But people still have to move. 518 00:24:34,520 --> 00:24:37,000 Speaker 9: People are getting married, people's homes are you know, families 519 00:24:37,000 --> 00:24:40,639 Speaker 9: are expanding, people have job changes, so there is still 520 00:24:40,840 --> 00:24:42,440 Speaker 9: always going to be an influx and flow. 521 00:24:42,520 --> 00:24:45,600 Speaker 10: But my advice would always be to geta county. 522 00:24:45,640 --> 00:24:48,560 Speaker 2: It's such a great place to live. It always has 523 00:24:48,600 --> 00:24:51,159 Speaker 2: been a great place to live in a metro New 524 00:24:51,240 --> 00:24:54,919 Speaker 2: York area. Did you see a meaningful during a pandemic. 525 00:24:54,960 --> 00:24:56,800 Speaker 2: I'm just going down to Florida. I'm done, I'm done 526 00:24:56,800 --> 00:24:58,240 Speaker 2: with west Chester, I'm done with Connecticut. 527 00:24:58,400 --> 00:24:58,640 Speaker 11: Yeah. 528 00:24:58,680 --> 00:25:01,399 Speaker 9: Absolutely, anybody's who jobs who can take them where they 529 00:25:01,400 --> 00:25:03,119 Speaker 9: didn't have to be in the office, or they had 530 00:25:03,119 --> 00:25:05,920 Speaker 9: more flexibility. People were going for a better quality of life, 531 00:25:05,960 --> 00:25:09,720 Speaker 9: warmer weather, lower you know, taxes. Yeah, a lot of people, 532 00:25:09,800 --> 00:25:11,560 Speaker 9: everybody was going down to Florida. We've had a ton 533 00:25:11,600 --> 00:25:14,040 Speaker 9: of people come back though the real world to set 534 00:25:14,080 --> 00:25:16,040 Speaker 9: in you know, New York is where it's at. 535 00:25:16,160 --> 00:25:19,880 Speaker 3: Sorry, I was curious about how have they shifted then, 536 00:25:19,960 --> 00:25:22,080 Speaker 3: from a lot of people and a lot of peak 537 00:25:22,119 --> 00:25:23,440 Speaker 3: of COVID to now. 538 00:25:23,600 --> 00:25:25,480 Speaker 9: Yeah, a lot of people have come back in our area, 539 00:25:25,480 --> 00:25:27,640 Speaker 9: and a lot of people kind of made poor pandemic 540 00:25:27,800 --> 00:25:30,919 Speaker 9: choices and now they're kind of fixing that. So they're changing, 541 00:25:30,920 --> 00:25:33,080 Speaker 9: They're not necessarily happy. They were going wherever they could 542 00:25:33,119 --> 00:25:33,639 Speaker 9: get a house. 543 00:25:33,880 --> 00:25:36,040 Speaker 3: One thing I'm curious about, because Paul brings us up 544 00:25:36,080 --> 00:25:39,160 Speaker 3: about in office, how much has that changed when people 545 00:25:39,240 --> 00:25:41,639 Speaker 3: are coming back who may have left, who were called 546 00:25:41,680 --> 00:25:42,600 Speaker 3: back to come in. 547 00:25:43,040 --> 00:25:45,399 Speaker 9: Yes, it definitely changes a lot, and it changes how 548 00:25:45,440 --> 00:25:47,560 Speaker 9: north people are willing to go. So you know, we 549 00:25:47,600 --> 00:25:49,280 Speaker 9: had people that'd be willing to commute an hour, an 550 00:25:49,280 --> 00:25:51,520 Speaker 9: hour and forty five minutes. Now they want to go 551 00:25:51,560 --> 00:25:53,320 Speaker 9: back to the towns that are maybe thirty minutes on 552 00:25:53,359 --> 00:25:55,959 Speaker 9: the train. So those I think there's actually, if I 553 00:25:56,040 --> 00:25:59,240 Speaker 9: had a higher priced home in the more northern towns, 554 00:25:59,440 --> 00:26:01,560 Speaker 9: I would be more concerned about my value than I 555 00:26:01,560 --> 00:26:03,320 Speaker 9: would if I was in a more southern town. Given 556 00:26:03,520 --> 00:26:06,120 Speaker 9: the fact that most companies are making people come in forties. 557 00:26:05,960 --> 00:26:09,320 Speaker 2: That sounds like a more normalized metro New York kind 558 00:26:09,320 --> 00:26:09,959 Speaker 2: of market. 559 00:26:10,280 --> 00:26:10,760 Speaker 10: Exactly. 560 00:26:11,080 --> 00:26:14,040 Speaker 2: All right. So but again you're up there in Westchester, 561 00:26:14,240 --> 00:26:16,600 Speaker 2: one of the it's always been in great demand here. 562 00:26:18,600 --> 00:26:20,000 Speaker 2: You know, if I put a house on the market, 563 00:26:20,040 --> 00:26:22,600 Speaker 2: reasonably priced, how fast will it solve? 564 00:26:22,640 --> 00:26:23,720 Speaker 10: Do you think within a week? 565 00:26:23,880 --> 00:26:24,200 Speaker 11: Really? 566 00:26:24,320 --> 00:26:26,119 Speaker 9: Yeah, Wow, we'll put it on the market. You know, 567 00:26:26,160 --> 00:26:28,359 Speaker 9: we'll do a coming soon on a Monday. We'll make 568 00:26:28,400 --> 00:26:31,240 Speaker 9: it live on Thursday. We just did this last week. 569 00:26:31,280 --> 00:26:33,800 Speaker 9: We had thirty offers and when two hundred and fifty 570 00:26:33,840 --> 00:26:37,120 Speaker 9: over ask no contingencies and it went to contract within 571 00:26:37,160 --> 00:26:38,400 Speaker 9: twenty four hours. 572 00:26:38,359 --> 00:26:39,240 Speaker 10: Accepted offer. 573 00:26:39,720 --> 00:26:42,280 Speaker 9: All it depends on the price plank, right, So I 574 00:26:42,320 --> 00:26:44,960 Speaker 9: think it's first time home buyers. It's people trying to 575 00:26:45,000 --> 00:26:46,520 Speaker 9: look to move up because they kind of grew out 576 00:26:46,520 --> 00:26:48,240 Speaker 9: of their house or there maybe in an area that they, 577 00:26:48,560 --> 00:26:50,200 Speaker 9: you know, want to be in a different area, better 578 00:26:50,240 --> 00:26:51,159 Speaker 9: commutable area. 579 00:26:52,080 --> 00:26:52,840 Speaker 10: I think the drive the. 580 00:26:52,840 --> 00:26:55,600 Speaker 9: First time home buyers are the drivers of the buying market. 581 00:26:55,960 --> 00:26:58,000 Speaker 9: And then the sellers are the downsizers or we call 582 00:26:58,040 --> 00:27:00,440 Speaker 9: them right sizers. You know, they're not necessarily down sizing 583 00:27:00,440 --> 00:27:02,720 Speaker 9: their house. They're just going to a house that makes 584 00:27:02,760 --> 00:27:04,400 Speaker 9: more sense for their current lifestyle. 585 00:27:04,880 --> 00:27:06,520 Speaker 3: So, if you're a potential buyer and we only have 586 00:27:06,560 --> 00:27:08,399 Speaker 3: about thirty seconds left, what do you think are the 587 00:27:08,400 --> 00:27:10,840 Speaker 3: top things they really need to be aware of right now? 588 00:27:11,000 --> 00:27:12,320 Speaker 10: They need to get a pre approval. 589 00:27:12,359 --> 00:27:13,680 Speaker 9: If they can get it under it in I think 590 00:27:13,680 --> 00:27:15,640 Speaker 9: that would be amazing, so they know exactly how much 591 00:27:15,640 --> 00:27:17,800 Speaker 9: they can spend, and they should go see every house 592 00:27:17,840 --> 00:27:19,520 Speaker 9: that's out there, because they may not know what they 593 00:27:19,600 --> 00:27:20,760 Speaker 9: like until they see enough things. 594 00:27:20,760 --> 00:27:22,560 Speaker 10: They need to be ready to rock when it's time. 595 00:27:22,880 --> 00:27:25,480 Speaker 2: That sounds like a season real estate right ready to go? 596 00:27:25,600 --> 00:27:29,720 Speaker 2: Think So, Yeah, I sold my the Summit place right 597 00:27:29,760 --> 00:27:31,840 Speaker 2: at the beginning of a pandemic, and the salesperson the 598 00:27:31,880 --> 00:27:35,520 Speaker 2: industry didn't really have a firm grip on where the 599 00:27:35,520 --> 00:27:37,680 Speaker 2: market was. Yeah, so I took their number, I put 600 00:27:37,680 --> 00:27:39,760 Speaker 2: twenty percent on top of it, and I still got out, 601 00:27:40,640 --> 00:27:43,000 Speaker 2: still really came in over the top of that. It 602 00:27:43,080 --> 00:27:45,160 Speaker 2: was crazy. Now I think there's a lot of comps 603 00:27:45,200 --> 00:27:46,520 Speaker 2: and people have a better sense of what's going on. 604 00:27:46,560 --> 00:27:50,800 Speaker 2: Cory Sasaur, principal broker Compass up there in West Cheshire, 605 00:27:50,840 --> 00:27:54,480 Speaker 2: talking about a market. It's still very robust out there, 606 00:27:54,520 --> 00:27:56,640 Speaker 2: and I can tell you the same thing in Jersey. 607 00:27:57,200 --> 00:27:58,600 Speaker 2: So again, good time to sell. 608 00:27:59,200 --> 00:28:02,840 Speaker 6: You're listening to Take Cats are live program Bloomberg Markets 609 00:28:02,880 --> 00:28:06,280 Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune 610 00:28:06,320 --> 00:28:09,280 Speaker 6: in app, Bloomberg dot Com, and the Bloomberg Business App. 611 00:28:09,320 --> 00:28:12,119 Speaker 6: You can also listen live on Amazon Alexa from our 612 00:28:12,160 --> 00:28:16,560 Speaker 6: flagship New York station, Just Say Alexa play Bloomberg eleven thirty. 613 00:28:18,520 --> 00:28:21,200 Speaker 2: Brad Case joins us. Chief economists and director of Research 614 00:28:21,240 --> 00:28:24,720 Speaker 2: at Middleburg Communities joins us here in our Bloomberg Interactive 615 00:28:24,720 --> 00:28:28,000 Speaker 2: Brokers studio. Brad, you were just saying off Era that 616 00:28:28,480 --> 00:28:32,920 Speaker 2: you guys at Middleburg Communities have sold most of your communities, 617 00:28:32,920 --> 00:28:36,720 Speaker 2: most of your assets, most of your inventory. To tell 618 00:28:36,760 --> 00:28:37,680 Speaker 2: us about that decision. 619 00:28:37,760 --> 00:28:40,960 Speaker 12: Yeah, we're very active developers of rental housing communities. We've 620 00:28:41,120 --> 00:28:43,719 Speaker 12: and we've been in that situation, you know, we've been 621 00:28:43,720 --> 00:28:46,640 Speaker 12: around doing that for seventeen years something like that. But 622 00:28:47,080 --> 00:28:49,560 Speaker 12: twenty twenty one and early twenty twenty two was kind 623 00:28:49,560 --> 00:28:52,360 Speaker 12: of a golden moment to be selling assets. So we 624 00:28:52,400 --> 00:28:56,520 Speaker 12: sold literally everything we owned, and we are still actively developing. 625 00:28:57,160 --> 00:28:59,520 Speaker 12: We've got about a dozen under construction of the moment, 626 00:29:00,520 --> 00:29:03,840 Speaker 12: or at least I think under construction. But yeah, we 627 00:29:04,200 --> 00:29:05,240 Speaker 12: sold at the top of the market. 628 00:29:05,240 --> 00:29:05,720 Speaker 11: That was nice. 629 00:29:05,800 --> 00:29:08,440 Speaker 2: That was I mean, I thought I sold at the 630 00:29:08,440 --> 00:29:11,400 Speaker 2: top of hey, But that is I mean, that's unusual, 631 00:29:11,480 --> 00:29:11,760 Speaker 2: isn't No. 632 00:29:12,000 --> 00:29:15,320 Speaker 12: And honestly, it is a little bit unusual because developers 633 00:29:15,560 --> 00:29:17,480 Speaker 12: love their buildings and a lot of them just don't 634 00:29:17,520 --> 00:29:19,760 Speaker 12: want to sell even if the prices are great. So 635 00:29:19,840 --> 00:29:21,320 Speaker 12: one of the things that I really like about this 636 00:29:21,320 --> 00:29:23,640 Speaker 12: company is that they're in it to make money. 637 00:29:24,000 --> 00:29:26,440 Speaker 11: They're not in it to show off their trophies. 638 00:29:26,720 --> 00:29:30,560 Speaker 2: So what's the typical community for middle bird communities? What's 639 00:29:30,600 --> 00:29:31,800 Speaker 2: the typical type of development? 640 00:29:31,800 --> 00:29:34,040 Speaker 12: So we call the middle market class A. They're not luxury, 641 00:29:34,040 --> 00:29:36,560 Speaker 12: they're not high rise, they're not like located on the beach. 642 00:29:37,520 --> 00:29:40,480 Speaker 12: They are in sort of suburban areas of major cities 643 00:29:40,480 --> 00:29:42,880 Speaker 12: in the southeastern part of the country. It'll be like 644 00:29:43,720 --> 00:29:48,320 Speaker 12: eight buildings with two hundred and fifty rental housing units, 645 00:29:48,360 --> 00:29:50,160 Speaker 12: and some of them are multi families, some of them 646 00:29:50,160 --> 00:29:53,200 Speaker 12: are single family. You know, build to rent where it's 647 00:29:53,240 --> 00:29:56,200 Speaker 12: not scattered site. You're not owning a house, you're you 648 00:29:56,720 --> 00:29:59,960 Speaker 12: were renting a house within a community with the same sorts. 649 00:29:59,720 --> 00:30:02,880 Speaker 3: Of You had a piece that you sent to us 650 00:30:02,960 --> 00:30:05,360 Speaker 3: talking about how if you look back over the past 651 00:30:05,400 --> 00:30:07,720 Speaker 3: fifty years of data that you were crunching, renting is 652 00:30:07,800 --> 00:30:10,840 Speaker 3: usually better investment than when it comes to buying. But 653 00:30:10,880 --> 00:30:13,400 Speaker 3: isn't there an investment case when it comes to buying. 654 00:30:13,800 --> 00:30:17,600 Speaker 12: Oh, absolutely there is, But people tend to forget that 655 00:30:17,720 --> 00:30:21,040 Speaker 12: if you buy, you are taking a big chunk of 656 00:30:21,080 --> 00:30:23,640 Speaker 12: money and paying it to some money for a down payment, 657 00:30:23,960 --> 00:30:26,240 Speaker 12: and that's money that you could otherwise be investing in 658 00:30:27,120 --> 00:30:29,800 Speaker 12: the stock market. And so when you rent, you don't 659 00:30:29,800 --> 00:30:31,400 Speaker 12: have to give up that big pile of money in 660 00:30:31,440 --> 00:30:33,960 Speaker 12: the market in the beginning. So you can rent a 661 00:30:34,000 --> 00:30:37,040 Speaker 12: place and take that big down payment and instead put 662 00:30:37,040 --> 00:30:39,840 Speaker 12: it in the stock market, and typically you've been better 663 00:30:39,920 --> 00:30:43,400 Speaker 12: off historically speaking. And so people have to understand that 664 00:30:43,480 --> 00:30:45,800 Speaker 12: when they are making a decision to buy or to rent, 665 00:30:45,840 --> 00:30:49,000 Speaker 12: it's not just that, it's is there another good use 666 00:30:49,040 --> 00:30:49,720 Speaker 12: for this money? 667 00:30:50,120 --> 00:30:53,280 Speaker 11: You know? Right now, for example, the only. 668 00:30:53,040 --> 00:30:55,960 Speaker 12: Thing that makes buying look good is that the stock 669 00:30:56,000 --> 00:30:57,240 Speaker 12: market is so overvalued. 670 00:30:58,200 --> 00:30:59,720 Speaker 11: If the stock market. 671 00:31:00,160 --> 00:31:04,040 Speaker 12: We're more fairly valued, then you'd really want to rent, 672 00:31:04,120 --> 00:31:06,280 Speaker 12: because you wouldn't want to be giving up that money 673 00:31:06,280 --> 00:31:07,800 Speaker 12: that you could be putting into stocks. 674 00:31:08,040 --> 00:31:11,240 Speaker 2: All right, So let's talk about your call in the economy. 675 00:31:11,280 --> 00:31:16,560 Speaker 2: Here we're going to hear from the Fed tomorrow. Inflation 676 00:31:16,680 --> 00:31:20,960 Speaker 2: is trending down. I don't see in a recession. What 677 00:31:21,040 --> 00:31:21,680 Speaker 2: am I missing? 678 00:31:22,120 --> 00:31:24,960 Speaker 12: So I think there's a there's not a very strong 679 00:31:25,000 --> 00:31:27,280 Speaker 12: probability of a recession. And this is something I've been saying 680 00:31:27,280 --> 00:31:29,239 Speaker 12: for two years and a lot of people have been 681 00:31:29,280 --> 00:31:32,920 Speaker 12: calling recession and there just simply hasn't been data suggesting 682 00:31:32,960 --> 00:31:36,680 Speaker 12: a recession. What we had last month, though, is one 683 00:31:36,720 --> 00:31:41,280 Speaker 12: of the most important variables, which is housing construction has 684 00:31:41,360 --> 00:31:44,560 Speaker 12: really been on a downward trend, and historically speaking, that's 685 00:31:44,640 --> 00:31:47,360 Speaker 12: one of the things that does tend to predict a recession. 686 00:31:47,440 --> 00:31:50,960 Speaker 12: So just over the last few days, I've updated my 687 00:31:51,080 --> 00:31:54,680 Speaker 12: recession forecasting model, and the probability that a recession will 688 00:31:54,680 --> 00:31:57,760 Speaker 12: start in the next year went up from about thirty 689 00:31:58,040 --> 00:31:59,920 Speaker 12: three percent to forty seven percent. 690 00:32:00,240 --> 00:32:03,720 Speaker 3: Okay, looking at your bio, you used to be working 691 00:32:03,760 --> 00:32:06,720 Speaker 3: on the Federal Reserve Board as an economist. Can you 692 00:32:06,760 --> 00:32:09,480 Speaker 3: walk us through typically when there's a two day meeting 693 00:32:09,560 --> 00:32:12,760 Speaker 3: at the Federal Reserve, how that process goes on in 694 00:32:12,800 --> 00:32:15,160 Speaker 3: the presentations that go forward as far as trying to 695 00:32:15,240 --> 00:32:17,160 Speaker 3: gauge the economy. Since this is the meeting, we'll get 696 00:32:17,160 --> 00:32:19,600 Speaker 3: the quarterly updates for the economy as well as the 697 00:32:19,640 --> 00:32:20,200 Speaker 3: dot plots. 698 00:32:20,280 --> 00:32:23,080 Speaker 12: Yeah, you have to know that that at the FED 699 00:32:23,120 --> 00:32:26,280 Speaker 12: there is something like two hundred and fifty PhD economists, 700 00:32:27,120 --> 00:32:29,760 Speaker 12: and at the various other Federal Reserve banks around the 701 00:32:29,800 --> 00:32:32,920 Speaker 12: country they also have economists on staff. And they're trying 702 00:32:32,920 --> 00:32:35,120 Speaker 12: to look at all parts of the economy. I remember 703 00:32:35,200 --> 00:32:38,200 Speaker 12: once when I was in a meeting and Alan Greenspan 704 00:32:38,360 --> 00:32:39,959 Speaker 12: was the chair of the FED at that time, and 705 00:32:40,000 --> 00:32:40,680 Speaker 12: he and there was. 706 00:32:40,760 --> 00:32:43,480 Speaker 3: Something indicator, Yeah, exactly. 707 00:32:43,800 --> 00:32:46,959 Speaker 12: There was something that had happened with beef prices. And 708 00:32:47,000 --> 00:32:50,680 Speaker 12: he said, you know, who can tell me why beef prices. 709 00:32:50,280 --> 00:32:51,440 Speaker 11: Have been doing this? 710 00:32:51,640 --> 00:32:54,360 Speaker 12: And an economy a PhD economist stood up and said, 711 00:32:54,680 --> 00:32:57,560 Speaker 12: I am the specialist on beef herds. It's just it 712 00:32:57,680 --> 00:33:01,160 Speaker 12: just blows your mind to understand. It's like two hundred 713 00:33:01,160 --> 00:33:04,080 Speaker 12: and fifty people are forming their opinion about the overall economy. 714 00:33:04,560 --> 00:33:07,080 Speaker 12: They're forming their opinion about one tiny piece of it 715 00:33:07,160 --> 00:33:08,840 Speaker 12: and feeding it to the decision makers. 716 00:33:09,120 --> 00:33:10,040 Speaker 11: So it really is. 717 00:33:09,960 --> 00:33:15,600 Speaker 12: An extraordinarily extraordinary amount of data and expertise sort of 718 00:33:15,640 --> 00:33:19,040 Speaker 12: helping them understand what are the stakes in the decisions 719 00:33:19,080 --> 00:33:19,560 Speaker 12: they're making. 720 00:33:20,040 --> 00:33:23,280 Speaker 2: So what do you think the economists are telling Fitscherman 721 00:33:23,320 --> 00:33:25,480 Speaker 2: Palazy gets ready for his meeting. 722 00:33:25,600 --> 00:33:29,200 Speaker 12: Well, there are real risks in the economy. One of 723 00:33:29,240 --> 00:33:31,000 Speaker 12: the most important is the housing market. 724 00:33:31,240 --> 00:33:31,360 Speaker 3: You know. 725 00:33:31,480 --> 00:33:34,120 Speaker 12: The Dallas Fed, for example, produces what they call an 726 00:33:34,120 --> 00:33:38,280 Speaker 12: exuberance indicator, and that shows whether the housing market seems 727 00:33:38,280 --> 00:33:40,520 Speaker 12: to be in a bubble, and yeah, it's flashing red 728 00:33:40,640 --> 00:33:42,760 Speaker 12: or the last few months, it's been flashing the last 729 00:33:42,800 --> 00:33:45,320 Speaker 12: few quarters. It's been flashing red or yellow every quarter. 730 00:33:46,240 --> 00:33:48,400 Speaker 12: So that is a risk that they look at. 731 00:33:49,120 --> 00:33:51,800 Speaker 2: Because we just had a real estate agent here and 732 00:33:51,840 --> 00:33:55,440 Speaker 2: she covers Westchester County Scars Elves from very very good areas, 733 00:33:55,480 --> 00:33:58,200 Speaker 2: and she said, it is still crazy bidding wars. 734 00:33:58,280 --> 00:34:01,560 Speaker 12: Absolutely, and that's that's what was happening back in two 735 00:34:01,560 --> 00:34:03,920 Speaker 12: thousand and five, two thousand and six before the big 736 00:34:04,240 --> 00:34:07,640 Speaker 12: mortgage market meltdown. So one of the real risks is 737 00:34:07,640 --> 00:34:10,160 Speaker 12: that house prices start going down again. I don't think 738 00:34:10,200 --> 00:34:11,920 Speaker 12: it would be anything like what we saw in two 739 00:34:11,920 --> 00:34:15,000 Speaker 12: thousand and seven to two thousand and nine because we 740 00:34:15,120 --> 00:34:18,480 Speaker 12: haven't had the kind of the kind of idiocy that 741 00:34:18,560 --> 00:34:21,440 Speaker 12: we had back then. But that is one of the 742 00:34:21,520 --> 00:34:22,680 Speaker 12: risks to the economy. 743 00:34:23,080 --> 00:34:26,479 Speaker 3: How challenging is it coming out of the pandemic when 744 00:34:26,520 --> 00:34:29,359 Speaker 3: there's really not a lot of historical precedence to give 745 00:34:29,400 --> 00:34:32,040 Speaker 3: this because it seems like everybody's gotten it wrong as 746 00:34:32,480 --> 00:34:34,880 Speaker 3: as far as their calls to be in a recession. 747 00:34:34,920 --> 00:34:36,560 Speaker 3: Over the past eighteen months, Paul and I have talked 748 00:34:36,600 --> 00:34:38,560 Speaker 3: so much about and people have been so wrong about it. 749 00:34:38,719 --> 00:34:40,920 Speaker 12: Yeah, you know, it's one of the things that you 750 00:34:40,960 --> 00:34:44,120 Speaker 12: have to keep in mind when things are disrupted is 751 00:34:44,160 --> 00:34:47,600 Speaker 12: that the data that the FED members are using to 752 00:34:47,760 --> 00:34:50,960 Speaker 12: keep track of the economy that gets disrupted too. That's 753 00:34:51,000 --> 00:34:52,799 Speaker 12: in fact, one of the things that you know, if 754 00:34:53,160 --> 00:34:56,399 Speaker 12: the federal government goes into a shutdown like like there 755 00:34:56,440 --> 00:34:59,040 Speaker 12: is some concern that they may do early next year, 756 00:34:59,440 --> 00:35:01,680 Speaker 12: that's one of the set gets affected by a shutdown. 757 00:35:02,000 --> 00:35:05,399 Speaker 12: So the pandemic really disrupted the flow of data that 758 00:35:05,480 --> 00:35:08,720 Speaker 12: the FED uses to make decisions, but also that people 759 00:35:08,760 --> 00:35:10,960 Speaker 12: like my company use to make that kind of decision too. 760 00:35:11,440 --> 00:35:14,640 Speaker 3: So there's an ECFC function in the terminal that is 761 00:35:14,680 --> 00:35:17,319 Speaker 3: the consensus for economists that are pulled by Bloomberg. There's 762 00:35:17,320 --> 00:35:19,600 Speaker 3: still a fifty percent chance when you're looking at this 763 00:35:19,680 --> 00:35:22,839 Speaker 3: of a probability of a recession, which seems relatively high 764 00:35:22,840 --> 00:35:25,680 Speaker 3: compared to estimates, say Ah Goldman Sachs economists and some 765 00:35:25,719 --> 00:35:28,400 Speaker 3: other firms on Wall Street. What is the catalyst that 766 00:35:28,480 --> 00:35:31,080 Speaker 3: is making people so pessimistic Because when you're looking at 767 00:35:31,200 --> 00:35:33,680 Speaker 3: consumer spinning numbers, it's obviously more than two thirds of 768 00:35:33,719 --> 00:35:36,840 Speaker 3: what's powering. The economy still very strong and resilient. 769 00:35:37,320 --> 00:35:40,000 Speaker 12: Look, the most important piece of the economy is the 770 00:35:40,080 --> 00:35:43,040 Speaker 12: labor markets, and they have continued to be strong and resilient, 771 00:35:43,520 --> 00:35:47,520 Speaker 12: and that drives income growth, that drives consumption growth. So 772 00:35:47,880 --> 00:35:50,080 Speaker 12: you're right, those are the most important things, and they're 773 00:35:50,200 --> 00:35:52,520 Speaker 12: very healthy. As I said that, sort of the weakest 774 00:35:52,520 --> 00:35:55,960 Speaker 12: thing that I'm seeing right now is the construction numbers, 775 00:35:55,960 --> 00:35:59,239 Speaker 12: the housing construction numbers, both single family, but especially over 776 00:35:59,280 --> 00:36:02,600 Speaker 12: the last few months, multifamily, and that's nationwide, and that's 777 00:36:02,719 --> 00:36:06,319 Speaker 12: and part of that is because interest rates have gone up. 778 00:36:06,320 --> 00:36:10,000 Speaker 12: But honestly, the bigger problem is that for years, interest 779 00:36:10,080 --> 00:36:12,879 Speaker 12: rates were so low that any idiot could get into 780 00:36:12,960 --> 00:36:16,320 Speaker 12: the housing construction business, and plenty of them did, and 781 00:36:16,560 --> 00:36:20,080 Speaker 12: so and so if we go into recession over the 782 00:36:20,160 --> 00:36:22,760 Speaker 12: next year, it seems to me the most likely reason 783 00:36:22,960 --> 00:36:25,200 Speaker 12: is that there were too many things, too many houses 784 00:36:25,239 --> 00:36:29,680 Speaker 12: built by those idiots back in those days, and that 785 00:36:29,760 --> 00:36:32,960 Speaker 12: weakens the entire economy. So actually, you don't want to 786 00:36:32,960 --> 00:36:36,000 Speaker 12: be in a situation where where interest rates are especially low. 787 00:36:36,080 --> 00:36:38,239 Speaker 12: You want to be in a situation where it's hard 788 00:36:38,239 --> 00:36:40,719 Speaker 12: to figure out, like it's hard to make a project 789 00:36:40,800 --> 00:36:43,840 Speaker 12: work because in that case, the idiots are out of 790 00:36:43,840 --> 00:36:46,200 Speaker 12: the market. The only people who make the projects work 791 00:36:46,200 --> 00:36:48,799 Speaker 12: are the people who can do it well and can 792 00:36:48,840 --> 00:36:50,759 Speaker 12: do it even when the economy turns south. 793 00:36:51,000 --> 00:36:53,960 Speaker 2: So just about thirty seconds, you guys are constructing some 794 00:36:53,960 --> 00:36:56,560 Speaker 2: properties now, but you're financing at a higher rates, right. 795 00:36:56,360 --> 00:37:00,440 Speaker 12: Absolutely, it's it's we're we're financing a high rates and 796 00:37:00,480 --> 00:37:02,880 Speaker 12: the big biggest problem is it's just more difficult to 797 00:37:02,920 --> 00:37:05,280 Speaker 12: get the financing, so we have to work harder. 798 00:37:05,360 --> 00:37:07,560 Speaker 11: That's the way it should be. It shouldn't be easy 799 00:37:07,600 --> 00:37:08,640 Speaker 11: for us to get financing. 800 00:37:09,400 --> 00:37:12,440 Speaker 12: But you know, one of our really good projects, for example, 801 00:37:12,480 --> 00:37:15,200 Speaker 12: is in a secondary market, and some of the financing 802 00:37:15,200 --> 00:37:17,080 Speaker 12: sources to say we want to be only in the 803 00:37:17,120 --> 00:37:18,600 Speaker 12: biggest cities now, yep. 804 00:37:18,719 --> 00:37:21,399 Speaker 2: Interesting, Brad Case, thanks so much for joining us. Brad Case. 805 00:37:21,440 --> 00:37:24,400 Speaker 2: He's the chief economist and director of research at Middleburg 806 00:37:24,760 --> 00:37:27,920 Speaker 2: Communities and it's just a fascinating story. They were sellers 807 00:37:27,960 --> 00:37:31,279 Speaker 2: in twenty two, as was I. I thought I was 808 00:37:31,320 --> 00:37:33,640 Speaker 2: the only smart person out there. But again, a good 809 00:37:33,680 --> 00:37:34,400 Speaker 2: move there. 810 00:37:34,600 --> 00:37:37,719 Speaker 1: Thanks for listening to the Bloomberg Markets podcasts. You can 811 00:37:37,760 --> 00:37:41,560 Speaker 1: subscribe and listen to interviews at Apple Podcasts or whatever 812 00:37:41,600 --> 00:37:45,360 Speaker 1: podcast platform you prefer. I'm Matt Miller. I'm on Twitter 813 00:37:45,560 --> 00:37:47,479 Speaker 1: at Matt Miller nineteen seventy three. 814 00:37:47,920 --> 00:37:50,280 Speaker 2: And I'm fall Sweeney. I'm on Twitter at pt Sweeney. 815 00:37:50,400 --> 00:37:53,080 Speaker 2: Before the podcast, you can always catch us worldwide at 816 00:37:53,120 --> 00:37:54,880 Speaker 2: Bloomberg Radio