WEBVTT - Surveillance: Stagflation with Shah 0:00:05.120 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.319 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:29.880 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.080 --> 0:00:32.920 Join us now. See Michelle chief flowed with Strategus, the 0:00:32.920 --> 0:00:38.040 principal wishing she never woke up early this morning. See 0:00:38.080 --> 0:00:39.720 you a good morning, Good morning. 0:00:39.720 --> 0:00:40.400 It's great to be. 0:00:40.520 --> 0:00:43.159 Great to have you with us. This recession chat. What 0:00:43.320 --> 0:00:45.720 underpins it? Where's it come from? I think a lot 0:00:45.760 --> 0:00:47.599 of people might look at this situation and say, well, yes, 0:00:47.640 --> 0:00:50.800 inflation's a problem, but I'm looking at unemployment three point 0:00:50.800 --> 0:00:53.560 five percent. Claims have ticked a little bit high, but 0:00:53.560 --> 0:00:56.200 they've come back in again. Where's the recession chat come from? 0:00:56.240 --> 0:00:57.640 Apart from maybe with you. 0:00:57.760 --> 0:01:00.960 One, well, so we are do you one? I think 0:01:01.040 --> 0:01:02.840 the problem is that we've been talking about recession for 0:01:02.920 --> 0:01:04.840 ages and ages and ages, and as you said, people 0:01:04.840 --> 0:01:07.480 are getting a little bit tired of the discussions. But 0:01:08.160 --> 0:01:11.880 if you look around the economy today, it looks fairly strong. 0:01:12.040 --> 0:01:14.360 Yes there's a soft snow like slow down happening, but 0:01:14.520 --> 0:01:16.759 generally speaking, things look okay. And I think the main 0:01:16.800 --> 0:01:20.080 reason is that the labor market is underpinning everything. But 0:01:20.280 --> 0:01:23.120 if I put my economists hat on, labor market is 0:01:23.160 --> 0:01:25.720 typically the last one to fall. It is the most 0:01:25.800 --> 0:01:29.000 lagging indicator here, but it's also the most important, so 0:01:29.160 --> 0:01:31.960 we can be watching. You know, the lending survey is 0:01:32.000 --> 0:01:34.199 going to be really important. There is a very very 0:01:34.240 --> 0:01:37.720 close correlation between lending data and employment, so as you 0:01:37.720 --> 0:01:40.480 see a lending contract, you should see job losses increase. 0:01:40.800 --> 0:01:43.319 So we are expecting recession late this year and over. 0:01:43.360 --> 0:01:46.399 It keeps being pushed out, but it does look very 0:01:46.520 --> 0:01:48.800 very likely. Given the amount of FED timing you've seen. 0:01:48.640 --> 0:01:52.360 Todate, markets are almost hoping for this recession. Bring it forward, 0:01:52.440 --> 0:01:54.040 let's get it over with, and then we can start 0:01:54.040 --> 0:01:56.360 with the next cycle. And it seems like that impatience 0:01:56.360 --> 0:01:59.200 has been embedded in all of the bearishness that we've felt. 0:01:59.600 --> 0:02:02.440 What's worse for risk acids though, a recession at this 0:02:02.520 --> 0:02:03.840 point or stagflation. 0:02:04.520 --> 0:02:07.920 Oh, stagflation by far that that is the worst case scenario. 0:02:08.120 --> 0:02:08.320 You know. 0:02:08.360 --> 0:02:10.440 One of the things that has been the underpinning markets 0:02:10.440 --> 0:02:12.720 to this point is this idea that at some point 0:02:13.280 --> 0:02:15.480 in the next six months eight months, is that the 0:02:15.520 --> 0:02:18.000 FED is going to start cutting rates. There is a 0:02:18.040 --> 0:02:19.920 lot of assumption out there that inflation is going to 0:02:19.960 --> 0:02:22.560 keep coming down. That is the consensus forecast, and there's 0:02:22.760 --> 0:02:27.160 very very little dispersion in those expectations. So inflation, if 0:02:27.160 --> 0:02:29.680 it were to reignite and start moving up, that takes 0:02:29.680 --> 0:02:31.840 away everything which is underpinning the market today. 0:02:31.919 --> 0:02:34.960 So if we get this ECI print showing that employment 0:02:35.040 --> 0:02:37.960 costs reaccelerated, which some people expect that to be at 0:02:37.960 --> 0:02:40.639 the base case, what does that mean in terms of 0:02:40.680 --> 0:02:42.000 exactly what you just said. 0:02:42.040 --> 0:02:43.960 Right, That means that the Fed's job is not done. 0:02:44.320 --> 0:02:46.360 You know, we I think are seeing that. Look, we're 0:02:46.360 --> 0:02:49.720 getting towards the end of the tiding cycle. Everyone believes 0:02:49.720 --> 0:02:51.040 that there's going to be a rate hik in May, 0:02:51.120 --> 0:02:53.480 but almost no one is talking about beyond mey. The 0:02:53.520 --> 0:02:55.840 other part that nobody's talking about is not only that 0:02:55.880 --> 0:02:58.480 could they pause, but why couldn't they also return to 0:02:58.520 --> 0:03:01.440 the market in September with the new rate hike if 0:03:01.440 --> 0:03:02.920 things are not going as planned. You know, they have 0:03:02.960 --> 0:03:05.280 said that they're very data dependent. They have said that 0:03:05.280 --> 0:03:06.919 they need to watch and see what the impact of 0:03:07.160 --> 0:03:09.240 feed tidening is going to be. And if you're not 0:03:09.280 --> 0:03:11.280 seeing wage growth come down, then if actually you're seeing 0:03:11.320 --> 0:03:13.959 inflation really plateau at the kind of a four and 0:03:14.000 --> 0:03:16.400 a half percent level, what's to stop them from doing 0:03:16.440 --> 0:03:18.200 a new rate hike? Now that I want to clarify 0:03:18.240 --> 0:03:21.000 that is not our baseline expectations, but I would put 0:03:21.400 --> 0:03:23.480 a fairly meaningful chance on that, probably more than what 0:03:23.480 --> 0:03:24.360 the market is putting right now. 0:03:24.360 --> 0:03:27.280 You're ever from London. Can you tell me so far 0:03:27.360 --> 0:03:29.600 this week and the conversations you've had the kind of 0:03:29.600 --> 0:03:32.680 differences that you're experiencing in the conversations here about the 0:03:32.800 --> 0:03:35.560 US versus, say London about the US, Are they different 0:03:35.560 --> 0:03:35.840 at all? 0:03:36.080 --> 0:03:38.040 They are a little bit different in that no one 0:03:38.080 --> 0:03:40.880 in the UK is talking about the debt limit, I mean. 0:03:41.080 --> 0:03:44.000 And I find that for international investors generally they kind of, yeah, 0:03:44.040 --> 0:03:45.600 we go through this every few years and it always 0:03:45.640 --> 0:03:48.760 passes okay. And I find that in the US there 0:03:48.800 --> 0:03:51.240 is definitely a lot more concern. Almost every single client 0:03:51.240 --> 0:03:53.280 conversation I've had that has come up as. 0:03:53.120 --> 0:03:55.320 A really significant Who's got it right? 0:03:56.960 --> 0:03:57.920 Can I see international? 0:03:58.760 --> 0:03:59.160 You think so? 0:03:59.400 --> 0:04:02.680 I do. I think that the chances that the chances 0:04:02.720 --> 0:04:04.960 of it devil are higher than they have been previously, 0:04:05.240 --> 0:04:10.080 partly because its administration is so belligerent, and that volatility 0:04:10.600 --> 0:04:13.520 is very disruptive when the market is already very, very 0:04:13.560 --> 0:04:16.400 vulnerable to any kind of disruption. I shouldn't have said that. 0:04:17.520 --> 0:04:20.159 I don't take it back, Okay, So that is what 0:04:20.279 --> 0:04:22.719 is disruptive. But I do think that things will eventually 0:04:22.720 --> 0:04:24.240 all get past. I'll be fine. 0:04:24.400 --> 0:04:26.480 I'm not here to correct you either. This was wonderful. 0:04:26.520 --> 0:04:28.240 Do you want to talk about US politics sometime in 0:04:28.279 --> 0:04:30.520 the future? Next week, the week after that? We could 0:04:30.520 --> 0:04:35.280 do a weekly segment, couldn't. We should always ask what 0:04:35.320 --> 0:04:37.560 the people in London think about the situation over here, 0:04:37.560 --> 0:04:39.960 but they have a very very different view on things. 0:04:40.040 --> 0:04:40.760 That was fantastic. 0:04:40.760 --> 0:04:42.279 It was like, can I say the truth? Okay, I 0:04:42.279 --> 0:04:44.920 won't here, here's what I'm going to tell clients. It's okay. 0:04:45.480 --> 0:04:47.640 That is interesting though, see that they seem to be 0:04:47.680 --> 0:04:49.560 shaking off it. What do you think it is about 0:04:49.560 --> 0:04:52.640 the US based investor and why they're so much more 0:04:52.680 --> 0:04:54.760 obsessed with it here, and I wouldn't. Maybe I'm using 0:04:54.760 --> 0:04:57.400 that word obsessed loosely. Why they're paying more attention to 0:04:57.520 --> 0:04:59.200 it here? Is there good reason for it? 0:05:00.400 --> 0:05:03.160 I think this is standard of investors. You look at 0:05:03.160 --> 0:05:05.040 your own local market, and you're always more active by 0:05:05.040 --> 0:05:07.520 your own market. That goes across the board. I'm probably 0:05:07.560 --> 0:05:11.080 more nective about the UK than my US colleagues. The 0:05:11.120 --> 0:05:13.279 same thing in the US, same thing in Hong Kong, 0:05:13.400 --> 0:05:14.640 China every day. 0:05:16.320 --> 0:05:19.120 Daniel from Iowa just emailed me, emailed in and said 0:05:19.160 --> 0:05:20.240 President Biden is not. 0:05:21.720 --> 0:05:22.960 Sorry. 0:05:24.120 --> 0:05:24.400 Angel. 0:05:24.400 --> 0:05:27.919 As a chairman of Principal, I appreciate it's snow email 0:05:27.960 --> 0:05:31.359 on his screen. Don't worry about a shot of Principal 0:05:31.520 --> 0:05:38.720 Asset Management joining us now is Phil Orlando, Chief Equity 0:05:38.760 --> 0:05:42.240 Market Strategistic Federated Hermes for wonderful to catch up with you, sir. 0:05:42.279 --> 0:05:43.880 I want to go back to the question. We started 0:05:43.880 --> 0:05:46.440 this program with just how much momentum is in this 0:05:46.520 --> 0:05:48.720 economy from Q one gun into Q two and looking 0:05:48.720 --> 0:05:49.839 at through the rest of the year. 0:05:50.160 --> 0:05:53.520 Not much that that. You look at the GDP print 0:05:53.600 --> 0:05:55.680 yesterday at one point one percent, we were at one 0:05:55.880 --> 0:05:59.280 three I think we were adding near low on the street, 0:05:59.360 --> 0:06:03.680 so that was was a tough number. And regardless, our 0:06:03.760 --> 0:06:05.520 view is that its first quarter of GDP is going 0:06:05.600 --> 0:06:07.680 to be the high water mark for the year. We're 0:06:07.720 --> 0:06:11.200 expecting negative GDP prints in the third and the fourth 0:06:11.279 --> 0:06:13.760 quarter of this year. There are some folks that are 0:06:13.800 --> 0:06:16.880 looking for negative prints the beginning of next year. So 0:06:18.440 --> 0:06:21.320 our view is that economic momentum is going to be 0:06:21.360 --> 0:06:24.159 downshifting here over the course of the next year or so. 0:06:24.200 --> 0:06:26.360 Phil Landa, I want to talk about selling May and 0:06:26.360 --> 0:06:28.840 go away. You have an arc of the market, an 0:06:28.920 --> 0:06:31.680 arc of many Mays that were successful, in many Mays 0:06:31.760 --> 0:06:34.520 and summers that were less than successful. What does the 0:06:34.720 --> 0:06:38.160 character of selling May and go away this year? 0:06:39.360 --> 0:06:41.359 I think it's sort of negative. That you've had a 0:06:41.560 --> 0:06:45.800 very powerful six month rally that's taken the market up 0:06:45.800 --> 0:06:50.320 about twenty percent here from the mid October lows last 0:06:50.360 --> 0:06:54.000 year into the forty two hundred level we've seen here 0:06:54.040 --> 0:06:56.320 just recently. As we look out over the next couple 0:06:56.360 --> 0:07:00.680 of quarters, you've got inflation that's still sticky. Is about 0:07:00.680 --> 0:07:03.919 how persistent, how hawkish that a reserve is going to 0:07:03.920 --> 0:07:09.560 be earnings or decelerating questions about recession, questions about the 0:07:09.600 --> 0:07:13.920 impact of banks tightening their lending standards, reduced in their 0:07:13.960 --> 0:07:17.280 loan volumes. Then you've got the whole debt ceiling issue 0:07:17.280 --> 0:07:20.560 that will probably, you know, come to fruition here in 0:07:20.600 --> 0:07:24.080 the third quarter. So for all those reasons, our guess is, 0:07:24.320 --> 0:07:27.280 you know, the market will probably grind lower over the 0:07:27.320 --> 0:07:28.080 next six months. 0:07:28.120 --> 0:07:32.240 Lisa then Ladler of ETRO this morning with an absolutely 0:07:32.440 --> 0:07:37.120 brilliant many decade history of this cliche selling mayon go away. 0:07:37.200 --> 0:07:40.440 His answer is it's valid, and he really speaks of 0:07:40.480 --> 0:07:42.760 the mystery of the summer doldrums this year. 0:07:42.840 --> 0:07:44.800 Well, I think everything's been a mystery. Frankly, twenty twenty 0:07:44.800 --> 0:07:46.640 three could be chalked up as a full on mystery. 0:07:46.960 --> 0:07:48.760 And one of the big mysteries is what playbook do 0:07:48.760 --> 0:07:51.040 we whip out and Phil when you're talking about some 0:07:51.080 --> 0:07:53.920 sort of downshifting in Q three and Q four. Is 0:07:53.960 --> 0:07:57.160 this a recessionary playbook or is this a stagflationary playbook? 0:07:58.240 --> 0:08:00.920 Our view is that we don't know. We're going to 0:08:01.000 --> 0:08:04.400 be data dependent, but right now, the title of my 0:08:04.560 --> 0:08:08.200 presentation for clients this year has been Recession Watched. For 0:08:08.240 --> 0:08:12.840 twenty twenty three. We're watching the data as closely as anyone. 0:08:13.280 --> 0:08:16.480 And again we've got negative GDP prints in the third 0:08:16.520 --> 0:08:19.120 and the fourth quarter of this year. I've seen some 0:08:19.240 --> 0:08:22.080 economists with negative GDP prints in the first half of 0:08:22.160 --> 0:08:25.720 next year. So somewhere, you know, within those winter months, 0:08:26.440 --> 0:08:28.640 we're going to be coming up to that razor's edge 0:08:28.680 --> 0:08:31.120 of whether or not the economy slides over the edge 0:08:31.120 --> 0:08:32.240 in or recession pill. 0:08:32.280 --> 0:08:34.880 As you know, the market is not the economy, So 0:08:34.920 --> 0:08:37.600 can you give me the market co equity leadership which 0:08:37.640 --> 0:08:38.960 pockets of stocks you want to be in. 0:08:39.760 --> 0:08:43.600 Well, if we're right that this twenty six month rally 0:08:43.640 --> 0:08:46.360 here reverses over the course of the next six months, 0:08:46.760 --> 0:08:49.440 but I think the answer to you know, we've got 0:08:49.480 --> 0:08:51.520 the NFL draft going on. I think we want to 0:08:51.600 --> 0:08:54.240 keep the defense on the field right now. So we 0:08:54.400 --> 0:08:57.880 like cash, we like treasuries, and we like defensive equities 0:08:57.920 --> 0:09:02.760 in stable demand categories. So large and small cap value 0:09:02.760 --> 0:09:07.520 stocks and international stocks have low pees, low betas, high 0:09:07.520 --> 0:09:12.920 dividend yields. So our mantra here is let's hunker down, 0:09:12.960 --> 0:09:16.160 preserve some capital until we've got some clarity on some 0:09:16.240 --> 0:09:18.120 of these issues we've just talked about over the next 0:09:18.160 --> 0:09:18.800 couple of quarters. 0:09:18.840 --> 0:09:20.760 I can't get it's a buy on the rally and 0:09:20.800 --> 0:09:23.800 the home builders on the S and P five hundred fill. 0:09:24.160 --> 0:09:27.480 The homebuilders have looked impressive here over the course of 0:09:27.480 --> 0:09:30.120 the last couple of months. We've been in a housing 0:09:30.160 --> 0:09:33.920 recession for the last seven or eight quarters. There's still 0:09:34.000 --> 0:09:37.680 tremendous pent up demand and the home builders have done 0:09:37.679 --> 0:09:40.720 better over the last couple of months. How sustainable is that. 0:09:40.800 --> 0:09:43.480 If the economy goes into recession, we'll have to see. 0:09:43.600 --> 0:09:46.000 But the homebuilders look attractive here. 0:09:45.880 --> 0:09:49.760 No question, something's going to give. Just amazing Fidolanda federates it. 0:10:01.040 --> 0:10:04.679 You know, we really haven't struggle here because the Yankees 0:10:04.679 --> 0:10:07.960 are two games ahead of the Red Sox end of April. 0:10:08.000 --> 0:10:10.520 You know, the season really doesn't start till July fourth, 0:10:10.600 --> 0:10:13.959 but the Yankees are two games ahead of the Red Sox. 0:10:14.600 --> 0:10:17.520 There's three teams out of the Yankees, which says it 0:10:17.559 --> 0:10:20.800 all on the miserableness of Doug Cass and Tom Kane, 0:10:20.800 --> 0:10:23.560 Paul Sweny and Tom Kane with us. Doug Cass of 0:10:23.600 --> 0:10:26.000 Sea Breeze as well, and Doug you want to link 0:10:26.040 --> 0:10:29.480 this into the markets right now, and I'm talking about 0:10:29.640 --> 0:10:33.600 the hunch that George Steinbrenner had years ago to get 0:10:33.679 --> 0:10:38.360 John Cashman's kid an intern job at the Yankees, which 0:10:38.400 --> 0:10:43.240 turned into the New York Yankees general manager's decisions of 0:10:43.320 --> 0:10:47.160 the X decade or so with Brian Cashman. That's worked out, 0:10:47.240 --> 0:10:47.680 hasn't it. 0:10:48.240 --> 0:10:50.840 Yeah? Sure, I don't know if you're aware of it 0:10:50.920 --> 0:10:53.920 that I was very close with John Cashman. Brian's that 0:10:54.200 --> 0:10:56.800 he was president of Castleton Farms, which is the leading 0:10:57.080 --> 0:11:01.000 breader of harness racing up standard bred horses. I drove 0:11:02.240 --> 0:11:05.320 bread and raised tarn sources. John was a gem real. 0:11:05.400 --> 0:11:06.800 I mean, this is great, Doug. 0:11:06.840 --> 0:11:11.160 But again, remember Tom and Paul. There is always a 0:11:11.200 --> 0:11:13.160 baseball analog for the markets. 0:11:13.679 --> 0:11:17.600 There is, But the baseball analog here is mister Steinbrenner's hunch. 0:11:18.360 --> 0:11:21.760 What's the hunch out there now killing you and your 0:11:21.880 --> 0:11:24.920 widely acclaimed caution on the market. 0:11:25.920 --> 0:11:29.160 Well, I think that if you're if you're buying stocks 0:11:29.160 --> 0:11:31.839 here with the S and P at forty one thirty five, 0:11:32.000 --> 0:11:36.080 I recommend prayer. The bottom line is that we've moved 0:11:36.320 --> 0:11:40.000 back this week into a net short position after being 0:11:40.000 --> 0:11:43.520 cautiously optimistic and non consensus most of the year. We've 0:11:43.559 --> 0:11:45.920 had a good and profitable last year. At Sea Breez, 0:11:45.920 --> 0:11:48.400 we're having an excellent twenty twenty three and we're profitable 0:11:48.440 --> 0:11:50.800 in April. But we think that the market risks are 0:11:50.880 --> 0:11:54.040 multiplying and are non trivial. I also recommend prayer to 0:11:54.040 --> 0:11:56.680 the New York fans, and I'll explain why, because I 0:11:56.720 --> 0:11:59.199 see a very strong similarity between the S and P 0:11:59.320 --> 0:12:03.280 index and the Enanke's starting lineup. Today's stock market is 0:12:03.320 --> 0:12:05.880 non inclusive. By that, I mean it's top heavy. Tome. 0:12:06.600 --> 0:12:10.040 I mentioned to you, and you quoted me yesterday on surveillance, 0:12:10.360 --> 0:12:14.120 you take out the seventh largest large cap tech stocks 0:12:14.120 --> 0:12:16.840 and the S and P into Wednesday's close was down 0:12:16.880 --> 0:12:20.880 two percent and Nasdaq was flat. So to me, you know, 0:12:20.920 --> 0:12:23.040 the Yankees can't win a pennant in the World Series 0:12:23.080 --> 0:12:25.720 without Broder contributions from all the players, nor can the 0:12:25.800 --> 0:12:29.120 S and P make much further progress with seven stocks 0:12:29.120 --> 0:12:32.400 accounting for most of the game. So just look very quickly, 0:12:32.520 --> 0:12:35.280 and I will make it quick. At the starting lineup. 0:12:35.480 --> 0:12:38.280 The first half of the Yankees are great. The batting 0:12:38.360 --> 0:12:41.640 order in the bottom is terrible. Look at the Machine 0:12:41.640 --> 0:12:44.240 and Torres back to back belly to belly with home 0:12:44.320 --> 0:12:46.720 runs last night. At the top of the Yank orders, 0:12:47.040 --> 0:12:49.240 Yankee order, we got Volpi, who is as good as 0:12:49.280 --> 0:12:52.079 Gogle Google. In the last seven years, he's batted over 0:12:52.160 --> 0:12:55.360 four point fifty. Aaron Judge, of course is Meta, Rizzo 0:12:55.520 --> 0:12:59.199 is Netflix, le Mayhew is Apple, and Toares is Navidia. 0:12:59.280 --> 0:13:02.400 But at the bottom him half boy. It's a mess. Piazza. 0:13:02.520 --> 0:13:06.600 He's first republic Bank Cabrera. He's batting like Horizon. I 0:13:08.080 --> 0:13:12.160 caravan with. I'm sure so the markets leadership is marrying 0:13:12.520 --> 0:13:15.000 and I can and I can't recall since the nifty 0:13:15.080 --> 0:13:19.000 fifty period that ended in nineteen seventy four, such a 0:13:19.120 --> 0:13:23.280 divergent divergence, and importantly, from a longer term standpoint, I 0:13:23.320 --> 0:13:25.559 see the next several years as very similar to the 0:13:25.640 --> 0:13:28.440 years following the bust of the nifty fifty in nineteen 0:13:28.480 --> 0:13:29.040 seventy four. 0:13:29.240 --> 0:13:31.280 This is so important, Paul, Paul, I want you to 0:13:31.360 --> 0:13:33.720 jump in and his Doug and I can blyther way forever. 0:13:34.280 --> 0:13:39.920 But the nifty fifty of my ute is stunning. 0:13:40.000 --> 0:13:45.280 Yep, absolutely, Hey, Paul, Yes, you know, I invocus Kooperman. 0:13:45.400 --> 0:13:49.400 Does I see seven years ahead to invoke Joseph in 0:13:49.440 --> 0:13:51.440 the Bible, in the Book of Genesis, just as we 0:13:51.520 --> 0:13:56.080 did following that collapse in the nifty that I guys read. 0:13:56.440 --> 0:13:58.880 Did you guys read the coach interview in the Financial 0:13:58.920 --> 0:14:01.440 Times this week? Did not stand the man, and I 0:14:01.480 --> 0:14:05.160 don't mean stam Usual, Dan Druck and Miller. He's also 0:14:05.200 --> 0:14:07.760 looking for ten lean years. So I'm in good company. 0:14:07.840 --> 0:14:10.400 This guy saw like Red Sox fans, Paul Save. 0:14:10.320 --> 0:14:13.200 We haven't got the O's plane six eighty baseball here. Hey, Doug, 0:14:13.200 --> 0:14:15.520 Should I be worrying about this whole real estate thing 0:14:15.520 --> 0:14:17.240 out there? I mean, you walk through midtown Manhattan and 0:14:17.280 --> 0:14:19.760 the buildings are just empty. Nobody comes in on Mondays 0:14:19.840 --> 0:14:22.240 or Fridays. That's a problem in and of itself for 0:14:22.280 --> 0:14:24.640 all the local retaillers. But how about the banks owning 0:14:24.680 --> 0:14:25.880 all this mortgage debt? 0:14:26.480 --> 0:14:30.840 Yeah, I think it's from a fundamental standpoint, the situation 0:14:31.000 --> 0:14:36.080 is certainly suboptimal. The Federal Reserve faces the trilemma the talent, 0:14:36.240 --> 0:14:41.120 the challenge of simultaneously reducing inflation, minimizing the economic growth 0:14:41.120 --> 0:14:44.359 and jobs, and maintaining the stability of the financial system. 0:14:44.640 --> 0:14:48.280 We have stubborn inflation, declining global economic growth, and we're 0:14:48.280 --> 0:14:52.400 doing nothing to improve supply demand situations for commodities, especially oil. 0:14:53.760 --> 0:14:55.720 There is this, getting back to what you asked me, 0:14:55.800 --> 0:14:59.720 there's an unprecedented maturity wall in which a commercial real 0:14:59.800 --> 0:15:04.040 estate eight has almost one point five trillion dollars resetting. 0:15:04.440 --> 0:15:07.880 Corporate lending, consumer loans, mortgages will all be resetting at 0:15:07.960 --> 0:15:11.200 much higher rates. If capital is available at all, and 0:15:11.240 --> 0:15:13.280 I sit on a number of public boards, I see 0:15:13.320 --> 0:15:16.680 firsthand the reset in the cost of capital. So I 0:15:17.080 --> 0:15:20.280 don't think current valuations are consistent with a five percent 0:15:20.360 --> 0:15:23.520 benchmark interest rate, and they may even be too high 0:15:23.520 --> 0:15:28.240 for zerp QE in that world that many, including the 0:15:28.280 --> 0:15:32.080 interest rate futures market, is suggesting, but no longer exists. 0:15:32.280 --> 0:15:34.840 Paul Sweeney brings us up, folks, because he knows the 0:15:34.920 --> 0:15:37.240 Dougcast wheelhouse. And I'm going to say this right now, 0:15:37.280 --> 0:15:40.320 because Cass is a pinata out on Twitter. If he 0:15:40.480 --> 0:15:42.960 shortens stock goes up an eighth of a point, he 0:15:43.040 --> 0:15:46.320 gets handled. But the answer, your folks is Doug Cast 0:15:46.440 --> 0:15:50.040 back to Kidder Peabody a few years back. Actually you 0:15:50.160 --> 0:15:53.320 read his bank research, it was there was an acuity 0:15:53.440 --> 0:15:58.200 to it that was really quite something. Doug on First 0:15:58.280 --> 0:16:02.040 Republic I've dated, and I got to be very careful folks, 0:16:02.040 --> 0:16:05.680 because I don't editorialize. It was a marketing scheme wrapped 0:16:05.720 --> 0:16:09.600 around a bank. You're a bank analyst. Should the government 0:16:09.640 --> 0:16:13.440 institutions come in, Dougcass to do an FRC workout? 0:16:14.520 --> 0:16:18.800 You know, I remember meeting Harry Keith who formed Keith, 0:16:18.840 --> 0:16:22.760 Briett and Woods with Norbert Woods and Ing Briette and 0:16:22.760 --> 0:16:25.160 then Tomas show to ultimately a good devel of mind 0:16:25.240 --> 0:16:25.840 took over. 0:16:25.960 --> 0:16:28.600 Under great courage under the crisis of DNA seven. 0:16:29.120 --> 0:16:33.080 And Harry Keith once said, bank stocks trade always trade 0:16:33.200 --> 0:16:38.920 between hatred and apathy. That basically describes what's going on. Look. 0:16:39.360 --> 0:16:42.400 First Republic's management committed its own set of errors. That 0:16:42.480 --> 0:16:45.520 bank became a very aggressive mortgage lender to the wealthy, 0:16:46.640 --> 0:16:49.480 leaving it with many below market mortgages as its funding 0:16:49.480 --> 0:16:55.080 costs rows dramatically. Someone in charge should have seen that, 0:16:55.200 --> 0:16:58.160 just as someone running Silicon Valley Bank should have known 0:16:58.200 --> 0:17:00.680 that interst rates would rise and destroy the value of 0:17:00.680 --> 0:17:04.680 the portfolio. But every time there's a financial crisis, we're 0:17:04.680 --> 0:17:09.240 reminded that bankers are among the least sophisticated economic actors 0:17:09.280 --> 0:17:12.879 in the financial ecosystem, They invariably turn out to be 0:17:12.920 --> 0:17:15.399 the last to know what's going on and what's like 0:17:15.520 --> 0:17:18.320 unlikely to happen in the future. Perhaps the reason for 0:17:18.359 --> 0:17:22.840 this is being a banker is incompatible with questioning consensus 0:17:22.840 --> 0:17:24.280 thinking we got time. 0:17:24.400 --> 0:17:26.800 I got just time for one question, Doug, because John 0:17:26.840 --> 0:17:29.360 Tucker walked in and he needs a space as well, 0:17:29.440 --> 0:17:32.399 Doug Cast, not your single best buy? What's your single 0:17:32.440 --> 0:17:33.680 best short right now? 0:17:36.280 --> 0:17:40.320 Wow, that's a tough call. I'm gonna say my single 0:17:40.359 --> 0:17:43.480 best short right now are the triple Cubes? 0:17:44.800 --> 0:17:47.879 That cubes? Yeah? Yeah, okay, Doug, we got to leave 0:17:47.880 --> 0:17:49.520 it there. Thank you so much and great, you know, 0:17:49.560 --> 0:17:52.320 I really you know the Yankees are two red, Sox 0:17:52.359 --> 0:17:52.880 are two back. 0:17:53.280 --> 0:17:55.680 Yeah, I mean the razorre twenty one five who plays 0:17:55.720 --> 0:17:59.560 eight hundred baseball? You know, And is anybody watching it 0:17:59.600 --> 0:17:59.960 in Tampa? 0:18:00.040 --> 0:18:02.840 That's well, that would be Dougcast. Thank you, Thank you 0:18:02.880 --> 0:18:05.000 so much for joining us to Seabury see him out 0:18:05.200 --> 0:18:07.960 Seab's partners and actually running real money down there. I 0:18:07.960 --> 0:18:14.879 should point out as well. We're going to get right 0:18:14.920 --> 0:18:18.760 to it right now because this conversation is two to two important. 0:18:18.760 --> 0:18:21.840 Lisa Bramwinson. Tom came mister Farrell waiting with doctor Olarian 0:18:21.920 --> 0:18:24.760 for the next hour's festivities and with us. And this 0:18:24.920 --> 0:18:28.400 is really important. As Robert Silentek, he's president, chief executive 0:18:28.440 --> 0:18:32.240 officer at c b R. Who is CBRE. What you 0:18:32.280 --> 0:18:34.600 need to know is if you're a computer guy out 0:18:34.600 --> 0:18:37.320 of Ames, Iowa, and you get a job in Texas 0:18:37.320 --> 0:18:40.480 and real estate over a number of years, maybe it 0:18:40.560 --> 0:18:44.479 prepares you for the great financial crisis of two thousand 0:18:44.480 --> 0:18:47.520 and seven, two thousand and nine. Bob Silantik has been 0:18:47.560 --> 0:18:51.159 on the watch at CBR three CBRE, I should say, 0:18:51.520 --> 0:18:54.560 through now not one, but two crises. And he joins 0:18:54.600 --> 0:18:57.520 us in our studios this morning. Thank you, thank you 0:18:57.560 --> 0:19:00.240 so much for joining Bloomberg at Thanks counting. Good to 0:19:00.280 --> 0:19:02.920 be you, more than anybody I know, push against a 0:19:03.040 --> 0:19:07.400 stereotype of real estate investment trusts. O MG, we're all 0:19:07.440 --> 0:19:10.320 going to die the stocks of creator. Your stock is down, 0:19:10.760 --> 0:19:13.040 but you've got a twelve percent total return over the 0:19:13.119 --> 0:19:16.160 last twelve years. CBI is the outlier. What is your 0:19:16.200 --> 0:19:21.639 best practice removed from the volatility train wreck of REITs? 0:19:22.800 --> 0:19:25.960 The best practice in the regard you're talking about, Tom, 0:19:26.040 --> 0:19:28.360 is that we are very diversified. We're a diverse fight 0:19:28.400 --> 0:19:33.200 across asset type, diverse fight across service type, diverse fight 0:19:33.240 --> 0:19:38.080 across geography, and diverse fight across client type. And we're 0:19:38.240 --> 0:19:41.480 very substantial across all four of those dimensions. So as 0:19:41.600 --> 0:19:45.040 things EBB and flow, as secular trends emerge, we can 0:19:45.119 --> 0:19:49.200 push resources into the areas that are favored, as we've 0:19:49.240 --> 0:19:51.800 done over the last few years by pushing resources into 0:19:51.880 --> 0:19:56.480 multifamily and pushing resources into warehouses, and pushing resources and 0:19:56.600 --> 0:19:59.879 outsourcing and project management, and that's worked very well. 0:19:59.760 --> 0:20:02.360 For bloom Is leading the academics on work from Home 0:20:02.440 --> 0:20:04.760 out at Stanford. It's you know, we all know it's 0:20:04.760 --> 0:20:07.680 sort of Graham and life changing and all that. That 0:20:07.760 --> 0:20:11.120 part of CBRE that is in the cliche of midtown 0:20:11.160 --> 0:20:16.199 Manhattan sea to Shining Sea that's empty. Is that going 0:20:16.280 --> 0:20:19.840 to continue? Is this legitimate emptiness that we see now. 0:20:19.680 --> 0:20:24.080 It's a legitimate backing off of the amount of office 0:20:24.080 --> 0:20:27.240 space that'll be used. But there's some important trends that 0:20:27.280 --> 0:20:30.280 are contrary to that. So, for instance, companies in general, 0:20:30.320 --> 0:20:32.920 and certainly here in New York, there's some famous examples 0:20:32.960 --> 0:20:35.280 here in New York of leaders that want to get 0:20:35.280 --> 0:20:37.199 their people back in. Well, the way you get your 0:20:37.240 --> 0:20:40.920 people back into the office is you create great environments 0:20:40.920 --> 0:20:43.920 in that office space. And so what you see across 0:20:44.000 --> 0:20:46.840