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Speaker 1: This is the Bloomberg Surveillance Podcast.

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Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.

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Speaker 2: Join us each day for insight from the best and economics, geopolitics,

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Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

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Speaker 2: Spotify and anywhere you get your podcasts, and always on

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Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 2: Drew Matis's chief market strategist at MetLife Investment Management. He

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Speaker 2: has been wonderful about gaming the optimism of the American

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Speaker 2: economic experiment. Drew, let's start with that glass half full,

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Speaker 2: glass half empty at MetLife.

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Speaker 3: Well, the good news is there's not gonna be a

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Speaker 3: recession this year. The bad news is it's still coming,

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Speaker 3: and you know it's we've had to move back our

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Speaker 3: forecast from midyear to the start of next year. The

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Speaker 3: reason we went that far actually is because we think

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Speaker 3: can so comers are still in this ballgame. They're still

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Speaker 3: in this you only live once mentality post COVID.

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Speaker 4: But we do think when you get to the.

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Speaker 3: Start of next year, you'll have a lot of more

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Speaker 3: headwinds and some of the data now that's currently pointing

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Speaker 3: towards a recession will probably be even worse. And we

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Speaker 3: think the turn of the year is about the right time.

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Speaker 2: The raging economic debate, and maybe this will be alluded

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Speaker 2: to in the academics of Jackson Hole is whither our start?

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Speaker 2: Whither the rate post pandemic? We're gliding too, Matt life

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Speaker 2: is riveted to the actuaro return expected within longer term portfolios.

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Speaker 2: Have you adjusted that view, have you lowered your expectations

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Speaker 2: for return or can you be more optimistic about a

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Speaker 2: better return post pandemic?

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Speaker 3: So I'll say this when we think about you know,

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Speaker 3: so let's get past the next recession whenever that is right.

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Speaker 4: We think it's next year. But let's just say in.

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Speaker 3: The future, when you come out of that recession, what

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Speaker 3: are you going to have? We're very optimistic there, and

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Speaker 3: that means higher potential growth rates. We think that there's

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Speaker 3: the potential for participation rate rebound even beyond what we're seeing.

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Speaker 3: Higher productivity, although it's hard to get lower than we

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Speaker 3: currently are, but we expect the rebound and productivity that's

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Speaker 3: sustainable and will be sizable, and we expect therefore that

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Speaker 3: potential growth will be higher, and with potential growth being higher,

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Speaker 3: we expect neutral interest rates to also be higher.

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Speaker 4: At that point, do.

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Speaker 5: You build that out a little bit more. What's going

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Speaker 5: to drive higher that productivity, potential growth, high neutral interest rates?

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Speaker 5: Where does all that come from?

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Speaker 3: I think so, first of all, from kind of a

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Speaker 3: worker perspective, I think you're going to have people engaging

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Speaker 3: in the workforce for longer, over longer periods of their lives,

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Speaker 3: and during healthier periods of their lives. I think the

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Speaker 3: healthy period of people's lives are going to expand, and

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Speaker 3: I think that that's a consequence of some of the

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Speaker 3: gains made in biotech during the during the COVID problem.

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Speaker 3: So I think that that So that's first and foremost. Secondly,

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Speaker 3: work from home will encourage older workers potentially stay in

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Speaker 3: the workforce for a little bit longer, and I think

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Speaker 3: firms are going to respond to that by making it

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Speaker 3: easier for older workers to stay in the workforce for longer.

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Speaker 3: And so not only are we going to potentially have

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Speaker 3: this rebound that we're seeing in kind of the so

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Speaker 3: called prime working age group, but we're also going to

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Speaker 3: see other groups actually engaging more aggressively in the workforce

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Speaker 3: and that'll be good for the US economy as a

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Speaker 3: whole productivity wise. You know, I'm doing this for my

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Speaker 3: office via zoom, right. I mean, in the past, this

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Speaker 3: would have been very difficult for us to pull off,

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Speaker 3: and it's just a much more convenient and productivity enhancing arrangement.

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Speaker 3: And I think if you go through and look at

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Speaker 3: whether it's the cost of putting objects in space which

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Speaker 3: is deteriorate significantly or lowered significantly, when you look at

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Speaker 3: gains in biotech. You know, for twenty five years we

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Speaker 3: were promised miracles in biotech and we finally saw some,

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Speaker 3: and no one's paying attention, right because we were distracted

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Speaker 3: by the fact that, you know, it was a crisis situation.

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Speaker 3: But you know, those things all add up and they'll

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Speaker 3: all begin to interact with each other in ways that

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Speaker 3: you know, I can't probably fathom completely how they'll all interact,

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Speaker 3: but they'll be productivity enhancing and I think we're in

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Speaker 3: for a big productivity ride once we get through this

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Speaker 3: next countern.

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Speaker 5: How right sensitive do you think the economy will be

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Speaker 5: that you describe?

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Speaker 3: You know, I think initially every every economy is very

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Speaker 3: sensitive because you have to finance all this stuff. But

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Speaker 3: I think you know, in some ways, you know, the

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Speaker 3: die is cast in some of these industries. You're seeing

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Speaker 3: the deteriorate or the lowering of price and cost of

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Speaker 3: getting things into orbit. That's already happened, and so you know,

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Speaker 3: I think for Noaly, it's just a matter of how

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Speaker 3: do we exploit it best? And you know whether or not,

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Speaker 3: you know, my forecast is going to hinge on on

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Speaker 3: on kind.

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Speaker 4: Of you know, you know, am I right? Am I wrong?

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Speaker 3: Which I know sounds obvious, but I do think that

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Speaker 3: you know, the history has shown you should be optimistic

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Speaker 3: for developments in technology, not pessimistic.

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Speaker 2: So then what does that give your GDP statistic out

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Speaker 2: one year? I'm not talking about quarter to quarter or

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Speaker 2: that on a longer broader term. You're in a meeting

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Speaker 2: in met life for people's idea of short term is

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Speaker 2: ten years? What's your GDP run rate? Can you get

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Speaker 2: above two percent real GDP?

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Speaker 3: If I had to put potential growth ten years from now,

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Speaker 3: I'd probably put it closer to three than two and

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Speaker 3: a half.

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Speaker 2: Wow, three real percent real GDP?

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Speaker 4: I think that that is a reasonable estimation.

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Speaker 2: Wow, that John, that is a Wow, statistic from dumatics.

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Speaker 2: I can't convey how off norm that is. And that

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Speaker 2: goes to the responsibilities of an insurance company. Yeah, where

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Speaker 2: they're really focused every day on a long term view.

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Speaker 5: As tray, can we finish on and this just quickly.

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Speaker 5: If we get a rate hiking cycle ending with a

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Speaker 5: hike this week, let's just say that, maybe you get

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Speaker 5: another one, but who knows when they start cutting. Have

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Speaker 5: you got firm ideas on what they cut back to,

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Speaker 5: because clearly there's a consensus out there that we don't

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Speaker 5: go back to zero. What's your view on that currently?

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Speaker 3: I think that I think there'll be a three handle

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Speaker 3: at the low point for the next.

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Speaker 5: Cycle, Okay, and you think the bond market is well

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Speaker 5: priced for that. Given the way you see the yell

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Speaker 5: curve evolving in the last few months, I'm actually.

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Speaker 3: A little surprised at where the your curve is given

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Speaker 3: this expectation that we're in a you know, we're going

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Speaker 3: to have a soft landing. To be honest, I think

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Speaker 3: you know, when you think about what a soft landing means,

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Speaker 3: it means that the FED probably wouldn't have to refers course,

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Speaker 3: so they're going to be stuck a kind of this fire,

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Speaker 3: you know, five percent five percent plus for a FED funds, right,

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Speaker 3: And so where should the rest of the your curve

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Speaker 3: be in that kind of scenario? And what should that

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Speaker 3: yr curve be shaped like? And when I look at

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Speaker 3: the current shape of the your curve, I don't I

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Speaker 3: don't see that reflecting that belief.

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Speaker 5: Dree Matis, thank you of MetLife Investment Management.

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Speaker 2: Marilyn Watson briefs now had a global fundamental fixed income

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Speaker 2: strategy at Blackrock. This is an incredibly important conversation, folks

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Speaker 2: on what the prescription is forward which Maryland is to

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Speaker 2: be flexible in nimble. I'm going to editorialize into twenty

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Speaker 2: twenty five how am I flexible in nimble clipping coupons

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Speaker 2: in fixed income?

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Speaker 6: So in fixed income at the moment, as you say,

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Speaker 6: I think you do need to be flexible, and you

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Speaker 6: need to be nimble because it's a very uncertain environment.

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Speaker 6: Still at the moment you can get very attractive carry

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Speaker 6: at the front end of the curve. Still also in

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Speaker 6: commercial paper, in some short dated investment grade bonds, and

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Speaker 6: at the moment it pays to actually not take too

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Speaker 6: much duration risk, not take too much risk, but just

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Speaker 6: clip those coupons and get the income. But as the

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Speaker 6: economy evolves in the US and in Europe and elsewhere,

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Speaker 6: as we get more information from the FED tomorrow, from

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Speaker 6: the ECB on Thursday, and over the next few weeks

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Speaker 6: and next couple of months, as we continue to see

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Speaker 6: more economic data from the US or from the Eurozone,

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Speaker 6: which as you mentioned earlier, has seen some pretty weak

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Speaker 6: data in the Eurozone at the moment, then we will

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Speaker 6: continue to see a shift both in the Yelk curve

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Speaker 6: and in the opportunities that I think they're available. So

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Speaker 6: at the moment, I think it pays to get the carry,

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Speaker 6: to not take too much risk, but then to be

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Speaker 6: able to really deploy that dry powder when the opportunities arise.

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Speaker 2: I need to conflate in here, Maryland the news now,

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Speaker 2: and it's Torsen Slack writing for Apollo. Looking at loans.

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Speaker 2: I mentioned loans in the previous hour is a mystery

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Speaker 2: to me. The default rate of high yield and such.

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Speaker 2: Is the market too complacent about what is to come

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Speaker 2: in commercial real estate, what is to come in these

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Speaker 2: strange leverage loan vehicles in derivatives within your world? Are

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Speaker 2: we too complacent.

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Speaker 6: So I don't know that it's too complacent, but I

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Speaker 6: don't think there's a very clear view on the trajectory

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Speaker 6: of the economy going forward. At the moment, you know,

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Speaker 6: our core view is that there won't be your recession

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Speaker 6: this year in the US. We think that the US

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Speaker 6: remains pretty resilient, and while it is slowing, it remains

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Speaker 6: on a pretty solid footing. And when you look at

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Speaker 6: the commercial real estate sector then it has already been

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Speaker 6: negatively impacted by the very aggressive rate hikes, but as

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Speaker 6: you say, perhaps not as much as some people may

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Speaker 6: have expected. When you look at leverage loans and elsewhere

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Speaker 6: you look at, you know, high yield overall has performed

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Speaker 6: very well this year. But I think at the moment,

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Speaker 6: you know, a lot of investors are still looking at

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Speaker 6: really getting in, i think, in the bottom up fundamentals.

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Speaker 6: So there's a big difference between the different bonds and

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Speaker 6: the different issuers that you also buy within the highal

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Speaker 6: sector and the spread and the total yield that you

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Speaker 6: can get there as well. But at the moment, I

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Speaker 6: think there isn't really a consensus on the trajectory of

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Speaker 6: the economy and how bad if it's bad at all.

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Speaker 6: It will be next year, so I don't know if

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Speaker 6: it's complacent. I think there's just not yet enough data

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Speaker 6: for the market to be able to tell.

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Speaker 5: Let's work through some of this work from Torston Slot

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Speaker 5: this morning and Marilond good morning, all able to share

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Speaker 5: their full quote. Markets are not taking the ongoing rise

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Speaker 5: in default rates for high yield and loads seriously. Many

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Speaker 5: investors argue that this is just normalization, or these are

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Speaker 5: companies nobody has heard about, the reality is that more

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Speaker 5: and more companies are defaulting because the cost of capital

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Speaker 5: is higher. Higher cost of capital is precisely how monetary

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Speaker 5: policy works by making it more difficult to get financing.

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Speaker 5: The FED hikes are biting harder and harder, and all

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Speaker 5: investors should have a view on how high they think

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Speaker 5: default rates will go during this cycle. Marilyn, can you

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Speaker 5: have a view on that today? And would that leads

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Speaker 5: you to believe that you should back away from easure

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Speaker 5: of this market which are going to face much much

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Speaker 5: higher funding costs when they come back to market in

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Speaker 5: maybe twelve months eighteen months from now.

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Speaker 6: Yeah, I think you can. And as I say, at

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Speaker 6: the moment, you don't need to take the credit risk

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Speaker 6: in the high yield sector when you can get very

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Speaker 6: decent carry elsewhere much higher up the credit spectrum. I

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Speaker 6: think also, you know, when you're looking at your overall allocation,

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Speaker 6: when you look at the equity market versus the high

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Speaker 6: old market, for example, we also like some of the

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Speaker 6: beta in the equity markets, so you don't need to

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Speaker 6: take the risk there, you don't need to take the

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Speaker 6: credit risk. So you can take a view, and our

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Speaker 6: position at the moment, I would say is relatively cautious.

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Speaker 6: It's relatively you know, high quality, and as I say,

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Speaker 6: we're being very nimble and we're really stirring clear of

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Speaker 6: too much duration risk, although we have added a little

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Speaker 6: bit there. But we're also just being very very cautious

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Speaker 6: from a bottom up perspective, and we want to know

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Speaker 6: and understand exactly what we're buying in every single issuer,

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Speaker 6: in every securitized asset, in every investment grade bond. We

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Speaker 6: want to understand exactly the fundamentals from bottom up perspective

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Speaker 6: of the issue itself and of the sector as a whole.

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Speaker 6: I think you can take a view and at the moment,

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Speaker 6: we don't think it pays to take the risk further

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Speaker 6: down the credit spectrum.

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Speaker 5: You mentioned they're taking on a little bit more duration risk.

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Speaker 5: Can you give us a little bit more kind of there?

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Speaker 5: What have you been doing?

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Speaker 6: So we've added a little bit on the margins because

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Speaker 6: you know, it is our view that the Fed, you know,

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Speaker 6: will hike again this week and then maybe pause. The

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Speaker 6: Fed itself has indicated in the you know, the previous

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Speaker 6: summary of Economic projections potentially one more hike, but we

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Speaker 6: don't know that yet. Obviously, we need to see a

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Speaker 6: lot more data to see whether that comes through or not.

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Speaker 6: But we have been adding a little bit more duration

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Speaker 6: in the front end and the belly of the curve

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Speaker 6: in the US. Also in the Eurozone, you know, we

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Speaker 6: think that the ec people will hike again this week.

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Speaker 6: They may hike again in September, but that's nowhere near

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Speaker 6: a clear cut scenario anymore given the data, and it

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Speaker 6: does we do think it now pays to take a

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Speaker 6: little bit duration, more duration risk, a little bit more yields,

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Speaker 6: and just to lock in some of those rates.

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Speaker 5: Not even the hawks on the ECB you want to

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Speaker 5: commit to an I think beyond this week. Find that interesting,

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Speaker 5: marinin Thank you, Mariam, what's in a black rock and

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Speaker 5: Joy London mantin it's good to see it.

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Speaker 2: Yeah, I remember John when you whispered to me somewhere

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Speaker 2: in May of twenty twenty General Motors, Tom, General Motors

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Speaker 2: are going to do it twenty to sixty and then

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Speaker 2: a challenge last year to say the least, and now

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Speaker 2: ebbing and flowing you thirty five to forty. It has

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Speaker 2: been a challenge for General Motives, including all manufacturers through

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Speaker 2: the pandemic and now they look to profitability. Joining us

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Speaker 2: as chief financial officer driving the financial ratios at the

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Speaker 2: complexities of the future of General Motors, Paul Jacobson joins.

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Speaker 1: Us this morning.

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Speaker 2: Paul defined profitability. We're in the income statement. Are you

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Speaker 2: zeroed in on on profitability out twenty four months out

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Speaker 2: five years for General Motors.

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Speaker 7: Well, good morning, Tom, and thanks again for having us.

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Speaker 7: It's always always a pleasure to be with you, especially

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Speaker 7: on a day like today where we're announcing the tremendous

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Speaker 7: results that the GM team put forward, and I just

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Speaker 7: want to extend a great big thanks to them worldwide

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Speaker 7: for the results that they posted during the quarter. You know,

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Speaker 7: when we're looking at when we're looking at profitability, you know,

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Speaker 7: it's a whole range of outcomes. Obviously, ebit matters. But

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Speaker 7: one of the things I think we've been really focused on,

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Speaker 7: and I think it's worked for us, is the combination

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Speaker 7: of market share and margin and growth. So the end

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Speaker 7: of the day, it's not just about producing and selling

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Speaker 7: more vehicles. It's about making sure that we're maintaining and

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Speaker 7: expanding our margins going forward. And when you look at

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Speaker 7: the track record that we've had, especially over the last

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Speaker 7: six months, but really over kind of the last six quarters,

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Speaker 7: the team's done an amazing job producing vehicles that customers demand,

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Speaker 7: and you know, our biggest challenges we can't get them

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Speaker 7: fast enough. But customers have really responded and we really

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Speaker 7: appreciate that.

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Speaker 2: Okay, that's right where I want to go, and that

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Speaker 2: there's a shortage of you know, there's always in every

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Speaker 2: company four or five vehicles. Everybody wants the same car.

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Speaker 2: Do you have a lot of pricing flexibility now into

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Speaker 2: twenty twenty four, Can you raise prices?

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Speaker 7: Well, I'm not sure that we're going to be able

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Speaker 7: to raise prices across the board, but one of the

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Speaker 7: things that we've seen that has really manifested itself is

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Speaker 7: customers demanding higher trim levels. In fact, we created over

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Speaker 7: the last eighteen months the Denali Ultimate, which was a

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Speaker 7: higher end trim level than our high end Denali on

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Speaker 7: the GMC Ukon's in response to customers wanting them. And

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Speaker 7: now what we see when we look at our trucks

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Speaker 7: in our SUVs, about seventy to seventy five percent of

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Speaker 7: them are being priced at premium levels where customers are

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Speaker 7: demanding that. So I think we've done a good job

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Speaker 7: of responding to where customer demand is and what they're

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Speaker 7: looking for in our products. As far as the core prices,

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Speaker 7: obviously the business is really competitive. We focus on price

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Speaker 7: stability and I think I think our results show that

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Speaker 7: we've done a good job with that.

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Speaker 1: John a pickup truck. This used to be you know, you.

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Speaker 2: You you wanted an old GM pickup truck that you

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Speaker 2: could drive around with your guitar next to you, and

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Speaker 2: you know, the.

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Speaker 5: Whole scrump yourself.

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Speaker 2: If you're done at Auburn University and you get an

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Speaker 2: old GM pickup truck that you paid dead paid three

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Speaker 2: thousand dollars, you could see the road through the floor.

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Speaker 2: GMC Sierra Denali Ultimate Ready ninety one dollars. That's not

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Speaker 2: Paul sell them today.

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Speaker 5: So Paul, are you telling us that you're expecting higher

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Speaker 5: average selling prices in the second half.

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Speaker 7: Yeah, so, John, we we saw we saw higher ATPs

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Speaker 7: in the second quarter, about sixteen hundred dollars higher than

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Speaker 7: the first quarter sequentially. You know, I think we're going

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Speaker 7: to continue to watch it. We've taken this whole year

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Speaker 7: with a little bit of caution, just understanding the macro

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Speaker 7: that's out there, and what we said at the beginning

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Speaker 7: of the year was if the customer held in and

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Speaker 7: we were able to maintain pricing, we expected to significantly

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Speaker 7: outperform the guidance that we posted. And then after the

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Speaker 7: first quarter, we raise guidance by five hundred million dollars

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Speaker 7: on the EBIT line, and now we're raising it by

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Speaker 7: a billion dollars. So we see a lot of stability

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Speaker 7: in the market. We're just kind of taking it one day,

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Speaker 7: one month at a time and watching the results come in.

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Speaker 7: We've got to be focused on quality, and we've got

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Speaker 7: to be focused on getting production in the vehicles that

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Speaker 7: customers want.

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Speaker 5: Let's just talk about customers a little bit more. We

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Speaker 5: saw some data recently I think from the further reserve

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Speaker 5: in the last couple of weeks about people being rejected

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Speaker 5: for auto loans, Paul, can you give us an idea

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Speaker 5: of how some of these purchases are being financed and

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Speaker 5: the kind of trends you seeing develop.

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Speaker 7: So, you know, we've got a lot of good insight

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Speaker 7: on that through our GM Financial captive company, and their

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Speaker 7: results are pretty strong. We continue to write new loans.

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Speaker 7: In fact, we've written at a higher share the first half

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Speaker 7: of the year than traditionally, which is not a bad thing.

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Speaker 7: We're there to meet our customers where they need us,

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Speaker 7: and GM Financial has done a great job of that.

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Speaker 7: We watch the credit metrics on a weekly basis across

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Speaker 7: their entire portfolio, and we haven't seen anything that gives

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Speaker 7: us a reason for concern. You know, we have really good,

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Speaker 7: high quality borrowers on our new vehicles and the credit

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Speaker 7: is performing quite well from that, so we understand obviously

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Speaker 7: in the subprime world in some of the used cars,

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Speaker 7: where we've seen banks tightening a little bit, that's not

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Speaker 7: necessarily our Forte, but certainly where we're lending on new vehicles,

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Speaker 7: the results are pretty strong.

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Speaker 2: And Paul, I'm going to pick on Ittey mccaulley. It's

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Speaker 2: City Group, and that you know from the pandemic from

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Speaker 2: the end of twenty nineteen, I got a shareholder return

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Speaker 2: of three percent, four percent per year, whatever the number is,

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Speaker 2: it's low single digit. Clearly it's not acceptable. The fact is,

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Speaker 2: somebody is knowledgeable, as Ittay mccaullay or the team over

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Speaker 2: at Bloomberg Intelligence looks for huge share price.

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Speaker 1: Performance from GM.

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Speaker 2: What is going to be the catalyst for people to

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Speaker 2: realize a new profitability of GM.

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Speaker 1: What's the thing that's going to.

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Speaker 2: Get me to it's McCauley's price target, which is a double.

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Speaker 1: Yeah.

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Speaker 7: So that's the question of the day, Tom, and one

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Speaker 7: that we spend a lot of time thinking about. Obviously

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Speaker 7: for our shareholders, you know, one of the things that

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Speaker 7: we've got to do is we've just got to continue

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Speaker 7: to consistently perform. I'm a big believer that the market

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Speaker 7: can ignore fundamentals too long, and when you look at

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Speaker 7: the type of performance that we've been driving, I think

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Speaker 7: we're establishing a really good track record of credibility. So

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Speaker 7: that's job one number two. On the macro side, Clearly,

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Speaker 7: it's been a bit of a headwind over the last

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Speaker 7: eighteen months. As you know, expectations are consistently downward from

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Speaker 7: where we are, which is why it's so important now

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Speaker 7: that we've put two quarters out there with a raise

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Speaker 7: on the guidance this year will be really, really strong.

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Speaker 7: We're overcoming pension headwinds, we're overcoming some normalization at GM

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Speaker 7: Financials earnings. But you know, the results are going to

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Speaker 7: be very similar, if not, if not potentially better better

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Speaker 7: than last year. So that's what we're focused on. On

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Speaker 7: the market, I think it'll come around. You know, we've

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Speaker 7: got to make sure that the macro clears up a

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Speaker 7: little bit. I think we've seen that over the last

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Speaker 7: couple of months. And you know, I think we've got

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Speaker 7: to make sure that we reach an agreement with the

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Speaker 7: UAW not just for us, but as an industry because

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Speaker 7: obviously there's some uncertainty around that in investors' eyes. But

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Speaker 7: we're focused on executing. We're focused on getting a deal

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Speaker 7: that works for our people and rewards them for the

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Speaker 7: tremendous work that they're doing across the board.

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Speaker 5: Paul, Ready, I'm fair of us to save this question

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Speaker 5: until the end because we only have a couple of

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Speaker 5: minutes left, but I need to get this in. There

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Speaker 5: is some subtle indicators worldwide the EV demand is tailing.

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Speaker 5: GOFF and I asked this question to you as a CFO,

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Speaker 5: how do you manage the risk of a massive investment

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Speaker 5: cycle and a huge push wholesale just going into EV

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Speaker 5: not working out and in five to ten years consumers

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Speaker 5: don't want this stuff. We see greater efficiency through hybrids,

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Speaker 5: maybe even fantastic sustainable fuels. Paul, as a CFO of

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Speaker 5: a car company right now, how do you manage that risk?

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Speaker 7: Well, John, I think that's it's a great question, but

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Speaker 7: it's one that you know, when I look at the

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Speaker 7: portfolio of vehicles that we have really really great internal

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Speaker 7: combustion engine vehicles and a growing EV business off of

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Speaker 7: a platform where we've designed EV's from.

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Speaker 1: The ground up.

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Speaker 7: A lot of the evs that are on the market

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Speaker 7: are you know, traditional ice vehicles where you know companies

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Speaker 7: have put a battery solution into it and it's it's

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Speaker 7: not optimized in that standpoint. When you look at the

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Speaker 7: Altium platform of vehicles where we're growing production very very rapidly.

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Speaker 7: Now we think we've got vehicles that customers demand, and

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Speaker 7: you certainly see that in our order books across the board.

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Speaker 7: So one of the things that you haven't seen from

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Speaker 7: us is the type of pricing volatility that many of

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Speaker 7: our competitors are experiencing with some of those vehicles that

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Speaker 7: were early to market. We think our vehicles, when you

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Speaker 7: look at the Silverado EV forty percent more range than

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Speaker 7: anything else that's out there across the board. We think

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Speaker 7: we can win customers over over the long term, but

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Speaker 7: we've also got a very good ice portfolio to fall

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Speaker 7: back on and it's driving incredible performance for us.

437
00:22:09,560 --> 00:22:11,320
Speaker 5: I said it was unfair. It was unfair because we

438
00:22:11,320 --> 00:22:13,600
Speaker 5: need a much longer conversation about this in the future. Paul,

439
00:22:13,640 --> 00:22:22,080
Speaker 5: appreciate your time, sir, the General Motors c FO, this

440
00:22:22,280 --> 00:22:23,120
Speaker 5: is a joy.

441
00:22:23,400 --> 00:22:26,800
Speaker 1: Let us SeGW me here right now. To Michael Jesus.

442
00:22:26,800 --> 00:22:30,480
Speaker 2: He's out of Georgetown with tours of duty along the way,

443
00:22:30,640 --> 00:22:34,919
Speaker 2: particularly in municipal finance. He is now global head of

444
00:22:35,000 --> 00:22:39,159
Speaker 2: fixed income research at Morgan Stanley and I just I

445
00:22:39,200 --> 00:22:41,679
Speaker 2: can't say enough Michael, the idea of a guy with

446
00:22:41,880 --> 00:22:46,840
Speaker 2: massive policy credit like you, a municipal bond, the granularity

447
00:22:46,960 --> 00:22:51,560
Speaker 2: of municipal bonds in America doing global fixed income research.

448
00:22:51,640 --> 00:22:54,280
Speaker 2: What does your skill set bring to this new position

449
00:22:54,640 --> 00:22:58,080
Speaker 2: at Morgan Stanley. To me, it's radically different than most

450
00:22:58,240 --> 00:22:59,760
Speaker 2: quote global heads of fixing.

451
00:23:00,359 --> 00:23:03,760
Speaker 8: Well, I think at the very high level, develop markets

452
00:23:03,920 --> 00:23:07,720
Speaker 8: in general have had this interaction with public policy that

453
00:23:08,840 --> 00:23:11,920
Speaker 8: we used to just really be the area for emerging markets, right,

454
00:23:12,000 --> 00:23:14,960
Speaker 8: So I think you need those interacting skill sets, and

455
00:23:15,160 --> 00:23:18,080
Speaker 8: even like day like today and tomorrow, where we're waiting

456
00:23:18,080 --> 00:23:21,159
Speaker 8: on the FED, it's important to understand the public policy

457
00:23:21,240 --> 00:23:22,879
Speaker 8: nuance behind all of that.

458
00:23:23,040 --> 00:23:23,240
Speaker 1: Right.

459
00:23:23,280 --> 00:23:26,119
Speaker 8: So one of the reasons that we're so constructive on

460
00:23:26,160 --> 00:23:28,560
Speaker 8: the bond markets right now is that the FED is

461
00:23:28,680 --> 00:23:31,639
Speaker 8: kind of, over the last eighteen months gone over this

462
00:23:31,720 --> 00:23:35,359
Speaker 8: trajectory where it was creating substantial uncertainty in the bond

463
00:23:35,400 --> 00:23:40,199
Speaker 8: market in order to deal with inflation that arguably was

464
00:23:40,280 --> 00:23:43,480
Speaker 8: created by some of the fiscal policy choices made along

465
00:23:43,480 --> 00:23:45,680
Speaker 8: the way by the US government and by both parties.

466
00:23:46,280 --> 00:23:49,720
Speaker 8: Understanding that trajectory means that whether or not the FED

467
00:23:49,920 --> 00:23:54,000
Speaker 8: goes through with that second hike in September, that they're

468
00:23:54,040 --> 00:23:57,080
Speaker 8: signaling that the job is almost done or that they've

469
00:23:57,119 --> 00:23:59,439
Speaker 8: almost got inflation under control, as they feel they do.

470
00:24:00,080 --> 00:24:02,560
Speaker 8: You switch from massive uncertainty in the bond markets for

471
00:24:02,720 --> 00:24:05,720
Speaker 8: creating volatility in the way that I think municipal bond

472
00:24:05,720 --> 00:24:09,800
Speaker 8: investors understand that if you've got elevated volatility and you've

473
00:24:09,800 --> 00:24:12,600
Speaker 8: got negative total returns because yields are going higher, that

474
00:24:12,960 --> 00:24:15,720
Speaker 8: regardless of the fundamentals, that's a really negative backdrop. We're

475
00:24:15,760 --> 00:24:17,880
Speaker 8: kind of reversing that and putting on right.

476
00:24:17,920 --> 00:24:21,320
Speaker 2: Right now, I'm fascinated by when I look at fixed

477
00:24:21,359 --> 00:24:23,720
Speaker 2: income in the equity market, we all have a legacy

478
00:24:23,760 --> 00:24:26,679
Speaker 2: of shadows and opaqueness out there. Right now, all my

479
00:24:26,840 --> 00:24:30,719
Speaker 2: radar is up on this opaque word loans, yeah, or

480
00:24:30,840 --> 00:24:34,760
Speaker 2: leveraged loans are that? Does Morgan Stanley Fixed Income Research

481
00:24:34,840 --> 00:24:38,919
Speaker 2: feel there are challenges in the fixed income space, shadows

482
00:24:38,920 --> 00:24:40,159
Speaker 2: that we really can't observe.

483
00:24:40,960 --> 00:24:44,439
Speaker 8: Well, yeah, absolutely. I mean, so, for example, once we

484
00:24:44,520 --> 00:24:47,880
Speaker 8: get into twenty twenty four and then really escalates through

485
00:24:47,920 --> 00:24:50,920
Speaker 8: twenty twenty eight, in leverage finance, there is a substantial

486
00:24:50,960 --> 00:24:53,800
Speaker 8: wall of maturities and unless you get a meaningful amount

487
00:24:53,800 --> 00:24:55,879
Speaker 8: of free cash flow growth, you're going to get an

488
00:24:55,920 --> 00:24:58,760
Speaker 8: interest coverage going down substantially. So, for example, if you assume,

489
00:24:58,800 --> 00:25:00,760
Speaker 8: which I think is a far too concern, the assumption

490
00:25:01,119 --> 00:25:03,800
Speaker 8: that you don't get any free cash flow growth. About

491
00:25:03,800 --> 00:25:06,199
Speaker 8: a third of single bees, all of a sudden, have

492
00:25:06,760 --> 00:25:10,000
Speaker 8: sub one one time's coverage. So that's a real challenge,

493
00:25:10,000 --> 00:25:12,240
Speaker 8: and arguably it's one of the structural challenges that's kept

494
00:25:12,280 --> 00:25:16,640
Speaker 8: spreads relatively attractive. Another one that's kept spreads relatively attractive

495
00:25:16,720 --> 00:25:19,040
Speaker 8: is the bank demand issue and how that's changed since

496
00:25:19,040 --> 00:25:21,600
Speaker 8: the regional banking crisis. So these are things we have

497
00:25:21,640 --> 00:25:23,960
Speaker 8: to watch on the horizon. They're secular headwinds, but I

498
00:25:24,000 --> 00:25:26,280
Speaker 8: think the setup for high grade bonds right now is

499
00:25:26,320 --> 00:25:29,359
Speaker 8: pretty positive, at least into your end, because they're taking

500
00:25:29,400 --> 00:25:31,800
Speaker 8: away this uncertainty from the FED and fighting inflation.

501
00:25:32,040 --> 00:25:33,920
Speaker 5: Something we've been digging into over the last week or

502
00:25:33,960 --> 00:25:36,840
Speaker 5: so is who is actually paying these market rates? And

503
00:25:36,880 --> 00:25:38,320
Speaker 5: a question I've asked, and if you could give us

504
00:25:38,320 --> 00:25:40,520
Speaker 5: an idea, don't expect the precise numbers, but just the

505
00:25:40,520 --> 00:25:43,680
Speaker 5: difference between what a company's coupon is right now from

506
00:25:43,720 --> 00:25:46,320
Speaker 5: debt isssue would issued in the last couple of years.

507
00:25:46,520 --> 00:25:48,840
Speaker 5: So what the market rate for that interest is if

508
00:25:48,840 --> 00:25:50,680
Speaker 5: they came to the market today, Just how wide?

509
00:25:50,800 --> 00:25:51,040
Speaker 9: Yeah?

510
00:25:51,320 --> 00:25:52,040
Speaker 4: Is that? Well?

511
00:25:52,080 --> 00:25:55,560
Speaker 8: Okay, So our chief process strategist Andrew Sheets wrote about

512
00:25:55,600 --> 00:25:58,160
Speaker 8: this on Sunday, and it's fascinating that in a lot

513
00:25:58,200 --> 00:26:01,760
Speaker 8: of ways across the capital structure of markets, the bond

514
00:26:01,920 --> 00:26:05,480
Speaker 8: yield if the bond is yielding more than the assets financing,

515
00:26:05,480 --> 00:26:08,240
Speaker 8: which is totally upside down. So the Investment Great Corporate

516
00:26:08,280 --> 00:26:11,120
Speaker 8: Credit Index yields about five point four percent, the Russell

517
00:26:11,240 --> 00:26:14,280
Speaker 8: one thousand, the earning yield is only about four point

518
00:26:14,359 --> 00:26:17,600
Speaker 8: eight percent. That's not totally unprecedented, but it's pretty unprecedent.

519
00:26:17,640 --> 00:26:19,159
Speaker 8: It's only happened two percent of the time in the

520
00:26:19,240 --> 00:26:20,240
Speaker 8: last twenty years.

521
00:26:20,320 --> 00:26:20,560
Speaker 1: Right.

522
00:26:21,320 --> 00:26:24,359
Speaker 8: That difference kind of makes sense if you thought that

523
00:26:24,440 --> 00:26:27,800
Speaker 8: we were about to accelerate economic growth pretty substantially, but

524
00:26:27,840 --> 00:26:29,800
Speaker 8: we've got the opposite. If you are economists think we're

525
00:26:29,920 --> 00:26:31,919
Speaker 8: continuing to slow down. Obviously we haven't slowed down as

526
00:26:32,000 --> 00:26:35,240
Speaker 8: much as we thought we would, but without that growth,

527
00:26:35,640 --> 00:26:38,280
Speaker 8: then there's a problem if you're having to finance with

528
00:26:38,320 --> 00:26:41,120
Speaker 8: a higher yield than you're actually earning.

529
00:26:40,760 --> 00:26:43,840
Speaker 5: From Tom touched on this, When does it start to bite?

530
00:26:44,000 --> 00:26:45,520
Speaker 5: Can we just build that out just a little bit

531
00:26:45,520 --> 00:26:47,320
Speaker 5: more that it's going to buy certain parts of the

532
00:26:47,400 --> 00:26:50,920
Speaker 5: economy and certain issues more than others quickly than others,

533
00:26:51,080 --> 00:26:52,800
Speaker 5: but just on average, what does it start to buy?

534
00:26:53,320 --> 00:26:55,080
Speaker 8: Well, I think it's already starting to bite, and I

535
00:26:55,160 --> 00:26:57,680
Speaker 8: think the last CPI print sort of showed that right.

536
00:26:57,720 --> 00:26:59,840
Speaker 8: And it's part of the reason that our economists that

537
00:26:59,840 --> 00:27:01,480
Speaker 8: think that they were here, they would tell you that

538
00:27:02,000 --> 00:27:04,960
Speaker 8: the Fed, yes, they're going to hike this month, but

539
00:27:05,200 --> 00:27:07,600
Speaker 8: I think ultimately are probably not going to hike in

540
00:27:07,640 --> 00:27:11,640
Speaker 8: September because the accumulated effect of everything that's being done

541
00:27:11,720 --> 00:27:14,560
Speaker 8: so far is going to be tightening in and of

542
00:27:14,600 --> 00:27:16,960
Speaker 8: itself over the course the rest of the year. So

543
00:27:17,080 --> 00:27:18,920
Speaker 8: that is also a good setup for bonds and bond

544
00:27:18,960 --> 00:27:20,040
Speaker 8: yields and total returns.

545
00:27:20,280 --> 00:27:22,760
Speaker 2: What is a Bloomberg total return index to off Lehman

546
00:27:22,840 --> 00:27:25,600
Speaker 2: and Barclays. I'm looking at a Microsoft. I picked Microsoft, folks,

547
00:27:25,600 --> 00:27:27,600
Speaker 2: just because the yearnings. I believe or not, Microsoft does

548
00:27:27,680 --> 00:27:29,639
Speaker 2: have debt. I don't know if you were.

549
00:27:29,480 --> 00:27:29,959
Speaker 1: Aware of that.

550
00:27:30,000 --> 00:27:33,240
Speaker 2: I go out ten years to Microsoft two and five

551
00:27:33,320 --> 00:27:36,640
Speaker 2: eighths of thirty three, and I've enjoyed a time king

552
00:27:36,720 --> 00:27:40,359
Speaker 2: price decline from one thirty down to ninety seven.

553
00:27:40,920 --> 00:27:42,280
Speaker 1: What's the likelihood, given a.

554
00:27:42,320 --> 00:27:44,680
Speaker 2: High rates is sustained high rates that we see a

555
00:27:44,800 --> 00:27:48,480
Speaker 2: price breakdown through the lows of the last number of months.

556
00:27:49,640 --> 00:27:52,560
Speaker 8: I don't know that you necessarily get a substantial price breakdown.

557
00:27:52,560 --> 00:27:53,879
Speaker 8: I think a lot of the return you're going to

558
00:27:53,920 --> 00:27:56,400
Speaker 8: see is going to come off of yield and coupon,

559
00:27:57,320 --> 00:28:00,520
Speaker 8: mostly because while the FED could be closer to the

560
00:28:00,600 --> 00:28:04,640
Speaker 8: end h being done hiking, there's still the secular headwinds

561
00:28:04,640 --> 00:28:06,560
Speaker 8: that we talked about, right, There's still the bank demand

562
00:28:06,600 --> 00:28:10,119
Speaker 8: headwind there's still some lingering credit issues. So it's not

563
00:28:10,119 --> 00:28:13,440
Speaker 8: in the chilly environment where you're going to get yields

564
00:28:13,440 --> 00:28:16,200
Speaker 8: moving a lot lower or spreads moving a lot tighter,

565
00:28:16,640 --> 00:28:19,040
Speaker 8: But clipping that coupon in and of itself is quite

566
00:28:19,080 --> 00:28:22,359
Speaker 8: attractive relative to equities, which are probably going to be

567
00:28:22,400 --> 00:28:24,800
Speaker 8: more challenged than our estimates.

568
00:28:24,880 --> 00:28:28,679
Speaker 1: Channeling Mike Wilson there, I mean, you see you think channeling.

569
00:28:29,160 --> 00:28:30,840
Speaker 1: You know, how much do you and the equity guys

570
00:28:30,880 --> 00:28:31,600
Speaker 1: talk to each other?

571
00:28:32,520 --> 00:28:34,719
Speaker 2: By that, I mean, Mike's making all the adlines today

572
00:28:35,280 --> 00:28:37,040
Speaker 2: talking about the challenges of a bear market.

573
00:28:37,040 --> 00:28:39,320
Speaker 1: Short Paul he hasn't changed his view as well.

574
00:28:39,520 --> 00:28:41,800
Speaker 2: But how much does fixed income and Morgan Stanley go

575
00:28:41,880 --> 00:28:43,240
Speaker 2: back and forth with equity?

576
00:28:43,960 --> 00:28:47,200
Speaker 8: The collaboration is constant. Yeah, I mean We're still on

577
00:28:47,240 --> 00:28:50,600
Speaker 8: the same floor by each other. We're on calls weekly, collaborating,

578
00:28:50,720 --> 00:28:55,160
Speaker 8: making sure that we're challenging each other. So uh, the answer,

579
00:28:55,200 --> 00:28:56,040
Speaker 8: in short is a lot.

580
00:28:56,400 --> 00:29:00,200
Speaker 5: Michael, this was great. That's going to say it, thank you,

581
00:29:00,280 --> 00:29:02,640
Speaker 5: thank you, just awesome as a wise.

582
00:29:13,120 --> 00:29:16,680
Speaker 2: And now joining us the David Rubinstein as well with

583
00:29:16,720 --> 00:29:19,080
Speaker 2: the Carlisle Group, and of course has worked for Bloomberg

584
00:29:19,640 --> 00:29:23,760
Speaker 2: Wealth as well. What a timely conversation, David. What did

585
00:29:23,760 --> 00:29:29,120
Speaker 2: Barry Sternlick say about the commercial real estate dibeccle to come.

586
00:29:31,680 --> 00:29:35,600
Speaker 9: Well, he thinks it's going to be a hurricane, you know,

587
00:29:35,880 --> 00:29:38,720
Speaker 9: kind of a Category five hurricane. What you have is

588
00:29:39,000 --> 00:29:42,520
Speaker 9: a combination of people not going back to work physically

589
00:29:43,120 --> 00:29:49,000
Speaker 9: and people really uh, because of higher interest rates, not

590
00:29:49,200 --> 00:29:53,240
Speaker 9: valuing buildings as much as they used to. So the

591
00:29:53,280 --> 00:29:56,240
Speaker 9: result is you have an enormous amount of commercial office

592
00:29:56,280 --> 00:29:59,520
Speaker 9: space in this country that's worth a fraction of what

593
00:29:59,600 --> 00:30:00,840
Speaker 9: it was supposed.

594
00:30:00,480 --> 00:30:00,920
Speaker 4: To be worth.

595
00:30:01,240 --> 00:30:03,000
Speaker 9: And at some point over the next couple of years

596
00:30:03,120 --> 00:30:05,920
Speaker 9: or so, Barry Sternlick would say, and others would say

597
00:30:05,920 --> 00:30:08,120
Speaker 9: as well, this real estate is going to have to

598
00:30:08,160 --> 00:30:09,960
Speaker 9: go into the fault in some way or another. The

599
00:30:10,000 --> 00:30:13,560
Speaker 9: banks are not going to be able to really justify

600
00:30:13,960 --> 00:30:17,280
Speaker 9: the debt that they have on the buildings, and the

601
00:30:17,360 --> 00:30:19,080
Speaker 9: landlords aren't going to be able to pay the debt.

602
00:30:19,400 --> 00:30:23,040
Speaker 9: So you're going to see a very large effort to,

603
00:30:23,360 --> 00:30:26,000
Speaker 9: i say, sell out of this debt at discounts, and

604
00:30:26,040 --> 00:30:28,120
Speaker 9: it's going to cause some problems in the banking community

605
00:30:28,160 --> 00:30:29,200
Speaker 9: and the real estate community.

606
00:30:29,240 --> 00:30:32,520
Speaker 2: There's a suppleness to Barry Sternlick's career. Folks, if you're

607
00:30:32,560 --> 00:30:35,080
Speaker 2: just joining us, this is the conversation. They would like

608
00:30:35,120 --> 00:30:37,800
Speaker 2: to say to mister Rubinstein. That will extend this discussion

609
00:30:38,120 --> 00:30:40,800
Speaker 2: for one hour. But John Ferrell would be upset by that.

610
00:30:41,160 --> 00:30:44,720
Speaker 2: At nine zero zero, David Rubinstein, this is so important.

611
00:30:44,880 --> 00:30:47,360
Speaker 2: Who is Barry Sternlick and why do people like you

612
00:30:47,840 --> 00:30:49,120
Speaker 2: lean forward?

613
00:30:50,520 --> 00:30:52,720
Speaker 9: Barry Sternlick is one of the major forces in the

614
00:30:52,800 --> 00:30:56,080
Speaker 9: US real estate market. He built a very large company

615
00:30:56,400 --> 00:31:01,640
Speaker 9: in the commercial office building and commercial real estate world,

616
00:31:01,920 --> 00:31:04,520
Speaker 9: but he also built a large hotel company. He ultimately

617
00:31:04,520 --> 00:31:07,960
Speaker 9: sold that to Marriott, but Starwood Hospitality was for a

618
00:31:07,960 --> 00:31:10,440
Speaker 9: long time one of the largest hotel companies the United States.

619
00:31:10,600 --> 00:31:15,400
Speaker 9: Consisted of major brands like Weston and Sheridan, among others.

620
00:31:15,560 --> 00:31:19,280
Speaker 9: He also invented the W brand, which is now owned

621
00:31:19,320 --> 00:31:22,400
Speaker 9: in effect by Marriott. But even when he sold all

622
00:31:22,480 --> 00:31:26,000
Speaker 9: that to Marriott, he kept his real estate company, which

623
00:31:26,000 --> 00:31:27,920
Speaker 9: is now one of the largest in the United States,

624
00:31:28,240 --> 00:31:32,440
Speaker 9: and it owns enormous amounts of properties across the spectrum

625
00:31:32,600 --> 00:31:35,400
Speaker 9: of real estate properties, and he would say a lot

626
00:31:35,440 --> 00:31:39,640
Speaker 9: of it is struggling. He has turned some buildings back

627
00:31:39,800 --> 00:31:42,640
Speaker 9: to the lenders, as most real estate developers and owners

628
00:31:42,720 --> 00:31:46,000
Speaker 9: of real estate are beginning to do, unfortunately. And so

629
00:31:46,760 --> 00:31:49,400
Speaker 9: he made his name, I would say, initially in the

630
00:31:49,480 --> 00:31:52,760
Speaker 9: late nineteen eighties buying distressed real estate from the RTC.

631
00:31:53,320 --> 00:31:54,800
Speaker 9: And I suspect he thinks there's going to be a

632
00:31:54,800 --> 00:31:56,680
Speaker 9: lot of distressed real estate in the next couple of

633
00:31:56,760 --> 00:31:59,480
Speaker 9: years as well. Hopefully he hopes it's not going to

634
00:31:59,480 --> 00:32:00,560
Speaker 9: be his real life state.

635
00:32:00,520 --> 00:32:04,120
Speaker 2: Did well, okay, But to stress real estate, David Rubinstein

636
00:32:04,360 --> 00:32:07,640
Speaker 2: clearly means the Japanese show up. We're beginning to see

637
00:32:07,680 --> 00:32:11,520
Speaker 2: that Crane CJ. Hughes over at Cranes writing out new

638
00:32:11,640 --> 00:32:14,560
Speaker 2: Japanese interest in the island of Manhattan as well.

639
00:32:14,800 --> 00:32:14,960
Speaker 1: Well.

640
00:32:15,120 --> 00:32:19,080
Speaker 2: History repeat itself in our commercial real estate Tobacco, where

641
00:32:19,120 --> 00:32:20,240
Speaker 2: the foreigners show.

642
00:32:20,120 --> 00:32:25,360
Speaker 9: Up well, usually what happens is foreigners show up before

643
00:32:25,400 --> 00:32:28,360
Speaker 9: the debacle curse, not after the debacle curse.

644
00:32:28,680 --> 00:32:29,680
Speaker 1: Right now, I think.

645
00:32:29,480 --> 00:32:33,480
Speaker 9: You're seeing a slow diminution and values in office buildings.

646
00:32:33,680 --> 00:32:36,480
Speaker 9: Anybody who's watching this show knows that when you go

647
00:32:36,520 --> 00:32:38,600
Speaker 9: to a major office building in New York or other

648
00:32:38,640 --> 00:32:41,080
Speaker 9: major cities todays, you don't see a lot of people there,

649
00:32:41,320 --> 00:32:44,239
Speaker 9: and therefore, eventually the people using that real estate are

650
00:32:44,240 --> 00:32:46,000
Speaker 9: going to say, I don't need as much space as

651
00:32:46,000 --> 00:32:47,960
Speaker 9: I used to because people are working from home three

652
00:32:48,000 --> 00:32:49,880
Speaker 9: days a week or two days a week, and therefore

653
00:32:49,880 --> 00:32:52,440
Speaker 9: I'm going to shrink in my next lease the amount

654
00:32:52,480 --> 00:32:54,200
Speaker 9: of space I have, And therefore you're going to see

655
00:32:54,320 --> 00:32:57,880
Speaker 9: enormous shrinkage in the I think, the usage of office buildings,

656
00:32:57,920 --> 00:33:00,480
Speaker 9: and as a result, the values of the leases are

657
00:33:00,520 --> 00:33:02,560
Speaker 9: going to go down, and as a result of buildings

658
00:33:02,640 --> 00:33:04,480
Speaker 9: property of value is going to go down as well.

659
00:33:04,720 --> 00:33:06,680
Speaker 9: In some cases, the banks are going to be forced

660
00:33:06,720 --> 00:33:09,240
Speaker 9: to take over the building because the landlord can't afford

661
00:33:09,280 --> 00:33:11,280
Speaker 9: to service the debt any longer. This is going to

662
00:33:11,320 --> 00:33:13,160
Speaker 9: take place over another two or three.

663
00:33:13,080 --> 00:33:13,520
Speaker 1: Years or so.

664
00:33:13,920 --> 00:33:18,360
Speaker 2: Is Barry sternlicked an optimist? I guess the durability of

665
00:33:18,440 --> 00:33:22,120
Speaker 2: work from home and the migration of commercial real estate

666
00:33:22,200 --> 00:33:26,040
Speaker 2: office to individual residences. Does he think we could pull

667
00:33:26,120 --> 00:33:26,600
Speaker 2: that off.

668
00:33:29,040 --> 00:33:31,680
Speaker 9: I think he thinks we're not likely overnight to be

669
00:33:31,720 --> 00:33:33,800
Speaker 9: able to go right back to the five days a

670
00:33:33,800 --> 00:33:35,520
Speaker 9: week and using all the space we used to do.

671
00:33:35,960 --> 00:33:38,600
Speaker 9: And so I think he's quite cognizant of the fact that

672
00:33:38,640 --> 00:33:41,400
Speaker 9: the world has changed in the United States. Outside the

673
00:33:41,480 --> 00:33:44,000
Speaker 9: United States, he would say people are going back to offices,

674
00:33:44,240 --> 00:33:45,960
Speaker 9: and it's not quite the phenomenon we have in the

675
00:33:46,040 --> 00:33:46,600
Speaker 9: United States.

676
00:33:46,640 --> 00:33:47,440
Speaker 4: For a number of reasons.

677
00:33:47,560 --> 00:33:49,320
Speaker 9: The United States, you don't see people going back to

678
00:33:49,360 --> 00:33:52,080
Speaker 9: the office five days a week, with very few exceptions.

679
00:33:52,640 --> 00:33:55,760
Speaker 9: But he's a very talented real estate investor. I've known

680
00:33:55,840 --> 00:33:58,680
Speaker 9: him for quite some time. And he also moved his

681
00:33:58,840 --> 00:34:03,520
Speaker 9: entire operations from the Northeast to Miami ahead of everybody

682
00:34:03,560 --> 00:34:05,520
Speaker 9: else moving to Miami. So he was ahead of the

683
00:34:05,560 --> 00:34:07,920
Speaker 9: curve there, as he is in many other areas, and

684
00:34:07,960 --> 00:34:11,440
Speaker 9: I think he's operating quite effectively down there. His company

685
00:34:11,440 --> 00:34:14,680
Speaker 9: now has over one hundred billion dollars of real estate properties,

686
00:34:15,040 --> 00:34:17,319
Speaker 9: and while he has given some of them back to

687
00:34:17,360 --> 00:34:19,600
Speaker 9: the lenders, on the whole, I think he's done pretty

688
00:34:19,600 --> 00:34:20,160
Speaker 9: good shape.

689
00:34:20,440 --> 00:34:23,360
Speaker 2: Barry Sternlicka in the hotel business. Of course, Starwood is

690
00:34:23,560 --> 00:34:27,279
Speaker 2: iconic there within hotels. What did he say about the

691
00:34:27,320 --> 00:34:29,520
Speaker 2: future of hotels? All I know, David, is every time

692
00:34:29,560 --> 00:34:32,640
Speaker 2: I call a hotel, the price is dramatically higher than

693
00:34:32,680 --> 00:34:35,000
Speaker 2: it was twelve months ago or twenty four months ago.

694
00:34:37,080 --> 00:34:38,759
Speaker 9: Well, because they know you're going to stay there, they

695
00:34:38,800 --> 00:34:41,080
Speaker 9: probably are jacking up the rate, thank you, because they'm

696
00:34:41,160 --> 00:34:43,640
Speaker 9: sure you can afford it. But I would say that

697
00:34:43,719 --> 00:34:46,880
Speaker 9: the hotel business has been is coming back from the

698
00:34:46,920 --> 00:34:50,560
Speaker 9: depths of the COVID period of time when essentially nobody

699
00:34:50,600 --> 00:34:53,600
Speaker 9: was using hotels and the stock price of hotel companies

700
00:34:53,600 --> 00:34:56,640
Speaker 9: were way down. Now hotels are coming back because we're

701
00:34:56,680 --> 00:34:59,920
Speaker 9: seeing in the United States enormous amount of spending on

702
00:35:00,080 --> 00:35:06,719
Speaker 9: discretionary travel, on discretionary going away from home kinds of things, restaurants,

703
00:35:06,840 --> 00:35:10,399
Speaker 9: amusement parks, hotels, and so that the spending is up

704
00:35:10,480 --> 00:35:13,319
Speaker 9: quite nicely in that area, and hotels are coming back.

705
00:35:13,800 --> 00:35:16,120
Speaker 9: He's not so much in the hotel business as he was,

706
00:35:16,320 --> 00:35:19,200
Speaker 9: but he's a leading light in terms of his thought processes,

707
00:35:19,239 --> 00:35:22,040
Speaker 9: and he's really helped create a number of brands, not

708
00:35:22,080 --> 00:35:24,720
Speaker 9: only w but he also created the backer Rat hotel

709
00:35:24,760 --> 00:35:25,439
Speaker 9: brand as well.

710
00:35:26,480 --> 00:35:28,360
Speaker 2: David, in the time we've got left, I've got to

711
00:35:28,360 --> 00:35:31,400
Speaker 2: bring up a bombshell interview earlier this morning, Drew T

712
00:35:31,560 --> 00:35:35,160
Speaker 2: Matdis was iconic at Ubs with Maury Harris. He now

713
00:35:35,200 --> 00:35:40,360
Speaker 2: holds court at MetLife. Drew Madis, with exceptional optimism on

714
00:35:40,400 --> 00:35:44,359
Speaker 2: the American economy, looked for long term growth that would

715
00:35:44,360 --> 00:35:50,520
Speaker 2: approach three percent real GDP. That's a hugely optimistic view

716
00:35:50,680 --> 00:35:53,160
Speaker 2: out of American exceptionalism.

717
00:35:53,480 --> 00:35:54,479
Speaker 1: Do you share that.

718
00:35:54,520 --> 00:35:59,719
Speaker 2: Optimism that we underplay what our real GDP growth is

719
00:36:00,160 --> 00:36:02,800
Speaker 2: and what it will mean to our financial system.

720
00:36:03,480 --> 00:36:07,360
Speaker 9: Well, that's a very high real GDP growth an economy

721
00:36:07,360 --> 00:36:11,920
Speaker 9: of our size, real GDP growth probably around two percent

722
00:36:12,080 --> 00:36:14,720
Speaker 9: or two point two two point three percent is probably

723
00:36:14,760 --> 00:36:18,640
Speaker 9: realistic in the current environment. I think three percent or

724
00:36:18,680 --> 00:36:22,280
Speaker 9: greater real GDP growth when inflation is still reasonably high,

725
00:36:22,480 --> 00:36:25,560
Speaker 9: I think is quite a high growth because if you

726
00:36:25,640 --> 00:36:29,040
Speaker 9: have three percent inflation and you're saying three percent real growth,

727
00:36:29,040 --> 00:36:32,160
Speaker 9: that's really six percent GDP growth the way it's measured,

728
00:36:32,440 --> 00:36:34,680
Speaker 9: and I think that's probably not likely an economy of

729
00:36:34,680 --> 00:36:37,399
Speaker 9: our size. We did grow at six percent at one

730
00:36:37,480 --> 00:36:40,919
Speaker 9: quarter after the after COVID because we were so low.

731
00:36:41,200 --> 00:36:44,240
Speaker 9: But right now I think economies of our size, real

732
00:36:44,239 --> 00:36:47,240
Speaker 9: GDP growth two percent is probably realistic.

733
00:36:47,520 --> 00:36:49,879
Speaker 2: David, thank you so much. The most timely interview I've

734
00:36:49,920 --> 00:36:53,719
Speaker 2: heard with very Sternlink. You'll see it tonight on Bloomberg Television,

735
00:36:53,800 --> 00:36:57,160
Speaker 2: Very Sternlink of Starwood with mister Rubinstein in the Carlile Group.

736
00:36:57,480 --> 00:37:01,880
Speaker 2: Subscribe to the Bloomberg Surveillance podcast on Spotify and anywhere

737
00:37:01,920 --> 00:37:06,320
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738
00:37:06,360 --> 00:37:10,920
Speaker 2: at seven am Eastern. I'm Bloomberg dot Com, the iHeartRadio app,

739
00:37:11,239 --> 00:37:14,800
Speaker 2: tune In, and the Bloomberg Business App. You can watch

740
00:37:14,960 --> 00:37:19,280
Speaker 2: us live on Bloomberg Television and always I'm the Bloomberg Terminal.

741
00:37:19,640 --> 00:37:23,880
Speaker 1: Thanks for listening. I'm Tom Keen, and this is Bloomberg