WEBVTT - Bloomberg Wall Street Week: May 20th, 2022 0:00:00.520 --> 0:00:03.760 This is Bloomberg Wall Street Week. We turn our attention 0:00:03.840 --> 0:00:07.120 to the markets this week. U S CPI nevers reinforcing 0:00:07.160 --> 0:00:10.639 concerns about inflation. The financial stories that chief are worth 0:00:10.720 --> 0:00:13.480 a really different reaction to Mark. It's more indications of 0:00:13.640 --> 0:00:16.239 just how hot the U. S. Economy really is through 0:00:16.239 --> 0:00:19.520 the eyes of the most influential voices Larry Summers, the 0:00:19.560 --> 0:00:22.920 former Treator Secretary, Katherine Keating, CEO of the n Y Moms, 0:00:22.960 --> 0:00:26.239 Sam's l Sharmon and founder of Equity Group Investment. In 0:00:26.320 --> 0:00:30.280 Bloomberg wool Street Week with David Weston from Bloomberg Radio. 0:00:30.560 --> 0:00:34.320 It is a process of choosing political candidates for the fall, 0:00:34.520 --> 0:00:38.000 of strengthening the coalition, confronting Russia, but most of all 0:00:38.360 --> 0:00:41.240 of coming to terms with a tightening FED. This is 0:00:41.240 --> 0:00:45.920 Bloomberg Wall Street Week. I'm David Weston. This week's special 0:00:45.960 --> 0:00:49.120 contributor Larry Summers of Harvard on what can get the 0:00:49.280 --> 0:00:53.840 job done? On inflation This is a feature not above 0:00:54.400 --> 0:00:59.680 associated with the tightening of monetary policy. And Tom Tapira 0:00:59.720 --> 0:01:02.280 of g t I S Partners on risks to the 0:01:02.320 --> 0:01:07.560 housing market. As interest rates rise, the consumers stretch and 0:01:07.600 --> 0:01:09.720 that is certainly going to be an issue on a 0:01:09.760 --> 0:01:26.480 going forward basis. This week we did a lot of 0:01:26.640 --> 0:01:30.880 preparing recurring to add Sweden and Finland to NATO when 0:01:30.880 --> 0:01:32.920 the leaders of the two countries paid a visit to 0:01:33.000 --> 0:01:36.880 President Biden at the White House. Well, it's incredibly historic 0:01:37.000 --> 0:01:41.560 and this completely reshapes the post called war security alliance 0:01:41.680 --> 0:01:48.680 in Europe. Finland and Sweden make NATO stronger. Preparing for 0:01:48.760 --> 0:01:52.520 midterm elections less than six months away, as five states 0:01:52.560 --> 0:01:56.280 held primaries, though in Pennsylvania, Republicans have some more work 0:01:56.360 --> 0:02:01.080 to do, as Senate candidate Dave McCormick explained, Now, we 0:02:01.160 --> 0:02:05.080 have tens of thousands of mail in balloasts that have 0:02:05.200 --> 0:02:08.640 not been counted. But we could see the hath a head, 0:02:09.000 --> 0:02:12.760 We could see Dandre ahead. But no one and I 0:02:12.840 --> 0:02:15.560 mean no one, is preparing harder than FED Chair J. 0:02:15.680 --> 0:02:20.080 Powell preparing for the next round of rate hikes. Inflation 0:02:20.200 --> 0:02:22.960 is coming down. That's what we really need to see. Honestly, 0:02:22.960 --> 0:02:25.040 We'll just where we will go until we feel like 0:02:25.160 --> 0:02:28.120 we're at a place where we can where we can 0:02:28.160 --> 0:02:34.280 say yes, financial conditions are an inappropriate place. Equity markets 0:02:34.280 --> 0:02:36.720 this week, believe the Chair, and if that weren't enough, 0:02:36.880 --> 0:02:39.920 then chilling news out of retailers like Target and Walmart 0:02:39.960 --> 0:02:43.560 reinforce the idea that harder times may lie ahead. With 0:02:43.639 --> 0:02:46.000 the SMP down for the seventh week in a row, 0:02:46.240 --> 0:02:49.320 the longest losing streaks since two thousand one, and though 0:02:49.400 --> 0:02:52.160 it flirted with the bear market, it came back late 0:02:52.240 --> 0:02:56.560 on Friday, ending just above thirty nine hundred, down three 0:02:57.000 --> 0:02:59.760 overall for the week, while the NAZAC, already in bear territory, 0:03:00.120 --> 0:03:02.680 was down another three point eight percent this week. But 0:03:02.760 --> 0:03:05.200 the bond market was a different story, with a tenure 0:03:05.320 --> 0:03:07.600 rallying for the second week in a row, ending up 0:03:07.600 --> 0:03:10.880 with a yield below two point eight percent. Tell us 0:03:10.880 --> 0:03:13.000 sort it all out. We welcome to Bob Michael, he's 0:03:13.000 --> 0:03:16.040 ce IO of Global fixed Income, Currency and Commodities at 0:03:16.120 --> 0:03:19.880 JP Morgan Asset Management, and Sarah Maleck, chief investment officer 0:03:19.960 --> 0:03:21.799 at now Vene. So welcome both of you. It's great 0:03:21.800 --> 0:03:23.640 to have you here. Sarah'm gonna start with you because 0:03:23.639 --> 0:03:26.520 it was so much activity in equities this week. What happened? 0:03:26.760 --> 0:03:29.280 Daven There was three key drivers for the market this week. 0:03:29.320 --> 0:03:32.679 First was the retail wreckage, which shocked investors on Wednesday 0:03:32.680 --> 0:03:36.080 because we saw demand destruction. Consumers are not willing to 0:03:36.120 --> 0:03:39.600 pay anything for goods anymore. And secondarily, we finally did 0:03:39.640 --> 0:03:42.680 see that shift in spending from goods to services, but 0:03:42.760 --> 0:03:45.120 it came with a healthy dose of inventory building up. 0:03:45.120 --> 0:03:47.800 On the good side, this is not good for retailer's 0:03:47.840 --> 0:03:50.040 business model. So Bob Sarah says, maybe the faith can 0:03:50.040 --> 0:03:52.200 take its foot off the gas on interest rate heights. 0:03:52.320 --> 0:03:53.800 What do we see in the bond market, because we 0:03:53.840 --> 0:03:56.080 had seen that really dramatic ramp up in the yield 0:03:56.080 --> 0:03:57.680 of the tenure and then it sort of plateaued the 0:03:57.760 --> 0:04:00.400 last couple of weeks. Well, David, unlike the equity market, 0:04:00.480 --> 0:04:03.560 the bond market actually found solid footing this week. And 0:04:03.600 --> 0:04:07.360 it all started when FED expectations of rate hikes settled 0:04:07.360 --> 0:04:09.480 at around two and three quarters percent a year. And 0:04:09.800 --> 0:04:12.240 I know that's two percent from where we are now, 0:04:12.520 --> 0:04:14.800 but earlier this month it was at three percent, and 0:04:14.840 --> 0:04:17.040 the concern was that it was headed north to three 0:04:17.080 --> 0:04:21.120 and a half or higher. Once FED rate hike expectations 0:04:21.120 --> 0:04:24.479 settled down, the treasury market settled down. You said we're 0:04:24.480 --> 0:04:26.920 at two eighty. Last week we were at three twenty, 0:04:26.920 --> 0:04:29.279 and again the concern was that we were headed to 0:04:29.360 --> 0:04:32.359 three fifty. It feels as though the market is getting 0:04:32.440 --> 0:04:35.560 very comfortable with the narrative that the path to a 0:04:35.640 --> 0:04:39.400 three percent FED funds rate will be enough for now 0:04:39.440 --> 0:04:42.560 to slow down growth and inflationary pressures, or at least 0:04:42.560 --> 0:04:45.080 get the Fed to pause. Now. Look, I'll admit it 0:04:45.120 --> 0:04:49.000 wasn't a perfect bond market. Corporate credit still had a 0:04:49.000 --> 0:04:53.080 tough week, Thanks very much equity market and Sarah. It 0:04:53.240 --> 0:04:56.440 was the lousy earnings that Sarah talked about, and we 0:04:56.520 --> 0:04:59.520 had high yield yielding now eight percent. It started the 0:04:59.560 --> 0:05:03.640 month at seven percent. Bob, Sarah raised, recession. How do 0:05:03.680 --> 0:05:06.320 you see the likeliest recession? I think most people I've 0:05:06.320 --> 0:05:07.919 talked to not over the next twelve months, But you 0:05:07.920 --> 0:05:10.599 go about twenty four months, it's different. I think when 0:05:10.600 --> 0:05:13.080 you look at the next twelve months in the US, 0:05:13.200 --> 0:05:16.000 you still have to get through this summer where there's 0:05:16.040 --> 0:05:18.800 a lot of pent up demand for travel and leisure, 0:05:18.960 --> 0:05:22.320 and unemployment is still very low, wages are going up. 0:05:22.640 --> 0:05:24.640 I think when you start to get out eighteen to 0:05:24.760 --> 0:05:27.160 twenty four months, and then you're looking at a lot 0:05:27.200 --> 0:05:30.160 of things, you're looking at where rates will be. The 0:05:30.200 --> 0:05:33.760 cumulative impact of rate hikes, we think they'll be about three. 0:05:34.400 --> 0:05:37.000 You're looking at the bite that inflation will have taken 0:05:37.040 --> 0:05:39.880 out of the economy. You'll have another year year and 0:05:39.880 --> 0:05:42.919 a half of higher inflation than the consumer would like 0:05:42.960 --> 0:05:46.440 to see. You'll have a strong dollar. It's still possible 0:05:46.520 --> 0:05:50.320 for the Fed to engineer a soft landing, but frankly, 0:05:50.480 --> 0:05:54.039 it looks very aspirational when you figure they have to 0:05:54.080 --> 0:05:58.159 battle the highest rate of inflation in forty years and 0:05:58.600 --> 0:06:01.880 drain away the greatest amount of liquidity we've seen in 0:06:01.920 --> 0:06:04.680 the history of Earth. So Sarah Bob's right, what does 0:06:04.680 --> 0:06:07.000 that say to equities? I think you know, for equities 0:06:07.040 --> 0:06:11.040 it definitely leads to more downside in a recession innary environment. 0:06:11.080 --> 0:06:12.880 They have not priced in. And but that's also why 0:06:12.920 --> 0:06:15.159 we're looking for those companies that are less dependent on 0:06:15.240 --> 0:06:17.960 economic growth. That does lead us to growth stocks. They 0:06:18.000 --> 0:06:20.159 have some of the worst returns here to day. And 0:06:20.160 --> 0:06:23.279 then also fundamentally strong sectors. Energy as a sector we 0:06:23.320 --> 0:06:26.960 still like because of the fundamentals tight supply, demands remain 0:06:27.040 --> 0:06:30.520 reasonably strong, and producers are being very disciplined. And then finally, 0:06:30.560 --> 0:06:33.120 dividend growers. If you look at history, companies that have 0:06:33.200 --> 0:06:36.120 strong balance sheets cash flow can continue to grow their dividends. 0:06:36.200 --> 0:06:39.080 They'll give you that portfolio protection within equities and should 0:06:39.120 --> 0:06:41.480 perform quite well while the friend raises heights and be 0:06:41.560 --> 0:06:44.280 defensive during a recession. Okay, Sarah, Bob, we're gonna be 0:06:44.320 --> 0:06:45.800 staying with us because we want to put some money 0:06:45.800 --> 0:06:47.880 to work here. We're gonna ask them for some investment 0:06:47.920 --> 0:06:50.800 advice given what we are seeing in this tumultuous market. 0:06:50.920 --> 0:07:02.520 That's next on Wall Street we on This is Bloomberg 0:07:02.560 --> 0:07:12.400 Wall Street Week with David Weston from Bloomberg Radio. This 0:07:12.560 --> 0:07:14.440 was the week when the stock market stage what it 0:07:14.480 --> 0:07:18.680 you sphemistically calls a correction, plunging below the one thousand 0:07:18.680 --> 0:07:21.720 mark for the first time since mid November. Came amid 0:07:21.760 --> 0:07:24.720 growing investor concern over the state of a dollar at 0:07:24.760 --> 0:07:28.520 home and abroad domestically, how much it's going to cost 0:07:28.560 --> 0:07:32.640 in terms of escalating interest rates on the dollar and abroad, 0:07:32.720 --> 0:07:34.840 how much it's going to be worth in terms of 0:07:34.840 --> 0:07:39.560 other currencies whose relative value was on the rise. That, 0:07:39.680 --> 0:07:41.600 of course, is Lewis Rock has around Wall Street Week 0:07:41.840 --> 0:07:44.720 nearly fifty years ago. Now remindings of the similarities and 0:07:44.760 --> 0:07:47.000 for them, mat of the differences as well between then 0:07:47.040 --> 0:07:50.080 and now. Sarah Maleck of Nouven and Bob Michael of 0:07:50.200 --> 0:07:52.440 JP Morgan have stayed with us. So Bob, will we 0:07:52.520 --> 0:07:54.600 come back to you. It is a different time, although 0:07:54.600 --> 0:07:56.800 there are some similarities. I'm not sure I there's a 0:07:56.840 --> 0:07:59.640 correction or we're actually seeing a downright to bear market 0:07:59.720 --> 0:08:02.440 right now. But let's talk about investment in fixed income. 0:08:02.720 --> 0:08:05.640 Where are their opportunities from your point of view. By 0:08:05.640 --> 0:08:07.720 the way, I hope it's a correction, because if I'm right, 0:08:07.800 --> 0:08:09.720 I think it took about ten years for the doubt 0:08:09.800 --> 0:08:14.280 to get back up above a thousand from that taping. Look, 0:08:14.560 --> 0:08:18.000 when we look at the repricing in the bond market, 0:08:18.080 --> 0:08:20.520 it's been dramatic. For the first four or five months 0:08:20.520 --> 0:08:22.760 of the year. It's been the worst bond market in 0:08:23.040 --> 0:08:25.680 history by a lot of measures. We want to take 0:08:25.720 --> 0:08:28.360 advantage of that. We think it's gone too far. I 0:08:28.440 --> 0:08:31.160 was in Kentucky visiting clients. There was a lot of 0:08:31.160 --> 0:08:34.520 discussion about municipal bonds and there are a lot of 0:08:34.520 --> 0:08:38.199 individual and institutional investors that are looking at muni bonds 0:08:38.280 --> 0:08:41.000 yielded one percent a year and they're now yielding over 0:08:41.080 --> 0:08:44.559 three percent on a taxable equivalent yield that's about five 0:08:45.360 --> 0:08:49.480 and municipal finances actually look pretty good. The other area 0:08:49.559 --> 0:08:52.920 that we're getting back into that looks pretty attractive to us. 0:08:52.960 --> 0:08:56.040 I touched on earlier. It's high yield. You're at an 0:08:56.120 --> 0:08:59.120 eight percent yield, You're at seven percent at the start 0:08:59.120 --> 0:09:01.440 of the month, you are four and a half percent 0:09:01.600 --> 0:09:04.720 at the story of the year. A pretty dramatic repricing, 0:09:04.960 --> 0:09:07.439 and I think a lot of investors have just fled 0:09:07.480 --> 0:09:10.240 the market and forgotten that it's a cleaner market. Six 0:09:10.280 --> 0:09:13.600 percent of the market defaulted away in twenty You've got 0:09:13.640 --> 0:09:17.040 a lot of middle American industrial companies in there with 0:09:17.080 --> 0:09:20.080 great fundamentals. To me, that's where a lot of value exists. 0:09:20.120 --> 0:09:21.760 I want to come back to high yields. But Sarah, 0:09:21.760 --> 0:09:23.679 what about munis, because I think you're interested in those 0:09:23.679 --> 0:09:27.120 as well. Right. Yeah, for fixed income in general, rising 0:09:27.200 --> 0:09:29.200 rates are going to be aheadman, But similar to Bob, 0:09:29.240 --> 0:09:32.160 we don't see rates rising to the degree that they 0:09:32.200 --> 0:09:34.760 have year today. So for fixed income, there are areas 0:09:34.760 --> 0:09:36.880 where you can lean in municipal bonds to do have 0:09:36.920 --> 0:09:39.280 strong fundamentals at the front end of the curve. We're 0:09:39.280 --> 0:09:42.360 seeing high yields and in taxbill fixed income, we like 0:09:42.480 --> 0:09:45.559 corporate credit those companies and sectors with strong balance sheets, 0:09:45.559 --> 0:09:48.200 but also emerging markets. In hield, you're getting a good 0:09:48.200 --> 0:09:50.040 return now, much better than you did in the past. 0:09:50.040 --> 0:09:52.040 So both all of those are areas that we like 0:09:52.120 --> 0:09:56.080 in taxible, fix and munis. So I'm really curious about 0:09:56.080 --> 0:09:57.680 the high yield because there's a lot of talk about 0:09:57.720 --> 0:10:00.720 possible the spreads, as they say, blowing out on high yields. 0:10:00.720 --> 0:10:02.440 So you don't want to be high yields when that happens. 0:10:02.520 --> 0:10:04.240 Are you confident that's not going to happen? And when 0:10:04.240 --> 0:10:05.840 you have rising range, don't you have to be worried 0:10:05.840 --> 0:10:10.000 about some defaults? Um you have to worry about defaults 0:10:10.200 --> 0:10:14.600 right before recession. And our analysis shows that any backup 0:10:14.800 --> 0:10:18.600 in high yield credit spreads is a buying opportunity unless 0:10:18.600 --> 0:10:22.040 a recession is imminent. Expecting one two years out is 0:10:22.040 --> 0:10:25.760 an imminent because we know anything can happen. So for us, 0:10:26.120 --> 0:10:29.440 credit quality still looks great. The yield is there. There's 0:10:29.440 --> 0:10:31.680 a lot of money on the sidelines that needs to 0:10:31.720 --> 0:10:35.320 put yield into their portfolios. As long as things remain stable, 0:10:35.360 --> 0:10:38.280 we think that money will come in and support the market. Sarah, 0:10:38.320 --> 0:10:40.480 you mentioned earlier some of the equities you're interested in. 0:10:40.520 --> 0:10:43.880 You mentioned energy for example, you mentioned Microsoft, maybe Costco. 0:10:44.080 --> 0:10:46.480 What makes you interested in those particular sorts of equities? 0:10:47.240 --> 0:10:49.640 So within energy, we love the fundamentals of the sector 0:10:49.679 --> 0:10:53.880 type supply, strong demand, produced discipline. Particularly refiners we think 0:10:53.920 --> 0:10:56.400 can benefit if benefit at this point in the cycle. 0:10:56.640 --> 0:10:58.680 Within the fank socks, we don't think that they're dead. 0:10:58.679 --> 0:11:00.640 You just need to be selective. Look for ones with 0:11:00.760 --> 0:11:04.360 less competition, more of a unique business model. Not only Microsoft, 0:11:04.520 --> 0:11:06.960 but Amazon. They had a very tough quarter that they've 0:11:06.960 --> 0:11:09.880 really in a sense overinvested in their logistics. They have 0:11:10.040 --> 0:11:13.040 no so much control over their global distribution. It's going 0:11:13.080 --> 0:11:15.120 to be a positive for them and pay off in 0:11:15.120 --> 0:11:16.839 the long term. We don't look at Amazon as a 0:11:16.920 --> 0:11:19.280 post pandemic SOOFT that's just going to suffer from here. 0:11:19.760 --> 0:11:22.160 So on the on the fixed income side, is there 0:11:22.200 --> 0:11:24.760 a corporate bond sort of tracking of what Sarah just 0:11:24.760 --> 0:11:26.520 said in the equity side, are those the corporate bonds 0:11:26.559 --> 0:11:30.000 you're most interested in? UM, I think it's just so 0:11:30.160 --> 0:11:33.800 broad based. Now everything got thrown away. I wish I 0:11:33.840 --> 0:11:37.440 could say there was a particular market or sector but 0:11:38.040 --> 0:11:41.160 everything cheapened up so dramatically. It's just a matter of 0:11:41.200 --> 0:11:44.240 going in, having the nerve to buy when everyone else 0:11:44.320 --> 0:11:46.640 is selling, and just hanging on for a little bit 0:11:46.679 --> 0:11:48.800 and ride through the volatility. But what if, in fact 0:11:49.200 --> 0:11:51.600 there is more of a chance of recession than we're anticipating. 0:11:51.720 --> 0:11:53.520 How do you hedge against that? How do you protect 0:11:53.520 --> 0:11:56.120 yourself up? Well, I think there are a couple of things. 0:11:56.120 --> 0:11:58.520 One is you have to go up in credit quality, 0:11:58.880 --> 0:12:02.800 because if in fact we do go into recession, then 0:12:02.880 --> 0:12:05.320 you are going to see default rates go up. Then 0:12:05.360 --> 0:12:07.880 there's going to be a flight to quality. So not 0:12:08.000 --> 0:12:10.880 only do you want higher quality corporate bonds, you want 0:12:10.960 --> 0:12:13.840 government bonds again, regardless of the yield. We've seen that 0:12:13.920 --> 0:12:16.920 you could be anything in the government bond market, and 0:12:16.920 --> 0:12:19.040 then you want to still stay in the dollars. So 0:12:19.080 --> 0:12:22.040 those are the kinds of things where you would go 0:12:22.120 --> 0:12:26.320 to a recession became really probable near term. So, Sarah, 0:12:26.360 --> 0:12:28.400 what about the dollar? I mean, we heard there Mr 0:12:28.440 --> 0:12:31.720 Rukheiser so fifty years ago talking about the dollar. Boy, 0:12:31.760 --> 0:12:33.880 we've had a very strong dollar. This week we saw 0:12:33.920 --> 0:12:35.560 maybe a little bit of a backing off in the 0:12:35.559 --> 0:12:37.400 strength of the dollar, do you have a theory on 0:12:37.400 --> 0:12:39.520 the dollar and how does it affect your investment strategy. 0:12:40.440 --> 0:12:42.800 I hate to say anything different than lou Rukheiser, but 0:12:43.040 --> 0:12:45.679 are we are in the camp that the dollars should 0:12:45.679 --> 0:12:48.240 remain pretty strong in the US is a safe haven trade. 0:12:48.440 --> 0:12:51.400 There's so many geopolitical risks out there, from the rush 0:12:51.440 --> 0:12:54.360 of Ukraine's situation to the lockdowns in China and the 0:12:54.360 --> 0:12:56.800 supply chain issues that they're having, and also can that 0:12:56.960 --> 0:13:00.440 monetary policy really have an impact? So we're very selective 0:13:00.480 --> 0:13:02.760 non US. We only like Latin America at this point 0:13:02.760 --> 0:13:06.000 in emerging markets, dollar remains strong as the US raises 0:13:06.040 --> 0:13:08.400 interest race you think that you know that's it's flat, 0:13:08.520 --> 0:13:11.120 that likely remains pretty strong going. So Sara also wants 0:13:11.120 --> 0:13:12.560 to ask you the same question as Bob on the 0:13:12.600 --> 0:13:15.160 equity side. For example, if you thought there was a 0:13:15.280 --> 0:13:17.960 larger chance of recession than you've said so far, how 0:13:18.000 --> 0:13:20.680 would you headge against that? Well, first of all, I 0:13:20.679 --> 0:13:22.880 think market time ring is a loser's game. The market 0:13:22.880 --> 0:13:25.119 can turn on a dime. We've seen that happen consistently 0:13:25.160 --> 0:13:27.600 this week. So we don't recommend people trying to get 0:13:27.640 --> 0:13:29.320 in and out of the market. This is where you 0:13:29.360 --> 0:13:32.880 need to be diversified, disciplined averaging into the market, and 0:13:32.880 --> 0:13:34.520 then you just need to look for those companies that 0:13:34.559 --> 0:13:37.680 are resilient in those sectors where they can continue to 0:13:37.840 --> 0:13:40.680 perform well because they have the profitability, they have pricing 0:13:40.720 --> 0:13:43.880 power to overcome inflation, strong free cash flow, strong balance 0:13:43.920 --> 0:13:46.760 Shee sets where we'd be positioning inequities, say out of 0:13:46.800 --> 0:13:49.880 you know, unprofitable technology companies where you know you might 0:13:49.920 --> 0:13:52.040 have they might have a hard time surviving during a 0:13:52.080 --> 0:13:55.560 deep recession. And Bob sort of finally, Warren Buffe and 0:13:55.600 --> 0:13:57.160 others have said, you want to buy when others are 0:13:57.200 --> 0:13:59.280 selling in the reverse? Right right now, as you look 0:13:59.280 --> 0:14:01.280 at the marketplace, where are people selling that you'd like 0:14:01.320 --> 0:14:04.920 to buy, they're making a mistake. Well, I think we've 0:14:04.960 --> 0:14:08.040 talked about corporate bonds. I think that was a big mistake. 0:14:08.400 --> 0:14:10.640 I think there was a lot of selling of municipals. 0:14:10.679 --> 0:14:12.680 I don't think that was a mistake. I think what 0:14:12.920 --> 0:14:15.480 that was the technicals because they had to rap cash 0:14:15.559 --> 0:14:18.600 to pay capital gains taxes at the start of the year. 0:14:18.920 --> 0:14:21.920 I think some of the emerging market debt sectors look 0:14:21.960 --> 0:14:24.080 pretty attractive to me. I'm glad you raised that because 0:14:24.120 --> 0:14:25.800 I was going to ask about outside the United States. 0:14:25.840 --> 0:14:28.760 You think emerging markets maybe attractive on the fixed incomes out, Yeah, 0:14:28.800 --> 0:14:31.800 because they've gone through a rate adjustment. If you look 0:14:31.840 --> 0:14:34.760 at the US, we've done two rate hikes for seventy 0:14:34.800 --> 0:14:37.520 five basis points. If you look at the emerging market 0:14:37.560 --> 0:14:41.640 since the start of we've had something like a hundred 0:14:41.720 --> 0:14:46.760 and thirty rate hikes for accumulative eleven thousand basis points. 0:14:47.080 --> 0:14:50.680 There are high real yields there. They front run the inflation. 0:14:50.800 --> 0:14:53.080 They're in a good spot. This has been a great discussion. 0:14:53.120 --> 0:14:55.160 Thank you so much to Bob Michael of JP Morgan 0:14:55.280 --> 0:15:03.520 and Sarah Manic a movine. This is Bloomberg Wall Street 0:15:03.560 --> 0:15:14.800 Week with David Weston from Bloomberg Radio. The housing housing 0:15:14.800 --> 0:15:17.400 a kind of climate and climate and climate housing. We 0:15:17.520 --> 0:15:20.560 all need it. There isn't enough of it, and prices 0:15:20.680 --> 0:15:23.120 are going up. Part of the problem is that we 0:15:23.280 --> 0:15:26.920 never really recovered from two eight. According to Jonathan Gray 0:15:27.040 --> 0:15:31.120 of Blackstone, the challenge on housing has been many years 0:15:31.120 --> 0:15:34.040 in the making. If you step back and look at 0:15:34.080 --> 0:15:39.120 the supply picture, we have been building housing at half 0:15:39.240 --> 0:15:43.760 the rate we did prior to the financial crisis and 0:15:43.840 --> 0:15:47.880 the Fed's monetary support for mortgages has helped stimulate the market. 0:15:48.280 --> 0:15:52.640 It was very hard to understand why when we were 0:15:52.640 --> 0:15:55.160 in the midst of the biggest house price run up 0:15:55.240 --> 0:15:59.600 ever that the FED was by mortgage back securities on 0:15:59.800 --> 0:16:03.760 us substantial scale. But now mortgage rates are pushing the 0:16:03.800 --> 0:16:07.600 other way, climbing back up over five driving the Housing 0:16:07.640 --> 0:16:11.440 Sentiment index down the most since the pandemic, which leads 0:16:11.520 --> 0:16:15.680 Wells Fargo CFO Mike Santa Masino to anticipate softening in 0:16:15.720 --> 0:16:17.760 the market. I think we've seen you know, if if 0:16:17.760 --> 0:16:20.080 it's not the largest increase in mortgage rates in a 0:16:20.160 --> 0:16:22.920 quarter ever, it's pretty close, um, and so I think 0:16:22.920 --> 0:16:25.760 that's definitely going to have an impact on the mortgage market. 0:16:26.000 --> 0:16:29.520 And this week's mortgage applications seem to prove that point. 0:16:30.000 --> 0:16:33.760 Down eleven percent, people are not entering into contracts, are 0:16:33.760 --> 0:16:40.880 trying to buy homes anymore because it costume much and 0:16:40.920 --> 0:16:43.880 to take us through this housing market. Welcome now. Tom Shapiro, 0:16:44.080 --> 0:16:46.760 He's president and chief investment officer of G T I 0:16:46.920 --> 0:16:49.960 S Partners. They manage about four point three billion dollars 0:16:50.000 --> 0:16:52.400 in real estate assets. Tom, thanks so much for joining 0:16:52.480 --> 0:16:54.200 us on Wall Street Week. First of all, I want 0:16:54.200 --> 0:16:56.400 to start with your take on where the housing market 0:16:56.440 --> 0:16:59.040 is right now. We've seen some slowing even this week 0:16:59.080 --> 0:17:01.440 with some new house in sales as well as existing 0:17:01.480 --> 0:17:04.919 housing sales. Sure that first, thank you so much for 0:17:05.000 --> 0:17:07.560 having me on the show. Why don't I just give 0:17:07.560 --> 0:17:10.159 you a little anecdotal evidence of what we're seeing in 0:17:10.160 --> 0:17:13.439 the field right now. Our home sales are down about 0:17:13.560 --> 0:17:17.359 fifteen to but that's a headline number, and you know, 0:17:17.400 --> 0:17:19.480 I think it would be helpful to kind of dig 0:17:19.680 --> 0:17:22.520 a little bit deeper into that number. The reason, for 0:17:22.600 --> 0:17:25.879 the most part is down is because we can't deliver homes. 0:17:25.920 --> 0:17:30.119 We're still having tremendous supply chain issues. Also, we find 0:17:30.160 --> 0:17:32.560 that a lot of home builders are actually holding back 0:17:32.800 --> 0:17:35.520 on the number of homes they want to deliver, and 0:17:35.560 --> 0:17:38.520 that is for a couple of reasons. One inflation because 0:17:38.600 --> 0:17:40.239 costs keep going up and they don't know what it's 0:17:40.240 --> 0:17:43.720 gonna actually cost to finish the house. And and too 0:17:44.280 --> 0:17:47.080 they want to ride up the home price appreciation. So 0:17:47.400 --> 0:17:49.480 I would say, for the most part right now, while 0:17:49.520 --> 0:17:52.800 we see a fifteen to slow down in sales, your 0:17:52.840 --> 0:17:56.240 over year, a lot of that is because of other 0:17:56.480 --> 0:17:59.879 extraneige issues. It's more of a delivery issue than is 0:18:00.040 --> 0:18:03.440 demand issue. With that said, we're definitely starting to see 0:18:03.480 --> 0:18:06.760 a pullback. We're starting to have to go deeper into 0:18:06.880 --> 0:18:09.720 our wait lists. But every house at this point that 0:18:09.760 --> 0:18:12.080 we deliver in the markets were in, we are selling. 0:18:12.680 --> 0:18:15.440 But I think we have to be careful about what 0:18:15.600 --> 0:18:17.480 we see, you know, on a going forward basis, because 0:18:17.560 --> 0:18:19.640 definitely we're starting to see things slowing down. But that's 0:18:19.640 --> 0:18:21.720 a really helpful way of putting up because we're having 0:18:21.720 --> 0:18:24.159 those discussions about the overall economy. Is it supply, is 0:18:24.160 --> 0:18:26.560 it demand? Is I understand you've got a supply problem 0:18:26.680 --> 0:18:29.160 because the supply change. People say that's going to go away? 0:18:29.240 --> 0:18:33.440 Is it going away? And how's it? Well, it's not. 0:18:33.600 --> 0:18:37.160 I mean, we definitely have issues. We have problems getting 0:18:37.160 --> 0:18:41.280 trusses and windows and appliances. Um, we're delivering homes with 0:18:41.359 --> 0:18:44.960 plywood windows at times. Um, it's we're having all sorts 0:18:44.960 --> 0:18:47.000 of issues. And of course you know the war in 0:18:47.119 --> 0:18:49.880 Ukraine and what's go on in China and the work 0:18:49.920 --> 0:18:55.600 stoppage is there. Um, the deliveries and transportation is an issue, 0:18:55.640 --> 0:18:57.760 and jobs are an issue, and trades are an issue, 0:18:58.040 --> 0:19:01.960 so it's gotten marginally are but we still have tremendous 0:19:02.000 --> 0:19:05.119 supply chain issues. Uh. And look if you look at 0:19:05.920 --> 0:19:09.600 how many houses were delivering a year in total, this 0:19:09.680 --> 0:19:12.720 is all all forms, it's about one point two million 0:19:13.240 --> 0:19:16.320 housing units a year, which is sort of in equilibrium. 0:19:17.800 --> 0:19:20.520 So Tom, some of the issue can be on the 0:19:20.520 --> 0:19:23.200 demand side. At some point. We've heard about mortgage rates 0:19:23.200 --> 0:19:25.600 going up to what five point five percent something like that, 0:19:25.880 --> 0:19:28.000 so that must affect it to some extent. Are you 0:19:28.040 --> 0:19:30.480 seeing some effects with that because we also have the 0:19:30.480 --> 0:19:32.359 FED is going to start selling off some of those 0:19:32.440 --> 0:19:36.960 mortgeback securities. Yeah, for sure. I mean, look, the consumer stretched, 0:19:36.960 --> 0:19:39.520 so why are they stretched a stretch because of inflation? 0:19:39.920 --> 0:19:42.919 So we have all sorts of issues. We have gas 0:19:42.960 --> 0:19:46.439 prices are more expensive, and we have the costs of 0:19:46.440 --> 0:19:48.719 food is more expensive, and of course, as you point out, 0:19:48.760 --> 0:19:51.680 mortgage rates are our own issues. So the consumer is 0:19:51.760 --> 0:19:54.480 stretch and that is certainly going to be an issue 0:19:54.480 --> 0:19:56.800 on a going forward basis on housing. But we are 0:19:56.840 --> 0:19:59.920 seeing you know, people taking less options, they're going to 0:20:00.040 --> 0:20:03.560 slightly smaller unit types UM and their renting, So we 0:20:03.600 --> 0:20:06.520 aren't necessarily seeing a slowdown at this point because of 0:20:06.560 --> 0:20:09.199 Morgan traits. But again, I think we have to be careful. 0:20:09.280 --> 0:20:11.600 I think, you know, the crystal ball says it's going 0:20:11.640 --> 0:20:13.919 to get a lot worse. We're not seeing it today, 0:20:13.960 --> 0:20:15.359 but I think in the future where I'm going to 0:20:15.400 --> 0:20:19.080 see a slowdown. Um And as I mentioned, so we're 0:20:19.119 --> 0:20:21.960 seeing your over your decline at this point isn't a 0:20:22.000 --> 0:20:25.560 demand issue. But I think we shouldn't kid ourselves that 0:20:25.600 --> 0:20:27.800 we are seeing it again. Our traffics down in a 0:20:27.840 --> 0:20:30.360 lot of our communities. It is starting to slow down. 0:20:30.400 --> 0:20:32.320 So I think we're gonna start to see the slowdown 0:20:32.320 --> 0:20:34.600 common The next couple of quarders, Tom, thank you so 0:20:34.680 --> 0:20:36.520 much for joining us at Waalter Week today. That is 0:20:36.560 --> 0:20:41.840 Tom Shapiro of G T I S Partners. Coming up. 0:20:41.920 --> 0:20:44.359 We wrap up a week with our special contributor, Larry 0:20:44.400 --> 0:21:05.840 Summers of Harvard. This is Bloomberg Wall Street Week with 0:21:05.920 --> 0:21:16.160 David Weston from Bloomberg Radio. This is Wall Street Week. 0:21:16.160 --> 0:21:18.280 I'm David western We are joined once again by our 0:21:18.359 --> 0:21:20.639