1 00:00:00,840 --> 00:00:04,000 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 2 00:00:04,040 --> 00:00:05,240 Speaker 1: my co host Matt Miller. 3 00:00:05,640 --> 00:00:09,600 Speaker 2: Every business day we bring you interviews from CEOs, market pros, 4 00:00:09,720 --> 00:00:13,600 Speaker 2: and Bloomberg experts, along with essential market moving news. 5 00:00:14,160 --> 00:00:17,279 Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 6 00:00:17,400 --> 00:00:20,720 Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast. 7 00:00:20,880 --> 00:00:23,760 Speaker 1: All right, we still have the auto workers on strike. 8 00:00:23,800 --> 00:00:27,160 Speaker 1: It seems like the strike is expanding in scope. We're 9 00:00:27,160 --> 00:00:30,040 Speaker 1: not doesn't seem any closer to a solution here, questions 10 00:00:30,080 --> 00:00:32,720 Speaker 1: what does it mean for these companies in their balance sheets? 11 00:00:32,760 --> 00:00:35,840 Speaker 1: So we got Joel Levington here. He runs all credit 12 00:00:35,880 --> 00:00:38,720 Speaker 1: research for Bloomberg Intelligence, and his day job he follows 13 00:00:38,720 --> 00:00:42,320 Speaker 1: these auto guys and the industrial companies from the credit perspective. So, Joel, 14 00:00:42,640 --> 00:00:44,479 Speaker 1: you know, when I think of the auto companies, I 15 00:00:44,479 --> 00:00:47,159 Speaker 1: don't think of them with the strongest balance sheets and 16 00:00:47,320 --> 00:00:51,640 Speaker 1: strongest credit profiles. And if this strike goes on, is 17 00:00:51,680 --> 00:00:53,440 Speaker 1: it a risk here or what type of risk is 18 00:00:53,479 --> 00:00:55,680 Speaker 1: it to their balance sheets and to their credit? 19 00:00:55,960 --> 00:00:58,840 Speaker 3: Yeah, Paul, it's a great question. And really the US 20 00:00:58,920 --> 00:01:02,120 Speaker 3: companies are autos have weaker balance sheets to begin within 21 00:01:02,200 --> 00:01:05,120 Speaker 3: the European names. It hasn't really been too much of 22 00:01:05,160 --> 00:01:09,039 Speaker 3: a concern at this point, but as it extends already 23 00:01:09,080 --> 00:01:11,760 Speaker 3: in week six, it becomes an issue. And really it 24 00:01:11,760 --> 00:01:15,160 Speaker 3: becomes an issue because the payables on these companies balance 25 00:01:15,200 --> 00:01:18,360 Speaker 3: sheets are huge, you know, in excess of thirty billion dollars, 26 00:01:18,400 --> 00:01:21,080 Speaker 3: and you don't really have receivables to offset that. So 27 00:01:21,120 --> 00:01:26,720 Speaker 3: you have this liquidity issue of you already lost mat machtables. 28 00:01:26,720 --> 00:01:29,000 Speaker 3: Like you know, you're paying your suppliers every sixty days 29 00:01:29,800 --> 00:01:33,080 Speaker 3: and as as you have no sales, like you're thought 30 00:01:33,120 --> 00:01:35,480 Speaker 3: to pay them. On the flip side, remember they're selling 31 00:01:35,560 --> 00:01:38,200 Speaker 3: to their dealers, so they get the cash kind of upfront. 32 00:01:38,640 --> 00:01:41,360 Speaker 3: So that cash, right yeah. 33 00:01:41,200 --> 00:01:43,040 Speaker 2: Because when you sell a car to a dealer, you 34 00:01:43,040 --> 00:01:44,600 Speaker 2: don't get cash for it, right. 35 00:01:44,640 --> 00:01:47,000 Speaker 3: Right, Well, it's done through floor or usually done through 36 00:01:47,000 --> 00:01:50,440 Speaker 3: floor plays, so well essentially you get it very quickly, 37 00:01:51,120 --> 00:01:53,400 Speaker 3: and so there's a timing mismatch. You get the cash 38 00:01:53,480 --> 00:01:55,840 Speaker 3: up front and then you have to pay your supplier. 39 00:01:55,920 --> 00:01:58,640 Speaker 3: So when there's no more sales or when sales decline, 40 00:01:59,040 --> 00:02:00,840 Speaker 3: you don't have the money come in because you're not 41 00:02:00,880 --> 00:02:02,600 Speaker 3: selling to the dealer. But on the flip side, you 42 00:02:02,600 --> 00:02:05,559 Speaker 3: still have to pay your vendors, and so that's where 43 00:02:05,600 --> 00:02:08,160 Speaker 3: all the cash strain happens. If you were called during 44 00:02:08,160 --> 00:02:10,520 Speaker 3: the pandemic. Ford had an issue eight and a half 45 00:02:10,560 --> 00:02:12,839 Speaker 3: billion dollars worth of debt, which is a very high 46 00:02:12,840 --> 00:02:15,560 Speaker 3: coupon debt, which eventually they called in at a premium 47 00:02:15,639 --> 00:02:18,440 Speaker 3: on top of that just to keep their liquidity whole. So, 48 00:02:18,800 --> 00:02:21,080 Speaker 3: you know, hopefully that's not the situation we're in, but 49 00:02:21,280 --> 00:02:22,280 Speaker 3: certainly it feels more. 50 00:02:22,240 --> 00:02:26,000 Speaker 2: And we get into next year and we look back, 51 00:02:26,120 --> 00:02:27,919 Speaker 2: I'm sure this strike will be resolved in the next 52 00:02:27,919 --> 00:02:30,120 Speaker 2: few weeks. Seems like they're done. They just need to 53 00:02:30,160 --> 00:02:31,680 Speaker 2: strike a little bit longer, Is that right? 54 00:02:31,720 --> 00:02:32,400 Speaker 1: Is that kind of the feeling. 55 00:02:32,760 --> 00:02:35,320 Speaker 2: That's what I got from your interview with David Welch 56 00:02:35,400 --> 00:02:38,359 Speaker 2: this morning, which is that Sean Fayn has to make 57 00:02:38,360 --> 00:02:40,560 Speaker 2: a lot of noise. He had huge demands. They're going 58 00:02:40,600 --> 00:02:42,880 Speaker 2: to get a big pay bump, but obviously not the 59 00:02:42,919 --> 00:02:46,200 Speaker 2: pensions or the four day work week. Was acruiting for 60 00:02:46,240 --> 00:02:48,200 Speaker 2: the four day work week, yeah, I thought it would 61 00:02:48,240 --> 00:02:50,120 Speaker 2: be awesome. Four hour work week is what I'm for. 62 00:02:50,560 --> 00:02:53,480 Speaker 2: But when you look back at the second half of 63 00:02:53,480 --> 00:02:56,800 Speaker 2: twenty twenty three, how much of an impact is this 64 00:02:56,840 --> 00:02:58,160 Speaker 2: going to make on the top line? 65 00:02:59,000 --> 00:03:01,800 Speaker 3: Probably not that much. I mean there, I think, particularly 66 00:03:01,840 --> 00:03:04,400 Speaker 3: with Stillanta. So you know, like your hell Cat and 67 00:03:05,280 --> 00:03:08,959 Speaker 3: Dodge and Chrysler, they built inventory in front of this, 68 00:03:09,160 --> 00:03:11,440 Speaker 3: knowing that there might be a protracted. 69 00:03:11,040 --> 00:03:13,120 Speaker 2: And build a lot of jeep wranglers we heard in this. 70 00:03:13,480 --> 00:03:16,359 Speaker 3: I mean if you go to the so learn the 71 00:03:17,160 --> 00:03:19,640 Speaker 3: way in our town, they certainly have a lot on 72 00:03:19,680 --> 00:03:24,040 Speaker 3: their lots of Broncos and rams and jeep so wranglers 73 00:03:24,040 --> 00:03:25,880 Speaker 3: you mean and wranglers, yes, and so. 74 00:03:25,760 --> 00:03:26,600 Speaker 2: Broncos are coed. 75 00:03:26,880 --> 00:03:31,040 Speaker 3: No, well they have have to. Oh okay, but yeah, 76 00:03:31,080 --> 00:03:34,160 Speaker 3: like all the all the autos had lots of inventory 77 00:03:34,160 --> 00:03:38,120 Speaker 3: other lots, you know, knowing that you might have a 78 00:03:38,160 --> 00:03:40,760 Speaker 3: several week lack of supply coming out. 79 00:03:41,000 --> 00:03:44,360 Speaker 2: So wait, just a sidetrack on the Bronco thing. Uh, 80 00:03:44,440 --> 00:03:46,120 Speaker 2: you got a dealership in your town that has a 81 00:03:46,120 --> 00:03:49,840 Speaker 2: ton of Broncos on the lot. Do you go in there? 82 00:03:49,880 --> 00:03:51,840 Speaker 2: And I mean are they charging five or ten thousand 83 00:03:51,840 --> 00:03:55,280 Speaker 2: dollars over MSRP or can you actually just buy one? 84 00:03:55,400 --> 00:03:56,600 Speaker 3: I think you could just buy one? 85 00:03:57,200 --> 00:03:57,800 Speaker 4: Where do you live? 86 00:03:59,080 --> 00:04:02,440 Speaker 1: Would do that offline on the bench right the train station? 87 00:04:03,800 --> 00:04:06,480 Speaker 2: So what do you think the union is going to 88 00:04:06,520 --> 00:04:07,680 Speaker 2: get at the end of all this. I mean, it 89 00:04:07,680 --> 00:04:09,520 Speaker 2: looks to me like they're going to get twenty three 90 00:04:09,760 --> 00:04:17,200 Speaker 2: percent increase and pay right, maybe bigger compounded, but no pensions. Right, 91 00:04:17,240 --> 00:04:17,760 Speaker 2: They're not going. 92 00:04:17,760 --> 00:04:18,520 Speaker 1: To get that back. 93 00:04:18,839 --> 00:04:21,400 Speaker 3: No, I think you're totally right, and I think you're 94 00:04:21,440 --> 00:04:23,440 Speaker 3: probably in the twenty five percent zone is where it 95 00:04:23,520 --> 00:04:25,880 Speaker 3: kind of works out. I think one of the reasons 96 00:04:25,880 --> 00:04:28,320 Speaker 3: that you hear people like Dave walchho does a great 97 00:04:28,400 --> 00:04:31,440 Speaker 3: job in our Detroit office, talk about it being extended 98 00:04:31,520 --> 00:04:35,360 Speaker 3: is because if you think about from the UAW side 99 00:04:35,360 --> 00:04:40,280 Speaker 3: of things, they've had a complete decline in volume and 100 00:04:40,400 --> 00:04:43,159 Speaker 3: customers for decades, right, and they have to kind of 101 00:04:43,160 --> 00:04:45,400 Speaker 3: turn it around. So if you can pop a you know, 102 00:04:45,800 --> 00:04:49,400 Speaker 3: fifteen percent increase in salary on day one, that will 103 00:04:49,400 --> 00:04:53,480 Speaker 3: get other industries and other autos to be nice that 104 00:04:53,640 --> 00:04:56,840 Speaker 3: if the uaw's in town, certainly more people could join them, 105 00:04:56,960 --> 00:05:00,680 Speaker 3: which is really their goal and game to become more signing. 106 00:05:00,440 --> 00:05:04,400 Speaker 2: Their battery factories now. They I'm sure they hope that 107 00:05:05,400 --> 00:05:07,719 Speaker 2: some Tesla shops will look at the union and say, 108 00:05:07,760 --> 00:05:09,159 Speaker 2: you know what, let's do, Let's try it again. 109 00:05:09,279 --> 00:05:12,160 Speaker 3: Yeah, And all the non union shops down south or 110 00:05:12,200 --> 00:05:13,080 Speaker 3: in the West. 111 00:05:13,240 --> 00:05:14,880 Speaker 2: That would BMW. 112 00:05:15,800 --> 00:05:19,839 Speaker 3: BMW. Volkswagen is building a new two billion dollar scout facility, 113 00:05:20,520 --> 00:05:22,520 Speaker 3: so I'm not sure if anybody that's gonna happen. 114 00:05:22,760 --> 00:05:25,800 Speaker 2: But is that really gonna happen? I saw it at 115 00:05:25,839 --> 00:05:30,880 Speaker 2: the you know, the Import Mechanic in Bronxville, right around 116 00:05:30,880 --> 00:05:34,080 Speaker 2: the corner from Rosies. They had an international Scout on 117 00:05:34,120 --> 00:05:37,960 Speaker 2: their lot and I thought, man, that is cool, so cool, 118 00:05:38,000 --> 00:05:40,640 Speaker 2: but you have no room in your parking garage. I 119 00:05:40,680 --> 00:05:45,279 Speaker 2: don't know, but I I feel like, is it really 120 00:05:45,320 --> 00:05:49,120 Speaker 2: gonna happen? Are they Is Volkswagen really gonna revive that 121 00:05:49,279 --> 00:05:53,080 Speaker 2: brand and actually make a mass production product. 122 00:05:53,360 --> 00:05:55,200 Speaker 3: They are, although if you look at the products that 123 00:05:55,200 --> 00:05:57,440 Speaker 3: they've shown online, it looks very very similar to the 124 00:05:57,480 --> 00:06:01,400 Speaker 3: Ribbean products. Yeah, just without a branding that nobody remembers. 125 00:06:01,880 --> 00:06:02,520 Speaker 1: Is that Gonna live? 126 00:06:02,720 --> 00:06:05,440 Speaker 5: Is Gonna live reviewed? 127 00:06:05,480 --> 00:06:08,240 Speaker 3: I think Ken Live? You know, like they did a 128 00:06:08,279 --> 00:06:10,280 Speaker 3: convertible bond a couple of months ago, which really gives 129 00:06:10,320 --> 00:06:12,880 Speaker 3: them some liquidity in time for their next product to 130 00:06:12,880 --> 00:06:15,880 Speaker 3: come out. But just like all of these ev companies, 131 00:06:16,080 --> 00:06:18,880 Speaker 3: they're years away from making profits, so it really becomes 132 00:06:19,160 --> 00:06:21,520 Speaker 3: what's your liquidity and access to the capital markets for 133 00:06:21,600 --> 00:06:22,920 Speaker 3: more of it? Because you're gonna need it. 134 00:06:23,120 --> 00:06:25,040 Speaker 2: Let me ask one more stupid car question, then I'll 135 00:06:25,080 --> 00:06:30,000 Speaker 2: yield around the flour. The cyber truck. Elon Musk on 136 00:06:30,040 --> 00:06:32,280 Speaker 2: the conference call, when he was so bummed out and 137 00:06:32,279 --> 00:06:36,280 Speaker 2: getting kind of philosophical and dark. Uh, he said, we 138 00:06:36,360 --> 00:06:39,840 Speaker 2: never should have, you know, launched into this special product. 139 00:06:39,920 --> 00:06:42,120 Speaker 2: And you know we we we should have known that 140 00:06:42,160 --> 00:06:45,479 Speaker 2: this like you know, special edition would have been, would 141 00:06:45,520 --> 00:06:47,760 Speaker 2: have caused us to go back into production. Hell, he 142 00:06:47,880 --> 00:06:50,160 Speaker 2: was talking about it as if it were limited. 143 00:06:50,560 --> 00:06:50,720 Speaker 1: Right. 144 00:06:51,320 --> 00:06:55,680 Speaker 2: Don't they want to challenge f one fifty, you know, 145 00:06:56,279 --> 00:07:02,120 Speaker 2: Chevy Silverado, you know Ram fifteen hundred, these massive volume 146 00:07:02,200 --> 00:07:06,280 Speaker 2: products with huge margins. Isn't that a market that they 147 00:07:06,320 --> 00:07:08,160 Speaker 2: want to take a piece of or is this just 148 00:07:08,240 --> 00:07:10,680 Speaker 2: like if you got one in the two year production run, 149 00:07:10,680 --> 00:07:11,960 Speaker 2: you're lucky and then it's done. 150 00:07:12,040 --> 00:07:13,680 Speaker 3: I don't think the cyber Truck is the answer to 151 00:07:13,720 --> 00:07:16,200 Speaker 3: the F one fifty or the Silverado. I think really 152 00:07:16,240 --> 00:07:19,000 Speaker 3: what they're trying to do there is really work on 153 00:07:20,640 --> 00:07:24,160 Speaker 3: giga casting, which is really making these huge casts, and 154 00:07:24,200 --> 00:07:25,680 Speaker 3: when you can do that, you can really cut down 155 00:07:25,720 --> 00:07:28,520 Speaker 3: production time really quickly. But I think where Tesla is 156 00:07:28,560 --> 00:07:32,640 Speaker 3: headed is really towards the Toyota side, towards making suv 157 00:07:33,040 --> 00:07:36,000 Speaker 3: not necessarily making a lot of money off of a 158 00:07:36,400 --> 00:07:39,240 Speaker 3: pickup truck, but really on the smaller cars, and I 159 00:07:39,240 --> 00:07:41,520 Speaker 3: think you'll see that with the model too. That's where 160 00:07:41,520 --> 00:07:43,720 Speaker 3: I think they can get super high volume and get 161 00:07:43,760 --> 00:07:46,520 Speaker 3: it out to the largest amount of consumers. Right Their 162 00:07:46,600 --> 00:07:49,800 Speaker 3: business has always been about the retail person, not the consumer, 163 00:07:49,880 --> 00:07:52,920 Speaker 3: and not the commercial application like you'd seen in F 164 00:07:52,960 --> 00:07:55,280 Speaker 3: one fifty, So I think that's really where they're headed. 165 00:07:56,040 --> 00:07:58,720 Speaker 3: But having that ability to cast in great scale at 166 00:07:58,720 --> 00:08:00,880 Speaker 3: a short period of time, that can give them a 167 00:08:00,920 --> 00:08:06,120 Speaker 3: competitive advantage even against an amazing manufacturer like Toyota. 168 00:08:07,360 --> 00:08:11,240 Speaker 1: Ge geez back baby. After like a ten or twenty 169 00:08:11,280 --> 00:08:13,160 Speaker 1: year hiatus in terms of being a stock and a 170 00:08:13,200 --> 00:08:15,040 Speaker 1: company that seems to be headed in the right direction. 171 00:08:15,160 --> 00:08:16,960 Speaker 3: It costs me my hairline, but they are back at 172 00:08:17,000 --> 00:08:20,720 Speaker 3: action and doing really well, and I think there's potential 173 00:08:20,920 --> 00:08:23,720 Speaker 3: rating upgrades which should you know, like enhance views of 174 00:08:23,760 --> 00:08:27,800 Speaker 3: their bonds. They will be separating their energy business in 175 00:08:27,840 --> 00:08:30,800 Speaker 3: the second quarter of next year or probably at the 176 00:08:30,840 --> 00:08:33,439 Speaker 3: end of the first quarter, and that really will keep 177 00:08:33,440 --> 00:08:37,800 Speaker 3: it as a pure aerospace company, and by all metrics 178 00:08:37,840 --> 00:08:40,240 Speaker 3: they should be back into the A category for the 179 00:08:40,240 --> 00:08:43,560 Speaker 3: first time in five years, and their bonds do not 180 00:08:43,600 --> 00:08:47,040 Speaker 3: reflect that. And so that's been a huge winner this year, 181 00:08:47,040 --> 00:08:48,840 Speaker 3: both in the stock market and in the bond market, 182 00:08:49,400 --> 00:08:51,079 Speaker 3: and I think that can continue into next year. 183 00:08:51,120 --> 00:08:53,840 Speaker 1: I'm just looking at the FA function for ge nineteen. 184 00:08:54,200 --> 00:08:56,400 Speaker 1: You're in twenty nineteen at ninety four billion of debt. 185 00:08:56,440 --> 00:08:58,680 Speaker 1: Now they've got like twenty three twenty four billion dollars. 186 00:08:58,880 --> 00:09:01,160 Speaker 3: Yeah, it's me it's amazing if you think about what 187 00:09:01,160 --> 00:09:03,400 Speaker 3: they did with the finance company. At one point, I 188 00:09:03,440 --> 00:09:05,760 Speaker 3: think at their peak they had about half a trillion 189 00:09:05,800 --> 00:09:08,440 Speaker 3: dollars worth of dead outstanding and that's been whittled down 190 00:09:08,520 --> 00:09:12,480 Speaker 3: to the twenties, about twenty billion dollars today from almost 191 00:09:12,480 --> 00:09:13,160 Speaker 3: half a trillion. 192 00:09:13,280 --> 00:09:14,040 Speaker 5: So G is back. 193 00:09:14,080 --> 00:09:17,240 Speaker 1: It's just a shadow of itself though in terms of size. 194 00:09:17,440 --> 00:09:21,359 Speaker 3: They have skinny down to the core business of aerospace, 195 00:09:22,080 --> 00:09:24,800 Speaker 3: and they are really really a strong player in that 196 00:09:24,840 --> 00:09:28,280 Speaker 3: business with a lot of aftermarket products and a twenty 197 00:09:28,280 --> 00:09:31,160 Speaker 3: percent margin with very little capital intensity, so that can 198 00:09:31,240 --> 00:09:34,160 Speaker 3: be a huge home run business. Investors, all right, and 199 00:09:34,200 --> 00:09:36,599 Speaker 3: who's the CEO. We like this guy, Larry Colepe. He 200 00:09:36,640 --> 00:09:38,880 Speaker 3: was great at Danahur and has done a tremendous job 201 00:09:38,960 --> 00:09:39,280 Speaker 3: at g E. 202 00:09:39,520 --> 00:09:42,680 Speaker 1: See it can be done, so you know, Jack Welch, 203 00:09:42,880 --> 00:09:44,920 Speaker 1: Jeff mmelt now. 204 00:09:44,880 --> 00:09:47,120 Speaker 2: Joel Levington. Yeah, we got to get this guy in 205 00:09:47,200 --> 00:09:48,560 Speaker 2: the studio for like a half hour. 206 00:09:48,679 --> 00:09:49,719 Speaker 1: I know, you know, he's mind. 207 00:09:49,760 --> 00:09:51,439 Speaker 2: He can talk about a million questions. Let's go to 208 00:09:51,480 --> 00:09:52,720 Speaker 2: break so I can ask him some more questions. 209 00:09:52,760 --> 00:09:54,480 Speaker 1: All right, very good. Joe Levinton, he's the director research 210 00:09:54,520 --> 00:09:55,600 Speaker 1: at Bloomberg Intelligence. 211 00:09:57,120 --> 00:10:00,959 Speaker 6: You're listening to the Team Cancer Line program Bloomberg Markets 212 00:10:01,000 --> 00:10:04,120 Speaker 6: weekdays at ten am Eastern on Bloomberg dot Com, the 213 00:10:04,160 --> 00:10:07,320 Speaker 6: iHeartRadio app, and the Bloomberg Business app, or listen on 214 00:10:07,360 --> 00:10:09,280 Speaker 6: demand wherever you get your podcast. 215 00:10:11,600 --> 00:10:14,680 Speaker 2: Matt sam Bankmin freed to testify at his for All troup. 216 00:10:14,840 --> 00:10:15,800 Speaker 1: Can we see this on TV? 217 00:10:15,960 --> 00:10:16,360 Speaker 3: Is this stuff? 218 00:10:16,360 --> 00:10:16,520 Speaker 5: Tell? 219 00:10:16,800 --> 00:10:20,120 Speaker 2: I mean I first when I saw that headline crossed, 220 00:10:20,160 --> 00:10:25,280 Speaker 2: I was so excited because sheerly because of the drama. Yeah, 221 00:10:25,400 --> 00:10:32,320 Speaker 2: you know, the the decision I find questionable, but I 222 00:10:32,360 --> 00:10:36,480 Speaker 2: guess I get it. I mean, it's a not a Reportedly, 223 00:10:36,559 --> 00:10:39,560 Speaker 2: it's not always the smartest move to make. On the 224 00:10:39,600 --> 00:10:43,160 Speaker 2: other hand, some people have said he needs to throw 225 00:10:43,160 --> 00:10:45,920 Speaker 2: this hail Mary because he's losing the game. You know. 226 00:10:47,200 --> 00:10:49,719 Speaker 2: Then then I got kind of bummed out because I 227 00:10:49,800 --> 00:10:52,480 Speaker 2: remember it as Katie Greifeld was selling amount of surveillance 228 00:10:52,480 --> 00:10:55,720 Speaker 2: state there's no cameras allowed. Yeah, and so we've seen 229 00:10:55,840 --> 00:10:58,440 Speaker 2: everybody else who comes who's not in prison, who comes 230 00:10:58,440 --> 00:11:02,120 Speaker 2: to testify, but we haven't seen Sam Bankman freed. And 231 00:11:03,360 --> 00:11:07,840 Speaker 2: the chord sketches are I mean horrendous. I know it's subjective, 232 00:11:07,920 --> 00:11:11,320 Speaker 2: but they're no bueno like, they're just not realistic at all. 233 00:11:11,360 --> 00:11:12,839 Speaker 1: Yeah, we need to get some cameras in there. Let's 234 00:11:12,840 --> 00:11:14,080 Speaker 1: see if I can make a phone call there. 235 00:11:14,120 --> 00:11:16,080 Speaker 2: He's got a haircut, and I need to see it. 236 00:11:16,120 --> 00:11:18,240 Speaker 2: You need to see Tom Kane's pointing out, no one 237 00:11:18,240 --> 00:11:20,280 Speaker 2: cares if he gets a haircut. That's because we can 238 00:11:20,320 --> 00:11:22,839 Speaker 2: see it all the time, right, you know, all. 239 00:11:22,840 --> 00:11:24,880 Speaker 1: Right, we had some some tech earnings last night. We're 240 00:11:24,880 --> 00:11:26,440 Speaker 1: gonna get some more of the Reindeer of this week. 241 00:11:26,559 --> 00:11:29,319 Speaker 1: You got Amazon still to go after the close, Mogiano, 242 00:11:29,400 --> 00:11:32,080 Speaker 1: Let's check out with Angelo Zenom. He's a senior industry 243 00:11:32,080 --> 00:11:35,480 Speaker 1: analyst at CEE f R, A Research Angela. We had 244 00:11:35,760 --> 00:11:39,600 Speaker 1: last night Alphabet better known as Google, and Microsoft reports 245 00:11:39,600 --> 00:11:42,319 Speaker 1: some numbers and it seems like for both companies it's 246 00:11:42,360 --> 00:11:44,560 Speaker 1: all about the cloud. Give us your takeaways from some 247 00:11:44,600 --> 00:11:46,280 Speaker 1: of those big name tech names last night. 248 00:11:47,160 --> 00:11:49,920 Speaker 7: Yeah, no, absolutely, it is all about the clouds. You know, 249 00:11:49,960 --> 00:11:51,400 Speaker 7: I have to saying those numbers. 250 00:11:51,440 --> 00:11:54,000 Speaker 4: I mean, Alphabet was it a disappointment on the cloud 251 00:11:54,000 --> 00:11:57,360 Speaker 4: side of things. Sharp deceleration, I think, well below what 252 00:11:57,440 --> 00:12:00,880 Speaker 4: anybody anticipated at a twenty two percent growth rate. We 253 00:12:00,880 --> 00:12:03,160 Speaker 4: were looking closer to twenty six to twenty eight percent. 254 00:12:03,600 --> 00:12:06,120 Speaker 4: And you know, they're clearly losing. 255 00:12:05,840 --> 00:12:11,120 Speaker 7: Share to Microsoft and Azure, which saw actually an acceleration 256 00:12:11,480 --> 00:12:13,520 Speaker 7: of their cloud business. 257 00:12:12,960 --> 00:12:15,520 Speaker 4: Growing twenty nine percent from the twenty six percent growth 258 00:12:15,600 --> 00:12:18,040 Speaker 4: right we saw just last quarter on their end of things. 259 00:12:18,040 --> 00:12:21,079 Speaker 4: And listen, I mean, as far as Alphabet is concerned, 260 00:12:21,240 --> 00:12:24,320 Speaker 4: they are a much smaller player on the cloud side 261 00:12:24,320 --> 00:12:27,160 Speaker 4: of things, so they should be growing above the growth 262 00:12:27,200 --> 00:12:29,800 Speaker 4: pace of Microsoft, and the fact that they're not is 263 00:12:29,840 --> 00:12:31,880 Speaker 4: a big problem. I think the other issue with Alphabet, 264 00:12:31,920 --> 00:12:34,680 Speaker 4: as far as the numbers we're concerned is as you 265 00:12:34,800 --> 00:12:38,000 Speaker 4: start falling behind the competition, there's always concern that you 266 00:12:38,040 --> 00:12:40,040 Speaker 4: may need to spend a little bit more to kind 267 00:12:40,080 --> 00:12:41,160 Speaker 4: of keep. 268 00:12:41,040 --> 00:12:43,520 Speaker 7: Up with the pack, and I think going into twenty 269 00:12:43,520 --> 00:12:46,160 Speaker 7: twenty four, there could be some concern that, you know, 270 00:12:46,200 --> 00:12:48,640 Speaker 7: maybe Alphabet will need to spend a little bit more 271 00:12:48,720 --> 00:12:51,680 Speaker 7: than what insensus out there is anticipating. 272 00:12:51,720 --> 00:12:55,040 Speaker 4: So that's probably what's weighing on the stock significantly. 273 00:12:55,080 --> 00:12:55,440 Speaker 8: And an on. 274 00:12:55,760 --> 00:12:58,280 Speaker 4: Microsoft side of things, I'd say it's as good a 275 00:12:58,360 --> 00:13:00,400 Speaker 4: quarter as you possibly you know, probably we could have 276 00:13:00,400 --> 00:13:03,880 Speaker 4: gotten executing again on the cloud side, like I mentioned, 277 00:13:03,920 --> 00:13:07,079 Speaker 4: but also when you kind of look at office commercial growing, 278 00:13:07,200 --> 00:13:10,079 Speaker 4: you know, high teens growth percentage pace, and then you 279 00:13:10,120 --> 00:13:13,000 Speaker 4: know Copilot launching next week, it gives them all the 280 00:13:13,040 --> 00:13:15,720 Speaker 4: momentum in the world kind of going into the December 281 00:13:15,800 --> 00:13:19,160 Speaker 4: quarter and into calendar twenty twenty four, as they seem 282 00:13:19,240 --> 00:13:21,000 Speaker 4: like they are kind of the clear leader here on 283 00:13:21,040 --> 00:13:22,560 Speaker 4: the AI side of things. 284 00:13:22,280 --> 00:13:26,520 Speaker 2: Yeah, I mean a leader, a leader on cloud right 285 00:13:27,440 --> 00:13:31,440 Speaker 2: and a leader in AI, both places that Google seems 286 00:13:31,440 --> 00:13:34,560 Speaker 2: to be dragon. I mean, I see I note that soon. 287 00:13:34,600 --> 00:13:38,480 Speaker 2: Dar Pachai over at Alphabet says, I'm pleased with our 288 00:13:38,480 --> 00:13:41,520 Speaker 2: financial results in our product momentum this quarter with AI 289 00:13:41,840 --> 00:13:46,600 Speaker 2: driven innovations across search, YouTube, and blah, blah blah blah blah. 290 00:13:46,600 --> 00:13:50,120 Speaker 2: I don't see any AI driven innovations there, and it's possible, 291 00:13:50,280 --> 00:13:52,760 Speaker 2: it's likely that they're there and I just don't notice. 292 00:13:53,160 --> 00:13:56,800 Speaker 2: But isn't that important the marketing side of it important? 293 00:13:57,360 --> 00:14:00,960 Speaker 2: Are they doing anything with artificial intelligence? Yeah? 294 00:14:01,000 --> 00:14:03,160 Speaker 7: I mean listen, I mean, one, they are kind of 295 00:14:03,840 --> 00:14:07,640 Speaker 7: ahead of the game in terms of the infrastructure that they're. 296 00:14:07,360 --> 00:14:10,559 Speaker 4: Building, at least as far as kind of their internally 297 00:14:10,640 --> 00:14:13,480 Speaker 4: the design ship, right their TPUs, which were they were 298 00:14:13,520 --> 00:14:15,520 Speaker 4: way ahead of the game on that side of things, 299 00:14:15,720 --> 00:14:17,520 Speaker 4: So you know, in terms of kind of getting a 300 00:14:17,559 --> 00:14:20,600 Speaker 4: lower plush structure. From that perspective, I think they are 301 00:14:20,600 --> 00:14:23,960 Speaker 4: ahead of the game. But and and listen, just like 302 00:14:24,160 --> 00:14:25,680 Speaker 4: you know, Meta which is going to report up for 303 00:14:25,720 --> 00:14:27,960 Speaker 4: the close that I they are going to be a 304 00:14:28,040 --> 00:14:31,200 Speaker 4: leader in terms of kind of you know, leveraging their 305 00:14:31,440 --> 00:14:35,040 Speaker 4: AI into you know, improving kind of you know the 306 00:14:35,080 --> 00:14:38,480 Speaker 4: back end and getting you know, such general experience in 307 00:14:38,560 --> 00:14:41,840 Speaker 4: terms of you know, their third business as well as 308 00:14:41,960 --> 00:14:45,480 Speaker 4: you know, implementing it into YouTube here over time. But yeah, 309 00:14:45,480 --> 00:14:48,120 Speaker 4: I mean to your point, at the at the at 310 00:14:48,160 --> 00:14:51,280 Speaker 4: the onset here kind of early days, it doesn't look 311 00:14:51,440 --> 00:14:55,320 Speaker 4: like that alphabet at least kind of early on is 312 00:14:55,880 --> 00:14:59,640 Speaker 4: executing and implementing some of the AI capabilities across their 313 00:14:59,680 --> 00:15:03,720 Speaker 4: ECO system, maybe the way you know Microsoft is doing 314 00:15:03,760 --> 00:15:04,440 Speaker 4: on their end. 315 00:15:04,840 --> 00:15:07,640 Speaker 7: Or what you know, potentially Meta is actually doing with 316 00:15:07,760 --> 00:15:10,400 Speaker 7: some of their rankings and recommendations on their. 317 00:15:10,320 --> 00:15:13,000 Speaker 4: End as well. So definitely kind of you know, we 318 00:15:13,360 --> 00:15:16,280 Speaker 4: investors want to see more out of alphabet clearly given 319 00:15:16,560 --> 00:15:19,400 Speaker 4: the stock performance here that we just haven't seen yet 320 00:15:19,440 --> 00:15:20,360 Speaker 4: on the AI side of them. 321 00:15:20,920 --> 00:15:23,920 Speaker 1: Well, how about on the metafront again re reporting after 322 00:15:24,000 --> 00:15:26,880 Speaker 1: the close? What's the street really looking for there? I 323 00:15:26,880 --> 00:15:30,280 Speaker 1: mean again at digital advertising play like Google stocks up 324 00:15:30,280 --> 00:15:33,400 Speaker 1: one hundred and fifty six percent year to date. What's 325 00:15:33,440 --> 00:15:35,520 Speaker 1: what's the meta story here? Is all cost cutting or 326 00:15:35,600 --> 00:15:37,880 Speaker 1: is there still a cloud play there as well? 327 00:15:38,920 --> 00:15:40,000 Speaker 5: So listen, I think. 328 00:15:39,880 --> 00:15:42,240 Speaker 4: It's I would say there's a cloud play here. But 329 00:15:42,760 --> 00:15:45,280 Speaker 4: you know, as far as kind of meta is concerned, 330 00:15:45,280 --> 00:15:47,960 Speaker 4: I mean, the growth rates are accelerating here into Q 331 00:15:48,120 --> 00:15:51,000 Speaker 4: three and Q four. We're looking at digital ad growth 332 00:15:51,560 --> 00:15:55,400 Speaker 4: for them to accept twenty percent, and you look at 333 00:15:55,400 --> 00:15:57,880 Speaker 4: Alphabets too, results, right, it wasn't all bad. They actually 334 00:15:57,880 --> 00:16:01,160 Speaker 4: did see some nice search numbers, some good YouTube note numbers, 335 00:16:01,200 --> 00:16:03,640 Speaker 4: so the digital ads, you know, the ad space is 336 00:16:03,680 --> 00:16:06,360 Speaker 4: performing fairly well. I think, you know, maybe there is 337 00:16:06,400 --> 00:16:08,800 Speaker 4: some concern about what guidance is going to look like 338 00:16:08,880 --> 00:16:11,320 Speaker 4: here in Q four, given some of the comments made 339 00:16:11,400 --> 00:16:13,840 Speaker 4: from Snap last night in terms of you know, what's 340 00:16:13,880 --> 00:16:16,880 Speaker 4: going on in the Middle East, although I wouldn't expect, 341 00:16:16,960 --> 00:16:19,320 Speaker 4: you know, much negativity on that side of things right now, 342 00:16:19,680 --> 00:16:21,600 Speaker 4: but maybe to your point, I think All Eyes is 343 00:16:21,640 --> 00:16:24,440 Speaker 4: going to be on the court side of things, more 344 00:16:24,480 --> 00:16:26,440 Speaker 4: along the lines of what twenty twenty four is going 345 00:16:26,520 --> 00:16:26,960 Speaker 4: to look like. 346 00:16:27,000 --> 00:16:29,640 Speaker 7: They should give some indication here like they did last 347 00:16:29,720 --> 00:16:31,120 Speaker 7: year in terms of. 348 00:16:30,760 --> 00:16:33,760 Speaker 4: On their call. We do expect, you know, a big 349 00:16:33,840 --> 00:16:35,440 Speaker 4: hike on the cap X side of things. But if 350 00:16:35,480 --> 00:16:37,800 Speaker 4: op by you know, for instance, is north of one 351 00:16:37,840 --> 00:16:40,560 Speaker 4: hundred billion here in twenty twenty four, that's going to 352 00:16:40,640 --> 00:16:44,120 Speaker 4: cause the stock to you know, to see a negative reaction. 353 00:16:44,280 --> 00:16:45,720 Speaker 4: So I think All Eyes is really going to be 354 00:16:46,120 --> 00:16:48,200 Speaker 4: on the ops number here tonight. 355 00:16:49,000 --> 00:16:51,280 Speaker 2: All right, Angelo, thanks so much for joining us. Angelos 356 00:16:51,320 --> 00:16:53,880 Speaker 2: you know there from CFRA talking to us about the 357 00:16:53,920 --> 00:16:55,800 Speaker 2: results that we've seen and those that are coming. 358 00:16:56,200 --> 00:16:59,320 Speaker 6: You're listening to the tape catch our line program Bloomberg 359 00:16:59,360 --> 00:17:02,960 Speaker 6: Markets Days at ten am Eastern on Bloomberg Radio, the 360 00:17:03,040 --> 00:17:06,240 Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business app. 361 00:17:06,320 --> 00:17:09,120 Speaker 6: You can also listen live on Amazon Alexa from our 362 00:17:09,119 --> 00:17:14,200 Speaker 6: flagship New York station. Just say Alexa, play Bloomberg eleven thirty. 363 00:17:14,520 --> 00:17:17,760 Speaker 1: All Right, interest rates and moving higher. I thought that's 364 00:17:17,800 --> 00:17:19,800 Speaker 1: good for net interest to come for the banks. We've 365 00:17:19,800 --> 00:17:21,720 Speaker 1: seen some big banks put up some big net interest 366 00:17:21,800 --> 00:17:24,399 Speaker 1: income numbers. But it also impacts the value of the 367 00:17:24,440 --> 00:17:26,639 Speaker 1: bonds on the balance. I forgot about that part of it. 368 00:17:27,119 --> 00:17:29,200 Speaker 1: Herman Chan joins us. He's a senior ANILSE. He doesn't 369 00:17:29,200 --> 00:17:32,520 Speaker 1: forget anything ever, forget us regional banks and fintech. He 370 00:17:32,600 --> 00:17:36,160 Speaker 1: covers it all for Bloomberg Intelligence. So, Herman, how talk 371 00:17:36,160 --> 00:17:38,199 Speaker 1: to us about this rising industry environment? What does it 372 00:17:38,240 --> 00:17:40,520 Speaker 1: mean for kind of the regional banks out there in 373 00:17:40,520 --> 00:17:42,760 Speaker 1: the United States that most of us do our banking with. 374 00:17:43,119 --> 00:17:46,719 Speaker 9: Right, Sure, so higher rates typically are better for banks, 375 00:17:47,000 --> 00:17:50,280 Speaker 9: but they need to be moving in a slow measured 376 00:17:50,320 --> 00:17:56,080 Speaker 9: fashion with rates whipsawing they that they did earlier last year. 377 00:17:56,200 --> 00:18:00,560 Speaker 9: This year that has proven to be a bit more 378 00:18:00,680 --> 00:18:03,720 Speaker 9: volatile for banks. So you saw the benefit of that 379 00:18:03,800 --> 00:18:07,200 Speaker 9: last year when interest rates rose and that interest income 380 00:18:07,280 --> 00:18:12,919 Speaker 9: rows for the banking group. Now those benefits are being 381 00:18:13,880 --> 00:18:18,840 Speaker 9: being pushed back to consumers and business customers as the 382 00:18:18,960 --> 00:18:22,639 Speaker 9: posit costs are rising. So it's been a double edged 383 00:18:22,680 --> 00:18:27,399 Speaker 9: sword on the rate front. You mentioned earlier that higher 384 00:18:27,440 --> 00:18:31,760 Speaker 9: rates means higher unrealized gains in their bond holdings, and 385 00:18:31,840 --> 00:18:34,240 Speaker 9: that's happening, and that's weakening book value. 386 00:18:34,400 --> 00:18:38,080 Speaker 2: Billy Herman, do so when I think of these bonds 387 00:18:38,080 --> 00:18:43,560 Speaker 2: that are underwater back in March, I imagined regional banks 388 00:18:43,680 --> 00:18:49,640 Speaker 2: using April, May, June, July, and August to get rid 389 00:18:49,720 --> 00:18:52,800 Speaker 2: of those holdings. Why on earth would you still want 390 00:18:52,840 --> 00:18:56,119 Speaker 2: to have zero coupon treasuries. 391 00:18:56,200 --> 00:18:59,360 Speaker 9: Well, the issue is that if you sell the bonds, 392 00:18:59,400 --> 00:19:02,000 Speaker 9: then you chrisp the loss on their balance sheet, right, 393 00:19:02,080 --> 00:19:04,680 Speaker 9: so that the banks don't want to do that, especially 394 00:19:04,760 --> 00:19:08,040 Speaker 9: ahead of tougher capital rules and tougher capital requirements. 395 00:19:08,080 --> 00:19:10,120 Speaker 2: I have, hey, not all of it, but didn't don't 396 00:19:10,160 --> 00:19:13,840 Speaker 2: you try and minimize your underwater bond portfolio. 397 00:19:13,920 --> 00:19:16,600 Speaker 9: You can do that in a few ways. You can hedge, 398 00:19:17,119 --> 00:19:19,640 Speaker 9: so some banks have done that, which is good to see. 399 00:19:19,760 --> 00:19:23,439 Speaker 9: So any future rate movements will be less pronounced on 400 00:19:23,480 --> 00:19:27,240 Speaker 9: the unrealized losses, but some haven't and maybe you could 401 00:19:27,280 --> 00:19:28,920 Speaker 9: say they dropped the ball on that front. 402 00:19:29,160 --> 00:19:32,280 Speaker 2: So they're still holding these they haven't found some greater 403 00:19:32,400 --> 00:19:35,480 Speaker 2: fool they have to take to take those portfolio They 404 00:19:35,560 --> 00:19:35,840 Speaker 2: have not. 405 00:19:35,960 --> 00:19:37,639 Speaker 1: They're just waiting for these. 406 00:19:38,960 --> 00:19:42,480 Speaker 9: Underwater securities to mature quarter after quarter. 407 00:19:42,640 --> 00:19:46,160 Speaker 1: Wow, all right, So what's the market? What's the stock 408 00:19:46,200 --> 00:19:48,600 Speaker 1: market doing to the regional bank names or they're just 409 00:19:48,640 --> 00:19:50,359 Speaker 1: thrown all of them out the window or are they 410 00:19:50,400 --> 00:19:51,879 Speaker 1: trying to find winners and losers? 411 00:19:52,280 --> 00:19:54,600 Speaker 9: At this point, it seems like there's a lot of 412 00:19:54,640 --> 00:19:57,919 Speaker 9: negative sentiment out there, and we've seen a number of 413 00:19:57,960 --> 00:20:00,680 Speaker 9: banks in my coverage universe fifty two week closed over 414 00:20:00,720 --> 00:20:06,240 Speaker 9: the past week or so. So we talked about weaker margins. 415 00:20:06,520 --> 00:20:08,560 Speaker 9: There's not a lot of loan growth as well, and 416 00:20:08,640 --> 00:20:11,720 Speaker 9: then we haven't really seen the the the client in 417 00:20:11,800 --> 00:20:14,400 Speaker 9: asset quality that's coming ahead for the regionals in terms 418 00:20:14,440 --> 00:20:19,520 Speaker 9: of exposure to office properties and the like. So there there. Unfortunately, 419 00:20:19,520 --> 00:20:23,440 Speaker 9: there's a lot of headwinds and it's hard to foresee 420 00:20:23,480 --> 00:20:25,920 Speaker 9: some of these side ones going away over the next 421 00:20:25,920 --> 00:20:27,000 Speaker 9: you know, three to six months. 422 00:20:27,080 --> 00:20:30,560 Speaker 1: Is there a valuation call here where I mean these 423 00:20:30,600 --> 00:20:33,400 Speaker 1: things has been trading forever. There's great history to see 424 00:20:33,400 --> 00:20:38,119 Speaker 1: how these names have traded. Is a floor where people 425 00:20:38,160 --> 00:20:39,960 Speaker 1: just say, boy, if it gets the point eight book, 426 00:20:40,000 --> 00:20:43,159 Speaker 1: I'm just holding my nose and binessings it eight. 427 00:20:44,160 --> 00:20:46,320 Speaker 2: Yeah, I don't know. Is point four? 428 00:20:46,520 --> 00:20:48,800 Speaker 1: Maybe point four? Is there a point? And if so, 429 00:20:49,000 --> 00:20:50,320 Speaker 1: where are we relative to that point? 430 00:20:50,480 --> 00:20:50,680 Speaker 3: Yeah? 431 00:20:50,720 --> 00:20:54,560 Speaker 9: We're probably around like one times tangible book value, which 432 00:20:54,600 --> 00:20:58,720 Speaker 9: historically has been a very low valuation, UH. 433 00:20:58,040 --> 00:21:00,840 Speaker 2: In this country, because I remember I spent years in Germany. 434 00:21:01,040 --> 00:21:02,920 Speaker 5: Right, it's different. 435 00:21:02,640 --> 00:21:05,680 Speaker 2: Over where one is like, wow, if only I could 436 00:21:05,760 --> 00:21:08,080 Speaker 2: have one time tangible book value. 437 00:21:08,240 --> 00:21:08,840 Speaker 5: Bank would love that. 438 00:21:08,880 --> 00:21:11,960 Speaker 9: I guess it's different across the pond. But here in 439 00:21:12,040 --> 00:21:15,000 Speaker 9: the US, one time stangible seems to be closer to 440 00:21:15,040 --> 00:21:18,720 Speaker 9: a trough valuation the stocks that bounce off of those 441 00:21:18,840 --> 00:21:22,440 Speaker 9: lows you know, in May and June. But now we're 442 00:21:22,480 --> 00:21:26,200 Speaker 9: sort of back towards that that trough level, So there 443 00:21:26,400 --> 00:21:29,080 Speaker 9: is UH. I would also point out that historically some 444 00:21:29,119 --> 00:21:32,720 Speaker 9: of these stronger banks do grow through m and A 445 00:21:33,000 --> 00:21:35,560 Speaker 9: and periods of weakness. So if you see some further 446 00:21:36,119 --> 00:21:40,439 Speaker 9: turmoil for the space, some of the stronger players do 447 00:21:40,920 --> 00:21:43,760 Speaker 9: transact in M and A to get bigger at very 448 00:21:43,800 --> 00:21:47,680 Speaker 9: attractive pricing. So that's something that could happen over time. 449 00:21:47,880 --> 00:21:50,400 Speaker 1: You know, I'm just wondering about loan growth because Torch 450 00:21:50,480 --> 00:21:52,959 Speaker 1: and Slock, the economist over Topollo was out with a 451 00:21:53,000 --> 00:21:54,280 Speaker 1: note a couple of days ago, and you had it, 452 00:21:54,720 --> 00:21:57,120 Speaker 1: you know, saying basically thirty three there are thirty three 453 00:21:57,119 --> 00:21:59,960 Speaker 1: million small businesses in the United States, which I didn't 454 00:22:00,080 --> 00:22:02,720 Speaker 1: that number. That's good having your back pocket. But their 455 00:22:02,800 --> 00:22:08,240 Speaker 1: average barring costs has now reached ten percent. At ten percent, 456 00:22:08,560 --> 00:22:11,680 Speaker 1: am I taking out a loan to expand my business 457 00:22:11,800 --> 00:22:13,879 Speaker 1: or to start a new business? What are your banks 458 00:22:13,920 --> 00:22:14,320 Speaker 1: telling you? 459 00:22:14,440 --> 00:22:18,040 Speaker 9: Yeah, they've talked about that very point, that banks that 460 00:22:18,240 --> 00:22:22,199 Speaker 9: bank clients and business customers are delaying investing because of 461 00:22:22,240 --> 00:22:25,879 Speaker 9: the higher rate environments. They've talked about potentially waiting for 462 00:22:26,040 --> 00:22:28,679 Speaker 9: spreads to tighten a bit more, which may be a 463 00:22:28,680 --> 00:22:32,399 Speaker 9: bit wishful thinking at this point. So you have seen 464 00:22:32,680 --> 00:22:36,720 Speaker 9: less demand across the regional banking space by business customers 465 00:22:36,720 --> 00:22:38,120 Speaker 9: because of the higher interest rates. 466 00:22:38,240 --> 00:22:41,640 Speaker 1: Yep, very good, herman, Chant, Thank you as always giving 467 00:22:41,720 --> 00:22:43,639 Speaker 1: us keeping us up to data on what's happening in 468 00:22:43,680 --> 00:22:45,960 Speaker 1: the world of the regional banks across the US. 469 00:22:46,920 --> 00:22:50,760 Speaker 6: You're listening to the Team Canser Live program Bloomberg Markets 470 00:22:50,800 --> 00:22:53,879 Speaker 6: weekdays at ten am eastering on Bloomberg dot com, the 471 00:22:53,960 --> 00:22:57,119 Speaker 6: iHeartRadio app, and the Bloomberg Business App, or listen on 472 00:22:57,160 --> 00:23:00,280 Speaker 6: demand wherever you get your podcasts. 473 00:23:01,400 --> 00:23:04,919 Speaker 1: Brian Whalen joins us. He is the co CIO and 474 00:23:05,000 --> 00:23:08,920 Speaker 1: generalist portfolio manager at TCW in the fixed income group. 475 00:23:09,000 --> 00:23:10,920 Speaker 1: Over there, they get a couple shekels under management, so 476 00:23:10,920 --> 00:23:13,479 Speaker 1: we always appreciate getting Brian's thoughts. Brian, again, we got 477 00:23:13,560 --> 00:23:15,159 Speaker 1: yields moving higher, and I guess what kind of got 478 00:23:15,200 --> 00:23:16,879 Speaker 1: a lot of people's attention over the last week or so, 479 00:23:17,000 --> 00:23:20,120 Speaker 1: is boy, you don't have to just you know, stay 480 00:23:20,119 --> 00:23:21,639 Speaker 1: in a two year and get five percent. You can 481 00:23:21,640 --> 00:23:24,040 Speaker 1: go all the way out to curve now the thirty 482 00:23:24,080 --> 00:23:26,840 Speaker 1: percent and get five percent. On the US Treasury, what 483 00:23:26,880 --> 00:23:29,680 Speaker 1: do you make about the movement in rates we've seen recently. 484 00:23:30,880 --> 00:23:31,760 Speaker 5: Yeah, it's been brutal. 485 00:23:31,800 --> 00:23:33,760 Speaker 10: It kind of got kicked off this summer when the 486 00:23:33,800 --> 00:23:37,960 Speaker 10: Treasury announced higher anticipated you know, debt issuance, and that 487 00:23:38,119 --> 00:23:40,959 Speaker 10: just kind of unraveled, you know, volumes of kind of 488 00:23:40,960 --> 00:23:42,720 Speaker 10: ebbed and flows. But it just kind of feels like 489 00:23:42,760 --> 00:23:44,600 Speaker 10: a market that nobody wants to step in front of, 490 00:23:44,640 --> 00:23:47,400 Speaker 10: regardless of the of the value, that at least we see, 491 00:23:47,400 --> 00:23:49,240 Speaker 10: and I think a lot of others are starting to see, 492 00:23:49,400 --> 00:23:50,960 Speaker 10: you know, as you said, all the way across the 493 00:23:51,000 --> 00:23:51,720 Speaker 10: curve at this point. 494 00:23:53,200 --> 00:23:57,120 Speaker 2: So what has to happen before you can be comfortable 495 00:23:57,119 --> 00:24:00,439 Speaker 2: getting back in here? I was thinking about when I 496 00:24:00,480 --> 00:24:04,120 Speaker 2: was a kid, I used to be so bummed out 497 00:24:04,119 --> 00:24:08,000 Speaker 2: that I missed buying like seventeen percent ten year treasuries, yes, 498 00:24:08,320 --> 00:24:10,240 Speaker 2: right in the early eighties, and I always thought I 499 00:24:10,240 --> 00:24:12,239 Speaker 2: wish my parents had bought more of those, you know, 500 00:24:12,440 --> 00:24:16,239 Speaker 2: before I sort of understood how it all worked. Am 501 00:24:16,280 --> 00:24:18,640 Speaker 2: I going to look back at this moment and think 502 00:24:19,119 --> 00:24:21,960 Speaker 2: I wish I bought five percent ten years. 503 00:24:22,560 --> 00:24:24,400 Speaker 10: I think, so, I do. I remember the same feeling. 504 00:24:24,440 --> 00:24:26,639 Speaker 10: But I've hearing about people buying, you know, seventeen percent 505 00:24:26,680 --> 00:24:29,760 Speaker 10: strips way out you know, the curve and duration and 506 00:24:29,800 --> 00:24:31,680 Speaker 10: this incredible total return to the bond market. 507 00:24:31,720 --> 00:24:32,879 Speaker 5: I don't think we could promise that. 508 00:24:33,880 --> 00:24:36,280 Speaker 10: The math just doesn't work that way, but I would 509 00:24:36,359 --> 00:24:38,919 Speaker 10: tell you, you know, you know, think about five percent across 510 00:24:38,920 --> 00:24:40,679 Speaker 10: the curve. Think about like what that's telling you in 511 00:24:40,760 --> 00:24:42,440 Speaker 10: terms of like you know the bond math. It either 512 00:24:42,480 --> 00:24:44,840 Speaker 10: means that we're going to be here at a five 513 00:24:44,840 --> 00:24:46,840 Speaker 10: percent funds rate for the next five years, you know, 514 00:24:46,880 --> 00:24:50,479 Speaker 10: it's it's goldilocks, you know, for a decade, or it 515 00:24:50,560 --> 00:24:53,120 Speaker 10: means that the Fed still got to raise rates significantly 516 00:24:53,119 --> 00:24:56,280 Speaker 10: from here hundreds of basis points, only to then unwind 517 00:24:56,320 --> 00:24:58,760 Speaker 10: that by a lot more on the way down, so 518 00:24:58,800 --> 00:25:00,959 Speaker 10: that over the next ten years you average five percent. 519 00:25:01,720 --> 00:25:05,119 Speaker 10: Both scenarios seem pretty unlikely to us, So it seems like, 520 00:25:05,240 --> 00:25:08,480 Speaker 10: you know, five percent on the treasury curve looks like 521 00:25:08,520 --> 00:25:10,840 Speaker 10: great value and something we always try to remind ourselves, 522 00:25:10,880 --> 00:25:12,639 Speaker 10: as you know, you can't time the turn. 523 00:25:12,800 --> 00:25:15,480 Speaker 5: You know, more likely than not, whether it's. 524 00:25:15,320 --> 00:25:17,880 Speaker 11: A you know, it's a you know it's a kind 525 00:25:17,880 --> 00:25:21,240 Speaker 11: of multi kind of standard deviation event, you know, some 526 00:25:21,280 --> 00:25:24,200 Speaker 11: sort of financial accident, so to speak, or it's just 527 00:25:24,320 --> 00:25:25,480 Speaker 11: kind of the natural, kind of. 528 00:25:25,600 --> 00:25:28,600 Speaker 10: Organic letting the air out of the economy and seeing 529 00:25:28,720 --> 00:25:31,720 Speaker 10: unemployment start to rise and consumer spending start to come down. 530 00:25:32,119 --> 00:25:35,200 Speaker 10: Either way, when the turn comes, you're probably not gonna 531 00:25:35,200 --> 00:25:37,320 Speaker 10: be able to kind of catch that. So it's best 532 00:25:37,359 --> 00:25:39,879 Speaker 10: to start kind of adding now dollar cost averaging in 533 00:25:40,320 --> 00:25:42,960 Speaker 10: getting long understanding that you may be a little some 534 00:25:43,000 --> 00:25:44,920 Speaker 10: bumps and bruises along the way, but over the long 535 00:25:45,000 --> 00:25:47,359 Speaker 10: term it's going to provide a really nice return for you. 536 00:25:47,400 --> 00:25:51,480 Speaker 2: Well, let me ask a similar question. It's kind of 537 00:25:51,520 --> 00:25:53,719 Speaker 2: the same question a different way. I got a viewer 538 00:25:53,880 --> 00:25:56,360 Speaker 2: or listener writing in asking if you have a rates 539 00:25:56,400 --> 00:26:00,000 Speaker 2: for you here. Are we higher because of technical inflation 540 00:26:00,400 --> 00:26:04,920 Speaker 2: and stronger growth or is it fundamental structural change in 541 00:26:05,040 --> 00:26:07,800 Speaker 2: ownership of rates and issuance to remain very elevated. 542 00:26:09,800 --> 00:26:12,600 Speaker 10: I think the ladder, the whole issuance thing is a 543 00:26:12,600 --> 00:26:15,360 Speaker 10: little bit kind of like finding a narrative to fit 544 00:26:15,400 --> 00:26:19,160 Speaker 10: the price action. I mean, historically there is no correlation 545 00:26:19,280 --> 00:26:21,800 Speaker 10: between issuance and the way rates move. You can see 546 00:26:22,040 --> 00:26:24,720 Speaker 10: periods where there's issuance is high and rates go high, 547 00:26:24,800 --> 00:26:27,600 Speaker 10: and you can see periods where issuance is increases but 548 00:26:27,720 --> 00:26:30,080 Speaker 10: rates rally because of the more macro event. 549 00:26:30,400 --> 00:26:30,560 Speaker 8: You know. 550 00:26:30,640 --> 00:26:34,080 Speaker 10: I think we're here because, let's be honest, the US 551 00:26:34,560 --> 00:26:37,480 Speaker 10: economy has been stronger than people expected, and so the 552 00:26:37,520 --> 00:26:41,120 Speaker 10: FEDS had to go higher. We haven't seen anything break yet, 553 00:26:41,800 --> 00:26:44,320 Speaker 10: you know, outside of a few regional banks you know, 554 00:26:44,880 --> 00:26:47,040 Speaker 10: earlier this year, and so I think there's just a 555 00:26:47,680 --> 00:26:51,480 Speaker 10: fear that it might take more to kind of slow 556 00:26:51,560 --> 00:26:54,760 Speaker 10: this economy down and bring inflation back down toward two percent. 557 00:26:54,800 --> 00:26:56,919 Speaker 10: You know, But the house view here at TCW is 558 00:26:56,920 --> 00:26:59,879 Speaker 10: that you know that that fear is more about kind 559 00:26:59,920 --> 00:27:03,280 Speaker 10: of looking through the rear view mirror as opposed to 560 00:27:03,400 --> 00:27:06,960 Speaker 10: kind of looking forward and understanding that all this monetary titan, 561 00:27:07,040 --> 00:27:09,000 Speaker 10: not just here in the US but globally, it just 562 00:27:09,040 --> 00:27:11,320 Speaker 10: acts with a lack, you know, and people get impatient. 563 00:27:11,400 --> 00:27:13,640 Speaker 10: But you know, this lag, whether it's from the time 564 00:27:13,720 --> 00:27:16,720 Speaker 10: the Fed started hiking or when the curve went inverted, 565 00:27:17,040 --> 00:27:18,760 Speaker 10: you know, there's nothing unusual about it. 566 00:27:18,840 --> 00:27:19,000 Speaker 4: You know. 567 00:27:19,200 --> 00:27:20,800 Speaker 5: They say it's a lag for reason. 568 00:27:20,520 --> 00:27:22,240 Speaker 10: And this has been consistent, and I think it's just 569 00:27:22,240 --> 00:27:24,880 Speaker 10: going to take a little bit of patience to pay off. 570 00:27:24,960 --> 00:27:27,640 Speaker 2: But if you look at so one of the other 571 00:27:27,720 --> 00:27:31,240 Speaker 2: things I started doing after the regional banks broke down 572 00:27:31,359 --> 00:27:34,040 Speaker 2: is looking at debt. Go on the Bloomberg to see 573 00:27:34,040 --> 00:27:38,920 Speaker 2: who's holding all this US paper. And I just can't 574 00:27:38,960 --> 00:27:43,560 Speaker 2: imagine that previously was always like the Japanese and the 575 00:27:43,640 --> 00:27:47,399 Speaker 2: Chinese and all these foreign investors were buying our treasuries. 576 00:27:48,240 --> 00:27:51,960 Speaker 2: You watch the dysfunction in the US government and the 577 00:27:52,040 --> 00:27:55,639 Speaker 2: fact that even in a strong economy, we want to 578 00:27:55,680 --> 00:27:59,920 Speaker 2: have two trillion dollar deficits, Like, why would any foreigner 579 00:28:00,000 --> 00:28:01,320 Speaker 2: I want to hold this paper? 580 00:28:02,440 --> 00:28:02,600 Speaker 1: Good? 581 00:28:02,720 --> 00:28:05,120 Speaker 5: No, two days one. 582 00:28:05,280 --> 00:28:07,920 Speaker 10: I'm first of all, you know, we pretty much always 583 00:28:07,960 --> 00:28:10,960 Speaker 10: run deficits, that's nothing new. And we're always dysfunctional, you know, 584 00:28:11,000 --> 00:28:13,639 Speaker 10: We're just the least dysfunctional out there, or one of 585 00:28:13,680 --> 00:28:16,880 Speaker 10: the least, and so I don't, I don't. That doesn't 586 00:28:16,880 --> 00:28:18,920 Speaker 10: hold a lot of water for us. I think more 587 00:28:19,000 --> 00:28:22,080 Speaker 10: relevant to the reason we haven't seen foreign investors buying 588 00:28:22,800 --> 00:28:25,639 Speaker 10: a lot of US treasuries or agency mortgage backed securities 589 00:28:25,680 --> 00:28:27,280 Speaker 10: has to do with the fact that the hedging costs 590 00:28:27,320 --> 00:28:30,200 Speaker 10: have been so high, and that really relates to where 591 00:28:30,240 --> 00:28:32,119 Speaker 10: short term interest rates are, and that's been set by 592 00:28:32,160 --> 00:28:34,600 Speaker 10: the FED. So as the Fed's taken rates from zero 593 00:28:34,640 --> 00:28:37,880 Speaker 10: to five percent, it's become very expensive for non US 594 00:28:37,920 --> 00:28:42,040 Speaker 10: investors to buy our debt. However, if we are at 595 00:28:42,160 --> 00:28:44,240 Speaker 10: or kind of very close to the peak in that rate, 596 00:28:44,440 --> 00:28:46,880 Speaker 10: more likely than not, the US dollar over time will 597 00:28:46,920 --> 00:28:49,200 Speaker 10: start to come down, the hedging costs will come down, 598 00:28:49,800 --> 00:28:52,600 Speaker 10: and the value of US treasuries at five percent or 599 00:28:52,600 --> 00:28:54,840 Speaker 10: four and a half percent or four percent it's going 600 00:28:54,920 --> 00:28:57,280 Speaker 10: to actually start to be more appealing to the non 601 00:28:57,400 --> 00:28:58,440 Speaker 10: US investor. 602 00:28:58,800 --> 00:29:01,600 Speaker 2: I like the we've always run deficits. It makes me 603 00:29:01,640 --> 00:29:03,720 Speaker 2: feel a little better because in my house it's the same. 604 00:29:04,080 --> 00:29:06,480 Speaker 2: You know, I'm always spend more money than I make. See, 605 00:29:06,520 --> 00:29:08,360 Speaker 2: I just tell the world we're good for it. But 606 00:29:08,480 --> 00:29:10,880 Speaker 2: at a certain point, it's got to worry you. Right 607 00:29:10,960 --> 00:29:15,880 Speaker 2: at Stephen Major wasn't worried until he was. And and uh, 608 00:29:16,680 --> 00:29:19,120 Speaker 2: you know, at some point it's got to be too 609 00:29:19,240 --> 00:29:21,880 Speaker 2: we're borrowing too much money. 610 00:29:22,040 --> 00:29:25,000 Speaker 10: No, yeah, it's got to work. And you know what, 611 00:29:25,080 --> 00:29:27,800 Speaker 10: you know, it's it's a little bon bond vigilantes. It's 612 00:29:27,800 --> 00:29:30,280 Speaker 10: where that's come from. And at some point, the bond 613 00:29:30,320 --> 00:29:33,200 Speaker 10: market's gonna raise rates. It's gonna it's gonna make the 614 00:29:33,200 --> 00:29:36,560 Speaker 10: interest costs such a high burden that we're gonna have 615 00:29:36,600 --> 00:29:39,000 Speaker 10: to fix our deficit problem and we're gonna have to 616 00:29:39,160 --> 00:29:41,960 Speaker 10: realign spending. We're gonna have to be you know, more frugal, 617 00:29:42,080 --> 00:29:44,640 Speaker 10: you know, with with our pennies. And so it kind 618 00:29:44,680 --> 00:29:46,520 Speaker 10: of feels like we're getting there. You know, we're seeing 619 00:29:46,560 --> 00:29:48,680 Speaker 10: you know, the percentage of interest costs as a percentage 620 00:29:48,720 --> 00:29:51,719 Speaker 10: GDP jump here and if we continue to hang at 621 00:29:51,760 --> 00:29:54,960 Speaker 10: these rates, it's gonna have to make some forcesome from 622 00:29:55,000 --> 00:29:56,400 Speaker 10: very difficult decisions in d C. 623 00:29:56,680 --> 00:29:58,840 Speaker 5: So you know, more than likely than not that's coming 624 00:29:58,920 --> 00:29:59,520 Speaker 5: one way or the other. 625 00:30:00,040 --> 00:30:02,800 Speaker 1: Ran, Let's get to any important stuff. Yale football yell 626 00:30:02,920 --> 00:30:06,040 Speaker 1: is three and three. They welcome into New Haven this 627 00:30:06,080 --> 00:30:08,479 Speaker 1: weekend the Columbia Tigers. Tell us about Yeale football this year? 628 00:30:08,520 --> 00:30:08,960 Speaker 1: What do you got? 629 00:30:10,120 --> 00:30:13,240 Speaker 10: You know, what a great program. Tony Reno's got over there. 630 00:30:13,280 --> 00:30:16,480 Speaker 10: He came in years ago and he took a program. 631 00:30:16,520 --> 00:30:17,960 Speaker 10: He's made it one of the best in the league. 632 00:30:17,960 --> 00:30:20,120 Speaker 10: We won the title last year, as I'm sure. 633 00:30:19,960 --> 00:30:22,960 Speaker 5: You know and all your viewers know that. This year 634 00:30:23,160 --> 00:30:25,120 Speaker 5: it hasn't been as good as last year. 635 00:30:25,120 --> 00:30:27,400 Speaker 10: But they've got a very very solid offense, and I 636 00:30:27,400 --> 00:30:29,280 Speaker 10: think we're going to turn this season around. And went 637 00:30:29,320 --> 00:30:32,120 Speaker 10: on out which includes you know, winning the Big hYP 638 00:30:32,360 --> 00:30:35,680 Speaker 10: and finishing with a victory over Harvard at right before Thanksgiving. 639 00:30:35,920 --> 00:30:38,480 Speaker 1: Good stuff, good stuff for so we like to watch 640 00:30:38,800 --> 00:30:40,760 Speaker 1: IVY League football a lot of fun. Looks like there's 641 00:30:40,760 --> 00:30:43,400 Speaker 1: a lot of party in the league this year. All right, 642 00:30:44,000 --> 00:30:45,880 Speaker 1: great stuff, buddy, Thank you, Brian Well. 643 00:30:45,760 --> 00:30:47,320 Speaker 2: Going to an IVY League football it's great. 644 00:30:47,360 --> 00:30:48,560 Speaker 1: I will say, yeah, it's fun. 645 00:30:48,680 --> 00:30:49,560 Speaker 2: Yeah, you should go to it. 646 00:30:49,600 --> 00:30:51,400 Speaker 1: I mean where you live, you should go to Columbia game. 647 00:30:51,480 --> 00:30:53,720 Speaker 1: That's actually pretty pretty close, and that's a great stadium too. 648 00:30:53,760 --> 00:30:57,080 Speaker 1: So Brian Well and co Cio, Generalist Portfolio Mager TCW 649 00:30:57,200 --> 00:30:57,960 Speaker 1: Fixed Income Group. 650 00:30:58,320 --> 00:31:01,920 Speaker 6: You're listening to the tape our live program, Bloomberg Markets 651 00:31:02,000 --> 00:31:05,360 Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune 652 00:31:05,400 --> 00:31:08,360 Speaker 6: in app, Bloomberg dot Com, and the Bloomberg Business App. 653 00:31:08,400 --> 00:31:11,240 Speaker 6: You can also listen live on Amazon Alexa from our 654 00:31:11,240 --> 00:31:16,280 Speaker 6: flagship New York station Just Say Alexa playing Bloomberg eleven thirty. 655 00:31:16,840 --> 00:31:18,720 Speaker 1: As Matt just mentioned, the Wall Street Journal breaking the 656 00:31:18,720 --> 00:31:22,520 Speaker 1: story just earlier this morning that Israel has decided to 657 00:31:22,640 --> 00:31:27,640 Speaker 1: delay its invasion of Gaza, presumably to allow the US 658 00:31:27,680 --> 00:31:31,400 Speaker 1: to move some additional missile systems into the region. We 659 00:31:31,440 --> 00:31:33,000 Speaker 1: want to check in with somebody who kind of knows 660 00:31:33,040 --> 00:31:35,600 Speaker 1: how this stuff is done, and that's Jack Divine. Jack 661 00:31:35,720 --> 00:31:38,120 Speaker 1: is the president and founding partner of the Arcan Group. 662 00:31:38,600 --> 00:31:41,240 Speaker 1: Before that, he spent thirty two years at the Central 663 00:31:41,280 --> 00:31:43,560 Speaker 1: Intelligence Agency all over the world, so he knows how 664 00:31:43,600 --> 00:31:45,800 Speaker 1: this stuff gets done. Jack, what do you make of 665 00:31:45,600 --> 00:31:47,600 Speaker 1: the of the news here today that it appears that 666 00:31:47,720 --> 00:31:49,840 Speaker 1: Israel is going to delay we don't know for how 667 00:31:49,840 --> 00:31:53,200 Speaker 1: long it's invasion of Gaza. 668 00:31:53,280 --> 00:31:59,160 Speaker 8: I think we have a balancing task here. I think 669 00:31:59,280 --> 00:32:01,520 Speaker 8: on one side, the faster you go in, the more 670 00:32:01,840 --> 00:32:05,440 Speaker 8: quicker you suppress the mass, the better it is in 671 00:32:05,560 --> 00:32:11,800 Speaker 8: terms of controlling them before they get dug in deeper. 672 00:32:13,160 --> 00:32:15,560 Speaker 8: At the same time, you have the world looking at 673 00:32:15,600 --> 00:32:19,960 Speaker 8: the situation and you're losing your bound the field pressures 674 00:32:20,200 --> 00:32:24,360 Speaker 8: coming at you. And then the over really balancing problem 675 00:32:24,440 --> 00:32:27,760 Speaker 8: is though hostages, and I think everyone is trying to 676 00:32:27,800 --> 00:32:31,720 Speaker 8: do the best they can to maximize the number of 677 00:32:31,760 --> 00:32:35,960 Speaker 8: hostages and hopefully all and I think that's the balancing 678 00:32:36,200 --> 00:32:41,560 Speaker 8: the military part being getting it done quickly and so on, 679 00:32:41,640 --> 00:32:44,960 Speaker 8: and getting the hostages. So I think there's a balancing act. 680 00:32:45,400 --> 00:32:46,080 Speaker 8: I don't think it. 681 00:32:46,000 --> 00:32:47,720 Speaker 5: Can go on too much longer, though. 682 00:32:48,480 --> 00:32:51,960 Speaker 8: I think that this delay is probably one that the 683 00:32:52,000 --> 00:32:55,600 Speaker 8: Israelis felt was within their limits. But I don't know 684 00:32:55,640 --> 00:32:56,960 Speaker 8: how long they can hold off. 685 00:32:57,160 --> 00:32:59,200 Speaker 2: They do seem to be losing momentum. I thought they 686 00:32:59,240 --> 00:33:01,040 Speaker 2: were going to go in to Gaza, you know, it 687 00:33:01,120 --> 00:33:07,200 Speaker 2: was reportedly imminent two weeks ago. And I get that 688 00:33:07,240 --> 00:33:11,000 Speaker 2: they want to soften targets inside there, that's the terminology 689 00:33:11,040 --> 00:33:14,680 Speaker 2: they use. But it seems like world leader after world 690 00:33:14,760 --> 00:33:17,160 Speaker 2: leader has flown over to Israel to try and get 691 00:33:17,200 --> 00:33:19,320 Speaker 2: them to put this off, to try and get them to, 692 00:33:20,240 --> 00:33:23,360 Speaker 2: you know, breathe in, breathe out, and think about what's 693 00:33:23,360 --> 00:33:29,320 Speaker 2: about to happen. Is it possible that that tactic works 694 00:33:29,360 --> 00:33:32,920 Speaker 2: and we don't get a ground invasion in Gaza or 695 00:33:32,960 --> 00:33:35,400 Speaker 2: do you think that's a foregone conclusion. 696 00:33:37,040 --> 00:33:43,240 Speaker 8: I don't think the Israeli political life can withstand that. 697 00:33:43,440 --> 00:33:47,200 Speaker 8: In other words, you had such a massacre, impacting not 698 00:33:47,440 --> 00:33:51,520 Speaker 8: just the immediate victims, but their relatives and the spirit 699 00:33:51,560 --> 00:33:53,880 Speaker 8: of the country. I think if you walk away without 700 00:33:54,000 --> 00:33:57,600 Speaker 8: Hamasp being destroyed, I think they'll be huge to satisfaction. 701 00:33:57,640 --> 00:34:00,920 Speaker 8: I don't think it's in whose carrier they're the settle 702 00:34:00,960 --> 00:34:03,960 Speaker 8: for that, But I do think they're trying to be 703 00:34:04,000 --> 00:34:07,880 Speaker 8: smart to make sure they've done everything they can to 704 00:34:07,920 --> 00:34:12,160 Speaker 8: try and deal with the world opinion and pressure about 705 00:34:12,200 --> 00:34:15,120 Speaker 8: the situation. But at the end of the day, I 706 00:34:15,400 --> 00:34:19,320 Speaker 8: don't think it's inconceivable to me that you have a ceasefire. 707 00:34:19,600 --> 00:34:21,879 Speaker 8: So to me, the hostages, I think the bolt has 708 00:34:21,920 --> 00:34:25,480 Speaker 8: to be bitten, and I do believe there were some 709 00:34:25,640 --> 00:34:27,920 Speaker 8: natural delays. I mean they weren't in position. I mean, 710 00:34:27,920 --> 00:34:30,600 Speaker 8: they were not really set up to do the invasion, 711 00:34:30,680 --> 00:34:32,799 Speaker 8: so that takes a little time and then you have 712 00:34:32,840 --> 00:34:35,839 Speaker 8: to soften it up. But I think this is from 713 00:34:35,880 --> 00:34:38,160 Speaker 8: where I sit, it looks to me like they're well 714 00:34:38,200 --> 00:34:40,040 Speaker 8: within reach of going in and doing what they have 715 00:34:40,120 --> 00:34:40,279 Speaker 8: to do. 716 00:34:40,840 --> 00:34:46,399 Speaker 2: To me, the hostage has reason interesting work against them. Yeah, 717 00:34:46,440 --> 00:34:49,359 Speaker 2: I wonder what you think about you know, Erdowan today 718 00:34:49,480 --> 00:34:51,799 Speaker 2: said he doesn't think Hamas is a terrorist group, but 719 00:34:52,880 --> 00:34:55,000 Speaker 2: it's difficult to look at what they did on October 720 00:34:55,040 --> 00:34:58,960 Speaker 2: seventh and not call that terrorism. We do not, at 721 00:34:59,040 --> 00:35:02,640 Speaker 2: least as a public policy, negotiate with terrorists. So what's 722 00:35:02,680 --> 00:35:03,360 Speaker 2: happening here? 723 00:35:04,640 --> 00:35:06,480 Speaker 8: Well, you have here to go, but you have many 724 00:35:06,520 --> 00:35:08,799 Speaker 8: other leaders, you have the head of the UN. I 725 00:35:08,840 --> 00:35:12,960 Speaker 8: mean it's very disappointing. I mean, we can't distinguish between 726 00:35:13,080 --> 00:35:17,160 Speaker 8: massacres and slaughtering and trying to defend your country. 727 00:35:17,200 --> 00:35:19,359 Speaker 5: I mean in our universities. 728 00:35:19,400 --> 00:35:22,239 Speaker 8: It's to me, it's shocking, and I think we have to, 729 00:35:22,280 --> 00:35:26,239 Speaker 8: when this is done, reevaluate where we stand. I do 730 00:35:26,360 --> 00:35:29,600 Speaker 8: think there's an opportunity. There is a silver lining of 731 00:35:29,760 --> 00:35:33,960 Speaker 8: the Israelis succeed as I think, which will be to 732 00:35:34,000 --> 00:35:36,200 Speaker 8: get rid of Hamasa. I mean, they'll spring up again, 733 00:35:36,239 --> 00:35:38,799 Speaker 8: but there'll be a breathing period to look at some 734 00:35:39,040 --> 00:35:44,080 Speaker 8: longer lasting peace arrangement. But right now it's stunning to see. 735 00:35:44,960 --> 00:35:46,640 Speaker 8: I don't know how you get there, to be honest, 736 00:35:46,680 --> 00:35:50,320 Speaker 8: it's and I just feel you must. 737 00:35:50,120 --> 00:35:50,799 Speaker 2: Have been out of touch. 738 00:35:50,800 --> 00:35:53,640 Speaker 8: I didn't watch any news or listening to Bloomberg. Yeah, 739 00:35:53,760 --> 00:35:57,400 Speaker 8: that's took place. I mean it was savagery. 740 00:35:57,640 --> 00:36:01,160 Speaker 1: Jack. What role do you believe currently the United States 741 00:36:01,360 --> 00:36:04,839 Speaker 1: military and intelligence is playing as we speak. 742 00:36:06,840 --> 00:36:09,520 Speaker 8: I mean Israeli. So is Israel has been a long 743 00:36:09,560 --> 00:36:13,120 Speaker 8: time ally, certainly our principal ally in the Middle East. 744 00:36:13,680 --> 00:36:17,040 Speaker 8: I suspect we're doing everything we can on the intelligence 745 00:36:17,040 --> 00:36:21,920 Speaker 8: front to assist. I also think militarily, I don't see 746 00:36:21,960 --> 00:36:25,480 Speaker 8: boots on the ground. I do think there are risk 747 00:36:25,560 --> 00:36:28,239 Speaker 8: having the fleet there, but I think it's the right move, 748 00:36:29,600 --> 00:36:32,759 Speaker 8: and I think we're showing strength so that we're really 749 00:36:32,760 --> 00:36:35,600 Speaker 8: trying to contain the Iranians rather than dealing with anything 750 00:36:35,640 --> 00:36:40,080 Speaker 8: ready directly to Hamas and the guys of the Israelis 751 00:36:40,120 --> 00:36:42,239 Speaker 8: will take care of that, all. 752 00:36:42,200 --> 00:36:43,680 Speaker 1: Right, Jack, Thank you so much for joining us. Really 753 00:36:43,719 --> 00:36:46,719 Speaker 1: appreciate you jumping on here last minute. Jack Devine. He's 754 00:36:46,719 --> 00:36:49,400 Speaker 1: a president and founding partner of the Arcan Group, a 755 00:36:49,440 --> 00:36:52,200 Speaker 1: thirty two year veteran of the Central Intelligence Agency. We 756 00:36:52,239 --> 00:36:55,399 Speaker 1: always like getting a few minutes of Jack's time when 757 00:36:55,600 --> 00:36:58,839 Speaker 1: there are breaking geopolitical events, and there seem to be 758 00:36:58,840 --> 00:37:00,000 Speaker 1: plenty of those these days. 759 00:37:00,080 --> 00:37:03,640 Speaker 6: You're listening to the tape Catcher live program Bloomberg Markets 760 00:37:03,719 --> 00:37:07,080 Speaker 6: weekdays at ten am Eastern on Bloomberg Radio, the tune 761 00:37:07,160 --> 00:37:10,120 Speaker 6: in app, Bloomberg dot Com, and the Bloomberg Business App. 762 00:37:10,160 --> 00:37:12,960 Speaker 6: You can also listen live on Amazon Alexa from our 763 00:37:13,000 --> 00:37:17,400 Speaker 6: flagship New York station. Just say Alexa play Bloomberg eleven thirty. 764 00:37:19,960 --> 00:37:21,839 Speaker 1: All right, I look at We've been talking about rates 765 00:37:21,880 --> 00:37:24,399 Speaker 1: a lot over the last several weeks. How about this rate? 766 00:37:24,760 --> 00:37:28,680 Speaker 1: The bank rate thirty year fixed mortgage eight point zero 767 00:37:29,080 --> 00:37:32,480 Speaker 1: four percent? Are you kidding me crazy? I feel like 768 00:37:32,480 --> 00:37:34,520 Speaker 1: a rockstar now with my six percent mortgage I got 769 00:37:34,640 --> 00:37:37,080 Speaker 1: earlier in the year. We also had new home sales. 770 00:37:37,080 --> 00:37:39,120 Speaker 1: Today they don't care about the rates of twelve point 771 00:37:39,160 --> 00:37:43,160 Speaker 1: three percent. After a decline last month of eight point 772 00:37:43,160 --> 00:37:45,480 Speaker 1: two percent, So all over the place, let's figure out 773 00:37:45,480 --> 00:37:47,960 Speaker 1: what's happening in the residential real estate market. We do 774 00:37:48,000 --> 00:37:51,200 Speaker 1: that the Kate Kaminski, she's the COO of Walton Global. 775 00:37:51,480 --> 00:37:53,480 Speaker 1: Kate give us just kind of an overview here. It 776 00:37:53,520 --> 00:37:57,120 Speaker 1: seems like with mortgage rates this high, who can afford 777 00:37:57,160 --> 00:37:58,480 Speaker 1: to buy a house these days? 778 00:38:00,160 --> 00:38:03,759 Speaker 12: Well, thanks for having me on, gentlemen. Excited to be 779 00:38:03,840 --> 00:38:08,080 Speaker 12: joining you here and talking about this today. You know, 780 00:38:08,160 --> 00:38:11,480 Speaker 12: that really is the question who can afford to get 781 00:38:11,480 --> 00:38:15,480 Speaker 12: into homes with rates at where they're at five basis 782 00:38:15,480 --> 00:38:19,279 Speaker 12: points from from a week ago. And we don't necessarily 783 00:38:19,320 --> 00:38:22,520 Speaker 12: see the light at the end of the tunnel yet. 784 00:38:22,560 --> 00:38:25,920 Speaker 12: But I think the stats that you just reference, the 785 00:38:25,960 --> 00:38:29,160 Speaker 12: twelve point three percent that we're seeing up in September, 786 00:38:29,480 --> 00:38:34,120 Speaker 12: you know, we're really bullish on new home sales and 787 00:38:34,160 --> 00:38:39,000 Speaker 12: production right now. You're seeing new homebuilders that represent about 788 00:38:39,080 --> 00:38:43,400 Speaker 12: thirty five to forty percent of today's new home sales, 789 00:38:43,640 --> 00:38:47,160 Speaker 12: which is up from fifteen to eighteen percent before. And 790 00:38:47,360 --> 00:38:51,440 Speaker 12: we're attributing that primarily to these new home builders very 791 00:38:51,600 --> 00:38:56,400 Speaker 12: aggressively buying down mortgages for these buyers. You know, the 792 00:38:56,480 --> 00:39:01,000 Speaker 12: typical consumer is they feel that five is about the 793 00:39:02,000 --> 00:39:05,719 Speaker 12: average mortgage rate that they should be paying. And these 794 00:39:05,719 --> 00:39:09,560 Speaker 12: new home builders are putting in programs whereby they're getting 795 00:39:09,719 --> 00:39:13,680 Speaker 12: those new buyers down from eight percent to five percent 796 00:39:13,840 --> 00:39:17,360 Speaker 12: through different different mechanisms of rate it items. 797 00:39:18,560 --> 00:39:22,360 Speaker 2: So how does this work out, Kate? I mean, what 798 00:39:22,400 --> 00:39:25,680 Speaker 2: do you do at Walton Global and what is your 799 00:39:25,680 --> 00:39:28,919 Speaker 2: expectation for Q four and twenty twenty four. 800 00:39:29,920 --> 00:39:34,600 Speaker 12: Yeah, So we're a global real estate investment and asset 801 00:39:34,640 --> 00:39:39,560 Speaker 12: management firm and we specialize in land. We're looking to 802 00:39:39,640 --> 00:39:42,440 Speaker 12: buy land that's in the path of growth, that that 803 00:39:42,600 --> 00:39:46,759 Speaker 12: is primarily intended for sale to new home builders, and 804 00:39:46,800 --> 00:39:49,839 Speaker 12: so we're a pretty critical part of the supply chain. 805 00:39:49,920 --> 00:39:53,200 Speaker 12: We believe in in the new home building space because 806 00:39:53,239 --> 00:39:56,560 Speaker 12: we're selling to these builders who are really focused on 807 00:39:57,000 --> 00:40:02,280 Speaker 12: that first time home buyer. And so Walton creates pretty 808 00:40:02,320 --> 00:40:07,399 Speaker 12: creative financing mechanisms, off balance sheet financing mechanisms for these 809 00:40:07,400 --> 00:40:11,520 Speaker 12: homebuilders who are looking for ways to keep as much 810 00:40:11,600 --> 00:40:14,640 Speaker 12: cash on hand, keep their margins high so that they 811 00:40:14,640 --> 00:40:17,600 Speaker 12: can do things like these rate buy down programs and 812 00:40:18,040 --> 00:40:21,600 Speaker 12: deploy their excess capital, which these homebuilders have a lot 813 00:40:21,760 --> 00:40:24,719 Speaker 12: of that right now. They've been waiting for this opportunity 814 00:40:25,400 --> 00:40:27,000 Speaker 12: to expand their market shares. 815 00:40:27,120 --> 00:40:31,080 Speaker 2: Well, you're like, but so sorry forgive me because I 816 00:40:31,120 --> 00:40:33,359 Speaker 2: don't understand the ins and outs of this business so well. 817 00:40:33,360 --> 00:40:40,479 Speaker 2: But these new homebuilders are subsidizing mortgages for buyers because 818 00:40:40,560 --> 00:40:45,160 Speaker 2: rates are too high, and you are subsidizing the loans 819 00:40:45,200 --> 00:40:48,080 Speaker 2: to these new homebuilders to get your land because the 820 00:40:48,160 --> 00:40:50,640 Speaker 2: rates are so high. Like, at some point the bucks 821 00:40:50,640 --> 00:40:53,719 Speaker 2: got to stop, right, Well. 822 00:40:53,760 --> 00:40:57,279 Speaker 12: You know, we we think that it's going to continue on. 823 00:40:57,400 --> 00:40:59,239 Speaker 12: We think we have a few more years of. 824 00:40:59,200 --> 00:41:01,200 Speaker 2: This, and I I just mean, somebody at the end 825 00:41:01,239 --> 00:41:02,759 Speaker 2: of the day has got to pay for it, right, 826 00:41:02,840 --> 00:41:08,160 Speaker 2: So you know, you can't continue to find creative financing solutions, 827 00:41:08,239 --> 00:41:10,200 Speaker 2: Like at some point it's got to get paid for. 828 00:41:10,360 --> 00:41:12,719 Speaker 1: So how does that all? It's like a house of cards. 829 00:41:13,280 --> 00:41:13,520 Speaker 5: Yep. 830 00:41:13,840 --> 00:41:19,040 Speaker 12: Well, you know, we're definitely seeing the increased price of 831 00:41:19,120 --> 00:41:22,880 Speaker 12: resale homes, which is why again we're focused on that 832 00:41:23,040 --> 00:41:26,920 Speaker 12: new home build market. I was just traveling in Florida 833 00:41:27,000 --> 00:41:29,920 Speaker 12: last week and there are still places where we have 834 00:41:30,040 --> 00:41:33,319 Speaker 12: new communities that are going up being built by the 835 00:41:33,320 --> 00:41:35,960 Speaker 12: public builders, and there's homes in there selling for two 836 00:41:36,080 --> 00:41:39,880 Speaker 12: hundred thousand and an under in some instances, and so 837 00:41:39,920 --> 00:41:44,560 Speaker 12: I think that drive to affordability is critical. We need 838 00:41:44,600 --> 00:41:47,960 Speaker 12: to be focusing on that right across the country so 839 00:41:48,000 --> 00:41:52,000 Speaker 12: that we're matching the home buyer with what they're earning 840 00:41:52,120 --> 00:41:54,799 Speaker 12: and what they can afford. And so you know, we've 841 00:41:54,800 --> 00:41:57,120 Speaker 12: got we've got a real lock up in the resale 842 00:41:57,200 --> 00:42:01,400 Speaker 12: market right now because we've continued to see the value 843 00:42:01,440 --> 00:42:04,719 Speaker 12: of those homes increase and that's just not sustainable. 844 00:42:04,760 --> 00:42:05,960 Speaker 5: I completely agree with you. 845 00:42:06,239 --> 00:42:09,120 Speaker 12: But so that's why we continue to think that the 846 00:42:09,160 --> 00:42:12,520 Speaker 12: new home building space is going to be where these 847 00:42:12,560 --> 00:42:17,000 Speaker 12: buyers are fleeing to. We have a fundamental undersupply of 848 00:42:17,239 --> 00:42:20,560 Speaker 12: homes in this country. Depending on what economists you speak to, 849 00:42:20,600 --> 00:42:23,640 Speaker 12: it's between two and six million homes that we need 850 00:42:23,680 --> 00:42:27,600 Speaker 12: to build because of the underbuilding that was occurring after 851 00:42:27,640 --> 00:42:30,480 Speaker 12: the Great Recession. And so you know, these new home 852 00:42:30,520 --> 00:42:34,280 Speaker 12: builders are or where the the affordability lies. 853 00:42:34,600 --> 00:42:36,840 Speaker 1: So when you're out there these days, what's the cost 854 00:42:36,880 --> 00:42:38,600 Speaker 1: of land that you guys are looking at, what's the deal? 855 00:42:38,680 --> 00:42:42,040 Speaker 1: What's the deals you're looking at today versus maybe four 856 00:42:42,080 --> 00:42:44,520 Speaker 1: or five years ago in terms of acquiring land. 857 00:42:45,760 --> 00:42:51,160 Speaker 12: Yeah, you know that really is specific to every market 858 00:42:51,239 --> 00:42:54,480 Speaker 12: that we're in uh you know, we we are looking 859 00:42:54,760 --> 00:42:59,880 Speaker 12: for land that has UH is in a development friendly 860 00:43:00,560 --> 00:43:03,640 Speaker 12: municipality or county. That continues to be one of the 861 00:43:03,680 --> 00:43:06,839 Speaker 12: biggest challenges that we're seeing across the country as well, 862 00:43:07,239 --> 00:43:11,600 Speaker 12: these areas where growth is coming, not wanting to accept 863 00:43:11,640 --> 00:43:15,600 Speaker 12: this growth and provide the necessary approvals. But that's that's 864 00:43:15,680 --> 00:43:19,880 Speaker 12: where the opportunity lies. And and so we we focus 865 00:43:19,920 --> 00:43:23,840 Speaker 12: on areas where there's access to infrastructure, and we've really 866 00:43:23,880 --> 00:43:27,960 Speaker 12: got pro growth governments in and around the area that 867 00:43:28,000 --> 00:43:30,640 Speaker 12: are going to help get these off the ground. So 868 00:43:31,080 --> 00:43:35,760 Speaker 12: you know, there's there's not a specific price per acre 869 00:43:35,880 --> 00:43:38,759 Speaker 12: that we're focusing on because that varies by state and 870 00:43:38,840 --> 00:43:42,719 Speaker 12: per region. But we really focus here at Walton in 871 00:43:42,760 --> 00:43:46,719 Speaker 12: the sun Belt, you know, the southern smile of the US, 872 00:43:47,200 --> 00:43:52,680 Speaker 12: because of those major market trends that that we follow, 873 00:43:53,200 --> 00:43:58,120 Speaker 12: job growth, population growth, you know, net domestic migration. It's 874 00:43:58,200 --> 00:44:02,799 Speaker 12: it's a pretty simple equation, and you know that's that 875 00:44:02,880 --> 00:44:05,560 Speaker 12: has been our model for the last forty five years 876 00:44:05,600 --> 00:44:06,359 Speaker 12: that we've been doing this. 877 00:44:06,520 --> 00:44:08,919 Speaker 1: Who do you compete against because we've heard this same 878 00:44:09,440 --> 00:44:12,120 Speaker 1: you know, strategy on the real estate side from basically 879 00:44:12,160 --> 00:44:15,239 Speaker 1: everybody in the home building, food chain, So who do 880 00:44:15,280 --> 00:44:17,800 Speaker 1: you It's got to be competitive. When a partial property 881 00:44:17,800 --> 00:44:21,120 Speaker 1: comes up in you know, suburban Dallas or suburban Austin 882 00:44:21,239 --> 00:44:24,480 Speaker 1: or suburban Tampa. I got to think ten of the 883 00:44:24,520 --> 00:44:27,399 Speaker 1: smartest and most well capitalized people are in there trying 884 00:44:27,440 --> 00:44:29,240 Speaker 1: to get that land. How competitive is your market? 885 00:44:30,600 --> 00:44:34,839 Speaker 12: So it's definitely a competitive marketplace. But where I would 886 00:44:34,880 --> 00:44:38,799 Speaker 12: say Walton's niche is is that we're buying land that's 887 00:44:38,840 --> 00:44:42,200 Speaker 12: a little bit earlier in the cycle. Most of your 888 00:44:42,239 --> 00:44:46,520 Speaker 12: builders today, they because of what happened and after the 889 00:44:46,880 --> 00:44:50,120 Speaker 12: Great Recession and the long duration that it took for 890 00:44:50,200 --> 00:44:54,280 Speaker 12: everything to normalize, they all have pressures from Wall Street 891 00:44:54,320 --> 00:44:57,600 Speaker 12: to keep land off their balance sheets, and so you 892 00:44:57,640 --> 00:45:01,239 Speaker 12: know they're looking for land at that they can be 893 00:45:01,280 --> 00:45:04,680 Speaker 12: building and selling homes within twenty four months, and so 894 00:45:05,320 --> 00:45:09,359 Speaker 12: they're compressed on wet assets they can actually purchase. And 895 00:45:09,400 --> 00:45:11,759 Speaker 12: even many of the land bankers and groups that they 896 00:45:11,800 --> 00:45:15,600 Speaker 12: work with, they have a pretty short time horizon for 897 00:45:15,719 --> 00:45:18,640 Speaker 12: when that land needs to be cash flowing, okay, homes 898 00:45:18,680 --> 00:45:21,799 Speaker 12: being built and sold to third parties. Where Walton comes 899 00:45:21,840 --> 00:45:24,720 Speaker 12: into play is we have a little bit more patient capital, 900 00:45:25,040 --> 00:45:28,000 Speaker 12: not too patient, but a little bit more where we'll 901 00:45:28,080 --> 00:45:31,440 Speaker 12: buy land that is a little bit earlier in the cycle, 902 00:45:31,760 --> 00:45:35,400 Speaker 12: and we'll hold it while that homebuilder is doing the 903 00:45:35,600 --> 00:45:38,840 Speaker 12: entitlement work, getting it ready to literally stick a shovel 904 00:45:38,840 --> 00:45:41,240 Speaker 12: in the ground, and that's the time when we'll transfer 905 00:45:41,280 --> 00:45:43,880 Speaker 12: the land to them. So it's pretty unique in that 906 00:45:44,040 --> 00:45:47,400 Speaker 12: space and where we find the opportunities. 907 00:45:47,760 --> 00:45:49,279 Speaker 1: All right, Kate, thanks so much for joining us. Really 908 00:45:49,280 --> 00:45:52,520 Speaker 1: appreciate it talking about some of the commercial real estate development. 909 00:45:52,600 --> 00:45:57,520 Speaker 1: Kate Kaminski, COO of Walton Global, Thanks. 910 00:45:57,239 --> 00:46:01,160 Speaker 2: For listening to the Bloomberg Markets podcast. Subscribe and listen 911 00:46:01,200 --> 00:46:05,480 Speaker 2: to interviews on Apple Podcasts or whatever podcast platform you prefer. 912 00:46:05,840 --> 00:46:09,120 Speaker 2: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen 913 00:46:09,200 --> 00:46:09,799 Speaker 2: seventy three. 914 00:46:10,280 --> 00:46:12,720 Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney. 915 00:46:12,760 --> 00:46:15,440 Speaker 1: Before the podcast, you can always catch us worldwide at 916 00:46:15,440 --> 00:46:17,200 Speaker 1: Bloomberg Radio.