WEBVTT - UAW, Tech Earnings, Regional Banks, and Bonds 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.600 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.600 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets Podcast on Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.720 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:20.880 --> 0:00:23.760 All right, we still have the auto workers on strike. 0:00:23.800 --> 0:00:27.160 It seems like the strike is expanding in scope. We're 0:00:27.160 --> 0:00:30.040 not doesn't seem any closer to a solution here, questions 0:00:30.080 --> 0:00:32.720 what does it mean for these companies in their balance sheets? 0:00:32.760 --> 0:00:35.840 So we got Joel Levington here. He runs all credit 0:00:35.880 --> 0:00:38.720 research for Bloomberg Intelligence, and his day job he follows 0:00:38.720 --> 0:00:42.320 these auto guys and the industrial companies from the credit perspective. So, Joel, 0:00:42.640 --> 0:00:44.479 you know, when I think of the auto companies, I 0:00:44.479 --> 0:00:47.159 don't think of them with the strongest balance sheets and 0:00:47.320 --> 0:00:51.640 strongest credit profiles. And if this strike goes on, is 0:00:51.680 --> 0:00:53.440 it a risk here or what type of risk is 0:00:53.479 --> 0:00:55.680 it to their balance sheets and to their credit? 0:00:55.960 --> 0:00:58.840 Yeah, Paul, it's a great question. And really the US 0:00:58.920 --> 0:01:02.120 companies are autos have weaker balance sheets to begin within 0:01:02.200 --> 0:01:05.120 the European names. It hasn't really been too much of 0:01:05.160 --> 0:01:09.039 a concern at this point, but as it extends already 0:01:09.080 --> 0:01:11.760 in week six, it becomes an issue. And really it 0:01:11.760 --> 0:01:15.160 becomes an issue because the payables on these companies balance 0:01:15.200 --> 0:01:18.360 sheets are huge, you know, in excess of thirty billion dollars, 0:01:18.400 --> 0:01:21.080 and you don't really have receivables to offset that. So 0:01:21.120 --> 0:01:26.720 you have this liquidity issue of you already lost mat machtables. 0:01:26.720 --> 0:01:29.000 Like you know, you're paying your suppliers every sixty days 0:01:29.800 --> 0:01:33.080 and as as you have no sales, like you're thought 0:01:33.120 --> 0:01:35.480 to pay them. On the flip side, remember they're selling 0:01:35.560 --> 0:01:38.200 to their dealers, so they get the cash kind of upfront. 0:01:38.640 --> 0:01:41.360 So that cash, right yeah. 0:01:41.200 --> 0:01:43.040 Because when you sell a car to a dealer, you 0:01:43.040 --> 0:01:44.600 don't get cash for it, right. 0:01:44.640 --> 0:01:47.000 Right, Well, it's done through floor or usually done through 0:01:47.000 --> 0:01:50.440 floor plays, so well essentially you get it very quickly, 0:01:51.120 --> 0:01:53.400 and so there's a timing mismatch. You get the cash 0:01:53.480 --> 0:01:55.840 up front and then you have to pay your supplier. 0:01:55.920 --> 0:01:58.640 So when there's no more sales or when sales decline, 0:01:59.040 --> 0:02:00.840 you don't have the money come in because you're not 0:02:00.880 --> 0:02:02.600 selling to the dealer. But on the flip side, you 0:02:02.600 --> 0:02:05.559 still have to pay your vendors, and so that's where 0:02:05.600 --> 0:02:08.160 all the cash strain happens. If you were called during 0:02:08.160 --> 0:02:10.520 the pandemic. Ford had an issue eight and a half 0:02:10.560 --> 0:02:12.839 billion dollars worth of debt, which is a very high 0:02:12.840 --> 0:02:15.560 coupon debt, which eventually they called in at a premium 0:02:15.639 --> 0:02:18.440 on top of that just to keep their liquidity whole. So, 0:02:18.800 --> 0:02:21.080 you know, hopefully that's not the situation we're in, but 0:02:21.280 --> 0:02:22.280 certainly it feels more. 0:02:22.240 --> 0:02:26.000 And we get into next year and we look back, 0:02:26.120 --> 0:02:27.919 I'm sure this strike will be resolved in the next 0:02:27.919 --> 0:02:30.120 few weeks. Seems like they're done. They just need to 0:02:30.160 --> 0:02:31.680 strike a little bit longer, Is that right? 0:02:31.720 --> 0:02:32.400 Is that kind of the feeling. 0:02:32.760 --> 0:02:35.320 That's what I got from your interview with David Welch 0:02:35.400 --> 0:02:38.359 this morning, which is that Sean Fayn has to make 0:02:38.360 --> 0:02:40.560 a lot of noise. He had huge demands. They're going 0:02:40.600 --> 0:02:42.880 to get a big pay bump, but obviously not the 0:02:42.919 --> 0:02:46.200 pensions or the four day work week. Was acruiting for 0:02:46.240 --> 0:02:48.200 the four day work week, yeah, I thought it would 0:02:48.240 --> 0:02:50.120 be awesome. Four hour work week is what I'm for. 0:02:50.560 --> 0:02:53.480 But when you look back at the second half of 0:02:53.480 --> 0:02:56.800 twenty twenty three, how much of an impact is this 0:02:56.840 --> 0:02:58.160 going to make on the top line? 0:02:59.000 --> 0:03:01.800 Probably not that much. I mean there, I think, particularly 0:03:01.840 --> 0:03:04.400 with Stillanta. So you know, like your hell Cat and 0:03:05.280 --> 0:03:08.959 Dodge and Chrysler, they built inventory in front of this, 0:03:09.160 --> 0:03:11.440 knowing that there might be a protracted. 0:03:11.040 --> 0:03:13.120 And build a lot of jeep wranglers we heard in this. 0:03:13.480 --> 0:03:16.359 I mean if you go to the so learn the 0:03:17.160 --> 0:03:19.640 way in our town, they certainly have a lot on 0:03:19.680 --> 0:03:24.040 their lots of Broncos and rams and jeep so wranglers 0:03:24.040 --> 0:03:25.880 you mean and wranglers, yes, and so. 0:03:25.760 --> 0:03:26.600 Broncos are coed. 0:03:26.880 --> 0:03:31.040 No, well they have have to. Oh okay, but yeah, 0:03:31.080 --> 0:03:34.160 like all the all the autos had lots of inventory 0:03:34.160 --> 0:03:38.120 other lots, you know, knowing that you might have a 0:03:38.160 --> 0:03:40.760 several week lack of supply coming out. 0:03:41.000 --> 0:03:44.360 So wait, just a sidetrack on the Bronco thing. Uh, 0:03:44.440 --> 0:03:46.120 you got a dealership in your town that has a 0:03:46.120 --> 0:03:49.840 ton of Broncos on the lot. Do you go in there? 0:03:49.880 --> 0:03:51.840 And I mean are they charging five or ten thousand 0:03:51.840 --> 0:03:55.280 dollars over MSRP or can you actually just buy one? 0:03:55.400 --> 0:03:56.600 I think you could just buy one? 0:03:57.200 --> 0:03:57.800 Where do you live? 0:03:59.080 --> 0:04:02.440 Would do that offline on the bench right the train station? 0:04:03.800 --> 0:04:06.480 So what do you think the union is going to 0:04:06.520 --> 0:04:07.680 get at the end of all this. I mean, it 0:04:07.680 --> 0:04:09.520 looks to me like they're going to get twenty three 0:04:09.760 --> 0:04:17.200 percent increase and pay right, maybe bigger compounded, but no pensions. Right, 0:04:17.240 --> 0:04:17.760 They're not going. 0:04:17.760 --> 0:04:18.520 To get that back. 0:04:18.839 --> 0:04:21.400 No, I think you're totally right, and I think you're 0:04:21.440 --> 0:04:23.440 probably in the twenty five percent zone is where it 0:04:23.520 --> 0:04:25.880 kind of works out. I think one of the reasons 0:04:25.880 --> 0:04:28.320 that you hear people like Dave walchho does a great 0:04:28.400 --> 0:04:31.440 job in our Detroit office, talk about it being extended 0:04:31.520 --> 0:04:35.360 is because if you think about from the UAW side 0:04:35.360 --> 0:04:40.280 of things, they've had a complete decline in volume and 0:04:40.400 --> 0:04:43.159 customers for decades, right, and they have to kind of 0:04:43.160 --> 0:04:45.400 turn it around. So if you can pop a you know, 0:04:45.800 --> 0:04:49.400 fifteen percent increase in salary on day one, that will 0:04:49.400 --> 0:04:53.480 get other industries and other autos to be nice that 0:04:53.640 --> 0:04:56.840 if the uaw's in town, certainly more people could join them, 0:04:56.960 --> 0:05:00.680 which is really their goal and game to become more signing. 0:05:00.440 --> 0:05:04.400 Their battery factories now. They I'm sure they hope that 0:05:05.400 --> 0:05:07.719 some Tesla shops will look at the union and say, 0:05:07.760 --> 0:05:09.159 you know what, let's do, Let's try it again. 0:05:09.279 --> 0:05:12.160 Yeah, And all the non union shops down south or 0:05:12.200 --> 0:05:13.080 in the West. 0:05:13.240 --> 0:05:14.880 That would BMW. 0:05:15.800 --> 0:05:19.839 BMW. Volkswagen is building a new two billion dollar scout facility, 0:05:20.520 --> 0:05:22.520 so I'm not sure if anybody that's gonna happen. 0:05:22.760 --> 0:05:25.800 But is that really gonna happen? I saw it at 0:05:25.839 --> 0:05:30.880 the you know, the Import Mechanic in Bronxville, right around 0:05:30.880 --> 0:05:34.080 the corner from Rosies. They had an international Scout on 0:05:34.120 --> 0:05:37.960 their lot and I thought, man, that is cool, so cool, 0:05:38.000 --> 0:05:40.640 but you have no room in your parking garage. I 0:05:40.680 --> 0:05:45.279 don't know, but I I feel like, is it really 0:05:45.320 --> 0:05:49.120 gonna happen? Are they Is Volkswagen really gonna revive that 0:05:49.279 --> 0:05:53.080 brand and actually make a mass production product. 0:05:53.360 --> 0:05:55.200 They are, although if you look at the products that 0:05:55.200 --> 0:05:57.440 they've shown online, it looks very very similar to the 0:05:57.480 --> 0:06:01.400 Ribbean products. Yeah, just without a branding that nobody remembers. 0:06:01.880 --> 0:06:02.520 Is that Gonna live? 0:06:02.720 --> 0:06:05.440 Is Gonna live reviewed? 0:06:05.480 --> 0:06:08.240 I think Ken Live? You know, like they did a 0:06:08.279 --> 0:06:10.280 convertible bond a couple of months ago, which really gives 0:06:10.320 --> 0:06:12.880 them some liquidity in time for their next product to 0:06:12.880 --> 0:06:15.880 come out. But just like all of these ev companies, 0:06:16.080 --> 0:06:18.880 they're years away from making profits, so it really becomes 0:06:19.160 --> 0:06:21.520 what's your liquidity and access to the capital markets for 0:06:21.600 --> 0:06:22.920 more of it? Because you're gonna need it. 0:06:23.120 --> 0:06:25.040 Let me ask one more stupid car question, then I'll 0:06:25.080 --> 0:06:30.000 yield around the flour. The cyber truck. Elon Musk on 0:06:30.040 --> 0:06:32.280 the conference call, when he was so bummed out and 0:06:32.279 --> 0:06:36.280 getting kind of philosophical and dark. Uh, he said, we 0:06:36.360 --> 0:06:39.840 never should have, you know, launched into this special product. 0:06:39.920 --> 0:06:42.120 And you know we we we should have known that 0:06:42.160 --> 0:06:45.479 this like you know, special edition would have been, would 0:06:45.520 --> 0:06:47.760 have caused us to go back into production. Hell, he 0:06:47.880 --> 0:06:50.160 was talking about it as if it were limited. 0:06:50.560 --> 0:06:50.720 Right. 0:06:51.320 --> 0:06:55.680 Don't they want to challenge f one fifty, you know, 0:06:56.279 --> 0:07:02.120 Chevy Silverado, you know Ram fifteen hundred, these massive volume 0:07:02.200 --> 0:07:06.280 products with huge margins. Isn't that a market that they 0:07:06.320 --> 0:07:08.160 want to take a piece of or is this just 0:07:08.240 --> 0:07:10.680 like if you got one in the two year production run, 0:07:10.680 --> 0:07:11.960 you're lucky and then it's done. 0:07:12.040 --> 0:07:13.680 I don't think the cyber Truck is the answer to 0:07:13.720 --> 0:07:16.200 the F one fifty or the Silverado. I think really 0:07:16.240 --> 0:07:19.000 what they're trying to do there is really work on 0:07:20.640 --> 0:07:24.160 giga casting, which is really making these huge casts, and 0:07:24.200 --> 0:07:25.680 when you can do that, you can really cut down 0:07:25.720 --> 0:07:28.520 production time really quickly. But I think where Tesla is 0:07:28.560 --> 0:07:32.640 headed is really towards the Toyota side, towards making suv 0:07:33.040 --> 0:07:36.000 not necessarily making a lot of money off of a 0:07:36.400 --> 0:07:39.240 pickup truck, but really on the smaller cars, and I 0:07:39.240 --> 0:07:41.520 think you'll see that with the model too. That's where 0:07:41.520 --> 0:07:43.720 I think they can get super high volume and get 0:07:43.760 --> 0:07:46.520 it out to the largest amount of consumers. Right Their 0:07:46.600 --> 0:07:49.800 business has always been about the retail person, not the consumer, 0:07:49.880 --> 0:07:52.920 and not the commercial application like you'd seen in F 0:07:52.960 --> 0:07:55.280 one fifty, So I think that's really where they're headed. 0:07:56.040 --> 0:07:58.720 But having that ability to cast in great scale at 0:07:58.720 --> 0:08:00.880 a short period of time, that can give them a 0:08:00.920 --> 0:08:06.120 competitive advantage even against an amazing manufacturer like Toyota. 0:08:07.360 --> 0:08:11.240 Ge geez back baby. After like a ten or twenty 0:08:11.280 --> 0:08:13.160 year hiatus in terms of being a stock and a 0:08:13.200 --> 0:08:15.040 company that seems to be headed in the right direction. 0:08:15.160 --> 0:08:16.960 It costs me my hairline, but they are back at 0:08:17.000 --> 0:08:20.720 action and doing really well, and I think there's potential 0:08:20.920 --> 0:08:23.720 rating upgrades which should you know, like enhance views of 0:08:23.760 --> 0:08:27.800 their bonds. They will be separating their energy business in 0:08:27.840 --> 0:08:30.800 the second quarter of next year or probably at the 0:08:30.840 --> 0:08:33.439 end of the first quarter, and that really will keep 0:08:33.440 --> 0:08:37.800 it as a pure aerospace company, and by all metrics 0:08:37.840 --> 0:08:40.240 they should be back into the A category for the 0:08:40.240 --> 0:08:43.560 first time in five years, and their bonds do not 0:08:43.600 --> 0:08:47.040 reflect that. And so that's been a huge winner this year, 0:08:47.040 --> 0:08:48.840 both in the stock market and in the bond market, 0:08:49.400 --> 0:08:51.079 and I think that can continue into next year. 0:08:51.120 --> 0:08:53.840 I'm just looking at the FA function for ge nineteen. 0:08:54.200 --> 0:08:56.400 You're in twenty nineteen at ninety four billion of debt. 0:08:56.440 --> 0:08:58.680 Now they've got like twenty three twenty four billion dollars. 0:08:58.880 --> 0:09:01.160 Yeah, it's me it's amazing if you think about what 0:09:01.160 --> 0:09:03.400 they did with the finance company. At one point, I 0:09:03.440 --> 0:09:05.760 think at their peak they had about half a trillion 0:09:05.800 --> 0:09:08.440 dollars worth of dead outstanding and that's been whittled down 0:09:08.520 --> 0:09:12.480 to the twenties, about twenty billion dollars today from almost 0:09:12.480 --> 0:09:13.160 half a trillion. 0:09:13.280 --> 0:09:14.040 So G is back. 0:09:14.080 --> 0:09:17.240 It's just a shadow of itself though in terms of size. 0:09:17.440 --> 0:09:21.359 They have skinny down to the core business of aerospace, 0:09:22.080 --> 0:09:24.800 and they are really really a strong player in that 0:09:24.840 --> 0:09:28.280 business with a lot of aftermarket products and a twenty 0:09:28.280 --> 0:09:31.160 percent margin with very little capital intensity, so that can 0:09:31.240 --> 0:09:34.160 be a huge home run business. Investors, all right, and 0:09:34.200 --> 0:09:36.599 who's the CEO. We like this guy, Larry Colepe. He 0:09:36.640 --> 0:09:38.880 was great at Danahur and has done a tremendous job 0:09:38.960 --> 0:09:39.280 at g E. 0:09:39.520 --> 0:09:42.680 See it can be done, so you know, Jack Welch, 0:09:42.880 --> 0:09:44.920 Jeff mmelt now. 0:09:44.880 --> 0:09:47.120 Joel Levington. Yeah, we got to get this guy in 0:09:47.200 --> 0:09:48.560 the studio for like a half hour. 0:09:48.679 --> 0:09:49.719 I know, you know, he's mind. 0:09:49.760 --> 0:09:51.439 He can talk about a million questions. Let's go to 0:09:51.480 --> 0:09:52.720 break so I can ask him some more questions. 0:09:52.760 --> 0:09:54.480 All right, very good. Joe Levinton, he's the director research 0:09:54.520 --> 0:09:55.600 at Bloomberg Intelligence. 0:09:57.120 --> 0:10:00.959 You're listening to the Team Cancer Line program Bloomberg Markets 0:10:01.000 --> 0:10:04.120 weekdays at ten am Eastern on Bloomberg dot Com, the 0:10:04.160 --> 0:10:07.320 iHeartRadio app, and the Bloomberg Business app, or listen on 0:10:07.360 --> 0:10:09.280 demand wherever you get your podcast. 0:10:11.600 --> 0:10:14.680 Matt sam Bankmin freed to testify at his for All troup. 0:10:14.840 --> 0:10:15.800 Can we see this on TV? 0:10:15.960 --> 0:10:16.360 Is this stuff? 0:10:16.360 --> 0:10:16.520 Tell? 0:10:16.800 --> 0:10:20.120 I mean I first when I saw that headline crossed, 0:10:20.160 --> 0:10:25.280 I was so excited because sheerly because of the drama. Yeah, 0:10:25.400 --> 0:10:32.320 you know, the the decision I find questionable, but I 0:10:32.360 --> 0:10:36.480 guess I get it. I mean, it's a not a Reportedly, 0:10:36.559 --> 0:10:39.560 it's not always the smartest move to make. On the 0:10:39.600 --> 0:10:43.160 other hand, some people have said he needs to throw 0:10:43.160 --> 0:10:45.920 this hail Mary because he's losing the game. You know. 0:10:47.200 --> 0:10:49.719 Then then I got kind of bummed out because I 0:10:49.800 --> 0:10:52.480 remember it as Katie Greifeld was selling amount of surveillance 0:10:52.480 --> 0:10:55.720 state there's no cameras allowed. Yeah, and so we've seen 0:10:55.840 --> 0:10:58.440 everybody else who comes who's not in prison, who comes 0:10:58.440 --> 0:11:02.120 to testify, but we haven't seen Sam Bankman freed. And 0:11:03.360 --> 0:11:07.840 the chord sketches are I mean horrendous. I know it's subjective, 0:11:07.920 --> 0:11:11.320 but they're no bueno like, they're just not realistic at all. 0:11:11.360 --> 0:11:12.839 Yeah, we need to get some cameras in there. Let's 0:11:12.840 --> 0:11:14.080 see if I can make a phone call there. 0:11:14.120 --> 0:11:16.080 He's got a haircut, and I need to see it. 0:11:16.120 --> 0:11:18.240 You need to see Tom Kane's pointing out, no one 0:11:18.240 --> 0:11:20.280 cares if he gets a haircut. That's because we can 0:11:20.320 --> 0:11:22.839 see it all the time, right, you know, all. 0:11:22.840 --> 0:11:24.880 Right, we had some some tech earnings last night. We're 0:11:24.880 --> 0:11:26.440 gonna get some more of the Reindeer of this week. 0:11:26.559 --> 0:11:29.319 You got Amazon still to go after the close, Mogiano, 0:11:29.400 --> 0:11:32.080 Let's check out with Angelo Zenom. He's a senior industry 0:11:32.080 --> 0:11:35.480 analyst at CEE f R, A Research Angela. We had 0:11:35.760 --> 0:11:39.600 last night Alphabet better known as Google, and Microsoft reports 0:11:39.600 --> 0:11:42.319 some numbers and it seems like for both companies it's 0:11:42.360 --> 0:11:44.560 all about the cloud. Give us your takeaways from some 0:11:44.600 --> 0:11:46.280 of those big name tech names last night. 0:11:47.160 --> 0:11:49.920 Yeah, no, absolutely, it is all about the clouds. You know, 0:11:49.960 --> 0:11:51.400 I have to saying those numbers. 0:11:51.440 --> 0:11:54.000 I mean, Alphabet was it a disappointment on the cloud 0:11:54.000 --> 0:11:57.360 side of things. Sharp deceleration, I think, well below what 0:11:57.440 --> 0:12:00.880 anybody anticipated at a twenty two percent growth rate. We 0:12:00.880 --> 0:12:03.160 were looking closer to twenty six to twenty eight percent. 0:12:03.600 --> 0:12:06.120 And you know, they're clearly losing. 0:12:05.840 --> 0:12:11.120 Share to Microsoft and Azure, which saw actually an acceleration 0:12:11.480 --> 0:12:13.520 of their cloud business. 0:12:12.960 --> 0:12:15.520 Growing twenty nine percent from the twenty six percent growth 0:12:15.600 --> 0:12:18.040 right we saw just last quarter on their end of things. 0:12:18.040 --> 0:12:21.079 And listen, I mean, as far as Alphabet is concerned, 0:12:21.240 --> 0:12:24.320 they are a much smaller player on the cloud side 0:12:24.320 --> 0:12:27.160 of things, so they should be growing above the growth 0:12:27.200 --> 0:12:29.800 pace of Microsoft, and the fact that they're not is 0:12:29.840 --> 0:12:31.880 a big problem. I think the other issue with Alphabet, 0:12:31.920 --> 0:12:34.680 as far as the numbers we're concerned is as you 0:12:34.800 --> 0:12:38.000 start falling behind the competition, there's always concern that you 0:12:38.040 --> 0:12:40.040 may need to spend a little bit more to kind 0:12:40.080 --> 0:12:41.160 of keep. 0:12:41.040 --> 0:12:43.520 Up with the pack, and I think going into twenty 0:12:43.520 --> 0:12:46.160 twenty four, there could be some concern that, you know, 0:12:46.200 --> 0:12:48.640 maybe Alphabet will need to spend a little bit more 0:12:48.720 --> 0:12:51.680 than what insensus out there is anticipating. 0:12:51.720 --> 0:12:55.040 So that's probably what's weighing on the stock significantly. 0:12:55.080 --> 0:12:55.440 And an on. 0:12:55.760 --> 0:12:58.280 Microsoft side of things, I'd say it's as good a 0:12:58.360 --> 0:13:00.400 quarter as you possibly you know, probably we could have 0:13:00.400 --> 0:13:03.880 gotten executing again on the cloud side, like I mentioned, 0:13:03.920 --> 0:13:07.079 but also when you kind of look at office commercial growing, 0:13:07.200 --> 0:13:10.079 you know, high teens growth percentage pace, and then you 0:13:10.120 --> 0:13:13.000 know Copilot launching next week, it gives them all the 0:13:13.040 --> 0:13:15.720 momentum in the world kind of going into the December 0:13:15.800 --> 0:13:19.160 quarter and into calendar twenty twenty four, as they seem 0:13:19.240 --> 0:13:21.000 like they are kind of the clear leader here on 0:13:21.040 --> 0:13:22.560 the AI side of things. 0:13:22.280 --> 0:13:26.520 Yeah, I mean a leader, a leader on cloud right 0:13:27.440 --> 0:13:31.440 and a leader in AI, both places that Google seems 0:13:31.440 --> 0:13:34.560 to be dragon. I mean, I see I note that soon. 0:13:34.600 --> 0:13:38.480 Dar Pachai over at Alphabet says, I'm pleased with our 0:13:38.480 --> 0:13:41.520 financial results in our product momentum this quarter with AI 0:13:41.840 --> 0:13:46.600 driven innovations across search, YouTube, and blah, blah blah blah blah. 0:13:46.600 --> 0:13:50.120 I don't see any AI driven innovations there, and it's possible, 0:13:50.280 --> 0:13:52.760 it's likely that they're there and I just don't notice. 0:13:53.160 --> 0:13:56.800 But isn't that important the marketing side of it important? 0:13:57.360 --> 0:14:00.960 Are they doing anything with artificial intelligence? Yeah? 0:14:01.000 --> 0:14:03.160 I mean listen, I mean, one, they are kind of 0:14:03.840 --> 0:14:07.640 ahead of the game in terms of the infrastructure that they're. 0:14:07.360 --> 0:14:10.559 Building, at least as far as kind of their internally 0:14:10.640 --> 0:14:13.480 the design ship, right their TPUs, which were they were 0:14:13.520 --> 0:14:15.520 way ahead of the game on that side of things, 0:14:15.720 --> 0:14:17.520 So you know, in terms of kind of getting a 0:14:17.559 --> 0:14:20.600 lower plush structure. From that perspective, I think they are 0:14:20.600 --> 0:14:23.960 ahead of the game. But and and listen, just like 0:14:24.160 --> 0:14:25.680 you know, Meta which is going to report up for 0:14:25.720 --> 0:14:27.960 the close that I they are going to be a 0:14:28.040 --> 0:14:31.200 leader in terms of kind of you know, leveraging their 0:14:31.440 --> 0:14:35.040 AI into you know, improving kind of you know the 0:14:35.080 --> 0:14:38.480 back end and getting you know, such general experience in 0:14:38.560 --> 0:14:41.840 terms of you know, their third business as well as 0:14:41.960 --> 0:14:45.480 you know, implementing it into YouTube here over time. But yeah, 0:14:45.480 --> 0:14:48.120 I mean to your point, at the at the at 0:14:48.160 --> 0:14:51.280 the onset here kind of early days, it doesn't look 0:14:51.440 --> 0:14:55.320 like that alphabet at least kind of early on is 0:14:55.880 --> 0:14:59.640 executing and implementing some of the AI capabilities across their 0:14:59.680 --> 0:15:03.720 ECO system, maybe the way you know Microsoft is doing 0:15:03.760 --> 0:15:04.440 on their end. 0:15:04.840 --> 0:15:07.640 Or what you know, potentially Meta is actually doing with 0:15:07.760 --> 0:15:10.400 some of their rankings and recommendations on their. 0:15:10.320 --> 0:15:13.000 End as well. So definitely kind of you know, we 0:15:13.360 --> 0:15:16.280 investors want to see more out of alphabet clearly given 0:15:16.560 --> 0:15:19.400 the stock performance here that we just haven't seen yet 0:15:19.440 --> 0:15:20.360 on the AI side of them. 0:15:20.920 --> 0:15:23.920 Well, how about on the metafront again re reporting after 0:15:24.000 --> 0:15:26.880 the close? What's the street really looking for there? I 0:15:26.880 --> 0:15:30.280 mean again at digital advertising play like Google stocks up 0:15:30.280 --> 0:15:33.400 one hundred and fifty six percent year to date. What's 0:15:33.440 --> 0:15:35.520 what's the meta story here? Is all cost cutting or 0:15:35.600 --> 0:15:37.880 is there still a cloud play there as well? 0:15:38.920 --> 0:15:40.000 So listen, I think. 0:15:39.880 --> 0:15:42.240 It's I would say there's a cloud play here. But 0:15:42.760 --> 0:15:45.280 you know, as far as kind of meta is concerned, 0:15:45.280 --> 0:15:47.960 I mean, the growth rates are accelerating here into Q 0:15:48.120 --> 0:15:51.000 three and Q four. We're looking at digital ad growth 0:15:51.560 --> 0:15:55.400 for them to accept twenty percent, and you look at 0:15:55.400 --> 0:15:57.880 Alphabets too, results, right, it wasn't all bad. They actually 0:15:57.880 --> 0:16:01.160 did see some nice search numbers, some good YouTube note numbers, 0:16:01.200 --> 0:16:03.640 so the digital ads, you know, the ad space is 0:16:03.680 --> 0:16:06.360 performing fairly well. I think, you know, maybe there is 0:16:06.400 --> 0:16:08.800 some concern about what guidance is going to look like 0:16:08.880 --> 0:16:11.320 here in Q four, given some of the comments made 0:16:11.400 --> 0:16:13.840 from Snap last night in terms of you know, what's 0:16:13.880 --> 0:16:16.880 going on in the Middle East, although I wouldn't expect, 0:16:16.960 --> 0:16:19.320 you know, much negativity on that side of things right now, 0:16:19.680 --> 0:16:21.600 but maybe to your point, I think All Eyes is 0:16:21.640 --> 0:16:24.440 going to be on the court side of things, more 0:16:24.480 --> 0:16:26.440 along the lines of what twenty twenty four is going 0:16:26.520 --> 0:16:26.960 to look like. 0:16:27.000 --> 0:16:29.640 They should give some indication here like they did last 0:16:29.720 --> 0:16:31.120 year in terms of. 0:16:30.760 --> 0:16:33.760 On their call. We do expect, you know, a big 0:16:33.840 --> 0:16:35.440 hike on the cap X side of things. But if 0:16:35.480 --> 0:16:37.800 op by you know, for instance, is north of one 0:16:37.840 --> 0:16:40.560 hundred billion here in twenty twenty four, that's going to 0:16:40.640 --> 0:16:44.120 cause the stock to you know, to see a negative reaction. 0:16:44.280 --> 0:16:45.720 So I think All Eyes is really going to be 0:16:46.120 --> 0:16:48.200 on the ops number here tonight. 0:16:49.000 --> 0:16:51.280 All right, Angelo, thanks so much for joining us. Angelos 0:16:51.320 --> 0:16:53.880 you know there from CFRA talking to us about the 0:16:53.920 --> 0:16:55.800 results that we've seen and those that are coming. 0:16:56.200 --> 0:16:59.320 You're listening to the tape catch our line program Bloomberg 0:16:59.360 --> 0:17:02.960 Markets Days at ten am Eastern on Bloomberg Radio, the 0:17:03.040 --> 0:17:06.240 tune in app, Bloomberg dot Com, and the Bloomberg Business app. 0:17:06.320 --> 0:17:09.120 You can also listen live on Amazon Alexa from our 0:17:09.119 --> 0:17:14.200 flagship New York station. Just say Alexa, play Bloomberg eleven thirty. 0:17:14.520 --> 0:17:17.760 All Right, interest rates and moving higher. I thought that's 0:17:17.800 --> 0:17:19.800 good for net interest to come for the banks. We've 0:17:19.800 --> 0:17:21.720 seen some big banks put up some big net interest 0:17:21.800 --> 0:17:24.399 income numbers. But it also impacts the value of the 0:17:24.440 --> 0:17:26.639 bonds on the balance. I forgot about that part of it. 0:17:27.119 --> 0:17:29.200 Herman Chan joins us. He's a senior ANILSE. He doesn't 0:17:29.200 --> 0:17:32.520 forget anything ever, forget us regional banks and fintech. He 0:17:32.600 --> 0:17:36.160 covers it all for Bloomberg Intelligence. So, Herman, how talk 0:17:36.160 --> 0:17:38.199 to us about this rising industry environment? What does it 0:17:38.240 --> 0:17:40.520 mean for kind of the regional banks out there in 0:17:40.520 --> 0:17:42.760 the United States that most of us do our banking with. 0:17:43.119 --> 0:17:46.719 Right, Sure, so higher rates typically are better for banks, 0:17:47.000 --> 0:17:50.280 but they need to be moving in a slow measured 0:17:50.320 --> 0:17:56.080 fashion with rates whipsawing they that they did earlier last year. 0:17:56.200 --> 0:18:00.560 This year that has proven to be a bit more 0:18:00.680 --> 0:18:03.720 volatile for banks. So you saw the benefit of that 0:18:03.800 --> 0:18:07.200 last year when interest rates rose and that interest income 0:18:07.280 --> 0:18:12.919 rows for the banking group. Now those benefits are being 0:18:13.880 --> 0:18:18.840 being pushed back to consumers and business customers as the 0:18:18.960 --> 0:18:22.639 posit costs are rising. So it's been a double edged 0:18:22.680 --> 0:18:27.399 sword on the rate front. You mentioned earlier that higher 0:18:27.440 --> 0:18:31.760 rates means higher unrealized gains in their bond holdings, and 0:18:31.840 --> 0:18:34.240 that's happening, and that's weakening book value. 0:18:34.400 --> 0:18:38.080 Billy Herman, do so when I think of these bonds 0:18:38.080 --> 0:18:43.560 that are underwater back in March, I imagined regional banks 0:18:43.680 --> 0:18:49.640 using April, May, June, July, and August to get rid 0:18:49.720 --> 0:18:52.800 of those holdings. Why on earth would you still want 0:18:52.840 --> 0:18:56.119 to have zero coupon treasuries. 0:18:56.200 --> 0:18:59.360 Well, the issue is that if you sell the bonds, 0:18:59.400 --> 0:19:02.000 then you chrisp the loss on their balance sheet, right, 0:19:02.080 --> 0:19:04.680 so that the banks don't want to do that, especially 0:19:04.760 --> 0:19:08.040 ahead of tougher capital rules and tougher capital requirements. 0:19:08.080 --> 0:19:10.120 I have, hey, not all of it, but didn't don't 0:19:10.160 --> 0:19:13.840 you try and minimize your underwater bond portfolio. 0:19:13.920 --> 0:19:16.600 You can do that in a few ways. You can hedge, 0:19:17.119 --> 0:19:19.640 so some banks have done that, which is good to see. 0:19:19.760 --> 0:19:23.439 So any future rate movements will be less pronounced on 0:19:23.480 --> 0:19:27.240 the unrealized losses, but some haven't and maybe you could 0:19:27.280 --> 0:19:28.920 say they dropped the ball on that front. 0:19:29.160 --> 0:19:32.280 So they're still holding these they haven't found some greater 0:19:32.400 --> 0:19:35.480 fool they have to take to take those portfolio They 0:19:35.560 --> 0:19:35.840 have not. 0:19:35.960 --> 0:19:37.639 They're just waiting for these. 0:19:38.960 --> 0:19:42.480 Underwater securities to mature quarter after quarter. 0:19:42.640 --> 0:19:46.160 Wow, all right, So what's the market? What's the stock 0:19:46.200 --> 0:19:48.600 market doing to the regional bank names or they're just 0:19:48.640 --> 0:19:50.359 thrown all of them out the window or are they 0:19:50.400 --> 0:19:51.879 trying to find winners and losers? 0:19:52.280 --> 0:19:54.600 At this point, it seems like there's a lot of 0:19:54.640 --> 0:19:57.919 negative sentiment out there, and we've seen a number of 0:19:57.960 --> 0:20:00.680 banks in my coverage universe fifty two week closed over 0:20:00.720 --> 0:20:06.240 the past week or so. So we talked about weaker margins. 0:20:06.520 --> 0:20:08.560 There's not a lot of loan growth as well, and 0:20:08.640 --> 0:20:11.720 then we haven't really seen the the the client in 0:20:11.800 --> 0:20:14.400 asset quality that's coming ahead for the regionals in terms 0:20:14.440 --> 0:20:19.520 of exposure to office properties and the like. So there there. Unfortunately, 0:20:19.520 --> 0:20:23.440 there's a lot of headwinds and it's hard to foresee 0:20:23.480 --> 0:20:25.920 some of these side ones going away over the next 0:20:25.920 --> 0:20:27.000 you know, three to six months. 0:20:27.080 --> 0:20:30.560 Is there a valuation call here where I mean these 0:20:30.600 --> 0:20:33.400 things has been trading forever. There's great history to see 0:20:33.400 --> 0:20:38.119 how these names have traded. Is a floor where people 0:20:38.160 --> 0:20:39.960 just say, boy, if it gets the point eight book, 0:20:40.000 --> 0:20:43.159 I'm just holding my nose and binessings it eight. 0:20:44.160 --> 0:20:46.320 Yeah, I don't know. Is point four? 0:20:46.520 --> 0:20:48.800 Maybe point four? Is there a point? And if so, 0:20:49.000 --> 0:20:50.320 where are we relative to that point? 0:20:50.480 --> 0:20:50.680 Yeah? 0:20:50.720 --> 0:20:54.560 We're probably around like one times tangible book value, which 0:20:54.600 --> 0:20:58.720 historically has been a very low valuation, UH. 0:20:58.040 --> 0:21:00.840 In this country, because I remember I spent years in Germany. 0:21:01.040 --> 0:21:02.920 Right, it's different. 0:21:02.640 --> 0:21:05.680 Over where one is like, wow, if only I could 0:21:05.760 --> 0:21:08.080 have one time tangible book value. 0:21:08.240 --> 0:21:08.840 Bank would love that. 0:21:08.880 --> 0:21:11.960 I guess it's different across the pond. But here in 0:21:12.040 --> 0:21:15.000 the US, one time stangible seems to be closer to 0:21:15.040 --> 0:21:18.720 a trough valuation the stocks that bounce off of those 0:21:18.840 --> 0:21:22.440 lows you know, in May and June. But now we're 0:21:22.480 --> 0:21:26.200 sort of back towards that that trough level, So there 0:21:26.400 --> 0:21:29.080 is UH. I would also point out that historically some 0:21:29.119 --> 0:21:32.720 of these stronger banks do grow through m and A 0:21:33.000 --> 0:21:35.560 and periods of weakness. So if you see some further 0:21:36.119 --> 0:21:40.439 turmoil for the space, some of the stronger players do 0:21:40.920 --> 0:21:43.760 transact in M and A to get bigger at very 0:21:43.800 --> 0:21:47.680 attractive pricing. So that's something that could happen over time. 0:21:47.880 --> 0:21:50.400 You know, I'm just wondering about loan growth because Torch 0:21:50.480 --> 0:21:52.959 and Slock, the economist over Topollo was out with a 0:21:53.000 --> 0:21:54.280 note a couple of days ago, and you had it, 0:21:54.720 --> 0:21:57.120 you know, saying basically thirty three there are thirty three 0:21:57.119 --> 0:21:59.960 million small businesses in the United States, which I didn't 0:22:00.080 --> 0:22:02.720 that number. That's good having your back pocket. But their 0:22:02.800 --> 0:22:08.240 average barring costs has now reached ten percent. At ten percent, 0:22:08.560 --> 0:22:11.680 am I taking out a loan to expand my business 0:22:11.800 --> 0:22:13.879 or to start a new business? What are your banks 0:22:13.920 --> 0:22:14.320 telling you? 0:22:14.440 --> 0:22:18.040 Yeah, they've talked about that very point, that banks that 0:22:18.240 --> 0:22:22.199 bank clients and business customers are delaying investing because of 0:22:22.240 --> 0:22:25.879 the higher rate environments. They've talked about potentially waiting for 0:22:26.040 --> 0:22:28.679 spreads to tighten a bit more, which may be a 0:22:28.680 --> 0:22:32.399 bit wishful thinking at this point. So you have seen 0:22:32.680 --> 0:22:36.720 less demand across the regional banking space by business customers 0:22:36.720 --> 0:22:38.120 because of the higher interest rates. 0:22:38.240 --> 0:22:41.640 Yep, very good, herman, Chant, Thank you as always giving 0:22:41.720 --> 0:22:43.639 us keeping us up to data on what's happening in 0:22:43.680 --> 0:22:45.960 the world of the regional banks across the US. 0:22:46.920 --> 0:22:50.760 You're listening to the Team Canser Live program Bloomberg Markets 0:22:50.800 --> 0:22:53.879 weekdays at ten am eastering on Bloomberg dot com, the 0:22:53.960 --> 0:22:57.119 iHeartRadio app, and the Bloomberg Business App, or listen on 0:22:57.160 --> 0:23:00.280 demand wherever you get your podcasts. 0:23:01.400 --> 0:23:04.919 Brian Whalen joins us. He is the co CIO and 0:23:05.000 --> 0:23:08.920 generalist portfolio manager at TCW in the fixed income group. 0:23:09.000 --> 0:23:10.920 Over there, they get a couple shekels under management, so 0:23:10.920 --> 0:23:13.479 we always appreciate getting Brian's thoughts. Brian, again, we got 0:23:13.560 --> 0:23:15.159 yields moving higher, and I guess what kind of got 0:23:15.200 --> 0:23:16.879 a lot of people's attention over the last week or so, 0:23:17.000 --> 0:23:20.120 is boy, you don't have to just you know, stay 0:23:20.119 --> 0:23:21.639 in a two year and get five percent. You can 0:23:21.640 --> 0:23:24.040 go all the way out to curve now the thirty 0:23:24.080 --> 0:23:26.840 percent and get five percent. On the US Treasury, what 0:23:26.880 --> 0:23:29.680 do you make about the movement in rates we've seen recently. 0:23:30.880 --> 0:23:31.760 Yeah, it's been brutal. 0:23:31.800 --> 0:23:33.760 It kind of got kicked off this summer when the 0:23:33.800 --> 0:23:37.960 Treasury announced higher anticipated you know, debt issuance, and that 0:23:38.119 --> 0:23:40.959 just kind of unraveled, you know, volumes of kind of 0:23:40.960 --> 0:23:42.720 ebbed and flows. But it just kind of feels like 0:23:42.760 --> 0:23:44.600 a market that nobody wants to step in front of, 0:23:44.640 --> 0:23:47.400 regardless of the of the value, that at least we see, 0:23:47.400 --> 0:23:49.240 and I think a lot of others are starting to see, 0:23:49.400 --> 0:23:50.960 you know, as you said, all the way across the 0:23:51.000 --> 0:23:51.720 curve at this point. 0:23:53.200 --> 0:23:57.120 So what has to happen before you can be comfortable 0:23:57.119 --> 0:24:00.439 getting back in here? I was thinking about when I 0:24:00.480 --> 0:24:04.120 was a kid, I used to be so bummed out 0:24:04.119 --> 0:24:08.000 that I missed buying like seventeen percent ten year treasuries, yes, 0:24:08.320 --> 0:24:10.240 right in the early eighties, and I always thought I 0:24:10.240 --> 0:24:12.239 wish my parents had bought more of those, you know, 0:24:12.440 --> 0:24:16.239 before I sort of understood how it all worked. Am 0:24:16.280 --> 0:24:18.640 I going to look back at this moment and think 0:24:19.119 --> 0:24:21.960 I wish I bought five percent ten years. 0:24:22.560 --> 0:24:24.400 I think, so, I do. I remember the same feeling. 0:24:24.440 --> 0:24:26.639 But I've hearing about people buying, you know, seventeen percent 0:24:26.680 --> 0:24:29.760 strips way out you know, the curve and duration and 0:24:29.800 --> 0:24:31.680 this incredible total return to the bond market. 0:24:31.720 --> 0:24:32.879 I don't think we could promise that. 0:24:33.880 --> 0:24:36.280 The math just doesn't work that way, but I would 0:24:36.359 --> 0:24:38.919 tell you, you know, you know, think about five percent across 0:24:38.920 --> 0:24:40.679 the curve. Think about like what that's telling you in 0:24:40.760 --> 0:24:42.440 terms of like you know the bond math. It either 0:24:42.480 --> 0:24:44.840 means that we're going to be here at a five 0:24:44.840 --> 0:24:46.840 percent funds rate for the next five years, you know, 0:24:46.880 --> 0:24:50.479 it's it's goldilocks, you know, for a decade, or it 0:24:50.560 --> 0:24:53.120 means that the Fed still got to raise rates significantly 0:24:53.119 --> 0:24:56.280 from here hundreds of basis points, only to then unwind 0:24:56.320 --> 0:24:58.760 that by a lot more on the way down, so 0:24:58.800 --> 0:25:00.959 that over the next ten years you average five percent. 0:25:01.720 --> 0:25:05.119 Both scenarios seem pretty unlikely to us, So it seems like, 0:25:05.240 --> 0:25:08.480 you know, five percent on the treasury curve looks like 0:25:08.520 --> 0:25:10.840 great value and something we always try to remind ourselves, 0:25:10.880 --> 0:25:12.639 as you know, you can't time the turn. 0:25:12.800 --> 0:25:15.480 You know, more likely than not, whether it's. 0:25:15.320 --> 0:25:17.880 A you know, it's a you know it's a kind 0:25:17.880 --> 0:25:21.240 of multi kind of standard deviation event, you know, some 0:25:21.280 --> 0:25:24.200 sort of financial accident, so to speak, or it's just 0:25:24.320 --> 0:25:25.480 kind of the natural, kind of. 0:25:25.600 --> 0:25:28.600 Organic letting the air out of the economy and seeing 0:25:28.720 --> 0:25:31.720 unemployment start to rise and consumer spending start to come down. 0:25:32.119 --> 0:25:35.200 Either way, when the turn comes, you're probably not gonna 0:25:35.200 --> 0:25:37.320 be able to kind of catch that. So it's best 0:25:37.359 --> 0:25:39.879 to start kind of adding now dollar cost averaging in 0:25:40.320 --> 0:25:42.960 getting long understanding that you may be a little some 0:25:43.000 --> 0:25:44.920 bumps and bruises along the way, but over the long 0:25:45.000 --> 0:25:47.359 term it's going to provide a really nice return for you. 0:25:47.400 --> 0:25:51.480 Well, let me ask a similar question. It's kind of 0:25:51.520 --> 0:25:53.719 the same question a different way. I got a viewer 0:25:53.880 --> 0:25:56.360 or listener writing in asking if you have a rates 0:25:56.400 --> 0:26:00.000 for you here. Are we higher because of technical inflation 0:26:00.400 --> 0:26:04.920 and stronger growth or is it fundamental structural change in 0:26:05.040 --> 0:26:07.800 ownership of rates and issuance to remain very elevated. 0:26:09.800 --> 0:26:12.600 I think the ladder, the whole issuance thing is a 0:26:12.600 --> 0:26:15.360 little bit kind of like finding a narrative to fit 0:26:15.400 --> 0:26:19.160 the price action. I mean, historically there is no correlation 0:26:19.280 --> 0:26:21.800 between issuance and the way rates move. You can see 0:26:22.040 --> 0:26:24.720 periods where there's issuance is high and rates go high, 0:26:24.800 --> 0:26:27.600 and you can see periods where issuance is increases but 0:26:27.720 --> 0:26:30.080 rates rally because of the more macro event. 0:26:30.400 --> 0:26:30.560 You know. 0:26:30.640 --> 0:26:34.080 I think we're here because, let's be honest, the US 0:26:34.560 --> 0:26:37.480 economy has been stronger than people expected, and so the 0:26:37.520 --> 0:26:41.120 FEDS had to go higher. We haven't seen anything break yet, 0:26:41.800 --> 0:26:44.320 you know, outside of a few regional banks you know, 0:26:44.880 --> 0:26:47.040 earlier this year, and so I think there's just a 0:26:47.680 --> 0:26:51.480 fear that it might take more to kind of slow 0:26:51.560 --> 0:26:54.760 this economy down and bring inflation back down toward two percent. 0:26:54.800 --> 0:26:56.919 You know, But the house view here at TCW is 0:26:56.920 --> 0:26:59.879 that you know that that fear is more about kind 0:26:59.920 --> 0:27:03.280 of looking through the rear view mirror as opposed to 0:27:03.400 --> 0:27:06.960 kind of looking forward and understanding that all this monetary titan, 0:27:07.040 --> 0:27:09.000 not just here in the US but globally, it just 0:27:09.040 --> 0:27:11.320 acts with a lack, you know, and people get impatient. 0:27:11.400 --> 0:27:13.640 But you know, this lag, whether it's from the time 0:27:13.720 --> 0:27:16.720 the Fed started hiking or when the curve went inverted, 0:27:17.040 --> 0:27:18.760 you know, there's nothing unusual about it. 0:27:18.840 --> 0:27:19.000 You know. 0:27:19.200 --> 0:27:20.800 They say it's a lag for reason. 0:27:20.520 --> 0:27:22.240 And this has been consistent, and I think it's just 0:27:22.240 --> 0:27:24.880 going to take a little bit of patience to pay off. 0:27:24.960 --> 0:27:27.640 But if you look at so one of the other 0:27:27.720 --> 0:27:31.240 things I started doing after the regional banks broke down 0:27:31.359 --> 0:27:34.040 is looking at debt. Go on the Bloomberg to see 0:27:34.040 --> 0:27:38.920 who's holding all this US paper. And I just can't 0:27:38.960 --> 0:27:43.560 imagine that previously was always like the Japanese and the 0:27:43.640 --> 0:27:47.399 Chinese and all these foreign investors were buying our treasuries. 0:27:48.240 --> 0:27:51.960 You watch the dysfunction in the US government and the 0:27:52.040 --> 0:27:55.639 fact that even in a strong economy, we want to 0:27:55.680 --> 0:27:59.920 have two trillion dollar deficits, Like, why would any foreigner 0:28:00.000 --> 0:28:01.320 I want to hold this paper? 0:28:02.440 --> 0:28:02.600 Good? 0:28:02.720 --> 0:28:05.120 No, two days one. 0:28:05.280 --> 0:28:07.920 I'm first of all, you know, we pretty much always 0:28:07.960 --> 0:28:10.960 run deficits, that's nothing new. And we're always dysfunctional, you know, 0:28:11.000 --> 0:28:13.639 We're just the least dysfunctional out there, or one of 0:28:13.680 --> 0:28:16.880 the least, and so I don't, I don't. That doesn't 0:28:16.880 --> 0:28:18.920 hold a lot of water for us. I think more 0:28:19.000 --> 0:28:22.080 relevant to the reason we haven't seen foreign investors buying 0:28:22.800 --> 0:28:25.639 a lot of US treasuries or agency mortgage backed securities 0:28:25.680 --> 0:28:27.280 has to do with the fact that the hedging costs 0:28:27.320 --> 0:28:30.200 have been so high, and that really relates to where 0:28:30.240 --> 0:28:32.119 short term interest rates are, and that's been set by 0:28:32.160 --> 0:28:34.600 the FED. So as the Fed's taken rates from zero 0:28:34.640 --> 0:28:37.880 to five percent, it's become very expensive for non US 0:28:37.920 --> 0:28:42.040 investors to buy our debt. However, if we are at 0:28:42.160 --> 0:28:44.240 or kind of very close to the peak in that rate, 0:28:44.440 --> 0:28:46.880 more likely than not, the US dollar over time will 0:28:46.920 --> 0:28:49.200 start to come down, the hedging costs will come down, 0:28:49.800 --> 0:28:52.600 and the value of US treasuries at five percent or 0:28:52.600 --> 0:28:54.840 four and a half percent or four percent it's going 0:28:54.920 --> 0:28:57.280 to actually start to be more appealing to the non 0:28:57.400 --> 0:28:58.440 US investor. 0:28:58.800 --> 0:29:01.600 I like the we've always run deficits. It makes me 0:29:01.640 --> 0:29:03.720 feel a little better because in my house it's the same. 0:29:04.080 --> 0:29:06.480 You know, I'm always spend more money than I make. See, 0:29:06.520 --> 0:29:08.360 I just tell the world we're good for it. But 0:29:08.480 --> 0:29:10.880 at a certain point, it's got to worry you. Right 0:29:10.960 --> 0:29:15.880 at Stephen Major wasn't worried until he was. And and uh, 0:29:16.680 --> 0:29:19.120 you know, at some point it's got to be too 0:29:19.240 --> 0:29:21.880 we're borrowing too much money. 0:29:22.040 --> 0:29:25.000 No, yeah, it's got to work. And you know what, 0:29:25.080 --> 0:29:27.800 you know, it's it's a little bon bond vigilantes. It's 0:29:27.800 --> 0:29:30.280 where that's come from. And at some point, the bond 0:29:30.320 --> 0:29:33.200 market's gonna raise rates. It's gonna it's gonna make the 0:29:33.200 --> 0:29:36.560 interest costs such a high burden that we're gonna have 0:29:36.600 --> 0:29:39.000 to fix our deficit problem and we're gonna have to 0:29:39.160 --> 0:29:41.960 realign spending. We're gonna have to be you know, more frugal, 0:29:42.080 --> 0:29:44.640 you know, with with our pennies. And so it kind 0:29:44.680 --> 0:29:46.520 of feels like we're getting there. You know, we're seeing 0:29:46.560 --> 0:29:48.680 you know, the percentage of interest costs as a percentage 0:29:48.720 --> 0:29:51.719 GDP jump here and if we continue to hang at 0:29:51.760 --> 0:29:54.960 these rates, it's gonna have to make some forcesome from 0:29:55.000 --> 0:29:56.400 very difficult decisions in d C. 0:29:56.680 --> 0:29:58.840 So you know, more than likely than not that's coming 0:29:58.920 --> 0:29:59.520 one way or the other. 0:30:00.040 --> 0:30:02.800 Ran, Let's get to any important stuff. Yale football yell 0:30:02.920 --> 0:30:06.040 is three and three. They welcome into New Haven this 0:30:06.080 --> 0:30:08.479 weekend the Columbia Tigers. Tell us about Yeale football this year? 0:30:08.520 --> 0:30:08.960 What do you got? 0:30:10.120 --> 0:30:13.240 You know, what a great program. Tony Reno's got over there. 0:30:13.280 --> 0:30:16.480 He came in years ago and he took a program. 0:30:16.520 --> 0:30:17.960 He's made it one of the best in the league. 0:30:17.960 --> 0:30:20.120 We won the title last year, as I'm sure. 0:30:19.960 --> 0:30:22.960 You know and all your viewers know that. This year 0:30:23.160 --> 0:30:25.120 it hasn't been as good as last year. 0:30:25.120 --> 0:30:27.400 But they've got a very very solid offense, and I 0:30:27.400 --> 0:30:29.280 think we're going to turn this season around. And went 0:30:29.320 --> 0:30:32.120 on out which includes you know, winning the Big hYP 0:30:32.360 --> 0:30:35.680 and finishing with a victory over Harvard at right before Thanksgiving. 0:30:35.920 --> 0:30:38.480 Good stuff, good stuff for so we like to watch 0:30:38.800 --> 0:30:40.760 IVY League football a lot of fun. Looks like there's 0:30:40.760 --> 0:30:43.400 a lot of party in the league this year. All right, 0:30:44.000 --> 0:30:45.880 great stuff, buddy, Thank you, Brian Well. 0:30:45.760 --> 0:30:47.320 Going to an IVY League football it's great. 0:30:47.360 --> 0:30:48.560 I will say, yeah, it's fun. 0:30:48.680 --> 0:30:49.560 Yeah, you should go to it. 0:30:49.600 --> 0:30:51.400 I mean where you live, you should go to Columbia game. 0:30:51.480 --> 0:30:53.720 That's actually pretty pretty close, and that's a great stadium too. 0:30:53.760 --> 0:30:57.080 So Brian Well and co Cio, Generalist Portfolio Mager TCW 0:30:57.200 --> 0:30:57.960 Fixed Income Group. 0:30:58.320 --> 0:31:01.920 You're listening to the tape our live program, Bloomberg Markets 0:31:02.000 --> 0:31:05.360 weekdays at ten am Eastern on Bloomberg Radio, the tune 0:31:05.400 --> 0:31:08.360 in app, Bloomberg dot Com, and the Bloomberg Business App. 0:31:08.400 --> 0:31:11.240 You can also listen live on Amazon Alexa from our 0:31:11.240 --> 0:31:16.280 flagship New York station Just Say Alexa playing Bloomberg eleven thirty. 0:31:16.840 --> 0:31:18.720 As Matt just mentioned, the Wall Street Journal breaking the 0:31:18.720 --> 0:31:22.520 story just earlier this morning that Israel has decided to 0:31:22.640 --> 0:31:27.640 delay its invasion of Gaza, presumably to allow the US 0:31:27.680 --> 0:31:31.400 to move some additional missile systems into the region. We 0:31:31.440 --> 0:31:33.000 want to check in with somebody who kind of knows 0:31:33.040 --> 0:31:35.600 how this stuff is done, and that's Jack Divine. Jack 0:31:35.720 --> 0:31:38.120 is the president and founding partner of the Arcan Group. 0:31:38.600 --> 0:31:41.240 Before that, he spent thirty two years at the Central 0:31:41.280 --> 0:31:43.560 Intelligence Agency all over the world, so he knows how 0:31:43.600 --> 0:31:45.800 this stuff gets done. Jack, what do you make of 0:31:45.600 --> 0:31:47.600 the of the news here today that it appears that 0:31:47.720 --> 0:31:49.840 Israel is going to delay we don't know for how 0:31:49.840 --> 0:31:53.200 long it's invasion of Gaza. 0:31:53.280 --> 0:31:59.160 I think we have a balancing task here. I think 0:31:59.280 --> 0:32:01.520 on one side, the faster you go in, the more 0:32:01.840 --> 0:32:05.440 quicker you suppress the mass, the better it is in 0:32:05.560 --> 0:32:11.800 terms of controlling them before they get dug in deeper. 0:32:13.160 --> 0:32:15.560 At the same time, you have the world looking at 0:32:15.600 --> 0:32:19.960 the situation and you're losing your bound the field pressures 0:32:20.200 --> 0:32:24.360 coming at you. And then the over really balancing problem 0:32:24.440 --> 0:32:27.760 is though hostages, and I think everyone is trying to 0:32:27.800 --> 0:32:31.720 do the best they can to maximize the number of 0:32:31.760 --> 0:32:35.960 hostages and hopefully all and I think that's the balancing 0:32:36.200 --> 0:32:41.560 the military part being getting it done quickly and so on, 0:32:41.640 --> 0:32:44.960 and getting the hostages. So I think there's a balancing act. 0:32:45.400 --> 0:32:46.080 I don't think it. 0:32:46.000 --> 0:32:47.720 Can go on too much longer, though. 0:32:48.480 --> 0:32:51.960 I think that this delay is probably one that the 0:32:52.000 --> 0:32:55.600 Israelis felt was within their limits. But I don't know 0:32:55.640 --> 0:32:56.960 how long they can hold off. 0:32:57.160 --> 0:32:59.200 They do seem to be losing momentum. I thought they 0:32:59.240 --> 0:33:01.040 were going to go in to Gaza, you know, it 0:33:01.120 --> 0:33:07.200 was reportedly imminent two weeks ago. And I get that 0:33:07.240 --> 0:33:11.000 they want to soften targets inside there, that's the terminology 0:33:11.040 --> 0:33:14.680 they use. But it seems like world leader after world 0:33:14.760 --> 0:33:17.160 leader has flown over to Israel to try and get 0:33:17.200 --> 0:33:19.320 them to put this off, to try and get them to, 0:33:20.240 --> 0:33:23.360 you know, breathe in, breathe out, and think about what's 0:33:23.360 --> 0:33:29.320 about to happen. Is it possible that that tactic works 0:33:29.360 --> 0:33:32.920 and we don't get a ground invasion in Gaza or 0:33:32.960 --> 0:33:35.400 do you think that's a foregone conclusion. 0:33:37.040 --> 0:33:43.240 I don't think the Israeli political life can withstand that. 0:33:43.440 --> 0:33:47.200 In other words, you had such a massacre, impacting not 0:33:47.440 --> 0:33:51.520 just the immediate victims, but their relatives and the spirit 0:33:51.560 --> 0:33:53.880 of the country. I think if you walk away without 0:33:54.000 --> 0:33:57.600 Hamasp being destroyed, I think they'll be huge to satisfaction. 0:33:57.640 --> 0:34:00.920 I don't think it's in whose carrier they're the settle 0:34:00.960 --> 0:34:03.960 for that, But I do think they're trying to be 0:34:04.000 --> 0:34:07.880 smart to make sure they've done everything they can to 0:34:07.920 --> 0:34:12.160 try and deal with the world opinion and pressure about 0:34:12.200 --> 0:34:15.120 the situation. But at the end of the day, I 0:34:15.400 --> 0:34:19.320 don't think it's inconceivable to me that you have a ceasefire. 0:34:19.600 --> 0:34:21.879 So to me, the hostages, I think the bolt has 0:34:21.920 --> 0:34:25.480 to be bitten, and I do believe there were some 0:34:25.640 --> 0:34:27.920 natural delays. I mean they weren't in position. I mean, 0:34:27.920 --> 0:34:30.600 they were not really set up to do the invasion, 0:34:30.680 --> 0:34:32.799 so that takes a little time and then you have 0:34:32.840 --> 0:34:35.839 to soften it up. But I think this is from 0:34:35.880 --> 0:34:38.160 where I sit, it looks to me like they're well 0:34:38.200 --> 0:34:40.040 within reach of going in and doing what they have 0:34:40.120 --> 0:34:40.279 to do. 0:34:40.840 --> 0:34:46.399 To me, the hostage has reason interesting work against them. Yeah, 0:34:46.440 --> 0:34:49.359 I wonder what you think about you know, Erdowan today 0:34:49.480 --> 0:34:51.799 said he doesn't think Hamas is a terrorist group, but 0:34:52.880 --> 0:34:55.000 it's difficult to look at what they did on October 0:34:55.040 --> 0:34:58.960 seventh and not call that terrorism. We do not, at 0:34:59.040 --> 0:35:02.640 least as a public policy, negotiate with terrorists. So what's 0:35:02.680 --> 0:35:03.360 happening here? 0:35:04.640 --> 0:35:06.480 Well, you have here to go, but you have many 0:35:06.520 --> 0:35:08.799 other leaders, you have the head of the UN. I 0:35:08.840 --> 0:35:12.960 mean it's very disappointing. I mean, we can't distinguish between 0:35:13.080 --> 0:35:17.160 massacres and slaughtering and trying to defend your country. 0:35:17.200 --> 0:35:19.359 I mean in our universities. 0:35:19.400 --> 0:35:22.239 It's to me, it's shocking, and I think we have to, 0:35:22.280 --> 0:35:26.239 when this is done, reevaluate where we stand. I do 0:35:26.360 --> 0:35:29.600 think there's an opportunity. There is a silver lining of 0:35:29.760 --> 0:35:33.960 the Israelis succeed as I think, which will be to 0:35:34.000 --> 0:35:36.200 get rid of Hamasa. I mean, they'll spring up again, 0:35:36.239 --> 0:35:38.799 but there'll be a breathing period to look at some 0:35:39.040 --> 0:35:44.080 longer lasting peace arrangement. But right now it's stunning to see. 0:35:44.960 --> 0:35:46.640 I don't know how you get there, to be honest, 0:35:46.680 --> 0:35:50.320 it's and I just feel you must. 0:35:50.120 --> 0:35:50.799 Have been out of touch. 0:35:50.800 --> 0:35:53.640 I didn't watch any news or listening to Bloomberg. Yeah, 0:35:53.760 --> 0:35:57.400 that's took place. I mean it was savagery. 0:35:57.640 --> 0:36:01.160 Jack. What role do you believe currently the United States 0:36:01.360 --> 0:36:04.839 military and intelligence is playing as we speak. 0:36:06.840 --> 0:36:09.520 I mean Israeli. So is Israel has been a long 0:36:09.560 --> 0:36:13.120 time ally, certainly our principal ally in the Middle East. 0:36:13.680 --> 0:36:17.040 I suspect we're doing everything we can on the intelligence 0:36:17.040 --> 0:36:21.920 front to assist. I also think militarily, I don't see 0:36:21.960 --> 0:36:25.480 boots on the ground. I do think there are risk 0:36:25.560 --> 0:36:28.239 having the fleet there, but I think it's the right move, 0:36:29.600 --> 0:36:32.759 and I think we're showing strength so that we're really 0:36:32.760 --> 0:36:35.600 trying to contain the Iranians rather than dealing with anything 0:36:35.640 --> 0:36:40.080 ready directly to Hamas and the guys of the Israelis 0:36:40.120 --> 0:36:42.239 will take care of that, all. 0:36:42.200 --> 0:36:43.680 Right, Jack, Thank you so much for joining us. Really 0:36:43.719 --> 0:36:46.719 appreciate you jumping on here last minute. Jack Devine. He's 0:36:46.719 --> 0:36:49.400 a president and founding partner of the Arcan Group, a 0:36:49.440 --> 0:36:52.200 thirty two year veteran of the Central Intelligence Agency. We 0:36:52.239 --> 0:36:55.399 always like getting a few minutes of Jack's time when 0:36:55.600 --> 0:36:58.839 there are breaking geopolitical events, and there seem to be 0:36:58.840 --> 0:37:00.000 plenty of those these days. 0:37:00.080 --> 0:37:03.640 You're listening to the tape Catcher live program Bloomberg Markets 0:37:03.719 --> 0:37:07.080 weekdays at ten am Eastern on Bloomberg Radio, the tune 0:37:07.160 --> 0:37:10.120 in app, Bloomberg dot Com, and the Bloomberg Business App. 0:37:10.160 --> 0:37:12.960 You can also listen live on Amazon Alexa from our 0:37:13.000 --> 0:37:17.400 flagship New York station. Just say Alexa play Bloomberg eleven thirty. 0:37:19.960 --> 0:37:21.839 All right, I look at We've been talking about rates 0:37:21.880 --> 0:37:24.399 a lot over the last several weeks. How about this rate? 0:37:24.760 --> 0:37:28.680 The bank rate thirty year fixed mortgage eight point zero 0:37:29.080 --> 0:37:32.480 four percent? Are you kidding me crazy? I feel like 0:37:32.480 --> 0:37:34.520 a rockstar now with my six percent mortgage I got 0:37:34.640 --> 0:37:37.080 earlier in the year. We also had new home sales. 0:37:37.080 --> 0:37:39.120 Today they don't care about the rates of twelve point 0:37:39.160 --> 0:37:43.160 three percent. After a decline last month of eight point 0:37:43.160 --> 0:37:45.480 two percent, So all over the place, let's figure out 0:37:45.480 --> 0:37:47.960 what's happening in the residential real estate market. We do 0:37:48.000 --> 0:37:51.200 that the Kate Kaminski, she's the COO of Walton Global. 0:37:51.480 --> 0:37:53.480 Kate give us just kind of an overview here. It 0:37:53.520 --> 0:37:57.120 seems like with mortgage rates this high, who can afford 0:37:57.160 --> 0:37:58.480 to buy a house these days? 0:38:00.160 --> 0:38:03.759 Well, thanks for having me on, gentlemen. Excited to be 0:38:03.840 --> 0:38:08.080 joining you here and talking about this today. You know, 0:38:08.160 --> 0:38:11.480 that really is the question who can afford to get 0:38:11.480 --> 0:38:15.480 into homes with rates at where they're at five basis 0:38:15.480 --> 0:38:19.279 points from from a week ago. And we don't necessarily 0:38:19.320 --> 0:38:22.520 see the light at the end of the tunnel yet. 0:38:22.560 --> 0:38:25.920 But I think the stats that you just reference, the 0:38:25.960 --> 0:38:29.160 twelve point three percent that we're seeing up in September, 0:38:29.480 --> 0:38:34.120 you know, we're really bullish on new home sales and 0:38:34.160 --> 0:38:39.000 production right now. You're seeing new homebuilders that represent about 0:38:39.080 --> 0:38:43.400 thirty five to forty percent of today's new home sales, 0:38:43.640 --> 0:38:47.160 which is up from fifteen to eighteen percent before. And 0:38:47.360 --> 0:38:51.440 we're attributing that primarily to these new home builders very 0:38:51.600 --> 0:38:56.400 aggressively buying down mortgages for these buyers. You know, the 0:38:56.480 --> 0:39:01.000 typical consumer is they feel that five is about the 0:39:02.000 --> 0:39:05.719 average mortgage rate that they should be paying. And these 0:39:05.719 --> 0:39:09.560 new home builders are putting in programs whereby they're getting 0:39:09.719 --> 0:39:13.680 those new buyers down from eight percent to five percent 0:39:13.840 --> 0:39:17.360 through different different mechanisms of rate it items. 0:39:18.560 --> 0:39:22.360 So how does this work out, Kate? I mean, what 0:39:22.400 --> 0:39:25.680 do you do at Walton Global and what is your 0:39:25.680 --> 0:39:28.919 expectation for Q four and twenty twenty four. 0:39:29.920 --> 0:39:34.600 Yeah, So we're a global real estate investment and asset 0:39:34.640 --> 0:39:39.560 management firm and we specialize in land. We're looking to 0:39:39.640 --> 0:39:42.440 buy land that's in the path of growth, that that 0:39:42.600 --> 0:39:46.759 is primarily intended for sale to new home builders, and 0:39:46.800 --> 0:39:49.839 so we're a pretty critical part of the supply chain. 0:39:49.920 --> 0:39:53.200 We believe in in the new home building space because 0:39:53.239 --> 0:39:56.560 we're selling to these builders who are really focused on 0:39:57.000 --> 0:40:02.280 that first time home buyer. And so Walton creates pretty 0:40:02.320 --> 0:40:07.399 creative financing mechanisms, off balance sheet financing mechanisms for these 0:40:07.400 --> 0:40:11.520 homebuilders who are looking for ways to keep as much 0:40:11.600 --> 0:40:14.640 cash on hand, keep their margins high so that they 0:40:14.640 --> 0:40:17.600 can do things like these rate buy down programs and 0:40:18.040 --> 0:40:21.600 deploy their excess capital, which these homebuilders have a lot 0:40:21.760 --> 0:40:24.719 of that right now. They've been waiting for this opportunity 0:40:25.400 --> 0:40:27.000 to expand their market shares. 0:40:27.120 --> 0:40:31.080 Well, you're like, but so sorry forgive me because I 0:40:31.120 --> 0:40:33.359 don't understand the ins and outs of this business so well. 0:40:33.360 --> 0:40:40.479 But these new homebuilders are subsidizing mortgages for buyers because 0:40:40.560 --> 0:40:45.160 rates are too high, and you are subsidizing the loans 0:40:45.200 --> 0:40:48.080 to these new homebuilders to get your land because the 0:40:48.160 --> 0:40:50.640 rates are so high. Like, at some point the bucks 0:40:50.640 --> 0:40:53.719 got to stop, right, Well. 0:40:53.760 --> 0:40:57.279 You know, we we think that it's going to continue on. 0:40:57.400 --> 0:40:59.239 We think we have a few more years of. 0:40:59.200 --> 0:41:01.200 This, and I I just mean, somebody at the end 0:41:01.239 --> 0:41:02.759 of the day has got to pay for it, right, 0:41:02.840 --> 0:41:08.160 So you know, you can't continue to find creative financing solutions, 0:41:08.239 --> 0:41:10.200 Like at some point it's got to get paid for. 0:41:10.360 --> 0:41:12.719 So how does that all? It's like a house of cards. 0:41:13.280 --> 0:41:13.520 Yep. 0:41:13.840 --> 0:41:19.040 Well, you know, we're definitely seeing the increased price of 0:41:19.120 --> 0:41:22.880 resale homes, which is why again we're focused on that 0:41:23.040 --> 0:41:26.920 new home build market. I was just traveling in Florida 0:41:27.000 --> 0:41:29.920 last week and there are still places where we have 0:41:30.040 --> 0:41:33.319 new communities that are going up being built by the 0:41:33.320 --> 0:41:35.960 public builders, and there's homes in there selling for two 0:41:36.080 --> 0:41:39.880 hundred thousand and an under in some instances, and so 0:41:39.920 --> 0:41:44.560 I think that drive to affordability is critical. We need 0:41:44.600 --> 0:41:47.960 to be focusing on that right across the country so 0:41:48.000 --> 0:41:52.000 that we're matching the home buyer with what they're earning 0:41:52.120 --> 0:41:54.799 and what they can afford. And so you know, we've 0:41:54.800 --> 0:41:57.120 got we've got a real lock up in the resale 0:41:57.200 --> 0:42:01.400 market right now because we've continued to see the value 0:42:01.440 --> 0:42:04.719 of those homes increase and that's just not sustainable. 0:42:04.760 --> 0:42:05.960 I completely agree with you. 0:42:06.239 --> 0:42:09.120 But so that's why we continue to think that the 0:42:09.160 --> 0:42:12.520 new home building space is going to be where these 0:42:12.560 --> 0:42:17.000 buyers are fleeing to. We have a fundamental undersupply of 0:42:17.239 --> 0:42:20.560 homes in this country. Depending on what economists you speak to, 0:42:20.600 --> 0:42:23.640 it's between two and six million homes that we need 0:42:23.680 --> 0:42:27.600 to build because of the underbuilding that was occurring after 0:42:27.640 --> 0:42:30.480 the Great Recession. And so you know, these new home 0:42:30.520 --> 0:42:34.280 builders are or where the the affordability lies. 0:42:34.600 --> 0:42:36.840 So when you're out there these days, what's the cost 0:42:36.880 --> 0:42:38.600 of land that you guys are looking at, what's the deal? 0:42:38.680 --> 0:42:42.040 What's the deals you're looking at today versus maybe four 0:42:42.080 --> 0:42:44.520 or five years ago in terms of acquiring land. 0:42:45.760 --> 0:42:51.160 Yeah, you know that really is specific to every market 0:42:51.239 --> 0:42:54.480 that we're in uh you know, we we are looking 0:42:54.760 --> 0:42:59.880 for land that has UH is in a development friendly 0:43:00.560 --> 0:43:03.640 municipality or county. That continues to be one of the 0:43:03.680 --> 0:43:06.839 biggest challenges that we're seeing across the country as well, 0:43:07.239 --> 0:43:11.600 these areas where growth is coming, not wanting to accept 0:43:11.640 --> 0:43:15.600 this growth and provide the necessary approvals. But that's that's 0:43:15.680 --> 0:43:19.880 where the opportunity lies. And and so we we focus 0:43:19.920 --> 0:43:23.840 on areas where there's access to infrastructure, and we've really 0:43:23.880 --> 0:43:27.960 got pro growth governments in and around the area that 0:43:28.000 --> 0:43:30.640 are going to help get these off the ground. So 0:43:31.080 --> 0:43:35.760 you know, there's there's not a specific price per acre 0:43:35.880 --> 0:43:38.759 that we're focusing on because that varies by state and 0:43:38.840 --> 0:43:42.719 per region. But we really focus here at Walton in 0:43:42.760 --> 0:43:46.719 the sun Belt, you know, the southern smile of the US, 0:43:47.200 --> 0:43:52.680 because of those major market trends that that we follow, 0:43:53.200 --> 0:43:58.120 job growth, population growth, you know, net domestic migration. It's 0:43:58.200 --> 0:44:02.799 it's a pretty simple equation, and you know that's that 0:44:02.880 --> 0:44:05.560 has been our model for the last forty five years 0:44:05.600 --> 0:44:06.359 that we've been doing this. 0:44:06.520 --> 0:44:08.919 Who do you compete against because we've heard this same 0:44:09.440 --> 0:44:12.120 you know, strategy on the real estate side from basically 0:44:12.160 --> 0:44:15.239 everybody in the home building, food chain, So who do 0:44:15.280 --> 0:44:17.800 you It's got to be competitive. When a partial property 0:44:17.800 --> 0:44:21.120 comes up in you know, suburban Dallas or suburban Austin 0:44:21.239 --> 0:44:24.480 or suburban Tampa. I got to think ten of the 0:44:24.520 --> 0:44:27.399 smartest and most well capitalized people are in there trying 0:44:27.440 --> 0:44:29.240 to get that land. How competitive is your market? 0:44:30.600 --> 0:44:34.839 So it's definitely a competitive marketplace. But where I would 0:44:34.880 --> 0:44:38.799 say Walton's niche is is that we're buying land that's 0:44:38.840 --> 0:44:42.200 a little bit earlier in the cycle. Most of your 0:44:42.239 --> 0:44:46.520 builders today, they because of what happened and after the 0:44:46.880 --> 0:44:50.120 Great Recession and the long duration that it took for 0:44:50.200 --> 0:44:54.280 everything to normalize, they all have pressures from Wall Street 0:44:54.320 --> 0:44:57.600 to keep land off their balance sheets, and so you 0:44:57.640 --> 0:45:01.239 know they're looking for land at that they can be 0:45:01.280 --> 0:45:04.680 building and selling homes within twenty four months, and so 0:45:05.320 --> 0:45:09.359 they're compressed on wet assets they can actually purchase. And 0:45:09.400 --> 0:45:11.759 even many of the land bankers and groups that they 0:45:11.800 --> 0:45:15.600 work with, they have a pretty short time horizon for 0:45:15.719 --> 0:45:18.640 when that land needs to be cash flowing, okay, homes 0:45:18.680 --> 0:45:21.799 being built and sold to third parties. Where Walton comes 0:45:21.840 --> 0:45:24.720 into play is we have a little bit more patient capital, 0:45:25.040 --> 0:45:28.000 not too patient, but a little bit more where we'll 0:45:28.080 --> 0:45:31.440 buy land that is a little bit earlier in the cycle, 0:45:31.760 --> 0:45:35.400 and we'll hold it while that homebuilder is doing the 0:45:35.600 --> 0:45:38.840 entitlement work, getting it ready to literally stick a shovel 0:45:38.840 --> 0:45:41.240 in the ground, and that's the time when we'll transfer 0:45:41.280 --> 0:45:43.880 the land to them. So it's pretty unique in that 0:45:44.040 --> 0:45:47.400 space and where we find the opportunities. 0:45:47.760 --> 0:45:49.279 All right, Kate, thanks so much for joining us. Really 0:45:49.280 --> 0:45:52.520 appreciate it talking about some of the commercial real estate development. 0:45:52.600 --> 0:45:57.520 Kate Kaminski, COO of Walton Global, Thanks. 0:45:57.239 --> 0:46:01.160 For listening to the Bloomberg Markets podcast. Subscribe and listen 0:46:01.200 --> 0:46:05.480 to interviews on Apple Podcasts or whatever podcast platform you prefer. 0:46:05.840 --> 0:46:09.120 I'm Matt Miller. I'm on Twitter at Matt Miller nineteen 0:46:09.200 --> 0:46:09.799 seventy three. 0:46:10.280 --> 0:46:12.720 And I'm fall Sweeney. I'm on Twitter at pt Sweeney. 0:46:12.760 --> 0:46:15.440 Before the podcast, you can always catch us worldwide at 0:46:15.440 --> 0:46:17.200 Bloomberg Radio.