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Market Volatility, EV Outlook, Housing Market · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: All right, So Lisa Bramwinz long ago told me I
0:38
Speaker 1: need to pay attention to these treasury auctions and before like,
0:41
Speaker 1: really do I have to? Apparently there was a two
0:44
Speaker 1: year treasury auction yesterday that saw some week demand. I
0:47
Speaker 1: think a five year one is on deck here. So
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Speaker 1: Ira Jersey, he's our chief US indust rate strategist. He's
0:53
Speaker 1: gonna tell us why don't we need to pay attention?
0:57
Speaker 1: You know, I had a producer, um Tim Andreacchi. He
1:00
Speaker 1: was always freaking out about the treasury auctions because our
1:02
Speaker 1: show was at one o'clock and they always come out,
1:05
Speaker 1: I mean what, they rarely tell you anything, don't they ira,
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Speaker 1: So they they tell you where demand is at that moment,
1:15
Speaker 1: right And and I think that the reason why the
1:17
Speaker 1: treasury auctions are so important right now is because they
1:21
Speaker 1: give you a hint as to who's willing to take
1:24
Speaker 1: risk and if investors are willing to take risk or not.
1:27
Speaker 1: And and the last couple of months you've seen a
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Speaker 1: significant reduction in demand by particularly foreigners and domestic investment
1:35
Speaker 1: funds for for treasuries at auction, and and it just
1:39
Speaker 1: shows you that, like you know it, it proves a
1:41
Speaker 1: level when when when you think about the fixed income
1:42
Speaker 1: market UM, it's not as as homogeneous as saying the
1:47
Speaker 1: equity market is in general. So you have multiple bonds
1:50
Speaker 1: with different maturities, so you have a lot of different
1:52
Speaker 1: instruments at play. And by having a new issue, whether
1:56
Speaker 1: it's in the in the corporate world or in the
1:58
Speaker 1: UM or in the treasure remarket UM, you you get
2:02
Speaker 1: the gauge real demand for that new supply. And you've
2:05
Speaker 1: seen that even though the sizes of the treasury auctions
2:08
Speaker 1: are getting smaller. You're seeing demand go down even faster.
2:11
Speaker 1: And that's the reason you've seen a lot of softness
2:14
Speaker 1: in some of these these issues. So why are the
2:17
Speaker 1: international buyers, Why are they not there? Maybe like the
2:20
Speaker 1: maybe how they used to be well, but partially because
2:23
Speaker 1: I think there is a preference for cash right now.
2:25
Speaker 1: Because if if you're even if you're a foreign buyer
2:28
Speaker 1: where you know yields in the US or you know,
2:30
Speaker 1: multiples of what they are in your your home jurisdiction,
2:33
Speaker 1: if you think that interest rates are going to keep
2:35
Speaker 1: going up, you you don't want to be buying a
2:37
Speaker 1: bond because then you'll wind up losing money on on
2:40
Speaker 1: the price side, um you know. So so as as
2:43
Speaker 1: to your treasury yields, if they go up from you know,
2:46
Speaker 1: four percent to five percent, you're gonna lose UM. You're
2:49
Speaker 1: gonna lose a couple of percent in UM in terms
2:51
Speaker 1: of opportunity cost uh and and the price of that
2:54
Speaker 1: instrument will go down. So I think that's the that's
2:56
Speaker 1: the A couple of the big reasons is that you
2:58
Speaker 1: don't have the um you know, massive demand you also
3:01
Speaker 1: have on the other side, and this is this is
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Speaker 1: part of The issue I think with with the foreign
3:06
Speaker 1: investors and in terms of central banks, is that central
3:09
Speaker 1: banks want to uh, you know, want want to prop
3:12
Speaker 1: up their own currencies because their own currencies are slipping
3:15
Speaker 1: very quickly against the dollar. And if they go out
3:17
Speaker 1: and they go buy two year treasuries, they also have
3:19
Speaker 1: to buy dollars on top of that, which will just
3:21
Speaker 1: weaken their currency even further. So there's so foreign exchange
3:25
Speaker 1: managers aren't going to be involved in these auctions like
3:27
Speaker 1: they sometimes. I'm just surprised that Japanese. I mean, you're
3:32
Speaker 1: if if you're looking at a situation where there's no
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Speaker 1: reason for the end um go down. Well, well, let's
3:38
Speaker 1: say this, if you're looking at a situation where the
3:41
Speaker 1: finance ministry is defending the end and um, you know
3:46
Speaker 1: your interest rates on the ten year or zero point
3:48
Speaker 1: two percent versus you know, four percent in the US,
3:51
Speaker 1: wouldn't you want that? Well no, because again you have
3:55
Speaker 1: to buy dollars then, and you're just weakening the end
3:57
Speaker 1: versus buying versus the dollar. And and if you're trying
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Speaker 1: to defend your currency and trying to stop your currency
4:03
Speaker 1: from falling further, you want to actually be selling uh
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Speaker 1: dollar denominated assets and buying the end denominated assets. And
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Speaker 1: that's the that's the reason why you have those foreign
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Speaker 1: foreign reserves, and and and that is one of the
4:15
Speaker 1: dynamics that you're seeing in some of these auctions. Now, unfortunately,
4:17
Speaker 1: we don't know what exactly what happened yesterday because this
4:20
Speaker 1: data comes out after the the auction settle and we
4:24
Speaker 1: get all of the other data. But the allotment data,
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Speaker 1: when you look at it from the August auctions certainly
4:29
Speaker 1: showed that there was a slowdown in demand from foreign
4:32
Speaker 1: investors and a lot of the different issues across the curve.
4:35
Speaker 1: And I think that isn't part because of this idea
4:37
Speaker 1: that they don't want to strengthen their own currency. Now. Now,
4:40
Speaker 1: of course, if if they have a maturing bond, they
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Speaker 1: might participate in the auction just to roll over that bond.
4:45
Speaker 1: They're not buying new dollars or just rolling over the
4:47
Speaker 1: old dollars. Um But but you know, no new money
4:51
Speaker 1: is going to come in. And and you know, even
4:53
Speaker 1: though even though you know, interest rate dynamics are going
4:55
Speaker 1: to matter here because eventually this might turn very significant
5:00
Speaker 1: because once the once the Fed's done hiking, I think
5:03
Speaker 1: what's gonna happen is that other central banks are gonna
5:05
Speaker 1: be catching up, and that's when you're going to see
5:07
Speaker 1: a significant turn in the dollar. And once you see
5:09
Speaker 1: that turn in the dollar, those all of those flows
5:12
Speaker 1: could wind up changing very quickly. Um. Now, I don't
5:14
Speaker 1: think that's going to happen until three but um, but
5:17
Speaker 1: it is something to look out for because the FED
5:20
Speaker 1: is ahead of the curve here. Well, I can't see
5:23
Speaker 1: the head of the curve that other central banks in
5:26
Speaker 1: its hiking cycle, right, so therefore it probably will stop
5:29
Speaker 1: before the other central banks are done. The FED is
5:31
Speaker 1: the curve. Now FED has the curve just a quick
5:34
Speaker 1: thirty seconds. Kind of a plumbing issue, dude. The dealers
5:37
Speaker 1: buy does the JP Morgan's of the world in the
5:39
Speaker 1: Goldmen Sex? Do they buy for their own account? At auctions?
5:42
Speaker 1: They have to Yeah, yeah, they have to bid for
5:46
Speaker 1: pro rata amount, so it's twenty primary dealers. They each
5:49
Speaker 1: have to bid for five percent of the auctions. That's
5:51
Speaker 1: one reason why in the US you won't ever have
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Speaker 1: a failed auction um where you have less bids than
5:56
Speaker 1: you have issued. But so so they do buy for
5:58
Speaker 1: their own account, but they've been getting much smaller over
6:01
Speaker 1: the last couple of years in favor of money managers
6:03
Speaker 1: who are much more active and really the incremental price
6:07
Speaker 1: setters at a lot of these auctions. See, so I just,
6:10
Speaker 1: you know, I don't know, step up and buy him.
6:13
Speaker 1: See these auctions. See they're important. I just learned something that. Yeah, well,
6:16
Speaker 1: I mean, how important is an auction where you have
6:18
Speaker 1: a whole bunch of giant banks that are that are
6:21
Speaker 1: required to bid. Yeah, but you want him to bid aggressively,
6:25
Speaker 1: so you gotta put some competition out there, all right,
6:27
Speaker 1: Ira Jersey uh covers interest rates. He's a strategist Bloomberg Intelligence. Also,
6:32
Speaker 1: we didn't get to talk to about soccer, but he
6:34
Speaker 1: follows soccer religiously. He's also a part owner and some
6:39
Speaker 1: I think a minor league I think is a way
6:40
Speaker 1: to term it um soccer team professional soccer team in
6:44
Speaker 1: central New Jersey. So go figure how many strategies you
6:47
Speaker 1: know that owns a soccer team. I mean, he's just
6:49
Speaker 1: like these big players. Next is gonna be the premier league.
6:52
Speaker 1: Some Americans have to care, Matt. There are a lot
6:59
Speaker 1: of electric vehicle companies out there. Just seems like I
7:02
Speaker 1: saw a Lucid Air the other day. You know, I
7:04
Speaker 1: told my wife, I said, there's a lucid She said,
7:06
Speaker 1: what are you talking about? Said lucid Air said, I
7:08
Speaker 1: still don't know what you're talking about. Um. It was
7:10
Speaker 1: pretty cool, all right. Peter Wine, he's the CEO of Centro.
7:13
Speaker 1: What I love about There's a lot of things I
7:15
Speaker 1: like that's coming. One of it's based in Freehold, New Jersey.
7:17
Speaker 1: You know who came from Freehold, New Jersey, Grover Cleveland. Jeez, Peter,
7:22
Speaker 1: can you help him out? Who else is? They came
7:25
Speaker 1: from Freehold, New Jersey, between New York and the Pennsylvania
7:30
Speaker 1: and the Philadelphia and being good stuff. All right? Peter
7:33
Speaker 1: talked to us about Central. What do you guys do there?
7:35
Speaker 1: What's talks about your business? Your company? Sancho's visue actually
7:39
Speaker 1: beginning in twenty thirteen, and that desired to transform the
7:43
Speaker 1: commercial see industry, which to like pseudo mission vehicles. Yeah,
7:49
Speaker 1: that has and the remains are so and singer of focus. Yeah.
7:54
Speaker 1: We grow from one low speed vehicle in twenties Penteam
7:59
Speaker 1: and the two a full product line that the currently
8:02
Speaker 1: will include a commercial vehicles and the seven for industry
8:07
Speaker 1: use with multiple variations and the one for off road use. Yeah.
8:13
Speaker 1: So so our our mission is really try to lead
8:17
Speaker 1: the transformation in this automotive industry, and they try to
8:20
Speaker 1: become a leader in the electrical commercial vehicle sector. That's
8:26
Speaker 1: a little bit. So who's who's your who's your customer?
8:29
Speaker 1: Who's that a typical customer for one of your vehicles? Yes,
8:33
Speaker 1: it's mostly it's the free operators and also the municiples.
8:37
Speaker 1: They provided the local service and which is basically for
8:41
Speaker 1: the commercial user morally. Right now, it's like a percent
8:45
Speaker 1: of our our customers for steady deliver and the like
8:49
Speaker 1: urban services. So, um, how much traction are you getting?
8:54
Speaker 1: I mean, what's your revenue growth look like? And how
8:56
Speaker 1: are your projections? Yeah, we are already finished the face
9:02
Speaker 1: for the vehicle development and the way are looking for
9:06
Speaker 1: the first growing in the revenue and in the deliver delivery,
9:11
Speaker 1: and we are building our distribution and UH and the
9:15
Speaker 1: aftermarket support network in America and the Europe and something
9:21
Speaker 1: in Asia. So you've already you've already got what four
9:24
Speaker 1: or five thousand vehicles out yes, so far, Yeah, we
9:29
Speaker 1: already have more than I think more than five thousand
9:33
Speaker 1: already being add to the market. So who do you
9:36
Speaker 1: compete against in that part of the market world. You
9:39
Speaker 1: know obviously familiar with the consumer automobile segment, the Tessil's
9:43
Speaker 1: and and now all the other O E M is
9:45
Speaker 1: getting in there, But who do you typically compete against?
9:48
Speaker 1: Who do you think you will compete against in this segment?
9:51
Speaker 1: I think you know the company like uh like a workhorse,
9:55
Speaker 1: you know, that's our primary competitor, and all they're living
10:00
Speaker 1: and because the living they produce the pickups, they also
10:05
Speaker 1: uh makes deliver van. So that's our I think the
10:10
Speaker 1: biggest main competitor the market now. And I think you know,
10:15
Speaker 1: with the all the the product and ready, I think
10:19
Speaker 1: we are kind of like a leading the sector at
10:22
Speaker 1: this moment. So let me just finally ask you about
10:24
Speaker 1: the supply chain and the chip management that you've been
10:27
Speaker 1: able to do. What does your supply chain look like
10:30
Speaker 1: and how is your access to microchips? Yeah, that was
10:34
Speaker 1: our you know, last years of struggling. So so it's
10:38
Speaker 1: just like everybody is struggling for the supply chain and aware.
10:42
Speaker 1: I think we are in the very good position right
10:45
Speaker 1: now because you know, some of the r O E
10:48
Speaker 1: M is a tier one manufacturer and from from China
10:53
Speaker 1: and the previous we have a little bit of shipping problem,
10:56
Speaker 1: and but now we see all the shipping price school
11:00
Speaker 1: going down and that we are not able to get
11:02
Speaker 1: the container. I think, you know, we are strongly positioned
11:07
Speaker 1: and very well developed our supply chain base. I think
11:10
Speaker 1: away in the supply chain we're doing. I think we're
11:13
Speaker 1: doing very good, all right, Peter, Good stuff interesting story here, Peter,
11:17
Speaker 1: when he's the CEO of Centro making electric vehicles for
11:20
Speaker 1: the commercial commercial vehicle segments. So interesting, you know, segment
11:25
Speaker 1: there that likely will be addressed there with a lot
11:28
Speaker 1: of competitors. Stuff there. What I'm very much focused on
11:32
Speaker 1: is in this space, but more of a consumer vehicle segment.
11:38
Speaker 1: Harley Davidson. Today is down on the New York Stock Exchange. UM.
11:43
Speaker 1: Today is the day that they merge their live Wire
11:46
Speaker 1: electric motorcycle unit with UM. The spack. The spack name
11:50
Speaker 1: is a E. A. Bridges Impact Corps. Hopefully, dear goodness,
11:56
Speaker 1: they change that name. UM, so it's going to be
11:58
Speaker 1: I guess called live Wire now so you can get
12:01
Speaker 1: an electric Harley Davidson. Yes, Pounds Sterling steady here today
12:08
Speaker 1: one spot zero seven seven, but it has been under
12:12
Speaker 1: siege with mounting bets that it may below drop below
12:16
Speaker 1: one dollar, the old parody thing. Let's bring in Stephen Gallo.
12:20
Speaker 1: He's had of European FIC strategy for BEMO capital markets. Stephen,
12:24
Speaker 1: is is parity for sterling? Is that a reasonable possibility?
12:29
Speaker 1: I think anything that reasonable possibility or this in this
12:34
Speaker 1: ethics environment, with this type of volatility, in these types
12:37
Speaker 1: of swings, UM, we'd like to say the bottom for
12:41
Speaker 1: the cycle is in. UM. We're kind of hoping that
12:44
Speaker 1: the bottom for the cycle is and the thing goes
12:46
Speaker 1: for the top in the US dollar. UM, but I'd
12:51
Speaker 1: say we have moderate confection the view at this stage. UM,
12:57
Speaker 1: in terms of the dollar side of the equation, we're
12:59
Speaker 1: pretty confit in at this stage that most of what
13:02
Speaker 1: the FET is signaling is now priced in. Uh So,
13:06
Speaker 1: the transmission of set policy to the FX market via
13:09
Speaker 1: interest rate differentials, we think that has largely when it's
13:12
Speaker 1: called course. But what we're less what we're more concerned about,
13:17
Speaker 1: unless unless certain is finished, is the extent to which
13:21
Speaker 1: the FX market prices in a higher global recession probability,
13:26
Speaker 1: as well as the the lingering effect or the ongoing
13:30
Speaker 1: effect I should say, of quanticative heightening from the fet Uh.
13:34
Speaker 1: These concern us a loss for non dollar currencies. Uh.
13:38
Speaker 1: If you think most of the Fed rate hikes are
13:41
Speaker 1: priced in, where do you see the terminal rate? Well,
13:45
Speaker 1: the BEMO house is uh, you know, around four point
13:50
Speaker 1: six issue give or take for the effective set funds rate.
13:54
Speaker 1: And that's what he said basically at the press conference. Yeah, so,
13:59
Speaker 1: I mean, rough roughly in line with that, um, the
14:03
Speaker 1: effective that things are made. Um, we've got them going
14:07
Speaker 1: twice more uh in in two dozen twenty two and
14:10
Speaker 1: then hiking once again at the first meeting of two
14:13
Speaker 1: dozen and twenty three. But the you know, the main
14:17
Speaker 1: the main point here is that that is largely the
14:19
Speaker 1: old that he reflected, and then some just find a
14:22
Speaker 1: little bit uh into the dollar O I ask her. So,
14:26
Speaker 1: I mean, if if we start to see um, you know,
14:30
Speaker 1: core inflation showing clear signs of decelerating in the United
14:34
Speaker 1: States and we get one or two months of negative
14:37
Speaker 1: job prints, that that will definitely be a big helping
14:40
Speaker 1: hand for um, this dollar peach story. But on the
14:44
Speaker 1: other side of that, UM, we have to get through
14:47
Speaker 1: this issue of how bad the global and or US
14:51
Speaker 1: recession is going to be and we probably haven't gotten
14:54
Speaker 1: to the peak pricing for global recession risk just yet. Um,
14:58
Speaker 1: and until that happens, it's going to be harder for
15:00
Speaker 1: the dollar to fall sharply. Until we're confirmed that is so,
15:04
Speaker 1: the FED does a major pivot, it's going to be
15:07
Speaker 1: hard for the dollar to fall sharply. Well, you know,
15:09
Speaker 1: this is a question that Paul has been asking for
15:11
Speaker 1: a couple of weeks now, and UM, we haven't really
15:15
Speaker 1: heard anyone say yes, Is there any bearer case for
15:19
Speaker 1: the US dollar? Is there a bearer case for the
15:22
Speaker 1: US dollar? Is there any bearer case at all in
15:24
Speaker 1: the in the medium to long term, potentially in the
15:29
Speaker 1: short run. Uh, it's tough to see it. Uh, it's
15:33
Speaker 1: tough to see the dollar following system. I mean just look,
15:38
Speaker 1: I mean, if the FED word to engineer some type
15:40
Speaker 1: of the pivot and were to confirm that it's not
15:43
Speaker 1: that we're starting to see a clear science that core
15:45
Speaker 1: inflation pressures are rolling over and going in the set
15:48
Speaker 1: for a direction United States. The labor market is well,
15:51
Speaker 1: you still have all of these structural issues ongoing geopolitical
15:56
Speaker 1: and structural issues on the capital flow side, uh, for
16:00
Speaker 1: a number of major European currencies, for Asia ex japan currencies,
16:05
Speaker 1: for the Japanese en. UM, that that defect pivoting to
16:09
Speaker 1: a neutual policy stand is not simply going to make
16:12
Speaker 1: go away. It might help the healing process beginning for
16:15
Speaker 1: those structural um claws and those currencies. UM, but it's
16:19
Speaker 1: not gonna make no way. UM. You know, when we're
16:23
Speaker 1: moving from an environment or an era of globalization, UM
16:28
Speaker 1: where we got very used to ultra low interest rates,
16:31
Speaker 1: quantitative easing, high asset valuations, to an on the binding
16:35
Speaker 1: of that. Um, it's very hard for non dollar currencies
16:38
Speaker 1: to really sustainably uh. So UM, that's the picture. Unfortunately, Stephen,
16:44
Speaker 1: you've been in this FX game a long time. What
16:46
Speaker 1: did you make in the actual trading of pounds sterling
16:50
Speaker 1: over the past couple of days? Pretty pretty wild moves there. Well, UM,
16:57
Speaker 1: I'm not I'm a strategist, so I don't I don't
17:00
Speaker 1: have to write, but I mean, it's just just just
17:03
Speaker 1: the movements. What what what was that market, Telly, and
17:06
Speaker 1: just the market was just really give us an adjective.
17:10
Speaker 1: I think I think that we've seen a very here,
17:14
Speaker 1: but probably in my view, a long overdue repricing of
17:19
Speaker 1: UK risk premia um because of the fiscal picture, because
17:24
Speaker 1: of the good picture, because of the balance of payments picture.
17:27
Speaker 1: And I think that caught up with the currency and
17:30
Speaker 1: the guilt market this week and last week. And what
17:33
Speaker 1: you saw basically was a liquidity event, a low lack
17:38
Speaker 1: of liquidity in both the FX market and the guilt market,
17:41
Speaker 1: which made the price action ten times worse than it
17:44
Speaker 1: would have been. Uh with that to be there, um
17:48
Speaker 1: so um. You know, we're getting into a situation now
17:51
Speaker 1: where risk premia are adjusting, but they're not adjusting an
17:55
Speaker 1: orderly fashion. All right, good stuff, appreciate it as always
17:59
Speaker 1: Stephen gal Bmo Capital Market. So we didn't even get
18:02
Speaker 1: to the end. We didn't even get to the end.
18:03
Speaker 1: But that was it seems like ancient history, but that
18:06
Speaker 1: was just last week that the Finance Ministry intervened in
18:10
Speaker 1: the Japanese end to defend the currency for the first
18:14
Speaker 1: time since that was twenty four years ago. Remember it. Well,
18:20
Speaker 1: good year. Look at the housing market. We had new
18:26
Speaker 1: home sales data came out today, came in better than expected,
18:29
Speaker 1: uh six eighty five thousand verses consensus A five thousand,
18:33
Speaker 1: a little bit higher than last month, which was revised higher.
18:37
Speaker 1: But certainly they're housing sales are coming down from the
18:40
Speaker 1: peak of the pandemic. Question is can this housing market
18:43
Speaker 1: and engineer a soft landing or will it be ugly?
18:47
Speaker 1: Can it serve five rates? Rates? And what did you
18:49
Speaker 1: say that mortgage races today six point seven that's a
18:53
Speaker 1: long way from you know, three and a quarter from
18:55
Speaker 1: just you know, a year ago. Sam Dunlap ce Io
18:58
Speaker 1: at Angelo Capital, join just Sam, love to get your
19:01
Speaker 1: thoughts on kind of the register, you know, the residential
19:04
Speaker 1: real estate market here, how do you how do you
19:07
Speaker 1: characterize the last few years? And and then maybe where
19:10
Speaker 1: we are right now. Thanks for having me on a
19:12
Speaker 1: great question, you know, the to your point on you know,
19:15
Speaker 1: Cannon housing achieve a soft landing and given the pace
19:18
Speaker 1: of appreciation we saw and home prices really post pandemic um,
19:23
Speaker 1: it's clearly very difficult to sustain those type of levels.
19:27
Speaker 1: And and as you all know, you know, case Shiller
19:29
Speaker 1: came out this morning and uh it was below expectations
19:32
Speaker 1: and one of the more swift declines we've seen in
19:35
Speaker 1: the index um, you know, rising six on a year
19:38
Speaker 1: of a year basis, but we expect you know, home
19:42
Speaker 1: the home pace of a home price appreciation clearly cannot
19:45
Speaker 1: sustain the current levels. But you know, the housing market
19:49
Speaker 1: was really benefiting from you know, this historic supplying to
19:52
Speaker 1: man mismatch that market participants have been identifying for years.
19:57
Speaker 1: But the extraordinarily a little mortgage rates fueled surging home prices,
20:01
Speaker 1: particularly during COVID. While that's not sustainable. Uh, you know,
20:05
Speaker 1: we do expect the very favorable supply and demand dynamic
20:09
Speaker 1: in US housing supporting home prices, but the pace of
20:12
Speaker 1: appreciation clearly cannot cannot keep up. But what is um,
20:18
Speaker 1: what what does it look like in terms of US
20:20
Speaker 1: housing that makes you feel like it's supportive in terms
20:24
Speaker 1: of the supply and demand? Right? Is there just not
20:26
Speaker 1: enough land? Our builders UM still having trouble getting Uh,
20:31
Speaker 1: construction materials are is labored? The problem? What's the issue
20:36
Speaker 1: on the supply side? You know, on the supply side
20:38
Speaker 1: is you know, we just historically underbuilt really after the
20:42
Speaker 1: global financial crisis and that that really has not changed.
20:45
Speaker 1: And very similar to the dynamics that we saw in
20:48
Speaker 1: the not late nineteen seventies with the baby boomers, you know,
20:51
Speaker 1: they were forming households at a very brisk pace. We're
20:55
Speaker 1: still seeing that from the millennials, you know, on annualized
20:58
Speaker 1: pace of approximately one point two mill and household formations
21:02
Speaker 1: today and that's very supportive. Is is you know, the
21:05
Speaker 1: demand for single family shelter, particularly coming out of COVID,
21:08
Speaker 1: still remains strong. But affordability has really been the challenge
21:12
Speaker 1: here as the FEDS is inflicted as as Chairman Powell
21:16
Speaker 1: wanted a lot of pain clearly on the economy, and
21:18
Speaker 1: the initial transmission mechanism has definitely been surging mortgage rates
21:22
Speaker 1: as you pointed out, and that's really hurt the affordability aspect,
21:25
Speaker 1: but the underlying demand UH and lack of supply and
21:30
Speaker 1: and just the fact of how underbuilt the US housing
21:33
Speaker 1: as we think, you know, achieves that soft landing for
21:37
Speaker 1: for US housing and not the you know, extreme downturn
21:40
Speaker 1: that we saw really coming out of the financial crisis.
21:43
Speaker 1: What are you doing in your fund? Sam? You manage
21:46
Speaker 1: the Angelo Multi Strategy Income Fund, the Strategic Credit Fund,
21:50
Speaker 1: the Core Impact Fund, um Multi Strategy Income You see
21:55
Speaker 1: I T S fund. I don't even know what you
21:57
Speaker 1: see I t S means, But what are you doing
22:00
Speaker 1: in those funds right now. Yeah, So you know, the
22:02
Speaker 1: mortgage market, like all areas fixed income, has been under
22:05
Speaker 1: a tremendous amount of pressure this year, just given the
22:08
Speaker 1: swift pace of tightening and a complete revision of of
22:11
Speaker 1: fat expectations. But uh, mortgages have been particularly sensitive to
22:16
Speaker 1: what we're describing is really a volatility shock. So you know,
22:19
Speaker 1: we we went through the first phase of the inflation shock.
22:22
Speaker 1: Is inflation with parabolic this year, as we all um
22:26
Speaker 1: know very well at this point. But also you saw
22:30
Speaker 1: rates clearly repriced very swiftly, and volatility surging and the
22:35
Speaker 1: interest rate world to historic highs. And from a volatility perspective,
22:39
Speaker 1: we're really at a crisis like levels from a from
22:42
Speaker 1: an historical standpoint, and uh, that presents an extraordinarily favorable
22:47
Speaker 1: time for mortgages in particular, is uh we view, you know,
22:51
Speaker 1: this near term event is not necessarily a credit event
22:55
Speaker 1: where you know, mortgage credit is is frankly pristine and
22:58
Speaker 1: it's the best that we've ever seen seen it. Um,
23:01
Speaker 1: the underwriting standards of an extraordinary unemployment remains very very low,
23:05
Speaker 1: and we still have a very brisk labor market. But mortgages,
23:09
Speaker 1: given the volatility and rate shock that we've seen have
23:12
Speaker 1: have really widened out from a spread perspective, both agency
23:15
Speaker 1: and non agency mortgages. UH prevent a present and our
23:19
Speaker 1: view an extraordinarily favorable opportunity here UH to lock in
23:23
Speaker 1: you know, equally like returns and and very high quality
23:26
Speaker 1: areas of fixed income. UH. And we think that you know,
23:29
Speaker 1: patient investors will will be rewarded. Um. You know in
23:32
Speaker 1: this amidst this volatility shock, we're currently in SAMA about
23:36
Speaker 1: thirty seconds. But where does demanded destruction come in from
23:40
Speaker 1: a motor's rate perspectives here? Well, I think you're starting
23:43
Speaker 1: to see that demand destruction UH pretty significantly just given
23:47
Speaker 1: the deterioration that we've seen an affordability. But as as
23:50
Speaker 1: mortgage investors, UH, you know, it's not necessarily contingent on
23:53
Speaker 1: the pace of housing activity. We definitely expected to slow
23:56
Speaker 1: down and housing activity. But what's important clearly is more
24:00
Speaker 1: of the delinquencies and what that actual home price is
24:03
Speaker 1: if you actually have a default particularly nod agen see mortgages,
24:07
Speaker 1: and what that ultimate recovery value is and so uh,
24:11
Speaker 1: you know, if you think about the LTV of the
24:13
Speaker 1: US housing market today at approximately thirty we've never seen
24:17
Speaker 1: this much equity in the housing market. So we think,
24:20
Speaker 1: you know, the resiliency of of the underlying asset class
24:23
Speaker 1: will will hold up quite well. But there is a
24:25
Speaker 1: tremendous amount of demand destruction just given the surge that
24:28
Speaker 1: we've seen in mortgage rates. UH. And and again activity
24:31
Speaker 1: will continue to slow. All right, Sam, good stuff. Really
24:34
Speaker 1: appreciate getting uh the review update on the mortgage market,
24:38
Speaker 1: housing market. Sam Dunlap see io at angel Oka a
24:41
Speaker 1: Capital talking about the housing market here, such a surgeon
24:45
Speaker 1: early part of the pandemic. Coming back down to reality.
24:49
Speaker 1: Hurricane Ian, it made landfall in Cuba. Now it's got
24:54
Speaker 1: his sights on Florida. It looks like the west coast
24:56
Speaker 1: of Florida is going to get the brunt of it.
24:58
Speaker 1: Of course, that brings into question and Tampa. When you
25:01
Speaker 1: think about big, big metro cities, you think about, you know,
25:04
Speaker 1: some of the insured losses are and what that means
25:06
Speaker 1: for some of the big insurance companies in addition to
25:08
Speaker 1: the good folks on the ground. Matthew Palazola, Bloomberg Intelligence,
25:11
Speaker 1: Senior Annals covering property and casualty insurance. He joins us
25:15
Speaker 1: here in a Bloomberg Interactive broker Studio. Tampa is a
25:18
Speaker 1: big market, big insured market. What are some of the
25:21
Speaker 1: estimates here potential damage? And apparently it's not a place
25:24
Speaker 1: that gets hit by hurricanes. A lot does not get
25:26
Speaker 1: hit by hurricanes often. Uh. There were some analogs in
25:30
Speaker 1: the eighteen hundreds, the forties, the fifties, um, but nothing
25:35
Speaker 1: directly hitting Tampa. Lloyd's of London has a scenario, not
25:39
Speaker 1: for this storm specifically, but for a direct hit on Tampa,
25:42
Speaker 1: which could be a hundred billion dollars of damage. Now
25:45
Speaker 1: that's big, right, that is big. That would be the
25:48
Speaker 1: biggest insured loss ever. I don't know if it would.
25:51
Speaker 1: This storm is probably not getting to that level. But
25:53
Speaker 1: if we're talking about insured value in the region, that's
25:55
Speaker 1: that's what we're looking at. Uh. It's gonna miss the
25:59
Speaker 1: oil rigs, right, so it's not gonna go Brian Sullivan
26:01
Speaker 1: was telling us yesterday, it's probably not gonna be west
26:05
Speaker 1: enough to hit the oil production hubs. That is correct.
26:09
Speaker 1: So it's it's really focusing more more east. So the
26:13
Speaker 1: models come out every six hours and they've been shifting.
26:17
Speaker 1: Initially they were all the way from Louisiana to Florida,
26:19
Speaker 1: but they've been moving more and more east to the Florida.
26:23
Speaker 1: So how far is it right now from the Florida coast?
26:26
Speaker 1: So it's about forty eight hours from from landfall in Florida,
26:30
Speaker 1: and we still don't know. The latest run literally just
26:32
Speaker 1: came up minutes before I came in. Here was a
26:34
Speaker 1: little more south of Tampa. So a little bit better
26:38
Speaker 1: of a forecast from an insured lost point of view,
26:40
Speaker 1: a category one to two versus a two to three
26:43
Speaker 1: uh and south of Tampa, okay, So what are some
26:46
Speaker 1: of the companies that maybe have exposure there? From an
26:50
Speaker 1: insurance perspective, So it's interesting what's going on is the
26:52
Speaker 1: reinsurance companies will definitely have exposure. There's a name is
26:55
Speaker 1: like so reinsure insure insurance company exactly. Those guys are
26:59
Speaker 1: the altar risked bearers, right, the reinsurers. Well, so the
27:03
Speaker 1: primary insurer retains a lot of the risk and then
27:05
Speaker 1: they give some to the resations, not not all of it.
27:07
Speaker 1: And ess interesting what's happening in Florida now anyway, is
27:10
Speaker 1: reinsurance companies don't want to be there. There's rampant fraud
27:14
Speaker 1: in the state. Aside from the risk of these hurricanes Florida. No, yes,
27:20
Speaker 1: very much so. So they've been stepping back to begin with.
27:23
Speaker 1: So before any of this is even happening, Uh, primary
27:26
Speaker 1: companies are having a lot of trouble getting reinsurance to
27:28
Speaker 1: the point where someone are leaving the state or actually
27:31
Speaker 1: going insolvent. Interesting, So who are the biggest reinsurers? Are
27:36
Speaker 1: we talking about munich Re or International? Yeah, so the
27:39
Speaker 1: biggest reinsurers in the world are this, munich Re, Swiss Ree, Um,
27:43
Speaker 1: I don't cover them. The companies I cover based out
27:45
Speaker 1: of Bermuda, their names like Renaissance Ree, everest Ree, they
27:48
Speaker 1: probably have. They will definitely have some exposure, probably less
27:50
Speaker 1: than than the bigger companies though. So how about some
27:53
Speaker 1: of the primary insurers that might have some risk. I mean,
27:55
Speaker 1: I just think of all those gleaming office towers that
27:58
Speaker 1: all the Wall Street terms are taking up now on
28:01
Speaker 1: the law firms. I mean, it is a major skyline,
28:04
Speaker 1: it is a major city, man. I just some of
28:07
Speaker 1: these insurance companies might really be I'm sure they're paying
28:09
Speaker 1: attention to it, like of course they are. Of course
28:11
Speaker 1: they are. So the biggest UM, the biggest primary insurance
28:15
Speaker 1: state farm which is not a public company. H Then
28:17
Speaker 1: there's also a lot of the homes in the state
28:19
Speaker 1: are with the state fund, so that's it's the taxpayers
28:22
Speaker 1: essentially paying for it themselves. There's other names like all state,
28:25
Speaker 1: um chub would be a name a I g. Who
28:28
Speaker 1: would have exposure to maybe commercial properties not not outsized though.
28:33
Speaker 1: So um does FEMA have any bearing on this? I mean,
28:37
Speaker 1: do they go in there and and help out to
28:39
Speaker 1: some extent or I think I guess so it will,
28:42
Speaker 1: you know, eventually, depending on how bad it is, It
28:44
Speaker 1: wouldn't matter dramatically for the insurance companies what what FEMA does.
28:50
Speaker 1: But I guess it all depends on the severity of
28:52
Speaker 1: the storm. But what's the big story long term thought
28:56
Speaker 1: about the insurance business? Climate change just more and more radical.
29:01
Speaker 1: You know, there's found more fires, bigger fires, more floods,
29:04
Speaker 1: bigger floods, hurricanes, all that kind of stuff. Yeah, it's
29:07
Speaker 1: all it's all happening. I mean, um, the reinsurers are
29:11
Speaker 1: kind of the first line in this, so they're the
29:13
Speaker 1: ones that are stepping back and saying these risks are
29:14
Speaker 1: getting too big to take. What probably will happen. We
29:18
Speaker 1: just had a cold today with someone who said there
29:20
Speaker 1: might be more public private partnerships, meaning the insurance just
29:24
Speaker 1: we're just not doing it. And if you want to
29:26
Speaker 1: live close to a wildfire area or you want to
29:28
Speaker 1: live in a hurricane prone area, then the state is
29:31
Speaker 1: going to have to work out some solution with you
29:34
Speaker 1: and it's going to ultimately fall in taxpayers. But you
29:36
Speaker 1: do see um, uh, these kind of events happening more frequently.
29:42
Speaker 1: We do. I mean, there's no one is saying that
29:46
Speaker 1: country is not happening. I would say one thing, there
29:49
Speaker 1: was a big period of kind of benign weather right
29:51
Speaker 1: before this, and now we're seeing more extreme So could
29:55
Speaker 1: we could we be in a mean reversion or could
29:58
Speaker 1: we be in a kind of crazier weather forever? Uh,
30:02
Speaker 1: you know, we don't know. Alright, good stuff. Matthew Palozola,
30:04
Speaker 1: Bloomberg Intelligent senior analysts covering the property insurance business, joining
30:08
Speaker 1: us in studio. He does not phone it in, he
30:11
Speaker 1: comes in studio. So we're talking about Hurricane Ian. Obviously
30:15
Speaker 1: it's a big, big, big issue for all the good
30:16
Speaker 1: folks down there in far to to deal with it.
30:19
Speaker 1: Looks like it will be a pretty significant storm. But
30:21
Speaker 1: there's also the business end of at the P and
30:23
Speaker 1: l end of it, which is the insurance angle h
30:26
Speaker 1: and kind of what is the ensurable losses potential in
30:29
Speaker 1: some of these markets. So guys like Matthew help us
30:31
Speaker 1: out there. Thanks for listening to the Bloomberg Markets podcast.
30:34
Speaker 1: You can subscribe and listen to interviews with Apple Podcasts
30:38
Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
30:42
Speaker 1: on Twitter at Matt Miller three. Pet On Ball Sweeney
30:46
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
30:48
Speaker 1: can always catch us worldwide at Bloomberg Radio