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China, Insurance and Hawaii, Walmart, and Banking · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller.
• 0:05
  Speaker 2: Every business day we bring you interviews from CEOs, market pros,
• 0:09
  Speaker 2: and Bloomberg experts, along with essential market moving news.
• 0:14
  Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
• 0:17
  Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
• 0:21
  Speaker 1: Our next guest, I guess I got to call him
• 0:23
  Speaker 1: like my favorite economists, but that's not saying a whole
• 0:25
  Speaker 1: lot quite frankly, but he is good and we're glad
• 0:28
  Speaker 1: we got a few minutes of his time. You know,
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  Speaker 1: Carl Ricadona, he's BNP Perry bott and now I trained
• 0:34
  Speaker 1: him up here at Bloomberg Intelligence for many years. But
• 0:37
  Speaker 1: he's pretty solid. Carl, What are you looking at today?
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  Speaker 1: You know, we just heard from the good folks Dana
• 0:43
  Speaker 1: Peterson at the Leading Economic Indicator of the Conference Board.
• 0:46
  Speaker 1: They still have a recession call out there, how about
• 0:48
  Speaker 1: you guys at ben P Perry Bow.
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  Speaker 3: Well, Paul, I should back that up. You taught me
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  Speaker 3: everything I know. Of course, thanks for that.
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  Speaker 4: I'll start with that.
• 0:59
  Speaker 3: But in terms of the recession view, you know, we
• 1:02
  Speaker 3: still see some pretty ominous factors looming on the horizon.
• 1:09
  Speaker 3: You've been talking about the resumption of student debt payments. Now,
• 1:13
  Speaker 3: you know, there may be some legal room here that
• 1:16
  Speaker 3: you know, you have a twelve month grace period, you know,
• 1:19
  Speaker 3: to start and whatnot. But if we just look at
• 1:22
  Speaker 3: the you know, the view from sixty thousand feet, the
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  Speaker 3: price tag on that is about one hundred billion dollars annualized.
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  Speaker 3: So look back to Q one when everything went haywire
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  Speaker 3: with the cost of living adjustment and Social Security that
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  Speaker 3: was also about one hundred billion dollar price tag. So
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  Speaker 3: I'm sure they're not equal, but when you look from
• 1:40
  Speaker 3: a you know, when you're squint from a distance, there
• 1:42
  Speaker 3: are you know, similar sizes, and so all of the
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  Speaker 3: things that went up in Q one, discretionary spending and whatnot,
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  Speaker 3: we could see kind of a similar fallout in the
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  Speaker 3: Q four period.
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  Speaker 1: But on top of that, you have, you know, a
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  Speaker 1: very divided.
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  Speaker 3: Government that has to pass twelve appropriation bills by the
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  Speaker 3: end of this month, by the end of September. Rather
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  Speaker 3: you know, that seems very unlikely, so there's a risk
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  Speaker 3: of a government shut down. Then the excess saving story
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  Speaker 3: we've been focusing on this. San Francisco FED wrote on
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  Speaker 3: this recently. Those savings are rapidly being eroded. You see
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  Speaker 3: that in the retail earnings you discussed in the earlier segment,
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  Speaker 3: where Target is noticing that, you know, price sensitivity of
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  Speaker 3: consumers in Walmart sees a lot of the higher end
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  Speaker 3: consumers walking into Walmart to go after those bargain prices
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  Speaker 3: and whatnot. So you kind of see that playing out,
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  Speaker 3: you know. So there's a bit of a perfect storm
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  Speaker 3: I think coming about in Q four, which still makes
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  Speaker 3: me worried about elevated recession risk in Q four and
• 2:45
  Speaker 3: into the kind of first part of next year.
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  Speaker 5: How do you swear that away when a lot of
• 2:50
  Speaker 5: this data still is pretty resilient if you're looking at
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  Speaker 5: retail sales even the Atlanta Feds GDP now for the
• 2:56
  Speaker 5: current quarter up around five percent, and when you're seeing
• 3:00
  Speaker 5: talking about Walmart coming in and better than expected outlook
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  Speaker 5: on the consumer. As far as you talked about student loans,
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  Speaker 5: I mean, is what's the main catalyst here to really
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  Speaker 5: weigh on consumers when we're looking at the difference between
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  Speaker 5: spending when you're talking about obviously goods versus services.
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  Speaker 3: Well, I think the GDP tracker in the you know,
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  Speaker 3: the early part of the quarter can often go for
• 3:24
  Speaker 3: you know, a real loop, and I think that's what
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  Speaker 3: we're going what we're seeing at the moment. I highly
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  Speaker 3: doubt we're growing at five percent in the current quarter
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  Speaker 3: an inflation adjusted terms. So you know, I value the
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  Speaker 3: Atlanta Fed GDP now tracker.
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  Speaker 4: It can be volatile follow it, but.
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  Speaker 6: It does move.
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  Speaker 3: It does move over the course of the quarter. That's
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  Speaker 3: not unusual, and so I do think we'll see some
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  Speaker 3: moderation in that in that indicator over the course of
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  Speaker 3: the quarter. That being said, there is a theme of
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  Speaker 3: resilience here, whether it's the labor market or consumer activity
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  Speaker 3: and whatnot. But you know, you always have to be
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  Speaker 3: looking forward, and you're hearing those anecdotes of price sensitivity
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  Speaker 3: from consumers. So the real test will be, you know,
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  Speaker 3: if this can hold out over the course of the quarter,
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  Speaker 3: or if July just happened to be a good month
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  Speaker 3: for retail, whether you know, whether it was driving people
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  Speaker 3: into shopping malls or Amazon Prime Day or a lot
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  Speaker 3: of these factors maybe just one off developments. When we
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  Speaker 3: kind of step back and look at the macro fundamentals,
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  Speaker 3: the broader GDP trends, So not the quarter on quarter
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  Speaker 3: change that we see in the GDP now forecast, but
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  Speaker 3: rather the year and year rate of change is slowing.
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  Speaker 3: What does disturb me is GDI. So gross domestic income,
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  Speaker 3: which in a perfect world should track in lockstep with
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  Speaker 3: the GDP. But you know, the guy who taught me
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  Speaker 3: everything I know, Paul Sweeney, you know, don't live in
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  Speaker 3: a perfect world. And the gd I numbers look pretty bad.
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  Speaker 3: So gross domestic ink, well, first of all, profits are
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  Speaker 3: slowing and gross domestic income looks pretty lousy. We'll see
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  Speaker 3: the next print on that when we get the second
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  Speaker 3: print for Q two GDP. But GDI is a disturbing trends,
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  Speaker 3: So there's there's definitely fodder for both sides of the
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  Speaker 3: debate here, and I'm not convinced of the reacceleration narrative
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  Speaker 3: just yet.
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  Speaker 1: We've certainly seen Carl over the last I don't know,
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  Speaker 1: a couple of weeks, some really disappointing economic news come
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  Speaker 1: out of China. How do you kind of think about
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  Speaker 1: that as as you think about the impact of the
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  Speaker 1: US economy.
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  Speaker 3: Well, I you know that China's obviously a very important
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  Speaker 3: trading partner, and global commodity prices are very sensitive to
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  Speaker 3: the health of the Chinese economy, and those commodity prices
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  Speaker 3: impact the US inflation outlooks. So you know, we're definitely
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  Speaker 3: watching the situation very closely and trying to understand what's happening,
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  Speaker 3: you know, in the kind of immediate reopening after COVID
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  Speaker 3: and then you know, where things settle there, there seem
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  Speaker 3: to be some key differences. So, you know, in Europe
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  Speaker 3: and the US, we saw a lot of pent up savings,
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  Speaker 3: in pent up demand that really led to the you know,
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  Speaker 3: kind of revenge spending and house price appreciation and and
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  Speaker 3: you know demand for you know, for a lot of
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  Speaker 3: consumer spending categories. It looks very different in China, and
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  Speaker 3: we're you know, we're seeing that play out that the
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  Speaker 3: reopening of the second largest economy in the world looks
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  Speaker 3: very different than, you know, than what we've seen in
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  Speaker 3: the US and Europe, and we're seeing that pass through
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  Speaker 3: to supply chains, and this is feeding into an inflation
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  Speaker 3: narrative of of deceleration. But our view has been at
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  Speaker 3: BNP for quite a while that the last mile is
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  Speaker 3: going to be where, you know, where the real toughness
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  Speaker 3: comes out and the real stickiness of the inflation data
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  Speaker 3: is apparent, and that's going to mean that this FED
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  Speaker 3: can't you know, we'll have a course correction on the
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  Speaker 3: the immaculate disinflation narrative, and the FED is going to
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  Speaker 3: have to remain vigilant in its inflation fight to get
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  Speaker 3: us all the way back to two percent. It's easy
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  Speaker 3: to get from nine percent down to six, but from
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  Speaker 3: six to four is harder. And getting from four to
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  Speaker 3: two is where will really take some softening of labor
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  Speaker 3: conditions and some of the categories that have been sticky
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  Speaker 3: to to really move lower.
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  Speaker 5: All right, you brought up the FED. We do have
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  Speaker 5: Jackson Hole next week. How do you view this and
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  Speaker 5: what this could potentially mean for their signaling ahead of
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  Speaker 5: that September twentieth decision.
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  Speaker 3: I don't think they're going to signal much for the
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  Speaker 3: September decision. Of course, they'll be asked in the you know,
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  Speaker 3: the press conferences and media exchanges and whatnot what they're thinking,
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  Speaker 3: and I think they'll give us the you know, the
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  Speaker 3: generic FED answers of well, there's more data to be seen,
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  Speaker 3: so we don't want to cast a judgment so we.
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  Speaker 5: Did get the employment Costs Index CPI PPI and then
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  Speaker 5: PCE since the last decision. So it feels like those
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  Speaker 5: FED minutes we got yesterday might be a bit backward looking, right.
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  Speaker 3: That is spot on analysis because people are focusing on
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  Speaker 3: some of the hawkish language that was in the minutes
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  Speaker 3: where they said they're still upside risk to inflation and
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  Speaker 3: therefore we may need to do more. We have to
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  Speaker 3: remember they wrote those words, and then we got a
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  Speaker 3: cooler CPI report, cooler ECI report, a still hot but
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  Speaker 3: cooling trend in the labor data, right, so that dates
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  Speaker 3: some of that language. And I think the more important
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  Speaker 3: takeaway from the minutes was that they're looking at this
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  Speaker 3: in a very two sided fashion now, is they assess
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  Speaker 3: risks for the outlook doing too much but also doing
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  Speaker 3: too little, Whereas before they were always kind of worried
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  Speaker 3: they were behind the curve and we're just focused on
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  Speaker 3: catching up. So this is a different, more thoughtful, more
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  Speaker 3: data sensitive FED going forward. You know, I think this
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  Speaker 3: may mean that they're on hold, and in fact, they
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  Speaker 3: may have been at the peak rate of the cycle
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  Speaker 3: at the July meeting and they're done now, even though
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  Speaker 3: they don't want to say mission bump right, all.
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  Speaker 1: Right, Carl, thanks so much for joining us. Always always
• 8:43
  Speaker 1: appreciate getting your perspective. Your analysis called wreck Don one
• 8:46
  Speaker 1: of the best. He's a chief US economists at b
• 8:48
  Speaker 1: n P. Parrybottle.
• 8:51
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• 9:00
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• 9:06
  Speaker 1: Here a Bloomberg. We love talking about central bank activity.
• 9:08
  Speaker 1: We're all over that stuff. Today we're going to focus
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  Speaker 1: a little bit on the Bank of Japan, and we
• 9:13
  Speaker 1: have a great guest to help us do that, Regina Schlagger,
• 9:16
  Speaker 1: director of Central Bank Policy Research at SGH Macroadvisor. She
• 9:21
  Speaker 1: joined us live here in our Bloomberg Interactive Broker Studio.
• 9:24
  Speaker 1: I have to admit, Regina, of all the central banks
• 9:27
  Speaker 1: and probably least comfortable or knowledge about what they are doing,
• 9:31
  Speaker 1: so just give us a sense of what the boj
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  Speaker 1: has been up to really over the last several years
• 9:35
  Speaker 1: and kind of what you expect them to do going forward.
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  Speaker 8: Sure, Thanks Paul, thanks for having me, and nice to
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  Speaker 8: see you both this morning. So the Bank of Japan
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  Speaker 8: has been somewhat of a laggered in terms of central
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  Speaker 8: bank policy tightening over a recent recent couple of years,
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  Speaker 8: and so markets are quite focused on the timing of
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  Speaker 8: their transition to Titan pol see, particularly with respect to
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  Speaker 8: transitioning out of what they have had in place now
• 10:05
  Speaker 8: for many years yield yield curve targeting, which is them
• 10:12
  Speaker 8: targeting the ten year yield, and so they have recently
• 10:16
  Speaker 8: shifted toward more flexible arrangement or regime with respect to
• 10:21
  Speaker 8: yield curve targeting, which markets are obviously taking as a
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  Speaker 8: signal that they are on the move if you like,
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  Speaker 8: and soon to be thinking about higher interest rates at
• 10:34
  Speaker 8: some point. Markets intensely focused on the timing of that
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  Speaker 8: and taking every signal they can from the economy to
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  Speaker 8: try to gauge when they're likely to move.
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  Speaker 5: And very different like you're seeing. If you juxtapose that
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  Speaker 5: against the Federal Reserve and other global central banks that
• 10:52
  Speaker 5: clearly have been on this aggressive tightening cycle for over
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  Speaker 5: a year now, how do you think that impacts the
• 10:57
  Speaker 5: global economy? Because Japan is the third larger economy behind
• 11:01
  Speaker 5: the United States and China.
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  Speaker 8: Absolutely and as you rightly infer there's a huge yield
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  Speaker 8: differential now between the US and Japan, and so one
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  Speaker 8: of the things that we've become aware of is that
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  Speaker 8: officials officials in Japan are you know, waiting for the
• 11:17
  Speaker 8: FED to be done, if you like, with respect to
• 11:19
  Speaker 8: their tightening cycle, so that they can start to think
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  Speaker 8: about how they will move on their own rates and
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  Speaker 8: narrow that differential. They have a currency right now which
• 11:31
  Speaker 8: is at levels that they're not entirely comfortable with, right,
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  Speaker 8: so the end breaching one right, right, So this is
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  Speaker 8: a this is a policy driver for them in the
• 11:42
  Speaker 8: sense that they have now i think admitted that it's
• 11:46
  Speaker 8: a big factor in how they're thinking about how to
• 11:49
  Speaker 8: transition smoothly out of this ultra easy policy that they've
• 11:53
  Speaker 8: had now for a very long time. And I think
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  Speaker 8: that you know, really that rate differential is not going
• 11:59
  Speaker 8: to narrow.
• 12:01
  Speaker 4: Until they actually moved to move on rates.
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  Speaker 5: So the yen bridging it's now around one for six
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  Speaker 5: against the dollar. How much does that stoke expectations that
• 12:11
  Speaker 5: it could prompt the Bank of Japan to have more
• 12:13
  Speaker 5: intervention from here.
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  Speaker 8: Right, So that right now there is a lot of
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  Speaker 8: speculation that they could come in in fact overnight. I
• 12:20
  Speaker 8: was even reading about expectations that they could come well, well,
• 12:25
  Speaker 8: Japan is asleep essentially and do some stealth intervention. There
• 12:30
  Speaker 8: is a lot of focus on when and how they'll
• 12:33
  Speaker 8: intervene and at what level. I think from a broader
• 12:36
  Speaker 8: perspective that whatever that intervention, whenever that intervention is and
• 12:41
  Speaker 8: at what level, it's not necessarily as important as what
• 12:45
  Speaker 8: they do on the monetary policy side.
• 12:46
  Speaker 4: And so the impact on the market.
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  Speaker 8: I think of any intervention BOJ official sorry ministry finance
• 12:54
  Speaker 8: officials execute is not It has a more transient effect
• 13:00
  Speaker 8: I think on markets. Then does the speculation about what
• 13:04
  Speaker 8: they'll do with interest rates.
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  Speaker 1: And when we've had a change in leadership of the
• 13:08
  Speaker 1: Bank of Japan, just talk to us about that, what
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  Speaker 1: that means and going forward.
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  Speaker 4: Yeah, I think this is a really interesting element.
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  Speaker 8: I mean, we're always at pains to try and discern
• 13:18
  Speaker 8: these differences in personality when there's a change in leadership
• 13:23
  Speaker 8: at a central bank. In particular, I think that the
• 13:26
  Speaker 8: exit of the former Central Bank of Japan governor Couroda,
• 13:34
  Speaker 8: you know, ushered in this succession.
• 13:37
  Speaker 4: Of a new governor that comes.
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  Speaker 8: From a school of thought or an academic background where
• 13:42
  Speaker 8: he relies more heavily on forward guidance. That's more the
• 13:45
  Speaker 8: Bananki Dragi school of thought. And so I think that
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  Speaker 8: one of the elements that's really obvious to me through
• 13:53
  Speaker 8: this transition of the leadership is the extent to which
• 13:56
  Speaker 8: he has been starting to impart that forward garden. I
• 14:00
  Speaker 8: think that he's going to rely quite heavily on signaling Rhetorically,
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  Speaker 8: the bank has held quite firm to.
• 14:08
  Speaker 4: This ultra easy.
• 14:09
  Speaker 8: Policy, but you can detect little nuances in the way
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  Speaker 8: he's shifting the language so that markets are understanding that
• 14:16
  Speaker 8: the bank is on the move.
• 14:17
  Speaker 5: And also will have another update when it comes to
• 14:20
  Speaker 5: consumer praises. And if you looked at the latest data
• 14:22
  Speaker 5: from the prior month, it did advance at a faster clip.
• 14:26
  Speaker 5: How do you view the direction of where those prices
• 14:28
  Speaker 5: could be headed from here?
• 14:30
  Speaker 6: Right?
• 14:30
  Speaker 8: So this is a really another really interesting element because
• 14:33
  Speaker 8: the headline rate is expected to show.
• 14:37
  Speaker 4: That prices fell in this report.
• 14:41
  Speaker 8: That would be consistent with the boj's own forecasts.
• 14:46
  Speaker 4: They expect in fiscal.
• 14:48
  Speaker 8: Year that inflation will have risen, but in the next
• 14:52
  Speaker 8: fiscal year they anticipate that inflation will slow to under
• 14:57
  Speaker 8: the two percent objectives.
• 14:59
  Speaker 1: So they the same. What is this two percent number?
• 15:02
  Speaker 1: Everybody's got a two percent invation?
• 15:03
  Speaker 4: Yeah, the magic two percent.
• 15:05
  Speaker 5: I never heard it from New Zealand in the nineteen eighties.
• 15:08
  Speaker 4: Yeah.
• 15:08
  Speaker 5: And then Bernaki, I.
• 15:09
  Speaker 1: Think Japan's on the two inflation watch as well.
• 15:12
  Speaker 4: They're on the watch.
• 15:13
  Speaker 1: So I'm looking at the ego function on the Bloomberg
• 15:15
  Speaker 1: terminal and putting it in there for Japan. I guess
• 15:18
  Speaker 1: the forecast is for CPI. I guess the headline year
• 15:22
  Speaker 1: veer three point three percent, right, so getting there but
• 15:25
  Speaker 1: not there, getting there but not there first time, by
• 15:27
  Speaker 1: the way I've ever pulled up.
• 15:30
  Speaker 5: Thing.
• 15:30
  Speaker 8: Okay, and also on an on the line basis, I
• 15:33
  Speaker 8: think that that that's the important number. You know, with
• 15:37
  Speaker 8: X energy, they're very focused on what the core writ
• 15:40
  Speaker 8: is doing.
• 15:40
  Speaker 1: Okay.
• 15:41
  Speaker 5: I have to get your thoughts on when it comes
• 15:44
  Speaker 5: to this discussion. GP Morgan actually had a recent note
• 15:46
  Speaker 5: about China's Japanification risks, So seeing similar concerns that Japan
• 15:51
  Speaker 5: did in the early nineteen nineties kind of set the
• 15:54
  Speaker 5: scene for us about how that worked and what that
• 15:56
  Speaker 5: could mean potentially for China.
• 15:58
  Speaker 8: Well, obviously there is so much concern about China at
• 16:01
  Speaker 8: the moment. It's it's you know, it's it's seeping into
• 16:04
  Speaker 8: market psychology.
• 16:05
  Speaker 4: I think with respect.
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  Speaker 8: To how it potentially impacts US federal reserves, future outlook
• 16:13
  Speaker 8: and other economies, it's it's impacting the extent to which
• 16:17
  Speaker 8: weeks we think that central banks might be done in
• 16:20
  Speaker 8: their own respective titaning campaigns. But in terms of the Japan,
• 16:24
  Speaker 8: you know, in terms of China becoming Japan, I think
• 16:27
  Speaker 8: where some way off assessing that that is the decidedly
• 16:34
  Speaker 8: the outlook for China.
• 16:35
  Speaker 4: Having said that, you know, there are.
• 16:37
  Speaker 8: Real concerns there, and I think that China experts more
• 16:41
  Speaker 8: more a depth than I have voiced them for many years.
• 16:45
  Speaker 1: You know, when I started in the business back in
• 16:46
  Speaker 1: the mid eighties, Japan was the bomb. If you were
• 16:49
  Speaker 1: a US investment banker, you had to get a tour
• 16:52
  Speaker 1: of duty in Tokyo. But that's not the case any
• 16:56
  Speaker 1: for like ever for a long time. Give us suchest overview.
• 16:59
  Speaker 1: What's the how do you think or how do comds
• 17:02
  Speaker 1: think that japan economy will be over the next five
• 17:04
  Speaker 1: or ten years.
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  Speaker 8: Yeah, it's an interesting point. I like you Paul, you know,
• 17:09
  Speaker 8: was in Japan around that time, and it was a
• 17:11
  Speaker 8: global superpower, no doubt.
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  Speaker 4: And since it's been in.
• 17:17
  Speaker 8: The doldrums obviously, I think that as they emerged from
• 17:20
  Speaker 8: from what has been you know, twenty five year slump,
• 17:25
  Speaker 8: the economy is probably not likely to see those heady
• 17:29
  Speaker 8: days again to the extent that they did in the
• 17:31
  Speaker 8: in the eighties and early nineties. That said, I think,
• 17:36
  Speaker 8: you know, the Japanese officials have very long memories and
• 17:39
  Speaker 8: they'll be very very cautious and careful about moving too
• 17:43
  Speaker 8: quickly to curb any kind of ambulance in the economy
• 17:48
  Speaker 8: for fear that they might be reverting back to inflation.
• 17:52
  Speaker 4: That's under too.
• 17:53
  Speaker 1: I mean, again, as you investment banker, there was Asia,
• 17:56
  Speaker 1: then there was non Japan Asian, so basically it was
• 18:00
  Speaker 1: and everything else. Right now it's China and everything else.
• 18:03
  Speaker 1: So it's just how times have changed. For Ginis Schlager,
• 18:05
  Speaker 1: thanks so much for joining us, giving us a view
• 18:07
  Speaker 1: of that part of the world.
• 18:09
  Speaker 7: You're listening to the tape Cansur live program Bloomberg Markets
• 18:13
  Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune
• 18:16
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• 18:18
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• 18:19
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• 18:22
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• 18:28
  Speaker 1: So we've got one of the leading reinsurance companies here
• 18:31
  Speaker 1: in our Bloomberg Interactor Broker studio. Juan Adrade, CEO of Everes.
• 18:36
  Speaker 1: The based worlds Bermuda scam. But that's how these guys
• 18:40
  Speaker 1: do it. One, he's here in our Bloomberg Interactor Broker Studio. One.
• 18:45
  Speaker 1: Thanks for coming in, appreciate it. Thanks, talk to us
• 18:47
  Speaker 1: about the reinsurance business. What's driving your business these days?
• 18:51
  Speaker 1: I'm looking at your stock. It's a fifteen billion dollar
• 18:53
  Speaker 1: market cap company. You've got one eg is a ticker
• 18:57
  Speaker 1: up about seven percent year to eight thirty percent over
• 18:59
  Speaker 1: the last twelve months. What are the key drivers of
• 19:02
  Speaker 1: your business?
• 19:03
  Speaker 9: Yeah, no, it's a fascinating question. I mean, if you
• 19:06
  Speaker 9: think about the confluence of events that we've all lived
• 19:08
  Speaker 9: through over the last few years, whether it's the pandemic,
• 19:11
  Speaker 9: the supply chain issues, inflation, climate change, all of that
• 19:15
  Speaker 9: is driving demand. And again, as you said, we basically
• 19:18
  Speaker 9: ensure insurance companies. So when you think about what's driving
• 19:21
  Speaker 9: our business right now. It's the fact that these insurance
• 19:24
  Speaker 9: companies are looking for protection for earnings volatility essentially, and
• 19:28
  Speaker 9: so that increases the demand for our.
• 19:30
  Speaker 5: Product, and there's been a price correction in the insurance industry.
• 19:33
  Speaker 9: Why there's been a significant price correction, You're absolutely right,
• 19:37
  Speaker 9: and it's really down to a supply and demand imbalance.
• 19:41
  Speaker 9: The bottom line is, with all the storms and all
• 19:43
  Speaker 9: the activity that we've seen since twenty seventeen, reinsurance companies
• 19:47
  Speaker 9: have deployed less capital into the market, so that's constrained supply.
• 19:51
  Speaker 9: The other thing that's happened on the supply side is
• 19:53
  Speaker 9: a lot of third party allocators, pension funds, sovereign wealth
• 19:56
  Speaker 9: funds that used to put money into our sector have
• 19:59
  Speaker 9: also out and so that's created a supply crunch, if
• 20:02
  Speaker 9: you will, in the industry. But at the same time,
• 20:05
  Speaker 9: because of inflation, climate change, all of these other things,
• 20:08
  Speaker 9: there's more demand. So there's basically a gap of roughly
• 20:12
  Speaker 9: one hundred billion dollars between supply and demand, and that's
• 20:15
  Speaker 9: what's created the price correction that really started at the
• 20:19
  Speaker 9: beginning of this year in a pretty significant way.
• 20:21
  Speaker 1: Hey, on, when you bump into a climate change denier.
• 20:26
  Speaker 1: What do you say to that person? I always say,
• 20:27
  Speaker 1: like somebody when I bump into them, I say, go
• 20:29
  Speaker 1: talk to an insurance company. They'll tell you if it's
• 20:31
  Speaker 1: real or not.
• 20:32
  Speaker 9: What do you say, Well, I think that's good advice,
• 20:34
  Speaker 9: by the way, because that is what we do on
• 20:36
  Speaker 9: a day and day out basis. Look just look at
• 20:38
  Speaker 9: what happened in Maui, and I think that's a perfect
• 20:40
  Speaker 9: example of that, right. You know, the island had significantly
• 20:44
  Speaker 9: high temperatures because of what's been happening around the world,
• 20:47
  Speaker 9: drought which basically dried all the grasses, and then you
• 20:51
  Speaker 9: have a hurricane that's turning off the coast, putting out
• 20:54
  Speaker 9: sixty seventy mile an hour wings. So once you get
• 20:56
  Speaker 9: the spark that started this, and you got those wins,
• 20:59
  Speaker 9: you get the fortunately the strategy that unfolded in Maui.
• 21:02
  Speaker 9: And look, all of this is scientifically proven, right Wildfires, floods, droughts,
• 21:07
  Speaker 9: all of that is directly related to what we're seeing.
• 21:09
  Speaker 9: You know, one of the interesting statistics that's out there
• 21:11
  Speaker 9: right now the ocean, whether it's the Pacific or the
• 21:14
  Speaker 9: Atlantic Ocean right now, is that the warmest temperature it's
• 21:17
  Speaker 9: been since recorded history. That tells you something. Now, the
• 21:21
  Speaker 9: endgame of that is that you're going to get more
• 21:23
  Speaker 9: severe storms because they fuel off of the higher temperatures
• 21:27
  Speaker 9: in the ocean. So what I would just say is
• 21:28
  Speaker 9: look at the facts.
• 21:30
  Speaker 1: So are the insurance companies that you ensure, how is
• 21:33
  Speaker 1: that reflected in their business? They I've heard like a
• 21:36
  Speaker 1: lot of insurance companies won't even do business in Florida anymore.
• 21:39
  Speaker 1: So how do you see that in your business? And
• 21:43
  Speaker 1: I mean, are are you charging more for that an
• 21:46
  Speaker 1: increase risk? How does that affect your business?
• 21:48
  Speaker 9: It affects us in a number of different ways. So yes,
• 21:50
  Speaker 9: one is we're charging more. That's part of that price
• 21:53
  Speaker 9: correction that we talked about. The second thing is we
• 21:56
  Speaker 9: try to embed the latest science into our models to
• 21:59
  Speaker 9: be able to do better predictions on where storms are
• 22:02
  Speaker 9: going to develop, where they're going to hit the coastlines,
• 22:05
  Speaker 9: et cetera, et cetera. But the other thing that you're
• 22:07
  Speaker 9: seeing right now, and you've seen the headlines from companies
• 22:10
  Speaker 9: moving out of Florida A and moving out of California,
• 22:12
  Speaker 9: there's also public policy issues that we have to address.
• 22:15
  Speaker 9: I think the governor of Florida, and the legislature did
• 22:17
  Speaker 9: a nice job with tort reform in Florida because one
• 22:20
  Speaker 9: of their significant issues was not only climate chains and
• 22:22
  Speaker 9: the storms that come out of that, but it's also
• 22:24
  Speaker 9: fraud and abuse in the system, and so the governor
• 22:27
  Speaker 9: took strong actions on that. California is a different story
• 22:31
  Speaker 9: at this point in time. You know, you have a
• 22:33
  Speaker 9: lot of companies leaving the state because the market is
• 22:35
  Speaker 9: not functioning as well as it should be. And at
• 22:37
  Speaker 9: the end of the day, we all have shareholders or
• 22:39
  Speaker 9: stakeholders and we're for profit business.
• 22:42
  Speaker 5: The Hawaii wildfires insured losses are estimated to be around
• 22:45
  Speaker 5: three billion dollars. But at the same time, why is
• 22:48
  Speaker 5: one of the nation's lowest rates when it comes to
• 22:50
  Speaker 5: homeowner coverage just because it really hasn't had a ton
• 22:54
  Speaker 5: of natural disasters. How does that affect insurers?
• 22:58
  Speaker 9: Yeah, it's a great point because that also goes back
• 23:00
  Speaker 9: to Paul's question on climate change. Hawaii itself is not
• 23:04
  Speaker 9: known as sort of a natural catastrophe hot spot, similar
• 23:07
  Speaker 9: to when you think about Florida or when you think
• 23:09
  Speaker 9: about California. What will happen as a result of this
• 23:12
  Speaker 9: is prices will go up again, Right, A lot of
• 23:15
  Speaker 9: claims will be paid. I think, as you said, it's
• 23:17
  Speaker 9: about three to three point two billion in industry lass
• 23:20
  Speaker 9: that is expected to come out of that fire. So
• 23:23
  Speaker 9: insurance companies will basically adjust their pricing because the risk
• 23:26
  Speaker 9: is there.
• 23:27
  Speaker 1: Essentially, you guys are a global company. Talk to us
• 23:30
  Speaker 1: about how business is different US versus outside of the US.
• 23:34
  Speaker 7: Yeah.
• 23:35
  Speaker 9: No, Look, I've spent a vast majority of my career
• 23:38
  Speaker 9: actually working outside of the United States. And we are global.
• 23:41
  Speaker 9: So we're the fourth largest property casualty reinsurer in the world.
• 23:44
  Speaker 9: We have customers in one hundred and fifteen countries. And
• 23:47
  Speaker 9: you know, our business is really a relationship business, and
• 23:50
  Speaker 9: you really have to adapt to how you do business
• 23:52
  Speaker 9: in different cultures. Right, whether it's it's an Asian culture,
• 23:55
  Speaker 9: a Latin American culture, where you know, before you do
• 23:57
  Speaker 9: a deal, they have to understand who you are, they
• 23:59
  Speaker 9: need to try us to you, et cetera. Whether it's
• 24:01
  Speaker 9: in Europe in the US, you might be more direct,
• 24:03
  Speaker 9: get to the bottom line a little bit quicker, et cetera,
• 24:06
  Speaker 9: but the issues are fundamentally the same. At the end
• 24:08
  Speaker 9: of the day, we're ensuring risk, so we have to
• 24:11
  Speaker 9: understand what we're taking on our balance sheet, what we
• 24:14
  Speaker 9: price for it, and you also need to understand the geography,
• 24:16
  Speaker 9: the climate, the geopolitical issues, regulatory environments, all that.
• 24:20
  Speaker 6: Sort of thing.
• 24:20
  Speaker 5: We have about a minute left. What's your thought on
• 24:23
  Speaker 5: what the reinsurance industry is telling us on where the
• 24:26
  Speaker 5: economy is headed.
• 24:27
  Speaker 7: Yeah.
• 24:28
  Speaker 9: Look, I think if you look at our industry, we're
• 24:31
  Speaker 9: sort of a bright light in what's happening in capital
• 24:33
  Speaker 9: markets right now. And I'll give your own example. So
• 24:35
  Speaker 9: we just posted in the second quarter a twenty five
• 24:38
  Speaker 9: percent annualized total shareholder return and a twenty two percent
• 24:42
  Speaker 9: plus ROE and so that tells you sort of what
• 24:45
  Speaker 9: we're seeing in the opportunities that are out there because
• 24:48
  Speaker 9: of the uncertainty in the world right now, heightened risk environment,
• 24:51
  Speaker 9: geopolitical issues, climate change issues, et cetera. So we're pretty
• 24:54
  Speaker 9: bullish about where the industry is going, not only this year,
• 24:57
  Speaker 9: but well into twenty twenty four as well.
• 25:00
  Speaker 1: All right, one, thanks so much for joining us. Really
• 25:01
  Speaker 1: appreciate you taking the time to come into our Bloomberg
• 25:03
  Speaker 1: Interactive Broker studio. Juan Andrade he's the CEO of Everest,
• 25:08
  Speaker 1: the tickers EG Everest Group, a New York Stock Exchange
• 25:11
  Speaker 1: traded company. You guys have an investor Day coming up
• 25:13
  Speaker 1: in November at the NYSEC, so that'll be big for you. Guys.
• 25:18
  Speaker 1: Me we'll get you back into studio since you're gonna
• 25:20
  Speaker 1: be back in New York. That'll be good stuff.
• 25:22
  Speaker 7: You're listening to the team Ken's are Live program Bloomberg
• 25:26
  Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot Com,
• 25:29
  Speaker 7: the iHeartRadio app and the Bloomberg Business App, or listen
• 25:33
  Speaker 7: on demand wherever you get your podcasts.
• 25:36
  Speaker 1: All right, let's talk about commercial real estate. This is
• 25:40
  Speaker 1: near and dear to my heart because I walk through Midtown,
• 25:42
  Speaker 1: Manhattan every day, back and forth to Penn Station, and
• 25:44
  Speaker 1: I'm first hand. I can check out what's happening. Our
• 25:47
  Speaker 1: next guest knows about what's happening to Hassam Naji. He's
• 25:50
  Speaker 1: the CEO of Marcus and Millichap, which is a New
• 25:52
  Speaker 1: York Stock Exchange traded company. MMI is the ticker. He
• 25:57
  Speaker 1: joins his live here in our Bloomberg Interactive Broker Studio. Sam,
• 25:59
  Speaker 1: thank you very much, which for joining us. All right,
• 26:01
  Speaker 1: I walk back and forth twice a day Midtown Manhatan.
• 26:04
  Speaker 1: I look up and there's a lot of empty space here.
• 26:06
  Speaker 1: This is a disaster in certain big cities. We'll get
• 26:09
  Speaker 1: to some of the good parts of commercial real estate,
• 26:11
  Speaker 1: but what happens to the New York's, the San Francisco's.
• 26:14
  Speaker 1: In reality, they're not converting all this stuff to condos.
• 26:17
  Speaker 1: What do you think of? How is this going to
• 26:18
  Speaker 1: shake out?
• 26:19
  Speaker 10: Good morning, Thanks for having me on. Great to see
• 26:21
  Speaker 10: you again. It is going to be painful in the
• 26:24
  Speaker 10: next two to four years, there's no way around it.
• 26:27
  Speaker 10: But the bifurcation of what's happening with newer, high amenity
• 26:31
  Speaker 10: office space versus older, obsolete office space is the story
• 26:35
  Speaker 10: in that overall demand is shrunk. The pandemic has changed
• 26:39
  Speaker 10: societal patterns that are not going to come back anytime soon.
• 26:42
  Speaker 10: We're seeing improvement, by the way. We're up to about
• 26:44
  Speaker 10: forty eight fifty percent daily attendance, not vacancy rates, but
• 26:49
  Speaker 10: utilization rates of people in office spaces, which is amazing
• 26:55
  Speaker 10: to even.
• 26:55
  Speaker 6: Share with you.
• 26:56
  Speaker 10: And that we're at forty eight or fifty percent up
• 26:58
  Speaker 10: from ten or twenty percent right after the pandemic. It
• 27:01
  Speaker 10: is a profound reduction of office space demand, which means
• 27:04
  Speaker 10: quality buildings can be more popular, and older properties are
• 27:10
  Speaker 10: going to see that the vacancies go up significantly.
• 27:13
  Speaker 5: And we all know how bullish Paul Sweeny is about
• 27:16
  Speaker 5: in office. When it comes to our employees here at Bloomberg,
• 27:19
  Speaker 5: what do you think is the key catalyst that could
• 27:21
  Speaker 5: fix this situation?
• 27:23
  Speaker 10: Time when people realize that working in isolation one hundred
• 27:28
  Speaker 10: percent of the time for those that have been virtual
• 27:30
  Speaker 10: one hundred percent of the time, really affects your career,
• 27:34
  Speaker 10: affects your collaboration, affects your skill sets. That takes time
• 27:37
  Speaker 10: to play out, but we're seeing more and more people
• 27:40
  Speaker 10: want to come back, just not five days a week
• 27:43
  Speaker 10: full time. So amenities, ease of getting to work, different
• 27:47
  Speaker 10: ways to attract workers to want to be back together
• 27:51
  Speaker 10: are the key strategies we're hearing from our office clients
• 27:54
  Speaker 10: all over the country, and they're actively pursuing creative ways
• 27:58
  Speaker 10: to do that.
• 27:58
  Speaker 5: What about also so much discussion obviously about a recession,
• 28:01
  Speaker 5: but whether or not at a certain point the economy
• 28:04
  Speaker 5: would slow down in the next few years when that
• 28:06
  Speaker 5: could potentially happen, we don't know. But how much is
• 28:09
  Speaker 5: that the catalyst, because then you have more power when
• 28:12
  Speaker 5: it comes to the employer. And if you are the
• 28:14
  Speaker 5: employee and you're looking for a job, does that switch
• 28:17
  Speaker 5: the dynamic.
• 28:18
  Speaker 10: Absolutely, because we've had no leverage as employers to mandate anything.
• 28:23
  Speaker 10: You have to adapt to what the workforce wants in
• 28:25
  Speaker 10: a three point seven percent on employment environment. If that shifts,
• 28:29
  Speaker 10: of course the dynamics will shift as well. But the
• 28:31
  Speaker 10: one thing I really want to highlight is that there's
• 28:34
  Speaker 10: so much coverage of this stressed office space putting more
• 28:37
  Speaker 10: stress on the banking system, and a lot of headlines
• 28:39
  Speaker 10: around that, and I wanted to really share with you
• 28:43
  Speaker 10: and your audience that twenty four percent of total bank
• 28:46
  Speaker 10: outstanding loans are in commercial real estate and fifteen percent
• 28:50
  Speaker 10: of that is in office and a very large portion
• 28:54
  Speaker 10: of that office loan portfolio is performing just fine. So
• 28:58
  Speaker 10: do we have stress in the system. Absolutely. Is it
• 29:01
  Speaker 10: going to get worse as Lisa's rollover for office, Absolutely,
• 29:06
  Speaker 10: But is it a threat to the entire banking system?
• 29:09
  Speaker 10: The answer is no.
• 29:11
  Speaker 1: How About you know, if I want to go build
• 29:13
  Speaker 1: a building somewhere in one of the growth markets, my
• 29:17
  Speaker 1: cost to capital is much higher. Can I even get
• 29:19
  Speaker 1: a loan for commercial real estate? These days. If I
• 29:21
  Speaker 1: want to go build an office building.
• 29:23
  Speaker 10: The answer is yes, but you're going to pay a
• 29:27
  Speaker 10: very high price for that debt. It's going to be
• 29:29
  Speaker 10: underwritten so carefully, and as a sponsor a developer you
• 29:32
  Speaker 10: have to have an amazing track record and an equity partner.
• 29:36
  Speaker 10: It's happening very rarely right now. Part of what happens
• 29:39
  Speaker 10: in a cycle like this is you get a big
• 29:41
  Speaker 10: pullback in new supply. And thankfully office hasn't had much
• 29:44
  Speaker 10: new supply in the last ten years. Otherwise this problem
• 29:47
  Speaker 10: would be much bigger. But the construction loans are very
• 29:50
  Speaker 10: difficult to get. Land is expensive and materials and laborer
• 29:55
  Speaker 10: is also another reason, another deterrent to new supply. The
• 29:59
  Speaker 10: other thing to is the other segments of commercial real
• 30:02
  Speaker 10: estate outside of office apartments, even shopping centers, self storage units,
• 30:07
  Speaker 10: hotels that are performing extremely well because they are aligned
• 30:11
  Speaker 10: with a strong economy. We've had great job growth, very
• 30:14
  Speaker 10: low unemployment. That is reflected in demand for all kinds
• 30:17
  Speaker 10: of commercial real estate space outside of.
• 30:20
  Speaker 5: Office And how does that compare when you're talking about
• 30:23
  Speaker 5: the portion of loan portfolios. If you are looking at say,
• 30:26
  Speaker 5: retail apartments versus office can that offset what we see
• 30:30
  Speaker 5: with the issues when it comes to the office space.
• 30:33
  Speaker 10: You know, I really believe that the heavily tilted loan
• 30:37
  Speaker 10: portfolios toward multifamily apartments. You know, they have occupancy of
• 30:42
  Speaker 10: around ninety five percent, and even though rent growth has
• 30:44
  Speaker 10: really slowed after three years of very robust above average
• 30:48
  Speaker 10: rent growth, apartments are doing great and those loans are
• 30:51
  Speaker 10: performing just fine. We have a disconnect on the valuation
• 30:54
  Speaker 10: of apartments. Therefore, sales activity, trading activities way down because
• 30:59
  Speaker 10: interest rates shot up and the lowest cap rate, lowest
• 31:02
  Speaker 10: yield product type in the industry, so there's a big
• 31:05
  Speaker 10: disconnect between buyers and sellers. The trading is way down,
• 31:08
  Speaker 10: but the loan performance is just fine because the occupancies
• 31:11
  Speaker 10: are high and apartments make up the bulk of outstanding loans.
• 31:14
  Speaker 1: So if I'm a building owner and I got to
• 31:18
  Speaker 1: refinance my debt, wow, that's a tough nut. I mean,
• 31:22
  Speaker 1: what's happening in that market.
• 31:24
  Speaker 10: If your property is in distress, chances are the lender
• 31:27
  Speaker 10: will work with you, because the FAD and the Treasury
• 31:31
  Speaker 10: have gone to the banks, have said work with your
• 31:33
  Speaker 10: distressed borrowers. That's been the message to avoid a fire sale. Nonetheless,
• 31:39
  Speaker 10: you're seeing some distress sales come out of loan portfolios.
• 31:41
  Speaker 10: There's no question about it. If you're performing well, if
• 31:45
  Speaker 10: your asset is performing well and occupancies are good, rent
• 31:47
  Speaker 10: collections are good, there is financing available. But it means
• 31:50
  Speaker 10: you have to come up with more equity if you're
• 31:53
  Speaker 10: upside down in the valuation and the loan to value
• 31:56
  Speaker 10: ratios depending on when you finance the deal. I remember
• 31:59
  Speaker 10: most commercial real estate loans are five to seven years
• 32:02
  Speaker 10: in term, so five to seven years ago prices were
• 32:05
  Speaker 10: a lot lower and occupantcies and rents were a lot lower.
• 32:09
  Speaker 10: So there is should be plenty of margin even with
• 32:11
  Speaker 10: the who.
• 32:12
  Speaker 1: Provides the equity? Who would I go to for equity?
• 32:14
  Speaker 1: Is there is there private equity out there for just
• 32:16
  Speaker 1: real estate? And I guess the question is are they willing?
• 32:19
  Speaker 1: I know some of these people now now that I
• 32:20
  Speaker 1: think about it, and they do quite well, will they
• 32:24
  Speaker 1: make that equity investment today?
• 32:26
  Speaker 10: Absolutely, there's plenty of capital, and one thing we're not
• 32:29
  Speaker 10: seeing a shortage of is capital ready to pounce. And
• 32:32
  Speaker 10: when we see prices that have adjusted from the peak
• 32:35
  Speaker 10: to the tune of ten to twenty five percent. There's
• 32:38
  Speaker 10: multiple offers on properties even with the credit crunch.
• 32:41
  Speaker 1: Network questions like I'd want to see it like in
• 32:43
  Speaker 1: New York and in San Francisco's I haven't seen anything trade.
• 32:47
  Speaker 1: I think if you see a marqueability to rade in Manhattan,
• 32:49
  Speaker 1: is it going to be down ten percent, thirty percent,
• 32:52
  Speaker 1: fifty percent? I think those are the numbers we're going
• 32:54
  Speaker 1: to be seeing and we haven't seen that. That's going
• 32:56
  Speaker 1: to shock the market, won't it.
• 32:57
  Speaker 10: If it's an older office building, it's colosial of the
• 33:00
  Speaker 10: fifty percent you're talking about. If it's a newer asset
• 33:02
  Speaker 10: with good amenities and great occupancies, it's going to be
• 33:05
  Speaker 10: closer to the ten percent you're talking about.
• 33:07
  Speaker 5: What's the top question you hear from your shareholders?
• 33:10
  Speaker 10: How long will it take for this market correction to reverse?
• 33:14
  Speaker 10: And what's the outlook for trading activity? Because our business
• 33:17
  Speaker 10: as a leading broker of investment properties and financing of
• 33:21
  Speaker 10: commercial real estate in the country North America, I should say,
• 33:24
  Speaker 10: including Canada, is all dependent on trading activity, and trading
• 33:30
  Speaker 10: activities down somewhere between fifty to sixty percent market wide
• 33:34
  Speaker 10: because of the buyers seller price disconnect and very tough
• 33:39
  Speaker 10: financing environment, and we think that once the FED is done,
• 33:43
  Speaker 10: which may be a little bit down the road, we
• 33:45
  Speaker 10: were hoping that by now the FED would really declare
• 33:49
  Speaker 10: mission accomplished. On inflation, I think we still have a
• 33:51
  Speaker 10: little ways to go, but not far because inflation numbers
• 33:55
  Speaker 10: still don't reflect the drop in housing the covalent of
• 33:58
  Speaker 10: housing costs because they lag by about a year. So
• 34:01
  Speaker 10: when the current leases roll over and the index for
• 34:04
  Speaker 10: inflation shows the drop in housing costs, I think inflation
• 34:08
  Speaker 10: is going to go down quicker. So I think we're
• 34:10
  Speaker 10: very close to that end. And the ending of the
• 34:14
  Speaker 10: tightening cycle itself will bring a lot of stability for
• 34:17
  Speaker 10: both lenders on setting price and buyers which are going
• 34:21
  Speaker 10: to be borrowers essentially. And then put a little time
• 34:25
  Speaker 10: on top of that with prices adjusting, sellers are usually
• 34:28
  Speaker 10: behind the market by a year and being realistic about
• 34:31
  Speaker 10: what price and asset will trade at because they're hoping
• 34:34
  Speaker 10: for last year's pricing. When the market is corrected, both
• 34:37
  Speaker 10: of those are starting to come together, but we're not
• 34:40
  Speaker 10: quite there yet.
• 34:40
  Speaker 1: All right, Naji, thanks so much for joining us. Really
• 34:43
  Speaker 1: appreciate it. Hasam Naji, he is the president and CEO
• 34:46
  Speaker 1: of Marcus and Millichap New York Stock Exchange traded COMPANYMI
• 34:51
  Speaker 1: is the ticker at one point three billion of market
• 34:53
  Speaker 1: cap out there. So looking at the national brokerage commercial
• 34:57
  Speaker 1: real estate, interesting time for that market in some of
• 35:00
  Speaker 1: the larger markets. Again, I want to see some marquee
• 35:02
  Speaker 1: properties trade in New York and see where that goes. Guys,
• 35:04
  Speaker 1: just saw Billy Rudon on the Death Start earlier this
• 35:07
  Speaker 1: morning talking about the will State market. That family is
• 35:11
  Speaker 1: long NYCE real estate, so see how some of that
• 35:14
  Speaker 1: plays out.
• 35:14
  Speaker 6: You're listening to the tape.
• 35:16
  Speaker 7: Cat's are live program Bloomberg Markets weekdays at ten am
• 35:19
  Speaker 7: Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and.
• 35:23
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• 35:25
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• 35:27
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• 35:33
  Speaker 1: Right now, we're talking about Walmart, and that is also
• 35:36
  Speaker 1: another great read on the consumer. Their numbers I thought
• 35:39
  Speaker 1: came in pretty well. Stock's kind of trading sideways.
• 35:42
  Speaker 5: He's its annual profit forecast.
• 35:43
  Speaker 1: I mean, I mean people are shopping at Walmart and
• 35:45
  Speaker 1: you can't I mean talk about a staple. I mean,
• 35:47
  Speaker 1: they're just you can't avoid Walmart at all. Jen Bartash
• 35:50
  Speaker 1: is she covers Walmart. She's a senior industry an also
• 35:54
  Speaker 1: Bloomberg Intelligence. Jen, what was a key takeaway from the
• 35:58
  Speaker 1: results from our good friends from Bettonville.
• 36:01
  Speaker 11: Well, it really when we look at Walmart, obviously they're
• 36:05
  Speaker 11: on a roll and they're continuing to draw consumers in.
• 36:09
  Speaker 11: The messaging that we heard is that consumers continue to
• 36:11
  Speaker 11: be a little bit conservative, but they're being selective about
• 36:14
  Speaker 11: where they're shopping, and so they're saving on essentials, they're
• 36:17
  Speaker 11: splurging a little bit in other areas. But Walmart has
• 36:20
  Speaker 11: really positioned itself well to serve any any customer that's
• 36:24
  Speaker 11: coming through its stores with how they're offering value to
• 36:26
  Speaker 11: those people.
• 36:27
  Speaker 1: All Right, Jen, you taught me or you let me
• 36:29
  Speaker 1: know a couple of years ago that the number one
• 36:31
  Speaker 1: grocery chain in the US is Walmart. I was shocked
• 36:35
  Speaker 1: to learn that. Didn't even think about it. So if
• 36:37
  Speaker 1: I go in to do my weekly shopping, do I
• 36:40
  Speaker 1: then move over to the aisle and go buy some
• 36:42
  Speaker 1: clothes and stuff like that? Does that really happen?
• 36:45
  Speaker 11: It actually really does, because part of what they're doing
• 36:48
  Speaker 11: is they bring you into the store with compelling prices.
• 36:51
  Speaker 11: People are going into shop for groceries and then on
• 36:53
  Speaker 11: their way to the checkout, they see a T shirt
• 36:55
  Speaker 11: that's maybe five dollars and they think, oh, well, there's
• 36:59
  Speaker 11: some value, and that it gets added into their cart,
• 37:02
  Speaker 11: Or as they're looking to prepare meals, they're adding small
• 37:04
  Speaker 11: kitchen appliances to help with the preparation of those meals,
• 37:07
  Speaker 11: and so that cross shopping into general merchandise is happening.
• 37:11
  Speaker 11: And one of the things that Walmart called out is
• 37:13
  Speaker 11: that even though general merchandise sales are still lower than
• 37:16
  Speaker 11: last year, they're sequentially improved meaningfully from first quarter, and
• 37:20
  Speaker 11: so that increase in momentum is actually really important as
• 37:24
  Speaker 11: we get into back to school when people will be
• 37:26
  Speaker 11: looking for clothing and backpacks and shoes and things for
• 37:29
  Speaker 11: like that for their kids. So all signs point to
• 37:32
  Speaker 11: a pretty good back to school season for Walmart.
• 37:34
  Speaker 5: Walmart is in the staples sector in the S and
• 37:36
  Speaker 5: P five hundred because that huge percentage of grocery sales,
• 37:40
  Speaker 5: but so is Target. Target had been in a discretionary
• 37:43
  Speaker 5: sector earlier in the spring, it did get moved into
• 37:46
  Speaker 5: Staples because of its percentage with groceries. But Target has
• 37:49
  Speaker 5: a bit of a different story. It's still cut its forecast,
• 37:52
  Speaker 5: even though we saw improvements when it came to the inventories.
• 37:55
  Speaker 5: What is it about Walmart? What is it doing differently
• 37:58
  Speaker 5: that some of its counterparts aren't doing well?
• 38:01
  Speaker 11: I think the first thing is to just acknowledge the
• 38:03
  Speaker 11: fact that Walmart's grocery offering is comprehensive. You can buy
• 38:07
  Speaker 11: everything you need for a grocery shop at Walmart. That's
• 38:10
  Speaker 11: a little bit different than at Target. Target's food strategy
• 38:13
  Speaker 11: has been a little bit more targeted and that they
• 38:16
  Speaker 11: were looking specifically for products that may have some sort
• 38:19
  Speaker 11: of unique appeal or attribute. So Target never wanted to
• 38:24
  Speaker 11: positions itself as a place where you would go and
• 38:26
  Speaker 11: do all of your grocery shopping. It was more of
• 38:27
  Speaker 11: a place of look at these interesting things for discovery
• 38:30
  Speaker 11: that are in the food area, some essentials that you need.
• 38:35
  Speaker 11: But that difference in strategy is really showing now with
• 38:39
  Speaker 11: the current economic backdrop and the way Walmart is acquiring
• 38:42
  Speaker 11: more and more of the food shopping that's out there.
• 38:45
  Speaker 1: Hey, Jen, what is Walmart Plus and how do Walmart
• 38:49
  Speaker 1: Plus members how do they shop?
• 38:52
  Speaker 11: So Walmart Plus is Walmart's subscription service and it's similar
• 38:56
  Speaker 11: to Amazon Prime for people who know that, and Walmart
• 38:59
  Speaker 11: pruss Is Plus is ninety eight dollars a year. It
• 39:02
  Speaker 11: offers you free shipping without any order minimum for things
• 39:05
  Speaker 11: shipped to your house. But it also gives you free
• 39:07
  Speaker 11: same day delivery to your home from Walmart stores. And
• 39:11
  Speaker 11: because Walmart is so big in the grocery business, membership
• 39:15
  Speaker 11: has really been growing. It's been increasing, and in fact,
• 39:18
  Speaker 11: we actually think that is a much underappreciated aspect of
• 39:21
  Speaker 11: Walmart's business that's going to really drive sales and profit
• 39:24
  Speaker 11: growth over the next five years.
• 39:26
  Speaker 5: We still have a lot of economists that are warning
• 39:28
  Speaker 5: about the trajectory of the economy. When you look at
• 39:31
  Speaker 5: Walmart's results, though it's saying very much of a different story.
• 39:35
  Speaker 5: What's your view of where the economy is headed When
• 39:38
  Speaker 5: you have the world's biggest retailers signaling still some strength there.
• 39:43
  Speaker 11: Well, you know, when we're looking at the economy in general,
• 39:47
  Speaker 11: consumers are still under pressure. I think the advantage that
• 39:50
  Speaker 11: Walmart has is that we are in a spot where
• 39:53
  Speaker 11: we're seeing, for example, inflation on food come down it's
• 39:57
  Speaker 11: still high compared to two years ago, but it is
• 40:00
  Speaker 11: starting to come down, and as inflation comes down, Walmart
• 40:03
  Speaker 11: is able to very quickly work with their suppliers lower
• 40:07
  Speaker 11: their prices and pass it on to customers. And so
• 40:11
  Speaker 11: that is the backdrop is still quite conservative, and there
• 40:15
  Speaker 11: are still a lot of consumers out there who have
• 40:17
  Speaker 11: a lot of have to be careful with their budgets
• 40:19
  Speaker 11: or being very selective on where they're spending. But Walmart's
• 40:23
  Speaker 11: size and scale does position it well to take advantage
• 40:26
  Speaker 11: of tempting them with even better deals as inflation starts
• 40:30
  Speaker 11: to come down and people feel like they can spend
• 40:32
  Speaker 11: a little bit more.
• 40:33
  Speaker 1: Jen does Walmart open new superstores in America anymore? Are
• 40:37
  Speaker 1: they pretty much everywhere where they want to be.
• 40:40
  Speaker 11: It's pretty rare. They have slowed their new store growth
• 40:44
  Speaker 11: where it's they're only a handful of year. A handful
• 40:47
  Speaker 11: of year. Sometimes they're replacing old stores or relocating them,
• 40:51
  Speaker 11: and then they are very targeted new openings that are happening.
• 40:55
  Speaker 11: But the majority of their new store growth is happening
• 40:57
  Speaker 11: in the international markets. For example, in Mexico, they're adding
• 41:01
  Speaker 11: many new stores every year because they're still in a
• 41:03
  Speaker 11: growth phase. They're adding new stores in China and in
• 41:06
  Speaker 11: other international markets, and so there is still kepex for
• 41:10
  Speaker 11: new store development, but it tends to be outside the
• 41:12
  Speaker 11: United States.
• 41:13
  Speaker 5: When it comes to back to school shopping, which is
• 41:16
  Speaker 5: the key driver in the current quarter, How do you
• 41:18
  Speaker 5: view that as far as what that could mean for
• 41:20
  Speaker 5: Walmart and other retailers.
• 41:23
  Speaker 11: Well, in terms of back to school, Walmart actually said
• 41:25
  Speaker 11: that so far they're off to a good start, which
• 41:28
  Speaker 11: is a little bit different than the sound we heard
• 41:30
  Speaker 11: from Target, which was much more cautious, saying there were
• 41:33
  Speaker 11: only a couple of days into the season and that
• 41:36
  Speaker 11: they didn't have a good read on it yet. For Walmart,
• 41:39
  Speaker 11: one of their strategies they've done in the past year,
• 41:42
  Speaker 11: as inflation has been really high, is they've targeted bundles
• 41:46
  Speaker 11: of things and kept them at prices that were the
• 41:49
  Speaker 11: same as last year. They did that at Thanksgiving for
• 41:52
  Speaker 11: Thanksgiving dinner. They're doing that for back to school. So
• 41:54
  Speaker 11: they have a basket of thirteen or fourteen most common
• 41:57
  Speaker 11: school items, whether it's crayons or colored pencils, and offering
• 42:00
  Speaker 11: them at the same price as last year as a bundle.
• 42:04
  Speaker 11: And that can be very appealing to consumers. So they've
• 42:07
  Speaker 11: very clearly been thoughtful in their approach on how they're
• 42:12
  Speaker 11: going to handle back to school and make sure that
• 42:14
  Speaker 11: they are attracting customers to what they have to offer.
• 42:17
  Speaker 5: I know we might be a little bit ahead of this,
• 42:18
  Speaker 5: but any sort of early indications about the holidays.
• 42:24
  Speaker 11: Well, you know, historically the rule of thumb in retail
• 42:27
  Speaker 11: is that if back to school is strong, holiday tends
• 42:30
  Speaker 11: to be strong as well. You know, back to school
• 42:32
  Speaker 11: is a very reliable precursor to how the holiday season
• 42:36
  Speaker 11: is going. So by the time we get through this
• 42:39
  Speaker 11: current quarter and we have an idea of the third
• 42:41
  Speaker 11: quarter results, we will have a very good read into
• 42:44
  Speaker 11: how we think the holiday season will play out.
• 42:46
  Speaker 1: Walmart stock at a all time high here today, and
• 42:52
  Speaker 1: they went public back in nineteen seventy, stock at an
• 42:55
  Speaker 1: all time high. Stevens and Company took them public and
• 42:58
  Speaker 1: Steven's in company good, little invest some bank and little
• 43:00
  Speaker 1: Rock really good. Uh, they're still in business, Jen, is
• 43:03
  Speaker 1: there any what's the what's the risk to Walmart? What's
• 43:06
  Speaker 1: the risk of owning Walmart? Worst case it's a GDP
• 43:09
  Speaker 1: road story.
• 43:11
  Speaker 11: Well, I mean I think the risk is, you know, potentially.
• 43:16
  Speaker 11: You know, the the current management team has done a
• 43:19
  Speaker 11: great job in shifting the entire culture of the company,
• 43:22
  Speaker 11: but there are you know, we've we saw earlier this
• 43:24
  Speaker 11: week some some announcements of some management changes, especially at
• 43:28
  Speaker 11: the heads of the different businesses. You know, Doug McMillan
• 43:31
  Speaker 11: appears to be ready to stay for a couple more years,
• 43:34
  Speaker 11: but you know, when that changes, there's always the risk
• 43:37
  Speaker 11: that the company culture that he's worked so hard to
• 43:39
  Speaker 11: instill will change, So that you know that that there
• 43:43
  Speaker 11: is a risk. And then just because you're the biggest
• 43:45
  Speaker 11: person in the room, there are always people coming, you know,
• 43:48
  Speaker 11: who have you in their sights, and so complacency, you know,
• 43:52
  Speaker 11: is the is the other real risk for Walmart and
• 43:54
  Speaker 11: reality to make sure that they're continuing to execute on
• 43:57
  Speaker 11: all these different yea, not buying.
• 43:59
  Speaker 1: I mean Amazon came in. Amazon came in, and here's
• 44:04
  Speaker 1: Walmart still hitting all time highs. I mean, if they've
• 44:06
  Speaker 1: shown they can compete against Amazon and that amazing business.
• 44:10
  Speaker 5: Model so true.
• 44:11
  Speaker 1: I mean you got to take your hat off. And
• 44:13
  Speaker 1: that's why if you look at rich Go, there are
• 44:15
  Speaker 1: Walton's all over the rich Go, which is the world's
• 44:18
  Speaker 1: richest people, so they're doing something right, as is Jen Bartash's.
• 44:22
  Speaker 1: Jen Bartasha's senior industry analyst Bloomberg Intelligence, one of our
• 44:26
  Speaker 1: absolute best analysts. We appreciate getting a few minutes of
• 44:29
  Speaker 1: her time.
• 44:30
  Speaker 7: You're listening to the tape Cat's are live program Bloomberg
• 44:33
  Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 44:37
  Speaker 7: tune in app, Bloomberg dot Com.
• 44:38
  Speaker 6: And the Bloomberg Business App.
• 44:40
  Speaker 7: You can also listen live on Amazon Alexa from our
• 44:43
  Speaker 7: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
• 44:49
  Speaker 1: Again probably one of the bigger news coming out over
• 44:52
  Speaker 1: the last several weeks. It's just been this seemingly kind
• 44:55
  Speaker 1: of never ending or continuous flow of negative economic data
• 44:59
  Speaker 1: coming out of China. Obviously not good for them, because
• 45:02
  Speaker 1: remember we started the year and this was going to
• 45:04
  Speaker 1: be a good year for China. Reopening was kind of
• 45:07
  Speaker 1: the theme, and how how do you play that and
• 45:09
  Speaker 1: what would it and we're just not seeing.
• 45:11
  Speaker 12: Anyth Yeah, and then there was the downgrade in terms
• 45:13
  Speaker 12: of the expectations for GDP growth and then you know,
• 45:16
  Speaker 12: oh wait, the property crisis is still escalating or it's
• 45:20
  Speaker 12: still very much alive and then you know all this tension,
• 45:23
  Speaker 12: geopolitical tensions.
• 45:24
  Speaker 6: Yep.
• 45:25
  Speaker 12: But we're going to sort this out right.
• 45:26
  Speaker 1: We're going to work this out right now with Jennifer Welt.
• 45:29
  Speaker 1: She's a chief geoeconomist for Bloomberg Economics. She joined us
• 45:33
  Speaker 1: from Washington, d C. First, Jennifer, thanks for joining us.
• 45:36
  Speaker 1: Please tell me what a geo economist is. That's a
• 45:38
  Speaker 1: new term for me.
• 45:40
  Speaker 13: Thanks so much for having me. Yeah, it's a term
• 45:43
  Speaker 13: we're still defining. But essentially, we look at the intersection
• 45:46
  Speaker 13: of geopolitics and economics, so, for example, geopolitical developments of
• 45:50
  Speaker 13: economic impacts, and the use of economic tools to achieve
• 45:54
  Speaker 13: geopolitical ends.
• 45:56
  Speaker 1: Dave de Wire thought of that. It seems a little
• 45:58
  Speaker 1: above his pay grade, all right, Jennifers, So what do
• 46:01
  Speaker 1: we think about China here the economic data, I don't know.
• 46:05
  Speaker 1: It just doesn't seem very good, and I guess it
• 46:07
  Speaker 1: seems disappointing, realtive to maybe expectations.
• 46:10
  Speaker 13: Yeah, no, I think that's a really great point, I
• 46:12
  Speaker 13: would say from a geopolitical perspective, and this is a
• 46:15
  Speaker 13: piece we put out recently. I think we shouldn't over
• 46:18
  Speaker 13: exaggerate the impact that this will have on China's geopolitical importance,
• 46:22
  Speaker 13: or exaggerate the effect that this will have on their
• 46:25
  Speaker 13: foreign policy. There's a history here of rising powers lashing
• 46:30
  Speaker 13: out when they feel they've hit their economic peak or
• 46:33
  Speaker 13: when they're feeling sensitive about economic challenges, and we don't
• 46:35
  Speaker 13: necessarily see that happening with Beijing. I think at the
• 46:39
  Speaker 13: same time, we should expect that they'll be more defensive
• 46:42
  Speaker 13: when they do feel challenge. But again, we're not looking
• 46:45
  Speaker 13: at a major foreign policy crisis on the horizon as
• 46:48
  Speaker 13: the result of the latest economic data.
• 46:51
  Speaker 12: You know, we had an interview with the front runner
• 46:54
  Speaker 12: in the presidential race in Taiwan, who is I guess
• 46:58
  Speaker 12: seen as a little bit less favorable of a candidate
• 47:01
  Speaker 12: with respect to China. I mean, can you weigh in
• 47:04
  Speaker 12: on how China's economic woes are influencing that situation, particularly
• 47:12
  Speaker 12: especially because it's so close, because the tensions with Taiwan,
• 47:16
  Speaker 12: Taiwan just being so physically close to China.
• 47:21
  Speaker 13: Yeah, sure, things so, I think you're referencing the recent
• 47:24
  Speaker 13: interview with Taiwan's vice president and leading presidential candidate, Lai Chinda,
• 47:28
  Speaker 13: who is actually just wrapping up a transit back through
• 47:31
  Speaker 13: the United States on his way back to Taiwan. Lii
• 47:34
  Speaker 13: is definitely not Beijing's preferred candidate. They've made that quite clear,
• 47:38
  Speaker 13: including in their pretty strongly worded responses to his recent transit.
• 47:43
  Speaker 13: This is despite the fact that it's pretty common for
• 47:46
  Speaker 13: Taiwanese vice presidents and presidential candidates to come through the
• 47:49
  Speaker 13: United States, and this case, lie was on his way
• 47:52
  Speaker 13: to Paraguay for the presidential inauguration there. Lai is ahead
• 47:56
  Speaker 13: in the polls. It's early days still, but he does
• 47:59
  Speaker 13: look to have a pretty strong lead for the elections
• 48:02
  Speaker 13: in January, and I think there's a real question of
• 48:04
  Speaker 13: how China would react to a live victory should he
• 48:08
  Speaker 13: emerge at the top when when the election is held
• 48:11
  Speaker 13: in January.
• 48:13
  Speaker 1: Jennifer, can you give us a sense of how this
• 48:16
  Speaker 1: administration kind of views or would like to see the
• 48:20
  Speaker 1: relationship with China go over the next several years. Is
• 48:23
  Speaker 1: it one of engagement, is it one of limited engagement?
• 48:27
  Speaker 1: Is it one of just shutting China and letting them
• 48:29
  Speaker 1: kind of, you know, kind of deal with themselves. What's
• 48:32
  Speaker 1: the approach?
• 48:34
  Speaker 13: Sure? So, I think that the term is strategic rivalry,
• 48:38
  Speaker 13: and the common catchphrase is you know, intense competition requires
• 48:42
  Speaker 13: intense engagement, so we're likely to see both of these things.
• 48:46
  Speaker 13: And frankly, I think the paradigms of the past of
• 48:48
  Speaker 13: it's either engagement or its hawkishness don't really apply anymore.
• 48:52
  Speaker 13: I think the administration is trying to balance both of
• 48:54
  Speaker 13: these features with trying to engage Beijing, as we saw
• 48:58
  Speaker 13: from Secretary Blincoln's visit, Secretary Yellen's visit, discussion of Secretary
• 49:02
  Speaker 13: Armando heading out this month, with continuing to take actions
• 49:06
  Speaker 13: from the administration's perspective that are aimed at, you know,
• 49:09
  Speaker 13: defending US interests, as for example, rolling out the most
• 49:12
  Speaker 13: recent outbound investment screening regime.
• 49:15
  Speaker 12: I mean, when you think of the struggles that China's
• 49:21
  Speaker 12: economy is having right now, how does that change the
• 49:24
  Speaker 12: dialogue in the Biden administration in the White House about
• 49:29
  Speaker 12: how tough to be with respect to some of their
• 49:32
  Speaker 12: geopolitical issues.
• 49:35
  Speaker 13: I think from a political perspective, this is a pretty
• 49:37
  Speaker 13: good look for the administration. You know, for the first
• 49:40
  Speaker 13: time in many, many years, the US GDP growth seems
• 49:43
  Speaker 13: to be outpacing China's and that's a pretty exciting story,
• 49:46
  Speaker 13: I think from a foreign policy perspective. I don't see
• 49:50
  Speaker 13: this changing in a major way. The administration's approach. Again,
• 49:53
  Speaker 13: I think that's based on fundamentals that are unchanged here.
• 49:56
  Speaker 13: China is going to continue to be a major power
• 49:58
  Speaker 13: to be reckoned with. You know, for example, they still
• 50:01
  Speaker 13: have plenty of resources to put towards their military modernization,
• 50:05
  Speaker 13: their technological advancement, etc. So I think the broad arc
• 50:10
  Speaker 13: of the strategy is going to say the same. But
• 50:12
  Speaker 13: I would imagine there'll probably be some celebration about the
• 50:16
  Speaker 13: recent economic data and how that shows how the administration
• 50:19
  Speaker 13: is handling the US economy.
• 50:21
  Speaker 1: You know, it's interesting, Jennifer, I kind of feel a
• 50:23
  Speaker 1: little bit of a dichotomy here. Trying to take a
• 50:25
  Speaker 1: tough government stance against China. There are some executive order
• 50:31
  Speaker 1: last week to that end on the technology side, Yet
• 50:34
  Speaker 1: it just seems like a parade of US CEOs making
• 50:37
  Speaker 1: the way over to Beijing, whether it's Elon Musk or
• 50:39
  Speaker 1: Tim Welch or Jamie Diamond. I guess it's a kind
• 50:43
  Speaker 1: of a fine line everybody's trying to walk here. We
• 50:44
  Speaker 1: want to be tough against China, but we got to
• 50:47
  Speaker 1: do business with these folks.
• 50:49
  Speaker 13: I think that's absolutely right, and I think that's contributing
• 50:52
  Speaker 13: to a slightly more sophisticated discourse on what the future
• 50:56
  Speaker 13: of the US China economic relationship looks like. You know,
• 50:59
  Speaker 13: the conversation around decoupling is largely seen as a pretty
• 51:02
  Speaker 13: infeasible task, and now there is increased conversation about how
• 51:06
  Speaker 13: do you quote unquote de risk how do you kind
• 51:08
  Speaker 13: of carve out the areas that you're most concerned about.
• 51:12
  Speaker 13: And by the way, this applies on the China side
• 51:14
  Speaker 13: as well. They've certainly been concerned about overreliance on US
• 51:17
  Speaker 13: technology for some time now, even before the latest US
• 51:21
  Speaker 13: moves to restrict their access to it. So I think
• 51:24
  Speaker 13: that's going to be part of the conversation going forward,
• 51:27
  Speaker 13: is how do we maintain an economic relationship that benefits
• 51:30
  Speaker 13: both sides while still preserving each side's perceptions of their
• 51:35
  Speaker 13: national interests.
• 51:37
  Speaker 12: How do you view some of the I guess it's
• 51:41
  Speaker 12: maybe unfair to call it unrest or anything like that,
• 51:44
  Speaker 12: but the dissatisfaction among the population with well, boy, we
• 51:50
  Speaker 12: put our money into these these apartments, or we're not
• 51:54
  Speaker 12: getting we're not seeing the return, we're not seeing payments
• 51:57
  Speaker 12: on our investments. I think you know, there's some degree,
• 52:00
  Speaker 12: at least a certain segment of the population feels a
• 52:04
  Speaker 12: little perhaps betrayed by what's happened in the with with
• 52:10
  Speaker 12: respect to some of the economic situation that's been going on.
• 52:15
  Speaker 12: How do you view the population and their reaction.
• 52:19
  Speaker 13: I think that's a really important question. I think it's
• 52:21
  Speaker 13: especially important for youth, right, many of whom are emerging
• 52:24
  Speaker 13: from college and looking to land their first job, looking
• 52:28
  Speaker 13: to find their first home to live in, start to
• 52:31
  Speaker 13: kind of acquire assets. That's a really important part of
• 52:35
  Speaker 13: you know, sort of the cycle of life there having
• 52:37
  Speaker 13: property in your name as you start to build out
• 52:40
  Speaker 13: your own life for yourself. And I think people are
• 52:44
  Speaker 13: starting to feel sort of a major difference between the
• 52:47
  Speaker 13: situation of growing up in the nineties and the early
• 52:49
  Speaker 13: twentys and twenty tens, as China was on the ascent
• 52:54
  Speaker 13: and livelihoods were significantly improved from prior generations into perhaps
• 52:59
  Speaker 13: what is going to be a new mode of as
• 53:03
  Speaker 13: Beijing would put it, high quality growth, rather than necessarily
• 53:07
  Speaker 13: focusing on the top up GDP numbers.
• 53:11
  Speaker 1: You know, it's for a while there. Again, as you mentioned,
• 53:13
  Speaker 1: back in those those time periods, it seemed like China
• 53:15
  Speaker 1: was opening up and that was a good thing for
• 53:17
  Speaker 1: the world. Is it now simply the fact that g
• 53:21
  Speaker 1: IS continues to be even more firmly enhanced, that doesn't
• 53:25
  Speaker 1: necessarily need to do that anymore, and he can kind
• 53:27
  Speaker 1: of go back to maybe what his natural inclination was,
• 53:29
  Speaker 1: which would be a little bit more closed.
• 53:32
  Speaker 13: I think she is Dual circulation policy is a really
• 53:35
  Speaker 13: interesting example of kind of the twin paradigms that they're
• 53:38
  Speaker 13: trying to hit here, of one not necessarily being overly
• 53:42
  Speaker 13: reliant on foreign technology for fear that access to that
• 53:45
  Speaker 13: could be cut off, as they see recent US moves
• 53:48
  Speaker 13: as kind of indicative of that perception being valid, while
• 53:51
  Speaker 13: at the same time recognizing that in order to continue growing,
• 53:55
  Speaker 13: in order to kind of beat the middle income trap,
• 53:57
  Speaker 13: China needs to continue advancing technologically, and right now a
• 54:01
  Speaker 13: lot of that sort of superior IP and technology exist
• 54:07
  Speaker 13: in other economies that they need to learn from. So
• 54:10
  Speaker 13: I think that's the thrust of his approach, is trying
• 54:12
  Speaker 13: to balance and make that bridge without becoming overly reliant
• 54:17
  Speaker 13: on what he sees as being a risky sort of proposition.
• 54:21
  Speaker 1: All right, Jennifer, thanks so much for joining US geoeconomists.
• 54:25
  Speaker 1: I like the term, and I like Jennifer Welch. You're
• 54:28
  Speaker 1: gonna be coming back here. You get new friends with
• 54:30
  Speaker 1: Bloomberg Radio. Jennifer Walsch, chief economists for Bloomberg Economics down
• 54:34
  Speaker 1: in Washington, d C. Trying to kind of get a
• 54:38
  Speaker 1: sense of what you know, geopolitics, economics. They certainly have,
• 54:44
  Speaker 1: They certainly influence one another, and that's kind of what
• 54:46
  Speaker 1: I think, Jennifer watching Bloomer.
• 54:47
  Speaker 12: So many interesting data points and headlines, recently the latest
• 54:51
  Speaker 12: one China. Please visit Shadow Bank Investors at home to
• 54:54
  Speaker 12: quash on the rest.
• 54:55
  Speaker 1: There you go. We're gonna have more coming up. This
• 54:58
  Speaker 1: is Bloomberg.
• 54:59
  Speaker 7: You're listening to the Cats Are Live program Bloomberg Markets
• 55:02
  Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune
• 55:06
  Speaker 7: in app, Bloomberg dot Com, and.
• 55:07
  Speaker 6: The Bloomberg Business App.
• 55:09
  Speaker 7: You can also listen live on Amazon Alexa from our
• 55:12
  Speaker 7: flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
• 55:18
  Speaker 1: A lot of kinds are still talking about the recession.
• 55:20
  Speaker 1: I am not buying it. I took it off the
• 55:22
  Speaker 1: table a month and a half ago. I'm just not
• 55:24
  Speaker 1: buying it. But I like to talk to people who
• 55:26
  Speaker 1: actually out there in the marketplace, talk at the companies
• 55:29
  Speaker 1: large and small, give them a sense of kind of
• 55:31
  Speaker 1: what they're seeing out there. And we've got a great opportunity.
• 55:32
  Speaker 7: Now.
• 55:33
  Speaker 1: Don McCree joins, as he said, of commercial banking and
• 55:35
  Speaker 1: vice chairman at Citizens Financial, publicly traded bank. CFG is
• 55:40
  Speaker 1: the ticker about thirteen point three billion dollars in market cap.
• 55:44
  Speaker 1: Looks like it's been caught up in some of that
• 55:45
  Speaker 1: regional bank's downdraft there off twenty eight percent year to
• 55:48
  Speaker 1: data on this stock. Don, thanks, thanks so much for
• 55:51
  Speaker 1: joining us here. What are you seeing out there? I mean,
• 55:54
  Speaker 1: I think we had Citizens. You guys talked at pretty
• 55:56
  Speaker 1: much everybody, small business, it's midsize, larger companies, you compete
• 55:59
  Speaker 1: against the big banks. What are you seeing out there
• 56:02
  Speaker 1: from your clients?
• 56:02
  Speaker 14: You know, it feels pretty good. We're not seeing a
• 56:05
  Speaker 14: lot of distress in the portfolio. I think companies are
• 56:08
  Speaker 14: generally performing pretty well. I've said before that, you know,
• 56:12
  Speaker 14: because of COVID a couple of years ago.
• 56:14
  Speaker 4: Companies really tightened their belts.
• 56:16
  Speaker 14: They got their their cost bases down, they built their liquidity,
• 56:19
  Speaker 14: they refinance their debt, and so they're operating with strong
• 56:22
  Speaker 14: balance sheets.
• 56:22
  Speaker 4: They've had some of.
• 56:24
  Speaker 14: The things that had been plaguing them, like supply chain
• 56:27
  Speaker 14: issues and things like that, seem to be behind and
• 56:29
  Speaker 14: a lot of the input costs that grew from inflation
• 56:32
  Speaker 14: and the rapid changes of inflation have kind of subsided
• 56:36
  Speaker 14: a little bit. So I think we're hearing pretty good things.
• 56:38
  Speaker 14: There's there's absolutely a cautionary toll tone being flag being
• 56:46
  Speaker 14: flown by a lot of the customers, just because there's
• 56:48
  Speaker 14: still a lot of uncertainty out in the marketplace right.
• 56:50
  Speaker 12: And you wonder if companies have been preparing for recession
• 56:54
  Speaker 12: so long, if we don't see quite the depth of
• 56:57
  Speaker 12: the reception recession that we could have seen, maybe they
• 57:00
  Speaker 12: are just better able to prepare for it. I wonder, though,
• 57:02
  Speaker 12: you know, credit is tighter, do you see companies delaying
• 57:06
  Speaker 12: transactions deals.
• 57:09
  Speaker 14: It's been The demand for loans is definitely tepid, and
• 57:14
  Speaker 14: I think a little bit of that, particularly new money transactions.
• 57:17
  Speaker 14: I think there's a little bit of a hesitancy to
• 57:20
  Speaker 14: invest right now. There's a little bit of a there's
• 57:22
  Speaker 14: definitely a little bit of a weakness and the leverage
• 57:27
  Speaker 14: buyout markets, and some of the big transaction markets. M
• 57:30
  Speaker 14: and A is a little quieter that it's been, and
• 57:31
  Speaker 14: a lot of that's because valuations need to adjust and
• 57:33
  Speaker 14: buyer buyers and sellers are still quite far apart. We
• 57:37
  Speaker 14: tend to play in our investment banking businesses in the
• 57:40
  Speaker 14: middle market. That's been a little healthier because the transaction
• 57:43
  Speaker 14: sizes are small and you don't have to raise massive
• 57:46
  Speaker 14: amounts of capital to complete a transaction. And on the
• 57:48
  Speaker 14: M and A side, it's a little friendlier from a
• 57:50
  Speaker 14: government standpoint in terms of getting approvals for transactions. But
• 57:54
  Speaker 14: I think regular way lending is okay, but it's not great,
• 57:57
  Speaker 14: and I think that's more demand than supply.
• 57:59
  Speaker 1: Frankly, any stress in your loan portfolio at this point.
• 58:02
  Speaker 14: The commercial side's pretty good. CE and I side. Obviously,
• 58:06
  Speaker 14: real estate is the flashpoint, and office real estate is
• 58:09
  Speaker 14: the place that we're all focused. We're working through the issues.
• 58:12
  Speaker 6: Fine.
• 58:12
  Speaker 14: We put a lot of disclosure out in the second
• 58:15
  Speaker 14: quarter and kind of went through the portfolio, so you know,
• 58:17
  Speaker 14: nothing that really is causing us to have sleepless nights,
• 58:21
  Speaker 14: and we have an enormous amount of earnings power to
• 58:24
  Speaker 14: basically absorb any losses that do come along.
• 58:27
  Speaker 12: Look at beyond yourself. There was a series of downgrades
• 58:32
  Speaker 12: by Moody's on the regional banks. You guys saw your
• 58:35
  Speaker 12: outlook cut, but that was actually a sort of positive thing.
• 58:39
  Speaker 12: Looking at your peers, do you what's the extent of
• 58:41
  Speaker 12: the commercial real estate stress that you see? That was
• 58:44
  Speaker 12: a particular point that you.
• 58:45
  Speaker 14: Know, I think, like us, I think most of them
• 58:48
  Speaker 14: are working through. It's going to be a two or
• 58:50
  Speaker 14: three year kind of work, you know, working through any
• 58:52
  Speaker 14: distress we have in the portfolio. We're having a fair
• 58:54
  Speaker 14: amount of success restructuring loans that we were worried about.
• 58:58
  Speaker 14: So we've taken a couple losses, nothing too significant. And
• 59:01
  Speaker 14: I think as I looked at earnings from our peers
• 59:04
  Speaker 14: across the board, everyone said about the same thing that
• 59:07
  Speaker 14: we said, which is, yeah, we're focused on it. Obviously
• 59:09
  Speaker 14: is going to be stressed to stress in the in
• 59:11
  Speaker 14: the office market, but there's a lot of equity in
• 59:13
  Speaker 14: these deals.
• 59:13
  Speaker 4: That's the first to go.
• 59:14
  Speaker 14: And then any losses that the banks will take are
• 59:16
  Speaker 14: going to be you know, small fractions of the oldverall.
• 59:18
  Speaker 12: Yeah, I mean, we've seen some of these large private
• 59:20
  Speaker 12: equity firms or real estate firms in particular, like walking
• 59:23
  Speaker 12: away from poor investments. I mean, as a to what
• 59:27
  Speaker 12: extent are you guys happy to end up with the
• 59:30
  Speaker 12: asset at the end?
• 59:31
  Speaker 14: Well, we generally won't. You know, we generally won't end
• 59:33
  Speaker 14: up with the asset. We go to great links not
• 59:35
  Speaker 14: to end up with the assets. So we would probably
• 59:37
  Speaker 14: sell the note or or do some other kind of
• 59:39
  Speaker 14: restructuring and bring in alternative alternative equity rather than take
• 59:43
  Speaker 14: down the asset.
• 59:45
  Speaker 1: Let's talk just about the regulations on your industry more
• 59:49
  Speaker 1: coming down. What are you telling your showholders about a
• 59:52
  Speaker 1: the regulations, how they're going to impact you, and kind
• 59:54
  Speaker 1: of what you're trying to do to get ready.
• 59:56
  Speaker 14: I think you know, there's there's clearly going to be
• 59:58
  Speaker 14: higher capital requirements as to be stricter liquidity requirements, and
• 1:00:02
  Speaker 14: we're preparing for those. We have been preparing for those
• 1:00:04
  Speaker 14: long before the regulatory kind of talk talk about exactly
• 1:00:09
  Speaker 14: what it's going to be started to leak out. So
• 1:00:12
  Speaker 14: I think that our returns will be a little bit
• 1:00:14
  Speaker 14: under pressure. But you know the benefit that we have
• 1:00:17
  Speaker 14: is we have a really diversified business model with a
• 1:00:19
  Speaker 14: lot of earnings power, So if it goes down a
• 1:00:21
  Speaker 14: little bit, we're going to continue to be able to
• 1:00:23
  Speaker 14: return capital to shareholders. And and it's it's it's going
• 1:00:28
  Speaker 14: to be an adjustment, but we've been through these kind
• 1:00:30
  Speaker 14: of adjustments before.
• 1:00:31
  Speaker 12: We had some reporting on how US regulators are going
• 1:00:34
  Speaker 12: to propose requiring banks with as little as one hundred
• 1:00:37
  Speaker 12: billion dollars in assets to issue enough long term debt
• 1:00:40
  Speaker 12: to cover capital losses, and then the head of the
• 1:00:42
  Speaker 12: FDIC coming out and talking about how this bolster's financial stability?
• 1:00:47
  Speaker 1: Do you agree?
• 1:00:48
  Speaker 12: Disagree? I?
• 1:00:49
  Speaker 14: You know, at the margin, it bolsters, you know, stability,
• 1:00:53
  Speaker 14: But we don't think we think that the banks are
• 1:00:55
  Speaker 14: in really good shape. We think capital levels are quite high,
• 1:00:59
  Speaker 14: better than a lot of other parts of the world,
• 1:01:01
  Speaker 14: and well managed banks have really strong liquidity profiles and
• 1:01:04
  Speaker 14: really strong capital absorption absorption capacity.
• 1:01:08
  Speaker 1: How's loan growth across your client base here, because boy,
• 1:01:11
  Speaker 1: we've been shocked with these rise and interest rates. If
• 1:01:14
  Speaker 1: you want to go out and get a mortgage, or
• 1:01:15
  Speaker 1: or if you want to go out and finance some
• 1:01:17
  Speaker 1: capital spending or finance and acquisition, what's loan growth like
• 1:01:20
  Speaker 1: these days?
• 1:01:20
  Speaker 14: It's been it's been kind of flatish, yeah, for the
• 1:01:23
  Speaker 14: last for the last couple of quarters, and we're expecting
• 1:01:25
  Speaker 14: a little bit here and there, depending on the sector,
• 1:01:27
  Speaker 14: but we expect, you know, reasonably low levels of long
• 1:01:30
  Speaker 14: growth for the balance of the year, less on the
• 1:01:33
  Speaker 14: less on the you know, that's on my side, the
• 1:01:35
  Speaker 14: retail side. Should you know, we're having some pretty good
• 1:01:38
  Speaker 14: expansionary growth in places that were growing on the retail
• 1:01:41
  Speaker 14: side in the retail portfolio.
• 1:01:43
  Speaker 12: Have consumers just adjusted faster? Do businesses catch up with
• 1:01:47
  Speaker 12: them to a higher rate environment?
• 1:01:49
  Speaker 7: Yeah?
• 1:01:50
  Speaker 4: I think.
• 1:01:51
  Speaker 14: I think we have to keep from perspective that where
• 1:01:53
  Speaker 14: rates are aren't that high and from a historical standpoint,
• 1:01:56
  Speaker 14: so I think the issue with with borrowers has been
• 1:01:59
  Speaker 14: this beat of the change in rates as opposed to
• 1:02:02
  Speaker 14: the absolute level of rates. So yes, I do think
• 1:02:05
  Speaker 14: that consumers and businesses will adjust to a higher rate environment,
• 1:02:08
  Speaker 14: and I think rates are going to stay high for
• 1:02:10
  Speaker 14: quite a period of time.
• 1:02:12
  Speaker 1: University of Vermont, big fan. Two of my siblings went there,
• 1:02:16
  Speaker 1: your big player. Give us twenty thirty seconds on UVM.
• 1:02:20
  Speaker 14: UVM is doing fantastic where the school is growing. We're
• 1:02:24
  Speaker 14: very financially healthy, you know, great statistics we are. The
• 1:02:27
  Speaker 14: major thrust we have right now is growth of our
• 1:02:29
  Speaker 14: research programs, and we're basically getting enormous levels of research
• 1:02:35
  Speaker 14: grants from a variety of businesses and governments. And it
• 1:02:37
  Speaker 14: feels very strong up there, and Burlington is obviously a
• 1:02:40
  Speaker 14: fantastic place.
• 1:02:41
  Speaker 1: Yeah, go to school man. My brother and sister went there,
• 1:02:44
  Speaker 1: like why, and I had another brother go up there.
• 1:02:46
  Speaker 1: Michael's have been vermonly. What are you guys thinking about?
• 1:02:48
  Speaker 1: It's cold up there, so what do I do? I
• 1:02:50
  Speaker 1: go south. Don McCree, head of Commercial Banking and a
• 1:02:53
  Speaker 1: vice chairman Citizens Financial, joining us live here in our
• 1:02:55
  Speaker 1: Bloomberg Interactive Broker studio. We appreciate getting some of his time.
• 1:02:58
  Speaker 1: This is Bloomberg.
• 1:03:00
  Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
• 1:03:03
  Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
• 1:03:07
  Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 1:03:11
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• 1:03:13
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• 1:03:16
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• 1:03:18
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