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Mortgages, Germany, Oil, Daimler, and Childcare (Podcast) · 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 called Apple Podcasts or wherever
0:17
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
0:20
Speaker 1: For joining us here in our Bloomberg Interactive Broker studio
0:23
Speaker 1: is Erica Adelberg. Does not phone it in, does not
0:26
Speaker 1: meld in. She shows up in the studio, and we
0:28
Speaker 1: appreciate that. She's a mortgage backed security strategist for Bloomberg Intelligence,
0:31
Speaker 1: has been on the street for a number of years.
0:34
Speaker 1: We appreciate getting your time. I don't know, Erica, we
0:36
Speaker 1: got a mortgage rate north of seven percent. What's going
0:40
Speaker 1: on in the NBS market these days?
0:42
Speaker 3: Hi, good morning, Thanks for having me on. We actually
0:46
Speaker 3: are seeing a huge decline in mortgage demand, which is
0:50
Speaker 3: just you know, symbolica, the fact that the housing market's
0:53
Speaker 3: really freezing up. New homes are still doing okay, there's
0:57
Speaker 3: a way to for homebuilders to offer lower rates, and frankly,
1:02
Speaker 3: there's more inventory right now. I mean it's about a
1:04
Speaker 3: third of the existing inventory. Because you can build a
1:06
Speaker 3: new home, you can't get somebody to necessarily sell their
1:09
Speaker 3: home if they're sitting on a three percent mortgage and
1:11
Speaker 3: they'd have to take out a new eight percent one
1:13
Speaker 3: like Matt Yeah, not selling. Yeah, So the housing market's
1:18
Speaker 3: pretty frozen, and on a seasonally adjusted basis, the mortgage
1:22
Speaker 3: back security loan application index that the Mortgage Banker Association
1:26
Speaker 3: puts out just hit the lowest levels since nineteen ninety
1:29
Speaker 3: five or nineteen ninety six, So I.
1:31
Speaker 2: Think, so, wait, does this mean for the mortgage back
1:35
Speaker 2: bond market that those are scarce and thus rising in price.
1:41
Speaker 3: Yeah, it's an interesting a number of interesting dynamics. I
1:45
Speaker 3: actually just sent out a little commentary today. It does
1:48
Speaker 3: mean that new issue supplies going to be very low,
1:51
Speaker 3: which should be a positive for the mortgage backed securities market.
1:55
Speaker 3: But even so, even though you know a lot of
1:57
Speaker 3: these homeowners are well out of the money and they're
1:59
Speaker 3: not going to refinance, you know, anytime soon, mortgage backed
2:04
Speaker 3: security still sensitive to volatility, and they're still sensitive to
2:08
Speaker 3: what the Fed's going to do. So as a result,
2:11
Speaker 3: you know, we kind of thought this would be a
2:12
Speaker 3: pretty good year for mortgage back security. Not a lot
2:14
Speaker 3: of supply. We thought maybe the treasury market would rally,
2:17
Speaker 3: you know, once the FED was done tightening, but that
2:19
Speaker 3: hasn't happened.
2:20
Speaker 2: How many does the FED own Do they have a
2:23
Speaker 2: stack of mortgage back bonds?
2:24
Speaker 3: They said the FED owns about two point six trillion
2:28
Speaker 3: mortgage backed securities. For the past two years, during the pandemic,
2:31
Speaker 3: I should say, in twenty twenty twenty one, they were
2:35
Speaker 3: waving them in hand of or fist to help support
2:37
Speaker 3: the mortgage market and help support bonds overall. And they've
2:40
Speaker 3: stopped doing that because they want rates to rise now
2:43
Speaker 3: they want to slow down the economy and that's been
2:45
Speaker 3: a negative drag on the mortgage backed securities market as well,
2:49
Speaker 3: just not having them in there as a bus.
2:51
Speaker 2: They're not going to sell them, right in quantitative tightening,
2:54
Speaker 2: they let the bonds they hold off run off, and
2:57
Speaker 2: they don't. But they're not going to sell mortgage back security.
3:00
Speaker 3: I mean never say never, no guarantees, but they've said
3:02
Speaker 3: if that's happening, it's a long ways in the future,
3:05
Speaker 3: and they'll let the market have plenty of advanced warnings,
3:08
Speaker 3: so you know they're not making any noises towards it.
3:11
Speaker 3: About a year ago, some of the FED governors were
3:14
Speaker 3: at least maybe they're trying to job own mortgage rates higher,
3:16
Speaker 3: who knows, So they were saying, oh, we really don't
3:19
Speaker 3: want to own this many mortgage backed securities. But you know,
3:22
Speaker 3: there's also not been any move in that direction, so
3:24
Speaker 3: I don't think that's that's certainly not the base case
3:26
Speaker 3: of anybody's expectations.
3:27
Speaker 2: Okay, what's your take on the long and variable lags,
3:30
Speaker 2: because I've heard an interesting debate. Some people say, because
3:35
Speaker 2: there are no more adjustable rate mortgages except for Paul's,
3:40
Speaker 2: and everybody has locked in a thirty year rate, they're
3:44
Speaker 2: going to be even longer variable lags, you know. But
3:48
Speaker 2: others like Jan Hati has came out yesterday and said
3:52
Speaker 2: he thinks it's shorter, you know, because the FED telegraphs
3:56
Speaker 2: everything they're going to do so far in advance.
3:58
Speaker 4: And what do you what do you think?
4:01
Speaker 5: I think?
4:01
Speaker 3: You know, I can't really compare it to history. I
4:04
Speaker 3: think that you know, if you look at traditionally movements
4:09
Speaker 3: and mortgage rates slash, you know, housing market prices and rents,
4:14
Speaker 3: there's a pretty long and variable lag. But one of
4:17
Speaker 3: the things, you know, aside from you know, perhaps the telegraphing,
4:22
Speaker 3: home prices are actually holding up very well. And I
4:24
Speaker 3: think that's a very key source both of rental incomes
4:29
Speaker 3: as well as you know, people's wealth effect. So I
4:32
Speaker 3: think to the extent that home prices are kind of
4:35
Speaker 3: failing to fall at this point, I think that does
4:38
Speaker 3: actually make the lags relatively long.
4:41
Speaker 1: So what's the mortgage backed security market telling you about
4:44
Speaker 1: interest rates? I mean, people are talking about a FED
4:47
Speaker 1: maybe in twenty twenty four cutting rates, but you don't
4:50
Speaker 1: see that in the mortgage rate at all. Seven point
4:51
Speaker 1: five nine percent on the bank rate dot com US
4:54
Speaker 1: home mortgage thirty or fixed seven point five nine percent.
4:58
Speaker 3: I mean, that's obviously a very current r right. It's
5:01
Speaker 3: it's it's not a forecasting rate, it's not really forward rate,
5:03
Speaker 3: but it is based on to some degree the ten
5:06
Speaker 3: year treasury you know, plus some spread. And what that's
5:10
Speaker 3: telling you is that we've had you know, that the
5:12
Speaker 3: curve is uninverted a little bit because the markets are
5:16
Speaker 3: telling you that that eields are going to have to
5:19
Speaker 3: stay higher for longer while the FED continues to try
5:22
Speaker 3: to get inflation under control and you know, slow down
5:25
Speaker 3: the economy a little bit.
5:26
Speaker 1: Can I get any return in your market? I mean,
5:28
Speaker 1: I'm looking at the Is it kind of flat year
5:30
Speaker 1: to date in terms of the works backed security return?
5:33
Speaker 3: Yeah, it's flat so far, which reminds me there's upside
5:36
Speaker 3: going forward. You know, spreads are very wide, you know,
5:39
Speaker 3: they're they're kind of you know, near ten year wides.
5:42
Speaker 3: They're actually not as wide if you look before the
5:45
Speaker 3: FED started buying in two thousand and eight, you know,
5:47
Speaker 3: and the post financial crisis.
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Speaker 5: World, they're very wide.
5:51
Speaker 3: And you know, the Fed's probably not going to come
5:52
Speaker 3: in and save the mortgage market anytime soon. As you said,
5:56
Speaker 3: they're more inclined to sell though I don't think they will.
5:59
Speaker 3: So as there is result, yeah, there's there's a better buffer,
6:03
Speaker 3: you have a lot more yield, you have a lot
6:05
Speaker 3: more spread, But you have to have a little bit
6:07
Speaker 3: stronger stomach too, because you know, maybe the federal continue
6:11
Speaker 3: pushing re hire or at least job runing them higher.
6:13
Speaker 3: So that's what cuts into mortgage out security returns.
6:16
Speaker 1: So again today we had the NBA mortgage applications decline
6:19
Speaker 1: of two point nine percent versus a prior period of
6:22
Speaker 1: a positive two point three percent. How unusual is that
6:25
Speaker 1: kind of swing period to period.
6:28
Speaker 3: I think the best thing to think about when you're
6:30
Speaker 3: looking at something like the NBA Purchase Index being right
6:33
Speaker 3: now at the lowest rate since nineteen ninety five, these
6:36
Speaker 3: are percentage changes off extremely low numbers. Okay, so you know,
6:41
Speaker 3: if one more person takes out a mortgage purchase, it's
6:43
Speaker 3: going to influence the.
6:46
Speaker 5: Number.
6:46
Speaker 3: So yeah, I think, you know, the direction has to
6:49
Speaker 3: be looked at over a longer period of time. And
6:51
Speaker 3: we're down thirty percent relative to a year ago, and
6:54
Speaker 3: even a year ago rates had already started rising.
6:56
Speaker 1: Is there a rate where I don't know, the market
6:59
Speaker 1: opens up, people start buying and selling houses again. I mean,
7:01
Speaker 1: at one point I heard somebody say like, yeah, five
7:03
Speaker 1: five and a half percent for mortgage rates, get back
7:05
Speaker 1: down to there.
7:06
Speaker 4: But boy, we're a long way from that.
7:08
Speaker 3: Yeah we are. We're currently, as you said, at seven
7:10
Speaker 3: point five percent on the bank rate. You know, it's
7:13
Speaker 3: hard to put a number on something like that. I
7:15
Speaker 3: think part of it will be time as well, because
7:18
Speaker 3: just over time, people have to upsize their homes, you know, death,
7:22
Speaker 3: divorce taxes, defaults, we're it's certainly not facing defaults anytime,
7:26
Speaker 3: staying with unemployment you know, pretty much all time lows.
7:29
Speaker 3: But you know that being said, time will help. More
7:33
Speaker 3: mortgages are getting originated, albeit slowly at these higher rates,
7:38
Speaker 3: and those people, of course aren't quite as locked in.
7:40
Speaker 3: But I think the mortgage market structure is going to stay,
7:44
Speaker 3: you know, in the very low coupon range for a
7:46
Speaker 3: very long time. So I don't think we'll have the
7:49
Speaker 3: kind of turnover we're used to seeing the housing market
7:51
Speaker 3: for a decade.
7:52
Speaker 4: You know, it's a great thing.
7:54
Speaker 1: Downsizing, Yeah, nice that no tax, then cash burns a
7:59
Speaker 1: fraction what it was back in the day.
8:01
Speaker 2: I'm excited for that to happen to me in twenty
8:04
Speaker 2: twenty years or so.
8:05
Speaker 3: And when you downsize you can sometimes take out the
8:07
Speaker 3: entire equity of your home and not have to take
8:09
Speaker 3: out a mortgage at all. So those types of things
8:11
Speaker 3: will keep the housing market. And there is a whole
8:13
Speaker 3: bunch of people that are you know, in the next
8:15
Speaker 3: generation that are kind of ready to downsize, you know.
8:19
Speaker 1: So so those then you got people like John Tucker,
8:22
Speaker 1: who actually does the repairs to his own home right well,
8:25
Speaker 1: he's never downsized.
8:26
Speaker 4: He still lives in the mansion, still in the sea,
8:29
Speaker 4: but there is a there's a guest cottage on the
8:32
Speaker 4: on the estate. So at some point that's.
8:35
Speaker 1: What you need to do.
8:36
Speaker 6: Yeah.
8:37
Speaker 2: I thought he was going to say I could move
8:38
Speaker 2: in or at least stay there for the weekend.
8:42
Speaker 1: Yeah, you know, exactly, down to sure. All right, Erica,
8:45
Speaker 1: thank you so much for joining us. Erica Adelberg, she's
8:46
Speaker 1: a mortgage backed security strategist for Bloomberg Intelligence.
8:49
Speaker 2: At some point we got to talk about porting mortgages,
8:52
Speaker 2: you know, because I locked in a three percent rate,
8:54
Speaker 2: and if I wanted I love my house, I'm not
8:58
Speaker 2: going to sell it. My wife's listening, don't freak out.
9:00
Speaker 2: But if I did want to, I'd like to take
9:04
Speaker 2: my three percent mortgage with me and use it to
9:06
Speaker 2: buy another house.
9:07
Speaker 4: You can in some cases.
9:08
Speaker 2: I don't know the exact details, but some mortgages can
9:12
Speaker 2: be ported in some ways.
9:14
Speaker 3: So in other countries that's definitely true, like in Canada,
9:17
Speaker 3: but I haven't really heard of that being a thing here.
9:19
Speaker 4: As much Canada.
9:20
Speaker 3: All right, so you move to Canada, you can't take
9:22
Speaker 3: your mortgage with you.
9:23
Speaker 4: Take your mortgage with you.
9:25
Speaker 7: Thanks again, you're listening to the Team Kenser Live program
9:29
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9:33
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9:36
Speaker 7: on demand wherever you get your podcasts.
9:41
Speaker 1: Let's go across upon and take a look at what's
9:42
Speaker 1: happening the economies of our good friends in Europe and
9:46
Speaker 1: the UK. Doctor Vaniet Estavakava joins us. She's professor of
9:50
Speaker 1: economics at the London Business School.
9:53
Speaker 4: Professor, seems like the.
9:54
Speaker 1: US economy is doing pretty well to the point where
9:57
Speaker 1: this FED doesn't need to really do anything to kind
9:59
Speaker 1: of maybe you know, we've got inflation kind of running okay,
10:02
Speaker 1: we've got the economy kind of running okay. Just give
10:05
Speaker 1: us the thirty thousand foot view of Europe in general
10:08
Speaker 1: and then we'll take down a little deeper.
10:11
Speaker 8: So thank you very much for having me. Always a
10:13
Speaker 8: pleasure to be here. So indeed, there is quite a
10:16
Speaker 8: bit of divergence between the US and Europe and definitely
10:18
Speaker 8: UK as well, which is due to structural reasons. So
10:22
Speaker 8: the German economy, for example, if you take the biggest
10:24
Speaker 8: country in the Eurozone, is significantly different from the US economy,
10:29
Speaker 8: we would expect that inflation will be high in Germany,
10:31
Speaker 8: and would expect the inflation from the worse in Germany
10:34
Speaker 8: and to see stagnation or even decreasing growth, which is
10:37
Speaker 8: what the recent numbers show based on a few observations.
10:41
Speaker 8: So first, the euro Zone and Germany in general in
10:44
Speaker 8: general just much more open relative to the US. So
10:47
Speaker 8: if you take one measure of openness which is expert
10:50
Speaker 8: relative to GDP, and just take China, which of course,
10:53
Speaker 8: as we know, has decreased its demand for imports due
10:56
Speaker 8: to the slow in growth in China. So the connection
10:59
Speaker 8: between in Germany and China is two point five percent
11:03
Speaker 8: of the German GDP. So Germany exports two point five
11:06
Speaker 8: percent of its GDP to China. So an external shock
11:09
Speaker 8: from China is going to impact the German economy, for example,
11:11
Speaker 8: a lot. The difference is with the US the number
11:14
Speaker 8: is zero point six percent, so of course it's not
11:17
Speaker 8: just China. Actually, over the last year, the euro has
11:20
Speaker 8: appreciated against the door by more than ten percent, close
11:23
Speaker 8: to twelve percent.
11:24
Speaker 2: Thennie, can I just jump in here and ask about
11:26
Speaker 2: quickly about China. I keep hearing that the slump in
11:30
Speaker 2: China is affecting other economies badly, and everyone's kind of
11:34
Speaker 2: writing off the economy there. But aren't they pulling out
11:38
Speaker 2: some real stimulus now? Isn't it possible that the Chinese
11:41
Speaker 2: economy does start to pick up?
11:45
Speaker 8: Well, they've been kind of trying to do it for
11:46
Speaker 8: a while. I don't think they're proposing anything new. I
11:49
Speaker 8: believe the China is on a downward trend. We're talking
11:52
Speaker 8: about a trend here at and a temporary, essentially one
11:54
Speaker 8: blip deviation from growth. China cannot grow the way it's
11:58
Speaker 8: used for a number of reasons which are quite long
12:00
Speaker 8: to discuss. So I do believe that actually the trend
12:04
Speaker 8: will perceift in China.
12:05
Speaker 4: Okay, I just wanted to get that straight. I believe you.
12:08
Speaker 2: I just have been a little bit confused because we
12:11
Speaker 2: report on every stimulus move like it's a huge deal,
12:14
Speaker 2: you know, like, oh man, they're cutting the triple R
12:17
Speaker 2: reserve ratio, and they're they're they're funding you know, little
12:21
Speaker 2: kids and old parents and so.
12:23
Speaker 4: But but I think I hear you.
12:25
Speaker 8: I think it's important actually to zoom out and look
12:28
Speaker 8: at not just the recent news, but a compilation of
12:31
Speaker 8: news and trends. I mean, that's kind of what we
12:33
Speaker 8: do usually in Nicoon, not just focusing on single news.
12:37
Speaker 8: Speaking of trends, going back to the euro on appreciation
12:40
Speaker 8: of the euro, twelve percent is massive. This is going
12:43
Speaker 8: to impact the eurosone economy in Germany the most. Now,
12:47
Speaker 8: what else is different for Germany? So there are the
12:49
Speaker 8: major differences between Germany and the US coming from the
12:51
Speaker 8: fact that Germany is primarily dominated by manufacturing. So manufacturing
12:55
Speaker 8: is still much more important in Germany than the US.
12:58
Speaker 8: So then the shocks are so sated with the high
13:00
Speaker 8: oil price, oil and gas prices impacting the marginal cost
13:04
Speaker 8: of production. The margin for the manufacturing sector is another
13:08
Speaker 8: big problem, right, so those costs had to be passed
13:10
Speaker 8: forward to the final consumer for the manufacturing sector, so
13:14
Speaker 8: the prices of manufacturing goals had to increase more so
13:17
Speaker 8: high inflation in Germany. Similarly, the labor tightness. So Germany
13:20
Speaker 8: has demographic problems. They have aging population much more than
13:24
Speaker 8: the US. So you have seen the articles that the
13:26
Speaker 8: manufacturing sector is struggling to hire employees aage inflation is
13:30
Speaker 8: going to be higher. So these are structural differences that
13:33
Speaker 8: are here to stay. They're not going to disappear overnight.
13:36
Speaker 8: That are putting the US and Germany in a very
13:39
Speaker 8: different position. Now, this creates a lot of challenges for SB,
13:43
Speaker 8: of course, because Germany is one of many countries in
13:46
Speaker 8: the Eurozone, and the German economy is also different from
13:48
Speaker 8: Southern Europe and from other countries. So then the question
13:52
Speaker 8: is what is easy to be going to do. I
13:54
Speaker 8: do believe that in general easy it tends to put
13:56
Speaker 8: a high way on the German economy highweight. That's what
13:59
Speaker 8: we saw in the global financial crisis, for example. Probably
14:02
Speaker 8: it will be the same in this case. Having said that,
14:05
Speaker 8: given that the news are high, inflation above target and
14:09
Speaker 8: actually significantly about target, so more than five percent coinflation
14:12
Speaker 8: is very uncomfortable situation for CB, even if the German
14:16
Speaker 8: economy is so down, even if there is aerization, I
14:18
Speaker 8: do not see how they're not going to keep increasing
14:21
Speaker 8: interest rates. We're not talking about inflation getting to three
14:24
Speaker 8: three point five percent and then having the theory that
14:26
Speaker 8: maybe they're targeting a bit high inflation. We're talking about
14:29
Speaker 8: till five percent colinflation.
14:30
Speaker 4: All right, How about the United Kingdom?
14:33
Speaker 1: What are we seeing in terms of the economy there
14:34
Speaker 1: and what do we expect the Bank of England to
14:37
Speaker 1: do in response?
14:38
Speaker 8: So for the UK, it seems that there's some evidence
14:42
Speaker 8: that the high interest rates are starting to bite. Having
14:46
Speaker 8: said that the UK has the worst numbers in terms
14:48
Speaker 8: of inflation, in terms of private sector wage growth, I
14:53
Speaker 8: don't see them posing for the time being. I mean,
14:56
Speaker 8: they cannot pose this inflation rate. However, I do expect
15:01
Speaker 8: a recession coming the soon, as probably in the UK.
15:04
Speaker 8: Relative to the ide Eurozone and UK, it's it's it's
15:10
Speaker 8: unclear which one is going to come first. But definitely
15:12
Speaker 8: we will have a recesion in the UK because they
15:13
Speaker 8: will have to keep hiking and even if current interest
15:15
Speaker 8: rates is going to bite, already starting to buy.
15:19
Speaker 2: What do you think about the the the release of
15:23
Speaker 2: strategic the strategic petroleum reserve last year didn't really affect
15:27
Speaker 2: the price of oil so much.
15:30
Speaker 4: Now we're heading back up there.
15:32
Speaker 2: Even as these problems you know of economic slowdowns hit
15:38
Speaker 2: whole continents like Europe. How does the how does the
15:41
Speaker 2: oil price work into your forecasts for economic growth or
15:45
Speaker 2: contraction tributing.
15:47
Speaker 8: Too slow slow down? So we saw that gas prices
15:50
Speaker 8: starting to increase again, So let's see what happens with
15:53
Speaker 8: the winter. If we have a mouth winter, it might
15:54
Speaker 8: not be as bad. If global demands loans down, this
15:57
Speaker 8: might offset efforts by all producing economies to decrease the supply,
16:02
Speaker 8: which of course Opek has been trying to do that.
16:04
Speaker 8: So it is a function of both supplying demand. So
16:06
Speaker 8: it is a function also for although when gas producers
16:08
Speaker 8: do in addition to what happens to demand, I don't
16:12
Speaker 8: expect them to reach the levels of course of last winter,
16:15
Speaker 8: unless there is another massive shock. But definitely are going
16:20
Speaker 8: to put a downward pressure on the growth in the
16:23
Speaker 8: Eurozone and in the UK as we enter the winter months,
16:26
Speaker 8: where we expect prices to increase a bit.
16:27
Speaker 2: It least.
16:29
Speaker 1: How about in southern Europe and thing in Italy Spain,
16:32
Speaker 1: those are areas attend Those are economies that tend to
16:34
Speaker 1: be more fragile, and at least here in the US
16:37
Speaker 1: we hear more about that from a weakness perspective. How
16:41
Speaker 1: are they faring in this environment?
16:43
Speaker 8: Well, it is a special case. I wouldn't put it
16:45
Speaker 8: together an essay. Little with Spain these days besides Italy,
16:49
Speaker 8: other soudthern European economy is actually having better numbers than Germany.
16:52
Speaker 8: They have lower inflation and better growth, so overall, actually
16:56
Speaker 8: they're doing better. But if the CP keeps hiking, of
16:59
Speaker 8: course this is going to have an impact on those
17:01
Speaker 8: economies as well. Yeah, the numbers fitally do not look great.
17:05
Speaker 8: So definitely Italy for number of it's an outlier at
17:08
Speaker 8: the moment. So that's where there'll be also political conflict
17:11
Speaker 8: because for the hikes are going to potentially upset politicians
17:16
Speaker 8: in certain Southern European countries if they feel they don't
17:18
Speaker 8: need these hikes. So this has always been the problem
17:21
Speaker 8: with the CB. Right, we have a single central bank,
17:23
Speaker 8: many business cycles, no common fiscal policy, so usually the
17:29
Speaker 8: way it is in Germany.
17:31
Speaker 4: Yeah, that's tough.
17:31
Speaker 1: If I mean if your biggest economy is your weakest
17:33
Speaker 1: or one of your weakest links, that's tough.
17:35
Speaker 2: Well, i mean, let's define weakest link. Surely the Spain, Portugal, Italy, Greece.
17:44
Speaker 2: You know those are going to be weaker economies over
17:46
Speaker 2: the longer term, don't you think, doctor?
17:49
Speaker 8: Oh yeah, of course, I mean there is the trends
17:50
Speaker 8: and there are business cycles, fluctuations. So when we talk
17:52
Speaker 8: about multipolicy, of course, of course the focus is on
17:55
Speaker 8: business cycle fuctuations, and that's where currently the divergence is
17:58
Speaker 8: such that Saturn you're is doing better than Germany in
18:01
Speaker 8: state of state of course, the fundamentals. You can say
18:03
Speaker 8: a better ford, you know, countries like Germany than Greece
18:07
Speaker 8: or Italy for sure.
18:10
Speaker 4: So you noticed I didn't use the term pigs. Why
18:16
Speaker 4: would you?
18:17
Speaker 8: Yes, I do not like this term. It's a veryly Greece.
18:20
Speaker 2: Yes, oh yeah, I mean it's actually I think Portugal, Italy, Ireland, Greece.
18:25
Speaker 1: Easy, easy on Ireland. Sorry, sorry, all right, doctor, thank
18:29
Speaker 1: you so much for joining us. Doctor Vania Starkeeva, Professor
18:33
Speaker 1: of Economics at the London Business School, I appreciate gatting
18:36
Speaker 1: the view what's happening in Europe.
18:37
Speaker 7: You're listening to the tape cancer Live program Bloomberg Markets
18:41
Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune
18:45
Speaker 7: in app, Bloomberg dot Com, and the Bloomberg Business App.
18:48
Speaker 7: You can also listen live on Amazon Alexa from our
18:50
Speaker 7: flagship New York station. Just say Alexa, play Bloomberg eleven thirty.
18:56
Speaker 1: Let's talk reads real estate investment Trust. Steve Brown, he
19:00
Speaker 1: can do that for Steve Brown is a senior portfolio
19:02
Speaker 1: manager of Global real Estate at American Century Investments. He
19:07
Speaker 1: joined his live here in our Bloomberg Interactive Broker studio.
19:10
Speaker 1: See what happens to the re market when the FED
19:14
Speaker 1: has eleven rate increases. There's a banking crisis that can't
19:18
Speaker 1: be a good backdrop for reads.
19:20
Speaker 9: Sure, thank you for having me on. Yeah, reads have
19:22
Speaker 9: been under pressure this year and part of the last
19:24
Speaker 9: year because of the FED raid hiking cycle, and as
19:28
Speaker 9: you mentioned, it's going on for over twelve months. They've
19:30
Speaker 9: raised short term rates basically from zero percent to five percent,
19:34
Speaker 9: so very materially higher rates, and it's impacted basically cap
19:38
Speaker 9: rates and barring.
19:39
Speaker 4: Costs for real estate.
19:40
Speaker 9: So reads in general have been under pressure for the
19:42
Speaker 9: last we'll call it eighteen months or so. And we're
19:45
Speaker 9: really looking to an environment when the FED is done
19:48
Speaker 9: raising rates, and that would be a much more constructive
19:51
Speaker 9: environment to own publicly traded real estate.
19:54
Speaker 2: So you think rates are just going to stay here
19:58
Speaker 2: or we're going to get.
19:59
Speaker 4: A new dot plot this month? Do you think they're
20:02
Speaker 4: gonna take out some of the cuts?
20:05
Speaker 3: Right?
20:05
Speaker 9: I think our basic thinking is the FED is either
20:09
Speaker 9: done or just about done. They could be done because
20:11
Speaker 9: they haven't raised rates since July, and as we move
20:14
Speaker 9: into twenty four, then the next conversation will be when
20:16
Speaker 9: the cuts start. We think that when the Fed's done,
20:21
Speaker 9: that's a much more constructive environment for real estate values
20:24
Speaker 9: in public real estate. And we think that, you know,
20:27
Speaker 9: we don't necessarily need the FED to start cutting rates,
20:30
Speaker 9: but just having no more rate increases in some stabilization
20:32
Speaker 9: in the bond market, and there'll be a much more
20:35
Speaker 9: pricing efficient market for real estate.
20:37
Speaker 4: So we're optimistic that the FED.
20:39
Speaker 9: Is either done or just about done raising rates, and
20:42
Speaker 9: whether they start cutting in June of next year or
20:46
Speaker 9: September of next year, it really is just a more
20:48
Speaker 9: constructive environment when the Fed's done raising rates.
20:51
Speaker 1: All right, So, I know that there are lots of
20:53
Speaker 1: different sectors within the space, you know, data centers versus
20:57
Speaker 1: you know, housing and things like that versus student housing.
21:02
Speaker 1: Exactly what are the ones that you guys are going
21:05
Speaker 1: to be positioned in for if we are in fact
21:08
Speaker 1: heading into time when rates are no longer increasing, where
21:11
Speaker 1: are you guys kind of placing your bets.
21:13
Speaker 9: Sure, it's a great question, and you reachs are up
21:17
Speaker 9: about two percenters of this year, so not much going on,
21:19
Speaker 9: but certain sectors like data, center, reads, industrial have done
21:23
Speaker 9: well this year because they have pricing power, and other
21:26
Speaker 9: property sectors have really, you know, performed poorly. You mentioned
21:29
Speaker 9: office that's certainly one of the weaker performing sectors, as
21:32
Speaker 9: well as at least and to a certain extent, retail.
21:37
Speaker 9: I think we think that if when the Fed's done,
21:39
Speaker 9: you know, the acid class in general should perform better
21:42
Speaker 9: because of more effective debt financing for real estate values,
21:46
Speaker 9: and will the more bombed out sectors perform well.
21:48
Speaker 4: I think retail is probably going.
21:50
Speaker 9: To continue to perform better because of lower rates and
21:54
Speaker 9: they have lower valuations a little benefit from that. But
21:57
Speaker 9: some of the other sectors that are haven't performed well
21:59
Speaker 9: this year, such as towers.
22:01
Speaker 4: Tower reets are love. Towers are big component of the index.
22:04
Speaker 4: They haven't done well for a couple of reasons.
22:06
Speaker 9: One is the the growth characteristics have been modest exactly
22:12
Speaker 9: because they have sort of very strong pricing power characteristics.
22:17
Speaker 9: They had high multiples, but high multiples and high rates
22:19
Speaker 9: don't go well together. So if the raids start to
22:22
Speaker 9: roll over, tower reach should perform well over the next
22:25
Speaker 9: twelve months.
22:25
Speaker 2: Paul Paul loves towers, because I'm gonna guess he took
22:28
Speaker 2: somebody's towers, American tower, the public.
22:31
Speaker 1: We made the fees we made off of those things,
22:33
Speaker 1: gold mines, gold mines, and we rolled the whole for
22:36
Speaker 1: the bankers.
22:37
Speaker 2: Oh yeah, well, good for those for the sellers, right,
22:41
Speaker 2: I mean, I remember when Deutsche Telecoms took all their towers,
22:44
Speaker 2: they sold them and least them back.
22:45
Speaker 1: They thought that those assets were worthless, and they were
22:47
Speaker 1: worth seven eight nine times cash low we got them
22:49
Speaker 1: for so anyway, so we made money on the tower
22:52
Speaker 1: of business back in the day. So here in New
22:56
Speaker 1: York City, you're a rika, You're a real sticky. When
22:59
Speaker 1: I yet true, a high quality third Avenue, forty eighth
23:06
Speaker 1: Street tower, when that gets sold in the next year
23:09
Speaker 1: or two, is it going to be ten percent below
23:12
Speaker 1: where it was? Fifty percent more than that? How bad
23:16
Speaker 1: do you think the office market is in a market
23:18
Speaker 1: like New York Because we haven't seen stuff really trade,
23:21
Speaker 1: so we don't know what the discount really is.
23:24
Speaker 9: Right, It's it's bad in the sense that we've seen trades,
23:28
Speaker 9: whether they're New York, San Francisco, or other major cities.
23:31
Speaker 4: What we've seen is some funds.
23:34
Speaker 9: Some private equity funds give back the office properties to
23:37
Speaker 9: the lenders and then the so the asset is worth
23:41
Speaker 9: less than the loan. So we've seen property declines over
23:43
Speaker 9: the last twelve months in the office sector of anywhere
23:46
Speaker 9: from twenty to forty five percent of transactions that have happened.
23:51
Speaker 4: So that's what we're seeing.
23:53
Speaker 9: And I would we would believe that, you know, office
23:55
Speaker 9: values are down anywhere from twenty to thirty to forty percent.
23:58
Speaker 4: So if a property that you just made hasn't.
24:00
Speaker 9: Traded and say three or four years, you can probably
24:03
Speaker 9: see a pricing that's you know, thirty or forty percent
24:05
Speaker 9: lower than we're last traded at because of higher cap
24:09
Speaker 9: rates for office and concerns about NLI of the office
24:13
Speaker 9: buildings because of less tenant demand and the continuation of
24:17
Speaker 9: work from home.
24:19
Speaker 2: What's the best way, I mean reads, You can go
24:23
Speaker 2: and buy them individually. There are also ETFs of reats.
24:27
Speaker 2: There are a number of ways to get at the product.
24:29
Speaker 2: Does the rapper matter or what's your view on that right?
24:33
Speaker 9: I'd say, you know, certainly from where we stay, we
24:36
Speaker 9: run an active actually managed long only strategy, and I
24:40
Speaker 9: think that the diversity helps total returns, certainly for us
24:45
Speaker 9: and our clients. I think that the you know, there
24:50
Speaker 9: were no even though I mentioned that reads were up
24:52
Speaker 9: only two or three percent this year, there are a
24:54
Speaker 9: number of property sectors that have done quite well, whether
24:56
Speaker 9: it's data centers up twenty twenty five percent, through up
25:00
Speaker 9: ten or twelve percent, multi family up seven percent. So
25:03
Speaker 9: there's been some real winners. So active management does matter.
25:06
Speaker 9: And I think as we move into twenty twenty four,
25:09
Speaker 9: and as we sort of get into the get past
25:12
Speaker 9: the FED rate hiking cycle and the environment changes somewhat,
25:15
Speaker 9: I think there'll be some continued strong differential and performance
25:20
Speaker 9: of the various property sectors.
25:21
Speaker 4: Are there to twenty four?
25:22
Speaker 1: Are there?
25:22
Speaker 2: I mean the big losers, Steve, I'm guessing like office
25:25
Speaker 2: space here long third Avenue, right, Yeah? Have they lost
25:29
Speaker 2: enough so that they become interesting in terms of you
25:33
Speaker 2: know the multiples.
25:34
Speaker 9: Sure, in the public sector, I mean the office reachs.
25:37
Speaker 9: At one point this year, we're down forty percent. So
25:40
Speaker 9: publicly traded real estate reflected higher registrates reflective concerns about
25:44
Speaker 9: an economic slowdown, et cetera, et cetera.
25:46
Speaker 4: So they really had real.
25:48
Speaker 9: Time pricing and they would be the first to recover
25:51
Speaker 9: of in terms of a recovery in the economy or
25:54
Speaker 9: a slowdown in the rays of rates in the private market,
25:57
Speaker 9: the pricing has not adjusted so quickly. So it's clear
26:01
Speaker 9: today and that's why you reads are training at a
26:02
Speaker 9: twenty percent.
26:03
Speaker 4: Discount and net asset value.
26:04
Speaker 9: They're training to get a big discount to property prices,
26:07
Speaker 9: and they reflect both the higher rates in the impact
26:12
Speaker 9: of It's just a modest slow down in demand for
26:14
Speaker 9: certain property sectors like office.
26:16
Speaker 8: What you mentioned all.
26:16
Speaker 1: Right, interesting stuff real estate Real Estate Investment Trust. Steve
26:19
Speaker 1: Brown is our go to guy, senior portfolio manager Global
26:22
Speaker 1: real Estate for American Century Investors.
26:24
Speaker 4: We didn't get to.
26:25
Speaker 1: Talk about my favorite rate, which is Lamar Advertising billboards.
26:28
Speaker 1: Also did that company public.
26:30
Speaker 7: You're listening to the Team Ken's are Live program Bloomberg
26:34
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot com,
26:37
Speaker 7: the iHeartRadio app and the Bloomberg Business app, or listen
26:40
Speaker 7: on demand wherever you get your podcasts.
26:45
Speaker 1: I want to talk about one of the stories crossing
26:48
Speaker 1: the tape. We work to renegotiate nearly all leases exit
26:52
Speaker 1: unfit sites, so we work is still a thing and
26:55
Speaker 1: we talk real estate. We talked at Jeff Langbaum. He
26:57
Speaker 1: covers all the reads and all the real estate stuff
26:59
Speaker 1: for Bloomberg Intelligence Agency joins us via zoom from the Princeton,
27:03
Speaker 1: New Jersey campus of Bloomberg.
27:06
Speaker 4: Jeff, let's start with you.
27:07
Speaker 1: Where is we work these days in the marketplace? What's
27:11
Speaker 1: happening with their portfolio of properties?
27:14
Speaker 4: What's the latest?
27:16
Speaker 10: So I like the way you put it, Paul, we
27:18
Speaker 10: work is still a thing, although although I mean, you know,
27:22
Speaker 10: it seems like they're hanging on, you know, by a
27:25
Speaker 10: thread at this point. The news out today that they're
27:28
Speaker 10: planning to renegotiate all their leases. I mean, you know,
27:31
Speaker 10: a renegotiation or a negotiation by definition, requires two parties.
27:37
Speaker 10: It's going to be a wide range of outcomes in
27:41
Speaker 10: terms of what their landlords want to do and are
27:45
Speaker 10: willing to do. Obviously, you've got a market where office
27:48
Speaker 10: demand is light, and so if you've got a tenant
27:51
Speaker 10: that wants to stay in your building, maybe you'd be
27:53
Speaker 10: willing to give them a break. But at the same time,
27:55
Speaker 10: if they're saying they want to stay in their best properties,
27:59
Speaker 10: maybe those are property is where you're not eager to
28:02
Speaker 10: give them a break. Because those may be properties that
28:04
Speaker 10: you could fill with a tenant on perhaps better financial footing.
28:08
Speaker 10: So it's going to be a long workout, just like
28:12
Speaker 10: the commercial real estate industry broadly is in the middle
28:14
Speaker 10: of right now, and it will be kind of interesting
28:17
Speaker 10: to see how it plays out.
28:18
Speaker 2: So in terms of we work clients, how many of
28:22
Speaker 2: them have said, you know what this is, this is
28:26
Speaker 2: getting a little sketchy for us. We're going to go
28:28
Speaker 2: over and get some office space with Regis or another competitor.
28:32
Speaker 10: Well, their occupancy rate has fallen, and so clearly the
28:36
Speaker 10: demand for their space is not nearly as strong as
28:39
Speaker 10: it was. And some cone of that is probably tenants
28:42
Speaker 10: moving to someplace a little bit you know, stronger in
28:45
Speaker 10: a stronger position. Some may be getting permanent office space,
28:49
Speaker 10: some may be just sitting and waiting, but some is
28:51
Speaker 10: just you know, because the market is soft and there's
28:54
Speaker 10: not nearly as much office demand. And you know, obviously
28:57
Speaker 10: that's the underlying problem for them is they've got these
29:01
Speaker 10: you know, long term fixed lease payments and the revenue's
29:06
Speaker 10: not coming in at the level that they expected it
29:08
Speaker 10: to be. So that's what's triggering the need for them
29:11
Speaker 10: to scale back. But without a bankruptcy, you know, they
29:14
Speaker 10: don't have the ability to just walk away from leases,
29:17
Speaker 10: and clearly seems like they're trying to avoid going that route.
29:21
Speaker 4: Hey, Jeff, you're the expert on this stuff.
29:23
Speaker 1: When we see an office trade office building trade on
29:27
Speaker 1: let's say, on Third Avenue in Midtown Manhattan, what kind
29:30
Speaker 1: of haircut is it going to trade at fifty from
29:33
Speaker 1: where it was before? Something less than that, something more
29:35
Speaker 1: than that?
29:36
Speaker 10: This is going to be ugly, Well, it really depends
29:39
Speaker 10: on what the where it was before is how that's measured, right,
29:44
Speaker 10: I mean, if if you're talking about where values paper
29:48
Speaker 10: values were at their peaks, you know you might see
29:52
Speaker 10: pretty significant haircuts in the in the range that you're
29:56
Speaker 10: talking about. You know, if you're talking about trades relative
30:01
Speaker 10: to the last time of building traded, which may be
30:04
Speaker 10: you know, a decade or more ago, it might not
30:06
Speaker 10: be as bad. The issue really is going to be
30:09
Speaker 10: where are these where are values now relative to where
30:14
Speaker 10: you know debt can be underwritten, because that's what's going
30:17
Speaker 10: to trigger the need for properties to trade is a
30:20
Speaker 10: financing situation. And you know, we really just haven't seen
30:25
Speaker 10: enough data points yet to know because while there's clearly
30:29
Speaker 10: distress in the market. It hasn't yet gotten to the
30:32
Speaker 10: point where distressed trades enough distress trades are happening to
30:36
Speaker 10: really know what prices are going to look like.
30:38
Speaker 1: Yeah, it's gonna be fascinating to see kind of where
30:40
Speaker 1: those values are in some of these big cities New York,
30:42
Speaker 1: San Francisco.
30:43
Speaker 4: All right, Jeff, thanks so much for joining us. We
30:44
Speaker 4: appreciate you hopping on in short notice.
30:46
Speaker 1: Jeff Lang BOUNDI covers all the reads for a Bloomberg Intelligence.
30:50
Speaker 7: You're listening to the tape catcher, our live program Bloomberg
30:53
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
30:56
Speaker 7: tune in app, Bloomberg dot Com, and the Bloomberg Business.
31:00
Speaker 7: You can also listen live on Amazon Alexa from our
31:03
Speaker 7: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
31:09
Speaker 1: All right, let's talk global energy here. We got Brent crude.
31:12
Speaker 1: I'll just quote Brent crude since we hit ninety dollars
31:14
Speaker 1: a barrel today. That got people's attention. Currently in eighty
31:17
Speaker 1: nine dollars in c.
31:18
Speaker 2: U cl one for that is it cl one c
31:22
Speaker 2: one is Brent crude. Cl one is imts.
31:25
Speaker 1: Yeah, I usuld quote name X because like my guy,
31:28
Speaker 1: you know, the.
31:28
Speaker 2: Wildcatters down in Texas cl one commodity A right, let's
31:31
Speaker 2: talk able commodity. What I'm looking to see because last
31:35
Speaker 2: year in March, the Biden administration started issuing barrels from
31:40
Speaker 2: the Strategic Petroleum Reserve. And so what I'm looking to
31:45
Speaker 2: see is are we getting back to those levels because
31:47
Speaker 2: at the pump, you know, we're there pretty much.
31:51
Speaker 4: And if the Biden administration.
31:53
Speaker 2: Thought it was too high the price so they needed
31:56
Speaker 2: to release those reserves for the good of the American
31:59
Speaker 2: people at that time, they must think the same thing
32:02
Speaker 2: again now right.
32:03
Speaker 1: I don't know. Let's check in with a couple of
32:04
Speaker 1: experts people do this stuff for living. Mike McLoone and
32:06
Speaker 1: Fernando Valley. They cover the Energy Space Force for Bloomberg
32:11
Speaker 1: Intelligence Miami. Mike is zooming in from Miami, and Fernando's
32:15
Speaker 1: here in our Bloomberg in Arctic Broker studio. Hey, Mike,
32:18
Speaker 1: I'll start with you big move higher here in oil.
32:20
Speaker 1: Let's catch on a lot of folks. By surprise, we
32:23
Speaker 1: had some of the airlines today call out higher fuel costs.
32:26
Speaker 11: Here.
32:26
Speaker 1: What do you make of it.
32:28
Speaker 11: It's a balance that will fail. I mean I did this,
32:31
Speaker 11: said the same thing last year when Kroile's got above
32:33
Speaker 11: one hundred. My call as it's going to get to
32:35
Speaker 11: forty and the low this year is sixty three. Okay,
32:38
Speaker 11: didn't get all the way there. But to me, it's
32:40
Speaker 11: just a matter of time. That's what Croil always does.
32:43
Speaker 11: It fluctuates his most autocorrelated acid commodity there is. When
32:47
Speaker 11: it jumps up, it squashes that demand increases the supply.
32:50
Speaker 11: When it pumps and drops down, it's the opposite. The
32:52
Speaker 11: key thing is what's changed, that's what does Technically, what's
32:55
Speaker 11: changed is this significant excess of supply out the US.
32:59
Speaker 11: So I'm just looking data lately. The net exports from
33:04
Speaker 11: US and Canada liquid fuels this year is going to
33:06
Speaker 11: reach five million barrels a day. Just to put that
33:09
Speaker 11: in context. That's enough. That's liquid fuel, so it includes
33:11
Speaker 11: ath and all everything. That's enough to fill up the
33:13
Speaker 11: the spr what we took out of it in about
33:16
Speaker 11: seventy days. So this is a problem for the rest
33:18
Speaker 11: of the world, not for the US, particularly what OPEC's doing.
33:21
Speaker 11: I'm sure Fernando can comment on that. But I look
33:23
Speaker 11: at what you're seeing the screen now is what I
33:24
Speaker 11: expect Crudeyle to do is it's got a major problem
33:27
Speaker 11: with the will tilting towards recession. Our model, the economics model,
33:31
Speaker 11: is one hundred percent for the US declining out of China, pmizing,
33:35
Speaker 11: everything declining in Europe and central banks still tighty. That's
33:38
Speaker 11: the macro and the micros that use you flecate fluctuates,
33:41
Speaker 11: and right now I think it's really very much near
33:43
Speaker 11: the upper end of its range.
33:44
Speaker 2: I mean, our model, Bloomberg Economics model has a one
33:48
Speaker 2: hundred percent chance for a recession. But it's fair to
33:50
Speaker 2: say the consensus on the street is for a soft landing.
33:55
Speaker 2: I mean, Goldman Sachs is fifteen percent chance of a recession.
33:58
Speaker 2: I guess his models slightly different than ours.
34:01
Speaker 1: I guess so, Fernanda, what do you know from from
34:03
Speaker 1: the fundamental perspective? What are you seeing at there? Looks
34:05
Speaker 1: like go peck if they want to higher prices that
34:07
Speaker 1: they're they're getting it.
34:09
Speaker 6: They're getting some of it. But you know, I think
34:11
Speaker 6: when you look at just again Asia, as Mike was
34:14
Speaker 6: mentioning that Germany's number is eleven percent down month over
34:18
Speaker 6: month today on the industrial orders, who's their biggest trading
34:21
Speaker 6: partner China. I think the demand side, as Mike was saying,
34:24
Speaker 6: is really the biggest concern, and if we do have
34:27
Speaker 6: a recession, it's you can't keep ninety dollars a barrel.
34:31
Speaker 6: I think what there's a discrepancy here on our views
34:35
Speaker 6: versus the street that when Assaudi and Russia agree to cut,
34:39
Speaker 6: to extend the cuts to the end of the year,
34:41
Speaker 6: they're basically saying demand looks soft to us. Not we're
34:45
Speaker 6: going to keep pushing prices higher. They're saying, we don't
34:47
Speaker 6: have a market in Asia, and so that's not a
34:50
Speaker 6: great news for anyone who knows bullish oil. We just
34:53
Speaker 6: extended that because we're not finding that supply balance yet.
34:57
Speaker 6: And as Mike was saying, will continue to grow. I
35:00
Speaker 6: think that growth is going to moderate. We're going to
35:02
Speaker 6: miss expectations on USHL just because the pace of drilling
35:06
Speaker 6: is lower, the cost of financing is lower. Remember, shale
35:09
Speaker 6: is an ever going treadmill. You're always reinvesting because you
35:13
Speaker 6: have ninety percent declines in the first year. So the
35:16
Speaker 6: shale producers will feel higher interest rates right away, higher
35:20
Speaker 6: inflation right away. Because they're constantly drilling and drilling again
35:23
Speaker 6: to maintain their production.
35:25
Speaker 2: Well, it's hard enough to get them out there to
35:26
Speaker 2: drill to put new holes in the ground, right, because
35:29
Speaker 2: not only our interest rates rising, but they're afraid of regulation,
35:33
Speaker 2: certainly in this administration.
35:34
Speaker 4: What do you think.
35:35
Speaker 2: About the SPR release and its effects, Mike, I mean,
35:39
Speaker 2: I'm looking at the chart for IMAX crude. We didn't
35:43
Speaker 2: go to one hundred until March first of last year.
35:46
Speaker 2: We stayed there until July twentieth, and the crude releases,
35:51
Speaker 2: the SPR releases began at the end of March. Did
35:54
Speaker 2: they have a significant effect.
35:57
Speaker 11: Well, I still think President Biden, to go down in history,
36:00
Speaker 11: is one of the best crude oil traders ever. He
36:02
Speaker 11: actually did the right thing. What you're supposed to do
36:04
Speaker 11: in backgradation. You sell the liquid and you buy the
36:06
Speaker 11: futures contract. Obviously I haven't bought them back yet. But
36:09
Speaker 11: we just don't need it anymore. We have an excess
36:11
Speaker 11: supply of krugeff. We shut off our exports. We're gonna
36:14
Speaker 11: have way too much of it. So I think it's
36:17
Speaker 11: just the matter of time it gets refilled. But we
36:19
Speaker 11: don't have to do it anymore. And there's one thing
36:21
Speaker 11: I wanted to kee you off on, Matt is when
36:23
Speaker 11: you go to Europe in twelve years from now, you
36:25
Speaker 11: will not be able to purchase an internal combustion vehicle.
36:27
Speaker 11: This is where we're going.
36:29
Speaker 2: That's he's trying to He's trying to go. And what
36:34
Speaker 2: I'm doing right now is I have this strategic internal
36:38
Speaker 2: combustion engine reserve.
36:39
Speaker 4: As I'm cockpiling gas, you'll.
36:43
Speaker 6: Take the other side, and then I'll say, if you're
36:45
Speaker 6: does that, you'll be able to buy Europe for that.
36:47
Speaker 6: At that point it's for the price of an internal
36:49
Speaker 6: combustion engine car.
36:51
Speaker 4: All right.
36:51
Speaker 1: So, Fernanda, what are your companies telling you about where
36:55
Speaker 1: they think oil is going.
36:58
Speaker 6: I mean, they have not cut in back at all,
37:01
Speaker 6: so they are seeing the undersupply long term, but in
37:04
Speaker 6: the short term they just want to, as Chevron says,
37:07
Speaker 6: winning any environment. I think they have continued buybacks and
37:12
Speaker 6: that is the biggest difference in big oil today versus
37:15
Speaker 6: big Oil in twenty nineteen is they cleaned up their
37:17
Speaker 6: balance sheets so they can afford to continue that share
37:20
Speaker 6: repurchase program even at much lower oil prices. And I
37:24
Speaker 6: think if you ask Mike Worth of Chevron or Darren
37:26
Speaker 6: Woods of Exxon. They would say, yeah, give me, give us,
37:30
Speaker 6: give us a dip on our stock price, because we
37:32
Speaker 6: would love to improve our returns on capitol by repurchasing
37:34
Speaker 6: some of our shares rather than going out and buying
37:37
Speaker 6: more more small e and ps.
37:40
Speaker 4: I don't know.
37:41
Speaker 1: I mean, can I go down to Texas and start drilling?
37:43
Speaker 1: I mean I think I can make money at ninety
37:45
Speaker 1: dollars a barrow.
37:46
Speaker 6: You would think, But you can't find the Tuobler goods.
37:49
Speaker 6: You can't find the labor, and you're sure not going
37:52
Speaker 6: to get permits to drill a lot of those wells.
37:55
Speaker 1: That's no fun, all right, Mike from the commodity space,
37:57
Speaker 1: just right away here, what's your number one call?
38:00
Speaker 11: Gold? The average price of gold this year, at nineteen
38:03
Speaker 11: thirty three, is the highest ever. You can't say that
38:05
Speaker 11: about virtually any other commodity or asset so far. Expected
38:08
Speaker 11: continue in this deepest pockets on the planet. Our buying
38:11
Speaker 11: goal that's Central Banks.
38:13
Speaker 1: And for now, just real quick, what are your clients?
38:16
Speaker 1: What's like the most in vogue trade you hear from
38:18
Speaker 1: your clients.
38:19
Speaker 6: Well, people are going for the soft landing movement, and
38:22
Speaker 6: we think that's not quite going to play out well
38:25
Speaker 6: for them. So they're still buying some of the petrochemical
38:27
Speaker 6: names that are exposed to housing some of the e andps,
38:30
Speaker 6: the more lever dnps that are now getting a rise
38:33
Speaker 6: out of the higher oil prices. And we think safeties,
38:36
Speaker 6: especially when you're getting a huge payout from Excellent and Chevron,
38:39
Speaker 6: is a more attractive proposition.
38:42
Speaker 1: All right, good stuff, Felms appreciate it. Fernando Valley, Mike mcgloane.
38:46
Speaker 1: They cover the energy space for Bloomberg Intelligence. Mike more
38:49
Speaker 1: from a commodityesprespect perspective.
38:51
Speaker 4: He carvers all.
38:51
Speaker 1: Commodities for BI and Fernando from the fundamentals the equity
38:55
Speaker 1: side for a lot of the big oil producing companies.
38:57
Speaker 1: It's great to get both of their views when we're
38:59
Speaker 1: talking about the global energy space.
39:02
Speaker 7: You're listening to the tape Cansur live program Bloomberg Markets
39:06
Speaker 7: weekdays at ten am Eastern on Bloomberg Radio, the tune
39:09
Speaker 7: in app, Bloomberg dot Com, and the Bloomberg Business App.
39:12
Speaker 7: You can also listen live on Amazon Alexa from our
39:15
Speaker 7: flagship New York station, Just Say Alexa Play Bloomberg eleven thirty.
39:21
Speaker 2: Let's talk about that right now, because Comments, famous for
39:24
Speaker 2: its diesel engines, is going to build a three billion
39:28
Speaker 2: dollar battery plant with help from the Chinese. And there's
39:32
Speaker 2: a lot of skepticism at these kind of partnerships concerning
39:36
Speaker 2: these kinds of partnerships, including sketchesm that Ford faced building
39:40
Speaker 2: a battery plant in Detroit recently. Let's bring in Elizabeth Bermont.
39:46
Speaker 2: She wrote the Comments story for us. She's out of
39:49
Speaker 2: Munich right now, are you?
39:51
Speaker 4: Are you in the office? You're not at the at
39:52
Speaker 4: the show? Right? Did you go to the show?
39:55
Speaker 12: I was at the Munich car size from at Monday
39:59
Speaker 12: through two yesterday and already having lots of fun with
40:02
Speaker 12: it over the weekend.
40:03
Speaker 5: It's been a great experience.
40:04
Speaker 4: All right.
40:04
Speaker 2: So what do we know about this plant that Indiana
40:09
Speaker 2: based engine manufacturer Cummins is gonna is gonna build with
40:14
Speaker 2: China's Eve Energy Company.
40:18
Speaker 5: Yeah, such an interesting development.
40:20
Speaker 12: And so, as you were just saying in your intro,
40:24
Speaker 12: come in as a diesel engine maker, and they're having
40:28
Speaker 12: to get ready for what's up next. They're picking Diamad
40:32
Speaker 12: Truck as one of the partners in that venture. The
40:35
Speaker 12: world's biggest commercial vehicle maker and then also packer, and
40:39
Speaker 12: I think that's absolutely the right way to go to partners,
40:43
Speaker 12: strong partners to share the load and gain scale to
40:46
Speaker 12: drive down the cost of switching over to batteries.
40:49
Speaker 1: Its surprised me given all the rhetoric we see out
40:52
Speaker 1: there on the geopolitical stage, why is China's Eve Energy
40:57
Speaker 1: company the part of this transaction?
41:02
Speaker 12: Well, because they have the technology. I mean, Eve is
41:05
Speaker 12: not exactly a company that's coming out of nowhere. They
41:07
Speaker 12: are a partner with BMW, and obviously there are these
41:11
Speaker 12: geopolitical tensions with the US and China.
41:14
Speaker 5: It hasn't stopped other companies from teaming up with them.
41:17
Speaker 12: You were just don't mentioning Ford and you know, there's
41:20
Speaker 12: absolutely no way around the fact that out of the
41:23
Speaker 12: top ten global battery supplies, seven of them are Chinese. So,
41:28
Speaker 12: whether you like it or not, there's kind of nowhere
41:31
Speaker 12: around working with them.
41:33
Speaker 2: Does everybody have enough battery capacity, Elizabeth, or are they
41:39
Speaker 2: building these factories quickly to try and get the capacity
41:42
Speaker 2: they think they're going to need five years, ten years out.
41:47
Speaker 12: You know, it's really interesting when you're comparing where the
41:49
Speaker 12: truck makers are and where the carmakers are. The carmakers
41:53
Speaker 12: are a lot further down the line as we know,
41:55
Speaker 12: and just coming into this conversation, I was just having
41:58
Speaker 12: a look around. You know, is this first of this
42:01
Speaker 12: kind in the US, you know, supplying batteries for trucks.
42:05
Speaker 5: I think it is.
42:06
Speaker 12: We've got one announcement from Volvo over here in Europe.
42:09
Speaker 5: So they're at this much earlier.
42:11
Speaker 12: Stage of moving into this shift, and hopefully they can
42:17
Speaker 12: learn from some of the mistakes that the car makers
42:20
Speaker 12: have been making, which is to partner up much earlier
42:23
Speaker 12: than they did in order.
42:24
Speaker 5: To save costs.
42:25
Speaker 12: Because unlike with cars, obviously, truck makers need to make
42:29
Speaker 12: a profit from their vehicles. So from the get go,
42:33
Speaker 12: commercial vehicle makers they need to offer products where logistics
42:37
Speaker 12: companies stand to stand to stand to make a profit.
42:40
Speaker 2: I wonder though about the actual materials. So this folk,
42:45
Speaker 2: this factory is going to focus on lithium iron phosphate batteries. Initially,
42:50
Speaker 2: I've heard, you know, Mark Royce from GM tells me
42:53
Speaker 2: the chemistry is going to.
42:55
Speaker 4: Change every year.
42:56
Speaker 2: Right, we don't know what it's going to look like
42:58
Speaker 2: in terms of the chem needed in ten years or
43:01
Speaker 2: twenty years, but lithium is already in short supply, right,
43:06
Speaker 2: are they scrambling to get contracts for the minds?
43:12
Speaker 12: I'm not really sure in terms of that where they
43:15
Speaker 12: stand on that engagement. I mean, the LFP batteries you
43:18
Speaker 12: mentioned that, I think they're a smart initial move because
43:20
Speaker 12: they're cheaper than comparable other chemra chemistries, which will help
43:27
Speaker 12: them from the get go. In the statements from the companies,
43:29
Speaker 12: they were also saying that this is the initial chemistry
43:31
Speaker 12: that they're going to be working with. So the way
43:34
Speaker 12: that indicates that the way they're going to set this
43:35
Speaker 12: up is that they can switch over to other chemistry
43:38
Speaker 12: and chemistries as.
43:39
Speaker 5: They become available.
43:41
Speaker 12: And just on your point about availability of resources to
43:45
Speaker 12: make these batteries, I mean, it's a huge question mark
43:48
Speaker 12: and arguably there will be bottlenecks along the way. These
43:53
Speaker 12: bottlenecks we've seen historically have been able to be resolved,
43:57
Speaker 12: you know, not necessarily battery raw materials, but usually when
44:00
Speaker 12: there is a bottleneck that we you know, humans find
44:03
Speaker 12: a way around them. In terms of the supply again,
44:08
Speaker 12: that was also a big topic at the Communika show
44:10
Speaker 12: just now. The Chinese have been building their grip on
44:14
Speaker 12: the supply chain like no other nation. And while there
44:18
Speaker 12: is a lot of lithium coming out of the US
44:20
Speaker 12: or Australia as well, for example, eighty percent of lithium
44:24
Speaker 12: refining capacity is currently located in China. So it comes
44:28
Speaker 12: back to the geopolitics that we were talking about earlier on.
44:31
Speaker 12: There's currently nowhere around working with Chinese partners if you
44:34
Speaker 12: want to make battery vehicles and those.
44:37
Speaker 1: There's also some news coming out of Germany on the
44:39
Speaker 1: China front. Again, Mercedes CEO kind of changes his tune
44:43
Speaker 1: on China as you know, maybe that's not going to
44:46
Speaker 1: be such a great growth market in the next ten
44:48
Speaker 1: years as maybe they thought as recently as a couple
44:50
Speaker 1: of years ago.
44:51
Speaker 4: What's the background there.
44:55
Speaker 5: Yeah, he's really changed too, and hasn't he.
44:57
Speaker 12: We were looking back over his comments from two years ago,
45:00
Speaker 12: and back then he was just saying how the market
45:02
Speaker 12: was still looking awesome basically, and people not being able to.
45:07
Speaker 5: Get enough from their luxury vehicles.
45:11
Speaker 12: If the Chinese market really slows, that's a really big
45:13
Speaker 12: problem for the German car makers because even if VW
45:16
Speaker 12: has been losing market share there, for all of the
45:19
Speaker 12: three German car makers, China remains the biggest market, So
45:23
Speaker 12: if people there are no longer or in far fewer
45:26
Speaker 12: numbers buying their cars, that's going to be a big problem.
45:29
Speaker 5: There are, of course, other markets that they can move to.
45:32
Speaker 12: We've had some speculation just talking two people at the
45:35
Speaker 12: show that for some of the products from the Mercedes,
45:38
Speaker 12: like I know you love that car, the g Wagon,
45:40
Speaker 12: that they could focus more on Middle Eastern customers, but
45:43
Speaker 12: obviously there are far fewer Middle Eastern customers than there
45:46
Speaker 12: are Chinese customers. Again, though, the US could be another
45:50
Speaker 12: market where they could refocus their marketing efforts or the
45:54
Speaker 12: styling of their cars to see if they can unearth
45:56
Speaker 12: a few more people to buy their cars.
45:59
Speaker 2: I have always is thought, so I love the G Wagon.
46:02
Speaker 2: I've been a fan since I was nine. I bought
46:04
Speaker 2: one in twenty twenty, which made my pandemic awesome. And
46:11
Speaker 2: I've always thought, you know, they only make like a
46:14
Speaker 2: few thousand at one factory in Grots. Mercedes doesn't even
46:18
Speaker 2: build themselves. They outsource it to Magnus Styre right, and
46:20
Speaker 2: they can't make more, so there's a long waiting list
46:24
Speaker 2: and they're incredibly expensive. I've always thought Mercedes should try
46:27
Speaker 2: and make like a Volkswagen Bug version of the g
46:30
Speaker 2: Wagon that everyone can buy and everyone would buy, but
46:33
Speaker 2: they don't want to go I guess down market, right, Elizabeth, Well.
46:38
Speaker 12: They weren't talking about a baby g Wagon, weren't they
46:41
Speaker 12: at the show, which seatellite TikTok. So yeah, I mean
46:46
Speaker 12: I think they. I think even Mercedes is surprised just
46:49
Speaker 12: how many g Wagons.
46:50
Speaker 5: They can shift.
46:52
Speaker 12: So if they're adding more derivatives, which does fit the
46:56
Speaker 12: narratives that we're getting from Mercedes that they want to
46:58
Speaker 12: focus on that top performing cars, the top end vehicles
47:02
Speaker 12: within their portfolio, you know, who knows where you know
47:06
Speaker 12: they could go to make the baby do wagon.
47:10
Speaker 2: I wonder what you think about the new BMW concept.
47:14
Speaker 2: I thought it was horrible, horribly ugly, and I'm a
47:19
Speaker 2: huge fan of the cars the carmaker's history, but I
47:22
Speaker 2: don't know what they're doing with their future vehicles like
47:24
Speaker 2: the XM confuses me completely.
47:26
Speaker 4: What do you think about BMW?
47:31
Speaker 5: Well?
47:31
Speaker 12: I think, you know, car styling is so subjective and
47:35
Speaker 12: you can you can talk to no end about it.
47:38
Speaker 12: I think you really have to take off your sort
47:40
Speaker 12: of Western glasses or even sometimes German glasses in my case,
47:45
Speaker 12: what appeals to me doesn't appeal to Chinese customers, and
47:49
Speaker 12: that's where they want to sell these cars. You know,
47:53
Speaker 12: whether you like the styling or not, I don't think
47:55
Speaker 12: it really matters. They were going for some a bit
47:58
Speaker 12: of a retro design, you know, we're sort of harks
48:02
Speaker 12: back to their heyday of making these really stylish cars.
48:06
Speaker 5: So whether that's a bad idea or.
48:08
Speaker 12: Not, I'm not really sure. I didn't think the car
48:10
Speaker 12: looked terrible. What concerned me a bit more was that
48:14
Speaker 12: this vehicle, alongside the Mercedes CLA prototype that they were showing.
48:18
Speaker 12: Both of these cars are come on the new generation
48:21
Speaker 12: platform for the EVS.
48:22
Speaker 5: It's not going to be on.
48:24
Speaker 12: Sale until the first half of twenty to twenty five
48:27
Speaker 12: or thereabout.
48:28
Speaker 4: We're coming out to your LA petition.
48:30
Speaker 1: All right, Elizabeth, thank you so much. Elizabeth Barman, team leader,
48:32
Speaker 1: Bloomberg News.
48:35
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
48:38
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
48:42
Speaker 2: podcast platform you prefer.
48:44
Speaker 4: I'm Matt Miller.
48:45
Speaker 2: I'm on Twitter at Matt Miller nineteen seventy three.
48:49
Speaker 4: And I'm fall Sweeney.
48:50
Speaker 1: I'm on Twitter at pt Sweeney before the podcast. You
48:52
Speaker 1: can always catch us worldwide at Bloomberg Radio