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Jennison Bets On 'Booming' Digital Payments Sector · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg PENL podcast on Paul Swing You,
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  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
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  Speaker 1: at Bloomberg dot com. Steve Manuchin currently making comments saying
• 0:26
  Speaker 1: that President Trump and Jijan Ping of China are likely
• 0:29
  Speaker 1: to see each other at the end of June. He's
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  Speaker 1: also saying that he is happy to talk to player's
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  Speaker 1: chief executive officer on China trade policy. UH. He made
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  Speaker 1: some comments about a potential US defaults as well, saying
• 0:41
  Speaker 1: that that could happen in late summer if there is
• 0:43
  Speaker 1: no debt ceiling rays. He is testifying UH in front
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  Speaker 1: of Congress today and is going to be a commenty
• 0:50
  Speaker 1: will bring you headlines as they appear. Meanwhile, the concept
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  Speaker 1: of the ongoing trade skirmish between the U S and
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  Speaker 1: China certainly has impacted UH text shares, which have taken
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  Speaker 1: a beating and been more volatile. Our next guest still
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  Speaker 1: likes a bunch of those text socks and perhaps is
• 1:04
  Speaker 1: going to go shopping market Baraboo. He is head of
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  Speaker 1: Global Equity at Jennison Jennison Associates, the fundamental equity and
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  Speaker 1: fixed income business of p JIM overseeing about a hundred
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  Speaker 1: and sixty billion dollars from Boston, Mark, thank you so
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  Speaker 1: much for being here. So at this point, given how
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  Speaker 1: much we're seeing tech shares lag behind in light of
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  Speaker 1: some of the trade tensions, are you seeing opportunities? Yeah,
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  Speaker 1: we definitely see opportunities. Um. You know, our focus, of
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  Speaker 1: course is on really strong secular growth stories in the
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  Speaker 1: market and in technology. There are many uh oftentimes they're
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  Speaker 1: not in in the crosshairs of the trade war, so
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  Speaker 1: that you know, it's not in semi conductors, it's not
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  Speaker 1: in devices, the areas we really like our cloud based architectures,
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  Speaker 1: software as a service companies, UH. Digital payments globally everywhere
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  Speaker 1: in the world, including in China. It's booming as everybody
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  Speaker 1: moves to more cashless systems. So there's lots of opportunities
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  Speaker 1: out there, but you really want to stick with the
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  Speaker 1: the secular growers, not not try to outsmart the markets
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  Speaker 1: on this trade war. In the cyclical part of the market.
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  Speaker 1: So Mark, you mentioned kind of secular growth stories. One
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  Speaker 1: of the you know, really interesting secular growth stories that
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  Speaker 1: has been developing within the tech space. It's just kind
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  Speaker 1: of the Chinese technology companies that have American investors have
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  Speaker 1: been able to invest in recently, Ali Baba, tense Cent
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  Speaker 1: Bai Do. What is your sense of those names given
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  Speaker 1: what appears to be rising trade tensions. Yeah, with well,
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  Speaker 1: let's look at Ali Baba as an example, uh, because
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  Speaker 1: it's pretty clean, uh in terms of the trade impact,
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  Speaker 1: because it doesn't really have any direct trade war impact.
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  Speaker 1: It's really just a domestically focused company solving for convenience
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  Speaker 1: for Chinese consumers, uh and feeding that sort of emerging
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  Speaker 1: middle class boom that you're seeing in China. So you know,
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  Speaker 1: for example, in the first quarter they just boarded revenue growth,
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  Speaker 1: so no problems there, but there are multiples come down
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  Speaker 1: now because of these trade tensions. So you could say
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  Speaker 1: that's could be a really good opportunity because it's very
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  Speaker 1: inexpensive relative to its growth rate uh, and of course
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  Speaker 1: a very very profitable company because of their business models.
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  Speaker 1: So that would be a good one to focus on
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  Speaker 1: going forward. Um. The only direct impact they would have
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  Speaker 1: is more indirect than that would be. A macroeconomic slowdown
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  Speaker 1: in China obviously makes that more challenging for everybody. Uh.
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  Speaker 1: And I think that's what the markets pricing in, but
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  Speaker 1: it may be too pessimistic. When we think about tech shares,
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  Speaker 1: we often think about the Fangs, and that's really sort
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  Speaker 1: of been the dominant player uh in this space. What
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  Speaker 1: about them? I mean, are you right now interested in Apple?
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  Speaker 1: Are you interested in Facebook? Are you interested in some
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  Speaker 1: of the big winners over the past a couple of months. Well,
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  Speaker 1: I think, you know, looking at Fang and brought more
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  Speaker 1: broadly to find it, you know, the market is charing
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  Speaker 1: for some of those companies. So the smartphone market is
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  Speaker 1: matured globally. Um Uh. Search market is still growing nicely,
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  Speaker 1: but it's it's obviously slowing down on a structural basis,
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  Speaker 1: just because it's so big. Um And so when you
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  Speaker 1: look at Fang today, I mean, the two that are
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  Speaker 1: we're most excited about would be like a Netflix or Amazon,
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  Speaker 1: where the growth rates are still quite healthy and there's
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  Speaker 1: a lot of market penetration left for both companies, so
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  Speaker 1: their addressable market keeps expanding. UM. And that's what you'd
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  Speaker 1: want to look for. So I think even within FANG
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  Speaker 1: the list gets narrower. So, Mark, we would be remissed
• 4:35
  Speaker 1: today if we didn't ask you your thoughts on Qualcom
• 4:38
  Speaker 1: big news this morning with the UH their regulatory issue
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  Speaker 1: stock down. Give us your sense of Qualcom. Yeah, I
• 4:45
  Speaker 1: think the I think the market obviously thinks that recent
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  Speaker 1: deals that Qualcom is negotiated with Apple and Samsung, for example,
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  Speaker 1: can somehow be broken UM. And you know we're we're
• 4:58
  Speaker 1: not legal experts, and we don't know all the details
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  Speaker 1: of their agreements, UM, but it's our understanding that that's
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  Speaker 1: highly unlikely. And if that's the case, then qualcoms being
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  Speaker 1: oversold on this FTC decision because they've already privately negotiated
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  Speaker 1: agreements with their big customers, or most of them. So
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  Speaker 1: I'm just wondering what your highest conviction bet is right
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  Speaker 1: now going forward over the next six or twelve months. Well,
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  Speaker 1: we think it's in the area of digital payments because
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  Speaker 1: all over the world UM and developed markets. Of course,
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  Speaker 1: we have good financial infrastructure, but we're still seeing consumers
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  Speaker 1: move and move away from cash UM, which is still
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  Speaker 1: amazingly a large percentage of transactions even here and in
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  Speaker 1: emerging markets, they're actually leap frogging to internet based technologies
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  Speaker 1: that enable payments to occur very quickly, with less fraud
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  Speaker 1: and very cheaply, and providing financial services to underbanked populations.
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  Speaker 1: So that's an area we think is just looks terrific.
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  Speaker 1: And are you talking specifically about Pal about Square? I mean,
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  Speaker 1: are those the names you're talking Yes, there's a whole list.
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  Speaker 1: In the US, it would be of course, a company
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  Speaker 1: like MasterCard, which is benefiting from from that digital trans transition.
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  Speaker 1: It would be PayPal, digital wallet, it would be Square
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  Speaker 1: with serving small businesses. But then when you move outside
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  Speaker 1: the United States, it's interesting companies like Mercato Libra in
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  Speaker 1: Latin America, which has a good chance of becoming a
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  Speaker 1: dominant digital payments provider in that region. It's already an
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  Speaker 1: e commerce winner there. Um and and in and of
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  Speaker 1: course other companies that are just targeting payments like Audience
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  Speaker 1: and the Netherlands who have a blue chip customer list
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  Speaker 1: including Netflix, Uber, Airbnb, UM. So it's very good. It's
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  Speaker 1: like it sounds like a hot sector. Mark Barrebo, head
• 6:45
  Speaker 1: of Global Equity for Jennison associates, the fundamental equity and
• 6:48
  Speaker 1: fixed income business of p G. I am. Let's talk housing,
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  Speaker 1: because there have been signs that the slowing housing market
• 7:09
  Speaker 1: is starting to turn around, at least in certain parts.
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  Speaker 1: The big question, though, is, especially here now that we've
• 7:15
  Speaker 1: had the tax season, are we still seeing persistent weakness
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  Speaker 1: in some of the high tax states, particularly in the
• 7:21
  Speaker 1: coastal areas. It's one area I'd like to focus on
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  Speaker 1: with Best Friedman, chief executive officer of Brown Harris Stevens,
• 7:27
  Speaker 1: who joins us here in our Bloomberg Interactive Broker Studios. Bess,
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  Speaker 1: thank you so much for being here. So we look
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  Speaker 1: at the New York City market, or the San Francisco market,
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  Speaker 1: or some of these high end coastal high tax areas.
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  Speaker 1: Are we seeing a substantial hit at an ongoing level
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  Speaker 1: from the removal of salt deductions or have capping them anyway?
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  Speaker 1: You know, it's I don't know. It's hard to say yet,
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  Speaker 1: I don't. We were just talking earlier about, you know,
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  Speaker 1: the new mansion tax which bent has been enacted, and
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  Speaker 1: I think that uh, come July that goes into effect
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  Speaker 1: and we won't know what the effect of that is
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  Speaker 1: going to be until we see the transactions for from
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  Speaker 1: a year from now, So it's hard to say at
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  Speaker 1: this point. But so I guess what I'm hearing in
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  Speaker 1: the New York market is that the higher end is
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  Speaker 1: weaker than say the mid end of the market. Is
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  Speaker 1: that true and kind of what's driving that? If you think,
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  Speaker 1: I think the high end market has slowed down a bit,
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  Speaker 1: Definitely the co op market. I mean that used to
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  Speaker 1: be booming and we've definitely seen a slowdown. I think
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  Speaker 1: the prices were so uber high, you know, and you
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  Speaker 1: hear all these like big deals that got done and
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  Speaker 1: those days are kind of they've they've slowed down incredibly.
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  Speaker 1: So now people the two bedroom, the three bedroom market,
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  Speaker 1: that market is very fluid, but the super high end
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  Speaker 1: market co op market has slowed down because people are
• 8:41
  Speaker 1: looking for values and condominiums. They want to move downtown. Um,
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  Speaker 1: you're seeing a shift where people want to live with
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  Speaker 1: their kids. Now not everybody wants to be on the
• 8:49
  Speaker 1: Upper east Side. They want to go downtown. And now
• 8:52
  Speaker 1: Hudson Yards, which is very new, super exciting. Um. Somebody
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  Speaker 1: referred to it as Dubai on the Hudson because it
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  Speaker 1: looks similar or to some of the stores and some
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  Speaker 1: of the shopping centers in Dubai, right. I mean, it's exciting,
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  Speaker 1: and we won't know what's going to happen with the
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  Speaker 1: condos there for a while. It's gonna take some time.
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  Speaker 1: One big question I have, and we just keep talking
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  Speaker 1: at nauseum about the trade tensions in the ongoing skirmish
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  Speaker 1: between US and China and elsewhere, and I wonder about
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  Speaker 1: foreign investments. Are you still seeing that Chinese buyer, that
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  Speaker 1: European buyer to come to the US. That that buyer
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  Speaker 1: is gone. We haven't seen that buyer in a long time.
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  Speaker 1: How long um? I would say it's been three plus
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  Speaker 1: years since we've seen that buyer. I mean typically in
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  Speaker 1: New York City, it's you know, it's New Yorkers. It's
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  Speaker 1: very domestic. It's very light on you know, international people
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  Speaker 1: coming to buy. It say it's probably people think there's
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  Speaker 1: so many people that come here to buy, but really
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  Speaker 1: it's a lot of New Yorkers and a lot of
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  Speaker 1: domestic you know, Texas, all over California. People buy here
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  Speaker 1: from within the United States. So that internationally, yeah, and
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  Speaker 1: no longer Chinese buyers are gone because you see some
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  Speaker 1: of these crazy ta easy buildings here in Midtown just
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  Speaker 1: right by our office here on fifty seven Street, and
• 10:03
  Speaker 1: then on the west, the western side. It's really interesting.
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  Speaker 1: I'm wondering. You say there has been a softening, uh
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  Speaker 1: in particularly in New York City, and I'm wondering how
• 10:13
  Speaker 1: big has the softening been and how big could it be?
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  Speaker 1: You know, it's hard to say. I mean, we've seen
• 10:19
  Speaker 1: probably a bit. It's probably down about ten percent if
• 10:22
  Speaker 1: I had to estimate, And I don't know. It's you know,
• 10:25
  Speaker 1: uncertainty is not good. All the stuff that's going on,
• 10:27
  Speaker 1: like the trade wars, that kind of stuff is not good. Um.
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  Speaker 1: It creates sort of instability in the market. But you know,
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  Speaker 1: I'm pretty optimistic about it. I see, you know, rates
• 10:36
  Speaker 1: are good. Um, people are still buying, so I think that, Um,
• 10:40
  Speaker 1: you know, the market is going to be steady. It
• 10:42
  Speaker 1: has been steady, and I think it will continue to
• 10:44
  Speaker 1: be so. So best your CEO of Brown Hire, stevens Um,
• 10:48
  Speaker 1: what is your strategic focus for your firm this year?
• 10:51
  Speaker 1: Giving given what you're telling us about the real estate
• 10:53
  Speaker 1: market and some of the key markets like the Hampton's
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  Speaker 1: in New York. Well, we have kind of been focusing
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  Speaker 1: on hiring the right people. We just hired a new
• 11:01
  Speaker 1: chief marketing officer, so we're really focusing on UM, tightening
• 11:05
  Speaker 1: up our markets and getting more strategic UM. We're focusing
• 11:10
  Speaker 1: heavily on social media. That's obviously, as everybody knows, is
• 11:13
  Speaker 1: like a new channel on the television. Everybody is on
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  Speaker 1: Instagram or LinkedIn or Facebook, and so we're spending a
• 11:19
  Speaker 1: lot of time on digital. I think today print is
• 11:22
  Speaker 1: kind of old school and people are not looking at
• 11:24
  Speaker 1: it as much. In real estate used always be like
• 11:26
  Speaker 1: the glossy magazine and all the properties, but you get
• 11:29
  Speaker 1: so many more readers or interests with content and social
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  Speaker 1: and digital. So we're focusing heavily on that. And Brown
• 11:36
  Speaker 1: Hair Stevens, being a legacy firm, has typically been in
• 11:38
  Speaker 1: print and so now we're trying to flip it a
• 11:40
  Speaker 1: little bit and do more digital. I wonder if there
• 11:42
  Speaker 1: are other benefits to from going digital where you can
• 11:45
  Speaker 1: actually measure who's viewing what and then use that to
• 11:50
  Speaker 1: be able to better market and understand what people are
• 11:54
  Speaker 1: looking for. You hit the nail right on the head.
• 11:57
  Speaker 1: I mean with print, you put stuff out there, nobody
• 11:59
  Speaker 1: knows if anybod even looks at it, orf it goes
• 12:01
  Speaker 1: in the garbage. But we can totally measure what people
• 12:04
  Speaker 1: are opening up and then we can get a little
• 12:06
  Speaker 1: bit more info on that. So what are you learning?
• 12:08
  Speaker 1: We're learning like what what type of a person will
• 12:10
  Speaker 1: like our information? What who's interested in? What where do
• 12:13
  Speaker 1: they live, what's their background? All that stuff is helpful
• 12:16
  Speaker 1: to us so we can cater to our audience. UM.
• 12:19
  Speaker 1: So we're getting laser focused on digital. That's really important
• 12:22
  Speaker 1: for us, and it seems important given that the millennials
• 12:24
  Speaker 1: are coming into their real estate buying part of their lives.
• 12:27
  Speaker 1: What are you sensing any trends here, like in the
• 12:29
  Speaker 1: New York Hampton's Florida market about millennials and their purchasing intent.
• 12:34
  Speaker 1: You know, we see a lot of millennials purchasing in Brooklyn.
• 12:37
  Speaker 1: I mean that's very popular, you know, in downtown and
• 12:41
  Speaker 1: typically areas um that are not popular yet. You know,
• 12:44
  Speaker 1: they want to be in places where people are not
• 12:47
  Speaker 1: there yet, so they want to be or that's where
• 12:48
  Speaker 1: they can afford places. That's I think you said it
• 12:51
  Speaker 1: a little bit better. I'm not I'm being very diplomatic,
• 12:55
  Speaker 1: well said, but yes, I think that's a big part
• 12:58
  Speaker 1: of it. So interesting. Best ream and thank you so
• 13:00
  Speaker 1: much for joining us. Best As the CEO Brown Howard
• 13:03
  Speaker 1: Stevens talking to us about the real estate market in
• 13:06
  Speaker 1: New York, paul I felt a certain magic as our
• 13:25
  Speaker 1: next guest walked into our Bloomberg Interactive Broker's studios. He
• 13:29
  Speaker 1: is the longest serving malt master in the Scotch whiskey industry.
• 13:34
  Speaker 1: He is David Stewart of the Balveny. He is based
• 13:38
  Speaker 1: normally in Scotland the Boviny excuse me, uh, He's normally
• 13:42
  Speaker 1: based in Scotland, but he joins U here in New York. David,
• 13:46
  Speaker 1: let's just talk about what it means to be a
• 13:48
  Speaker 1: malt master. Yeah, it is a very unique job in
• 13:51
  Speaker 1: the Scotch whisk industry, the scott swisk and it's employs
• 13:54
  Speaker 1: thousands of people and and really there's probably only fifteen
• 13:57
  Speaker 1: of us doing this same jobs out the whole industry.
• 14:01
  Speaker 1: So we are actually involved in the quality of the
• 14:03
  Speaker 1: whiskey that's actually in the bottle, selecting the cast that
• 14:06
  Speaker 1: will create any one of a different expressions, making sure
• 14:09
  Speaker 1: if we taste consistently and the quality is correct, and
• 14:13
  Speaker 1: also innovating as well looking forward of what we're going
• 14:16
  Speaker 1: to release in a few years time. So we're always
• 14:19
  Speaker 1: innovating and experimenting in our warehouses and putting a whisky
• 14:23
  Speaker 1: into different cast types and maybe changing the distillation process
• 14:27
  Speaker 1: slightly to maybe give us something in the future. So
• 14:29
  Speaker 1: it's a very proud to have worked in the Scotch
• 14:32
  Speaker 1: whiskey and just for so long and and with this
• 14:34
  Speaker 1: great family company. So talk to us about the Scotch
• 14:38
  Speaker 1: whiskey business. Is it is it growing? Where is it growing?
• 14:42
  Speaker 1: Where people drinking more and less? It is growing at
• 14:46
  Speaker 1: the moment, and it has been for the last time
• 14:48
  Speaker 1: or fifteen years. A number of the distilleries are actually
• 14:51
  Speaker 1: increasing production. We need to we need to look so
• 14:54
  Speaker 1: far out to mean, our youngest whiskey is twelve years.
• 14:56
  Speaker 1: We've got to forecast what we're going to sell in
• 14:59
  Speaker 1: twelve years time. So we've got to increase production at
• 15:02
  Speaker 1: our distillery now. So we're pretty quisky into casks that
• 15:05
  Speaker 1: will age on for the next twelve years. So we're
• 15:08
  Speaker 1: increasing production or distilleries and that's happening throughout the industry.
• 15:12
  Speaker 1: There's a lot of small craft the stiller is being
• 15:14
  Speaker 1: opened up in Scotland, probably another ten or fifteen that
• 15:17
  Speaker 1: will be opened up in the next five or ten years.
• 15:19
  Speaker 1: So and Asia probably is is a big growing emerging
• 15:24
  Speaker 1: market for the Scottish whisky industry. You were talking about
• 15:28
  Speaker 1: how long you've been doing this. You started in nineteen
• 15:30
  Speaker 1: sixty two at the age of seventeen. You've been doing
• 15:33
  Speaker 1: this a long time. What's been the biggest change in
• 15:36
  Speaker 1: the industry. Yeah, Well, when I started was all but
• 15:38
  Speaker 1: blended whiskey. We single malts weren't around at that time.
• 15:42
  Speaker 1: But our company, the family company of William Grant Lawrence
• 15:46
  Speaker 1: glen Fidder back in nineteen sixty three, just a year
• 15:49
  Speaker 1: after I started, were and we probably had about ten
• 15:51
  Speaker 1: years really without any competition. And then the rest of
• 15:55
  Speaker 1: the industry soh A, well Glen Fidder was doing as
• 15:57
  Speaker 1: a single malt how profitable single maults can be. And
• 16:00
  Speaker 1: then and then the rest of the industry came into
• 16:03
  Speaker 1: two join us and launch their single malts. So I say,
• 16:07
  Speaker 1: blender whiskey is Blender whiskey is still the biggest category
• 16:11
  Speaker 1: if as sales are concerned, But single malts I've got
• 16:14
  Speaker 1: such a variety, as I've mentioned as a hundred and
• 16:16
  Speaker 1: twenty distilleris in Scotland, all producing these different styles of whiskey,
• 16:20
  Speaker 1: different flavors. So and it's yeah, it's growing to be
• 16:24
  Speaker 1: fair the last ten twenty years, it's as boom time
• 16:27
  Speaker 1: for the Scotch whisky industry and long may that continue.
• 16:31
  Speaker 1: The company you're launching, I guess a new product, three
• 16:35
  Speaker 1: bottle set of whiskeys. Tell us about that. Yeah, well
• 16:38
  Speaker 1: this is the above any stories, which is all about
• 16:41
  Speaker 1: the how we created the whiskey were calling stories, because
• 16:44
  Speaker 1: a lot of stories to tell about how the whiskies
• 16:46
  Speaker 1: were created and the people behind the behind the creation
• 16:50
  Speaker 1: of these whiskey. So that the first one is a
• 16:52
  Speaker 1: twelve year old whiskey which is they called the sweet
• 16:55
  Speaker 1: Taste of American Oak. And this is as we normally
• 16:58
  Speaker 1: we're used the American child bottles after bourbon, but in
• 17:02
  Speaker 1: this sensance we've actually used virgin oak instead of chatting
• 17:05
  Speaker 1: they we've only toasted them at a Cooper's into Kentucky
• 17:08
  Speaker 1: and we've got these bottles sent over to Scotland. We
• 17:11
  Speaker 1: gave them another toasting in Scotland and then we put
• 17:14
  Speaker 1: our twelve year old Blevinian into these casts for a
• 17:17
  Speaker 1: short finishing period, so it sided more okayness and honey
• 17:20
  Speaker 1: and citrus and vanilla notes to the whiskey. Okay, So
• 17:24
  Speaker 1: I should ask you about the increase in people investing
• 17:28
  Speaker 1: in in scotch and sort of high end bottles and
• 17:32
  Speaker 1: all of that. But I want to know more logistics
• 17:34
  Speaker 1: about your tasting of this. Do you spit out the
• 17:37
  Speaker 1: scotch when you taste it, when you swish it around
• 17:39
  Speaker 1: in your mouth, or do you drink it? Or like
• 17:42
  Speaker 1: the wine industry, we were trained nose us, so I'm
• 17:45
  Speaker 1: nosing Christy all the time. We've got tulip shaped nose
• 17:48
  Speaker 1: and glasses that got a small opening at the top
• 17:50
  Speaker 1: that we stick our nose into and so I actually
• 17:54
  Speaker 1: taste it. We don't taste that very rarely do we
• 17:56
  Speaker 1: taste that. We may need to do with twenty or
• 17:58
  Speaker 1: thirty samples in a day from all different sides of
• 18:01
  Speaker 1: the process, and you split it. Aging whiskey finishes single battles,
• 18:06
  Speaker 1: but no, when noising the whiskey, that's what that's what
• 18:08
  Speaker 1: takes a long training period. David Stewart, thank you so
• 18:13
  Speaker 1: much for being with a Smaalt Master of the Balvany
• 18:16
  Speaker 1: from Scotland. Here we're we are looking at Boeing shares
• 18:34
  Speaker 1: down more than one percent, but some people are expecting
• 18:38
  Speaker 1: that they are getting ready to unroll the newest seven
• 18:41
  Speaker 1: thirty seven, getting it back into service seven threies seven MAX.
• 18:45
  Speaker 1: This of course was the one that came under a
• 18:47
  Speaker 1: lot of scrutiny after being involved in two different crashes.
• 18:50
  Speaker 1: Joining us to give us a sense of what the
• 18:51
  Speaker 1: latest here is is George Ferguson, Senior Aerospace, Defense and
• 18:55
  Speaker 1: Airlines analyst for Bloomberg Intelligence. So, first of all, why
• 18:59
  Speaker 1: is it important for Boeing to put Max back in service? Well,
• 19:05
  Speaker 1: I mean, I think simply because there's they have no
• 19:08
  Speaker 1: other product to offer to airlines and the narrow body
• 19:11
  Speaker 1: airplane is is the most prevalently flown airplane around the world.
• 19:15
  Speaker 1: That's the biggest people mover. It's not to say that
• 19:18
  Speaker 1: the seven thirty seven has has problems and it shouldn't
• 19:21
  Speaker 1: be offered. I think the airplane is fine, um, but
• 19:26
  Speaker 1: you couldn't go to another You couldn't decide we're going
• 19:28
  Speaker 1: to redesign the seven thirty seven now because of these
• 19:30
  Speaker 1: recent problems and and have a product to offer people.
• 19:34
  Speaker 1: You know, for another five years. So, George, I know
• 19:38
  Speaker 1: next month is the Paris Air Show and among all
• 19:41
  Speaker 1: the champagne and rose that I'm sure you'll be drinking.
• 19:44
  Speaker 1: What is can Boeing actually sell airplanes? Can they sell
• 19:48
  Speaker 1: seven thirty seven max Is next month in Paris? The
• 19:52
  Speaker 1: funny thing is we've seen them actually sell a couple
• 19:55
  Speaker 1: uh in the last and last few months, even while
• 19:57
  Speaker 1: the airplane has been grounded. So can they sell them? Yeah?
• 20:01
  Speaker 1: Bits and pieces, But there won't be any significant sales
• 20:03
  Speaker 1: without getting this airplane back in the air and in
• 20:06
  Speaker 1: revenue flight. So it does look like they are going
• 20:09
  Speaker 1: to get it back in air, but it's gonna look
• 20:12
  Speaker 1: a little different, right, Yes, I mean we'll have some
• 20:15
  Speaker 1: modifications to it, uh for sure. And I think that's
• 20:19
  Speaker 1: you know, that's what's what's gonna get hammered out here.
• 20:22
  Speaker 1: What we have a global regulators meeting coming tomorrow where
• 20:25
  Speaker 1: the f A is inviting into bunch of regulators around
• 20:28
  Speaker 1: the world, and and my senses the f A is
• 20:31
  Speaker 1: going to show them what they think the right fixes.
• 20:33
  Speaker 1: And it seems to seems to us at the fixes
• 20:36
  Speaker 1: that the semcast system that pushes the nose over in
• 20:38
  Speaker 1: the event of the airplanes at risk of stalling. Um
• 20:42
  Speaker 1: that this system will be less aggressive, because it really
• 20:45
  Speaker 1: the MCAST system in both crosses really aggressively pushed the
• 20:48
  Speaker 1: airplane's nose down because it was getting erroneous sensor input,
• 20:53
  Speaker 1: but the pilots couldn't counteract it purely by pulling back
• 20:57
  Speaker 1: on the on the yoke of the airplane, of the
• 20:59
  Speaker 1: control wheel the airplane. And it seems to me that
• 21:02
  Speaker 1: sort of the fix will be not to let MCAST
• 21:04
  Speaker 1: get that aggressive so the poots can can counteract it.
• 21:08
  Speaker 1: There are other procedures for the pilots to to fix
• 21:11
  Speaker 1: what they call runaway stabilizer problem, but I think that
• 21:13
  Speaker 1: will be that will be core of the fix. I
• 21:16
  Speaker 1: think the other challenge Boeing has here is they want
• 21:20
  Speaker 1: the MAX to look like and and and take the
• 21:23
  Speaker 1: same training as the seven thirty seven n G it's predecessor.
• 21:27
  Speaker 1: They sold it to airlines with the view that there
• 21:29
  Speaker 1: wouldn't be much training required to transition from the old
• 21:33
  Speaker 1: seven seven to the new MAX. And so I think
• 21:37
  Speaker 1: what we'll watch very closely as we go into this
• 21:40
  Speaker 1: regulator negotiations, will regulators want more training, especially if they
• 21:44
  Speaker 1: want simulator training or actual flight chaining. I don't think
• 21:48
  Speaker 1: flight training is on the table, but you never know.
• 21:51
  Speaker 1: Um that cost airlines money and they won't like that
• 21:54
  Speaker 1: if they need that kind of training to transition pilots.
• 21:57
  Speaker 1: Low cost airlines hate hate additional costs, and so that
• 21:59
  Speaker 1: will be the key to watch as we get into
• 22:02
  Speaker 1: this regulator round. So, George, I know we're we're still
• 22:05
  Speaker 1: kind of in the midst of this, or Boeing still
• 22:06
  Speaker 1: in the midst of this. Is there a sense of
• 22:08
  Speaker 1: what the total cost or liability to Boeing will be here? Yees?
• 22:13
  Speaker 1: So we uh, we've been plugging some numbers together over
• 22:15
  Speaker 1: the last couple of days, and you know, our view
• 22:18
  Speaker 1: is that at the by the end of three Q
• 22:20
  Speaker 1: the airplane we're back in the air um and we
• 22:23
  Speaker 1: think that by the end of if they get into
• 22:25
  Speaker 1: the air by the end of September, we think there's
• 22:28
  Speaker 1: one point four one point five billion dollars worth of
• 22:32
  Speaker 1: what lost profit to the airlines that had deliveries before
• 22:36
  Speaker 1: it was grounded or would have gotten deliveries over the
• 22:38
  Speaker 1: last number of months. That number wouldn't sort of stop
• 22:42
  Speaker 1: increasing because airlines would have until they got the deliveries
• 22:45
  Speaker 1: they were expecting UH to continue to claim losses. We
• 22:49
  Speaker 1: based that on Southwest, which is a very profitable airline,
• 22:52
  Speaker 1: so we're trying to be a little bit high with
• 22:54
  Speaker 1: that number. But we kind of see one point four
• 22:57
  Speaker 1: one point five billions through the end of September, and
• 23:00
  Speaker 1: we see about a billion dollar cost of both both
• 23:03
  Speaker 1: of the crashes got a very good at one point
• 23:07
  Speaker 1: four billion dollars. George Ferguson, senior aerospace analysts for Bloomberg Intelligence,
• 23:11
  Speaker 1: joining us on the phone from Princeton, New Jersey. George,
• 23:13
  Speaker 1: thanks so much for your comments on Boeing. It seems
• 23:17
  Speaker 1: like to the extent that Boeing maybe past the worst
• 23:20
  Speaker 1: of this, and as George suggested, if they can get
• 23:23
  Speaker 1: the plane back in the air UH in the third quarter,
• 23:25
  Speaker 1: they can put some kind of cap on the liability
• 23:28
  Speaker 1: and and move forward. Thanks for listening to the Bloomberg
• 23:31
  Speaker 1: P and L podcast. You can subscribe and listen to
• 23:33
  Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.
• 23:37
  Speaker 1: Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa
• 23:39
  Speaker 1: abram Woyit's I'm on Twitter at Lisa Bramwoits one before
• 23:43
  Speaker 1: the podcast. You can always catch us worldwide on Bloomberg Radio.