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Bonuses Set to Grow on Wall Street, Home Depot Earnings · Bloomberg Intelligence

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 3: Well, all right, here's a little trick, folks.
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Speaker 4: If you want to have the most red story on
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Speaker 4: the Bloomberg terminal, this is what you're right. Bonus is
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Speaker 4: set to grow across Wall Street for first time since
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Speaker 4: twenty twenty one. Every single Bloomberg user out there on
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Speaker 4: the planet clicked on that story, Captain.
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Speaker 5: Nip for readers.
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Speaker 3: Really, it is awesome. It is great stuff.
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Speaker 4: Katherine Daughertydherty, she's responsible for this one. She's a financi
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Speaker 4: reporter for Bloomberg News, joining us live here in our
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Speaker 4: Bloomberg Interactive Brokers studio.
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Speaker 3: So we're going to get bonus increases this year for
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Speaker 3: our friends in Walt Wall Street.
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Speaker 6: It seems like everyone is going to be going out
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Speaker 6: of twenty twenty four with ale on their face hopefully.
1:02
Speaker 7: Yeah.
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Speaker 4: So what I mean, I guess it's just simply a
1:04
Speaker 4: function of profitability on the street. I mean just huge
1:08
Speaker 4: profits is he coming out of these big investment banks.
1:10
Speaker 6: So it shouldn't come as a surprise because we've seen
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Speaker 6: the banks report more activity across trading, even deals are
1:17
Speaker 6: starting to show signs of a return to more m
1:21
Speaker 6: and A. It just means more fees and so when
1:24
Speaker 6: there's more revenue coming into these banks, they're able to
1:26
Speaker 6: pay their bankers more, and so across Wall Street, we're
1:30
Speaker 6: likely to see double digit pay increases, some as much
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Speaker 6: as twenty five to thirty five percent, others closer to ten.
1:39
Speaker 6: But it does look like this is going to be
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Speaker 6: a bigger bump close to the twenty twenty one highs
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Speaker 6: so's it's been three years, but we're starting to see
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Speaker 6: a turnaround.
1:49
Speaker 5: Talk to us.
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Speaker 8: About corporate clients specifically returning to the market because I
1:52
Speaker 8: know obviously the Federal Reserve and previously in those three
1:56
Speaker 8: year span where rates were the highest they'd been about
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Speaker 8: a generation. Kind of the difference there when your to
2:00
Speaker 8: see that ease now.
2:01
Speaker 6: When it comes to borrowing costs, yeap, So we see
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Speaker 6: a return to companies tapping both the equity and debt markets.
2:08
Speaker 6: Debt especially as rates are coming down, and this is
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Speaker 6: also a reflection of just we had a period of
2:16
Speaker 6: uncertainty and now that there's more clarity on what the
2:19
Speaker 6: Fed is going to do with rates, Now that we
2:21
Speaker 6: have gotten through the election and we know who the
2:25
Speaker 6: new administration is going to be, that is probably going
2:28
Speaker 6: to just mean more deal activity and more companies that
2:32
Speaker 6: are tapping their bankers and asking what they might be
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Speaker 6: able to do to increase their earnings or to help
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Speaker 6: with their balance sheets if they have been stressed over
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Speaker 6: the past few months or years.
2:45
Speaker 4: Back in my day on Wall Street, my bonus would
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Speaker 4: make up many years ninety six percent of my total
2:52
Speaker 4: annual compensation.
2:53
Speaker 3: Really my bonus. Wow.
2:55
Speaker 4: But what's happened now is they've increased the base pay
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Speaker 4: and reduced the amount of incentive compensation, okay to kind
3:02
Speaker 4: of you know, get away from those big bonus numbers.
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Speaker 8: But catalysts to shift that.
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Speaker 4: I think it was just some of the public backlash
3:11
Speaker 4: to the big bonus numbers out there, so it created
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Speaker 4: the exact wrong incentive in my opinion. But anyway, dead underwriting,
3:18
Speaker 4: equity underwriting, they're going to get the big winners, right.
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Speaker 6: Yes, it seems like that's where we've seen a lot
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Speaker 6: of the activity right behind them trading and M and A.
3:28
Speaker 6: It's returning. So that wasn't the strongest sector in the past,
3:32
Speaker 6: especially the last two years. But twenty twenty four is
3:35
Speaker 6: looking up. There's those green shoots are starting to actually
3:38
Speaker 6: show some activity and looking ahead. We've even got some
3:42
Speaker 6: indicators for twenty twenty five. I know that is it
3:45
Speaker 6: seems far away, but it's really not. It's right around
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Speaker 6: the corner, and all indicators are pointing to positive growth
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Speaker 6: in the new year as well as to end this year.
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Speaker 8: Were there any sectors that were left out?
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Speaker 6: Well, retail and commercial banking. I don't know what you
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Speaker 6: mean by left out, but those are actually the only
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Speaker 6: two that we are projected to be flat or even
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Speaker 6: slightly down, So not catastrophic, but not the payout and
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Speaker 6: the boon that you might see with debt and equity
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Speaker 6: underwriting bankers.
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Speaker 4: And is it expected that'll be pretty much across most
4:21
Speaker 4: firms be pretty pretty similar. Do you think we're gonna
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Speaker 4: have some firms that are gonna do really better in
4:24
Speaker 4: terms of paying people versus some are that are gonna
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Speaker 4: be lagrags. I know some companies, some firms have some
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Speaker 4: pressure from their shareholders to keep that expense ratio in
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Speaker 4: line and things like that.
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Speaker 6: That's right, but I would say that across the big
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Speaker 6: six Wall Street banks, they have to they remain competitive,
4:40
Speaker 6: so they have to pay their people so that they
4:44
Speaker 6: don't if you are thinking about your expenses, and they
4:47
Speaker 6: need to be. But if you skimp and you're not
4:50
Speaker 6: paying your people what they expect to be paid, they
4:53
Speaker 6: might go across the street and then we'll start to
4:55
Speaker 6: see some jumping, which we saw during twenty twenty one,
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Speaker 6: and that has pulled back just with compensation. So competition
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Speaker 6: was not as much of a problem for the banks.
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Speaker 6: But it's a really great point. It's something that we'll
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Speaker 6: pay attention to. Will this mean that there'll be more
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Speaker 6: shifting of the chair, as we say, across Wall Street firms.
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Speaker 4: And we'll talk I mean, at two pm Wall Street today,
5:17
Speaker 4: Shanali bask interviewing Jane Fraser, CEO of City Tune in
5:20
Speaker 4: so that'll be some good conversation about the state of
5:24
Speaker 4: global Wall Street. The average salary including bonuses was four
5:27
Speaker 4: hundred and seventy three hundred and seventy dollars last year,
5:30
Speaker 4: down five point two percent, largely due to smaller annual payouts.
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Speaker 4: That's what the New York State comptroll or Thomas D.
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Speaker 4: Napoli said last month. So folks whould really pay attention
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Speaker 4: to how much Wall Street's getting paid is the City
5:41
Speaker 4: of New York for the other taxes.
5:45
Speaker 5: Whenever you're speaking with your sources, what's their thoughts on
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Speaker 5: a market volatility when you have a new administration coming
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Speaker 5: in and what this could potentially shape when you're thinking
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Speaker 5: about how bonuses could potentially change next year.
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Speaker 6: So I think what is what was interesting in talk
6:00
Speaker 6: to folks leading up to the election, Many bankers that
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Speaker 6: I talked to said that this was not a decision
6:08
Speaker 6: or trading firms, investment managers. They weren't making the decision
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Speaker 6: of where to move their money the week of the election.
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Speaker 6: That decision had made over the summer or weeks even
6:19
Speaker 6: months before. So we saw a lot of activity which
6:23
Speaker 6: will likely be reflected in the next earning cycle for
6:26
Speaker 6: banks when they report how much of their trading activity,
6:29
Speaker 6: which we expect to be up. And now that the
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Speaker 6: administration is you even see some of the folks that
6:37
Speaker 6: are being picked to lead in the Trump administration. As
6:40
Speaker 6: that becomes more clear, you'll see probably people taking even
6:44
Speaker 6: more bets on where the economy is headed, maybe some
6:47
Speaker 6: geopolitical tensions that people will start to make decisions based
6:52
Speaker 6: on the new leaders that are in place, so you
6:54
Speaker 6: can expect to probably see even more trading activity. This
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Speaker 6: is not the end, it's probably just the beginning, or
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Speaker 6: the way that I see it, and from the conversations
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Speaker 6: that I'm having with traders on Wall Street.
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Speaker 4: Catherine, thank you so much for joining us. Really appreciate it.
7:07
Speaker 4: Excellent reporting. Most read story on the Bloomberg terminal. How
7:10
Speaker 4: about that, Catherinedarerty. Of course I could have written it
7:12
Speaker 4: become the most you know, But that's how you write it.
7:16
Speaker 3: You write anything about Wall Street and bonuses.
7:18
Speaker 4: Boom Techo Catherin Dherty Financial Report of Bloomberg News joining
7:21
Speaker 4: us here in our Bloomberg Interactive Broker's studio. So again,
7:24
Speaker 4: our friends on Wall Street looks like they're gonna have
7:26
Speaker 4: a pretty good year this year. Maybe that means it'll
7:29
Speaker 4: be buying more terminals, leasing more terminals. That's how I
7:31
Speaker 4: think about it.
7:32
Speaker 8: The Bloomberg connecting it back, you connect it all back
7:35
Speaker 8: to us circle there.
7:38
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Speaker 2: Just Say Alexa playing Bloomberg eleven thirty.
7:56
Speaker 3: Home Depot put out some numbers.
7:57
Speaker 4: Apparently some of the hurricanes have caused people to have
7:59
Speaker 4: to get a bunch of supplies to repair their homes,
8:03
Speaker 4: and that kind of boat that worked out well for
8:05
Speaker 4: the folks.
8:05
Speaker 3: At Home Depot.
8:06
Speaker 4: Drew writing home builder analysis for Bloomberg Intelligence joints us
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Speaker 4: here Drew talk to us about Home Depot. I guess
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Speaker 4: raising its outlook here. What did you hear from the company?
8:16
Speaker 9: Yeah, solid quarter, a beaten raise on same store sales,
8:19
Speaker 9: which is their key metric everybody pays attention to. It
8:22
Speaker 9: looks like they got a little bit of benefit from
8:24
Speaker 9: warmer weather across the country, and at the same time
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Speaker 9: they also benefited from some of the recent hurricane activity
8:31
Speaker 9: that we had in the South. They mentioned about a
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Speaker 9: two hundred million dollar sales benefit or fifty five basis
8:37
Speaker 9: point impact to same store sales. I think that the
8:41
Speaker 9: main takeaway is that the underlying trends of the business
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Speaker 9: really haven't changed all that much despite the race to
8:49
Speaker 9: the full year guidance, which really just reflects the outperformances
8:53
Speaker 9: quarter due to weather. You know, their customers are still
8:57
Speaker 9: battling with the cumulative impact of inflation over the land
9:00
Speaker 9: several years. One thing they continue to call out is
9:03
Speaker 9: general economic uncertainty. And you also have the housing market
9:07
Speaker 9: which is extremely depressed. If you look at resale volumes
9:10
Speaker 9: in the existing home market, we're at the lowest levels
9:13
Speaker 9: in fourteen years. So you know, it's it's hard to
9:17
Speaker 9: get a turn around in the home improvement retelligence until
9:21
Speaker 9: we start to see a little bit more activity on
9:23
Speaker 9: the housing front.
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Speaker 8: And we're also going to have Low's earnings next week.
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Speaker 8: As you know, it's interesting just looking at Home Depot
9:28
Speaker 8: stock ticker simple AHDS down about five tens of a
9:31
Speaker 8: percent right now. It's actually up seventeen percent year to date,
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Speaker 8: but it's still under performing Lows that's actually up about
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Speaker 8: twenty two percent. Why the divergence here, because we do
9:40
Speaker 8: know there comes to there's some differences between both companies.
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Speaker 9: Yeah, I think the primary reason for the outperformance just
9:48
Speaker 9: has to do with kind of a technical situation where
9:51
Speaker 9: Home depots, valuation premium over Lows kind of got a
9:56
Speaker 9: little stretch versus history, so part of that was just
9:59
Speaker 9: playing catch up. You know, Low's is also viewed as
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Speaker 9: more of a turnaround story than Home Depot, so they're
10:04
Speaker 9: doing some company specific things on the margin side, on
10:07
Speaker 9: the cost takeout side that are kind of lifting their
10:09
Speaker 9: margins up to where home depots are. So I think
10:13
Speaker 9: part of it is just where the multiples were between
10:15
Speaker 9: the two companies, and part of it is investors placing
10:18
Speaker 9: their bets on a turnaround story with Lows and.
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Speaker 4: Just remind us the differing customer bases. Lows versus Home
10:25
Speaker 4: Depot is one more professional than the other.
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Speaker 9: Sure, so home Depot is about fifty percent DIY fifty
10:31
Speaker 9: percent professional contractor. Low's is about seventy five percent DIY
10:36
Speaker 9: twenty five percent pro customer. You know, that mix has
10:40
Speaker 9: really been a benefit to Home Depot because, as we know,
10:42
Speaker 9: the professional contractor has held up relatively stronger than the
10:47
Speaker 9: DIY market. They're still operating backlogs over the last several months,
10:51
Speaker 9: so they continue to have that stream of business. Now,
10:54
Speaker 9: it's certainly we're not seeing those those big ticket projects
10:56
Speaker 9: being replenished at the rate they were over the last
10:59
Speaker 9: couple of years, but they're still working with pretty strong backlogs.
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Speaker 9: You know, home Depot has made a point of emphasis
11:06
Speaker 9: to go after an untapped market within the broader professional
11:09
Speaker 9: contractor space, and that's really in the market for larger
11:12
Speaker 9: complex projects. You know, they pigot at about two hundred billion,
11:17
Speaker 9: and it's really what they want to do is become
11:19
Speaker 9: a one stop shop for contractors who have historically gone
11:24
Speaker 9: to multiple suppliers for their products. They want to bring
11:26
Speaker 9: all that in house and all for all the capabilities
11:29
Speaker 9: to those contractors that they're getting at the independent level.
11:32
Speaker 8: We only have about a minute left, but as curious,
11:34
Speaker 8: if you're on the earnings call for them, what would
11:36
Speaker 8: you want to ask their c suit executives.
11:40
Speaker 9: So it actually just wrapped up, and I think the
11:43
Speaker 9: biggest takeaway is really, you know, what we need to
11:46
Speaker 9: see on the existing home sales front in order to
11:48
Speaker 9: see a broader rebound in the home improvement space. And
11:52
Speaker 9: it's you know, it's not just impact rates are having
11:54
Speaker 9: on house and turnover, but it's the impact that rates
11:57
Speaker 9: are having on big ticket discretionary products. So really the
12:01
Speaker 9: color that they provide it in terms of what they
12:03
Speaker 9: need to see on rates in order to unlock that
12:06
Speaker 9: big ticket discretionary category is what I think a lot
12:09
Speaker 9: of people are paying attention to. And until you know,
12:11
Speaker 9: we see something probably in the six percent range, we
12:13
Speaker 9: don't think you start to unlock sales or that that
12:17
Speaker 9: capital home equity that's built up over the last couple
12:20
Speaker 9: of years.
12:21
Speaker 4: Yeah, mortgage mortgage rates are going the wrong way. Mortgage
12:24
Speaker 4: Bankers Association thirty year fixed rate six point eight one percent.
12:27
Speaker 4: That's the hew as it's been since kind of back
12:29
Speaker 4: in the.
12:29
Speaker 3: In the summer. So no boinno if you're looking to
12:31
Speaker 3: refinance a mortgage.
12:32
Speaker 4: There Drew reading, home building analysts for Bloomberg Intelligence, joining
12:36
Speaker 4: us from Princeton.
12:38
Speaker 2: You're listening to the Bloomberg Intelligence podcast. Catch us live
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Speaker 2: Broun Auto with the Bloomberg Business App. Listen on demand
12:48
Speaker 2: wherever you get your podcasts, or watch us live on YouTube.
12:53
Speaker 4: Bitcoin earlier in the sech session, so pushing up ninety
12:58
Speaker 4: thousand dollars per token. We're now at just under eighty
13:00
Speaker 4: seven thousand per token. But weren't we just like sixty
13:04
Speaker 4: thousand a week ago or fromth so.
13:06
Speaker 8: In the last ten sessions it's rallied twenty seven percent
13:09
Speaker 8: through yesterday's close.
13:10
Speaker 1: So there you go.
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Speaker 4: All right, I'm blaming Miami Beach for that. Mike mcgloone
13:14
Speaker 4: senior commodity strategist for Bloomberg Intelligence, he's down there in Miami, Mike,
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Speaker 4: is this just is this a trading technical thing?
13:21
Speaker 3: Is it overdone? What do you make a bitcoin these days?
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Speaker 10: I think the best answer is yes, there's there's a
13:27
Speaker 10: lot of that going on. The key thing is is
13:31
Speaker 10: ETF flows. Right now, Bitcoin just as of yesterday just
13:34
Speaker 10: crossed the threshold of one hundred billion, and total ETF
13:38
Speaker 10: holdings to put that in context, a year ago, was
13:40
Speaker 10: about eight billion. So the launch of US ETFs is
13:44
Speaker 10: brought into the mainstream has really kicked it in. And
13:46
Speaker 10: also to put that into context, total holdings of gold
13:49
Speaker 10: etaffs are around two hundred and thirty billions, so Bitcoin's
13:52
Speaker 10: almost halfway there and it's only been less than a
13:55
Speaker 10: year of actual physical ETFs. So there's a lot of
13:59
Speaker 10: physical We all know about the diminishing supply, and right
14:04
Speaker 10: now it's a bit of animal spirits.
14:05
Speaker 11: What I'm concerned about.
14:06
Speaker 10: Is you look at the correlation of Bitcoin the s
14:08
Speaker 10: and B five hundred the sixty days, it's the most
14:11
Speaker 10: ever on the way up. So the fastest horse in
14:14
Speaker 10: the race is leading everything up. And remember the world
14:17
Speaker 10: changed a week ago when President Donald Trump was elected
14:19
Speaker 10: member and first Donald Trump's administration is really pushing against crypto,
14:24
Speaker 10: is bad for the dollar, and now it completely flipped
14:26
Speaker 10: and he's making a bitcoin in the crypto people very happy.
14:30
Speaker 8: So bitcoin has been treating more like a leveraged version
14:33
Speaker 8: of beta, the digital version of gold. I know that's
14:35
Speaker 8: what you were writing about. So what do you think
14:37
Speaker 8: this could tell us also, maybe more broadly about US equities.
14:40
Speaker 8: When you have a big run like this in the
14:41
Speaker 8: crypto space, well, well.
14:43
Speaker 11: It's catching up.
14:44
Speaker 10: So it's pumped early in the year when the US
14:47
Speaker 10: ETFs were launched, it pumped up around sixty three or
14:50
Speaker 10: seventy three and then went back down to fifty. And
14:53
Speaker 10: now with this paradigm shift of the new administration be
14:56
Speaker 10: completely favorable, probably going to get again get rid of
14:59
Speaker 10: the old SEC Chairman Gary Ginstl, I have one much
15:03
Speaker 10: more favorable. So it really shifted the narrative in this space.
15:05
Speaker 10: Towards positive inklings and positive regulation. So we have those
15:09
Speaker 10: animal spares go into questions how much further? And I
15:12
Speaker 10: grat you mentioned that because I look at bitcoin is
15:14
Speaker 10: it basically trades three times a volatility of gold in
15:18
Speaker 10: S and P five hundred. Now, five years ago it
15:20
Speaker 10: traded almost nine times of VALTI.
15:22
Speaker 11: So it's coming. It's volatility is declining.
15:25
Speaker 10: But right now it's in that stage that oh boy,
15:27
Speaker 10: we have a complete flip over the administration's positive. We're
15:31
Speaker 10: seen massive buying. Everybody's looking at one hundred thousand is
15:35
Speaker 10: the next key resistance. A lot of people are saying
15:37
Speaker 10: buying an inauguration. I don't really know for sure it's
15:39
Speaker 10: going to get there. But the key thing I want
15:41
Speaker 10: to point out is what I could say is bitcoin
15:43
Speaker 10: will do fine as long as the stock market goes up.
15:45
Speaker 10: We have not seen a big test yet of stock
15:47
Speaker 10: markeling going down in bitcoin going up. And it's it's
15:51
Speaker 10: you know, it's a much higher Volatili says a tendency
15:53
Speaker 10: to be a leading indicator. Again, it trades twenty four
15:55
Speaker 10: to seven. So during the you know, even this weekend
15:58
Speaker 10: a lot of times last weekend it up almost ten
16:00
Speaker 10: percent on just over the weekend.
16:03
Speaker 4: Who's the marginal buyer of bitcoin here, Mike, Do we
16:05
Speaker 4: think it's just the retail investor via his or her.
16:08
Speaker 11: ETF right now? It is it's that allocation of capital pality.
16:13
Speaker 10: People are telling me, oh, you just got to get
16:14
Speaker 10: off zero, and by getting off zero, maybe one to
16:17
Speaker 10: two percent. And that's what's happening on a pretty significant scale.
16:21
Speaker 10: And people look at it as Okay, if I can
16:23
Speaker 10: hold one hundred units of saying the Nasdaq or S
16:25
Speaker 10: and B five hundred and put in maybe one unit
16:29
Speaker 10: of the bigcoin, I can actually have the same type
16:33
Speaker 10: of upward trajectory with less risk.
16:36
Speaker 11: I can sell more of those higher the low volt.
16:38
Speaker 10: To the assets and buy this you know, rapidly advancing
16:42
Speaker 10: speculative digital asset. But the risk is it still is
16:45
Speaker 10: a very much of his speculative digits. And just right
16:47
Speaker 10: now we're only a week away from this paradigm shift
16:50
Speaker 10: of President Trump's decisive election, and I was delighted to
16:54
Speaker 10: see him switch back over to favor of the cryptos
16:56
Speaker 10: because I like to point out is on a one
16:59
Speaker 10: day basis, right now, on twenty four hour basis, the
17:01
Speaker 10: number one trade of crypto is not bitcoin. It's actually
17:04
Speaker 10: tether and that's the US dollar. So our regulators and
17:06
Speaker 10: our leaders are figuring that out. It's good to see that.
17:09
Speaker 8: What are the technicals tell us about bitcoin? What's resistance?
17:12
Speaker 3: What's support?
17:12
Speaker 10: At this point, Yeah, eybody's looking at one hundred grand,
17:15
Speaker 10: it is kind of the key level. The key support
17:17
Speaker 10: is seventy That's kind of where it broke out from.
17:19
Speaker 10: So seventy two hundred are the key levels. And we
17:22
Speaker 10: all know it's bitcoin. It can be quite you know,
17:25
Speaker 10: can make you lose your hair as people and the
17:27
Speaker 10: viewers can see. I did that. But yeah, so seventy
17:30
Speaker 10: two hundred thousand of the key levels. After that we'll
17:32
Speaker 10: have to see.
17:33
Speaker 9: All right.
17:34
Speaker 4: For Alex Steele, I know she's listening talk to us
17:36
Speaker 4: about oil. We're dat got WTI crude oil down here
17:39
Speaker 4: at sixty eight bucks a barrel? Is that just expectation
17:42
Speaker 4: that we're going to drill, baby, drill.
17:44
Speaker 10: I'll see at fifty six, it's just a matter of time.
17:46
Speaker 10: Fifty six is the average cost of production in the
17:48
Speaker 10: US based from benef Bloomberger New Energy Finance, and every
17:53
Speaker 10: day that goes by, we stay above that level. You
17:55
Speaker 10: see rapidly increasing access as a supply in the US
17:59
Speaker 10: and Canada, decreasing demand in China, most notably in diesel.
18:03
Speaker 11: Diesel demand is inclined in the.
18:04
Speaker 10: US, in Europe, in India, China, and we see that
18:10
Speaker 10: that's the growing spare capacity out of opex. So crude,
18:14
Speaker 10: I think, is going to do what natural gas did.
18:15
Speaker 10: It had to get below its cost of production. They
18:17
Speaker 10: did that Q one and it's bounced. The grains have
18:19
Speaker 10: basically done it in just the amount of time. And
18:21
Speaker 10: what's happening with the potential for tariffs is as you
18:24
Speaker 10: see the headlines in the terminal that China's potentially enemy
18:28
Speaker 10: number one for Trump two point zero. This is really
18:31
Speaker 10: bad for that number one demand force for commodities in
18:33
Speaker 10: the planet, which means we should do what's normal in
18:36
Speaker 10: commandits get blow that cost production. That's why I point
18:38
Speaker 10: out typically it's blow fifty six and for WTI and
18:42
Speaker 10: then I think it's put in pretty good ceiling just
18:45
Speaker 10: below eighty and questions what stops that I don't know
18:47
Speaker 10: right now.
18:48
Speaker 8: Switching gears and looking at precious metals, I know gold
18:51
Speaker 8: you were pointing out me actually have a foundation from
18:54
Speaker 8: a technical perspective, around twenty four hundred ounce on track
18:58
Speaker 8: toward three thousand. Walls talk us more about that, So I.
19:02
Speaker 11: Like to creator it what I've been saying for I
19:04
Speaker 11: hate to say how long. A couple of years.
19:06
Speaker 10: It's a matter of time it gets to three thousand.
19:07
Speaker 10: The high this year is around twenty eight hundred. That
19:09
Speaker 10: was very expensive. It's just pulling back for good reason,
19:12
Speaker 10: the decisive election, the potential daytunt and global geopolitical risks,
19:17
Speaker 10: which is probably not going to happen. But the bottom
19:19
Speaker 10: line for goldie is a bull market. It's bucking, it's
19:21
Speaker 10: backing up a little. The difference is we haven't seen
19:23
Speaker 10: that in the stock market in a while. They've been
19:25
Speaker 10: kind of going up. Predict on a one year basis,
19:28
Speaker 10: Gold's up about thirty three percent, SMB five hundreds about
19:31
Speaker 10: thirty seven percent. So it's just a question of what
19:33
Speaker 10: will drive it next to bottom line, as we have
19:36
Speaker 10: rising geopolitical tensions and the number one source of demand
19:39
Speaker 10: for gold has been central banks ETFs are just starting
19:43
Speaker 10: to turn upward. But what I've been saying about gold
19:45
Speaker 10: is there's really not a reason for US investors to
19:47
Speaker 10: buide until we see that US stock market tear end
19:50
Speaker 10: and or rates to go down. But for now, maybe
19:53
Speaker 10: it gets down a twenty four hundred. That would be
19:54
Speaker 10: a decent backup, normal backup in a bull market.
19:57
Speaker 11: Otherwise it's still a bull market. It's just bucking a little.
20:00
Speaker 4: Mike mclone great stuff. As always, We'll talk pork bellies
20:03
Speaker 4: next time. Mike McLoone, senior commodity strategist for Bloomberg Intelligence.
20:06
Speaker 4: He's down there in Miami. I don't know how he
20:09
Speaker 4: got in Miami, but he's.
20:11
Speaker 5: A pretty sweet deal.
20:12
Speaker 3: He's got it. He's got a sweet Yeah. But you
20:14
Speaker 3: get to be Mike McLoone. You can do whatever you want.
20:16
Speaker 4: He said, Hey, I'm going to Miami. I said, okay,
20:19
Speaker 4: enjoy it, you know, have fun.
20:21
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
20:25
Speaker 2: weekdays at ten am Eastern on applecar Play and Android
20:29
Speaker 2: Auto with the Bloomberg Business. You can also listen live
20:32
Speaker 2: on Amazon Alexa from our flagship New York station, Just
20:35
Speaker 2: Say Alexa playing Bloomberg eleven thirty.
20:40
Speaker 4: Jess Meant sitting in for Alex Steel on Paul Sweeney.
20:42
Speaker 4: You live here in our Bloomberg Interactive Broker studio. We're
20:44
Speaker 4: streaming live on YouTube. That's the Internet, So head over
20:48
Speaker 4: to YouTube dot com search Bloomberg Podcast and that's where
20:50
Speaker 4: you'll find us. Do you believe that they allow people
20:53
Speaker 4: to manage money in Santa Fe?
20:55
Speaker 1: I believe that.
20:56
Speaker 3: Can you believe that?
20:57
Speaker 5: Hey, they let us do it in Texas.
20:58
Speaker 3: So Emily Lavelle, she joins is.
21:01
Speaker 4: She's a portfolio manager Thornberg Investment Management. They are based
21:05
Speaker 4: in Santa Fe, New Mexico.
21:07
Speaker 3: It's a thing. I confirmed it. It's really the case.
21:09
Speaker 4: They got a lot of money forty six billion dollars
21:11
Speaker 4: in client assets based in Santa Fe.
21:13
Speaker 3: Emily, you look at international growth, correct, Okay? Is China?
21:19
Speaker 3: It's international? But is the growth? How do you guys
21:22
Speaker 3: think about China?
21:23
Speaker 7: So thanks for having me. We invest in companies, not countries, Okay.
21:30
Speaker 7: We're a concentrated portfolio. Most of the portfolios at Thornberg are,
21:34
Speaker 7: and you know, we do deep fundamental analysis on all
21:37
Speaker 7: the companies that we have in the portfolio. So I
21:40
Speaker 7: think that there are selective, really interesting opportunities in China.
21:44
Speaker 1: We have been staying.
21:46
Speaker 7: Away for the last couple of years on policy uncertainty,
21:50
Speaker 7: on growth concerns. As you mentioned, growth has been you know,
21:54
Speaker 7: buy and large GDP growth has been very weak in China,
21:58
Speaker 7: You've had price deflation. But you know, we see early
22:01
Speaker 7: signs from some of the stimulus measures announced from September
22:05
Speaker 7: through the end of October that the Chinese government is
22:08
Speaker 7: really focused on bringing growth back to the economy. They
22:12
Speaker 7: see it as a priority, obviously, and we do think
22:17
Speaker 7: therefore that there are selective places to invest there, and
22:21
Speaker 7: you know, we think it's really important for the global economy.
22:23
Speaker 7: I mean, it's the second largest economy in the world.
22:25
Speaker 7: Twenty percent of Apple revenues are there, so we do
22:29
Speaker 7: see opportunity. And look, when you're priced at you know,
22:32
Speaker 7: sub ten times earnings, it doesn't take much. Expectations are
22:37
Speaker 7: very low, and so we want to be very mindful
22:39
Speaker 7: of that.
22:40
Speaker 8: I want to talk to you about positioning in particular
22:42
Speaker 8: in the US just because of Bank of America. As
22:44
Speaker 8: you know, they put out their Fund Manager survey this morning.
22:47
Speaker 8: In each month, they always have interesting statistics in there,
22:49
Speaker 8: and so something that really jumped out was that US
22:51
Speaker 8: equity positioning had actually surged two an eleven year high,
22:55
Speaker 8: on the back of Trump winning the US presidential race,
22:58
Speaker 8: and I was curious, where are you seeing particular points
23:01
Speaker 8: in the equity market that looks stretched, whether it's an
23:03
Speaker 8: index level or a sector level, and how are you
23:05
Speaker 8: talking to your clients about that.
23:07
Speaker 7: Well, we're international investors, so we're going to be biased
23:10
Speaker 7: to begin with. But look, you know we and we've
23:13
Speaker 7: been you know, we've been saying this for a number
23:16
Speaker 7: of years. I think it continues to be true. US
23:19
Speaker 7: equity markets are are stretched. And you know, after the
23:21
Speaker 7: recent movies saw last week, look very little about the
23:24
Speaker 7: fundamentals has actually changed. You might get some deregulation that
23:28
Speaker 7: could be a boost to earnings growth in certain sectors
23:30
Speaker 7: of the US economy, but there are other policies that
23:33
Speaker 7: the Trump administration is is putting forward which are inflationary,
23:37
Speaker 7: they're contractionary, and so I'm not convinced that that move
23:43
Speaker 7: higher is going to be you know, sort of fulfilled
23:47
Speaker 7: with greater EPs growth in the next couple of years.
23:50
Speaker 7: So when we look outside the US, we find really
23:54
Speaker 7: interesting opportunities to invest in businesses that are exposed to
23:57
Speaker 7: the same sort of structural growth trends of the companies
24:00
Speaker 7: that you see here in the US, but they typically
24:02
Speaker 7: traded a lower at a lower evaluation.
24:04
Speaker 8: And something else I'm curious about is emerging markets because
24:06
Speaker 8: some of them are more commodity driven than others. So
24:09
Speaker 8: which ones do you see position more well in twenty
24:11
Speaker 8: twenty five?
24:13
Speaker 7: Again, companies not countries for US, you know, positioning into
24:17
Speaker 7: twenty twenty five. You know, we're really focused again on
24:19
Speaker 7: these long term structural winners Latin America for example. You
24:23
Speaker 7: know we've got I called the dynamic duo Marcata Libre
24:26
Speaker 7: and New Bank because you know you've got mag seven here,
24:28
Speaker 7: and we talk about the Fantastic five in Europe as well.
24:33
Speaker 7: But look, these are businesses that are that are going
24:35
Speaker 7: to win regardless of the environment. I invested in emerging
24:38
Speaker 7: markets for a good part of my career. And you
24:41
Speaker 7: just have to be focused on the companies because the
24:44
Speaker 7: macro is so volatile, you've got to be able to
24:48
Speaker 7: find companies that are in control of their own destiny.
24:51
Speaker 4: Shopify having a ripping day indeed two week we love
24:55
Speaker 4: it up twenty five percent. You guys own it? Why
24:58
Speaker 4: do you own it?
24:59
Speaker 5: We?
25:00
Speaker 7: So Shopify is a perfect example of what I was
25:02
Speaker 7: just talking about, a company that is in control of
25:04
Speaker 7: its own destiny. This is a you know, consumer focused company,
25:08
Speaker 7: the majority of its business in the US, but a
25:10
Speaker 7: growing presence outside the US as well. Obviously a Canadian
25:12
Speaker 7: based business, Shopify has been taking share from sleepy incumbents Magentos, Salesforce,
25:20
Speaker 7: you know, big software providers that where e commerce was
25:24
Speaker 7: or e commerce services were just a small portion of
25:26
Speaker 7: what they offered. Shopify has been laser focused on that.
25:28
Speaker 7: They've been taking share with better product rollouts, they've been
25:31
Speaker 7: moving up market. You know, they used to be really
25:33
Speaker 7: focused on this SMB segment. Now they're moving into enterprise
25:36
Speaker 7: and they're winning. So, you know, we saw top line
25:39
Speaker 7: growth was twenty six percent. The market was looking for
25:41
Speaker 7: twenty free castional margins of nineteen percent, so they're they're
25:45
Speaker 7: they're achieving this this balance of continued growth and share
25:50
Speaker 7: gains and profitability, and that's exactly what we want to see.
25:53
Speaker 7: And we believe that a business like Shopify, you know,
25:56
Speaker 7: because they have this better value proposition, is going to
25:58
Speaker 7: continue to grow and take share regards less of the
26:00
Speaker 7: consumer environment.
26:01
Speaker 8: Talk to us about those Chinese internet giants that you're
26:04
Speaker 8: looking at more selectively, and then how in turn that
26:06
Speaker 8: could end up impacting more of those international consumer type names.
26:11
Speaker 7: So the Chinese internet companies are really interesting. I mean, look,
26:13
Speaker 7: if you look at you know, companies like Mayton, which
26:15
Speaker 7: is a food delivery business in China. Mayiton has actually
26:18
Speaker 7: been growing earnings throughout the last two years and really
26:23
Speaker 7: delivering on a promise to balance growth and profitability and
26:29
Speaker 7: so you know, on a fundamental basis, and again as
26:33
Speaker 7: fundamental investors, we believe that's really what's going to drive
26:35
Speaker 7: stocks in the long term is can you grow your earnings,
26:37
Speaker 7: can you grow your EPs, and can you generate a
26:39
Speaker 7: return above your cost of capital? And we see with
26:42
Speaker 7: a business like mait One that they have been able
26:43
Speaker 7: to deliver that. You know, other companies JD, Baba, there's
26:48
Speaker 7: been a blood bath of competition in China over the
26:52
Speaker 7: last few years. We are looking for early stages of
26:57
Speaker 7: how that might shake out. You know, if these companies
26:59
Speaker 7: are going to try to focus on their lanes and
27:02
Speaker 7: focus on that growth plus profitability. I really think what's
27:07
Speaker 7: going to drive an improvement for JD and BABA is
27:10
Speaker 7: going to be the macro dynamics. I mean, Baba more
27:14
Speaker 7: specifically has a number of assets that they can divest
27:17
Speaker 7: and monetize as well, which could be very impactful for
27:19
Speaker 7: total shareholder return. But that's a very China specific part
27:23
Speaker 7: of the business. Now, you know, the company in China
27:25
Speaker 7: that's really moved away from China specifically is PDD, which
27:29
Speaker 7: owns Timu, which you know many of us as US
27:32
Speaker 7: consumers know. And again that is just an incredible value
27:35
Speaker 7: proposition for customers.
27:37
Speaker 3: All right, Jesse, you can fill an ocean with what.
27:39
Speaker 3: I don't know.
27:40
Speaker 4: I don't know anything about New Bank and it's got
27:43
Speaker 4: a seventy five billion dollar market cap.
27:45
Speaker 3: How did I miss this? It's up ninety year to day.
27:49
Speaker 3: What is New Bank and why do you guys own it?
27:51
Speaker 7: So? New Bank is a digital bank started in Brazil
27:55
Speaker 7: by a Columbian.
27:56
Speaker 3: I used my appalls Fargo app.
27:59
Speaker 7: Yeah, you should check out the New Bank out. No,
28:04
Speaker 7: I mean New Bank is an incredible business. Here's what
28:08
Speaker 7: New banks and competitive advantages. They are the low cost
28:12
Speaker 7: supplier of financial services in starting in Brazil, in Mexico,
28:18
Speaker 7: in Colombia, and they have taken tremendous share because they
28:21
Speaker 7: are offering a better value proposition to customers at a
28:25
Speaker 7: lower price. They've managed to maintain good asset quality as
28:31
Speaker 7: they've done this, which is you know, always the Achilles
28:33
Speaker 7: heel of a bank. Right, it's all well and good,
28:35
Speaker 7: you can attract customers, et cetera, you blow yourself up
28:37
Speaker 7: on lending. They've got a number of executives that are
28:41
Speaker 7: ex capital one executives, so really focused their early products
28:45
Speaker 7: on credit card and just offering great value for the consumer.
28:48
Speaker 7: Just to give you a sense, they've got over one
28:50
Speaker 7: hundred million clients in Latin America. Now in Mexico where
28:55
Speaker 7: they're just starting to grow their lending products, half of
28:58
Speaker 7: Mexicans don't even have a bank account. Eighty five percent
29:01
Speaker 7: of them don't have a credit card. This is a
29:03
Speaker 7: classic market that has been underserved by sleepy incumbents. A
29:08
Speaker 7: low cost supplier comes in and says, you know what,
29:10
Speaker 7: We're going to disrupt this with a better product that
29:12
Speaker 7: customers are going to love. And they are maniacally focused
29:15
Speaker 7: on their customer experience and product development. And I think
29:19
Speaker 7: it's a tremendous business. I think it's a tremendous business
29:21
Speaker 7: that has runway to compete in a number of different
29:25
Speaker 7: markets outside of just Latin America.
29:26
Speaker 8: In the long run, I have to ask you about
29:28
Speaker 8: chip stocks and have a position there because, I mean,
29:31
Speaker 8: we know that's been such much fervor over the last year.
29:35
Speaker 7: There's been a little bit of a fervor and then
29:38
Speaker 7: a little bit of a tracement in the last couple
29:39
Speaker 7: of quarters. We've remain invested. We're long term investors. Look,
29:42
Speaker 7: we think, you know, AI is a platform shift that
29:48
Speaker 7: is potentially one of the more impactful ones that we've
29:52
Speaker 7: seen over the last forty years really since we moved
29:54
Speaker 7: from mainframe to PC. And the scale and the implications
29:59
Speaker 7: of it are i think still underestimated, underestimated by the market.
30:05
Speaker 7: The way that we are invested in this space is
30:08
Speaker 7: still through the picks and shovels. It's the semiconductor industry.
30:11
Speaker 7: And the reason for that is that we still don't
30:15
Speaker 7: have a clear picture of what the applications are going
30:18
Speaker 7: to be on the top there. It's tough to invest
30:20
Speaker 7: as a public market investor in that space. Anyways. We
30:25
Speaker 7: also see, you know, incredible benefits of scale in this industry.
30:29
Speaker 7: So the big are going to get bigger. So you're
30:32
Speaker 7: semiconductor manufacturers, designers, the cloud service providers that are actually
30:37
Speaker 7: buying the GPUs, and the two interesting points that I
30:40
Speaker 7: think are are you know, continue to warrant staying invested,
30:45
Speaker 7: is that you continue to see capex growth. But it's sustainable, right.
30:48
Speaker 7: This is all self funded by the cloud service PRODUCTCE.
30:51
Speaker 7: This is not like the two thousands where you've got
30:53
Speaker 7: you know, companies that are spending two to three times
30:56
Speaker 7: there operating cash flow. This is you know, well in
30:58
Speaker 7: line with their historical spend and utilization levels are ninety
31:03
Speaker 7: nine percent and so you know they're getting a return
31:05
Speaker 7: on this investment. So that's really where we see and
31:08
Speaker 7: outside of the US, this is a global value chain TSMC, ASML,
31:14
Speaker 7: you know, Disco AMD obviously in the US, but this
31:18
Speaker 7: is really where the best quality businesses, the winners globally
31:22
Speaker 7: are actually a lot of them are outside the US.
31:24
Speaker 4: Interesting, Emily, thank you so much for joining us. As always,
31:26
Speaker 4: Emily Level, she's a portfolio manager, one of the smarter people,
31:30
Speaker 4: young people that we speaking. I'm just blown away every
31:32
Speaker 4: time for folio mantgro Thurnberg Investment Management. Somehow at sconstin
31:37
Speaker 4: Santa Fe, New Mexico.
31:38
Speaker 3: I don't know.
31:39
Speaker 4: Watch she's not riding the subways here in Manhattan like
31:41
Speaker 4: with the rest of us down down in the subways, but.
31:45
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
31:49
Speaker 2: weekdays at ten am Eastern on applecar Play and Android
31:53
Speaker 2: Auto with the Bloomberg Business at You can also listen
31:56
Speaker 2: live on Amazon Alexa from our flagship New York station
31:59
Speaker 2: Just Say Alexa, playing Bloomberg eleven, Just Meant.
32:04
Speaker 3: And sitting in for Alex Steel on Paul Swinging.
32:06
Speaker 4: You're live here in our Bloomberg Interactive Broker Studio, streaming
32:08
Speaker 4: live on YouTube as well. Here's the mistake I make
32:10
Speaker 4: when thinking about commercial real estate.
32:12
Speaker 3: I just think about offices.
32:13
Speaker 8: And that's just such a big are about, especially people
32:16
Speaker 8: coming back in office.
32:17
Speaker 11: Yeah.
32:18
Speaker 4: I don't know, but it's there's lots of opportunities, opportunities,
32:20
Speaker 4: there's risks out there.
32:22
Speaker 3: Our next guest is going to walk us through it.
32:23
Speaker 3: Robin Potts joins us here.
32:25
Speaker 4: She's Cio Canyon Partners real estate based in Los Angeles,
32:29
Speaker 4: but she's here in the world's financial capital.
32:31
Speaker 3: Why wouldn't you be, I mean, this is where it
32:33
Speaker 3: all happens. Let's be honest.
32:34
Speaker 4: Robin, thank you for joining us in our studio here. Okay,
32:37
Speaker 4: for you know, simpletons like me, I think about commercial
32:40
Speaker 4: real estate.
32:40
Speaker 3: Let's just get that.
32:41
Speaker 4: When I think about commercial real estate, I just think
32:43
Speaker 4: about office. Let's just get that out of the way.
32:44
Speaker 4: First office space in LA, in San Francisco, in New
32:49
Speaker 4: York and Boston. Any hope, any hope for office space.
32:53
Speaker 1: Office space on the West Coast, like you just mentioned,
32:55
Speaker 1: is in a world of hurt. You know, LA and
32:58
Speaker 1: San Francisco are approaching thirty percent vacancies, which is extraordinary, and
33:02
Speaker 1: when you look forward, to get to that equilibrium between
33:04
Speaker 1: supply and demand is going to take years. But you
33:07
Speaker 1: do have bright spots within each of these markets, depending
33:11
Speaker 1: on the class of office that you're in. So you know,
33:14
Speaker 1: the flight to quality theme that you've seen from tenants
33:16
Speaker 1: preferring newer build office space versus the older space that's
33:20
Speaker 1: becoming obsolete as a real trend.
33:22
Speaker 8: So talk to us more about that newer space. What
33:24
Speaker 8: kind of particular industries are jumping into that.
33:27
Speaker 1: It depends on which city you live in and which
33:29
Speaker 1: industries kind of underlie that that fundamental city. So obviously,
33:33
Speaker 1: you know, in San Francisco you've seen a lot of
33:35
Speaker 1: news about AI really jumping into take leasing an absorption.
33:38
Speaker 1: In LA, we're still dealing with the after effects of
33:41
Speaker 1: the strikes and kind of pulled back by tech tenants.
33:44
Speaker 1: So again it's just going to take time where.
33:46
Speaker 3: All right, So that's office we get that out of
33:48
Speaker 3: the way in New York.
33:49
Speaker 4: My personal metric for New York is when a building
33:52
Speaker 4: on Third Avenue trades, a big, big office building on
33:55
Speaker 4: Third Avenue trades, what's the discount going to be.
33:59
Speaker 3: Fifty per sixty percent?
34:01
Speaker 4: I don't know what that number is, but that'll be
34:02
Speaker 4: the clearing thing for me. How about the rest of
34:05
Speaker 4: commercial real estate?
34:05
Speaker 3: Where do you guys see the best opportunity these days?
34:08
Speaker 1: So from an asset class perspective, as we look forward,
34:11
Speaker 1: multifamily we think has a lot of positive fundamentals. Right now,
34:15
Speaker 1: multifamily is enduring a supply wave, but as you look
34:19
Speaker 1: forward over the next three to four years, you essentially
34:21
Speaker 1: have new supply for multifamily falling off about fifty percent
34:25
Speaker 1: depending on which market you're in. So it really sets
34:27
Speaker 1: the stage for positive rent growth across the board, which
34:31
Speaker 1: we think is a really interesting play, especially as you
34:34
Speaker 1: have home ownership affordability continuing to be a real challenge.
34:38
Speaker 1: It really underpins the rentorship demand.
34:40
Speaker 8: So how does the FED and rate cuts play into
34:43
Speaker 8: this when you think about CIREE transaction activity, because there
34:46
Speaker 8: was that indication that people were thinking rate cuts would
34:48
Speaker 8: be even more steeper, say over the next year. But
34:50
Speaker 8: it's changed a little bit on the back of the
34:52
Speaker 8: election and the trajectory of that.
34:55
Speaker 1: So the FED rate cuts, it's a major milestone that
34:58
Speaker 1: we're on the other side of the strictive cycle into
35:00
Speaker 1: the easing cycle, and so that actually has instilled a
35:04
Speaker 1: fair amount of confidence into the commercial real estate industry.
35:07
Speaker 1: You've seen a stabilization of transaction activity volume, You've seen
35:10
Speaker 1: a stabilization from a pricing perspective. So after things really
35:14
Speaker 1: fell off a cliff in twenty twenty three twenty twenty four,
35:16
Speaker 1: there are some bright spots and you did see in
35:19
Speaker 1: the third quarter transactions being able to get done with
35:22
Speaker 1: the creative leverage. Since the last couple of months have
35:25
Speaker 1: occurred and the rate trajectory path is a little bit
35:28
Speaker 1: less uncertain. Obviously, it's going to take time to play
35:30
Speaker 1: out for people to really grasp what that means for
35:33
Speaker 1: real estate economics, but overall, I would say the incremental
35:37
Speaker 1: easing that's anticipated is a big positive for commercial real estate.
35:40
Speaker 11: All right.
35:41
Speaker 4: Let's say I've got an idea for great multifamily or
35:44
Speaker 4: multi whatever kind of unit thing, and I want to
35:46
Speaker 4: go build it in my local town.
35:48
Speaker 3: Is my bank going to finance me? Can I get
35:50
Speaker 3: financing for real estate these days?
35:52
Speaker 1: So there's been a huge shift in the financing landscape
35:55
Speaker 1: because banks have had to pull back very significantly. You've
35:58
Speaker 1: seen bank loan and redge nation volume drop twenty six percent
36:02
Speaker 1: year over year, which creates a tremendous opportunity for private capital.
36:07
Speaker 1: We're active in the lending space, and we finance multi
36:10
Speaker 1: family development, for example. So in our view, you guys
36:13
Speaker 1: know about lending money one through the credit training program.
36:18
Speaker 3: You guys are like real estate people, What do you
36:19
Speaker 3: know about lending money?
36:21
Speaker 1: We've been a very active direct lender for decades, in
36:23
Speaker 1: addition to what we do on the equity investment side.
36:27
Speaker 1: And so there's we think kind of a permanent shift
36:31
Speaker 1: an opportunity for private capital because the banks have to
36:34
Speaker 1: reduce their commercial real estate exposure, and regional banks of
36:37
Speaker 1: course currently have about thirty percent exposure, which is way
36:40
Speaker 1: too high.
36:41
Speaker 8: Interesting, so how do tax policies fit into this?
36:46
Speaker 1: So you can expect obviously Trump's policies to be generally
36:51
Speaker 1: very favorable for commercial real estate given his background. He's proposed,
36:56
Speaker 1: of course, an extension of the twenty seventeen tax cuts,
36:58
Speaker 1: an additional tax cut. You would expect that he preserves
37:03
Speaker 1: real estate tax benefits like ten thirty one exchanges, which
37:06
Speaker 1: is quite positive for the industry. But overall, tax cuts
37:09
Speaker 1: are stimulative from an economic growth and consumption perspective, and
37:14
Speaker 1: when you have a stimulated economy, that's generally good for
37:17
Speaker 1: real estate fundamental.
37:18
Speaker 8: So then on the flip side of that, what about
37:20
Speaker 8: trade policies as far as those impacting supply constraints.
37:25
Speaker 1: The trade policies that he proposed, you know in putting
37:29
Speaker 1: you know, ten percent tariffs on all imports and sixty
37:32
Speaker 1: percent tariffs on Chinese imports, that could have an inflationary impact,
37:37
Speaker 1: driving up material costs, which on balance would be negative
37:41
Speaker 1: for commercial real estate. Obviously, if the cost to construct
37:43
Speaker 1: buildings is higher, that's a challenge. And if you have
37:47
Speaker 1: an inflationary backdrop as well, that potentially sets the FED
37:49
Speaker 1: on a different path. And higher interest rates are not
37:53
Speaker 1: great for commercial real estate. So it'll be interesting to
37:55
Speaker 1: see these play out.
37:57
Speaker 4: What markets are you guys most interested in these days,
38:00
Speaker 4: they've been focused on any individual regions of the country.
38:02
Speaker 1: Or we're very active across the sun Belt and coastal markets,
38:06
Speaker 1: but you know, we dial up and down our activities
38:09
Speaker 1: depending on what's happening in given cities. So obviously post COVID,
38:13
Speaker 1: certain markets within the West Coast have been very effective,
38:16
Speaker 1: so we've been watching to see and waiting for the
38:18
Speaker 1: rebound there. But within the sun Belt, where you've had
38:22
Speaker 1: you know, significant job growth and demand drivers, we've been
38:24
Speaker 1: quite active.
38:25
Speaker 8: Are there any particular cities that stand out to you
38:27
Speaker 8: in recent years weather ones that are strengthening versus other
38:30
Speaker 8: ones that are still having issues.
38:32
Speaker 1: Here, I would say, you know, at the top of
38:35
Speaker 1: the list, San Francisco has been obviously kind of the
38:38
Speaker 1: poster child where they distress the cycle, and we continue
38:41
Speaker 1: to see throughout San Francisco and certainly downtown Los Angeles
38:46
Speaker 1: obviously the incredible distressed office trades. And it's not just
38:51
Speaker 1: office because you've had you know, the exit of the
38:55
Speaker 1: employment base from those areas. It's also affecting hotel assets,
38:59
Speaker 1: it's affecting multi family rents and vacancies. It's broadly affecting
39:02
Speaker 1: commercial real estate negatively, So we're looking out for essentially
39:06
Speaker 1: the resurgence of those areas to be able to reinvest
39:09
Speaker 1: student housing.
39:10
Speaker 4: Do you guys have exposure there, because we had some
39:12
Speaker 4: guests come in a couple of days ago that was
39:14
Speaker 4: they were really focusing on student housing.
39:17
Speaker 1: We are active in student housing and that continues to
39:20
Speaker 1: be an area of strength. Actually, so you've seen across
39:24
Speaker 1: the top tier university's incredible rent growth within the student
39:28
Speaker 1: housing space because primarily the supply has been quite restricted
39:33
Speaker 1: and the university enrollments have been growing. So that's been
39:37
Speaker 1: a bright spot. You've seen a lot more institutional investors
39:39
Speaker 1: interested in the space.
39:41
Speaker 8: And whenever you're speaking with either different clients, what are
39:44
Speaker 8: they telling you right now?
39:45
Speaker 5: What are some of you are positives versus some of.
39:48
Speaker 8: The negatives they feel like when they're looking maybe more
39:50
Speaker 8: broadly about the economy.
39:52
Speaker 1: In terms of I would say investor clients right now,
39:56
Speaker 1: yield is incredibly important. So there's been a lot lot
40:00
Speaker 1: of interest in investors who historically had invested only in
40:03
Speaker 1: the equity side to now pursue real estate debt strategies
40:07
Speaker 1: because yields are you know, two and three times more
40:10
Speaker 1: attractive than they were back in the zero interest rate environment.
40:13
Speaker 1: So when you have the opportunity to earn equity like
40:16
Speaker 1: returns on debt, that's something that gets people's attention. And
40:19
Speaker 1: then I would also say investors from an equity perspective,
40:22
Speaker 1: are you starting to poke their heads back up based
40:25
Speaker 1: on the interest rate easing path and thinking about how
40:28
Speaker 1: they can be deploying capital at risk from an equity
40:31
Speaker 1: perspective in the future.
40:33
Speaker 4: So, are you guys in the market for capital right
40:35
Speaker 4: now or are you in a fundraising mode now?
40:38
Speaker 1: We're generally you guys are.
40:41
Speaker 4: Always in the fundraising people in private equities, in private credit.
40:46
Speaker 1: We're actively pursuing new strategies.
40:48
Speaker 3: Yes, actively pursuing new strategies.
40:50
Speaker 4: Okay, can you answer the question why do we have
40:52
Speaker 4: a housing shortage in this country?
40:54
Speaker 3: How did that happen?
40:56
Speaker 1: So it's estimated round numbers about four million in units
41:01
Speaker 1: short for US housing.
41:03
Speaker 3: Population is not growing that much. What's what's going on
41:07
Speaker 3: in all those units? Where did they go?
41:09
Speaker 5: Well?
41:09
Speaker 7: Like?
41:10
Speaker 8: Is how much of that had to do with like
41:11
Speaker 8: post housing crisis versus getting exacerbated by the pandemic, Because
41:15
Speaker 8: it seems like there was a there was already an
41:17
Speaker 8: issue and then it just blew up.
41:18
Speaker 1: That's right, it's been an extended issue post GFC. Essentially
41:22
Speaker 1: you had a dramatic drop off and the ability to
41:25
Speaker 1: get housing developed and financed. So we've been in a
41:28
Speaker 1: structural undersupply kind of regime ever since the GFC, and
41:34
Speaker 1: there's very little that that's kind of changing in the
41:37
Speaker 1: outlook to correct that.
41:39
Speaker 8: Well, you don't need to happen to fix that.
41:41
Speaker 1: Realistically, you need the economics of developing new housing to
41:46
Speaker 1: be highly profitable and that will incentivize developers and capital
41:50
Speaker 1: providers to jump in in a more meaningful way. And
41:54
Speaker 1: you saw that over the last few years with the
41:56
Speaker 1: zero interest rate environment. But essentially that supply pipeline has
41:59
Speaker 1: fallen off a cliff. Basically, starting in the second half
42:02
Speaker 1: of twenty twenty two, news starts really plummeted because economically,
42:06
Speaker 1: in a high rate environment, it just stopped making sense.
42:09
Speaker 3: Robin, thank you so much for joining us.
42:11
Speaker 4: Really appreciate it, Robin pot She's this Cio Kenyon Partners
42:14
Speaker 4: real Estate based in Los Angeles, but stopping by our
42:17
Speaker 4: Bloomberg in Director Brooker Studio here in midtown Manhattan.
42:21
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