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Interest Rates, Housing, And Roe v. Wade (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: investment professional before investing. All right, Ira, before we get
0:45
Speaker 1: to the soccer discussion here, I think we've got a
0:47
Speaker 1: FED meeting tomorrow. Some people here are telling me that's
0:49
Speaker 1: kind of important that I should talk to you about
0:51
Speaker 1: what the FED is gonna do. All I know is
0:54
Speaker 1: because I go like an inch deep on this FED stuff.
0:56
Speaker 1: But I know guys like you go way way deep.
1:00
Speaker 1: Is it fifty basis points or SEVENTI five basis points?
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Speaker 1: Is that what I need to focus on tomorrow. What
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Speaker 1: should I really be looking at when we hear from
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Speaker 1: the feder Reserve chairman. Yeah, so I think in the
1:09
Speaker 1: statement it's not going to be much of anything. I
1:12
Speaker 1: think it would be pretty surprising if they didn't go
1:15
Speaker 1: fifty basis points as the market expects. But the press
1:18
Speaker 1: conference afterward could have a lot of interesting detail that
1:21
Speaker 1: could really move a short term interest rate markets quite
1:24
Speaker 1: a lot, because if j Powell hints that, hey, if
1:28
Speaker 1: inflation stays at seven percent or six and a half percent,
1:31
Speaker 1: which is very likely to do in the near term
1:33
Speaker 1: on a year on ear basis, then we might go
1:36
Speaker 1: seventy five basis points. That's when you're going to see
1:38
Speaker 1: some fireworks potentially in in the pricing for future moves.
1:42
Speaker 1: So so I think it's that nuance that you're gonna
1:44
Speaker 1: have to listen for it at the press conference. Or
1:48
Speaker 1: do you think the market is going to react more
1:49
Speaker 1: perhaps to the balance sheet and any indication on what
1:52
Speaker 1: that actually looks like in the exercising of what shrinking
1:56
Speaker 1: the balance sheet actually looks like. Well. So, so it's
1:59
Speaker 1: interesting because the Federal Reserve, and I think this was
2:02
Speaker 1: missed pile a lot of folks. The Federal Reserve basically
2:05
Speaker 1: pre announced exactly what they're going to do, So the
2:07
Speaker 1: only thing that they really need to say tomorrow is
2:09
Speaker 1: are we going to start in May, are we going
2:10
Speaker 1: to start in June, or we're gonna start in July.
2:12
Speaker 1: But they basically told us almost all of the other
2:14
Speaker 1: relevant details. So we know this size that they're going
2:18
Speaker 1: to start to shrink. We know that they're going to
2:20
Speaker 1: use T bills to make a sixty billion dollar runoff
2:24
Speaker 1: of treasuries possible every month, so it's that's both a
2:27
Speaker 1: floor and a cap uh and also the size of
2:30
Speaker 1: the mortgage runoff. So so so we know all of
2:33
Speaker 1: those details already except the start date. So so that's
2:35
Speaker 1: gonna be the only relevant information. Um, there is I
2:39
Speaker 1: think a big misconception in the market that runoff is
2:43
Speaker 1: going to mean that you get higher longer term interest
2:46
Speaker 1: rates because the Federal Reserve is selling long term assets. Um,
2:50
Speaker 1: that's wrong. They are not. The Treasury Department is going
2:54
Speaker 1: to make the decision on what to sell. And so
2:57
Speaker 1: I think while yeah, you might get a little weakness,
2:59
Speaker 1: and I think the knee you are reaction might be
3:00
Speaker 1: for the yield curve to steep in a little bit
3:02
Speaker 1: on the announcement. I think you fade that because it's
3:05
Speaker 1: not going to persist for very long. But it hasn't
3:08
Speaker 1: been made clear, right, I mean it, correct me if
3:11
Speaker 1: I'm wrong, Ira, and I very well could be here
3:13
Speaker 1: the expert here. But there's two ways that a balance
3:15
Speaker 1: sheet can can be run off, right, You just don't
3:17
Speaker 1: reinvest the funds of or you actively sell it on
3:21
Speaker 1: the market. Are you saying that the actively selling part
3:24
Speaker 1: is off the table? They're they're not going to be
3:26
Speaker 1: actively selling. They've already told us that actually, and they
3:29
Speaker 1: told us that in January when they get their principles,
3:31
Speaker 1: and then they reiterated it at the last meeting when
3:33
Speaker 1: at the March meeting when they mentioned that they were
3:35
Speaker 1: going to do sixty billion dollars, it was going to
3:37
Speaker 1: be passive runoff. Um. Eventually they might sell, particularly in
3:40
Speaker 1: the mortgage sector. I don't think that they'll ever sell
3:42
Speaker 1: a treasury, but in the mortgage sector, at some point
3:45
Speaker 1: in a year, eighteen months, two years, they might end
3:48
Speaker 1: up selling some mortgages because as interest rates are so high,
3:51
Speaker 1: you don't get the pre payments of mortgages that maybe
3:54
Speaker 1: the FED wants, in fact, that thirty five billion dollar
3:56
Speaker 1: mortgage number is never going to get hit, um at
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Speaker 1: least not until interest rates go down another hundred or
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Speaker 1: hundred and fifty basis points. So it is going to
4:05
Speaker 1: be passive. So so we know that. So so that's where,
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Speaker 1: um eight thirty tomorrow morning we get probably the more
4:10
Speaker 1: relevant information for the yield curve, and that's when the
4:13
Speaker 1: Treasury Department announces what they're going to be selling over
4:16
Speaker 1: the next three months in terms of notes and bonds
4:19
Speaker 1: and and even T bills. So so that's gonna be
4:22
Speaker 1: kind of almost a pre announcement. And now that we
4:24
Speaker 1: know that the FED is at some point in the
4:26
Speaker 1: near future going to be running off its balance sheet,
4:28
Speaker 1: the Treasury Department basically has to increase sales to the
4:31
Speaker 1: public um more than that than they would have had
4:35
Speaker 1: to otherwise. So um, so, so it's all going to
4:38
Speaker 1: be very mechanical. Uh. The market reaction, I think is
4:41
Speaker 1: maybe going to be the wrong market reaction initially until
4:44
Speaker 1: people kind of realize it's not as big of a
4:45
Speaker 1: deal as they think. Hey, I when the when the
4:48
Speaker 1: FED announced their pivot becoming more hawk is several months ago,
4:51
Speaker 1: it was kind of like three rate hikes in two Now,
4:55
Speaker 1: as I look at my w I RP GO function
4:58
Speaker 1: on the Bloomberg Trumoral World Interest Rate Ability, Yes, there
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Speaker 1: is a function for that. I'm looking at ten, maybe
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Speaker 1: eleven rate hikes through February of next year. Does that
5:06
Speaker 1: seem reasonable to you? Yeah? So, so it's it's not
5:10
Speaker 1: the number of hikes, that's how much they hike at
5:11
Speaker 1: each of those meetings, right. But but yeah, I mean
5:13
Speaker 1: we're talking about another you know, two hundred and fifty
5:16
Speaker 1: to three hundred basis points of interest rate increases. So um, So,
5:20
Speaker 1: using the w I RP function, what you'll note is
5:23
Speaker 1: eleven eleven hikes or cuts really means you have around
5:27
Speaker 1: two two seventy five bases points of hikes and and
5:31
Speaker 1: you know that's pretty significant. I mean, we haven't seen
5:34
Speaker 1: that pace of hiking really since the nineteen since the
5:37
Speaker 1: nineteen eighties. So, um, these were very good to me. Yeah,
5:42
Speaker 1: they were good for me too. It was it was
5:43
Speaker 1: a good year for music. It was a good decade
5:45
Speaker 1: for music as well. All right, So here's important stuff.
5:49
Speaker 1: I'm knee deep in the Yankee baseball I got NBA
5:51
Speaker 1: playoffs and then I've got one of my favorite sporting
5:54
Speaker 1: events of the year, which is a Kentucky Derby Saturday.
5:57
Speaker 1: If I do manage to find some free time in
5:59
Speaker 1: my sports viewing schedule, what football slash soccer match should
6:03
Speaker 1: I be watching? Oh? I think you gotta go with
6:06
Speaker 1: Liverpool Tottenham? Which will happen? Which will be taking place?
6:09
Speaker 1: Actually fight during the Kentucky Derby. Um So, Liverpool is
6:13
Speaker 1: still fighting to try to win the Premier League and
6:15
Speaker 1: Tottenham needs to win in order to uh have hopes
6:18
Speaker 1: to make the Champions League and stay in the top four.
6:20
Speaker 1: So that that's gonna be one heck of a match,
6:22
Speaker 1: all right. I know Tom will be onto that. Tom
6:24
Speaker 1: Keene is a big Tottenham fan. How that came about?
6:26
Speaker 1: I have no idea Ire Jersey, chief US interest rate
6:29
Speaker 1: strategists for Bloomberg Intelligence, also our go to person on
6:33
Speaker 1: all things soccer. You gotta get that in there because
6:35
Speaker 1: it's big. Um So, we'll see. But the I were
6:38
Speaker 1: talking about the FED tomorrow reporting, you know their meeting today.
6:42
Speaker 1: They're meeting tomorrow, will have the announcement two pm. Wall
6:44
Speaker 1: Street Time, Bloomberg TV coverage and radio starting at one o'clock.
6:49
Speaker 1: That full coverage of that, So we will be all
6:52
Speaker 1: over that. And again the question for this Feller Reserve
6:54
Speaker 1: is how restive does it need to be to fight uh,
6:58
Speaker 1: this persistent inflation that we're seeing in this economy. What
7:02
Speaker 1: can they do and how should they achieve that? So
7:04
Speaker 1: we'll be all over that tomorrow. Plus we've got jobs
7:07
Speaker 1: later in the week. This is Bloomer. All right, let's
7:15
Speaker 1: head down to Washington right now. I want to check
7:17
Speaker 1: them with Joe Matthew. I said, we gotta talk to
7:19
Speaker 1: Joe because he knows what's going on down there. He's
7:20
Speaker 1: watching it. Corresponding and host of Bloomberg Sound on that's
7:24
Speaker 1: a weekdays at five pm, All Street time, Joe. This
7:27
Speaker 1: Supreme Court, the United States Supreme Court generally doesn't leak stuff,
7:30
Speaker 1: does it. What's going on today with you folks down
7:32
Speaker 1: in Washington. Well, you know, it's it's interesting when you
7:35
Speaker 1: see the reaction from Democrats versus Republicans. You can imagine
7:38
Speaker 1: the Democratic reaction. Outraged. Senator Schumer just on the floor
7:42
Speaker 1: called this a dark and disturbing day for America. But
7:45
Speaker 1: Republicans are are demanding an investigation into who leaked this.
7:51
Speaker 1: You know, they're about three dozen clerks in the Supreme Court,
7:54
Speaker 1: the justices themselves. Not many people have access to a
7:57
Speaker 1: document like this. My goodness, the pdf is published right online. So, uh,
8:01
Speaker 1: at some point you can expect hearings into this. Uh.
8:05
Speaker 1: We heard from Senator Mitch McConnell in a written statement
8:07
Speaker 1: a short time ago. He's even talking about possible criminal charges.
8:11
Speaker 1: He says, the Chief Justice must get to the bottom
8:13
Speaker 1: of it. The Department of Justice must pursue criminal charges
8:16
Speaker 1: if applicable. That's coming from the Republican leader in the Senate, Joe.
8:20
Speaker 1: So I take from that that maybe the the idea
8:25
Speaker 1: that's forming within the Beltway today is that perhaps this
8:28
Speaker 1: was leaked to benefit the Democrats. Well, look, that's certainly
8:32
Speaker 1: how Republicans might look at it. Not not only that,
8:34
Speaker 1: but just to kind of up end, you know, the
8:36
Speaker 1: balance here in Washington, to turn another institution around. It's
8:39
Speaker 1: hard to tell what the motivation would be, because a
8:42
Speaker 1: lot of people do lead themselves to think that this
8:45
Speaker 1: would help Democrats in the midterm elections. Uh. Certainly could
8:48
Speaker 1: be a motivating principle, could mean a very different level
8:51
Speaker 1: of turnout for Democrats. But there's gonna be a legislative
8:53
Speaker 1: answer to this, potentially even before November, we heard from
8:58
Speaker 1: Chuck Schumer that he wants to bring this to a
9:00
Speaker 1: vote UH in the Senate. He just said that a
9:02
Speaker 1: short time ago. UH will need more pro choice senators,
9:07
Speaker 1: says President Biden, and a pro choice majority in the
9:09
Speaker 1: House to adopt legislation that codifies ROW, which Joe Biden
9:14
Speaker 1: says he will work to pass and sign into law.
9:17
Speaker 1: So it'll be interesting to see how quickly this could happen.
9:19
Speaker 1: Of course, it's not likely they have the votes in
9:21
Speaker 1: the United States Senate, but members will be called to
9:26
Speaker 1: say up or down on this. They will have to,
9:28
Speaker 1: likely before the midterms, let the world know how they
9:31
Speaker 1: would vote on abortion. Well, as I was gonna ask next, Joe,
9:36
Speaker 1: do we expect anything to change the result in terms
9:38
Speaker 1: of next steps? Well, look, we have to remember that
9:41
Speaker 1: this is a draft. It is not a ruling. We
9:43
Speaker 1: will get one, we expect by July. So it's frequent
9:47
Speaker 1: that these change. They evolve dramatically between the draft stage
9:51
Speaker 1: and a final ruling. The thing is, we're talking about
9:54
Speaker 1: Roe v. Wade, and if you're in the legal community,
9:57
Speaker 1: never mind as Supreme Court justice, you probably know how
10:01
Speaker 1: you feel about this. So it's not like we're going
10:03
Speaker 1: into this with with undecided justices or justices that may
10:07
Speaker 1: be compelled to change their minds. That's probably less likely
10:10
Speaker 1: in this case. Uh. And and if this is what
10:13
Speaker 1: it appears to be, we're about to see a major
10:16
Speaker 1: change in this court. What's the feeling Joe down in
10:20
Speaker 1: Washington as to timing? I mean, I guess you could say, boy,
10:25
Speaker 1: this is you know, we've got the midterm elections coming
10:29
Speaker 1: up and it's tied to that. And any sense of
10:31
Speaker 1: why now this came out? No, Uh, we certainly can't
10:34
Speaker 1: tell you that if we don't know who did it.
10:36
Speaker 1: But uh, I will also remind you though that people
10:39
Speaker 1: knew that this could happen, This was likely gonna come.
10:42
Speaker 1: We've had oral arguments over the Mississippi law back in December.
10:46
Speaker 1: This was drawn up in February. It's just it's different
10:50
Speaker 1: when you actually see it in writing. It just feels
10:53
Speaker 1: different this morning because a lot of folks, I think,
10:55
Speaker 1: probably didn't want to believe what their what their brains
10:59
Speaker 1: might have been telling them. I mean, it's still shocking
11:03
Speaker 1: to me in terms of that this was even leaked.
11:05
Speaker 1: And I have to ask, is there any precedent for
11:07
Speaker 1: something like this. There's not on this level a creaty
11:10
Speaker 1: where you've actually got a document dump. But we have
11:14
Speaker 1: had leaks from the court, and ironically or coincidentally, it
11:18
Speaker 1: was in fact Roe v. Wade. It was in two
11:22
Speaker 1: when the Washington Post had had sources reporting on discord
11:26
Speaker 1: within the Court that justices were wrangling over this, struggling
11:29
Speaker 1: to come to a final ruling. But you know, this
11:33
Speaker 1: is a whole other level, This is Pentagon papers level,
11:37
Speaker 1: uh leak here where you've got the document with names people, uh,
11:40
Speaker 1: their actual language written out very clearly. It's ninety eight
11:44
Speaker 1: pages and it doesn't leave a lot to the imagination.
11:47
Speaker 1: All right, Joe, good stuff. Thank you so much for
11:49
Speaker 1: taking a time Joe to join us. Give us the
11:51
Speaker 1: latest from Washington, d C. Again, this news bombshell this
11:54
Speaker 1: morning that we all woke up to and including our
11:57
Speaker 1: folks down on Washington, about this leaked document purportedly from
12:01
Speaker 1: the Supreme Court as it relates to uh Roe v. Wade.
12:05
Speaker 1: And obviously it's got everybody talking about and certainly the
12:08
Speaker 1: folks in Washington demanding some action there. Joe, Matthew, Washington corresponded.
12:12
Speaker 1: He's hosted Bloomberg Sound on weekdays at five pm Wall
12:15
Speaker 1: Street Time on Bloomberg Radio. You think about the economics
12:21
Speaker 1: of this country, you look at the labor market. Very
12:23
Speaker 1: interesting story that we're gonna get some labor numbers later
12:26
Speaker 1: this week, but we're near a fifty three year low
12:28
Speaker 1: of three point six percent in terms of unemployment. About
12:31
Speaker 1: the labor force participation rate is still below its pre
12:34
Speaker 1: pandemic levels at sixty two point four and far off
12:38
Speaker 1: the peak of sixty seven point three percent in two thousand.
12:41
Speaker 1: U Matt Winkler, editor in Chief emeritus, more importantly the
12:44
Speaker 1: founder of Bloomberg News, the whole kit and caboodle. He
12:48
Speaker 1: joined us here in our Bloomberg and after Broker Studio. Matt,
12:50
Speaker 1: you sat down with the Commerce Secretary Gina Ramondo recently.
12:55
Speaker 1: What did she have to say about kind of how
12:57
Speaker 1: they in the administration are viewing this economy, maybe the
13:00
Speaker 1: messaging around what is going on about current economic conditions.
13:03
Speaker 1: Well as the former treasurer, former governor, and first venture
13:09
Speaker 1: capitalist of Rhode Island, she would say born out of
13:13
Speaker 1: experience and also looking at data that we've compiled at
13:16
Speaker 1: Bloomberg that UM. Childcare, daycare UM are investments UM, and
13:25
Speaker 1: they're not as many politicians assert social programs. And the
13:31
Speaker 1: data that shows that is in fact true is when
13:37
Speaker 1: you look at states that have invested in child care
13:41
Speaker 1: specifically UH and embraced say the medicaid expansion of the
13:45
Speaker 1: Affordable Care Act, those states have actually generated greater job
13:50
Speaker 1: growth UM, higher labor participation rates, and higher rates of
13:55
Speaker 1: personal income, whereas the states that have done nothing with
13:59
Speaker 1: job care UH sorry, childcare or healthcare UM have inferior
14:06
Speaker 1: rates of job growth and similarly with personal income. And
14:10
Speaker 1: then again she would look at businesses that disclose annually
14:15
Speaker 1: what they're doing with their workforce, making it more diverse,
14:19
Speaker 1: providing more childcare uh extensions of medical care beyond the
14:24
Speaker 1: Affordable Care Act, and those companies actually outperform the companies
14:28
Speaker 1: that do nothing or disclose nothing UM in terms of
14:33
Speaker 1: share performance and lower volatility. So that's the data, and
14:37
Speaker 1: so her mantra would be, UH, this is all good
14:40
Speaker 1: for the economy and we should be doing it. And
14:42
Speaker 1: if we do it, then the labor participation rate will
14:45
Speaker 1: improve accordingly. And it kind of makes sense if you
14:49
Speaker 1: think about it, because if women don't have to worry
14:52
Speaker 1: about things like childcare, which they always have to do
14:54
Speaker 1: because they're usually the ones who are saddled with that responsibility. UM,
15:00
Speaker 1: and also healthcare for that matter. Uh, you're gonna get
15:03
Speaker 1: a higher labor participation rate. And this is coming out
15:06
Speaker 1: of time when you have an extremely tight jobs market.
15:09
Speaker 1: I expect to term of how to speak about that
15:11
Speaker 1: tomorrow as well. But not the only issue, uh, specifically
15:14
Speaker 1: for the American economy inflation, chip shortages, and Gina Vermondo
15:17
Speaker 1: has been very vocal about that as well. Yeah, Unfortunately
15:21
Speaker 1: she doesn't have a magic wand that everybody would like
15:25
Speaker 1: her to have. However, she did uh do a few
15:28
Speaker 1: things at commerce that are a departure from a predecessor.
15:32
Speaker 1: She created uh, you know, challenge programs that are public
15:37
Speaker 1: private partnerships to get business incentivized to do things that
15:43
Speaker 1: maybe they otherwise wouldn't do it. One of those things,
15:45
Speaker 1: by the way, is you know, she's a big proponent
15:47
Speaker 1: of getting Congress to provide fifty billion dollars UH to
15:52
Speaker 1: create chip manufacturing, computer chip manufacturing in the United States.
15:57
Speaker 1: And her argument would be looked, this is good for everybody,
16:00
Speaker 1: it's good for the local economies, it's good for the
16:02
Speaker 1: businesses that have a shortage of chips right now. Uh
16:06
Speaker 1: so everything we can do in a public private uh
16:10
Speaker 1: partnership would go a long way to improving the problem.
16:13
Speaker 1: Having said that, she also says this isn't something that's
16:15
Speaker 1: going to be solved overnight or in six months or
16:19
Speaker 1: you know, the end of next year, because the demand
16:23
Speaker 1: for chips today is inexorable, meaning everything that we do
16:29
Speaker 1: in the twenty one century economy depends on chips, and
16:32
Speaker 1: we just don't have enough of them. Yeah, and that's
16:34
Speaker 1: a whole another story. I still don't understand how this
16:37
Speaker 1: industry did not foresee this and how they missed it.
16:40
Speaker 1: So and I haven't gotten a great answer, but um,
16:43
Speaker 1: because we'll have to see. But one of the issues,
16:45
Speaker 1: Matt is just you know, when you think about this,
16:49
Speaker 1: it might be a messaging problem for the Democratic Party
16:51
Speaker 1: because when you talk about some of these social programs,
16:53
Speaker 1: programs childcare, Republicans might frame and in context of spending,
16:59
Speaker 1: whereas the Democrats probably preferred to frame it in the
17:01
Speaker 1: context of investment in the economy. But your column shows
17:06
Speaker 1: the data supports these investments. It seems like that might
17:09
Speaker 1: be something that this Commerce secretary, maybe the administration we
17:13
Speaker 1: want to think about. You know, Uh, Clinton's great political strategist,
17:18
Speaker 1: Jim carverl you know, said it's the economy stupid. And
17:22
Speaker 1: that's one thing that Gena Romundo has always gotten. And
17:27
Speaker 1: she's gotten it because she started out, as I said,
17:30
Speaker 1: as a venture capitalist. She's no stranger by the way
17:34
Speaker 1: to poverty and all the issues associated with broken families
17:39
Speaker 1: and childcare. I mean, she worked in these programs before
17:42
Speaker 1: she went to Yale Law School. But what she did
17:45
Speaker 1: show when she was Treasurer of Rhode Island and then
17:49
Speaker 1: governor is that if you can frame what ails us
17:54
Speaker 1: in the context of this is what we need to
17:57
Speaker 1: do to solve it. And sometimes it's not a happy message,
18:00
Speaker 1: but it's a very accurate message, and you just need
18:03
Speaker 1: to say it again and again. And that's what she's done.
18:05
Speaker 1: And I suspect that there aren't as many Democrats with
18:09
Speaker 1: her experience or her knowledge of the economy and business. Uh.
18:14
Speaker 1: You know, she brought thirty companies to Rhode Island to
18:16
Speaker 1: create jobs in the unemployment rate dropped to a record low,
18:20
Speaker 1: I think three point four percent in Rhode Island by
18:23
Speaker 1: the time she left to become Calmerce secretary. So she
18:26
Speaker 1: knows her way around data, she knows her way around
18:30
Speaker 1: the politics of the economy, and she can frame those
18:34
Speaker 1: politics in a way that is understandable but also you know, compelling,
18:39
Speaker 1: because if it is true according to the data, then
18:43
Speaker 1: why shouldn't we go along with it? And not every
18:46
Speaker 1: politician has her experience or knowledge. Matt, while we've got
18:49
Speaker 1: here in our studio, would need to get the benefit
18:52
Speaker 1: of your wisdom, your experience. Falling, Washington, d C. What
18:54
Speaker 1: did you make of the news this morning about this
18:57
Speaker 1: Supreme Court potential ruling that has been leaked to the world.
19:01
Speaker 1: Weare initial take, Well, uh, we've never seen a leak,
19:06
Speaker 1: at least in our time modern times. We've never seen
19:10
Speaker 1: a leak of a Supreme Court pending decision. So that's
19:15
Speaker 1: the first, uh, if you like stunning surprise. The second,
19:20
Speaker 1: of course, is what was written itself, which um, I
19:24
Speaker 1: have to say, if it is the law, if it
19:28
Speaker 1: becomes a Supreme Court decision in June, uh, it will
19:31
Speaker 1: take us all the way back to dread. Scott. We're
19:33
Speaker 1: not just talking about abortion. We're talking about reproductive rights.
19:36
Speaker 1: We're talking about contraception, We're talking about gay rights, gay marriage,
19:41
Speaker 1: the whole package. That's what this decision says to America
19:45
Speaker 1: right now. It takes us back more than a century. Interesting,
19:48
Speaker 1: all right, We'll have to put that in context and
19:50
Speaker 1: will be a lot more reporting on this as we
19:52
Speaker 1: go forward, and clearly it will be an issue if
19:55
Speaker 1: these upcoming midterm elections. Matt Winkler, editor in chief Bloomberg News.
19:58
Speaker 1: Check out his columns. They're really fascinating talking about Gina Ramundo,
20:03
Speaker 1: the Commerce Secretary, and the benefits of investing in some
20:07
Speaker 1: of these social programs for the economy. Katherine Hawkins joins
20:15
Speaker 1: us you, Sup, portfolio manager and senior vice president at
20:17
Speaker 1: Baringer UM. Katherine, I want to talk a little bit
20:21
Speaker 1: about housing with you because I take since the beginning
20:24
Speaker 1: of this pandemic, I've been so pleasantly surprised, I think
20:28
Speaker 1: is the way to frame it, how strong the housing
20:31
Speaker 1: market has been. And yes, we've had tremendously low interest rates,
20:34
Speaker 1: and we've got a change in how people think about
20:36
Speaker 1: their work uh life balance. As we step back today
20:40
Speaker 1: with rising interest rates, how do you view this housing
20:43
Speaker 1: marketing United States? Hi, Paul, thanks for having me back
20:48
Speaker 1: on UM. I think that's a great question. I mean,
20:50
Speaker 1: we have seen a strong housing market, you know, despite
20:53
Speaker 1: the pandemic, and actually in the face of it becomes stronger, UM.
20:58
Speaker 1: And I think that there's a big concerned that that
21:00
Speaker 1: is going to lead to another bust that we all
21:02
Speaker 1: remember in the two thousands. UM. I think the biggest
21:05
Speaker 1: difference of this market and kind of the two thousands
21:08
Speaker 1: that everyone is really scared about, is that the difference
21:13
Speaker 1: is from what happened fifteen years ago. These high home
21:17
Speaker 1: prices were then driven by really loose lending practices and
21:20
Speaker 1: rampant investors speculation in the market. There was a lot
21:23
Speaker 1: of financial engineering taking place and putting borrowers in homes
21:26
Speaker 1: that they really couldn't afford, um. And then we're hit
21:29
Speaker 1: with some you know, interest rate hikes. Today, those housing
21:35
Speaker 1: the housing prices ingres increase is really driven by supply
21:39
Speaker 1: and demand rate. Throughout the all time record low, like
21:41
Speaker 1: you mentioned, Um, you had more people wanting to buy
21:44
Speaker 1: a home than you had homes. So these rising rates
21:47
Speaker 1: over the next several years should slow down that demand
21:49
Speaker 1: on home purchases. UM. And when that demand slows, I
21:52
Speaker 1: think we will see prices that the home prices will balance.
21:57
Speaker 1: So you mentioned potentially waiting for a bust. Is it
22:00
Speaker 1: fair or what precedent makes this rally or this boom
22:06
Speaker 1: look kind of like a bubble? What do you think?
22:08
Speaker 1: I don't think it looks like a bubble. I think
22:10
Speaker 1: that the I think it's because of what is driving
22:14
Speaker 1: those home prices UM is so different than what we've
22:17
Speaker 1: seen previously. Again it's a demand on homes with a
22:22
Speaker 1: low supply of homes that are available. Is really with
22:24
Speaker 1: driving housing prices up here where UM previously it was
22:29
Speaker 1: inflated inflated underwriting practices UM and just you know, you
22:34
Speaker 1: had incentives for UM the the appraisals to come in
22:39
Speaker 1: higher than they were, so you didn't really have a
22:41
Speaker 1: lot of equity in the home to begin with. And
22:43
Speaker 1: that's not what we see now. We see right now
22:46
Speaker 1: that borrowers have strong equity in the home. They're in
22:48
Speaker 1: a home that they can afford UM. The research right
22:52
Speaker 1: now was really showing that borrows have stronger equity positions
22:55
Speaker 1: and household income UM and savings. So I think any
22:58
Speaker 1: correction or moderation and that we are going to see
23:01
Speaker 1: won't be on the same scale as we experienced in
23:04
Speaker 1: two thousands seven to two thousand nine, and I just
23:06
Speaker 1: don't see that being a recipe for a bust, you know, Catherine.
23:09
Speaker 1: What I've learned over the last so we're speaking to
23:11
Speaker 1: people like you and and and developers is that one
23:15
Speaker 1: of the challenges in this country is not so much
23:17
Speaker 1: the number of units being built, but the type of
23:20
Speaker 1: housing being built. I e. A lot of McMansions are
23:23
Speaker 1: being built, um, but not a lot of entry level housing,
23:27
Speaker 1: and that's where the demand is, and that's where there's
23:29
Speaker 1: a problem in this real estate economy. How do you
23:32
Speaker 1: view that? Is that changing at all? I think that
23:35
Speaker 1: is changing. I think because those entry level houses really um,
23:39
Speaker 1: you know, if you look towards the millennials are the
23:41
Speaker 1: ones that are driving kind of that increase there, and
23:45
Speaker 1: right now we're seeing that they don't want to um
23:48
Speaker 1: purchase a home. That's kind of where the single family
23:51
Speaker 1: rental market is continuing to boom. Those are you know,
23:54
Speaker 1: kind of your your uh more similar track homes. Um.
23:58
Speaker 1: They're bigger than apartments, they have more privacy than apartments,
24:01
Speaker 1: they have a yard, um you know, for whatever pet
24:04
Speaker 1: that they want, but they're more on the affordability scale
24:08
Speaker 1: for those millennials, um, that are really priced out of
24:11
Speaker 1: a seller dominated market right now. So I agree with you.
24:15
Speaker 1: I think that you know, we're going to see a
24:16
Speaker 1: jump from that single family rental, you know, into kind
24:19
Speaker 1: of the more um McMansion, if you will. But but
24:24
Speaker 1: I think that that's the millennials are driving that boom,
24:27
Speaker 1: and right now they're just not purchasing homes. Paul, I
24:30
Speaker 1: gotta say, I cannot wait to buy a house. I'm
24:32
Speaker 1: so excited. I live in a studio right now. There's
24:35
Speaker 1: no backyard for my puppy. I just we need room.
24:39
Speaker 1: We need room. I just sold a house. I could
24:40
Speaker 1: have sold it to you. You could have sold it
24:42
Speaker 1: to me. I would have traded your bag chips for it.
24:44
Speaker 1: Thank you. That's all I can afford at the moment. Catherine.
24:47
Speaker 1: Let's spend it ahead to tomorrow. We're expecting an FMC
24:50
Speaker 1: decision tomorrow, of course, fifty basis point rate hike. Of
24:53
Speaker 1: course that has implications for the mortgage rates as well.
24:57
Speaker 1: I'm curious about just how much damage higher mortgage rates
25:00
Speaker 1: are going to do to this housing market. Yeah, I
25:03
Speaker 1: think when you really, you know, at Vertical, our business
25:07
Speaker 1: is purchasing mortgages on the secondary market. UM. So right
25:10
Speaker 1: now when we're investing, what we have to keep in
25:12
Speaker 1: mind is that anything we purchase right now is going
25:16
Speaker 1: to be less valuable going forward. Right if we purchase
25:19
Speaker 1: that current market interest rates now, in six months, when
25:23
Speaker 1: current interest rates are higher, what we purchase now is
25:25
Speaker 1: going to be less valuable. Um. We're also we have
25:28
Speaker 1: to take in mind, uh, the duration. So when interest
25:32
Speaker 1: rates are rising, borrowers stay in their home for a
25:35
Speaker 1: lot longer. In a low rate environment of borrow where
25:37
Speaker 1: typically holds their mortgage for four to five years before
25:41
Speaker 1: they refinance or pay it off to move into a
25:43
Speaker 1: bigger home, or you know, they get relocated. But in
25:47
Speaker 1: a rising rate environment, the borrowers are going to stay put.
25:50
Speaker 1: So we see the duration of a of a mortgage
25:53
Speaker 1: really go from four to five years to seven to
25:55
Speaker 1: eight years. UM. So it will have an effect on
25:57
Speaker 1: you know, especially on the secondary market. We saw this
26:01
Speaker 1: in the last few months to where you have origination
26:04
Speaker 1: groups that have pipelines full of low rate UM loans
26:09
Speaker 1: that they have committed to close and then you know
26:12
Speaker 1: they by the time those get sixty days later get
26:15
Speaker 1: to close. You know, the current market rates a lot higher,
26:17
Speaker 1: so they're selling those off in a secondary market at
26:20
Speaker 1: a pretty steep discount, which is what we had seen,
26:24
Speaker 1: you know, probably three or four years ago. Um, and
26:26
Speaker 1: we're going to start seeing that come back. So the
26:27
Speaker 1: spread bowl wine in the secondary market as U interest
26:31
Speaker 1: rates rise. Katherine Hawkins, thank you so much for joining us.
26:34
Speaker 1: Always appreciate getting your thoughts on the real estate market.
26:37
Speaker 1: Katherine Hawkins, portfolio manager, Senior vice President, Vertical Capital Income Fund,
26:42
Speaker 1: the New York Stock Exchange Fund Traded Fund v c
26:45
Speaker 1: i F is a symbol. We appreciate chatting with Katherine here.
26:49
Speaker 1: And it's interesting we're seeing interesting mortgage rates move up.
26:51
Speaker 1: I know Matt just bought a house a few months ago,
26:55
Speaker 1: and I think he was saying his mortgage was three
26:57
Speaker 1: and a half percent or something. Now we've got mortgage
26:59
Speaker 1: rates a little bit more to five percent here. So
27:01
Speaker 1: just in that timeframe, hemplaining a lot. He's like, oh,
27:03
Speaker 1: I just bought a house, and now he's like, guys,
27:05
Speaker 1: I bought a house. This total tone change in terms
27:08
Speaker 1: of him bragging about exactly, don't be interesting to see
27:11
Speaker 1: where mortgage RAITs need to go before you start to
27:13
Speaker 1: see it really impacting the demand side, which has been
27:16
Speaker 1: so strong over the last several years. Thanks for listening
27:20
Speaker 1: to the Bloomberg Markets podcast. You can subscribe and listen
27:24
Speaker 1: to interviews with Apple Podcasts or whatever podcast platform you prefer.
27:28
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller. Put
27:33
Speaker 1: on fal Sweey. I'm on Twitter at pt Sweeney. Before
27:36
Speaker 1: the podcast, you can always catch us worldwide at Bloomberg Radio.