Latest / Bloomberg Intelligence / Land Sales, Markets, And Investing In Automation

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Land Sales, Markets, And Investing In Automation · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. You know, we talk
0:22
Speaker 1: about real estate and the hot real estate market and
0:24
Speaker 1: talk often about existing home sales, new home sales. But
0:28
Speaker 1: how about the land underneath all that real estate? Jason Walter,
0:32
Speaker 1: CEO of National Land Realty, he focuses on that. Jason,
0:36
Speaker 1: thanks so much for joining us here again. We're it's
0:39
Speaker 1: just been amazing during this pandemic, how strong the real
0:42
Speaker 1: estate and housing market has been. How about the land market.
0:46
Speaker 1: They're not making any more anymore land, So talk to
0:50
Speaker 1: us about the land market. Sure, yeah, that's correct, that
0:53
Speaker 1: makes any more of it. Uh. We've experienced exception on
0:56
Speaker 1: great this year to the first half of the year,
0:59
Speaker 1: our sales were hundred uh and last year we were
1:03
Speaker 1: up thirty two since the pandemic April, since it began,
1:10
Speaker 1: we we've just sky rocketed. Jason I don't want to
1:12
Speaker 1: put you on the spot here, but you could help
1:14
Speaker 1: me solve a bit of a debate in my relatively
1:17
Speaker 1: new marriage. My husband would love to buy just a
1:20
Speaker 1: ton of land down in Virginia or West Virginia and
1:23
Speaker 1: not worry about buying a house. Just hold onto the
1:25
Speaker 1: land and we can rent. I would rather save up
1:27
Speaker 1: and buy a house. Is buying land a better investment
1:30
Speaker 1: than buying a house in this market? Well, again, it
1:34
Speaker 1: all starts with lands. That you can do both both
1:36
Speaker 1: of you can be happy, okay. But but to answer
1:41
Speaker 1: your question, yeah, the returns of land, Um, it's a
1:45
Speaker 1: less followed to market. You know. After the last Great recession,
1:48
Speaker 1: the timber and egg land rule what we consider rule land,
1:53
Speaker 1: it outperformed the commercial sector for the first five years
1:57
Speaker 1: after the downturn. It's it's less followed to it head
2:01
Speaker 1: is really good against inflation. Both timber and and agg
2:05
Speaker 1: about performed gold over the last several decades when it
2:09
Speaker 1: comes to inflation. So right now is just a really
2:12
Speaker 1: popular time to be buying land. So what kind of land?
2:16
Speaker 1: I mean? Um, do I buy farmland? Timber ranch land?
2:21
Speaker 1: I mean? What kind of land is? You know what
2:25
Speaker 1: that you're recommending people take a look at. So it's
2:29
Speaker 1: a good question because most people a segmentum we don't
2:32
Speaker 1: typically detracts of land we sell incorporate three main components.
2:36
Speaker 1: You're typically buying it h for recreational use, could be hunting,
2:42
Speaker 1: could be camping, could be four wheeling. But as a
2:46
Speaker 1: kind of a backup to your investment, it's typically going
2:49
Speaker 1: to have some agriculture done on it and timber, so
2:54
Speaker 1: you're you're kind of getting the best of all and
2:56
Speaker 1: liveability a lot of there's a really nice wave of
2:59
Speaker 1: people that are moving into more rural areas. You know,
3:02
Speaker 1: only ninety percent of the US population who lives on
3:08
Speaker 1: on yeah of the land. Yeah, Jason, it's so interesting.
3:13
Speaker 1: I'm from the Washington, D c. Area, and every time
3:16
Speaker 1: I go home, it seems that the sprawl has gone
3:19
Speaker 1: farther and farther out from the city and now there's people,
3:22
Speaker 1: you know, new developments going up that are like an
3:24
Speaker 1: hour and a half commute into Washington is Land becoming
3:28
Speaker 1: more valuable even at farther and farther out distances from
3:31
Speaker 1: metropolitan centers. It is the way we track land is
3:36
Speaker 1: is what we call development zones. Future development zones and
3:40
Speaker 1: the rural land the urban areas. The development area that
3:45
Speaker 1: only consists of three percent of the US land mass
3:51
Speaker 1: of the U s Land is considered rule. So it
3:55
Speaker 1: is treeping out into suburbs. You know, obviously the builders
3:58
Speaker 1: are building a lot of new homes um and so
4:01
Speaker 1: you're seeing that fringe pushed further and further out in
4:04
Speaker 1: with there's a lot of reasons for that. But with
4:07
Speaker 1: the with being able to be delivered to the mail,
4:10
Speaker 1: with you know, all the technology it's available today, educational line,
4:15
Speaker 1: it's a lot easier and things are more accessible to
4:18
Speaker 1: live further out. Chason, I live in the most high,
4:23
Speaker 1: highly dense UH state in the country, in New Jersey.
4:27
Speaker 1: Where should I look in terms of other parts of
4:29
Speaker 1: the country. If I wanted to add some land to
4:32
Speaker 1: my portfolio, and I going to the south and I
4:34
Speaker 1: going west, where am I going? Yeah? Two things about
4:38
Speaker 1: that comments that are interesting. One, we just tired of
4:40
Speaker 1: land broker in New Jersey. Here you go. I just
4:43
Speaker 1: sold my house. I'm done. I'm like Elon Muskom. Very
4:48
Speaker 1: few people in the US have to go more than
4:49
Speaker 1: an hour to get into a pretty rural area. But
4:52
Speaker 1: if you're looking at the entire country. You know, the
4:54
Speaker 1: sun Belts obviously experience a lot of growth. On the
4:58
Speaker 1: southeast is really booming. Um, that's probably where most of
5:02
Speaker 1: the the business has taken place. All right. Interesting, Yeah,
5:08
Speaker 1: there's some ideas for you exactly be a rancher, all right.
5:11
Speaker 1: Jason Walter, thanks so much for joining us. Jason Walters,
5:13
Speaker 1: CEO of National Land Realty. He is a graduate of
5:18
Speaker 1: Clemson University. Enjoys watching football and his alma model. Maybe
5:21
Speaker 1: not so much this year, a little bit of a
5:22
Speaker 1: tough year for the Trevor Lawrence Clemson at tires. But Andy,
5:25
Speaker 1: it's interesting again when we talk about it. I don't
5:27
Speaker 1: even think about owning land. I think about owning houses
5:32
Speaker 1: and stuff, right, But I guess to Jason's point, those
5:35
Speaker 1: things aren't necessarily mutually exclusive, maybe especially in this market.
5:38
Speaker 1: I mean, we have a great story out on the
5:39
Speaker 1: Bloomberg terminal right now about how first time home buyers
5:42
Speaker 1: like myself in theory, I can't get into the market
5:45
Speaker 1: right now because prices have just risen to such an
5:48
Speaker 1: extreme level. People are paying all cash. Maybe if you
5:51
Speaker 1: can't go for it and buy the whole house, you
5:52
Speaker 1: can buy a plot of land with the intention to
5:54
Speaker 1: build later. Maybe that's kind of the backwards way into it. Well, Kayley,
6:01
Speaker 1: when I was a sell side equity analyst, the two
6:03
Speaker 1: meetings you had to get on your West Coast marketing
6:06
Speaker 1: trip was Capital Group and TCW, both in l if
6:10
Speaker 1: he didn't get those meetings on your schedule, my boss
6:13
Speaker 1: won't even pay for the ticket. Tc WS. Big Brian
6:15
Speaker 1: will and joins this group Managing director for TCWS Fixed
6:18
Speaker 1: Income Group. Um, Brian, thanks much for joining us here.
6:21
Speaker 1: We've had a little bit of a pickup in yield
6:24
Speaker 1: out there. We had we kind of started the day
6:26
Speaker 1: yesterday with the you know, the ten year that the
6:29
Speaker 1: thirty year up, you know, ten basis points. What do
6:32
Speaker 1: you make of what we're seeing in the rates market
6:35
Speaker 1: right here? Yeah, you know, it's interesting. Thanks for that introduction,
6:39
Speaker 1: Paul um In that uh, you know, we we had
6:42
Speaker 1: such kind of high employment numbers, positive employment numbers for months,
6:46
Speaker 1: we had very high, you know, inflation numbers, and then finally,
6:48
Speaker 1: why don't you get into September, we actually have an
6:51
Speaker 1: underwhelming employment number and an inflation number that comes and
6:54
Speaker 1: blow expectations. And then it's only two weeks after that
6:57
Speaker 1: that the market starts to sell off, which kind of
6:59
Speaker 1: tells you the mark the waiting on the economic numbers
7:02
Speaker 1: from the at least on the bond market, it's not
7:03
Speaker 1: what it historically is. And really the bond market saying
7:06
Speaker 1: it's more focused on you know, the reopening and the
7:08
Speaker 1: pandemic and what's going on with Delta, etcetera. And then
7:11
Speaker 1: and so what you've seen is a sell off, although
7:14
Speaker 1: it's it's a little different than what we saw early
7:16
Speaker 1: in the year. You know, we had a big sell
7:17
Speaker 1: off in the first quarter. Rates jumped higher. This time around,
7:21
Speaker 1: it's being led by the short end. Uh And actually,
7:24
Speaker 1: you know, while the two year in the five year
7:26
Speaker 1: are are kind of at their highs in terms of
7:28
Speaker 1: rates on the year, the ten uere in the thirty year,
7:31
Speaker 1: the long end of the curve is actually still about
7:33
Speaker 1: twenty thirty basis points lower than we saw back in March. Yeah,
7:36
Speaker 1: I feel like now we're much more focused on on
7:38
Speaker 1: the belly rather than the long end. So in this
7:41
Speaker 1: kind of environment where yields are higher than they were
7:44
Speaker 1: but still low historically around one and a half percent,
7:47
Speaker 1: can you be a buyer of bonds? Well, I think
7:52
Speaker 1: the answer, that's what do you want it to be
7:53
Speaker 1: in your portfolio? I mean, you can't. Look. The nice
7:56
Speaker 1: thing about a discussion about bonds is it's pretty much
7:58
Speaker 1: just math. Uh. In you know, you're looking at you know,
8:01
Speaker 1: yields of of one and a half percent, even if
8:04
Speaker 1: you move out of treasuries and you buy you know,
8:05
Speaker 1: investment grade corporate bonds, maybe you're talking two and a
8:08
Speaker 1: quarter or two and a half percent, and even like
8:10
Speaker 1: the lowest quality bonds out there. You know, you're talking
8:12
Speaker 1: about the high yield bonds. You know, brace yourself. You're
8:15
Speaker 1: talking about a four percent yield um on that market.
8:18
Speaker 1: So there there isn't a lot there obviously, But at
8:20
Speaker 1: the on the flip side, you know it should just
8:22
Speaker 1: be part of an investor's portfolio, whether it's a you know,
8:25
Speaker 1: individual or an institution. Um and look at one and
8:29
Speaker 1: a half percent um. If we get a dramatic sell
8:32
Speaker 1: off in the equity markets and and you know they
8:34
Speaker 1: go down by more likely than not, you're gonna see
8:39
Speaker 1: bonds rally. Uh. And the math would tell you that
8:41
Speaker 1: if you got you could still get a good solid
8:43
Speaker 1: hundred basis point rally in the bond market, which would be.
8:46
Speaker 1: You know, it would probably put your piece of your
8:47
Speaker 1: bond portfolio up about seven eight percent. And you know,
8:51
Speaker 1: on an absolute basis that does not sound all that interesting,
8:54
Speaker 1: But on a relative basis, relative to what's going to
8:56
Speaker 1: happen in your equity portfolio, you could still play a
8:58
Speaker 1: role for you. Ryan talked us about credit quality. UM,
9:02
Speaker 1: I mean, you guys see everything out there. I haven't
9:05
Speaker 1: heard much about a real credit quality issues either from
9:09
Speaker 1: the big banks on the report earnings. Uh. Is that
9:11
Speaker 1: simply because we had the fedback stopping everything and we
9:14
Speaker 1: had fiscal stimulus every time we we we we turned around?
9:18
Speaker 1: Is that kind of the story? Are? Is there no
9:20
Speaker 1: real risk there? There's not enough time in your program
9:23
Speaker 1: to talk about that? Is to your direct question, I'd say, yeah,
9:27
Speaker 1: let's two ways to measure credit quality, kind of observed
9:30
Speaker 1: credit quality, And by that I mean like, how are
9:33
Speaker 1: um let's say, borrowers default thing, uh, consumers let's say
9:37
Speaker 1: on credit cards, like what's the loss rate and it's
9:39
Speaker 1: at all time lows? Or let's say like in the
9:41
Speaker 1: corporate bond market, even in the high yield market, the
9:43
Speaker 1: leverage finance market. UM, let's say, look over the last
9:46
Speaker 1: twelve months, like, what's the default behavior? How often are
9:49
Speaker 1: they not paying you know, the debt that comes due?
9:52
Speaker 1: Really again at all time lows, I think historical trailing,
9:55
Speaker 1: historical default rates is less than one percent. And so
9:58
Speaker 1: so if you if you, if you want to look
9:59
Speaker 1: back words, it's never been a better time to to
10:02
Speaker 1: kind of lend or be, you know, invest in the
10:03
Speaker 1: credit side of the fixed income market. But on a
10:06
Speaker 1: forward looking basis, I can tell you that, first of all,
10:10
Speaker 1: which mentioned earlier, you're not getting paid to take a
10:13
Speaker 1: lot of risk right now in the bond market, right
10:15
Speaker 1: whether inspiration or whether it's credit. And then kind of
10:18
Speaker 1: the implicit credit quality that has deteriorated significantly. It is,
10:22
Speaker 1: without a doubt a a borrow or friendly market, meaning
10:25
Speaker 1: that whether you're a person UM or particularly if you're
10:28
Speaker 1: a company or even a even a country, a sovereign nation, um,
10:32
Speaker 1: the terms of which you can borrow, not just the rates,
10:34
Speaker 1: but the terms around let's say like the covenant quality,
10:36
Speaker 1: let's say UM is as friendly as it's ever been.
10:39
Speaker 1: And so what that means is, you know, at some
10:41
Speaker 1: point in the future that's going to come back to
10:44
Speaker 1: kind of bite bond investors um for that type of lending. UM.
10:48
Speaker 1: And those question is obviously it always is, is when
10:50
Speaker 1: does that trigger occur? Uh? And that all that kind
10:54
Speaker 1: of poor credit quality come back to to hurt bond investors. Brian,
10:58
Speaker 1: just quickly on spurs. We're still sitting around two five
11:02
Speaker 1: basis points for high yield spreads. Have we seen the
11:04
Speaker 1: tights of this particular credit cycle? Is it only wider
11:08
Speaker 1: from here? Hard to say. I mean, look, you know
11:12
Speaker 1: everyone is so starved for for yield and for income.
11:15
Speaker 1: I mean, that's that's really that was the objective, right,
11:18
Speaker 1: you know of the FED kind of you know, it's
11:20
Speaker 1: it's a repression. UM. So you know, we hit a
11:23
Speaker 1: little early in the year two basis points of spread.
11:26
Speaker 1: You know, we're at two eight five today. UM. I think,
11:29
Speaker 1: way way way back when before the credit crisis. At
11:31
Speaker 1: one point, I think we hit about two and a quarter.
11:33
Speaker 1: That was the all time low. So look, if we
11:36
Speaker 1: sit in this very kind of tight monetary controlled environment
11:41
Speaker 1: where you know, effectively the FED doesn't let um financial
11:44
Speaker 1: conditions deteriorate and volatility to pick up, and we let
11:47
Speaker 1: we we stayed in this environment for another year, Sure,
11:50
Speaker 1: I think we could breach to um. But but that's
11:53
Speaker 1: the question, right, you know, could they actually contain it?
11:56
Speaker 1: You know, if let's say, let's say the Fed blanks
11:58
Speaker 1: you know, or that you know, they the playing this
12:00
Speaker 1: game of kind of almost like chicken with inflation, right,
12:03
Speaker 1: and if what if the fled finches flinches first, you know,
12:06
Speaker 1: they get into next year and they're not so confident
12:08
Speaker 1: in the transitory narrative, and then it starts to maybe
12:10
Speaker 1: increase interest rates a little sooner than the markets expects.
12:13
Speaker 1: That would be all that might be a trigger. We'll
12:15
Speaker 1: pay attention to that certainly. Brian Will and thanks so
12:17
Speaker 1: much for joining US Group Boundaging Director for TCWS Fixed
12:20
Speaker 1: Income Group. Well, there's a lot going on down in Washington,
12:25
Speaker 1: DC right now. From a legislative perspective. We've got infrastructure,
12:28
Speaker 1: we've got spending plans, we've gotta keep the government going on.
12:32
Speaker 1: Just in terms of day to day operations. What's going
12:36
Speaker 1: on as it relates to the markets. How should we
12:39
Speaker 1: think about this? Michael Jesus, chief US public policy and
12:42
Speaker 1: municipal strategist for Morgan Stanley, a little firm here in
12:46
Speaker 1: New York City, joins us. Michael, how are you framing
12:49
Speaker 1: out in your mind as you talk to your clients
12:52
Speaker 1: about how we should think about all of the variables
12:55
Speaker 1: in Washington, d C. From a legislative perspective. Yeah, hey,
12:59
Speaker 1: good morning. I think the more important debate at the
13:03
Speaker 1: moment is the one about overall fiscal policies. So that's
13:06
Speaker 1: the infrastructure bill and the reconciliation bill, kind of the
13:10
Speaker 1: expansion of the social safety net, and there's some interesting
13:14
Speaker 1: decision points this week. They tell you if the Democrats
13:16
Speaker 1: are going to be able to go go big or
13:19
Speaker 1: if they're gonna go small, And that to us is
13:22
Speaker 1: important because I think the big option, which is our
13:26
Speaker 1: base case, it's probably a necessary condition for rates to
13:30
Speaker 1: continue to rise at the pace that they've been having.
13:33
Speaker 1: Right now, we think the evidence points in the direction
13:35
Speaker 1: that they're going to be able to go big, or
13:37
Speaker 1: at least keep the possibility of going big alive, because
13:41
Speaker 1: the option where they go small would probably require a
13:45
Speaker 1: vote on the smaller bipartisan plan to go ahead without
13:48
Speaker 1: a commitment on that larger reconciliation plan, and right now
13:53
Speaker 1: that doesn't seem like it's going to be possible because
13:55
Speaker 1: House Progressives has effectively said they're going to hold their
13:58
Speaker 1: votes on the smaller bill. Well, the Michael, the House
14:00
Speaker 1: is one thing, and the battle Pelosi is having to
14:04
Speaker 1: wrangle her caucus, especially the progressive ones there. But in
14:07
Speaker 1: the Senate, Joe Manchion Christ and Cinema have said, we
14:10
Speaker 1: don't want to go big. Three and a half trillion
14:12
Speaker 1: dollars is too large a price tag. So even if
14:14
Speaker 1: the House does one thing, can going big make it
14:17
Speaker 1: through the Senate. Well, I think that you've identified the
14:21
Speaker 1: right tension here. It's not just about it's not just
14:24
Speaker 1: within the House or within the Senate. It's actually across
14:27
Speaker 1: both chambers and in many ways the groups that need
14:29
Speaker 1: to come to an agreement or the House progressive and
14:33
Speaker 1: the Senate moderates within the Democratic Party, and until there
14:37
Speaker 1: is some type of agreement, and at this point, you know,
14:41
Speaker 1: Speaker Pelosy herself, it's self evident that a big deal
14:45
Speaker 1: won't be as big as the three and a half
14:47
Speaker 1: trillion dollar reconciliation bill, but somewhere south of that, if
14:50
Speaker 1: House Progressives and Senate moderates can agree on something like that,
14:54
Speaker 1: you could see forward progress on the smaller bill this week.
14:58
Speaker 1: But that doesn't seem to be there's no evidence so
15:01
Speaker 1: far that that agreement is forthcoming, and therefore there's probably
15:05
Speaker 1: still a fair amount of negotiation that has to happen,
15:08
Speaker 1: and we think this will easily slip into the fourth
15:10
Speaker 1: quarter and continue as a debate. Michael, as you talked
15:13
Speaker 1: to your institutional investor clients, did they get a sense
15:16
Speaker 1: of or did you get a sense of this is
15:18
Speaker 1: just kind of how the sausage is made, it's business
15:21
Speaker 1: as usual. Or do you sent from your clients that
15:24
Speaker 1: they're saying, boy, this is problematic here. We can't even
15:27
Speaker 1: agree on infrastructure. Here is there concern out there? Um?
15:32
Speaker 1: I think if you're asking about as they're kind of
15:34
Speaker 1: an existential concern about whether or not government is functioning.
15:38
Speaker 1: I don't think that's the way most investors are are
15:40
Speaker 1: thinking about it. They're thinking about whether or not this specific,
15:43
Speaker 1: this specific set of decisions can happen. What is going
15:46
Speaker 1: to be the impact to the debt and the death
15:48
Speaker 1: sit and how is it going to play out? And
15:50
Speaker 1: in that sense, this type of disagreement slow movement on
15:55
Speaker 1: what would be a very substantially sized bill. Um, it
15:58
Speaker 1: was a little bit of business as you will, and
16:00
Speaker 1: it's frankly, I think if it were too completely collapse
16:02
Speaker 1: and fail. That wouldn't also be that surprising to many investors,
16:05
Speaker 1: because uh, it is I'd say generally the default assumption
16:09
Speaker 1: that that DC doesn't get things done as opposed to
16:12
Speaker 1: getting big, transformational things done. All Right, it would be
16:16
Speaker 1: great if this were the only conversation that is having
16:19
Speaker 1: to happen on Capitol Hill, but that is not the case.
16:21
Speaker 1: We have the potential government shutdown coming at the end
16:23
Speaker 1: of the week if a continuing resolution isn't passed. They've
16:26
Speaker 1: separated out raising the debt ceiling from that since Republicans
16:30
Speaker 1: voted it down. How is the debt ceiling going to
16:33
Speaker 1: get raised by that October eighteenth deadline that Janet Yellen said, Hey,
16:36
Speaker 1: we're going to run out of money. Yeah, I mean here,
16:40
Speaker 1: I just highlight that there's a lot of paths that
16:44
Speaker 1: lead to the debt ceiling being raised. The most obvious
16:48
Speaker 1: one that that's pretty well talked about at this point
16:50
Speaker 1: is that the Democrats decide to pivot to using the
16:53
Speaker 1: budget reconciliation process, move quickly on that process, and get
16:57
Speaker 1: that done with a party line vote the October eighteen deadline. Um,
17:02
Speaker 1: it's of course also possible that the option to use
17:06
Speaker 1: reconciliation expired over time if you'll move fast enough, sort
17:10
Speaker 1: of forcing Republicans into the negotiation. But the point is
17:15
Speaker 1: that there's there's time, and there's options, and so the
17:20
Speaker 1: fact that you were not hearing from a lot of
17:22
Speaker 1: clients who are terribly worried about this, and I think
17:25
Speaker 1: it is probably up to early to be too concerned
17:28
Speaker 1: about it. Michael, you're also the municipal strategist at Morgan Stanley.
17:32
Speaker 1: What is your strategy for municipals right here given all
17:35
Speaker 1: that's going on down in Washington. Yeah, I mean, I
17:39
Speaker 1: think I think it depends on what type of investor
17:40
Speaker 1: you are. UM, if you are an investor in an
17:43
Speaker 1: attack bracket and you have a need for owning duration,
17:47
Speaker 1: then it probably still makes sense to own municipals at
17:50
Speaker 1: the moment because credit quality is actually quite good. It's
17:53
Speaker 1: improving largely across the board, and on a tax adjusted basis,
17:58
Speaker 1: there's necessarily a a better place to get that duration. UM,
18:03
Speaker 1: if you are someone who is managing against a broader
18:07
Speaker 1: fixed in COMME index and you want munies because you
18:09
Speaker 1: think they'll outperform corporates or something else, we wouldn't agree
18:13
Speaker 1: with that strategy, we think units are probably going to
18:16
Speaker 1: be an average, perhaps a slight underperformer versus other types
18:19
Speaker 1: of US dollar denominated credit. Alright, Michael, thanks so much
18:24
Speaker 1: for joining us. We really appreciate getting your perspective here
18:26
Speaker 1: as we try to make sense of what's going on
18:29
Speaker 1: down in Washington in terms of all those legis pieces
18:31
Speaker 1: of legislation that are winding their way through Congress. Michael
18:34
Speaker 1: jesus chief US Public Policy and Municipal Strategists for more
18:38
Speaker 1: in Stanley, based in New York City. This is Bloomberg. Well,
18:45
Speaker 1: when enhanced unemployment benefits in US ended earlier this month, Manye,
18:50
Speaker 1: businesses thought that job seekers would flood back into the
18:53
Speaker 1: labor market, but so far that hasn't happened. So what
18:56
Speaker 1: are businesses to do? Maybe one solution might be automation,
19:00
Speaker 1: enhanced automation. William Studebaker joins us. He's president in chief
19:04
Speaker 1: investment officer of robo Global. They have about four billion
19:06
Speaker 1: dollars in assets under mass man management across various indicries. Bill,
19:11
Speaker 1: thanks so much for joining us here. Talk to us
19:13
Speaker 1: about I don't know, automation robots. Is that kind of
19:17
Speaker 1: the future for a lot of businesses that might post
19:21
Speaker 1: pandemic have a hard time, you know, finding a job
19:24
Speaker 1: folks to fill their job openings. Yeah, good morning, Paul Kaley.
19:28
Speaker 1: Yeah it wasn't. I mean, fortunately, as I discussed in
19:31
Speaker 1: my blog, the robots are here, and UM, the obvious
19:35
Speaker 1: solution right now, you know, is automation, and the trajectory
19:39
Speaker 1: of automation is definitely undeniable. And what's exciting about what's
19:44
Speaker 1: happening now, it's that this revolution is very different in
19:47
Speaker 1: terms of scope, scale, and complexity of any other technological
19:51
Speaker 1: revolutions that we've seen. It is really coming down to
19:54
Speaker 1: really dollars and cents, and the competitive advantage that the
19:57
Speaker 1: service industry had had was access to cheap labor, and
20:01
Speaker 1: automated systems have had to compete against this. Historically, the
20:05
Speaker 1: upfront capita costs UM made robots less competitive. But you know,
20:10
Speaker 1: with astronomical wage increases, particularly lower wage labor in the
20:14
Speaker 1: absence of labor in many cases UM, the service industry,
20:18
Speaker 1: wage increases UM have really changed this equation. So we're
20:22
Speaker 1: at a tipping point. As we have wage costs and
20:25
Speaker 1: is accelerated, you have costs of automation that have plummeted
20:29
Speaker 1: and quality is obviously improved as a result of automation,
20:32
Speaker 1: and this is really giving birth to a whole new
20:36
Speaker 1: evolution to our economy and how business has done. Yeah,
20:40
Speaker 1: it's interesting. I was reading a note a story about
20:43
Speaker 1: a note from Mike Mayo, who's a bank analyst over
20:45
Speaker 1: at Wells far Ago very closely followed, and he said
20:48
Speaker 1: that the banking industry, the financial industry would be maybe
20:51
Speaker 1: cutting a hundred thousand jobs over the next five years
20:54
Speaker 1: in part due to improving a technology and automation. Is
20:58
Speaker 1: finance or any other industries sectors in particular that could
21:02
Speaker 1: see this happening in a more accelerated way. Well, I
21:07
Speaker 1: think that's a hard question to ask. I think every
21:09
Speaker 1: industry is actually you know, right for automation, there isn't
21:13
Speaker 1: you know when you when you think about automation in general,
21:16
Speaker 1: and you know how much or how penetrated are are
21:19
Speaker 1: we in terms of automation, And with the exception of
21:21
Speaker 1: of industrial robotics principally auto which is about penetrated, virtually
21:27
Speaker 1: every other industry has the minimous levels of penetration. Really, um,
21:31
Speaker 1: I would argue what's happening is not so much job loss.
21:35
Speaker 1: But what's happening is the nature of work is changing,
21:38
Speaker 1: and in many cases it's really what we're doing is
21:40
Speaker 1: automating tasks. So it's not about about complete job functions
21:44
Speaker 1: getting eliminated. But again, tasks are changing. We're moving more
21:48
Speaker 1: to a knowledge based work environment. Um. You know, I
21:52
Speaker 1: think back to the nine hundreds, we had sixty of
21:55
Speaker 1: our workforce there was an egg. Now we have two percent.
21:58
Speaker 1: We're producing more less. This is all as a result
22:02
Speaker 1: of automation. So again, I think we're at a tipping
22:05
Speaker 1: point for proactivity improve in virtually every industry. Is how
22:11
Speaker 1: do you when you look at the labor situation today?
22:14
Speaker 1: You know, we've got again the enhanced uneppointment and if
22:16
Speaker 1: it's expired earlier in September, Um, we haven't necessarily seen
22:22
Speaker 1: a rush back into the labor market. What what do
22:24
Speaker 1: you make of kind of the folks that are not
22:26
Speaker 1: participating in this labor market? Now? Well, I mean I think, um,
22:32
Speaker 1: you know, you know, the interesting thing that we've had
22:35
Speaker 1: in the economy. To put what's happened in perspective, it's
22:38
Speaker 1: actually kind of interesting. Um. In the second quarter of
22:43
Speaker 1: you know, we had the highest cdpeak growth in history.
22:45
Speaker 1: In fact, Jeep, your growth is now one person higher
22:48
Speaker 1: than the higher peak and we're producing the highest output
22:52
Speaker 1: was six point seven million fewer people. And this is
22:55
Speaker 1: all as a result of automation. And you know the
22:59
Speaker 1: initial undeployment claims that came out, we're a little more
23:02
Speaker 1: elevated than I think expectations had it. Um. You know,
23:06
Speaker 1: demand for workers remains elevated as as the economy reopened.
23:10
Speaker 1: So I think the big issue for a lot of
23:13
Speaker 1: companies and is that with the reopening of the economy,
23:16
Speaker 1: the main issue is has been finding enough workers to
23:19
Speaker 1: meet the soaring demand. And I think going forward, um,
23:23
Speaker 1: a lot of companies are going to face a lot
23:24
Speaker 1: of pressures with rising costs. And I think people have
23:28
Speaker 1: had the benefit of having enhanced benefits and and they
23:32
Speaker 1: recognized that, and I think that's made them very slow
23:36
Speaker 1: to you know, make future changes. Bill just quickly, we
23:39
Speaker 1: only have about a minute left. But if we're heading
23:41
Speaker 1: toward a more robotic, automated world, how do you position
23:44
Speaker 1: a portfolio for that. Well, I think this is undeniably
23:49
Speaker 1: you know where we're going. When we sort of had
23:51
Speaker 1: the vision that robotics and AI where we're going to
23:54
Speaker 1: become very ubiquitous eight years ago, you know, fast forward,
23:57
Speaker 1: you know eight years later, we could be more convicted.
23:59
Speaker 1: I think what's interesting is I think most people sort
24:02
Speaker 1: of see this, but they're not positioned for it to
24:04
Speaker 1: take for example, are our Robotics Index, which has an
24:08
Speaker 1: e t F the tracts at robot Less than three
24:11
Speaker 1: percent of these companies are in the SMP five hunters.
24:13
Speaker 1: So generally speaking, this is a very unowned part of
24:16
Speaker 1: the market for for most investors. And what we try
24:20
Speaker 1: to do is identified companies that have high revenue purity,
24:23
Speaker 1: that have market share and technological leadership. So these are
24:27
Speaker 1: really are very mature businesses and again importantly not owned
24:30
Speaker 1: by investors. And I think if you look at the SMP,
24:34
Speaker 1: SMP didn't exist roughly twelve years ago. So the evolution,
24:39
Speaker 1: the innovation that's happening is happening pretty rapidly. And this
24:42
Speaker 1: is where you know we're going. And this is just
24:45
Speaker 1: online with what's happened, you know, with the Internet and
24:48
Speaker 1: probably a lot more powerful. Hey, Bill, thanks so much
24:51
Speaker 1: for joining us. I really appreciate getting your thoughts. Are
24:53
Speaker 1: fascinating topic. Bill Student Baker, President and chief investment officer
24:56
Speaker 1: for Robot Global. Thanks for listening to the Bloomberg Market podcast.
25:01
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Speaker 1: on Twitter at Matt Miller nineteen seventy three and on
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25:15
Speaker 1: You can always catch us worldwide at Bloomberg Radio