Latest / Bloomberg Intelligence / Credit Suisse, Markets, Lobster, And Housing (Podcast)

Transcript

Credit Suisse, Markets, Lobster, And Housing (Podcast) · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day, we bring
0:06
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. I'll tell you the
0:22
Speaker 1: big take story today is awesome. I used to work
0:24
Speaker 1: with Credit Swiss, so I had an interest in it.
0:27
Speaker 1: Um and the story is just fascinating. Um. You think
0:30
Speaker 1: about these Russian billionaire oligarchs and their super yachts and
0:35
Speaker 1: owning you know, football clubs in London and so on
0:38
Speaker 1: and so forth. There's gotta be some bankers to those folks,
0:41
Speaker 1: and sure enough, Credit Swiss found. Can you believe? There
0:44
Speaker 1: in Switzerland? Shock. Marion Hofftemeyer, also in Switzerland, she's a
0:51
Speaker 1: finance reporter for Bloomberg News, brings us this story. Mary
0:53
Speaker 1: talked to us about Credit Swiss and the business it
0:57
Speaker 1: had built has built in Russia and kind of where
1:01
Speaker 1: we are today with the sanctions and so on. Yes,
1:05
Speaker 1: sure so, Credits WECE actually is one of the earliest
1:08
Speaker 1: banks to have a big presence in Russia. They came
1:10
Speaker 1: in post you know, sore Week, Soviet Union UM, and
1:15
Speaker 1: they really started to connect with a lot of these
1:17
Speaker 1: individuals who are gaining UM access to privatization and gaining
1:22
Speaker 1: wealth from that. And so you know, a lot of
1:25
Speaker 1: the money started supporting and then the first place you
1:27
Speaker 1: think of when you're looking for with private banking or
1:29
Speaker 1: for private banking in Switzerland, it's it's got an expertise
1:32
Speaker 1: in it, so you know, you end up having this
1:34
Speaker 1: this man but like Desmalsci, who was in a position
1:38
Speaker 1: to really receive these individuals who needed, you know, advice
1:42
Speaker 1: on how to buy companies, where to invest their money,
1:44
Speaker 1: you know, how to how to structure different transactions they
1:48
Speaker 1: were trying to do. And so that's where Credits really
1:50
Speaker 1: played a NSI and of course other banks have also
1:53
Speaker 1: been present in this space, but Credit seems to have
1:56
Speaker 1: a little bit more UM exposure and connection to the Marion.
2:00
Speaker 1: I once heard a story and I don't know if
2:02
Speaker 1: it's true, so you can correct me if I'm off base,
2:04
Speaker 1: but I want to just share it to illustrate UM.
2:08
Speaker 1: The perception of Swiss bankers in the Second World war,
2:12
Speaker 1: the Nazis were killing Jews and taking the gold from
2:16
Speaker 1: their teeth and storing it in Swiss banks, and these
2:18
Speaker 1: bankers knew what they were taking, right, There's this perception
2:22
Speaker 1: that the Swiss are willing to be bankers to the
2:25
Speaker 1: most evil people on the planet. UM. Is that that
2:32
Speaker 1: is that is a perception. UM. It's a perception that
2:35
Speaker 1: stems from some truth, obviously, but but it's it's not
2:39
Speaker 1: that they're choosing to bank with the you know, the
2:41
Speaker 1: most horrible people of the world. It's just Swiss banking
2:44
Speaker 1: has traditionally UM welcomed money UM and hasn't asked as
2:50
Speaker 1: many questions as as other jurisdictions have. And they've they've
2:54
Speaker 1: been really entrenched in this idea of banking secrecy UM
2:57
Speaker 1: to protect wealth. And you know, with that you bring
3:01
Speaker 1: that example up, they were they were actually also protecting
3:04
Speaker 1: many Jewish families wealth UM, avoiding avoiding that wealth from
3:08
Speaker 1: being taken by the Nazis. So there's both sides to it, UM.
3:12
Speaker 1: And so there have been you know, long debates and
3:14
Speaker 1: court cases around this UM. But it's difficult, it is
3:17
Speaker 1: a difficult area to operate in. Now, of course, we
3:20
Speaker 1: have the fall of banking secrecy. So there's a lot
3:22
Speaker 1: of accordance with other countries and tax you know, agreements,
3:26
Speaker 1: and so there's a lot less secrecy around it than
3:28
Speaker 1: historically has been well, and there must be some reputational
3:31
Speaker 1: um concern on uh the executive level. Right. They don't
3:37
Speaker 1: want to be seen as the banker to Kim Jong un.
3:41
Speaker 1: They don't want to be seen as the banker to
3:43
Speaker 1: Vladimir Putin? Do they? No? No, I mean definitely not.
3:48
Speaker 1: And in banks in general, I mean especially so thanks
3:51
Speaker 1: for other banks as well. I have have in recent
3:53
Speaker 1: years with k y C anti money laundering or you know,
3:56
Speaker 1: the extra restrictions are being put in place have avoided
4:01
Speaker 1: some of these individuals, these politically exposed individuals, because precisely,
4:04
Speaker 1: you know, if the person, the person could be fine
4:07
Speaker 1: for now, but who knows, you know, in a couple
4:08
Speaker 1: of years from now, what that person might get involved
4:11
Speaker 1: with that might paint you know, the bank and then
4:14
Speaker 1: alienate their other clients who don't want to be associated
4:16
Speaker 1: with the bank, who you know is banking people you
4:19
Speaker 1: don't want to associate with. So it's a difficult lyne
4:22
Speaker 1: to walk. But at one point, I mean a lot
4:24
Speaker 1: of these clients were not sanctioned. They were just regular businessmen. Yes,
4:28
Speaker 1: they made their money in the post plutin opposed to
4:30
Speaker 1: Soviet era um privatization process, but they were, you know,
4:34
Speaker 1: not untouchable. These were regular clients, and now they'd be
4:37
Speaker 1: they've become untouchable. So it's with many banks, it's a
4:40
Speaker 1: it's a problem about assessing, you know, what what level
4:43
Speaker 1: of risk, what level of probability are these clients going
4:46
Speaker 1: to be untouchable? You know that you're reporting is just
4:49
Speaker 1: rich in detail here. I really love your news item
4:52
Speaker 1: here that you and Hugo Miller, your colleague put together.
4:56
Speaker 1: The numbers are just amazing. At one point, Credit Swiss
4:59
Speaker 1: managed more than sixty billion dollars belonging to rich Russians
5:03
Speaker 1: and that brought in to Credit Swiss five hundred six
5:06
Speaker 1: billion dollars in revenue per year. What's happened to that
5:09
Speaker 1: business with all these sanctions? Here? This business is gone,
5:14
Speaker 1: it's dead. It's dead. And and and those aren't necessarily
5:17
Speaker 1: my words, those are the words of the bank. Um.
5:19
Speaker 1: You know, it started when you have you know, the
5:22
Speaker 1: annexation of Crimea and some things just came out, Um
5:25
Speaker 1: that you know, it's started to show the bank you know,
5:28
Speaker 1: this might not be an area of growth for us anymore. Um,
5:31
Speaker 1: but that was sort of a limited uh downfalls to
5:33
Speaker 1: speaker decrease in revenues. Now we've really seen basically businesses
5:38
Speaker 1: it's dead. It's it's all, there's nothing left. All they're
5:41
Speaker 1: doing is basically managing money that's in frozen accounts. But
5:44
Speaker 1: they can't do deals anymore. They can't transact, they can't
5:46
Speaker 1: trade for their clients, and that's really where they're making
5:48
Speaker 1: the most banks of their book. Yeah, there's a you
5:51
Speaker 1: have a quote from Gotstein in here, the CEO, saying
5:53
Speaker 1: you basically can't touch them. We don't have any business
5:57
Speaker 1: with Russian clients at all. Yep. It's interesting thing. So yeah,
6:00
Speaker 1: and you have some great photos in your uh in
6:04
Speaker 1: story as well. In terms of Alisher's MS super yacht
6:08
Speaker 1: named Bill Barr, it's undercovers at the Bloom and Voss
6:12
Speaker 1: dockyard in Hamburg in March, and so it seems like
6:15
Speaker 1: everybody's trying to get their hands on those Russian Allegar yachts.
6:19
Speaker 1: I don't think it's an exercise and excess though, I mean,
6:21
Speaker 1: you have to have at least two helicopters on your Yeah, yeah, no,
6:25
Speaker 1: no question. All right, Marian, thank you so much for that.
6:27
Speaker 1: Marion Hofmeyer, financial reporter for Bloomberg News. She is based
6:31
Speaker 1: in Switzerland. That's a great thing about Bloomberg News. We've
6:35
Speaker 1: got people all over the place. If there's news anyone
6:37
Speaker 1: who's planet, we're going to find it. Let's go right
6:43
Speaker 1: to our next guest, Kevin Nicholson, Global Fixed Income Co
6:47
Speaker 1: c i O, CO head of Investment Committee at Riverfront
6:50
Speaker 1: Investment Group. Kevin, I look at the corporate bond Total
6:55
Speaker 1: Return Index year to date down. What happened? Well, it's
7:01
Speaker 1: been a year had everything has gone down. I mean
7:05
Speaker 1: you look at the treasury market, treasuries, you know, senior
7:08
Speaker 1: treasuries up a hundred and twenty five basis points from
7:11
Speaker 1: where it started the year. And uh, you know, corporate
7:14
Speaker 1: spreads have widened. So that's where why you've seen these
7:17
Speaker 1: negative returns in the fixed income market. And you know
7:21
Speaker 1: corporations are not uh you know, are not immune um
7:26
Speaker 1: from football out and so uh, you know you're going
7:29
Speaker 1: to continue to see yields rise in my opinion, across
7:33
Speaker 1: the board as the FED continues. It's tightening cycle. Um.
7:38
Speaker 1: But if we expect the FED to go to three, um,
7:42
Speaker 1: they're almost there. It doesn't it become priced in at
7:46
Speaker 1: some point? I mean, uh, don't you start buying bonds
7:50
Speaker 1: for the yield? Oh? Yeah, I mean I think that
7:54
Speaker 1: bonds are attractive at this point in the cycle. Uh.
7:57
Speaker 1: You know, one of the things that I've been kind
7:59
Speaker 1: of preaching to our clients is that you know, you've
8:02
Speaker 1: taken the long term excuse me, the short term pain
8:06
Speaker 1: to get the long term gain. Uh. You know, when
8:08
Speaker 1: you're purchasing bonds, obviously the starting yield that you purchase
8:12
Speaker 1: them at is going to most likely be your return UM,
8:15
Speaker 1: And so you want to make sure that you know,
8:18
Speaker 1: at these current yields, you're going to actually have some
8:22
Speaker 1: room or yields to go higher without the price depreciation
8:26
Speaker 1: overwhelming the annual income generation. And so that's why we
8:30
Speaker 1: are focused at the front end of the curve, because
8:32
Speaker 1: you're getting more yield per unit of duration, and so
8:36
Speaker 1: that allows you to have a larger cushion for if
8:39
Speaker 1: yields wise, that you're not going to have that depreciation
8:43
Speaker 1: overwhelmed that income. Whereas if you go to the long
8:46
Speaker 1: end of the curve. You're not getting paid for that
8:48
Speaker 1: extra duration, and uh, you have a lot less cushion
8:52
Speaker 1: about half as much. Kevin, how concerned are you in
8:56
Speaker 1: your team there riverfront about this federal reserve and its
8:59
Speaker 1: ability too? I know, engineer kind of a soft landing
9:02
Speaker 1: visa the rising interest rates and having a policy risk
9:06
Speaker 1: maybe going too far, too fast and pushing us into
9:09
Speaker 1: a recession. How do you guys think about that? Well,
9:12
Speaker 1: you know, about a couple of weeks ago, we went
9:15
Speaker 1: through the exercise because we looked at the beds UM
9:18
Speaker 1: target for the end of the year of CORPC of
9:20
Speaker 1: four point one percent, and we were like, how did
9:22
Speaker 1: we get there by a year in um and have
9:26
Speaker 1: a soft landing? So they speak um and over the
9:30
Speaker 1: last twelve months, CORPC has averaged about UM forty two
9:34
Speaker 1: basis points per month, and so therefore, in order for
9:38
Speaker 1: the BED to hit their rates target by the end
9:41
Speaker 1: of the year, that means that corp c a PC
9:44
Speaker 1: must average about thirty three basis points. So you're gonna
9:47
Speaker 1: have per month, So you're gonna have a huge slowdown.
9:50
Speaker 1: We don't see the inflation cooling that fast, and so
9:54
Speaker 1: therefore we continue to believe that you know, yields are
9:57
Speaker 1: going to be materially higher by the end of the year.
10:01
Speaker 1: And so that's why we maintain um that you know,
10:04
Speaker 1: to have a shorter duration. And we don't think that
10:07
Speaker 1: the FED is going to have a soft landing. We
10:10
Speaker 1: think that they're going to overtighten and push us into
10:13
Speaker 1: recession ultimately. And uh, do they then turn around and
10:16
Speaker 1: cut I mean, I know, now we're going pretty far
10:19
Speaker 1: out and it's hard enough to forecast you know, the
10:21
Speaker 1: next twelve months, But do you expect the Fed to
10:26
Speaker 1: uh try and fix a mistake? Well? I think the
10:30
Speaker 1: big thing here is that the FED wants to get
10:32
Speaker 1: rates normalized UM, so that if they do over uh,
10:37
Speaker 1: if they overtighten, they have the ability to have some
10:40
Speaker 1: room to be able to lower rate um. You know,
10:44
Speaker 1: but at current you know, at current levels, even if
10:47
Speaker 1: we were to if they were to stop let's just
10:50
Speaker 1: say here or you know, a rate or two hikes more, UM,
10:55
Speaker 1: it's not going to be enough to give them dry
10:57
Speaker 1: powder going forward. So I think that that if they
10:59
Speaker 1: do overtighten the economy, um, they will they will make
11:04
Speaker 1: sure that a the inflation is under wraps at this
11:09
Speaker 1: point I think inflation is the most important thing for
11:13
Speaker 1: them to fight, and so for the FED, if they
11:15
Speaker 1: send us in the recession and inflation is still high,
11:19
Speaker 1: then I don't think that they're going to stop there. Um,
11:23
Speaker 1: you know, because the FED poot is gone, and so
11:26
Speaker 1: now it's really about trying to get inflation under control.
11:30
Speaker 1: Where you where are you? You're off? You're off? Where
11:33
Speaker 1: are you putting money to work? Kevin? Given your backshop,
11:35
Speaker 1: which is pretty darn didn't I would say, you know,
11:39
Speaker 1: kind of kind of a dark outlook. Yeah, I mean,
11:43
Speaker 1: you know, it's only dark in the in the short term,
11:45
Speaker 1: to be quite honest. I mean we're looking at opportunities
11:48
Speaker 1: and you know, and from a fixed income standpoint, we're
11:51
Speaker 1: still looking at bank loans and UH and high yield UH.
11:57
Speaker 1: In the equity markets, UM, you are wanting to get
12:01
Speaker 1: paid to wait, so we're looking um for dividend paying stocks.
12:05
Speaker 1: We're looking at covered cost strategies UM. And combine that
12:11
Speaker 1: with our high yell UH and bank loan approach. That's
12:15
Speaker 1: the idea of you know, getting paid to weight. And
12:18
Speaker 1: so we think that we're going to you know, we're
12:20
Speaker 1: gonna be okay. It's just that the markets. As we
12:24
Speaker 1: all talk about all the time, uncertainty, and right now
12:27
Speaker 1: we're in an uncertain time and it just I just
12:30
Speaker 1: feel like markets are going to be ranged bound. I'm
12:32
Speaker 1: not saying that it's harm again, I don't believe that.
12:35
Speaker 1: Um I think that, you know, if we go into recession,
12:39
Speaker 1: it's not going to be until late twenty three into
12:43
Speaker 1: so we have some time on our side. It's just
12:45
Speaker 1: a matter of being selective, all right, Kevin, good, good stuff.
12:49
Speaker 1: We appreciate getting your thoughts and your perspective there. Kevin Nicholson.
12:53
Speaker 1: He's a global fixed income co c i O and
12:55
Speaker 1: co head of Investment Committee at Riverfront Investment Group in
12:59
Speaker 1: the lovely city of Richmond, Virginia, where I spent a
13:03
Speaker 1: lot of time back in the day. All Right, for
13:08
Speaker 1: my good friend Renny and I, we look at the
13:11
Speaker 1: summer as the Triple Crown, and this weekend is a
13:14
Speaker 1: first leg of the triple Crown. Memorial Day then of
13:16
Speaker 1: course you've got four and then Labor Day. So when
13:20
Speaker 1: we get to the first leg of the triple Crown,
13:21
Speaker 1: you start thinking about seafood and laps to Mark Morrell.
13:25
Speaker 1: He does he does this lobster thing full time. He's
13:27
Speaker 1: a founder and CEO of Get Main Lobster Mark. Thanks
13:30
Speaker 1: so much for joining us here. A lot of folks
13:32
Speaker 1: are starting to think more and more about getting those
13:34
Speaker 1: fresh lobsters. Talk to us about the lobster market today.
13:39
Speaker 1: I mean, we see inflation everywhere return. How is it
13:43
Speaker 1: with the lobster guys. Yeah, it's insane right because fuel,
13:49
Speaker 1: they labor, you know, everything is up. So the lobster
13:53
Speaker 1: men are feeling. It's the warf owners are feeling at
13:57
Speaker 1: the processors my company, so because then you have to
14:02
Speaker 1: calculate what was the market there, and the market understands
14:07
Speaker 1: what's going on, so they know they're paying a little
14:10
Speaker 1: bit more, and the die hard lobster lovers um you know,
14:13
Speaker 1: are still buying. So it's an interesting time for sure. Yeah,
14:17
Speaker 1: I was wondering about the demand. I mean for me. Also,
14:20
Speaker 1: the summer is marked in July and August by the
14:24
Speaker 1: Lobster Party, by the place I go to, the beach
14:27
Speaker 1: place I go in the summer. We have the Lobster
14:29
Speaker 1: Party one each month and it's like the party to
14:32
Speaker 1: go to um. But as we're all sort of tightening
14:36
Speaker 1: our belts here because of six dollar a gallon gas
14:40
Speaker 1: and you know, um groceries that are all of a
14:43
Speaker 1: sudden costing of our paychecks rather than ten to fifteen
14:49
Speaker 1: do we still reach for the lobster demands? Has not
14:54
Speaker 1: waned as much as I thought it would. Uh, really
14:58
Speaker 1: interesting and um, I mean one of the things lobster
15:02
Speaker 1: is very celebratory, so not something people eat every day,
15:06
Speaker 1: but if they want a special event to be that
15:10
Speaker 1: much more special than lobsters could go to. By the way,
15:14
Speaker 1: is lobster still the best? I mean I think of
15:18
Speaker 1: main lobster as the pinnacle right caught in some freezing
15:21
Speaker 1: cold waters by a guy with a sick accent in
15:25
Speaker 1: a sweet trawler like But um, is it still the
15:28
Speaker 1: only way? Are there lobster farms? Are their genetically engineered lobsters?
15:33
Speaker 1: What's the story? Yeah? I think lab lobsters are in
15:40
Speaker 1: the future. I haven't heard of anything now here and
15:43
Speaker 1: me and the only thing I fell was wild caught
15:45
Speaker 1: by hand by an individual typically generational lobsters man or woman.
15:52
Speaker 1: So it's pretty cool, big heritage here and the process
15:56
Speaker 1: really hasn't changed much. I mean, how have the the
16:00
Speaker 1: lobster people in Maine, in New England, how have they
16:03
Speaker 1: fared over the past few years with the pandemic, How's
16:05
Speaker 1: their business changed, how have they evolved? Because you know,
16:08
Speaker 1: whenever we talked to people that are in different parts
16:11
Speaker 1: of the economy, I was like to get a sense
16:12
Speaker 1: of kind of how their life, how their business has changed. Yeah,
16:17
Speaker 1: it was different for everyone during the pandemic, and a
16:21
Speaker 1: lot of people don't understand in the lobster industry itself,
16:25
Speaker 1: when the shutdown occurred, you got rid of casinos, cruise ships,
16:31
Speaker 1: in a bunch of restaurants. Those are big, big suppliers
16:34
Speaker 1: of lobster that people don't realize. So when you have
16:38
Speaker 1: large purveyors that have tanks and freezers filled with lobster
16:42
Speaker 1: and nowhere for it to go, they rely on businesses
16:46
Speaker 1: like mine, where are online direct consumer. We shipped the
16:51
Speaker 1: product so um. It was really interesting. Typically the price
16:56
Speaker 1: goes up and down throughout the year depending upon supply
16:58
Speaker 1: and demand. But demand was super duper high and supply
17:03
Speaker 1: was super duper high. Uh, and then supply started to
17:07
Speaker 1: get low um, and we had an entire year of
17:11
Speaker 1: not much price change. Um and then suddenly I've never
17:16
Speaker 1: seen lobster prices as high as they got recently it
17:20
Speaker 1: was it was wild and because demand was still really
17:24
Speaker 1: high but supply was low. But it would the uncertainty
17:27
Speaker 1: what is this supply like, you know, is it a
17:29
Speaker 1: what is this lobsters? You know, natural lobsters? Is it?
17:33
Speaker 1: Is it on the rebound? Is it good? Is it endangered? Um? No,
17:38
Speaker 1: So main super sustainable and by designed by the lobster
17:43
Speaker 1: men and women themselves. So we're never going to have
17:47
Speaker 1: any supply issues from what is in the ocean. Um.
17:52
Speaker 1: So that's great news. Um. You know other markets from
17:55
Speaker 1: the overly privy too. I don't study the Canadian on
18:00
Speaker 1: sometimes I have to buy Canadian but I don't, you know,
18:03
Speaker 1: study elsewhere. But we don't catch anything below a pound
18:07
Speaker 1: and nothing above four pounds, so that we can let
18:11
Speaker 1: them grow. And then the big ones, you know, we
18:13
Speaker 1: want to keep them around because they're you know, they're breathing.
18:17
Speaker 1: I will point out there have been you know, during
18:20
Speaker 1: the lockdown, Maine started selling recreational weed. I don't know
18:24
Speaker 1: if that has anything to do with the demand. I
18:27
Speaker 1: don't know if that influences the demand picture or slows
18:30
Speaker 1: down supply a little bit. But um, but you're moving
18:34
Speaker 1: into a new era and I mean, like you said,
18:36
Speaker 1: everything's still done traditionally in sustainable ways and it's an
18:40
Speaker 1: incredible heritage. But now you're selling an n f T.
18:44
Speaker 1: What's that all about? What you got to tell us
18:46
Speaker 1: about it? It's crazy. So back in November, um, I
18:52
Speaker 1: discovered a beautiful one million rare lobster that lobs. I'm
18:58
Speaker 1: gonna work with Billy or Smith harvested and we have
19:02
Speaker 1: a relationship where I acquire a of his catch. So
19:06
Speaker 1: um it was. Her name is Hattie Cotton colored cotton
19:10
Speaker 1: candy colored lobsters. She's like blues and paints. If you
19:14
Speaker 1: google or Hattie cotton candy lobster. I'm on it, and
19:17
Speaker 1: I'm on it right now. Yeah, I mean, mother nature
19:20
Speaker 1: created something epic. Um So I was inspired by her,
19:24
Speaker 1: and I wanted to do some cool projects. One was
19:29
Speaker 1: created an I P A with shipyard called Hattie's Happy
19:32
Speaker 1: I p a UM And then the n f T project,
19:36
Speaker 1: which I'm super pumped about, is Hattie's Bay Club. And
19:40
Speaker 1: so it's this Web two or a Web two business
19:43
Speaker 1: jumping into Web three, and we're bringing what it's called
19:48
Speaker 1: in real life utility to the Web three world. Typically
19:53
Speaker 1: an n f T gives you access to an exclusive
19:56
Speaker 1: group of people. It may give you if you stake
19:59
Speaker 1: it and make you earned down the road. For us,
20:02
Speaker 1: we want to use lobster in the web three world
20:05
Speaker 1: and say hey, you get this n f T, and
20:08
Speaker 1: we're doing monthly giveaways. We're giving tempercent fact and marine conservation.
20:12
Speaker 1: Those that collect and hold rare n f T get
20:16
Speaker 1: access to potentially lobster for a year and just a
20:21
Speaker 1: bunch of fun, uh fun things. And we're actually launching
20:25
Speaker 1: a merchandise website called b Hattie dot com and of
20:32
Speaker 1: the profits are going to token holders, So if you
20:35
Speaker 1: hold an n f T, you're gonna get the profits
20:38
Speaker 1: on this apparel website that was inspired by by the
20:41
Speaker 1: way I'm looking at pictures of this lobster and she
20:44
Speaker 1: is amazing. One of a million chances of finding she
20:47
Speaker 1: still alive? Is how he still alive? Yeah? Yes, right,
20:51
Speaker 1: Sea coastein Center in Ryan, New Hampshire, and she's alive
20:55
Speaker 1: and well, all right, Mark, awesome, awesome stuff. Best a
20:58
Speaker 1: lot to you and Hattie. Mark Morrell, founder and CEO
21:03
Speaker 1: of Get Main Lobster. All right, let's talk real estate,
21:09
Speaker 1: because I the peak of real estate when Matt bought
21:14
Speaker 1: his home. I'm going to call that the peak. We
21:16
Speaker 1: got interest rates rising here, so I'm just wondering what
21:20
Speaker 1: the impact is on not just residential, a commercial real
21:22
Speaker 1: estate as well. Has some Naji, President and CEO of
21:25
Speaker 1: Marcus and Millichap joins us Hassan, thanks so much for
21:29
Speaker 1: joining us here. Has real estate peaked here? I mean,
21:33
Speaker 1: it's been such a great asset class during the pandemic,
21:35
Speaker 1: but has it peaked? Good morning, Thanks for having me
21:39
Speaker 1: on the program. Their market is definitely going through a
21:41
Speaker 1: transition when you have interest rates at zero and now
21:44
Speaker 1: having to move up to what is really considered normal
21:48
Speaker 1: interest rates. Three year on the ten year treasury yield
21:51
Speaker 1: or even frankly three and a half or four yield
21:54
Speaker 1: on the pin your treasury is not high interest rate
21:57
Speaker 1: by historical standards. We're going from zero and going rapidly
22:03
Speaker 1: because the Fed now has to react to the inflation
22:06
Speaker 1: threat or these inflation reality. I should say it is
22:10
Speaker 1: causing a market transition, especially on the for sale housing
22:13
Speaker 1: side of the equation, because prices are up so much
22:16
Speaker 1: since the prior to the pandemic, and now you have
22:19
Speaker 1: higher interest rates moving people into apartment rentals. On the
22:23
Speaker 1: commercial side, the lack of overbuilding and really strong fundamentals
22:28
Speaker 1: prior to the pandemic and still today is really the
22:31
Speaker 1: safety net on top of renk Walks rank well for
22:35
Speaker 1: commercial real estate is coming back extremely strongly. And that's
22:39
Speaker 1: why commercial real state is an inflation well cause has
22:42
Speaker 1: some We have columnists here Cameron Cries who wrote a
22:46
Speaker 1: piece today about housing the housing market saying that's not pretty,
22:49
Speaker 1: but it isn't two thousand six. This isn't going to
22:54
Speaker 1: be a repeat of the bubble bursts that caused the
22:57
Speaker 1: Great Financial Recession, because a great financial crisis, because um,
23:02
Speaker 1: you don't have the rising supply that you did. We've
23:04
Speaker 1: seen these incredible UH price increases and in fact, if
23:09
Speaker 1: you look at the average median you know, on the
23:11
Speaker 1: residential side, the average median home, um, the mortgage payment
23:15
Speaker 1: has gone up more than fifty percent UM. But you
23:20
Speaker 1: don't have the overproduction that you had back then, and
23:23
Speaker 1: I wonder if it's the same on the commercial side.
23:27
Speaker 1: That's exactly right. On top of the lack of overbuilding
23:31
Speaker 1: for all those estates, housing and commercial, you also had
23:35
Speaker 1: lenders that stayed very disciplined during this last cycle. Unlike
23:39
Speaker 1: oh five, oh six, oh seven, where there was so
23:42
Speaker 1: much leverage in the system, underwriting standards had loosened so much,
23:46
Speaker 1: and there was a lot of non performing loans when
23:50
Speaker 1: the O A O nine recession hit. That is extremely
23:53
Speaker 1: different from what we're experiencing now. As lenders did stay disciplined.
23:58
Speaker 1: We don't have a six bank system, we don't have
24:01
Speaker 1: a bunch of loans about to go into default, and
24:04
Speaker 1: so all of that provides really good sort of a
24:08
Speaker 1: safety net on valuations. But prices are adjusting. Obviously. When
24:12
Speaker 1: interest rates go from you know, three or three and
24:14
Speaker 1: a half percent on your average apartment loan to four
24:17
Speaker 1: and a half percent, you know in a matter of
24:20
Speaker 1: a few months, that's going to create some pricing pressure. Uh.
24:25
Speaker 1: Same with the office buildings, who are suffering even more
24:28
Speaker 1: because the demand side on office is much more questionable
24:31
Speaker 1: than apartments, storage units, even retail that is now seeing
24:37
Speaker 1: kind of a revolution of the use of brick and
24:39
Speaker 1: mortar retail creating a lot of investment opportunities. So I
24:43
Speaker 1: think fundamentals are going to prevent a wholesale price correction,
24:48
Speaker 1: but we're seeing pockets where a lot of appreciation has
24:51
Speaker 1: led to record pricing, those are adjusting a little bit.
24:54
Speaker 1: And I'll say it again, rank growth is the key
24:57
Speaker 1: apartment rents nationwide. Of for the first quarter of this year,
25:01
Speaker 1: we're up more than year earlier, and people have nowhere
25:04
Speaker 1: else to live, So that rank growth is going to
25:07
Speaker 1: continue at a healthy place. Maybe not quite as as
25:10
Speaker 1: hot as this then, but definitely in the double digit range.
25:15
Speaker 1: Hassam talked to us about supply of residential housing. You know,
25:20
Speaker 1: I think one of the themes that I've picked up
25:22
Speaker 1: over the last several years, if not longer, was when
25:25
Speaker 1: the builders build stuff, they're building the McMansions, the stuff
25:28
Speaker 1: where they've got a really nice profit margin, and not
25:31
Speaker 1: necessarily building the entry level home. And that's part of
25:36
Speaker 1: the big problem we're seeing in in rents, for example,
25:40
Speaker 1: is that changing at all our builders trying to cater
25:42
Speaker 1: to some of the entry level. The design has really
25:47
Speaker 1: changed in the last ten years, from mega mansions to
25:51
Speaker 1: more of the median affordable, you know, three to four
25:57
Speaker 1: bedroom homes that that families can actually afford. The change, though,
26:03
Speaker 1: is the fact that land prices have skyrocketed, supply material
26:09
Speaker 1: costs have gone way up, and labor costs have gone
26:12
Speaker 1: way up, so it's become a lot harder to build,
26:15
Speaker 1: it's become a lot more expensive to build. And we're
26:18
Speaker 1: also seeing a new phenomenon of institutional capital coming into
26:22
Speaker 1: the built for rent single family market, where a lot
26:26
Speaker 1: of the inventory that's being built is being built to
26:28
Speaker 1: be rented, not to be sold. So if you look
26:32
Speaker 1: at this various trans affecting for sale housing, that's a
26:35
Speaker 1: pretty important one in which is really evolved over the
26:38
Speaker 1: last five years. What do you expect from the Fed here?
26:41
Speaker 1: Some I mean, um, you know, a huge portion of
26:45
Speaker 1: the price increase I think uh. Cameron Cries wrote earlier
26:50
Speaker 1: that you know of the increase in monthly payments over
26:54
Speaker 1: the last year has come from the Fed's efforts to
26:57
Speaker 1: curb inflation. So does that continue into we see mortgage
27:00
Speaker 1: rates continuing to rise and does it infect effect commercial
27:03
Speaker 1: as well? Yeah, I think the set is gonna have
27:06
Speaker 1: to stay aggressive. They can't back off. Now. I don't
27:10
Speaker 1: think they're gonna have to go overboard. But the remainder
27:13
Speaker 1: of this year I believe will bring significant successive interest
27:18
Speaker 1: rate increases, and it is to be expected. The inflation
27:23
Speaker 1: phenomenon is something that was not predicted and it's really
27:27
Speaker 1: a function of recovering from this terrible pandemic and the
27:30
Speaker 1: liquidity that was pumped into the system. You could argue
27:33
Speaker 1: that they overdid it, but better to have overdone it
27:37
Speaker 1: than undershot and have us being a deflationary environment, which,
27:41
Speaker 1: as you know, it's much harder to fight. I think
27:43
Speaker 1: interest rates are going to be on the rise, but I,
27:46
Speaker 1: unlike many, I don't expect it to get out of hand.
27:49
Speaker 1: I think the market can absorb another fifty It is
27:51
Speaker 1: seventy five basis points two three and a half percent
27:53
Speaker 1: on the tenure, and we'll be fine, all right, Some
27:56
Speaker 1: thank you so much. We really appreciate it. As some
27:58
Speaker 1: Nagy President and ce Oh of Marcus and Millichip getting
28:02
Speaker 1: a latest on real estate. Thanks for listening to the
28:06
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
28:10
Speaker 1: with Apple Podcasts or whatever podcast platform you prefer. I'm
28:14
Speaker 1: Matt Miller. I'm on Twitter at Matt Miller. Yet on
28:19
Speaker 1: ball Sweeney, I'm on Twitter at pt Sweeney. Before the podcast,
28:22
Speaker 1: you can always catch us worldwide at Bloomberg Radio.