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Trump, Rates, Fitch, and Earnings (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.
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Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moven news.
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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
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Speaker 1: Nick Ackerman joins us. This is former Assistant Special Watergate
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Speaker 1: prosecutor Nick As one of our Bloomberg opinion columnists wrote
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Speaker 1: this morning, this is the big one for former President Trump.
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Speaker 1: How do you think this will play out?
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Speaker 3: Oh? I think it is absolutely a devastating indictment. You
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Speaker 3: just read through the facts. It tells the entire story
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Speaker 3: of what Donald Trump did after the election straight up
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Speaker 3: until January sixth, to try and stay in power illegally.
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Speaker 3: It is definitely a big one, but keep in mind
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Speaker 3: the other indictments are serious also. If you do look
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Speaker 3: at the District Attorney's indictment in Manhattan, even though it
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Speaker 3: has to do with falsifying business records, the indictment alleges
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Speaker 3: that he did so basically to defraud voters so that
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Speaker 3: they wouldn't know about his payments of hush money to
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Speaker 3: Stormy Daniels prior to the twenty sixteen election. This particular
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Speaker 3: indictment relates to his efforts to lie to voters in
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Speaker 3: order to keep himself in power after the twenty twenty elections.
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Speaker 3: So both of these indictments really make neat bookends. And
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Speaker 3: of course the whole indictment relating to classified documents is
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Speaker 3: really separate and apart from the voters and the elections.
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Speaker 4: Nick tell us about the timing of this and how
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Speaker 4: it relates to the twenty twenty four election and if
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Speaker 4: you know, winning the presidency again, if that's really Trump's
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Speaker 4: best possible defense here, it kind of seems like that
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Speaker 4: get out of jail free card.
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Speaker 3: Well, no question is to get out of jail card
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Speaker 3: free here, But you're going to look at a couple
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Speaker 3: things on timing. The reason that Jack Smith brought this
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Speaker 3: case just against Donald Trump is to keep the case
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Speaker 3: lean and mean and simple so that he can get
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Speaker 3: this case to trial somewhere around the seventy day period
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Speaker 3: required by the Speedy Trial Act. I think realistically he
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Speaker 3: could get this case to trial in January or February,
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Speaker 3: prior to the DA investigation in the trial that's scheduled
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Speaker 3: for March, So I think that is part of what
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Speaker 3: he's looking to do to get a verdict, a guilty
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Speaker 3: verdict prior to March. Secondly, in terms of the politics
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Speaker 3: of this entire matter, one indictment coming down after another
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Speaker 3: indictment sooner or later, Republican Senator House members, people who
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Speaker 3: are running for governor and the Republican ticket have got
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Speaker 3: to ask themselves do they really want to expose themselves
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Speaker 3: to having the head of their ticket under indictment, which
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Speaker 3: will ultimately in the next ten to fifteen days will
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Speaker 3: be about four times And do they really want to
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Speaker 3: answer questions that are going to be based on specific
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Speaker 3: facts in all of these indictments that are absolutely devastating
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Speaker 3: for Donald Trump and will be devastating for the Republican
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Speaker 3: Party members to try to deal with over the course
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Speaker 3: of the next election.
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Speaker 1: Not that he doesn't have enough on his plate already
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Speaker 1: from a legal perspective, but what do we know about
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Speaker 1: what may happen from the Georgia Court in terms of timing,
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Speaker 1: because that's also another big election issue for him.
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Speaker 3: Well exactly, and that one, unlike the one that was
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Speaker 3: just just came down yesterday, is likely to include a
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Speaker 3: whole number of defendants. Fannie Willis, who is a expert
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Speaker 3: in the Georgia Rico Statute, which simply allows her to
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Speaker 3: bring in many crimes as one crime and be able
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Speaker 3: to tell the entire story of Trump's efforts to undermine
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Speaker 3: the vote in Georgia. I think is going to be
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Speaker 3: a real blockbuster in the sense that a lot of
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Speaker 3: the people that were named as unindicted co conspirators in
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Speaker 3: this most recent indictment are going to be named as
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Speaker 3: defendants in the Fulton County indictment. It's kind of interesting
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Speaker 3: because I know that I think that Fannie Willis has
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Speaker 3: said that she has not communicated with doj or Jack
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Speaker 3: Smith on this indictment. But this is not a typical
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Speaker 3: of what happens sometimes where certain defendants in certain matters
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Speaker 3: are divided up. And I think what you're going to
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Speaker 3: have here is this federal indictment that goes after Donald
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Speaker 3: Trump himself. Maybe there'll be other federal indictment, but certainly
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Speaker 3: the Georgia indictment is going to include a lot of
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Speaker 3: these same unindicted co conspirators and more and cover more
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Speaker 3: Georgia centric types of activities.
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Speaker 1: Hey, Nick, you know, when I look at the legal
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Speaker 1: representation for former President Trump, I don't see a lot
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Speaker 1: of white shoe law firms that names that I recognize.
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Speaker 1: Who are his attorneys? Are they any good? What do
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Speaker 1: we know about them? Can he mount in all of
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Speaker 1: these various cases? Can he mount the reasonable defense?
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Speaker 3: Well? I mean that's a real problem for him. I mean,
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Speaker 3: his big problem is that attorneys don't like to sign
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Speaker 3: on with Donald Trump, especially big law firms, don't want
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Speaker 3: their names besmirched. Every attorney that's been connected with Donald
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Speaker 3: Trump in some way has fallen into the mud with
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Speaker 3: Donald Trump. Secondly, he doesn't pay his billsop, And that
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Speaker 3: is a huge problem. If you're a lawyer and you've
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Speaker 3: got to devote the amount of time you need to
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Speaker 3: vote to a case like this, you don't want to
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Speaker 3: do it as a charity case.
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Speaker 4: You know, you had mentioned, Nick about the idea of
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Speaker 4: keeping this lean and mean and just focused on Trump.
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Speaker 4: I was poking around on I guess we'll call it
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Speaker 4: X now not Twitter, and saw that Ginny Thomas was
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Speaker 4: trending this morning as possibly one of the unnamed co conspirators.
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Speaker 4: Wonder if you would venture to, you know, think out
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Speaker 4: loud here of who the others might be, or if
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Speaker 4: she could, if there's a case that she could be
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Speaker 4: one of them.
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Speaker 3: I don't think so. I mean I went through the
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Speaker 3: list in pretty much. I mean, Rudy Giuliani is clearly
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Speaker 3: co conspirator one, the Sydney Powell is I think co
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Speaker 3: conspirator three. You've got John Eastman, who I think is
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Speaker 3: co conspirator number two. I don't see Ginny Thomas being
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Speaker 3: in the list there of people that are part of this.
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Speaker 3: I mean, she was on the pariah free of this.
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Speaker 3: I don't think she was a major player. She had
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Speaker 3: put in her two cents with Mike Mark Meadows, Donald
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Speaker 3: Trump's chief of staff, but no, I would be surprised
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Speaker 3: if she turns out to be a big player in
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Speaker 3: this indictment.
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Speaker 4: Anything about Clarence.
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Speaker 3: I don't think so. I mean, there is a reference
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Speaker 3: there where they tried to get One of their plans
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Speaker 3: was to try and get an order from the Supreme
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Speaker 3: Court at some point, and we know that what they
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Speaker 3: were trying to do was set this up so Clarence
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Speaker 3: Thomas I would issue an order that would give them
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Speaker 3: some kind of credibility in terms of what they were doing.
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Speaker 3: So I think that's going to come into play here.
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Speaker 3: But again I don't think Clarence Thomas is going to
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Speaker 3: be a big player and somebody to be watching it
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Speaker 3: in this case.
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Speaker 1: Now people to watch are really.
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Speaker 3: Mark Meadows and others, the lawyers who were the in
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Speaker 3: house counsel, Mike Penn. I mean, keep in mind, the
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Speaker 3: witnesses in this case are all going to be Donald
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Speaker 3: Trump employees and people that work for Donald Trump. These
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Speaker 3: are not left wing crazy ATIFA people. This is Donald
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Speaker 3: Trump's own courtrey of people. I mean, these are his
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Speaker 3: pals that are testifying against him.
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Speaker 1: Nick, great stuff. As always, I'm not sure there's a
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Speaker 1: better voice on this than Nick Ackerman, former assistant Special
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Speaker 1: Watergate prosecutor. Nick Ackerman, Thank you so much for your
8:33
Speaker 1: time for this unfolding issue, and it just seems like
8:35
Speaker 1: it's a never ending There are so many layers it's
8:37
Speaker 1: hard to keep track of. I find some of the
8:40
Speaker 1: helpful reporting, at least for me, when I kind of
8:43
Speaker 1: spend my time looking at this stuff, it's just reminding
8:46
Speaker 1: kind of what's out there, where are we what stage
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Speaker 1: are we at in these various things?
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Speaker 4: It's so hard to keep track of and to think
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Speaker 4: that this is somebody who might be elected president in
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Speaker 4: a little over a year from now, and try to
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Speaker 4: keep track of all the charges against him. I'm just
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Speaker 4: as lost as you are.
9:01
Speaker 1: I will keep up with it. This is Bloomberg.
9:05
Speaker 5: You're listening to the Team Kenshar Live program Bloomberg Markets
9:09
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9:15
Speaker 5: demand wherever you get your podcasts.
9:20
Speaker 1: When I saw the news that Fitch downgraded the US government,
9:22
Speaker 1: I was surprised. It just didn't seem very patriotic to me.
9:26
Speaker 1: But I'll tell you who was not surprised, and that's
9:28
Speaker 1: Ira Jersey and his team. IRA's the chief rate strategist
9:33
Speaker 1: at Bloomberg Intelligence. He wrote back on May twenty fifth
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Speaker 1: that quote political partisanship causing a rolling debt ceiling crisis
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Speaker 1: and continued deficits well over three percent of GDP doesn't
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Speaker 1: suggest that a triple A rating is warranted. Iraight, you
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Speaker 1: were so right here. I mean, what's fitched. I mean
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Speaker 1: they're joining some other rating ahgs that have already done it.
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Speaker 1: But that doesn't seem very patriotic. What's going on out there?
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Speaker 6: Yeah, well, so it's been to years since SMP downgraded
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Speaker 6: the US from Triple A to double A plus and
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Speaker 6: almost of the week actually because that was Honor about
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Speaker 6: August sixth that that SMP did it. So I think
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Speaker 6: they just they saw the Treasury borrowing estimate from Monday
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Speaker 6: night that came out at three o'clock, where the Treasury
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Speaker 6: Department said, hey, we're going to borrow over a trillion
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Speaker 6: dollars just this quarter, just this current quarter, and uh,
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Speaker 6: and we expect to have to borrow a lot more
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Speaker 6: later so and Fitch between that and between the you know,
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Speaker 6: another debt sealing crisis that you know was averted again
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Speaker 6: at the last minute back in June, you know, they
10:36
Speaker 6: just felt that the US is not yet is not
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Speaker 6: triple A anymore. And quite frankly, I can't blame them
10:42
Speaker 6: because under you know, when you look at all of
10:44
Speaker 6: the triple A rated countries around the world, there's not
10:46
Speaker 6: that many, and you know, the US debt burden doesn't
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Speaker 6: look anything like Germany's, for example, which is one of
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Speaker 6: the one of the only triple A rated sovereigns left
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Speaker 6: in the in the world. So you know, maybe if
10:58
Speaker 6: if we were willing to get rid of this debt
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Speaker 6: ceiling problem that that we keep on having to do
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Speaker 6: every two years, maybe Fitch would have had a different opinion.
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Speaker 6: But you know, I can't say that it's a huge
11:10
Speaker 6: surprise that had happened. You know, maybe the timing a
11:12
Speaker 6: little bit we expected it to happen, maybe after this
11:14
Speaker 6: morning's announcement, but you know, it's still not a huge
11:18
Speaker 6: not a huge surprise. I don't think markets care very
11:20
Speaker 6: much about that. I think there the market, the treasury
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Speaker 6: market is reacting a lot more to the higher supply
11:26
Speaker 6: that was announced just this morning.
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Speaker 3: Right.
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Speaker 4: That seems like the timing is really the biggest question
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Speaker 4: mark around all this on the in terms of the
11:33
Speaker 4: market reaction that we're seeing. And so you had flagged
11:36
Speaker 4: in your note I or that just came out that
11:39
Speaker 4: the treasury coupons being a bit of a factor in this.
11:43
Speaker 4: I was even wondering too, when when credit agencies issue
11:47
Speaker 4: of ratings watch those are typically resolved in what three
11:51
Speaker 4: to six months, So I guess we're kind of coming
11:53
Speaker 4: up on that period. So what do you think was
11:55
Speaker 4: really the principal driver in the timing here.
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Speaker 6: Yeah, so sixty ish ninety. I think it was really
12:01
Speaker 6: the fiscal outlook that kind of drove Fitch over the edge.
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Speaker 6: Obviously they were thinking about it for a while, and
12:07
Speaker 6: it's not unusual for the rating agencies to come out
12:10
Speaker 6: with their new sovereign ratings over the summer, you know. Again,
12:14
Speaker 6: like SMP downgraded the US right around the debt ceiling
12:17
Speaker 6: issue that we had in twenty eleven, but this is
12:20
Speaker 6: also the time when they were fresh their rating, so
12:22
Speaker 6: their annual review of sovereign debt ratings. So again, like,
12:25
Speaker 6: I don't think the precise timing was a little bit
12:28
Speaker 6: of a surprise, but I think the general timing not
12:30
Speaker 6: quite as much. Right, So sixty days ish after they
12:34
Speaker 6: initiated their watches, isn't that that surprising? The market reaction
12:38
Speaker 6: to your issue about talking about coupons, you know, the
12:42
Speaker 6: ten year started to sell off and a lot of
12:44
Speaker 6: the treasury started to sell off after the stronger than
12:47
Speaker 6: expected ADP report. But some of the details of the
12:50
Speaker 6: treasury refunding announcement were interesting in that the government decided
12:54
Speaker 6: that it was going to increase the amount of ten
12:56
Speaker 6: yere bombs ten year notes that it's going to issue
12:59
Speaker 6: by three billion dollars this month, just next week. That
13:03
Speaker 6: was a little bit more than I think most people
13:05
Speaker 6: were expecting. We were all expecting increases everywhere. We knew
13:08
Speaker 6: that the government was going to have to do that,
13:10
Speaker 6: but they chose specifically to increase the ten year more
13:13
Speaker 6: than they did the thirty year, for example. And I
13:16
Speaker 6: think that's one of the reasons why you're seeing ten
13:18
Speaker 6: year yields sell off a little bit more than other
13:21
Speaker 6: places along the yield curve.
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Speaker 1: So Ira Liz McCormick a Bloomberg News is reporting this
13:26
Speaker 1: morning that the Treasury said it will sell one hundred
13:28
Speaker 1: and three billion dollars of longer term securities that it's
13:30
Speaker 1: so called quarterly refunding auctions next week. And I got
13:33
Speaker 1: to tell you, Ira, if I get a phone call
13:35
Speaker 1: from the Treasury asking me to pony up, I'm going
13:37
Speaker 1: to pass. I gotta tell you a little tapped out here.
13:40
Speaker 1: But my question to you is, given this downgrade, will
13:42
Speaker 1: that change who shows up next week to bid on
13:45
Speaker 1: these government bonds?
13:47
Speaker 6: Yeah, it probably won't, you know. I think that the
13:51
Speaker 6: single one of the biggest fallacies that I've been talking
13:53
Speaker 6: with customers about this morning is that there's this idea
13:56
Speaker 6: that there's a lot of mandates and people who own
13:59
Speaker 6: treasuries because their triple A. So most mandates say US
14:03
Speaker 6: government securities, securities of agency of US government agencies, so
14:08
Speaker 6: Fanny May, Freddie Mack, and the home loan banks, and
14:11
Speaker 6: investment grade corporate bonds. So even the triple A that
14:15
Speaker 6: can only own triple A or double A mandates, they
14:18
Speaker 6: still specify treasuries and agency mortgages as their own asset class.
14:22
Speaker 6: So the ratings are relevant for those for those particular instruments. Now,
14:27
Speaker 6: you know, if the US were to be rated to
14:29
Speaker 6: double B or something, maybe that would change the way
14:32
Speaker 6: that people change their outlook. But when you look at
14:35
Speaker 6: a country like Japan, for example, they have a much
14:37
Speaker 6: higher debt to GDP ratio than the US, they are
14:40
Speaker 6: slightly lower rated, and their yields on their bonds are
14:43
Speaker 6: significantly lower. Now big part of that is because the
14:46
Speaker 6: Bank of Japan has been buying a lot of bonds,
14:48
Speaker 6: but they still probably even without the Bank of Japan
14:51
Speaker 6: and the market probably wouldn't have yields at five percent
14:54
Speaker 6: or four and a half percent. And you know, similar
14:57
Speaker 6: to parts of the US curve.
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Speaker 4: So Ara, I know that when credit agencies are what
15:03
Speaker 4: they're rating is the credit worthiness of the borrower.
15:06
Speaker 1: And it's just.
15:07
Speaker 4: Coming at an interesting time here, when the economy is
15:10
Speaker 4: doing really well and you're hearing all these more calls
15:13
Speaker 4: that more people are optimistic that we're going to avert
15:15
Speaker 4: a recession. The soft landing case has never looked better.
15:18
Speaker 4: You know, to someone who maybe is having a tough
15:21
Speaker 4: time squaring the two, what would you say to them.
15:24
Speaker 6: Well, I think there's two pieces to this. On the
15:25
Speaker 6: fiscal side of things. I think one is we've seen
15:28
Speaker 6: pretty massive wage gains by the household sector when you
15:32
Speaker 6: go back and you look at what happened in twenty
15:34
Speaker 6: twenty two and to so far in twenty twenty three,
15:36
Speaker 6: but that has not really translated into significantly higher tax revenues.
15:40
Speaker 6: And so, because you still have fiscal spending from the
15:46
Speaker 6: Inflation Reduction Act as well, still a little bit of
15:48
Speaker 6: the twenty twenty one stimulus still being pushed into the system,
15:52
Speaker 6: you have still deficits that are over one and a
15:55
Speaker 6: half trillion dollars a year and probably will be in
15:57
Speaker 6: fiscal twenty twenty four as well. So unless you wind
16:01
Speaker 6: up unless that good economy really winds up pushing up
16:05
Speaker 6: tax revenue significantly, you're going to continue to have a
16:09
Speaker 6: pretty not a good fiscal situation. On top of that,
16:12
Speaker 6: you have more and more baby boomers retiring. That's forcing
16:15
Speaker 6: more and more money out of the social security system.
16:18
Speaker 6: The social security now has to be funded. So whereas
16:21
Speaker 6: you know, just a couple of years ago, your social
16:24
Speaker 6: Security taxes went to the people who were retired, that's
16:26
Speaker 6: not the case anymore. It just doesn't cover it. The
16:29
Speaker 6: soci security taxes that we're collecting today doesn't cover one
16:32
Speaker 6: hundred percent of the outflows of that program. So we
16:34
Speaker 6: have to figure out some way either to raise taxes
16:38
Speaker 6: or to raise government debt. Those are the only two
16:40
Speaker 6: ways to get those mandates fully funded.
16:43
Speaker 1: Ye I'm starting to pay a little bit more attention
16:44
Speaker 1: to that whole social security discussion than maybe I did
16:48
Speaker 1: a few years ago. I don't know, Maybe it's just
16:50
Speaker 1: me Ira. So when we have these auctions next week,
16:56
Speaker 1: the government's gonna have to pay up more. Well, I
16:58
Speaker 1: guess my question is will they have to pay more
17:00
Speaker 1: than they did, say yesterday before the downgrade.
17:03
Speaker 6: Well, assuming yield stay where they are right now, the
17:06
Speaker 6: answer is yes, and I think that that's one of
17:07
Speaker 6: the reasons you're seeing the sell off today is just
17:10
Speaker 6: this idea that you know, yeah, maybe a little bit
17:12
Speaker 6: on Fitch, but just the idea that we are going
17:14
Speaker 6: to have more supply, you know, next year. Next week
17:17
Speaker 6: we get the three year auction, ten year, and thirty year,
17:20
Speaker 6: and that's a lot of duration. So that's a lot
17:22
Speaker 6: of market risk that investors have to absorb. Now, we've
17:27
Speaker 6: seen reasonably decent auctions. They've been you know, somewhat mixed,
17:30
Speaker 6: but we saw a pretty good ten year auction last month.
17:33
Speaker 6: So the question is will that relate today this week.
17:38
Speaker 6: Keep in mind, too, is that you have old ten
17:40
Speaker 6: year notes maturing on the fifteenth of the month that
17:43
Speaker 6: were issued ten years ago, so those so people who
17:47
Speaker 6: own some of those and held them to maturity might
17:50
Speaker 6: think about reinvesting some of that into the current ten
17:52
Speaker 6: year notes. So refunding auctions tend to be a somewhat
17:54
Speaker 6: different animal than the auctions that you get in the
17:58
Speaker 6: subsequent couple of months. And obviously this three billion dollar
18:02
Speaker 6: larger size I think could have an effect. So I
18:05
Speaker 6: think your risk, Paul, is that you wind up we'll
18:08
Speaker 6: see some of higher yields at next week's auction because
18:11
Speaker 6: of the excess supply.
18:12
Speaker 1: All right, Ira, good stuff as always, Ira Jersey, chief
18:15
Speaker 1: US Interest rates strategist for Bloomberg Intelligence, chief soccer strategist
18:20
Speaker 1: for Bloomberg LP. Real Central, New Jersey is his club.
18:25
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18:45
Speaker 1: Smith, Paul Sweeney here in our Bloomberg Interactive Brookers Studio
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Speaker 1: also doing that YouTube thing, so just head over to YouTube.
18:51
Speaker 1: And I've been in the search Bloomberg Global News in
18:54
Speaker 1: that old Bloomberg Global Markets or bloom Bloomberg Global News.
18:57
Speaker 1: I think gets it to you. That'll bring it to
18:59
Speaker 1: the feed there. So you know, I recently closed on
19:03
Speaker 1: the Jersey Shore estate the compound, if you will, and
19:06
Speaker 1: my mortgage had a six handle and I was not happy.
19:10
Speaker 1: Now I'm looking at the bank rate thirty year mortgage
19:12
Speaker 1: rate seven point three one percent.
19:15
Speaker 4: You got a deal.
19:16
Speaker 1: I got a deal, I gotta deal. You got closed
19:18
Speaker 1: a victory, Yes, exactly. Now, now what do we do?
19:22
Speaker 1: I mean, what's this market doing. Nobody wants to get
19:24
Speaker 1: out of their house here, some he chief economist of
19:26
Speaker 1: core Logic, joins us. Some give us a lay of
19:29
Speaker 1: the land, of the kind of the residential real estate
19:32
Speaker 1: market today in a world where a thirty year fixes
19:35
Speaker 1: seven point three percent.
19:37
Speaker 7: Yeah, like you said, nobody wants to move at the moment.
19:40
Speaker 7: And so residential housing market is really suffering, particularly the
19:44
Speaker 7: existing market, because on the new home side, builders and
19:48
Speaker 7: developers can they can step in and provide some mortgage
19:51
Speaker 7: rate buydown offers. So there's sort of a story of
19:55
Speaker 7: two markets still one where there is no inventory because
19:59
Speaker 7: existing inventory is locked up, and the other one where
20:02
Speaker 7: there is much more movement. And that's where where there's
20:06
Speaker 7: more new home construction.
20:08
Speaker 4: Yeah, so we had a story the other day. I
20:10
Speaker 4: was taking a survey from Zillow and looking at kind
20:15
Speaker 4: of pegging five percent as the mortgage rate. That's the
20:18
Speaker 4: tipping point of if you're below five percent, you're twice
20:22
Speaker 4: as likely to hold on to your home. But if
20:25
Speaker 4: you're above five percent, that's more when you're likely to sell.
20:28
Speaker 4: I mean, do you have you kind of drawn a
20:30
Speaker 4: line in the sand of where you see people as
20:32
Speaker 4: more likely to lean one way or the other?
20:36
Speaker 7: Yeah, I mean I've seen surveys, a couple of surveys
20:39
Speaker 7: to that extent showing that five and a half percent
20:42
Speaker 7: is the magic rate at which you know, there's there
20:44
Speaker 7: would be more people would be more willing to move.
20:48
Speaker 7: So you know, I mean think about it this way.
20:50
Speaker 7: You know, six ninety six percent of existing mortgages are
20:56
Speaker 7: below six percent, So that's you know, such a special mark.
21:00
Speaker 1: Excuse me, that makes me special being in that fort.
21:04
Speaker 7: Yeah right, Well, I myself locked in at six point
21:08
Speaker 7: three in March of this year, and I was very
21:11
Speaker 7: unhappy about it.
21:13
Speaker 1: So what does new construction need to do here? I mean,
21:17
Speaker 1: it is just simply a situation where this is an
21:20
Speaker 1: industry that requires more inventory. We need more housing.
21:25
Speaker 7: Well, yes, that's definitely the case. I mean, when you
21:28
Speaker 7: look at the you know, trend in terms of new
21:31
Speaker 7: home construction over the last couple of decades, it peaked
21:35
Speaker 7: right into going into the Great Recession, and then it dropped.
21:40
Speaker 7: You know, some seventy percent, and there was trending very
21:44
Speaker 7: very very gradually for the next decade, and it didn't
21:47
Speaker 7: really pick up to the pace that it was pre
21:50
Speaker 7: Great Recession until the pandemic started. So we have sort
21:54
Speaker 7: of accumulated this almost two three four million. I mean,
21:58
Speaker 7: it depends on what the estimate are looking at a
22:01
Speaker 7: supply shortage until now that we're just trying to backfill
22:06
Speaker 7: at this point.
22:07
Speaker 4: And now we're seeing prices come back up again as well.
22:10
Speaker 4: So even though people don't want to move home, prices
22:14
Speaker 4: are still going up.
22:16
Speaker 7: Yeah, I mean, so this is the thing. You know,
22:18
Speaker 7: sellers are sitting still, but buyers are out there, you know,
22:22
Speaker 7: and you know, we knew first time home buyers are
22:26
Speaker 7: going to be active, particularly you know, those that are
22:30
Speaker 7: the huge cohort that's coming on first time home buying age.
22:33
Speaker 7: So they are out there, and we do still see
22:35
Speaker 7: investor activity. We still see baby boomers wanting to migrate
22:39
Speaker 7: at this point after they're retired. So the buyers are
22:42
Speaker 7: out there and there is no inventory. So in our
22:46
Speaker 7: latest Choo Logical Home Price Index, which was actually released yesterday,
22:50
Speaker 7: it showed pivoting of that home price deceleration. So in
22:54
Speaker 7: in February of last or the spring of last year,
22:57
Speaker 7: home price growth peaked at over twenty percent, and it
23:01
Speaker 7: dropped very quickly to one percent rate of growth a
23:05
Speaker 7: couple of months ago. And now at this point it's
23:07
Speaker 7: pivoting back up, and we're seeing home prices now for
23:11
Speaker 7: four straight months accelerating on a monthly basis at a
23:15
Speaker 7: faster pace than they usually do in spring home buying season.
23:18
Speaker 7: So buyers are definitely putting pressure on home prices because
23:21
Speaker 7: there's more of them out there than their sellers.
23:24
Speaker 1: So I hate to ask this question because I've got
23:26
Speaker 1: a bunch of them in my family. What did first
23:29
Speaker 1: time home buyers do? What do the young folks do
23:31
Speaker 1: these days?
23:33
Speaker 7: Well, yeah, I mean it's very challenging for them. I think,
23:36
Speaker 7: you know a lot of them are seeking places where
23:40
Speaker 7: there is inventory. So hence we are seeing more home
23:44
Speaker 7: sales activity in those markets with new home construction, and
23:47
Speaker 7: those would be the markets in southeast and South. You know,
23:50
Speaker 7: Texas always ranks among the top markets with in terms
23:53
Speaker 7: of new construction. There is a lot of activity in Midwest,
23:57
Speaker 7: for example, and now at this point northleast as well
24:00
Speaker 7: as people are coming back into the office. But I
24:03
Speaker 7: think what they're doing is they're buying, you know, wherever
24:06
Speaker 7: they can. It may be further from the offices, further
24:10
Speaker 7: from downtowns, but that's okay now because we can work
24:14
Speaker 7: sort of, you know, we don't have to go in
24:16
Speaker 7: every day, so we can work further from the office. So,
24:19
Speaker 7: you know, I think people are buying wherever they can
24:21
Speaker 7: at this point.
24:23
Speaker 4: And Sama, where are you seeing the demand? Is it
24:25
Speaker 4: more in the single family space or the apartments and
24:29
Speaker 4: the multi family side?
24:31
Speaker 7: Well, yes, so, I mean we always see more interest
24:35
Speaker 7: in single family particular as people as households grow, you know,
24:39
Speaker 7: there's more, there's kids, and you know, two persons or
24:43
Speaker 7: three person households, so there's always more demand for single
24:45
Speaker 7: family homes. But what's interesting is that attached housing, so
24:51
Speaker 7: that would be condos, are now appreciating at the faster
24:55
Speaker 7: pace than detached homes. And that's because during the pandemic,
24:59
Speaker 7: there was not a lot of the demand for attached homes.
25:01
Speaker 7: The people didn't want to be in density and close
25:04
Speaker 7: to each other. So now a lot of the home
25:07
Speaker 7: prices for condo type housing is appreciating at a faster pace.
25:11
Speaker 7: It's catching up to all the growth that single families
25:14
Speaker 7: saw during the pandemic.
25:15
Speaker 1: In terms of new home construction, is anybody building starter
25:19
Speaker 1: homes because it feels like when I drive around and
25:21
Speaker 1: I do see homes being built, they're kind of the
25:23
Speaker 1: McMansion and the builders tell me, well, that's where the
25:26
Speaker 1: profit margin is, right.
25:28
Speaker 7: Yeah, I mean that's a difficult one because you know,
25:31
Speaker 7: we talked about this before. It's it's it's very costly
25:34
Speaker 7: to build a home at this point. Land is more expensive,
25:38
Speaker 7: materials are more expensive, labor is more expensive, so you know,
25:42
Speaker 7: builders have to find profit margins where they can. But
25:45
Speaker 7: I think there is a genuine effort and given that
25:49
Speaker 7: the demand is concentrated in starter homes for you know,
25:54
Speaker 7: for starter families, I think they're genuinely trying to create
25:59
Speaker 7: that type of housing. And so now there is a
26:02
Speaker 7: lot more interest in you know, duplexis two to four
26:07
Speaker 7: units or you know, row housing and stuff like that.
26:11
Speaker 7: So I do see effort happening in that for that
26:14
Speaker 7: type of housing.
26:15
Speaker 5: Yeah.
26:16
Speaker 1: All right, Salma, thank you so much for joining us
26:18
Speaker 1: once again. I always appreciate getting your thoughts and perspective
26:21
Speaker 1: on the residential housing market. So I'm a HEP chief
26:24
Speaker 1: economist for Core Logic.
26:28
Speaker 5: You're listening to the Team Ken's Are Live program Bloomberg
26:31
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg dot Com,
26:35
Speaker 5: the iHeartRadio app, and the Bloomberg Business App, or listen
26:38
Speaker 5: on demand wherever you get your podcasts.
26:42
Speaker 1: Want to head down to Joe Matthew here. He's Bloomberg's
26:44
Speaker 1: host of Sound On on radio and Bloomberg's Balance of
26:48
Speaker 1: Power on television. He's in DC. He talks to everybody
26:52
Speaker 1: that's down in DC. He's got his finger on the
26:53
Speaker 1: pulse here, Joe, Yesterday was a big day for former
26:56
Speaker 1: President Trump. This is federal. This is why in DC.
27:01
Speaker 1: Is there any kind of growing sense of how this
27:04
Speaker 1: might play out?
27:06
Speaker 8: It's really difficult to tell.
27:07
Speaker 9: Tomorrow is going to be a big day when he
27:09
Speaker 9: is expected to show up and face the magistrate. But
27:14
Speaker 9: it's interesting, you know that there's a model for this
27:16
Speaker 9: because since this is number three now, which is remarkable,
27:19
Speaker 9: but there does seem to be a feeling here in
27:22
Speaker 9: the Capitol and on the campaign trail when you talk
27:24
Speaker 9: to people that this one just feels a little bit different.
27:27
Speaker 9: You know, we've talked a lot about indictment fatigue, But
27:30
Speaker 9: when you read through these charges obstruction of an official proceeding,
27:34
Speaker 9: conspiracy to defraud the government, it's remarkable stuff. I've got
27:39
Speaker 9: the indictment right in front of me here, and it's
27:42
Speaker 9: worth actually reading the document. There's a lot of great
27:44
Speaker 9: reporting on the terminal, and our reporters have been amazing
27:47
Speaker 9: trying to decode everything and kind of unpack everything in here.
27:50
Speaker 9: But the line that jumps out to me, as it
27:52
Speaker 9: did when this first dropped yesterday, each of these conspiracies,
27:55
Speaker 9: I'm reading directly from the text here targeted a bedrock
27:59
Speaker 9: function of the US federal government, the nation's process of collecting, counting,
28:04
Speaker 9: and certifying the results of the presidential election. That is
28:08
Speaker 9: a remarkable thing to imagine that a former president of
28:11
Speaker 9: the United States is facing this charge even as he
28:14
Speaker 9: runs for reelection.
28:16
Speaker 1: And Joe, I guess one of the big issues that
28:18
Speaker 1: I think we probably all like to get some handle
28:20
Speaker 1: on is timing. Is this something that can go to
28:24
Speaker 1: trial before the election or after the election. You know,
28:28
Speaker 1: there's some different opinions out there.
28:30
Speaker 8: Yeah, we just don't know it.
28:32
Speaker 9: Look, I'm sure the Special Council would like to see
28:34
Speaker 9: this done before the election. But if there's one hallmark,
28:37
Speaker 9: one strategy that is associated with Donald Trump's legal teams plural.
28:41
Speaker 8: It's delay, delay, delay.
28:43
Speaker 9: He's going to be approaching all of these indictments the
28:45
Speaker 9: same way, knowing that we likely have another to come
28:48
Speaker 9: from Fulton County, Georgia. So you know, it's really difficult
28:52
Speaker 9: to tell what's going to happen as they still are
28:55
Speaker 9: arguing over the trial date for the classified documents case,
28:57
Speaker 9: now this and then another and also so how do
29:00
Speaker 9: you run a presidential campaign when you're trying to manage
29:03
Speaker 9: all of these legal angles. One thing we do know
29:05
Speaker 9: is his campaign is helping to pay for those legal
29:08
Speaker 9: teams who are awfully busy right now, and he's going
29:10
Speaker 9: to have to hire a lot more lawyers.
29:12
Speaker 4: Another thing about his campaign, Joe, it's polling very well,
29:16
Speaker 4: like very much ahead of the fact here. So, I mean,
29:21
Speaker 4: do you see that it seems like, you know, every
29:23
Speaker 4: time that a new charge comes about, this really emboldens
29:26
Speaker 4: the Trump base. You see that. Yeah, you think that
29:29
Speaker 4: trend's going to continue.
29:30
Speaker 9: Here probably, I mean, it's hard to see where this ends.
29:34
Speaker 9: If history is any guide, You're right, he's going to
29:37
Speaker 9: gain some polling points, and he's going to make money
29:40
Speaker 9: on this. There are a couple of different ways to
29:43
Speaker 9: look at it, though there's clearly a short term benefit
29:45
Speaker 9: for him. I mean, the next in line would be
29:47
Speaker 9: Ron DeSantis, and he's trailing Donald Trump by twenty to
29:50
Speaker 9: thirty points depending on the poll here. So look, unless
29:53
Speaker 9: something big happens, unless there really is a concern among
29:56
Speaker 9: the MAGA base about this, and there's no reason for
29:59
Speaker 9: us to believe that Donald Trump may well be the nominee.
30:02
Speaker 8: The long term.
30:03
Speaker 9: Implications, though, when you put him in a general election
30:06
Speaker 9: matchup against Joe Biden, become a little bit different here,
30:10
Speaker 9: and there are a lot of concerns about how the
30:13
Speaker 9: four potential indictments and other legal action that he's facing
30:17
Speaker 9: is going to fly here in a general election. It's
30:19
Speaker 9: not a good way to pick up independent voters or
30:21
Speaker 9: expand your own base. But I'll point you back to
30:23
Speaker 9: the poll we got this week from the New York
30:25
Speaker 9: Times in Siena College, twenty percent of those Republicans who
30:29
Speaker 9: support Donald Trump, the real core of the MAGA base,
30:33
Speaker 9: say they would still vote for him for president if
30:35
Speaker 9: you were convicted of federal crimes.
30:38
Speaker 8: So this is just another day.
30:39
Speaker 1: Why not, Joe, How should or how do you think
30:44
Speaker 1: the other plethora of Republican candidates are going to kind
30:48
Speaker 1: of position these various legal issues for the president in
30:53
Speaker 1: the months ahead. I mean, is this something that they
30:55
Speaker 1: want to make front and center. We can't have this
30:58
Speaker 1: as our candidate, this person's candidate. Are they going to
31:00
Speaker 1: try to maybe stay with sidelines.
31:02
Speaker 9: It's funny because you've got the people who are running
31:04
Speaker 9: against him who are afraid to criticize him, even at
31:07
Speaker 9: this incredible moment of what would be apparent weakness. And
31:11
Speaker 9: you've got different shades. It depends on the Chris Christie's
31:14
Speaker 9: and Will Hurd's of the worlds are going to demonize
31:16
Speaker 9: him for this. Tim Scott, though I was kind of amazed.
31:19
Speaker 9: I have all other statements in front of me. Here
31:20
Speaker 9: what we see today are two different tracks of justice,
31:23
Speaker 9: one for political opponents, another for the son of the
31:25
Speaker 9: current president. He's going straight to Hunter Biden on that.
31:28
Speaker 9: Look at Mike Pence, though, this was the most interesting
31:31
Speaker 9: to me. And Mike Pence is not doing very well.
31:33
Speaker 9: He can't even get on the debate stage yet as
31:35
Speaker 9: far as we know. But look, Mike Pence has a
31:37
Speaker 9: lot to do with this case, and he testified in it.
31:39
Speaker 9: Today's indictment, he writes, serves as an important reminder anyone
31:42
Speaker 9: who puts himself over the Constitution should.
31:44
Speaker 8: Never be president of the United States.
31:46
Speaker 9: Let's see how these evolve over time. If they smell
31:49
Speaker 9: blood in the water, it'll get a lot.
31:50
Speaker 4: More severe and anything Joe that you're expecting from mister
31:53
Speaker 4: Joe Biden. He's also stayed pretty quiet on a lot
31:57
Speaker 4: of these headlines.
31:59
Speaker 9: Yeah, I think that he'll likely stay that way. They've
32:02
Speaker 9: kept a real distance or certainly tried to build the
32:06
Speaker 9: appearance of having distance between the Justice Department and then
32:10
Speaker 9: even further distance between the Special Council.
32:12
Speaker 8: So I would not suspect that he's going to weigh
32:14
Speaker 8: in on this.
32:14
Speaker 9: It is remarkable, though, when you consider the day that
32:16
Speaker 9: Donald Trump had yesterday, knowing that Joe Biden was on
32:19
Speaker 9: vacation at the beach and went to see Oppenheimer last night.
32:22
Speaker 8: So it's kind of two different worlds exactly.
32:25
Speaker 1: So one of the interesting aspects of this January sixth
32:28
Speaker 1: indictment is it's in Washington, DC.
32:30
Speaker 5: Joe.
32:30
Speaker 1: Yes, that's a different animal than South Florida, who said,
32:34
Speaker 1: what's the expectation here about how that will Will the
32:36
Speaker 1: president be able to get a jury of his peers?
32:39
Speaker 9: Ronda Santis doesn't think so, And that's another reaction that
32:42
Speaker 9: we heard from the field. He says, Washington is a
32:45
Speaker 9: swamp and it's unfair to have if anyone stand trial
32:47
Speaker 9: before a jury, that's reflective of swamp mentality. But look,
32:51
Speaker 9: you know, Washington's pretty good at this kind of stuff actually,
32:53
Speaker 9: and I suspect that they're going to have this together
32:56
Speaker 9: pretty quickly. It's the former present and it won't have
33:00
Speaker 9: much say in that, although his legal team will try
33:02
Speaker 9: to slow this down in terms of their strategy. We're
33:05
Speaker 9: you know, we're hearing a lot about the first amendments today,
33:07
Speaker 9: which is interesting, even though the indictment is clearly about
33:10
Speaker 9: his actions more than the things.
33:12
Speaker 5: That he said.
33:13
Speaker 4: When you say, pretty quickly, is that before or after
33:16
Speaker 4: the twenty twenty four.
33:17
Speaker 8: Election, great question. We just don't know.
33:20
Speaker 9: I mean, the Special Council, the Department of Justice, I
33:22
Speaker 9: think will make every effort to get this done before then.
33:26
Speaker 9: We'll hear a trial date soon. Whether that moves again
33:29
Speaker 9: is another question. They've already moved the date on the
33:32
Speaker 9: last indictment over the classified documents, so I suspect that'll
33:35
Speaker 9: be a moving target for a bit.
33:37
Speaker 1: Joe Sound On with Joe Matthew coming up at one
33:40
Speaker 1: pm Wall Street Time. I got to think this is
33:42
Speaker 1: still in flux for you guys here as we sit
33:44
Speaker 1: here at eleven to fifteen. I mean, maybe how you
33:46
Speaker 1: guys can try to approach this.
33:48
Speaker 8: Well, you know, we're always building the plane in flight here.
33:50
Speaker 9: Yeah, but well, one thing that's consistent unsound on is
33:54
Speaker 9: our great panel or We're going to have Rick Davis
33:56
Speaker 9: with us today and Matt Bennett, the Democrat from Third
34:00
Speaker 9: Way to kind of get both sides of this to
34:04
Speaker 9: help sort of flesh out what's going on in this case.
34:06
Speaker 9: And we're gonna have some smart legal minds. In fact,
34:09
Speaker 9: I heard just a short time ago that coming up
34:11
Speaker 9: at two o'clock the second hour of sound On, we're
34:14
Speaker 9: gonna be talking to John Dean of Watergate fame and
34:17
Speaker 9: be curious to get his historical perspective on this too.
34:20
Speaker 1: And Joe, this is the dumb question of the day,
34:23
Speaker 1: but as we think about the twenty twenty four election,
34:25
Speaker 1: on the other side, is the Democratic Party are they
34:28
Speaker 1: okay with Joe Biden. Are they this is our guy
34:32
Speaker 1: or is it just just be too ugly to try
34:34
Speaker 1: to do anything else?
34:35
Speaker 9: I think this is our guy is the idea right now.
34:39
Speaker 9: He's got a thirty nine percent approval rating in that
34:41
Speaker 9: New New York Times poll this week.
34:42
Speaker 8: That's up from thirty three a year ago. It's still
34:44
Speaker 8: way underwater.
34:45
Speaker 9: Ye half of the Democrats in that poll say they
34:47
Speaker 9: wish they had somebody else. There's a lot of talk
34:49
Speaker 9: about his age, but let's see where those numbers are
34:52
Speaker 9: when there's a real matchup.
34:53
Speaker 8: Everything right now is hypothetical.
34:55
Speaker 9: And look, Gavin Newsom's not coming to the rescue anytime soon.
34:58
Speaker 1: Okay, Joe, Matthew Bloomberg sound on on radio. You can
35:01
Speaker 1: get that at the one pm Wall Street time and
35:03
Speaker 1: then Bloomberg's Balance of Power on Bloomberg Television. Lots to
35:07
Speaker 1: talk about there always seems to be done in DC,
35:09
Speaker 1: and now with all these various indictments against the former
35:12
Speaker 1: president and o election next year.
35:14
Speaker 5: You're listening to the tape Can's our live program Bloomberg
35:17
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
35:21
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
35:24
Speaker 5: You can also listen live on Amazon Alexa from our
35:27
Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
35:34
Speaker 1: Let's bring on a next guest here because we want
35:35
Speaker 1: to get a sense of kind of what the economic situation.
35:38
Speaker 1: We've got a lot of economic data coming out this
35:41
Speaker 1: week and next week. Sonya Meskin joins us here. She's
35:44
Speaker 1: an investment strategist, head of US macroeconomic Analysis at BNY Mellon. Sonia,
35:51
Speaker 1: thanks so much for joining us here. I don't know.
35:54
Speaker 1: I mean, let's start with Fitch. It's not every day
35:56
Speaker 1: that you know your government and the finances of your
35:59
Speaker 1: government get downgraded. As an economist, how do you feel
36:03
Speaker 1: about this?
36:06
Speaker 10: It's understandable Fisch had told us in advance they would
36:09
Speaker 10: be doing this, and it is reminiscent of what the
36:11
Speaker 10: SMP did in twenty eleven, and even in terms of
36:14
Speaker 10: the timing, it's not that different now. Of course, it's
36:18
Speaker 10: less of an event that I believe the SMP downgrade
36:20
Speaker 10: was in twenty eleven, and the main reason being that
36:24
Speaker 10: investment mandates have since then been adjusted to allow for
36:29
Speaker 10: not only AA the ULTIPLA rated securities for majority at
36:33
Speaker 10: least type of mandates, but for US government rating or
36:39
Speaker 10: the equivalent, and so I think this will be less
36:42
Speaker 10: of a have less of an impact on the market
36:45
Speaker 10: than the twenty eleven development did. But that said, it's
36:48
Speaker 10: important to keep in mind why Fitch is doing this
36:51
Speaker 10: and all the ra reasons that they cited in their
36:54
Speaker 10: downgrade are very valid and certainly a longer term concern
36:57
Speaker 10: for investors.
36:59
Speaker 4: And we're looking at right now sony and economy that's
37:01
Speaker 4: doing pretty well here that a FED that might still
37:04
Speaker 4: high rate, so you know, one more time, maybe even
37:06
Speaker 4: more than that in this cycle. Does this play into
37:10
Speaker 4: the Fed's calculus at all? You think?
37:13
Speaker 10: I think that in the near term not so much,
37:16
Speaker 10: because you haven't seen a strong impact in the markets.
37:19
Speaker 10: I would say, I think maybe the refunding announcement, the
37:23
Speaker 10: larger you know, auction sizes, that is probably more impactful
37:28
Speaker 10: for the treasures near term. But for the FED, the
37:31
Speaker 10: biggest concern is uh, you know, inflation, inflation outlook, price stability,
37:36
Speaker 10: and employment. So they're going to be paying more attention
37:40
Speaker 10: to those indicators.
37:41
Speaker 1: I would say, Sonya, we're gonna get some important jobs
37:45
Speaker 1: data from the government on Friday, but we're gonna have
37:47
Speaker 1: ADP print today. ADP employment change came in well above
37:51
Speaker 1: expectations yet again, what are your thoughts on this labor market?
37:56
Speaker 1: For a lot of folks, it's showing surprising resiliency.
38:00
Speaker 7: Yes, and I.
38:00
Speaker 10: Agree, and I think a lot of this has to
38:02
Speaker 10: do with the structural shortfall of supply relative to demand,
38:08
Speaker 10: which may have been exacerbated with the COVID dynamics. It
38:12
Speaker 10: also has to do with a very strong consumer. So,
38:14
Speaker 10: for example, you can see that the consumer is really
38:18
Speaker 10: resilient through and has been through the last couple of years.
38:22
Speaker 10: So you know, ATP numbers are very very strong. I
38:25
Speaker 10: wouldn't expect the Montauan cour pass through to excuse me
38:28
Speaker 10: if they're not from pay rolls this Friday, but it
38:31
Speaker 10: is indicative of the trend.
38:32
Speaker 4: You're right, and you know, we're getting a lot of
38:35
Speaker 4: more people saying here now, Sonia that the soft landing
38:38
Speaker 4: argument is looking a lot better these days. Where are
38:42
Speaker 4: you in that camp or do you think there's even
38:44
Speaker 4: a risk here that potentially people are maybe declaring victory
38:48
Speaker 4: a little too soon and that the economy could even reaccelerate.
38:52
Speaker 10: I do think there's a risk of that that is
38:54
Speaker 10: underappreciated by the markets today. I think that the probability
38:58
Speaker 10: of a Selt landing may have resen since the last
39:00
Speaker 10: few months, but it's not one hundred percent. And I
39:03
Speaker 10: think that those scales of either reacceleration or a more
39:07
Speaker 10: pronounced slowdown are underappreciated by the market today.
39:12
Speaker 1: You know, you talked about the timing of the Fitch downgrade.
39:15
Speaker 1: We also heard from the Treasury about some auctions coming
39:18
Speaker 1: up to fund our government. And I mean, boy, interest
39:23
Speaker 1: rates are so much higher and the deficit continues to climb,
39:28
Speaker 1: When does that become a problem for I don't know,
39:31
Speaker 1: I guess politicians. You know, we know, economics has been
39:34
Speaker 1: calling out this risk here of the you know, the budget,
39:37
Speaker 1: of the growing debt and the budget deficits every year.
39:39
Speaker 1: But now interest rate a lot higher, so it's a
39:41
Speaker 1: lot more expensive to fund that.
39:44
Speaker 10: Sure, it's more expensive for the government to fund itself,
39:46
Speaker 10: and it's going to be increasingly more expensive for the
39:50
Speaker 10: private sector to fund itself, both because more corporates are
39:53
Speaker 10: going to have to refinance into a high rate environment
39:56
Speaker 10: and because there may be some crowding out effect from
39:58
Speaker 10: larger government issues as well.
40:01
Speaker 4: So, Sonya, I wanted to come back to this idea
40:03
Speaker 4: of inflation and the economy potentially re accelerating and what
40:08
Speaker 4: that means that, you know, for the FED, if they're
40:10
Speaker 4: going to have to get more aggressive again, and how
40:14
Speaker 4: that fits in with all these people now dropping their
40:16
Speaker 4: recession calls. Do you think maybe more delaying the call
40:20
Speaker 4: is the right move?
40:22
Speaker 10: Yes, I would agree with that. Well, you know, it
40:25
Speaker 10: kind of always goes through fluctuations. A recession at some
40:28
Speaker 10: point in time is almost inevitable, but the timing may
40:31
Speaker 10: have been pushed out relative.
40:34
Speaker 7: To you know, earlier this year.
40:36
Speaker 10: But I do think we're certainly seeing the seeds of
40:39
Speaker 10: all slow down, potentially just the delayed landing.
40:43
Speaker 1: So Sonya, I mean, I'm probably in the camp like
40:45
Speaker 1: I've in. So many people ask me my economic forecast,
40:48
Speaker 1: so I feel like I have to give it. But
40:49
Speaker 1: you know, like a couple of weeks ago, I said,
40:51
Speaker 1: I'm taking recession off the table, but I recognize that
40:55
Speaker 1: it's still out there. But inflation, you know, I'm just
40:58
Speaker 1: looking at some of the inflation measures they were trend
41:00
Speaker 1: They are trending in the right direction, but one that's
41:02
Speaker 1: not is just kind of oil and energy and gasoline
41:05
Speaker 1: and things like that. And I know that's something that
41:07
Speaker 1: the Biden administration pays attention to because people feel that,
41:12
Speaker 1: you know, immediately in their pocketbooks. Are you concerned that
41:14
Speaker 1: inflation may have another leg up?
41:18
Speaker 10: Perhaps, I'm concerned that it would stay sticky, especially core
41:24
Speaker 10: pc versus CPI in the next towards the end of
41:27
Speaker 10: the year, I would say, And that is because rents,
41:31
Speaker 10: which are sort of rent metrics, feed through to the
41:35
Speaker 10: CPI measure with the delay and rent you know, rent
41:40
Speaker 10: prices started to accelerate last year and we're seeing the
41:43
Speaker 10: effect this year. And I think that is a bigger
41:46
Speaker 10: component of the CPI measure than the PCEE measure, which
41:49
Speaker 10: the Fed pays traditionally more attention to the latter. And
41:53
Speaker 10: I do think energy prices are structurally important because even
41:56
Speaker 10: as though the Fed pays attention to core inflation, if
41:59
Speaker 10: any prices stay elevated over time, that is an input
42:03
Speaker 10: cost that is going to affect the prices of goods
42:05
Speaker 10: and services.
42:07
Speaker 1: Sonia, thanks so much for joining us. Appreciate getting your perspective.
42:09
Speaker 1: Sonya Meskin, Investment Strategists, Head of US Macroeconomic Analysis at
42:15
Speaker 1: BNY Mellon Bank of New York address of B and
42:20
Speaker 1: Y Yes, Bank of New York.
42:22
Speaker 4: Uh, it's down in the financial.
42:24
Speaker 1: Number one Wall Street, the best address on Wall Street.
42:26
Speaker 1: Look at that financial services.
42:28
Speaker 5: You're listening to the tape. Can's are live program Bloomberg
42:31
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42:34
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42:38
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42:41
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42:46
Speaker 1: Add it to the height of us.
42:47
Speaker 8: It's so bad.
42:48
Speaker 1: Gets some books A good times there, all right. Brian
42:50
Speaker 1: Egger joins us here senior Gaming and Lodging analyst for
42:52
Speaker 1: Bloomberg Intelligence. He has the career I wanted. But I
42:56
Speaker 1: had media, which is pretty good. So I got to
42:58
Speaker 1: go to a lot of movie premieres and theme parks.
43:00
Speaker 1: But this guy goes to casinos, cruise ships, hotels. I mean,
43:05
Speaker 1: it's a scam and he gets paid for it.
43:07
Speaker 11: Unbelievable.
43:08
Speaker 1: We're out of this thing, all right, Brian. We had
43:10
Speaker 1: let's start with the theme the cruise business Norwegian. The
43:14
Speaker 1: stock guy just crushed. Was it yesterday they had some results?
43:19
Speaker 1: I thought people were still going crazy on the cruise ships.
43:21
Speaker 1: What's going on?
43:22
Speaker 11: I mean, they really are. I mean I think, if anything,
43:24
Speaker 11: the words were a bit more on the cost side.
43:26
Speaker 11: Bookings are strong, people are booking longer, cruises, longer in advance.
43:31
Speaker 11: Basically two thirds of the imatur for this year's already sold,
43:34
Speaker 11: so most of the bookings taken a place now are
43:36
Speaker 11: for twenty four to twenty five. I think maybe there's
43:39
Speaker 11: a little caution on fuel and operating expenses going forward.
43:42
Speaker 11: There's going to be because most of the cruises are
43:45
Speaker 11: sold out for this year. There may be more dependent
43:47
Speaker 11: on what happens with on board spending. If anything, they
43:50
Speaker 11: were too good with revenue management booking cruises up front.
43:53
Speaker 11: So I think overall this just maybe hope they might
43:56
Speaker 11: raise guidance, but you know, in terms of demand it's there.
43:58
Speaker 1: So I mean, here's some of your research. More than
44:00
Speaker 1: seventy percent of bookings in the last ninety days for
44:04
Speaker 1: Norwegian are for twenty four, twenty twenty four and twenty
44:08
Speaker 1: twenty five departures, pointing to a longer bookings league time
44:12
Speaker 1: and four cores four Q fair gains of ten percent
44:15
Speaker 1: versus twenty nineteen. Man, that's healthy, it seems like, right.
44:18
Speaker 11: Yeah, I mean we're we're certainly back at a strong
44:20
Speaker 11: point and they've booked most of this year, right so.
44:23
Speaker 4: And what kind of I mean, how much do you
44:25
Speaker 4: when you're booking that far out? Surely you've got to
44:28
Speaker 4: put down some kind of a deposit first, like there,
44:31
Speaker 4: But are people really even paying for these all the
44:33
Speaker 4: way up front? Or how does that look from a
44:35
Speaker 4: cash flow situation.
44:36
Speaker 11: You can try advanced deposits and advance and those have
44:39
Speaker 11: been really strong and healthy. I mean, the demand is
44:42
Speaker 11: there with people booking both longer cruises and longer in
44:45
Speaker 11: advance you know, Auckemens and peak out a little bit,
44:48
Speaker 11: well the last peak because they're booking these longer immersive itineraries.
44:52
Speaker 11: But you know, the demand is demonstrable.
44:54
Speaker 1: Boy, I'm just looking at the FA function on the
44:56
Speaker 1: Bloomberg terminal for just Norwegian Cruise lines and you can
45:00
Speaker 1: I had to forget a little bit how hard hit
45:02
Speaker 1: they were in the pandemic. And I know we talked
45:05
Speaker 1: to you a lot during the beginning of the pandemic
45:06
Speaker 1: because you know, cruise ships are like the last place
45:09
Speaker 1: you want to be during the pandemic. But you know,
45:11
Speaker 1: in twenty nineteen one point nine billion of Ebathad, a
45:14
Speaker 1: nice healthy company. Right twenty twenty they lost one point
45:17
Speaker 1: one billion dollars of cash. Twenty twenty one they lost
45:20
Speaker 1: one point eight billion and started to come back last
45:23
Speaker 1: year a loss of six hundred and eighty. This year
45:25
Speaker 1: they're gonna make ibadad. You know, they're gonna have one
45:28
Speaker 1: point nine billion, and then next year two point three
45:30
Speaker 1: billion is consensus. So boy, there's an industry that really
45:33
Speaker 1: got hit touch to us about the balance sheets of
45:35
Speaker 1: this company, because one of the things I remember from
45:36
Speaker 1: the pandemic, one of the first weeks or two weeks
45:39
Speaker 1: of the pandemic, these guys hit the bond market, the industry.
45:42
Speaker 11: I mean, the balance sheets are much stronger. What are
45:45
Speaker 11: my credit account of our Jody Worrie to speak to
45:46
Speaker 11: the specifics, but you know, they definitely are back in
45:49
Speaker 11: much better shape. They certainly did tap the afpuity markets
45:52
Speaker 11: during the downturn when they were not cruising at all,
45:54
Speaker 11: but they're back too much healthier position, and all those
45:57
Speaker 11: positive YEAL comparisons are versus twenty nineteen sort of kind
46:00
Speaker 11: of above water where we were back pre pandemic, and.
46:03
Speaker 4: I remember I was actually covering credit before I had
46:06
Speaker 4: switched over to the economy team during the pandemic, talked
46:10
Speaker 4: to Jody among others. And you know, it was amazing
46:12
Speaker 4: because we saw companies like Carnival, like Norwegian come to
46:15
Speaker 4: the bond market and had to always do secured issuance.
46:19
Speaker 4: There's no way you were getting a deal done without collateral.
46:22
Speaker 4: And I think Norwegian even put up an island at
46:24
Speaker 4: the time to secure his collateral. And I see Carnival
46:28
Speaker 4: now is doing secured debt issuance. Is that still really
46:32
Speaker 4: necessary that they can't go unsecured at this point?
46:35
Speaker 11: So again, all they're fur Jody and a lot of that,
46:37
Speaker 11: But you know, they've got attractive forms of financing. Generally,
46:40
Speaker 11: they have access to export credit financing. They generally are
46:44
Speaker 11: in a good free casual position now that they're back
46:47
Speaker 11: and cruising. And so we've gotten past that point wherehere
46:50
Speaker 11: they were negative EBITDA, we're now we're now in a
46:53
Speaker 11: much better course.
46:54
Speaker 1: All right, let's talk my favorite business, casino's baby MGM Resorts, which,
47:00
Speaker 1: by the way, I remember that when MGYM Resorts opened
47:02
Speaker 1: up in Atlantic City back in the seventies, wasn't eighty
47:05
Speaker 1: I don't know way back in the day anyway, that
47:08
Speaker 1: I was up forty eight or forty six percent year
47:11
Speaker 1: to date? Did MGM. Did they sell the Mirage?
47:16
Speaker 11: Yeah, so they sold the Mirage. They bought the Cosmopolitan.
47:19
Speaker 11: Was on our next.
47:20
Speaker 1: Door the Mirage. When I started really going to Vegas
47:23
Speaker 1: for business back in the early nineties, the Mirage was
47:27
Speaker 1: the bomb. That was the place to go. They sold it.
47:30
Speaker 11: Built in eighty nine, it's now, you know, not the
47:32
Speaker 11: newest kid on the block anymore. But you know, they
47:34
Speaker 11: also sold Treasure out at one point. But you know,
47:37
Speaker 11: they bought the Cosmopolitan, So really they're kind of integrating. Yeah,
47:40
Speaker 11: I think I think they're assembly a more maybe slightly younger.
47:45
Speaker 1: Is the Cosmopolitan part of the new place?
47:48
Speaker 11: Yeah, it's it's adjacent to the city center, and it
47:50
Speaker 11: almost feels like it's part of that complex anyway, So
47:52
Speaker 11: that made a lot of sense as a as a transaction.
47:55
Speaker 10: All right.
47:56
Speaker 1: I haven't been to Vegas in a while. I don't
47:58
Speaker 1: know how the Strip is surviving without me, But how
48:00
Speaker 1: are things in Vegas? Is that the business of Vegas?
48:04
Speaker 1: How is it these days.
48:04
Speaker 11: Yeah, if you'll get like the second quarter, which we
48:06
Speaker 11: just got some numbers for recently, those gaming revenues are
48:09
Speaker 11: up overall twenty eight percent versus the comparable period of
48:13
Speaker 11: twenty nineteen, so we're you know, we're flat year over year,
48:16
Speaker 11: but last year was a big year of recovery.
48:19
Speaker 8: So Vegas is really.
48:20
Speaker 11: Back in a significant way. Convention bookings are strong, you know,
48:24
Speaker 11: a long way off the bottom.
48:25
Speaker 9: You know.
48:25
Speaker 4: It's so interesting we're looking into this on the economy
48:29
Speaker 4: side that apparently the Las Vegas has one of the
48:32
Speaker 4: highest employment rate unemployment rates of any metro area in
48:35
Speaker 4: the US right now six percent national average. It's like
48:39
Speaker 4: three five three six right now. We'll see on Friday
48:42
Speaker 4: with the latest look at that, is you have any
48:44
Speaker 4: insight into that.
48:45
Speaker 11: Generally speaking, in particular the Vegas local markets where Boyd
48:49
Speaker 11: and Red Rock operate, they benefit from a lot of
48:52
Speaker 11: the resort adjacent economy, whether it's resorts themselves or construction activity.
48:57
Speaker 11: So a lot of things I think will be constructed
49:00
Speaker 11: for that economy going forward, whether it's new resort construction
49:02
Speaker 11: although that's at a solar pace, or the building or
49:05
Speaker 11: the a's the a's moving to Vegas at the former
49:10
Speaker 11: Tropic Caana site. I think all those things like the
49:12
Speaker 11: Allegiant Stadium where the Raiders play, the A's moving there,
49:16
Speaker 11: you know, the sports new constructional.
49:18
Speaker 1: Help, what's sports betting done too? And I can pull
49:22
Speaker 1: up an app anytime and lately down a bet. How
49:24
Speaker 1: has that impacted kind of the casino companies said that
49:28
Speaker 1: the gaming companies say that you follow.
49:30
Speaker 11: I mean historically, for well, the brick and mortar part
49:32
Speaker 11: of the business, historically, sports betting is only two percent
49:36
Speaker 11: of that business. It's it's principally Don Barney by casinos.
49:39
Speaker 11: The online business, although Nevada is certainly not the biggest
49:42
Speaker 11: state in that regard, it's it's been I don't think
49:45
Speaker 11: it's really taken share away from brick and mortar gaming
49:48
Speaker 11: per se, although the vast majority of sports betting revenue
49:53
Speaker 11: that's generated in states with both brick and mortar and
49:56
Speaker 11: online is coming from online.
49:58
Speaker 4: Can you give us over here, Brian, just a quick
50:01
Speaker 4: outlook on the hotel space, and that's also in your purview.
50:05
Speaker 11: Yeah, So we had Marriott earlier this week, We'll have
50:07
Speaker 11: Hygatt tomorrow. I mean, what we're really kind of seeing
50:10
Speaker 11: here is domestic leisure travel still strong, but you know,
50:14
Speaker 11: China is coming back in a big way. If anything,
50:16
Speaker 11: international revenue prevailable room is now growing more quickly than
50:20
Speaker 11: the US, and even within the US, we're seeing some
50:22
Speaker 11: shift away from domestic leisure travel, which has been monstrously strong,
50:26
Speaker 11: to a little bit of a tilt towards people traveling
50:29
Speaker 11: overseas Europe and Asia and within China in country travels back.
50:33
Speaker 11: So we're kind of seeing the leadership maybe perhaps in
50:36
Speaker 11: pricing and revenue shift to a little more towards the
50:40
Speaker 11: upscale luctory side and more towards non US and China.
50:44
Speaker 11: US still strong, but you know, I think with the
50:46
Speaker 11: travel restrictions being relieved in China, that's coming back to.
50:51
Speaker 1: And one of the areas to see that, I know
50:53
Speaker 1: it is also in your purview, which is the Macau
50:56
Speaker 1: and that is the gaming driver glow believe what's going
51:00
Speaker 1: on in mccau.
51:01
Speaker 11: You know, So Macau you look at like the second
51:03
Speaker 11: quarter also, you know, it's down still pretty sharply versus
51:06
Speaker 11: pre pandemic, like thirty eight percent in the second quarter.
51:10
Speaker 11: That's that's largely because we're the travel restrictions in Macau
51:14
Speaker 11: China eased more slowly than North America, and the vip
51:18
Speaker 11: junk at credit business was pretty much banned, if you will.
51:21
Speaker 11: So now we're relying more on the mass business. It
51:23
Speaker 11: is coming back. Mass is down a lot less than before,
51:27
Speaker 11: and the business there was getting stronger. It's just going
51:30
Speaker 11: to take longer because the travel restrictions were in place
51:33
Speaker 11: for a while.
51:34
Speaker 1: What's the play there if I want to get a
51:35
Speaker 1: play on macaw as the Las Vegas Sands.
51:39
Speaker 11: So you know, there's the companies that are traded in
51:42
Speaker 11: and purely exposed there, and then within the North American
51:45
Speaker 11: companies that I cover, among degrees of exposure, you know,
51:49
Speaker 11: Sands has got like the most properties and the most
51:51
Speaker 11: exposure one with when MGM is a slightly smaller percentage
51:55
Speaker 11: of his casual but all the big three MGM stands
51:58
Speaker 11: and when I have exposure there.
51:59
Speaker 1: Look at this stocks for those I mean they're all
52:01
Speaker 1: for trailing twelve months, they're all up kind of fifty
52:02
Speaker 1: sixty percent Las Vegas Sands win. Yeah, So interesting stuff,
52:08
Speaker 1: all right, Brian Eger, thank you so much. We can
52:10
Speaker 1: talk about anything with this guy. I mean, hotels, crews,
52:13
Speaker 1: the whole nine yards. He's got to cover all the
52:15
Speaker 1: fun stuff Brian Nagger covers, and he's not really a
52:18
Speaker 1: gambler either. That's what's really fun. Even we've gone through
52:21
Speaker 1: all to Vegas, they know I'm coming.
52:27
Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
52:30
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52:34
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
52:38
Speaker 2: at Matt Miller nineteen seventy three.
52:40
Speaker 8: And I'm Faul Sweeney.
52:41
Speaker 1: I'm on Twitter at pt Sweeney. Before the podcast, you
52:44
Speaker 1: can always catch us worldwide at Bloomberg Radio