Latest / Bloomberg Intelligence / Markets, Yellow, ETFs, and Jeff Currie

Transcript

Markets, Yellow, ETFs, and Jeff Currie · 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.
• 0:05
  Speaker 2: Every business day we bring you interviews from CEOs, market pros,
• 0:09
  Speaker 2: and Bloomberg experts, along with essential market moven news.
• 0:14
  Speaker 1: I'm the Bloomberg Markets Podcast on Apple Podcasts or wherever
• 0:17
  Speaker 1: you listen to podcasts, and at Bloomberg dot com Slash podcast.
• 0:20
  Speaker 1: It's Matt Nolla Paul Sweeney here in a Bloomberg Interactive
• 0:22
  Speaker 1: Brokers studio.
• 0:24
  Speaker 3: It's not every.
• 0:25
  Speaker 1: Day that a ninety nine year old company coast bankrupt,
• 0:29
  Speaker 1: but that's what happened in the trucking business, Yellow corpor
• 0:31
  Speaker 1: I'm going to use Yellow Freight. That's how I know
• 0:34
  Speaker 1: this company used to cover the stock back in the eighties,
• 0:36
  Speaker 1: back in the day when I was a pain weber
• 0:38
  Speaker 1: Y E l L is your ticker. Our good friends
• 0:41
  Speaker 1: at yellowfrate tough going at it. Lee Klaskal joins is here.
• 0:46
  Speaker 1: Is he's a sector head in senior analyst. He cares
• 0:47
  Speaker 1: all the freight transportation, all the logistics that supply chain.
• 0:51
  Speaker 1: We blamed it on him in the last couple of years.
• 0:54
  Speaker 1: He's with Bloomberg Intelligence. He joins us here on our
• 0:56
  Speaker 1: Bloomberg Interactive Broker studio. So Lee Yellow Frate's been out
• 0:59
  Speaker 1: there for literally ninety nine years.
• 1:01
  Speaker 3: What happened?
• 1:02
  Speaker 4: Yeah, well, this bankruptcy is decades in the making, at
• 1:05
  Speaker 4: least twenty five years when they acquired my time, when
• 1:08
  Speaker 4: they acquired Roadway, I think it was back in two
• 1:11
  Speaker 4: thousand and three, and since then, you know, they just
• 1:14
  Speaker 4: really haven't been able to integrate all these networks that
• 1:18
  Speaker 4: they've acquired. You know, usually when you do an acquisition,
• 1:20
  Speaker 4: one plus one should at least equal three. This was
• 1:23
  Speaker 4: one plus one equal maybe.
• 1:25
  Speaker 5: One and a half. And a lot of that had
• 1:28
  Speaker 5: to do with, you know.
• 1:29
  Speaker 4: The fact that the company is a Teamster unionized employer, so.
• 1:34
  Speaker 3: They was that unusual in a trucking business.
• 1:36
  Speaker 4: Today it is, ok, it's even more unusual now that
• 1:39
  Speaker 4: one of the largest ones is going under. You know,
• 1:41
  Speaker 4: UPS was a Teamster LTL player and they sold their
• 1:44
  Speaker 4: business to TFI. It was a very highly unprofitable business
• 1:48
  Speaker 4: of very thin margins, and you know, they're they're competing
• 1:52
  Speaker 4: against companies that don't have work rules, stringent work rules
• 1:56
  Speaker 4: like some unions do, and so they're just able to
• 1:59
  Speaker 4: be more flexile, more nimble, you know, it's not to
• 2:02
  Speaker 4: say that it couldn't become a better trucking company. And
• 2:06
  Speaker 4: again there's blame to be spread across the board, whether
• 2:10
  Speaker 4: it's management early in two thousand and three, or you know,
• 2:14
  Speaker 4: maybe you know the fact that some of the things
• 2:17
  Speaker 4: that the union did recently, like threatening to go on strike,
• 2:20
  Speaker 4: kind of accelerated this bankruptcy again, like you know, twenty
• 2:24
  Speaker 4: plus years in the making.
• 2:26
  Speaker 2: So is this the case of a union putting itself
• 2:29
  Speaker 2: out of a job.
• 2:30
  Speaker 4: You know, I don't want to put the blame squarely
• 2:32
  Speaker 4: on union. I think like I said, I think there's
• 2:34
  Speaker 4: there's there's there's a blame to go around. But you know,
• 2:38
  Speaker 4: they the company said that they were going to hold
• 2:41
  Speaker 4: off on a fifty million dollar pension payment, and the
• 2:45
  Speaker 4: union said, well, if you do that, you know we're
• 2:47
  Speaker 4: going to strike. And then the problem is with an LTL,
• 2:50
  Speaker 4: a lesson truckload carrier, it's.
• 2:52
  Speaker 5: Kind of like a run on the bank.
• 2:53
  Speaker 4: Shippers will move away from you, and then once that happens,
• 2:57
  Speaker 4: you have a de leveraging effect of your network. That
• 2:59
  Speaker 4: means your business becomes less and less profitable. And then
• 3:02
  Speaker 4: as more people move away because they're scared that their
• 3:04
  Speaker 4: freight might be stuck in your system.
• 3:07
  Speaker 5: It just it just becomes a snowballing effect.
• 3:10
  Speaker 4: And that's why usually when there's a bankruptcy in the
• 3:12
  Speaker 4: LTL industry, it's always always a liquidation, never restructuring.
• 3:16
  Speaker 2: I was going to ask, so there's no ongoing concern.
• 3:18
  Speaker 2: It's not like these truckers are going to still have jobs.
• 3:21
  Speaker 2: Just have you know, an executor running the company.
• 3:24
  Speaker 4: Now there's obviously you know, there's I guess there's some
• 3:27
  Speaker 4: good news. Some of these folks are obviously going to rebound.
• 3:30
  Speaker 4: You know, XBO is hiring, FedEx Freight is hiring. There's
• 3:34
  Speaker 4: a lot of other companies that are going to be
• 3:35
  Speaker 4: hiring and looking for people.
• 3:37
  Speaker 2: But not giving them union jobs and benefits.
• 3:40
  Speaker 1: No.
• 3:40
  Speaker 4: But the interesting thing the the yellow employees actually make
• 3:44
  Speaker 4: less than the non union companies just because of the market. Yeah,
• 3:49
  Speaker 4: from a from a pay standpoint, maybe not from an
• 3:51
  Speaker 4: olden benefit standpoint.
• 3:52
  Speaker 2: From a pay standpoint, so that make a little less,
• 3:55
  Speaker 2: but maybe they have higher benefits and air conditioning in
• 3:57
  Speaker 2: the cab.
• 3:58
  Speaker 6: Right.
• 3:58
  Speaker 2: That was one of the shocking things to me about
• 4:00
  Speaker 2: the ups and I ever since never do it ever
• 4:02
  Speaker 2: since then I've been looking at ups delivery guys all
• 4:04
  Speaker 2: over the place and they are sweating bullets.
• 4:07
  Speaker 3: Yeah, it's a hot job. They work hard.
• 4:09
  Speaker 1: All right, Let's step back and take a look at
• 4:11
  Speaker 1: the trucking business in the United States.
• 4:12
  Speaker 3: Kind of where are we these days? Again? We came
• 4:15
  Speaker 3: through the pandemic.
• 4:16
  Speaker 1: There were definitely some supply chain issues that just went
• 4:18
  Speaker 1: all the way back, you know it from the ships
• 4:21
  Speaker 1: until it gets to the to the warehouse. You know
• 4:23
  Speaker 1: how that works. Talk to us about how the trucking
• 4:25
  Speaker 1: industry is these days.
• 4:26
  Speaker 4: Yeah, So there's there's two types of trucking that I
• 4:28
  Speaker 4: look at. I look at the truckload industry, and those
• 4:30
  Speaker 4: are companies like night Swift, Schneider. You probably see all
• 4:33
  Speaker 4: those trucks on the road. Then you have the LTL carriers,
• 4:36
  Speaker 4: the Yellow xbo, Saya, FedEx.
• 4:39
  Speaker 2: Freight our best LTL by the way, just started it
• 4:42
  Speaker 2: interrupt because I don't know as much about this as
• 4:43
  Speaker 2: you guys do. LTL just means they're gonna go and
• 4:47
  Speaker 2: pick up your load and ship only truck only your load,
• 4:50
  Speaker 2: even if it doesn't fill up their hauler.
• 4:53
  Speaker 7: Right.
• 4:53
  Speaker 4: It's usually, I mean, how most of the LTL carriers
• 4:56
  Speaker 4: like it, which is less than truckloads, less than truckl sorry, yes,
• 4:58
  Speaker 4: less than truckload.
• 5:00
  Speaker 8: Uh.
• 5:00
  Speaker 4: They like it on pallets, so you can get a
• 5:02
  Speaker 4: forklift in, pull it out, and then go across the dock,
• 5:06
  Speaker 4: put it in another truck, and then keep on doing
• 5:08
  Speaker 4: that in the olden days. You know, I actually, a long, long,
• 5:11
  Speaker 4: long time ago, I worked at an LTL carrier unloading
• 5:14
  Speaker 4: and loading trucks in the summer graveyard shift. Hardest job
• 5:17
  Speaker 4: I ever had in my life. These jobs a little easier,
• 5:21
  Speaker 4: and that was very hot.
• 5:22
  Speaker 5: As well, and nothing was palatized.
• 5:24
  Speaker 4: You had to take everything off the truck, some of
• 5:28
  Speaker 4: yellow stuff, a lot of the yellow freight. I mean
• 5:30
  Speaker 4: not to keep on going back to yellow because like
• 5:32
  Speaker 4: you know, a lot of the carriers that are going
• 5:33
  Speaker 4: to be left, they're going to be going after.
• 5:35
  Speaker 5: Some of this business. But not all of this business
• 5:37
  Speaker 5: is good freight.
• 5:38
  Speaker 4: Some of it is not palatized, so it's more expensive
• 5:40
  Speaker 4: to move. A lot of it might have high cargo claim,
• 5:44
  Speaker 4: so it could be glass, it could be TVs, things
• 5:47
  Speaker 4: that tend to break when you move them around. So
• 5:50
  Speaker 4: you know, they have about six point eight percent of
• 5:52
  Speaker 4: the shipments in the us XPO FedEx freight the other ones.
• 5:57
  Speaker 4: They're not going to want all six point eight percent
• 5:59
  Speaker 4: of that, So it's going to be interesting to see
• 6:01
  Speaker 4: where that kind of the not so great freight ends
• 6:04
  Speaker 4: up going. But it'll be a real great opportunity for
• 6:08
  Speaker 4: the carriers that are left because they're going to probably
• 6:11
  Speaker 4: have good freight at good rates, at good margin, and
• 6:14
  Speaker 4: it should be really good incremental margins for the LTL carriers.
• 6:18
  Speaker 3: And trucker LINGO, could you explain to Matt what reefer means?
• 6:23
  Speaker 3: I know what means.
• 6:25
  Speaker 6: No, for the trucking industry has a specific.
• 6:28
  Speaker 4: Different it's temperature controlled, so food pharmacutic.
• 6:34
  Speaker 3: I wanted to get that out trucks.
• 6:36
  Speaker 2: Yes, all right, So Lee, your company is not the
• 6:39
  Speaker 2: same as the one in Cheech and chong up and smoke.
• 6:42
  Speaker 1: Or at the fish show that you fish that you
• 6:44
  Speaker 1: tend to go to. So all right, Lee, your companies,
• 6:47
  Speaker 1: the truckers, the railroads, the global ocean shippers. I can't
• 6:53
  Speaker 1: think of an industry it's got a better look on
• 6:55
  Speaker 1: the economy than those types of companies. What are those
• 6:57
  Speaker 1: companies saying about their economic out look?
• 7:00
  Speaker 9: Yeah?
• 7:00
  Speaker 4: So I think you know, we actually just spoke to
• 7:03
  Speaker 4: one of our companies this morning. We spoke with DHL
• 7:06
  Speaker 4: and then they were telling us that, you know, they're
• 7:07
  Speaker 4: not expecting much of a peak season this year really,
• 7:11
  Speaker 4: and if they do see it, they'll probably see it
• 7:13
  Speaker 4: in the air freight on their forwarding business versus their
• 7:15
  Speaker 4: ocean business. A lot of the other carriers like night Swift,
• 7:18
  Speaker 4: you know, they're all talking about your seeing the d
• 7:21
  Speaker 4: stocking happen.
• 7:22
  Speaker 3: So d stocking that's just retailers just bringing down their.
• 7:25
  Speaker 4: Inventory exactly, and they're not seeing the restocking where they're
• 7:29
  Speaker 4: filling up the inventories. So we're at a situation where
• 7:33
  Speaker 4: a the consumer is obviously pretty resilient, but we're just
• 7:36
  Speaker 4: not seeing the normal seasonal patterns.
• 7:39
  Speaker 6: Yet.
• 7:39
  Speaker 4: We're pretty optimistic, where I guess we're probably a little
• 7:42
  Speaker 4: more bullish. You know, we think we're going to see
• 7:45
  Speaker 4: not a peak peak season, but we are going to
• 7:47
  Speaker 4: see an incremental increase in demand and that's going to
• 7:51
  Speaker 4: have a really positive impact on the truckload industry. We've
• 7:55
  Speaker 4: been calling a bottom for that industry for quite some
• 7:58
  Speaker 4: time on the rate side, and so far has.
• 8:00
  Speaker 5: Been playing out.
• 8:01
  Speaker 4: We think that as we go into the fourth quarter,
• 8:04
  Speaker 4: they're going to slowly increase. Now, a lot of the
• 8:06
  Speaker 4: trucking companies that we cover, they don't play in the
• 8:09
  Speaker 4: spot market, but it's kind of like this. It tells
• 8:12
  Speaker 4: you where contract rates are going to be six to
• 8:14
  Speaker 4: nine months out. And so what we're looking closely at
• 8:16
  Speaker 4: the spot market. We look at it every week, try
• 8:19
  Speaker 4: to figure out where it's going. You know, we think
• 8:21
  Speaker 4: that's going to set up next year a pretty good
• 8:23
  Speaker 4: for the truckload industry for contracts. This year, contract rates
• 8:27
  Speaker 4: are down anywhere between mid to high single digits. Some
• 8:32
  Speaker 4: companies are even seeing them down low double digits. But
• 8:35
  Speaker 4: you know they can't come down much more because they've
• 8:38
  Speaker 4: had all the inflationary pressures that every other company has.
• 8:40
  Speaker 4: You know, they're paying their people more, equipment costs more,
• 8:43
  Speaker 4: insurance costs more. So you know, eventually people are the
• 8:48
  Speaker 4: larger companies we're just going to say, you know, we'd
• 8:50
  Speaker 4: rather not take your freight because it just doesn't make
• 8:52
  Speaker 4: sense for us.
• 8:53
  Speaker 1: How about if I own a truck and it's parked
• 8:55
  Speaker 1: in my backyard, a big, you know, eighteen wheeler. Can
• 8:58
  Speaker 1: I get business anytime I want? Can I work anytime
• 9:00
  Speaker 1: I want? You can't you can't.
• 9:03
  Speaker 4: You can because there's an app for that. I mean,
• 9:06
  Speaker 4: everyone and their mother has an app. Every large trucking
• 9:09
  Speaker 4: company has an app. You have the Uber Freights of
• 9:11
  Speaker 4: the world. You have load boards like truck Stop or
• 9:13
  Speaker 4: dat so alls you need is a smartphone and a
• 9:16
  Speaker 4: truck and a CDL and you can move freight. The
• 9:19
  Speaker 4: problem is you might be moving freight at a loss.
• 9:21
  Speaker 4: And that's what a lot of truckers are dealing with now.
• 9:23
  Speaker 4: So as time goes on, some of the truckers, we'll
• 9:27
  Speaker 4: call them high high, high cost truckers that are that
• 9:31
  Speaker 4: kind of came into the market at the peak and
• 9:33
  Speaker 4: their equipment's more expensive and their insurance is more expensive,
• 9:36
  Speaker 4: and they thought they were going to get these great
• 9:38
  Speaker 4: rates that they were getting during the pandemic. Now that
• 9:40
  Speaker 4: rates are down considerably, you know, twenty some percent from
• 9:43
  Speaker 4: last year. You know, they're not making money and eventually
• 9:46
  Speaker 4: you can only operate for cash flow for so long
• 9:48
  Speaker 4: until you're just like, I'm going to go do something else.
• 9:51
  Speaker 4: And a lot of truckers, you know, the owner operators, come.
• 9:53
  Speaker 5: In and out of this business.
• 9:54
  Speaker 4: You know, they might work, they might they might drive
• 9:56
  Speaker 4: their truck as a long haul trucker, or they might
• 9:58
  Speaker 4: do construction, or they might work in warehousing.
• 10:01
  Speaker 1: So it's my neighbor in North Carolina had his eighteen
• 10:04
  Speaker 1: Miller Park Beautiful truck parked next to his little house
• 10:07
  Speaker 1: in Durham Nor, North Carolina. He's like, I feel like
• 10:09
  Speaker 1: working for the next three or four weeks, and he
• 10:10
  Speaker 1: just go out and do it.
• 10:12
  Speaker 3: So I don't know sal work. That's my dream, as
• 10:14
  Speaker 3: you know exactly.
• 10:15
  Speaker 1: All right, Lee Clasical, thanks so much for joining us.
• 10:17
  Speaker 1: Lee does all the transportation stuff.
• 10:20
  Speaker 6: You're listening to the teenth Ken's Are Live program Bloomberg
• 10:23
  Speaker 6: Markets weekdays at ten am Eastern on Bloomberg dot Com,
• 10:27
  Speaker 6: the iHeartRadio app, and the Bloomberg Business App, or listen
• 10:30
  Speaker 6: on demand wherever you get your podcasts.
• 10:34
  Speaker 1: Matt Miller, Paul Sweeney here in the Bloomberg Interactive Brokers studio.
• 10:38
  Speaker 3: All right, we got the s and p up.
• 10:40
  Speaker 1: Let's call it eighteen percent. Year to date, the tech
• 10:43
  Speaker 1: heavy Nasdaq is up over thirty percent. I mean, you know,
• 10:48
  Speaker 1: the back half of August and September some of the
• 10:50
  Speaker 1: best times of the Jersey Shore. I think I'm just
• 10:52
  Speaker 1: packing it in. I'm done, and I'm just gonna go
• 10:54
  Speaker 1: down to short because I've got a great first half.
• 10:56
  Speaker 1: I don't need to do anymore. But let's see what
• 10:58
  Speaker 1: the professionals are out there doing. David cast, president and
• 11:01
  Speaker 1: CIO at Matrix Asset Management or Advisors Matrix Asset Advisors. David,
• 11:08
  Speaker 1: I mean, boy, that's a heck of a first seven
• 11:10
  Speaker 1: months here in this market. Is there anything left in
• 11:12
  Speaker 1: this market?
• 11:14
  Speaker 10: We do think there's still a batch more left book.
• 11:18
  Speaker 11: We think that it's going to come from different places.
• 11:19
  Speaker 10: If you look at the first five months of the year,
• 11:22
  Speaker 10: the largest seven technology companies were up over sixty five percent.
• 11:26
  Speaker 10: The rest of the market was flat. Since that time,
• 11:29
  Speaker 10: the broader market's been doing better. There's been a lot
• 11:31
  Speaker 10: of catch up. We think when you look for the
• 11:33
  Speaker 10: balance of the year, you're going to continue to have
• 11:35
  Speaker 10: catch up with things that have not done as well
• 11:37
  Speaker 10: in the first seven months of the year. We think
• 11:39
  Speaker 10: they will start to rally, and we think the things
• 11:41
  Speaker 10: that did great can still do okay. But we would
• 11:44
  Speaker 10: agree with you there there's not going to be a
• 11:46
  Speaker 10: repeat of that.
• 11:47
  Speaker 2: So are you not concerned that we're going to have
• 11:50
  Speaker 2: her recession? We just talked to Bloomberg Economics Anna Wong.
• 11:53
  Speaker 2: She says October is now her prediction for the beginning,
• 11:57
  Speaker 2: and she says it's going to start slow and then
• 11:59
  Speaker 2: get really steep.
• 12:01
  Speaker 11: But we don't think it's going to be steep. We
• 12:03
  Speaker 11: think that it's even money.
• 12:04
  Speaker 10: Whether we have a short, shallow, modest recession, or a
• 12:08
  Speaker 10: soft landing. We think the economy has been unbelievably resilient,
• 12:13
  Speaker 10: but you have to upset that with the fact that
• 12:15
  Speaker 10: the BET has been increasing rates.
• 12:16
  Speaker 11: For the last year and a half. We think that
• 12:18
  Speaker 11: the FED is close to.
• 12:19
  Speaker 10: An end, but a lot of the things that they
• 12:21
  Speaker 10: did have lagging impact. So we think you could have
• 12:23
  Speaker 10: a modest recession, but we think a modest recession or
• 12:26
  Speaker 10: a soft landing would be bullish for stocks. Deep recession,
• 12:29
  Speaker 10: which we don't expect, would be bearish for stocks.
• 12:32
  Speaker 1: All Right, So I'm just looking at some of your
• 12:36
  Speaker 1: picks because interesting because again we've talked about it before,
• 12:39
  Speaker 1: a lot of the big cap tech names have really
• 12:43
  Speaker 1: led the market.
• 12:44
  Speaker 9: Here.
• 12:44
  Speaker 1: If I wanted to broaden it out, Metronic is one
• 12:46
  Speaker 1: of your names. You know, a healthcare device company. Talk
• 12:50
  Speaker 1: to U about Metronic.
• 12:52
  Speaker 10: So healthcare did very well on a relative basis in
• 12:54
  Speaker 10: twenty twenty two and has been miserable in twenty twenty three. Again,
• 12:58
  Speaker 10: we think there's going to be a rotation in terms
• 13:00
  Speaker 10: of Metronic. The procedures for cardiovascular are finally starting to
• 13:05
  Speaker 10: get better.
• 13:06
  Speaker 11: You had United.
• 13:07
  Speaker 10: Healthcare say that more people are going to the hospitals
• 13:09
  Speaker 10: for these procedures.
• 13:11
  Speaker 11: Metronic has had a number of disappointing quarters. They set
• 13:13
  Speaker 11: the bar particularly low this year.
• 13:15
  Speaker 10: We think this quarter, for the first time in the
• 13:17
  Speaker 10: last four to six they're going to have good numbers
• 13:20
  Speaker 10: and there's a reasonable chance that they beat and can
• 13:23
  Speaker 10: raise expectations. You're getting it at a pretty reasonable price
• 13:26
  Speaker 10: and a very nice dividend deal. We think you have
• 13:28
  Speaker 10: a twelve month time horizon. You easily have twenty to
• 13:31
  Speaker 10: twenty five percent of the upside.
• 13:35
  Speaker 2: Why do you think these stocks haven't done better though?
• 13:38
  Speaker 11: Well?
• 13:39
  Speaker 10: Again, certain stocks did well last year and there was
• 13:41
  Speaker 10: a rotation. The things that did well last year have
• 13:43
  Speaker 10: slowed down this year, and vice versa. Financials also did
• 13:47
  Speaker 10: particularly poorly this year. The drug companies had been doing
• 13:50
  Speaker 10: poorly up to last week, and then you had companies
• 13:52
  Speaker 10: like abd Amgen that had very good numbers and the
• 13:56
  Speaker 10: stock really spiked on that, so we think it's going
• 13:58
  Speaker 10: to spread out. So we don't I think that you
• 14:00
  Speaker 10: want to question that they haven't done well in terms of, hey,
• 14:03
  Speaker 10: I'm not going to buy them. They haven't done well,
• 14:05
  Speaker 10: and we think you want to look at them as
• 14:06
  Speaker 10: what's going to be the next thing that rallies. And
• 14:08
  Speaker 10: we think a lot of those drug companies and medtech
• 14:10
  Speaker 10: companies are going to start to do better because their
• 14:13
  Speaker 10: fundamentals are strong.
• 14:15
  Speaker 11: But the stock prices haven't moved yet.
• 14:16
  Speaker 1: Hey, David, I want to I can't remember the last
• 14:19
  Speaker 1: time on this show we ever talked about it. An
• 14:21
  Speaker 1: electric power company utility company. But you've got American Electric
• 14:25
  Speaker 1: Power AEP based in Columbus, Ohio that's on your list.
• 14:32
  Speaker 3: What's the play on the electric business?
• 14:34
  Speaker 2: Socks down fourteen percent year to date.
• 14:35
  Speaker 11: YEP, So that's exactly it. So they're a very well
• 14:39
  Speaker 11: run company.
• 14:40
  Speaker 10: We like management. They're going to grow the earnings from
• 14:43
  Speaker 10: five to seven eight percent. They're going to grow the
• 14:45
  Speaker 10: dividend from five to seven eight percent. It's a fifteen
• 14:47
  Speaker 10: and a half times earnings, so it's at the lower
• 14:49
  Speaker 10: end of its valuation range. The yield is four percent,
• 14:53
  Speaker 10: So if you go back to your last guest that
• 14:54
  Speaker 10: was looking for a recession. These are the type that's
• 14:57
  Speaker 10: the type of business you want to own in an
• 14:59
  Speaker 10: economic slowdown or recession. And we just think you want
• 15:02
  Speaker 10: to balance your portfolio. We think the economy is going
• 15:04
  Speaker 10: to be okay, but if it's not, AEP is going
• 15:06
  Speaker 10: to be.
• 15:07
  Speaker 11: A very good place to be. We think that they
• 15:09
  Speaker 11: haven't done anything.
• 15:10
  Speaker 10: The stocks down it shouldn't be, so we're not looking
• 15:13
  Speaker 10: for a home run here. But you could get a
• 15:14
  Speaker 10: four percent yield and a fifteen to twenty percent.
• 15:17
  Speaker 11: Gain over the next twelve months.
• 15:18
  Speaker 10: So again conservative place, balance out your portfolio.
• 15:22
  Speaker 3: And in a great place. Yeah, you need to do
• 15:25
  Speaker 3: channel checks.
• 15:26
  Speaker 11: I'm your man.
• 15:27
  Speaker 3: In terms of screening, I see air products and chemicals
• 15:30
  Speaker 3: as well.
• 15:31
  Speaker 2: So they sell oxygen, which we need, nitrogen, argon, helium,
• 15:36
  Speaker 2: stuff like that. How do you pick these companies, David?
• 15:39
  Speaker 3: How do you screen for those?
• 15:41
  Speaker 10: So we have eight valuation models that look at the
• 15:44
  Speaker 10: companies earnings and dividends and return inequity, and we try
• 15:46
  Speaker 10: to value what the business is worth and then buy
• 15:49
  Speaker 10: it at a discount. We also focus on dividends, sustainability
• 15:52
  Speaker 10: of dividends, and in terms of air products, they are
• 15:54
  Speaker 10: really consistent earnings for over time. They've grown the dividend
• 15:58
  Speaker 10: at North in ten to twelve percent. The expectation is
• 16:01
  Speaker 10: that that's going to continue. The stock did well last year,
• 16:04
  Speaker 10: has not done a whole lot this year. But I
• 16:06
  Speaker 10: think what's very interesting here is it's a green energy play,
• 16:11
  Speaker 10: but you're not paying too much for you and you're
• 16:12
  Speaker 10: getting a good yield while you're waiting.
• 16:15
  Speaker 3: David, how concerned are you about this Federal Reserve?
• 16:17
  Speaker 1: We're going to get a bunch of economic data this week,
• 16:20
  Speaker 1: and if the market seems to be saying maybe one
• 16:23
  Speaker 1: more rate increase or maybe even just hold steady, how
• 16:27
  Speaker 1: concerned are you a bet our federal reserve?
• 16:30
  Speaker 10: Well, we think the Federal Reserve has overshot in terms
• 16:33
  Speaker 10: of raising rates, so we're a little bit fearful that
• 16:35
  Speaker 10: they continue to do that. You did have one Fed
• 16:37
  Speaker 10: governor say that she thinks there could be additional multiple
• 16:41
  Speaker 10: raises this year, So that's a worry. We don't think
• 16:44
  Speaker 10: they have to. We think inflation is definitely breaking lower.
• 16:47
  Speaker 10: Your last guests just talked about inflation going lower. If
• 16:51
  Speaker 10: you look at this quarter's earning season, we agree most
• 16:53
  Speaker 10: companies are talking about not having issues with supply anymore,
• 16:57
  Speaker 10: logistics shipping, all prices coming down. So we think the
• 17:01
  Speaker 10: Federal Reserve doesn't have to increase more.
• 17:04
  Speaker 11: They could do one. It's either one or done or
• 17:06
  Speaker 11: none and done.
• 17:08
  Speaker 10: And if that's the case and the economy holds in Okay,
• 17:11
  Speaker 10: which we think it will, stock should be a pretty
• 17:14
  Speaker 10: good place to be. If we're wrong and the Federal
• 17:16
  Speaker 10: Reserve raises four more times, that's problematic.
• 17:18
  Speaker 11: We don't think that app that's.
• 17:20
  Speaker 3: A problem for a lot of people there. All right, David,
• 17:22
  Speaker 3: thank you so much.
• 17:23
  Speaker 1: We appreciate it as always, David Katz, He's a president
• 17:25
  Speaker 1: and chief investment officer Matrix Asset Advisors. Still bullish on
• 17:31
  Speaker 1: this market, even after the run we've had in the
• 17:33
  Speaker 1: S and P in particularly in the Nasdaq and Nasdaq
• 17:36
  Speaker 1: one hundred.
• 17:37
  Speaker 6: You're listening to the tape Cat's are live program Bloomberg
• 17:40
  Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 17:44
  Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business app.
• 17:47
  Speaker 6: You can also listen live on Amazon Alexa from our
• 17:50
  Speaker 6: flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
• 17:57
  Speaker 3: I want to talk Goldvin Sachs.
• 17:59
  Speaker 6: Jeff.
• 18:00
  Speaker 3: Do we have shri? I mean he's a year round
• 18:02
  Speaker 3: I mean got it.
• 18:04
  Speaker 1: I heard he was going to be in studio And
• 18:06
  Speaker 1: the reason we like to talk to this guy because
• 18:07
  Speaker 1: he is all over the Goldman Sachs beat. So two
• 18:10
  Speaker 1: questions about Jeff Curry. He's only one person. He's a
• 18:13
  Speaker 1: commodity strategist. Okay, he's not a key man risk in
• 18:16
  Speaker 1: my opinion, but high profile guy. I like to know
• 18:19
  Speaker 1: two things, neither which I think we know.
• 18:21
  Speaker 3: A why did he leave? And B where's he going?
• 18:24
  Speaker 8: So, yes, you're right, he's not key man risk. But
• 18:28
  Speaker 8: Jeff Curry is the name that the Bloomberg listeners, the
• 18:30
  Speaker 8: Bloomberg readers certainly know really well. He has been the
• 18:34
  Speaker 8: face of commodities research at Goldman Sachs for nearly thirty
• 18:38
  Speaker 8: years now, and he truly has craft a brand for
• 18:42
  Speaker 8: himself as one of the most recognizable commodities analysts out there.
• 18:46
  Speaker 8: He makes bold calls, he describes it in an entertaining
• 18:51
  Speaker 8: in a very easy to understand manner, and he has
• 18:54
  Speaker 8: won his followers. He may not always have been right.
• 18:57
  Speaker 8: Remember right now he's called for another super cycling that
• 19:00
  Speaker 8: has not quite panned out. But agree with him or not,
• 19:05
  Speaker 8: everyone in the market will tell you that he is
• 19:08
  Speaker 8: someone you must at least pay attention to. That's Jeff Curry.
• 19:11
  Speaker 8: Of course, there is the broader Goldman Sachs then that
• 19:13
  Speaker 8: we always wonder about, another very recognizable name brand leaving
• 19:19
  Speaker 8: Goldman Sachs the sixth partner in the last couple of weeks.
• 19:21
  Speaker 8: I would argue that it's a little different from the
• 19:25
  Speaker 8: sort of tug of war you've seen in the other
• 19:28
  Speaker 8: parts of Goldman, where there are bigger issues over strategy
• 19:31
  Speaker 8: and some of the reorganizations that they've done that has
• 19:34
  Speaker 8: led to a flow of talent. I can't really attribute
• 19:37
  Speaker 8: that being the chief reason for Jeff Curry in any
• 19:40
  Speaker 8: way that we understand. And look, it doesn't look like
• 19:42
  Speaker 8: he's looking to take any other job immediately. He's going
• 19:44
  Speaker 8: to spend some time with family. He has two young kids.
• 19:46
  Speaker 3: He's only fifty six years old.
• 19:48
  Speaker 8: I was about to say that, but he's still only
• 19:50
  Speaker 8: fifty six years old, so it would be hard to
• 19:53
  Speaker 8: bet against a second act.
• 19:55
  Speaker 1: Here's a quote I like, and is this Yeah, it's
• 19:58
  Speaker 1: in your story, Stree, you got it. From Colleen Foster
• 20:01
  Speaker 1: is like a senior salesperson in commodities.
• 20:03
  Speaker 3: And this is like the best anybody could say about
• 20:06
  Speaker 3: an analyst.
• 20:07
  Speaker 1: There's never a time I couldn't get a meeting with
• 20:09
  Speaker 1: a CEO, an oil minister, or a hedge fund founder
• 20:13
  Speaker 1: if Jeff Curry was with me.
• 20:15
  Speaker 3: That's the sway this guy had it.
• 20:17
  Speaker 2: He gets you in the door. I actually had a
• 20:18
  Speaker 2: prominent dream about Jeff Curry. Remember last year.
• 20:23
  Speaker 9: Now.
• 20:23
  Speaker 2: We were sitting at a diner and he was selling
• 20:25
  Speaker 2: me on the commodity supercycle and he was like, listen,
• 20:28
  Speaker 2: Europe hasn't gone into the recession that we thought it
• 20:30
  Speaker 2: was going to. China's about to come roaring back, you know,
• 20:33
  Speaker 2: and a US driving season is going to kick.
• 20:35
  Speaker 3: A lot of that stuff.
• 20:37
  Speaker 2: Europe doesn't look great anymore. China hasn't come roaring back,
• 20:41
  Speaker 2: and the US we're just not using as much gas.
• 20:43
  Speaker 3: There's not as much demand as they.
• 20:44
  Speaker 8: Okay, let's not leave Matt hanging here. Yes, you knew
• 20:47
  Speaker 8: Jeff Curry for his commodities research, and maybe that was
• 20:50
  Speaker 8: something he did on the side, But what was he
• 20:52
  Speaker 8: more famous for? Matt He helped co produce a documentary
• 20:56
  Speaker 8: on the British drug band the Kings, trying to bring
• 20:59
  Speaker 8: them back together.
• 21:01
  Speaker 5: That is pretty cool.
• 21:02
  Speaker 1: Hey, just stepping away from Goldman, I don't think there's
• 21:05
  Speaker 1: any to me, any turnover that we're seeing in Goldman
• 21:08
  Speaker 1: or anywhere else on the street is any different than
• 21:10
  Speaker 1: any past.
• 21:11
  Speaker 3: Cycles to me. Do you sense that there's anything.
• 21:12
  Speaker 1: Unusual going on in turnover or it's just business as usual?
• 21:16
  Speaker 8: No, I mean there's certainly a different story at Goldman Sachs. Yes,
• 21:19
  Speaker 8: maybe there's not much in terms of the quantity in
• 21:21
  Speaker 8: terms of the number of people who are leaving, but
• 21:23
  Speaker 8: the type of people who are leaving. Some of these
• 21:24
  Speaker 8: people who were handpicked for a bigger and greater role
• 21:27
  Speaker 8: at Goldman sacks for them to be leaving so soon
• 21:29
  Speaker 8: after they've been on the up and you know, Goldman's
• 21:32
  Speaker 8: always had an upper out culture. But but the but
• 21:34
  Speaker 8: the weird part is some of these people were on
• 21:37
  Speaker 8: the up, you know, either they were kneecapped or they
• 21:40
  Speaker 8: didn't sort of fit in the new plans. They have
• 21:41
  Speaker 8: been getting frustrated and leaving. So it's the type of
• 21:44
  Speaker 8: names that are leaving the building that have caught our
• 21:46
  Speaker 8: attention more than the number of people leaving two hundred
• 21:49
  Speaker 8: Wes Street, So.
• 21:50
  Speaker 2: We have no idea what Curry's going to do then later,
• 21:53
  Speaker 2: is anyone speculating, like.
• 21:56
  Speaker 8: I said, I mean, if he seems to have told
• 21:59
  Speaker 8: confidence that for the moment he wants to spend some
• 22:01
  Speaker 8: time with family. But again, if you've been in the
• 22:04
  Speaker 8: game for so long, the itch to get back there
• 22:06
  Speaker 8: will overcome your desire to just relax on the beat.
• 22:10
  Speaker 8: So I will be very surprised if a year later
• 22:12
  Speaker 8: you don't see Jeff Curry pop up somewhere else again.
• 22:15
  Speaker 1: David Solomon just characterize kind of the feeling on the
• 22:19
  Speaker 1: street about David Solomon these days. I mean, I would
• 22:22
  Speaker 1: argue that Goldman's doing well, and I would also argue
• 22:27
  Speaker 1: that the foray into commercial banking wasn't his call.
• 22:31
  Speaker 3: That's a blank fine call.
• 22:32
  Speaker 2: He inherited, he committed hard though blank Fine dated Consumer Bank,
• 22:36
  Speaker 2: the consumer business, and Solomon married it.
• 22:39
  Speaker 3: Is that is that accurate? That is accurate? Okay? So
• 22:42
  Speaker 3: he does in fact bear Look.
• 22:44
  Speaker 8: They had a banking charter after two thousand and eight,
• 22:46
  Speaker 8: so it made sense for them to do something as
• 22:48
  Speaker 8: basic as what they were doing off of some deposits
• 22:50
  Speaker 8: make out some loans. But then there was this desire
• 22:52
  Speaker 8: to push in and make something bigger. And they will
• 22:54
  Speaker 8: always tell you such a big deal has been made
• 22:56
  Speaker 8: about consumer It was just three percent of revenues. Yes,
• 22:59
  Speaker 8: it was three percent of revenues. But you racked up
• 23:01
  Speaker 8: losses at a time when you really don't didn't want
• 23:04
  Speaker 8: those losses, right when the cycle was turning, right, when
• 23:07
  Speaker 8: your engines of investment, banking and trading were slowing down,
• 23:09
  Speaker 8: you had this. Add that to all of the disagreements
• 23:13
  Speaker 8: people have with his leadership style and how he goes
• 23:15
  Speaker 8: about his business, you create a little bit of environment
• 23:20
  Speaker 8: that feels like there is this air of dissatisfaction that
• 23:24
  Speaker 8: is settled in on Goldman Saxe.
• 23:25
  Speaker 1: Is that is that accurate? Because I hear that, Do
• 23:28
  Speaker 1: you think that's fair? I mean, you're right.
• 23:29
  Speaker 3: I would trust you more than anyone else. You're right.
• 23:32
  Speaker 1: And the thing I'm just wondering, you know, because it
• 23:33
  Speaker 1: seems like Goldman Sacks and I can have competed against
• 23:36
  Speaker 1: them for thirty plus years, they just win every single year.
• 23:40
  Speaker 8: And let's get this right. I think when you look
• 23:43
  Speaker 8: at the broader dynamics and global banking, you know, the
• 23:46
  Speaker 8: retreat of European banks, what is happening with credit SWAICE
• 23:49
  Speaker 8: and all of that. What that ultimately does is leave
• 23:52
  Speaker 8: a few very strong players who continue to benefit. And
• 23:55
  Speaker 8: the three biggies that we have JP Morgan, Morgan Stanley,
• 23:58
  Speaker 8: Goldman Sacks, they have a big, large, growing, deep competitive
• 24:02
  Speaker 8: mode that ensures that they continue to do better in
• 24:06
  Speaker 8: stuff that they're really good at, banking and trading for
• 24:09
  Speaker 8: Goldman Sachs, the investment bank sites for JP Morgan and
• 24:13
  Speaker 8: Morgan Sandy as well, but also the consumer side, the
• 24:16
  Speaker 8: wealth management side at Morgan Sandy, they are certainly benefiting there.
• 24:20
  Speaker 8: There is this palace Insriegan, there is this issue with
• 24:23
  Speaker 8: the CU and there is this sort of growing noise
• 24:26
  Speaker 8: that you hear out of Goldman Sax and one does
• 24:28
  Speaker 8: feel that there's no way that's going to turn around
• 24:30
  Speaker 8: in a minute, even if business recovers. So you don't
• 24:32
  Speaker 8: have to find a solution.
• 24:33
  Speaker 1: I'm just looking at the stocks Goldman Sacks. You're to
• 24:35
  Speaker 1: date stocks up three point six percent, Morgan Stanley up
• 24:38
  Speaker 1: five percent trailing twelve months, Goldman Sacks up nine percent,
• 24:42
  Speaker 1: Morgan Stanley up eight percent.
• 24:43
  Speaker 2: So here I always pull up my five year comp
• 24:46
  Speaker 2: chart I know you do. And Goldman Sachs over the
• 24:48
  Speaker 2: last five years, they're the second best bank of the
• 24:53
  Speaker 2: Big six, right only Morgan Stanley has done better over
• 24:56
  Speaker 2: the last five years because they compete big time, right now,
• 25:00
  Speaker 2: you know.
• 25:00
  Speaker 8: That that hurts a lot. But also remember when we
• 25:02
  Speaker 8: think about the Big six, we think about Wells Fargo
• 25:04
  Speaker 8: as the sixth name in that list, right, but they're
• 25:07
  Speaker 8: not a true, true comp Goldman Sack. So I always
• 25:09
  Speaker 8: like to also throwing someone like a Jeffries into the mix.
• 25:11
  Speaker 8: Okay and Jeffries, which is a pure play in Masson
• 25:13
  Speaker 8: Bank yep, at least right now, it's done extraordinarily well
• 25:16
  Speaker 8: in the same time period. So if you add them
• 25:18
  Speaker 8: to the list, they are three in the number seven.
• 25:21
  Speaker 5: Not bad, not great.
• 25:22
  Speaker 8: If you're inside Goldman Sacks, you don't like listening to
• 25:25
  Speaker 8: the fact that you're behind Morgan Stanley. But they're getting
• 25:27
  Speaker 8: around to the idea of a praising their rival, praising
• 25:31
  Speaker 8: their competitor, and be hoping to recover that lost crownd.
• 25:34
  Speaker 3: All Right, Tree, thanks so much, we appreciate it. As always.
• 25:36
  Speaker 6: Three in Niagen, you're listening to the teenth Can't Live
• 25:41
  Speaker 6: program Bloomberg Markets Weekdays at ten am Eastern on Bloomberg
• 25:45
  Speaker 6: dot Com, the iHeartRadio app and the Bloomberg Business App,
• 25:49
  Speaker 6: or listen on demand wherever you get your podcasts.
• 25:53
  Speaker 1: Matt Noer, Paulsweeni here in the Bloomberg Interactive Broker Studio,
• 25:56
  Speaker 1: I want to bring in our next guest, because he
• 25:57
  Speaker 1: traveled all the way from Newport Pach, California. David and
• 26:00
  Speaker 1: Cio of the Bonson Group. All right, So David, I
• 26:04
  Speaker 1: got the S and p up. I don't know, seventeen
• 26:06
  Speaker 1: eighteen percent. I got NASDAK up thirty two, thirty three percent,
• 26:10
  Speaker 1: I got the Nasdaq one hundred up darn near forty percent.
• 26:14
  Speaker 3: Are we called a tech bubble here? Well, yes, AI bubble. Maybe,
• 26:18
  Speaker 3: I don't know.
• 26:18
  Speaker 7: Most certainly we're in a tech bubble if you were
• 26:20
  Speaker 7: looking at valuations relative to history, okay, and that premium
• 26:25
  Speaker 7: to historical valuation calls for a mean reversion, and I
• 26:30
  Speaker 7: think that that's inevitably going to happen right now. It's
• 26:33
  Speaker 7: interesting you have Apple and Microsoft below their fifty day
• 26:36
  Speaker 7: moving average, and there are more energy names as a
• 26:39
  Speaker 7: percentage of the index above their two under.
• 26:41
  Speaker 3: Day than there are tech names.
• 26:44
  Speaker 1: Interesting, Well, we got w tach crude oilly eighty two
• 26:46
  Speaker 1: dollars has had a nice runoff of that sixty seven
• 26:48
  Speaker 1: low from four or five weeks ago.
• 26:50
  Speaker 3: So where should where you looking at?
• 26:52
  Speaker 1: Where are you talking to your clients about where they
• 26:54
  Speaker 1: should be looking for some opportunities here?
• 26:56
  Speaker 7: Well, it's funny, is I was listening to guys talking
• 26:57
  Speaker 7: about McDonald's. I was thinking not about the quarter pounder
• 27:00
  Speaker 7: or the calories, but the sixty seven thousand percent return
• 27:05
  Speaker 7: it has had since nineteen sixty seven. And it's a
• 27:08
  Speaker 7: real number compounded reinvesting those dividends. MacDonald's is the best
• 27:12
  Speaker 7: real estate company that happens to such.
• 27:15
  Speaker 3: I didn't know that, so I watched the movie. Now
• 27:16
  Speaker 3: I got it.
• 27:18
  Speaker 7: We've owned it for many, many years, and it's interesting.
• 27:20
  Speaker 7: We bought at the financial crisis at fifty it's now
• 27:22
  Speaker 7: at three hundred. Wow, and the dividend is increased six times,
• 27:26
  Speaker 7: just as the stock has gone up six times.
• 27:28
  Speaker 3: How important dividends do you?
• 27:29
  Speaker 9: Just?
• 27:29
  Speaker 7: In general, it's what we do, what you do, And
• 27:31
  Speaker 7: it's not just dividends, it's the growth of dividends. So
• 27:34
  Speaker 7: that's why I use MacDonald's example. But I can't think
• 27:37
  Speaker 7: of a better environment than the one room right now,
• 27:40
  Speaker 7: where the growth of the income is more important, while
• 27:43
  Speaker 7: you also get better stabilized business models. People too dependent
• 27:48
  Speaker 7: on AI, too dependent on momentum, two dependent on multiple expansion.
• 27:52
  Speaker 3: They're the most vulnerable right now. So it's interesting.
• 27:55
  Speaker 2: I was talking to somebody, an investor yesterday, large cap
• 27:58
  Speaker 2: growth guy, and he said we were talking about Goldman
• 28:01
  Speaker 2: Sachs and the other big public investment banks. He doesn't
• 28:04
  Speaker 2: want to buy them because they still pay their people
• 28:08
  Speaker 2: as if.
• 28:08
  Speaker 3: They were a partnership.
• 28:09
  Speaker 2: Right. Every time they have a bad year, they say,
• 28:12
  Speaker 2: we got to pay these guys because they're the talent
• 28:14
  Speaker 2: and it's the most important thing. When they have a
• 28:16
  Speaker 2: good year, they're like, we have to pay these guys
• 28:18
  Speaker 2: because they're the talent.
• 28:18
  Speaker 3: That's the most important thing.
• 28:19
  Speaker 2: And they never give money back to the shareholders, or
• 28:22
  Speaker 2: not as much as they should for a public company.
• 28:24
  Speaker 3: Do you agree.
• 28:25
  Speaker 7: Well, see, I have a name for him that is
• 28:26
  Speaker 7: the exact same business, but a totally different outcome. It's
• 28:29
  Speaker 7: a little investment bank called Molus and Tickers MC, where
• 28:33
  Speaker 7: all they do is an is Ken Mollis was old
• 28:36
  Speaker 7: vice share at UBS started this investment bank. They give
• 28:38
  Speaker 7: our deal j back in the day, one hundred percent
• 28:41
  Speaker 7: of free cash flow goes back to shareholders as dividends.
• 28:44
  Speaker 7: And that's all they are is a deal company. I'm
• 28:46
  Speaker 7: like Goldman Sachs, which is a balance sheet company to
• 28:48
  Speaker 7: some degree. They have to maintain capital for especially at
• 28:52
  Speaker 7: fixed income trading mols more pure advisories. So that's what
• 28:56
  Speaker 7: we're really going to do. Look, we own Blackstone and Apollo.
• 28:59
  Speaker 3: All we are is get a piece of.
• 29:00
  Speaker 7: The management fees that they're charging, and clients don't seem
• 29:04
  Speaker 7: to mind paying it. The results haven't done anything to
• 29:06
  Speaker 7: keep people from paying it. And so when you own
• 29:09
  Speaker 7: those companies, it's not balance sheet risk. Yes, they pay
• 29:12
  Speaker 7: their people well, but it's very performance driven. I think
• 29:15
  Speaker 7: Wall Street's one of the few meritocratic areas left, to
• 29:18
  Speaker 7: be honest, I see that as a good thing.
• 29:19
  Speaker 2: Well, one of the things that Goldman Sacks that David
• 29:21
  Speaker 2: Soloman is doing right now. He's selling, you know, their
• 29:24
  Speaker 2: big balance sheet business the investments they've made in real
• 29:26
  Speaker 2: estate over years because the returns have been volatile. But
• 29:29
  Speaker 2: I was just talking to Shrie Nata Rojin about this.
• 29:31
  Speaker 2: He said, one year they'll make six billion on those investments.
• 29:35
  Speaker 2: Next year they'll lose a billion, the next year they'll
• 29:37
  Speaker 2: lose lose two, but then they'll make six again. So
• 29:39
  Speaker 2: over four years, you know they've made net positive nine
• 29:43
  Speaker 2: billion dollars. But since investors are so worried about quarterly
• 29:46
  Speaker 2: or annual reports, they don't care about the longer term picture.
• 29:51
  Speaker 7: Well, I am a good investor then, because I couldn't
• 29:54
  Speaker 7: care less about quarterly smoothness of those things. But with
• 29:58
  Speaker 7: balance sheet businesses, it's not just that it's going to
• 30:00
  Speaker 7: be voll at all. You're going to evaporate capital at times,
• 30:03
  Speaker 7: you're going to take on big losses. Dodd Frank took
• 30:06
  Speaker 7: away their ability to do much of that. But see,
• 30:08
  Speaker 7: that's not just a good thing.
• 30:09
  Speaker 3: Is there's less risk. It's a bad thing. Is there's
• 30:11
  Speaker 3: less upside.
• 30:12
  Speaker 7: Morgan Stanley remedied it by becoming more of a fee
• 30:14
  Speaker 7: based wealth management business. But we believe that these Blackstones, Apollos,
• 30:19
  Speaker 7: al Rock, they're able to take huge fees around being
• 30:23
  Speaker 7: an asset manager in a space that has huge growth
• 30:26
  Speaker 7: in front of it.
• 30:27
  Speaker 1: So, David, the importance of dividends to you when your
• 30:30
  Speaker 1: firm and your investment outlook.
• 30:31
  Speaker 3: If I got you in a room with Tim Cook
• 30:33
  Speaker 3: at Apple, what would you say to him?
• 30:36
  Speaker 7: I would be very respectful, because how could you not
• 30:38
  Speaker 7: be with someone who's created that kind of wealth. And
• 30:40
  Speaker 7: then I would simply point out that the day and
• 30:43
  Speaker 7: age of them saying we can do better with your
• 30:45
  Speaker 7: money is long gone, that there must be a greater
• 30:49
  Speaker 7: return of capital shareholders. That they have proven that for
• 30:53
  Speaker 7: years by holding on to hundreds of billions of dollars.
• 30:57
  Speaker 7: If they had found better opportunities to deploy it, would
• 31:00
  Speaker 7: have deployed it. And so by keeping a yield somewhere
• 31:03
  Speaker 7: around half of a percentage point, I think it is
• 31:06
  Speaker 7: a very very good opportunity for them to increase return
• 31:10
  Speaker 7: on equity by paying more back to shareholders. In the meantime,
• 31:13
  Speaker 7: they have abundant resources to still go do R and
• 31:17
  Speaker 7: D and consumer product expansion.
• 31:21
  Speaker 2: The great thing to do is fine stocks that are
• 31:24
  Speaker 2: misunderstood by the market.
• 31:25
  Speaker 6: Right.
• 31:25
  Speaker 2: And Simon, Property Group is one you like. When I
• 31:29
  Speaker 2: looked at that, my instant, you know, my brain's at oops.
• 31:32
  Speaker 2: You know, commercial real estate. That must be a bad thing.
• 31:36
  Speaker 2: You think a lot of people make that mistake.
• 31:38
  Speaker 7: I think a lot of people do. And Simon Property
• 31:40
  Speaker 7: is a great example. It was at fifty dollars during COVID,
• 31:42
  Speaker 7: people said, no one's ever going in the mall again.
• 31:44
  Speaker 7: Now it's at one hundred and twenty five dollars, and
• 31:46
  Speaker 7: people don't realize they have a higher occupancy rate now
• 31:51
  Speaker 7: than they've ever had in the history of the company.
• 31:53
  Speaker 3: Basically, about ninety five.
• 31:54
  Speaker 7: Percent of their square footage across two hundred and eighty
• 31:57
  Speaker 7: seven high end malls is occupied. They bought Jcpenny basically
• 32:01
  Speaker 7: for free and are now selling the old jcpenny buildings.
• 32:05
  Speaker 3: You know, I forgot about that.
• 32:06
  Speaker 7: I mean, they paid something like five hundred thousand dollars
• 32:08
  Speaker 7: a box when they were selling for twenty million a box,
• 32:11
  Speaker 7: and they are selling them to Amazon to be fulfillment warehouses.
• 32:14
  Speaker 7: They're repurposing them into hotels and more entertainment oriented malls.
• 32:19
  Speaker 7: Cymon Property has a ton of unleashed value that will
• 32:22
  Speaker 7: get developed over time. And while you wait, you're getting
• 32:25
  Speaker 7: a six to seven percent dividend yield that's coming straight
• 32:28
  Speaker 7: from net operating income. And they just have a very
• 32:30
  Speaker 7: well run balance sheet, about forty seven percent debt to value.
• 32:34
  Speaker 7: It's really low. And to the extent they've had about
• 32:37
  Speaker 7: five malls that have done poorly. Out of two hundred
• 32:39
  Speaker 7: and eighty seven, those were non recourse. They gave them
• 32:42
  Speaker 7: back and the CMBs people had to fight over the assets.
• 32:46
  Speaker 2: I wonder what I see one of your books, or
• 32:49
  Speaker 2: your most recent book. I guess There's no Free Lunch
• 32:51
  Speaker 2: two hundred and fifty Economic Truths. I love the title. I
• 32:54
  Speaker 2: was hanging out with Gary Shilling as I was telling
• 32:56
  Speaker 2: these guys yesterday, and he said, that's his one main takeaway,
• 32:58
  Speaker 2: there's no free lunch. What do you think about these
• 33:01
  Speaker 2: trillion dollar deficits that we're running? You know, what do
• 33:05
  Speaker 2: you think about the magic money tree that everybody seems
• 33:08
  Speaker 2: to have bought into in government?
• 33:09
  Speaker 3: Does that ever catch up to us?
• 33:11
  Speaker 7: Well, it does, and the question is how it catches up.
• 33:14
  Speaker 7: And so Japan's been about two hundred and thirty percent
• 33:16
  Speaker 7: debt to GDP, and what it's done there is basically
• 33:20
  Speaker 7: thirty years of no economic growth. So we're now at
• 33:23
  Speaker 7: fifteen years of one point six economic growth. We had
• 33:26
  Speaker 7: had seventy years of over three percent economic growth before that.
• 33:31
  Speaker 7: So the cost so far seems to be a downward
• 33:33
  Speaker 7: trend on growth, a kind of stagnation in the economy.
• 33:37
  Speaker 7: But do I think that there's a moment in which
• 33:39
  Speaker 7: the apocalypse comes. It's very difficult to predict that. My
• 33:43
  Speaker 7: real quick comment though on the trillion dollar deficits is
• 33:45
  Speaker 7: I don't like it when we spend five trillion during COVID.
• 33:48
  Speaker 7: I don't like it when there's two trillion of spending
• 33:50
  Speaker 7: in the aftermath of financial crisis.
• 33:52
  Speaker 3: But I do.
• 33:53
  Speaker 7: Understand there's a Keynesian school of thought that believes it's necessary.
• 33:57
  Speaker 7: My problem is during peace time and during i'm an
• 34:00
  Speaker 7: expansion time, when we're running one to two trillion dollar deficits,
• 34:04
  Speaker 7: and that seems to be accepted by both sides of
• 34:06
  Speaker 7: the aisle. And the only time anyone fights against it
• 34:09
  Speaker 7: is when the other guy is the president.
• 34:12
  Speaker 3: That brings it home. That brings it home.
• 34:14
  Speaker 1: David, thanks so much for joining us. You can get
• 34:16
  Speaker 1: back to Newport Beach. You know they can't be doing
• 34:19
  Speaker 1: work out there Pinco people. I think it's all smoking mirror.
• 34:22
  Speaker 2: I don't know, because maybe it's just too warm outside
• 34:25
  Speaker 2: and you have to spend time in your air conditioned office.
• 34:27
  Speaker 3: Perfect outside, seventy five degrees there all the time. All
• 34:30
  Speaker 3: that's like that, and that sounds perfect to me all right, David.
• 34:33
  Speaker 1: Say Cio at the Boxing Group, we always appreciate getting
• 34:36
  Speaker 1: a few minutes of his time. I was a saint
• 34:37
  Speaker 1: to our producer, a unique view on investing.
• 34:41
  Speaker 6: You're listening to the tape Cat's are Live program Bloomberg
• 34:44
  Speaker 6: Markets weekdays at ten am Eastern on Bloomberg Radio, the
• 34:48
  Speaker 6: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
• 34:51
  Speaker 6: You can also listen live on Amazon Alexa from our
• 34:54
  Speaker 6: flagship New York station, Just Say Alexa play Bloomberg eleven thirty.
• 35:00
  Speaker 1: Natalie want Joints is real estate reporter with Bloomberg News.
• 35:03
  Speaker 1: Natalie talk to us about kind of that commercial real
• 35:06
  Speaker 1: estate market. I mean, if I'm a bank and I
• 35:09
  Speaker 1: try to sell off some of these commercial real estate
• 35:12
  Speaker 1: loans I have in my books, am I finding any
• 35:14
  Speaker 1: buyers out there?
• 35:15
  Speaker 9: Thanks for having me. It's really hard for banks these
• 35:17
  Speaker 9: days to find buyers out there, not because there aren't
• 35:20
  Speaker 9: buyers that might want to snatch up heavily discounted loans,
• 35:23
  Speaker 9: but because the pricing isn't there yet. Right, There's a
• 35:26
  Speaker 9: lot of liquidity out there, a lot of dry powder
• 35:29
  Speaker 9: out there for opportunistic buyers and funds that are raised
• 35:32
  Speaker 9: to specifically target distressed opportunities. But the problem is banks
• 35:36
  Speaker 9: aren't ready to meet them at the price that they
• 35:39
  Speaker 9: want to pay. Yet the prices haven't necessarily fallen down
• 35:43
  Speaker 9: far enough, although it is starting to. And this is
• 35:46
  Speaker 9: what the story kind of talks about, which is there's
• 35:48
  Speaker 9: been so much pressure building on the commercial real estate
• 35:50
  Speaker 9: market and on the debt market for so long, and
• 35:53
  Speaker 9: finally we're starting to see that banks are under more
• 35:56
  Speaker 9: pressure to try to sell their loans, to try to
• 36:00
  Speaker 9: add a bit more discount to their deals and find
• 36:02
  Speaker 9: buyers so they can reduce their exposure to some of
• 36:04
  Speaker 9: the riskier properties.
• 36:06
  Speaker 2: We've heard a similar story with residential with existing homes,
• 36:09
  Speaker 2: right Natalie, The people who own them aren't willing to
• 36:13
  Speaker 2: sell them at the discounted price that buyers are looking
• 36:16
  Speaker 2: to pay in that case, because buyers are having to
• 36:19
  Speaker 2: take a higher mortgage in the in the in the
• 36:23
  Speaker 2: retail market or in the residential market.
• 36:26
  Speaker 3: We call this the.
• 36:26
  Speaker 2: Great reset, That's what they'll call it when it actually happens.
• 36:31
  Speaker 2: What is needed for the great reset to happen in
• 36:34
  Speaker 2: commercial property, It's going.
• 36:38
  Speaker 9: To be a year's long process. I mean sources that
• 36:40
  Speaker 9: we've spoken to, brokers investors all say this is kind
• 36:43
  Speaker 9: of like what happened with the malls. And I'm specifically
• 36:47
  Speaker 9: talking about offices because that is the one sector where
• 36:50
  Speaker 9: it's getting hit by boring rates and also the fundamental
• 36:53
  Speaker 9: values are falling. It's kind of similar to malls where
• 36:56
  Speaker 9: we've seen that unfold for the past decade, right, and
• 36:59
  Speaker 9: we're still seeing that some of the better retail properties
• 37:02
  Speaker 9: are under high demand. They're selling for good prices, but
• 37:05
  Speaker 9: you have a lot of dead malls in places that
• 37:08
  Speaker 9: still sit empty, and it'll be a process that could
• 37:11
  Speaker 9: be you know, anywhere from five to ten years, but
• 37:14
  Speaker 9: we're starting to see that it's happening now, and in
• 37:18
  Speaker 9: talking to brokers, they think that maybe heading into the third,
• 37:21
  Speaker 9: the fourth quarter and next year, we're going to start
• 37:23
  Speaker 9: to see more banks put up loans for sale and
• 37:27
  Speaker 9: you know, acquiess to better discounts for potential buyers out there.
• 37:31
  Speaker 1: So, Natalie, I guess you know, one of the challenges
• 37:34
  Speaker 1: for both sides of a trade is I don't really
• 37:36
  Speaker 1: know what the underlying value is of commercial real estate
• 37:39
  Speaker 1: in New York. Have we seen any big transactions that
• 37:42
  Speaker 1: we can use to kind of mark the market. Have
• 37:44
  Speaker 1: we seen anything really come to market in New York
• 37:46
  Speaker 1: for example.
• 37:48
  Speaker 9: That's the problem is we haven't necessarily seen a lot
• 37:51
  Speaker 9: of asset sales yet, so it's really hard for people
• 37:53
  Speaker 9: to figure out where the values of certain properties stand
• 37:57
  Speaker 9: right now. We've seen some cases of distress sales, but
• 38:00
  Speaker 9: these are one off cases. One example that people are
• 38:03
  Speaker 9: really looking at right now is you know the Signature
• 38:07
  Speaker 9: Bank loans. The FDIC is selling a big chunk of
• 38:10
  Speaker 9: commercial real estate loans. Many of them are in New
• 38:12
  Speaker 9: York apartments, some offices, and a lot of stakeholders are
• 38:16
  Speaker 9: looking at that to see what the market to market
• 38:19
  Speaker 9: might be. But the problem is, especially again for offices,
• 38:23
  Speaker 9: people don't necessarily know where office demand and remote work,
• 38:26
  Speaker 9: how that's going to shake out. Right We're starting to
• 38:28
  Speaker 9: see some of the finance firms bring people back to
• 38:30
  Speaker 9: the office four days a week, five days a week,
• 38:32
  Speaker 9: but at the end of the day, there's still disagreements
• 38:35
  Speaker 9: as to how that's going to shake out and what
• 38:37
  Speaker 9: the overall demand will be a few years from now.
• 38:41
  Speaker 9: And that is how people write down the income for
• 38:43
  Speaker 9: those types of loans and those types of deals. So
• 38:46
  Speaker 9: if you don't know how that's going to shake out.
• 38:48
  Speaker 9: It's really hard to value what those loans will be
• 38:51
  Speaker 9: several years out from now.
• 38:52
  Speaker 2: What are you seeing, Natalie, in terms of defaults, you know,
• 38:55
  Speaker 2: because a lot of these a lot of these lenders
• 39:01
  Speaker 2: are going to be facing that situation, and some of
• 39:04
  Speaker 2: them are some of the borrowers are defaulting just to
• 39:07
  Speaker 2: try and renegotiate.
• 39:10
  Speaker 9: We've seen that defaults have really picked up over the
• 39:13
  Speaker 9: past i'd say, you know, starting this year, and that's
• 39:16
  Speaker 9: kind of been the next two to drop in this
• 39:18
  Speaker 9: whole commercial real estate saga is that owners, you know,
• 39:21
  Speaker 9: people that are our sponsors of this debt are just
• 39:24
  Speaker 9: looking at their property and looking at, you know, whether
• 39:26
  Speaker 9: or not it's even worth trying to throw money in
• 39:29
  Speaker 9: to renovate it or to invest in a long term.
• 39:33
  Speaker 9: And we've seen even the biggest sponsors and owners like Brookfield,
• 39:37
  Speaker 9: like Pimpo, like Blackstone just walk away from their properties,
• 39:40
  Speaker 9: hand back the keys. And if the biggest investors are
• 39:44
  Speaker 9: doing this, the smaller guys are looking at them and saying, Okay,
• 39:46
  Speaker 9: it's appropriate for us to do this right now. We
• 39:48
  Speaker 9: just don't have the money. And that's a big concern
• 39:51
  Speaker 9: for the lenders and the banks, because they didn't write
• 39:54
  Speaker 9: down these loans with the expectation that they're going to
• 39:57
  Speaker 9: take it over and become managers and landlord cards. Right,
• 40:00
  Speaker 9: So for a lot of these guys, they probably want
• 40:02
  Speaker 9: to get ahead of any potential default, any potential loan maturities,
• 40:07
  Speaker 9: and maybe sell off the loans at a slight discount
• 40:10
  Speaker 9: instead of having to foreclose and end up having to
• 40:12
  Speaker 9: sell the asset for distress values down the line.
• 40:16
  Speaker 3: And that's what really surprised me.
• 40:18
  Speaker 1: Shocked me actually to see a company affirm of the
• 40:21
  Speaker 1: quality and the size of Brookfield walk away from something.
• 40:25
  Speaker 1: I mean, I didn't even think that was even possible.
• 40:27
  Speaker 1: I mean, you know from a like how do I
• 40:29
  Speaker 1: walk away from JP Morgan Chase? Why I've got a
• 40:32
  Speaker 1: good jillions of dollars where the deals I'm doing with
• 40:35
  Speaker 1: these guys every year.
• 40:36
  Speaker 3: But that's what happened.
• 40:38
  Speaker 9: Yeah, I mean, it's simple economics for a lot of
• 40:40
  Speaker 9: these bigger folks. You know, they have distressed funds. Actually
• 40:43
  Speaker 9: they've raised distress funds to target opportunities across real estate
• 40:48
  Speaker 9: as well for this particular cycle. And you know, for them,
• 40:50
  Speaker 9: it's a lot of these loans are non recourse, meaning
• 40:53
  Speaker 9: they can walk away from it and the lender can't
• 40:55
  Speaker 9: go after their other properties. So it's easy for them
• 40:58
  Speaker 9: to just look at the economics of the building. They
• 41:00
  Speaker 9: think that the demand might not come back, or it
• 41:02
  Speaker 9: might cost more than it's worth, and it's just simpler
• 41:05
  Speaker 9: to hand the keys back and to refocus their money
• 41:08
  Speaker 9: on something that's a bit more valuable.
• 41:10
  Speaker 2: Can they repurpose the buildings that they've got. I mean,
• 41:13
  Speaker 2: offices seem to be the real problem here, right, but
• 41:19
  Speaker 2: you're not having you're not seeing nearly as much of
• 41:22
  Speaker 2: a problem in malls. Surprisingly, We're just talking to an
• 41:24
  Speaker 2: investor who likes Simon properties and they've done pretty well.
• 41:30
  Speaker 6: Right.
• 41:31
  Speaker 9: Offices are the worst performing properties right now. Malls already
• 41:35
  Speaker 9: bottomed up out a couple of years ago, so the
• 41:37
  Speaker 9: values have already fallen. Hotels have stayed relatively flat, and
• 41:42
  Speaker 9: we've seen some stress happening in apartments, but that's mostly
• 41:46
  Speaker 9: due to a function of the interest rates, not so
• 41:50
  Speaker 9: much that there's no demand there.
• 41:51
  Speaker 3: Right.
• 41:51
  Speaker 9: There's a shortage of housing demand across the country. But
• 41:54
  Speaker 9: with offices, that's really where the glood is, that's really
• 41:56
  Speaker 9: where values have fallen twenty seven percent across the US
• 41:59
  Speaker 9: just in the last year and set to fall more.
• 42:03
  Speaker 9: And you know, a lot of people are looking at
• 42:04
  Speaker 9: potential ways to convert properties. But the problem today in
• 42:07
  Speaker 9: the US is that, you know, the regulation isn't there
• 42:11
  Speaker 9: necessarily to allow for zoning in many cities, and it's
• 42:15
  Speaker 9: extremely costly to repurpose a building into residential if you're
• 42:19
  Speaker 9: able to do it, due to the structural you know,
• 42:23
  Speaker 9: standards of the building and whether or not's even able
• 42:26
  Speaker 9: to convert it.
• 42:26
  Speaker 2: I mean, I'd always thought about a residential conversion as well, Natalie,
• 42:29
  Speaker 2: especially you know, the Third Avenue corridor here in New
• 42:32
  Speaker 2: York has a lot of office buildings that nobody wants
• 42:36
  Speaker 2: and are impossible to convert into residential unless people all
• 42:40
  Speaker 2: of a sudden are demanding apartments with no windows. I
• 42:43
  Speaker 2: just I had never thought about converting the self storage.
• 42:46
  Speaker 2: That might be a great idea for some of these buildings. Yes,
• 42:48
  Speaker 2: and they haven't faired as poorly either, self storage spaces.
• 42:52
  Speaker 9: Some people are exploring that, but that's definitely not happening,
• 42:57
  Speaker 9: you know, on the masses at all, because again of
• 42:59
  Speaker 9: zone right. New York City in particular has very specific
• 43:02
  Speaker 9: zoning about what buildings can be designateds for certain uses.
• 43:06
  Speaker 9: And again, self storage is the very particular type of
• 43:09
  Speaker 9: properties that many of these midtown nineteen sixties to nineteen
• 43:14
  Speaker 9: eighties buildings just might not work out for.
• 43:17
  Speaker 1: Hey, the nineteen sixties to the nineteen eighties was a
• 43:19
  Speaker 1: pretty good ear for me, So I'm just going to
• 43:21
  Speaker 1: leave it to that. Natalie, thanks so much for joining us.
• 43:24
  Speaker 1: Natalie Wong, real estate reporter for Bloomberg News. Yeah, that's
• 43:27
  Speaker 1: gonna be a tough conversion there.
• 43:29
  Speaker 2: Thanks for listening to the Bloomberg Markets podcasts. You can
• 43:32
  Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
• 43:36
  Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
• 43:39
  Speaker 2: at Matt Miller nineteen seventy three and on.
• 43:42
  Speaker 1: Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast.
• 43:45
  Speaker 1: You can always catch us worldwide at Bloomberg Radio.