Latest / Bloomberg Intelligence / Is Amazon's MGM Deal Just Another Whole Foods?

Transcript

Is Amazon's MGM Deal Just Another Whole Foods? · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day, we bring
0:06
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. Well, we're waiting news
0:22
Speaker 1: on a potential deal in the media space. Amazon reportedly
0:26
Speaker 1: is and talks to acquire the film studio MGM. The
0:30
Speaker 1: reported price tag is up to uh perhaps as high
0:32
Speaker 1: as nine billion dollars. Let's break down this potential deal
0:36
Speaker 1: with Mark Douglas. He's the CEO of Steelhouse. Mark. Thanks
0:40
Speaker 1: so much for joining us here. You know, I look
0:41
Speaker 1: at Amazon and the gajillion dollar you know, almost a
0:45
Speaker 1: two trillion dollar market cap, got tremendous amounts of cash
0:48
Speaker 1: on the balance sheet. Why are they You know, you
0:51
Speaker 1: can look at MGM. It's a great, great film studio,
0:53
Speaker 1: tremendous history, lots of great content, but it's kind of
0:56
Speaker 1: small in the scheme of things. If if Amazon is
0:59
Speaker 1: really serious about the content business and maybe really compete
1:03
Speaker 1: against Netflix and Disney, why don't they go out and
1:05
Speaker 1: buy something big like maybe even a Netflix or Disney
1:09
Speaker 1: at the very least something like a Viacom CBS. Why
1:11
Speaker 1: are they just kind of dipping their toe here with
1:13
Speaker 1: a nine billion dollar deal for MGM. Yeah, So I
1:17
Speaker 1: think that's the question that everyone has. And Amazon is
1:21
Speaker 1: in the streaming business with Amazon Prime. But I think
1:24
Speaker 1: if you were to asked, you know, virtually anyone really
1:28
Speaker 1: um to name a streaming service, you would be hard
1:32
Speaker 1: pressed to anyone to actually name Prime as as one
1:35
Speaker 1: of those services. Because people get Prime to get their
1:38
Speaker 1: packages delivered for free, not in order to watch movie
1:42
Speaker 1: content and other content. And so that's the lemmon um
1:46
Speaker 1: Amazon has. And and they're really not um investing in
1:49
Speaker 1: any huge way with this deal. I think most people expected,
1:54
Speaker 1: but there aren't you know, excited about it. The Prime
1:58
Speaker 1: layout is even worse than the Netflix layout out in
2:00
Speaker 1: terms of, you know, the user interface. I mean, both
2:04
Speaker 1: are pretty bad. I don't know why they can't match Apple,
2:06
Speaker 1: But um, what would be the best way then? Uh,
2:12
Speaker 1: do you think an acquisition is the best way for
2:15
Speaker 1: Amazon to do better in that space? Do you think, um,
2:18
Speaker 1: they is there a specific target that you have in
2:20
Speaker 1: mind mark. Yeah, well, I think the deal that Discovery did,
2:24
Speaker 1: what's the deal to do because you know, HBO Max
2:27
Speaker 1: is if you want, yeah, if you want to give viewers,
2:31
Speaker 1: it starts with original content. And even that's not enough.
2:35
Speaker 1: Apple spends more money on original content than anyone and
2:39
Speaker 1: and and you know, name a show that you love
2:42
Speaker 1: on on Apple TV Plus. So I think you know,
2:45
Speaker 1: both these companies have, you know, huge amounts of money.
2:49
Speaker 1: They both spend. Apple is at least spending in the
2:52
Speaker 1: area that they're hoping finally breaks through and get them
2:55
Speaker 1: that big hits that that you know, essentially gets all
2:59
Speaker 1: the viewers to get side. It was like a handmade
3:01
Speaker 1: tale or in the past, the Game of Thrones and
3:04
Speaker 1: things like that. But Amazon is not even doing that.
3:07
Speaker 1: So I think, can I just say ted Lasso is
3:09
Speaker 1: really underrated. I just finished season one based on your
3:12
Speaker 1: recommendation there, managed I just don't think people know how
3:16
Speaker 1: funny it is. It's smart, but it's also kind of heartwarming. UM.
3:21
Speaker 1: I mean, it's not like a VP or a Silicon Valley, um.
3:25
Speaker 1: But it's really really good. They did they just didn't
3:27
Speaker 1: They don't get the recognition mark for that, do they?
3:30
Speaker 1: Or for Like for All Mankind also was quite good.
3:33
Speaker 1: That just doesn't get the credit. Yeah, well, I mean
3:37
Speaker 1: I agree in some sense, but you know, I'm I'm
3:40
Speaker 1: watching Startup one nextli you know, costs a lot less money. Um, someone,
3:45
Speaker 1: I don't think a lot of people know about the
3:47
Speaker 1: great show. So Netflix cranked out these shows, yeah literally
3:51
Speaker 1: five weeks that people love, and they have incredible technology
3:56
Speaker 1: to figure out what their users want to see. And meanwhile,
3:59
Speaker 1: Apple has got a fire hose of money they just
4:01
Speaker 1: bring around Hollywood and yeah, and and they're just not
4:05
Speaker 1: getting the same result. And the Amazon is now doing
4:08
Speaker 1: the same and they're not going to get the same
4:09
Speaker 1: with dot Well. Tera La Chapelle Bloomberg Opinion Columns is
4:13
Speaker 1: out with a great another great column today looking at
4:16
Speaker 1: this potential deal and saying, hey, you know, you think
4:18
Speaker 1: about the Whole Foods business that didn't wasn't really a
4:21
Speaker 1: game changer for for Amazon or even the industry. Um,
4:26
Speaker 1: And she's kind of saying, hey, this deal kind of
4:28
Speaker 1: feels like a Whole Foods where they're not really all in.
4:31
Speaker 1: But boy, you look market some of these other companies, Um,
4:35
Speaker 1: you know what is this Vicom, CBS do what does
4:37
Speaker 1: the Fox do. I mean, we thought you just wonder
4:40
Speaker 1: with you know, market caps that are seven billion dollars
4:44
Speaker 1: that they just don't seem like they're competitive enough in
4:47
Speaker 1: terms of scale and kind of where the world's going again.
4:50
Speaker 1: You look, you mentioned the the A, T and T
4:52
Speaker 1: and Discovery deal. Yeah, well, I mean it starts with vision.
4:56
Speaker 1: If you ask anyone in Amazon what is this deal
4:59
Speaker 1: going accomplished? I don't think they're going to give you
5:02
Speaker 1: a visionary or exciting result. But if you ask the
5:05
Speaker 1: head of Discovery what he what he's going to accomplish?
5:09
Speaker 1: What his vision? I think he knows and he's willing
5:12
Speaker 1: to put his solids on the table and the effort
5:14
Speaker 1: to accomplish it. And so if you want to win
5:16
Speaker 1: in Hollywood, all the biggest players, Netflix, Disney with Disney Plus,
5:22
Speaker 1: now Discovery, what they're doing with HBO, Max and the
5:25
Speaker 1: other assets they bought, they all share one common threat,
5:28
Speaker 1: you know, a thread, which is they have visions, they
5:31
Speaker 1: have original content, and they have huge libraries about the
5:34
Speaker 1: content to go with it. And if you want to
5:36
Speaker 1: be a real player, you need all of those ships
5:38
Speaker 1: on the table. Does the sports aspect help at Amazon?
5:42
Speaker 1: They're getting Are they getting Thursday night football? I think
5:44
Speaker 1: they are getting Thursday at football in Prime? Right? Does
5:46
Speaker 1: that help a lot or um? I mean it forces
5:50
Speaker 1: me to go use the you know, they go to
5:52
Speaker 1: the website of that content I want to watch. So
5:54
Speaker 1: in that sense it does help, But I don't see
5:57
Speaker 1: anyone can say that immeasurably increases put print of Amazon
6:02
Speaker 1: or anyone is leaving watching you know that that that
6:06
Speaker 1: NFL content and is now you know, basically going to
6:09
Speaker 1: consume more hours on Prime Menu? Are so? So it helps,
6:12
Speaker 1: it helps, you know, in terms of some awareness, but
6:16
Speaker 1: I don't think it really moves them up the food
6:18
Speaker 1: chain in terms of their position in the strands market. Hey, Mark,
6:21
Speaker 1: you you know as Steelhouse. You guys work with a
6:24
Speaker 1: lot of advertisers, a lot of brands. What are the advertisers?
6:27
Speaker 1: What is Madison Avenue saying about all those consolidation in
6:30
Speaker 1: the media spaces a good thing? Is it something to
6:33
Speaker 1: be concerned about? What are you hearing? Yeah? I think
6:35
Speaker 1: I mean remember for the advertisers, what they want is
6:38
Speaker 1: good at supported content. Right, So you have streaming subscription
6:42
Speaker 1: supported content that's Netflix, and then you have ad supported content,
6:46
Speaker 1: which is what Discovery and other a number of other
6:50
Speaker 1: companies are doing. And so those advertisers, I think they
6:53
Speaker 1: like these deals, you know, because there's a lot of
6:56
Speaker 1: revenue has to be generating that keeps these studios and
6:59
Speaker 1: everything firmly seeded and ad supported content, which the brands
7:02
Speaker 1: need in order to reach them doing. Baseball is dying.
7:09
Speaker 1: I wonder you're not a huge fan, right, but I
7:12
Speaker 1: wonder what you think about the Major League Baseball if
7:14
Speaker 1: you just ask quickly, because it's like every game is
7:17
Speaker 1: a no hitter and um, the average is down to
7:20
Speaker 1: two thirties or something. Um, is is this in your
7:25
Speaker 1: in your window at all? Here? Mark, I wouldn't say
7:29
Speaker 1: I'm not a huge fan. I actually loved the game
7:31
Speaker 1: and love a really good game. So I think what
7:34
Speaker 1: you're articulating is it's getting harder and harder to find.
7:39
Speaker 1: And so I think, you know, baseball is always going
7:41
Speaker 1: to be part of Americana, and I think the league
7:45
Speaker 1: just has to, you know, really, um, make bringing the
7:49
Speaker 1: players and and and have the rules and everything. Give
7:53
Speaker 1: us short, exciting games and they will get all the
7:55
Speaker 1: viewers they need, all right, Mark, Thanks very much, Mark Douglas.
7:59
Speaker 1: They are he is the CEO of Steelhouse. I always
8:02
Speaker 1: bring up baseball with him because I know he grew
8:03
Speaker 1: up right across the street from Yankee Stadium and became
8:08
Speaker 1: a Mets, became a Mets fan. All right, this is Bloomberg.
8:17
Speaker 1: Let's bring in Mark roberts Is Um Paul was saying,
8:20
Speaker 1: he's a co founder and owner of eleven eleven hotel
8:23
Speaker 1: and residences in Miami, and Mark, let me first ask
8:28
Speaker 1: you a question. We've talked to a lot of hotel
8:31
Speaker 1: and restaurant owners and operators throughout UM the Southeast to
8:35
Speaker 1: have told us it's very difficult to hire people right
8:38
Speaker 1: now if you had the same experience. Yes, we've had
8:42
Speaker 1: a little little issue with the hiring at the beginning,
8:45
Speaker 1: but because our strong brand, our strong name, and our
8:48
Speaker 1: recognition and people understand when they worked for us to
8:52
Speaker 1: be very lucrative, We've had a lot of people showing
8:54
Speaker 1: up in the last couple of weeks and we're gonna
8:56
Speaker 1: have a full staff probably another week or two, will
9:00
Speaker 1: be fully staffed. With the first Yeah, I have to
9:02
Speaker 1: hire them, then you have to some culture, and then
9:05
Speaker 1: you have to train them. But will have a full
9:07
Speaker 1: staff ready and rare and to go very shortly. So
9:11
Speaker 1: market there's I know you have here. An eleven eleven
9:14
Speaker 1: brand in Miami talked us about the Miami market. It's
9:17
Speaker 1: just gotta be one of the hottest markets in the country.
9:20
Speaker 1: Talk to us about how it's kind of evolved over
9:22
Speaker 1: the course of the last fourteen months. Sure, well eleven
9:25
Speaker 1: Hotel and Residents of course is leading the charge, but
9:28
Speaker 1: we sold out basically almost uh million dollars in real
9:33
Speaker 1: estate just under a month. And Miami has become such
9:36
Speaker 1: a hot market for a bunch of reasons. I think
9:40
Speaker 1: people first started moving to Miami because of the tax situation,
9:45
Speaker 1: get always from high pastes. I think they also like
9:47
Speaker 1: the political atmosphere, pro business uh. And then they get
9:52
Speaker 1: to Miami and they understand the quality of light is unbelievable.
9:56
Speaker 1: All of a sudden, they're boating around the water, the
9:58
Speaker 1: weather has been fantastic. Stick All they see is uh people,
10:02
Speaker 1: you know, feeling good, working out. And then they get
10:05
Speaker 1: there and they start seeing that business is booming. The
10:08
Speaker 1: restaurant like almost every restaurant you can name that there's
10:11
Speaker 1: lines to get in, there's you know, everybody's selling the condo,
10:15
Speaker 1: U interest selling things, are renting houses are selling it's
10:18
Speaker 1: crazy prices on multiples of what they want for just
10:22
Speaker 1: a year, a year and a half ago. And I
10:24
Speaker 1: really believe that New York and these other areas like
10:28
Speaker 1: San Francisco, l A, Chicago, the major stages are losing
10:32
Speaker 1: all these people. Uh, people are coming to Miami and
10:35
Speaker 1: understand of Miami's much more than just the tourist place. Now,
10:38
Speaker 1: Miami's coming the most major city there is probably in
10:41
Speaker 1: the world, and it's really grown up to be what's
10:44
Speaker 1: gonna be the epicenter of business. I mean, all the
10:46
Speaker 1: text that's coming in there now is just incredible. And
10:49
Speaker 1: and you know it's restaurants as restaurants. See all the
10:52
Speaker 1: other restaurants are being successful. Um for instance, like Carbone
10:56
Speaker 1: came down from New York. They're opening up twenty new restaurants.
11:00
Speaker 1: All it's like a stampede. It's like it's like a
11:03
Speaker 1: herd mentality, and everybody sees the numbers, and the numbers
11:08
Speaker 1: per square foot is just incredible, and I do everybody
11:11
Speaker 1: is shattering records. And and you know, as you know,
11:14
Speaker 1: the restaurant guys follow the restaurant guys, So there's an
11:16
Speaker 1: influx of top top top restaurants. I'm surely been called
11:20
Speaker 1: a col in every center of the universe. So so
11:23
Speaker 1: what have you done too? Because it's not a hotel
11:26
Speaker 1: in residents just the beginning for eleven and eleven, you've
11:29
Speaker 1: got UM one of the most famous, I guess nightclub
11:32
Speaker 1: spots in the US. Everybody wants to go and see.
11:36
Speaker 1: You've got shows with DJ's rappers. But you've got burlesque,
11:40
Speaker 1: You've got trapeeze acts. You've got also other UM products
11:44
Speaker 1: like your own vodka brand. How how are you branching
11:49
Speaker 1: out into into this economy. Well, we're doing is we've
11:53
Speaker 1: become such a strong name recognition amongst really almost to
11:57
Speaker 1: all sectors. Uh, the lifestyle, you live your life, live
12:02
Speaker 1: a better life. So what we're doing is we've now
12:05
Speaker 1: form to separate I P Division Intellectual Property Division, and
12:09
Speaker 1: we're stamping that up and we're going to create a
12:11
Speaker 1: multi multibillion dollar brand. How are we going to do that?
12:14
Speaker 1: Eleven hotel and residences. When we open them up all
12:16
Speaker 1: over the world, we're gonna be Uh, we're branding. The
12:20
Speaker 1: vodka is unbelievable. We just launched it this year and
12:23
Speaker 1: Nicky Simptons is my partner's wife is a CEO, is
12:26
Speaker 1: doing a tremendous job, and we literally and all over Florida.
12:30
Speaker 1: We're dominating Florida and we're gonna be taking that vodka
12:34
Speaker 1: national soon. And you know, for first year, I think
12:37
Speaker 1: we're breaking rectors there everybody. The vodka, by the way,
12:40
Speaker 1: won the Double Gold Award in San Francisco last month.
12:44
Speaker 1: It's the top award for a spirit. So the taste
12:46
Speaker 1: is unbelievable. So you always have to have the quality.
12:49
Speaker 1: People know that eleven stands for quality. When you're dealing
12:52
Speaker 1: with eleven, you're gonna first class, first not top quality.
12:57
Speaker 1: It's could be the best, and that's really what will
13:00
Speaker 1: relate to it. And of course all ips are built
13:03
Speaker 1: on the brand and brand awareness, which we have incredible
13:06
Speaker 1: brand awareness and per square foot, but the most profitable
13:09
Speaker 1: nightclub in the world by far, I don't think anybody's
13:12
Speaker 1: even close for only thirteen thousand square feet, even though
13:14
Speaker 1: people think it's huge. Um, but like you said, the
13:18
Speaker 1: lines have been around the block. I mean we literally
13:20
Speaker 1: have five hundred to a thousand people waiting to get
13:23
Speaker 1: in now uh charges sometimes and people paying no problem. Well, no, no,
13:30
Speaker 1: we've we've believe it or not, we've been having like
13:32
Speaker 1: two hundred covered charges just because we've been having great acts,
13:36
Speaker 1: the aerial acts, and we would spend a lot of
13:38
Speaker 1: money to make sure the experience inside is people leave
13:42
Speaker 1: there thinking they've got value. So we spent a lot
13:45
Speaker 1: of money, you know, putting on the shows and making
13:48
Speaker 1: sure we have a great service and staff feel very professional.
13:53
Speaker 1: It looks easy, but it it takes a lot of work. Work. Hey, Mark,
13:57
Speaker 1: thank you so much for joining us. We really appreciate you.
13:59
Speaker 1: Take in the time. Mark Roberts, co founder and owner
14:02
Speaker 1: of an eleven eleven hotel and residents in Miami. Uh,
14:06
Speaker 1: certainly the Miami has been just an incredibly hot market,
14:09
Speaker 1: really accelerated during this pandemic. Well, it seems like over
14:15
Speaker 1: the last several days inflation concerns in the market place
14:18
Speaker 1: are waning just a little bit. I'm looking at the
14:20
Speaker 1: ten year here here one point five seven seven percent.
14:24
Speaker 1: That's off a couple of basis basis points today. Uh,
14:28
Speaker 1: let's see how things are going in the municipal bond market,
14:31
Speaker 1: which which has been one of one of the hottest
14:33
Speaker 1: markets out there. Michael Jay's chief US Public Policy and
14:36
Speaker 1: municipal strategies from Morgan Stanley joins us. Michael talked to
14:39
Speaker 1: us about the bond market has had such a great run, Um,
14:43
Speaker 1: there are some inflation fears out there in the market place,
14:46
Speaker 1: maybe ebbing a little bit over the past several days.
14:49
Speaker 1: How's the municipal bond market reacted to that? Yeah, I
14:51
Speaker 1: think the municipal bond market is not really reflecting any
14:55
Speaker 1: meaningful concern about inflation at the moment. Actually think the
14:58
Speaker 1: place to start here is at credit quality in the market, unabashedly,
15:03
Speaker 1: year over years, substantially improved and probably will continue to
15:06
Speaker 1: improve meaningfully. But the challenge now is that a lot
15:10
Speaker 1: of that good news is already in the price. You've
15:12
Speaker 1: got saluations no matter how you slice it, UH yield
15:16
Speaker 1: ratios versus treasuries, quality spreads, all kind of pre COVID tights,
15:22
Speaker 1: and so what that means is that if you've got
15:24
Speaker 1: good fundamentals and they're going to continue to improve, but
15:28
Speaker 1: relative valuations are pretty tight, it's probably something outside the
15:31
Speaker 1: municipal bond market that would have to make things cheapen up.
15:34
Speaker 1: And this is why we say we don't think there
15:36
Speaker 1: really particularly price for inflation. If you've got some meaningful
15:39
Speaker 1: um upside inflation or the said had to start talking
15:43
Speaker 1: about tapering sooner. Our concern would be in that scenario
15:46
Speaker 1: that you could get a bear steepening of the treasury curve.
15:49
Speaker 1: Mini market historically is not done well in those situations.
15:53
Speaker 1: It tends to lead to outflows. And because it's a
15:56
Speaker 1: long only market UM dominated by long only sters, you
16:00
Speaker 1: tend to get cheapness on the back end of that.
16:03
Speaker 1: So in some ways we think the real wistom uni
16:05
Speaker 1: market is some of these inflation prints. Even though it
16:07
Speaker 1: wouldn't tell you much about credit quality. It wouldn't tell
16:09
Speaker 1: you that credit quality is getting any worse. Sorry, my
16:14
Speaker 1: microphone is off. Okay, so credit quality um. And we
16:18
Speaker 1: kind of all braced ourselves for a difficult time here
16:22
Speaker 1: pre pandemic or during the pandemic, and it hasn't happened.
16:25
Speaker 1: Do you expect any changes throughout the next quarter or two?
16:30
Speaker 1: Not particularly, And I mean you know I traveled the
16:33
Speaker 1: same journey you did. We put out an initial estimate
16:36
Speaker 1: around this time last year of what the cumulative fifty
16:39
Speaker 1: state budget shortfall is going to be versus the revenue
16:43
Speaker 1: estimate in our base case was about two hundred and
16:45
Speaker 1: seventy billion dollars um. That number appears to be on
16:50
Speaker 1: paper now we're still counting things substantially lower. And then,
16:53
Speaker 1: of course, on top of that, in the COVID released
16:56
Speaker 1: bill earlier this year, the federal government appropriated three hundred
16:59
Speaker 1: and fifty billion dollars of AIDS. So in the state
17:02
Speaker 1: and local sector, you've got plenty of money to cover
17:05
Speaker 1: potential shortfalls. The money that was appropriated via UM the
17:09
Speaker 1: other A packages put plenty of money to the hospital system,
17:13
Speaker 1: the airport system, So this is a sector. Broadly speaking,
17:18
Speaker 1: most municipal sectors are not just writing the v shaped
17:21
Speaker 1: economic recovery. They were also given plenty of cash by
17:24
Speaker 1: the federal government, and so you wouldn't expect to see
17:28
Speaker 1: anything directionally negative show up on income statements or balance
17:32
Speaker 1: sheets over the course of this year. Michael, where are
17:36
Speaker 1: you guys seeing value here in a bond market? Where
17:39
Speaker 1: are you guys spending some time? You know, it's tough
17:42
Speaker 1: because a lot of the value has been squeezed out here.
17:45
Speaker 1: On a relative basis. The sectors that we still like
17:49
Speaker 1: here are airports and higher education. So certainly that the
17:53
Speaker 1: relative yield you can get here is not nearly as
17:56
Speaker 1: much as it was during the pandemic or the high
17:58
Speaker 1: of the pandemic. Of these are sectors where there's a
18:01
Speaker 1: lot of concern about their economic model relies on population density,
18:06
Speaker 1: on people being together. Um So in some ways you
18:09
Speaker 1: saw their fundamentals decrease the most. Uh. And here we
18:14
Speaker 1: think the trajectory out of the pandemic is going to
18:16
Speaker 1: benefit the fundamentals. They're the most. So there's a little
18:19
Speaker 1: bit of extra yeld breast there. And frankly, we just
18:22
Speaker 1: think that when there isn't the market's not giving you
18:24
Speaker 1: a lot of spread to go credit picking, you might
18:26
Speaker 1: as well put things in your portfolio you think have
18:28
Speaker 1: the sharpest positive fundamental trajectory. I'm curious to know about
18:34
Speaker 1: your your career, Michael Um. I don't want to get
18:37
Speaker 1: too personal, but I think it's fascinating. You studied um
18:40
Speaker 1: political economy at Georgetown, public affairs at Austin. Then you
18:44
Speaker 1: want you're a chloral fellow, went to Fitch. Then you're
18:47
Speaker 1: on the by side, And how do you get from
18:49
Speaker 1: there to here? Yeah? I don't know. Actually, I mean
18:54
Speaker 1: a little at a little bit of luck, a little
18:56
Speaker 1: bit of accident, happenstance. I mean, I think for me,
19:00
Speaker 1: UM municipal market was always fascinating because it was about
19:04
Speaker 1: taking the numbers that are in financial statements and seeing
19:08
Speaker 1: through to what the actual policy choices that were being
19:11
Speaker 1: made were. And then really, I think to be any
19:13
Speaker 1: to be a good municipal credit analysts, you really have
19:17
Speaker 1: to have a forecasting ability about national policy, tax policy,
19:21
Speaker 1: healthcare policy, etcetera. And that's a skill set that that
19:24
Speaker 1: then translated into broader public policy forecasting for other markets.
19:29
Speaker 1: So unconventional path as supposed but have worked out well.
19:33
Speaker 1: I just think it's fascinating because you have that public
19:37
Speaker 1: policy background and now we're in a situation where we're
19:40
Speaker 1: looking at you know, trillions of dollars in fiscal spending
19:44
Speaker 1: and even more in Fed assistance. And I mean really, um,
19:49
Speaker 1: really a paradigm shift in the way on the US
19:52
Speaker 1: economy is operated from a government level. Right, we went
19:54
Speaker 1: from the Reagan years making smaller government, deregulating, and and
19:59
Speaker 1: now forty years later we're just turning a correer here.
20:02
Speaker 1: Does that inform your investment strategy? Well, I mean absolutely.
20:08
Speaker 1: I think as an investor you sort of learn to
20:11
Speaker 1: if you if you want to track these things correctly,
20:13
Speaker 1: to take your personal views about what you want to
20:15
Speaker 1: happen in Washington, d C. Or any other state capital
20:19
Speaker 1: out of it, and you focus on what will happen.
20:22
Speaker 1: And right now, we have a very polarized electorate in
20:27
Speaker 1: the US and therefore a disincentive to bipartisanship. And what
20:32
Speaker 1: it tells you is that the when one party or
20:35
Speaker 1: the other has control, that's the only are sort of
20:39
Speaker 1: likely the best time to get any legislation done. And
20:42
Speaker 1: legislation tends to get done only in the way that
20:45
Speaker 1: all members of a party can agree upon. So when
20:48
Speaker 1: you overlay on what you're talking about on fiscal policy, uh,
20:52
Speaker 1: it means that when Republicans have been in power, they
20:55
Speaker 1: can all agree on tax cuts, you tend to get
20:57
Speaker 1: fiscal expansion that way. When Democrats are empower, they can
21:00
Speaker 1: all agree on the spending side, less so on the
21:02
Speaker 1: tax side. And until the electorate is going to punish
21:05
Speaker 1: someone for deficit spending, maybe because you actually see inflation
21:10
Speaker 1: impacting people's disposable income, well then the incentives is just
21:15
Speaker 1: kind of keep pushing the deficit wider. So that's what
21:18
Speaker 1: sets up for the for the spending that you've seen
21:21
Speaker 1: so far this year and that we think is going
21:22
Speaker 1: to continue. All right, Michael, thanks very much for joining
21:25
Speaker 1: us pleasure having on the program. Michael jesus their chief
21:27
Speaker 1: US public policy and unique strategist at Morgan Stanley. I
21:30
Speaker 1: remember he did a great podcast with Ritholts Masters in
21:33
Speaker 1: Business Podcasts a few years ago that that I loved,
21:37
Speaker 1: So I'm glad we got to get him on This
21:39
Speaker 1: is Bloomberg. You know, since the beginning of this pandemic,
21:46
Speaker 1: you know, when the markets across the board just created
21:48
Speaker 1: one market showed incredible resiliency, it just amazed me. That's
21:52
Speaker 1: the real estate market, whether it's existing homes, new homes,
21:55
Speaker 1: housing starts. You know, the numbers were generally really strong
21:58
Speaker 1: throughout the pandemic, and we got some more data today,
22:01
Speaker 1: but it's just an amazing market. Let's kind of dig
22:03
Speaker 1: into it. We can do that with Craig Gimmona. He's
22:06
Speaker 1: a real estate reporter for Bloomberg News. He actually joins
22:08
Speaker 1: us again live in this Bloomberg Interactive broken studio. The
22:12
Speaker 1: first guest I've had in this studio in fourteen months,
22:15
Speaker 1: so it's you're the first Craig thanks so much for
22:17
Speaker 1: coming in here. Talk to us about some of the
22:19
Speaker 1: data we saw today. I know the US no new
22:22
Speaker 1: home sales fell by more than forecast, but I mean
22:25
Speaker 1: the demand still out there, right, The demand is definitely
22:27
Speaker 1: still out there, and I think in the two reports
22:29
Speaker 1: that we got today Case Shiller plus home sales, you're
22:32
Speaker 1: seeing kind of the way the trend is playing out.
22:34
Speaker 1: As you said back last April, things froze, you know,
22:37
Speaker 1: there was not much transactions. People thought real estate prices
22:40
Speaker 1: were gonna fall, but as soon as people started moving
22:42
Speaker 1: again a little bit, home prices have just been on
22:44
Speaker 1: a steady climb. I mean, there's demographic tail winds. The
22:47
Speaker 1: millennial generation is at home buying age, they're having that
22:49
Speaker 1: second kid. There's demand for extra space for offices for
22:53
Speaker 1: remote learning. So the suburbs are about as hot as
22:55
Speaker 1: they've been in fifteen or twenty years, and there's nothing
22:58
Speaker 1: to buy. There's a severe inventory shortage. Basically every home
23:01
Speaker 1: that hits the market moves and record speed. There's cash offers,
23:04
Speaker 1: bidding wars, so incredible demand for houses in the United States.
23:08
Speaker 1: The question is are the prices going to run out
23:11
Speaker 1: ahead of the demand and keep those first time buyers,
23:13
Speaker 1: the millennial couple that's looking for something in that three
23:15
Speaker 1: hundred thousand, four hundred thousand dollar range. It's very very
23:18
Speaker 1: tough out there right now. And I do think that's
23:19
Speaker 1: what you're seeing in new home sales. I know my
23:23
Speaker 1: brother is looking for a place in the Try State area,
23:25
Speaker 1: and every time they put in an offer, they are
23:29
Speaker 1: instantly overbid by like five or six different people. I
23:32
Speaker 1: know somebody who just bought a place in the DC
23:35
Speaker 1: area without even having seen it. Very very common. Yeah,
23:40
Speaker 1: that's just to me, that seems crazy like buying a
23:44
Speaker 1: used car without test driving, and it's just absolutely nuts.
23:47
Speaker 1: But I guess you've got to do that. Um. Why
23:49
Speaker 1: why aren't we seeing a ton of new supply come
23:53
Speaker 1: online in the market where you see prices going up
23:56
Speaker 1: ten or per month? Um? Doesn't that make construction workers
24:03
Speaker 1: want to go out and build spec houses? Um? It does?
24:06
Speaker 1: And I think two things on that. I mean, I
24:08
Speaker 1: think as far as existing homes, I think some of
24:10
Speaker 1: the older people that own those bigger homes in the
24:12
Speaker 1: suburbs have not sold them because maybe the kid from
24:15
Speaker 1: college moved back in in the pandemic suddenly they like
24:18
Speaker 1: that big place in Granwage or Westchester because they have
24:21
Speaker 1: room for the entire family. So people have been on
24:23
Speaker 1: the sidelines, the people that typically would be downsizing at
24:26
Speaker 1: this life stage. And you know, we went into this
24:28
Speaker 1: with a severe shortage, and I think the builders have
24:30
Speaker 1: ramped up as fast as they can. But you've also
24:33
Speaker 1: seen a situation where it's so hot and lumber is
24:36
Speaker 1: going up so much that the builders are kind of
24:37
Speaker 1: deliberately slowing things down because they don't want to lock
24:40
Speaker 1: in a price right now because in two months the
24:42
Speaker 1: price could be up ten percent. So you know, a
24:44
Speaker 1: lot of factors. But we went into this with a
24:46
Speaker 1: huge supply shortage, and I do think the millennial sort
24:49
Speaker 1: of demographic tailwind, it's a big factor here. So Craig,
24:52
Speaker 1: when we talk about new housing, one of the areas
24:54
Speaker 1: that had been problematic, I think from just the market's
24:58
Speaker 1: perspective is builders were building a lot of new entry homes.
25:02
Speaker 1: They're buying, you know, building the McMansions and things like that.
25:04
Speaker 1: The trade up homes are have they've sensed that there
25:07
Speaker 1: is a market for that move in early first buyer
25:10
Speaker 1: kind of house. I think they know that that market exists,
25:13
Speaker 1: and some of them at least pay lip service to that.
25:15
Speaker 1: But I think what you're seeing there also is that
25:17
Speaker 1: you know it costs about the same to build that
25:20
Speaker 1: eight hundred thousand dollar home, you know, with the with
25:22
Speaker 1: the way lumber is, with land labor that you know
25:25
Speaker 1: told brothers are one of these other guys is looking
25:27
Speaker 1: at it and saying, I could build a house for
25:29
Speaker 1: four fifty there. I could certainly sell that. But I
25:32
Speaker 1: could sell this home for eight hundred two. So why
25:34
Speaker 1: don't I build that when the margins are better? So
25:36
Speaker 1: it's a it's a massive problem. I think, Um, there's
25:38
Speaker 1: an affordability crisis that's looming here where you have a
25:41
Speaker 1: generation of people that you know are going to have
25:43
Speaker 1: a very very hard time buying that first home when
25:46
Speaker 1: if things day like this. I've always thought, I wish
25:49
Speaker 1: I could do this job broadcasting for Bloomberg Radio, Bloomberg Television,
25:54
Speaker 1: UM remotely and get a place in like rural Montana.
25:58
Speaker 1: So for me, that's not going to be a possibility.
26:01
Speaker 1: I'll talk to Al from Jersey about that one. But
26:03
Speaker 1: but for others, Um Craig, that's become a real possibility. Uh.
26:07
Speaker 1: In the pandemic and now it looks like post pandemic.
26:10
Speaker 1: Are you seeing things spread out a little bit due
26:14
Speaker 1: to that? I mean, I think places like the Hampton's,
26:17
Speaker 1: places like Aspen Tahoe, those are those are places that
26:20
Speaker 1: went crazy in the pandemic because people said, Okay, I
26:23
Speaker 1: don't have to go into my office in midtown anymore.
26:26
Speaker 1: You know, now I can live wherever I want. I mean,
26:28
Speaker 1: we'll see. I think the narrative that you know, midtown
26:31
Speaker 1: offices are dead was way overblown a year ago. Obviously,
26:35
Speaker 1: we're seeing people start to trickle back. I think there's
26:37
Speaker 1: a lot of people waking up in the cats skills.
26:39
Speaker 1: You know, now the boss is saying you have to
26:41
Speaker 1: come back, wondering, you know, why did we buy this
26:43
Speaker 1: place that's two and a half hours from midtown Manhattan.
26:45
Speaker 1: So it'll be interesting to see, you know what flex
26:48
Speaker 1: work means. I think in a world where you have
26:50
Speaker 1: to be in the office three days a week, you know,
26:52
Speaker 1: it's still you don't want to go so far out
26:54
Speaker 1: and you know something. Houses near transit in New Jersey
26:57
Speaker 1: have remained pretty hot. Long Island where Chester, So I
27:01
Speaker 1: think some people did leave the city. They wanted to
27:03
Speaker 1: get bigger properties, a lot of that was life stage demographics.
27:06
Speaker 1: But you know, office as offices reopen, it'll be interesting
27:10
Speaker 1: to see if things stay so frothy in these more
27:13
Speaker 1: remote locations. I mean Kingston, New York has led the
27:15
Speaker 1: home price gains I think for two quarters in a row.
27:18
Speaker 1: You know, that's people that's a lot of vacation homes,
27:20
Speaker 1: but that's also people that figured they would never have
27:22
Speaker 1: to go back to the office. All right, interesting stuff.
27:26
Speaker 1: Obviously everyone cares um because everyone's on one side of
27:31
Speaker 1: the trade or the other in the US, right. I mean,
27:33
Speaker 1: either your site because your house is appreciating like crazy,
27:38
Speaker 1: and it's probably for a lot of people, for most
27:40
Speaker 1: people their biggest asset, or you're bummed because you want
27:44
Speaker 1: to buy a house and you can't afford it. That's right, um,
27:47
Speaker 1: and that's why the market seems to have come to
27:49
Speaker 1: a standstill. Standstill. Great to have Craig gi Amona there,
27:52
Speaker 1: Bloomberg real estate reporter in the studio with Paul Wow.
27:56
Speaker 1: The times they are a change in But I'm guessing
27:59
Speaker 1: you're fully vaxed. We're fully vaxed. It's all good to go.
28:03
Speaker 1: That's awesome, This is Bloomberg. Thanks for listening. To the
28:07
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
28:11
Speaker 1: with Apple Podcasts or whatever podcast platform you prefer. I'm
28:15
Speaker 1: Matt Miller. I'm on Twitter at Matt Miller three. Put
28:20
Speaker 1: on fall Sweeney. I'm on Twitter at pt Sweeney. Before
28:22
Speaker 1: the podcast. You can always catch us worldwide at Bloomberg
28:25
Speaker 1: Radio