Latest / Bloomberg Intelligence / 10-Year U.S. Yields Poised to Rise to 3.5% in 2018: Bob Sinche

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10-Year U.S. Yields Poised to Rise to 3.5% in 2018: Bob Sinche · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Right now, though,
• 0:33
  Speaker 1: I want to turn our attention to the bond market.
• 0:36
  Speaker 1: At JP Morgan strateg just Jay Berry said a note
• 0:38
  Speaker 1: today that low US long term yields maybe the quote
• 0:43
  Speaker 1: new normal. Here to give us his take on this
• 0:46
  Speaker 1: is Bob Sinch, global strategist for Amirst Pierpont Securities. Bob,
• 0:51
  Speaker 1: do you agree? Well, you know, I think there's relative
• 0:56
  Speaker 1: to what but but certainly I think the profile um
• 1:00
  Speaker 1: of of longer term yields probably lower than some of
• 1:04
  Speaker 1: us who have been around the markets for forty years
• 1:06
  Speaker 1: or so would would think are normal. And I think
• 1:09
  Speaker 1: part of that is demographic. Right. We have a lot
• 1:11
  Speaker 1: of us baby boomers who are reaching retirement age. We're
• 1:14
  Speaker 1: looking for income, we tend to invest in bonds and
• 1:19
  Speaker 1: uh and I think that that has changed the dynamics However,
• 1:23
  Speaker 1: I think the supply demand situation is going to change
• 1:26
  Speaker 1: a lot in two thousand and eighteen. Um. You know,
• 1:29
  Speaker 1: the Treasury last year began in small steps reducing its
• 1:33
  Speaker 1: balance sheet. By the fourth quarter of this year, they're
• 1:37
  Speaker 1: going to be reducing their balance sheet by fifty billion
• 1:39
  Speaker 1: dollars of securities a month, you know, split between treasuries
• 1:43
  Speaker 1: and mortgages. And that's a pretty substantial amount of extra
• 1:47
  Speaker 1: supply on top of what looked like they'll be widening
• 1:49
  Speaker 1: budget deficits. So I think the supply dynamic, supply demand
• 1:53
  Speaker 1: dynamics will be changing pretty significantly this year. We think
• 1:57
  Speaker 1: inflation picks up a little bit this year, and you know,
• 2:00
  Speaker 1: the Fed moves four times. You add that up and
• 2:04
  Speaker 1: we come up with a tenure um treasury yields close
• 2:07
  Speaker 1: to three fifty at the end of the year. Wow,
• 2:09
  Speaker 1: that's that's a pretty big projection of three fifty. I'm
• 2:12
  Speaker 1: looking right now, and currently the ten year treasury yields
• 2:14
  Speaker 1: is uh to So that would be more than a
• 2:19
  Speaker 1: percentage point increase from where we are today. Um. Do
• 2:23
  Speaker 1: you think that this is going to be a violent
• 2:26
  Speaker 1: unwind or do you think it's just going to be
• 2:27
  Speaker 1: gradual throughout the year because that matters the path of this. Yes,
• 2:31
  Speaker 1: I do, and I think it's it's probably we'll have
• 2:35
  Speaker 1: little spasms. We certainly had a little one yesterday um
• 2:39
  Speaker 1: as the market start of the year. But I think
• 2:41
  Speaker 1: it will be fairly gradual because I think the markets
• 2:44
  Speaker 1: are going to be dragged along sort of kicking and screaming, um,
• 2:49
  Speaker 1: you know, with FED rate hikes, and each time they hike,
• 2:51
  Speaker 1: the markets will go like okay, but is that it
• 2:53
  Speaker 1: for a while? Um? You know, my colleagues, Steve Stanley
• 2:57
  Speaker 1: thinks not. Um. He does think we'll see core inflation
• 3:00
  Speaker 1: and add or very close to two percent by the
• 3:02
  Speaker 1: end of the year. And not only a FED that
• 3:06
  Speaker 1: that wants to normalize rates, but also a an e
• 3:09
  Speaker 1: c B that we think ends their asset purchase program
• 3:12
  Speaker 1: at the end of September, and the b O J,
• 3:14
  Speaker 1: which probably at some point later in the year, perhaps
• 3:18
  Speaker 1: after a leadership change, says enough is enough. We just
• 3:20
  Speaker 1: own enough j G B s, we known e T S,
• 3:23
  Speaker 1: we own a lot of everything in the Japanese markets,
• 3:26
  Speaker 1: and it's really time for that to come to an end.
• 3:28
  Speaker 1: So again, I think balance sheet reduction by the FED
• 3:33
  Speaker 1: and a withdrawal from asset purchases by foreign central banks
• 3:37
  Speaker 1: really changes the supply demand dynamics pretty substantially. Bob Sinch,
• 3:41
  Speaker 1: can you speak about the yield curve and perhaps help
• 3:45
  Speaker 1: us to understand why talking about the yield curve might
• 3:50
  Speaker 1: just be a waste of time. Yeah. I wouldn't go
• 3:55
  Speaker 1: as far as saying it's a waste of time, but
• 3:56
  Speaker 1: I do think there's a lot of exaggeration that goes on. Um. Look,
• 4:01
  Speaker 1: I've you know, I've done a lot of work on
• 4:03
  Speaker 1: the shape of the yield curve and and its ability
• 4:05
  Speaker 1: to forecast the economy over you know, the last four
• 4:08
  Speaker 1: or five decades, and um, you know, there are times
• 4:12
  Speaker 1: when it's a reasonably good indicator. Normally that's when the
• 4:15
  Speaker 1: curve becomes very inverted. But for example, we had a
• 4:20
  Speaker 1: period where the yield curve, the two tens spread that
• 4:23
  Speaker 1: everyone likes to focus on, began declining substantially and and
• 4:28
  Speaker 1: actually turned negative um by you know, to ear And
• 4:35
  Speaker 1: yet um, real GDP growth didn't peak until the first
• 4:41
  Speaker 1: quarter on a year of a year basis, until the
• 4:43
  Speaker 1: first quarter of two thousand. So number one, there can
• 4:46
  Speaker 1: be very variable lags between when the yield curve flattens
• 4:50
  Speaker 1: or inverts two s tens and when the economy adjusts.
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  Speaker 1: The other one is is whether the yield curve really
• 4:56
  Speaker 1: tells us what it used to tell us. And one
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  Speaker 1: of the things things that Steve Stanley and I have
• 5:01
  Speaker 1: looked at is actually comparing the real Fed funds rate
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  Speaker 1: adjusted for core inflation to the two tens spread, and
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  Speaker 1: you go back from five through through two thousand and
• 5:14
  Speaker 1: five very very actually through two thousand ten, very tight correlation,
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  Speaker 1: which is really broken down in the last three years.
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  Speaker 1: So now you have a two tens spread of about
• 5:27
  Speaker 1: fifty three basis points, which is actually flatter than the
• 5:32
  Speaker 1: average for the last thirty years of one point one.
• 5:36
  Speaker 1: Whereas the real Fed funds rate is still zero, it's
• 5:38
  Speaker 1: still sharply lower. So if I look at the two
• 5:42
  Speaker 1: of those in the break and the correlation, I say
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  Speaker 1: to myself, well, which one seems like it's correct, in
• 5:47
  Speaker 1: which one might be distorted. I think it's the yield
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  Speaker 1: curve that's distorted because we've had so much purchasing by
• 5:54
  Speaker 1: by global central banks, and in fact, our view is
• 5:58
  Speaker 1: that the stance of monetary policy is still very accommodated
• 6:01
  Speaker 1: with a real FED funds rate that's virtually zero. Bob
• 6:05
  Speaker 1: since thank you very much for being with us, global
• 6:07
  Speaker 1: strategist for AMERSH pure Pont Securities talking about the yield
• 6:12
  Speaker 1: curve and what it means for the future of the
• 6:15
  Speaker 1: economy by the end of the century. Database company Zillo
• 6:32
  Speaker 1: Group estimates that almost half a million Miami homes could
• 6:35
  Speaker 1: be literally underwater, that is, with actual H two O
• 6:40
  Speaker 1: covering them. Here to tell us how this is changing
• 6:44
  Speaker 1: the real estate market in that region is Christopher Flavelle.
• 6:47
  Speaker 1: He's a climate policy reporter for Bloomberg CA Newes and
• 6:50
  Speaker 1: comes to us from Washington, d C. Christopher, can you
• 6:53
  Speaker 1: just give us a sense of how seriously home buyers
• 6:58
  Speaker 1: in Florida, I'm particularly the south to Florida are taking
• 7:01
  Speaker 1: this threat right now? You know, it's it is really
• 7:03
  Speaker 1: hard to tell. I think there's a lot of homebuyers
• 7:06
  Speaker 1: who just either are not aware of it or are
• 7:09
  Speaker 1: aware of it and don't worry about it. They say
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  Speaker 1: it won't hit me. But the trend that we're writing
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  Speaker 1: on is there's a growing number and still a minority,
• 7:17
  Speaker 1: but it's a larger and large minority saying I'm aware
• 7:19
  Speaker 1: of this because I can't ignore it. They've got what's
• 7:22
  Speaker 1: called sunny day floods in South Florida. We're out of nowhere.
• 7:25
  Speaker 1: On a sunny day, you'll have water coming up through
• 7:28
  Speaker 1: the limestone through the streets, causing a huge headache. And
• 7:31
  Speaker 1: then you get storms like Irma. And we were a
• 7:33
  Speaker 1: piece looking at how Irma reminded people that living in
• 7:36
  Speaker 1: this beautiful part of the country also has consequences. And eventually,
• 7:40
  Speaker 1: no one knows when, but eventually those consequences, as they
• 7:43
  Speaker 1: get worse, we'll start to drive down home values. No
• 7:46
  Speaker 1: one knows when that will happen, but I think the
• 7:48
  Speaker 1: signals are starting that that it could be soon. Christopher,
• 7:52
  Speaker 1: what about the idea of going to higher ground? That
• 7:55
  Speaker 1: might be a challenge in Florida, But there are things
• 7:58
  Speaker 1: called apartment houses. Some people have actually moved from their
• 8:01
  Speaker 1: homes into those apartment houses. But even that doesn't seem
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  Speaker 1: to help. Yeah. I spoke to one homeowner who has
• 8:07
  Speaker 1: sold his home in a lovely part of South Florida
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  Speaker 1: called Coral Gables a few years back. Worried that eventually
• 8:14
  Speaker 1: property values would fall, and he wanted to get up
• 8:16
  Speaker 1: before then, so he bought a smaller condo. He downsized.
• 8:20
  Speaker 1: He's on a high ridge in Biscayne Bay and lo
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  Speaker 1: and behold, his building was just throttled by by IRMA.
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  Speaker 1: And he said he's gonna leave Florida altogether because it
• 8:30
  Speaker 1: doesn't want the physical insecurity or the financial insecurity of
• 8:34
  Speaker 1: knowing that whatever money he puts into property could be
• 8:36
  Speaker 1: wiped out if enough other homebuyers say I also don't
• 8:40
  Speaker 1: want this headache and leave before he does. So you're
• 8:43
  Speaker 1: into this sort of preemptive cycle where people are thinking
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  Speaker 1: about leaving the market now, even though climate change is
• 8:49
  Speaker 1: not yet a terrible thing, just annoying, but they're worried
• 8:52
  Speaker 1: that if they don't leave, they might get stuck in
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  Speaker 1: a downward market, and so they're leaving now and others
• 8:57
  Speaker 1: might follow them. So Christopher, that they seem to be
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  Speaker 1: in the minority, because right now developers are still building.
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  Speaker 1: I was just in Florida. Still a lot of building
• 9:05
  Speaker 1: going on. Uh. And frankly, the new tax law will
• 9:09
  Speaker 1: only push more people or the theory is down to
• 9:12
  Speaker 1: Florida and other low tax states from higher tax states.
• 9:15
  Speaker 1: That's already happened. So at what point are we going
• 9:18
  Speaker 1: to hit a tipping point and how much does the
• 9:22
  Speaker 1: acceleration and development given some of these climate change effects,
• 9:27
  Speaker 1: how much does that exacerbate the potential effects. Well, it
• 9:30
  Speaker 1: seems like the one of the most interesting parlor games
• 9:34
  Speaker 1: in South Florida right now is that debate over just
• 9:36
  Speaker 1: what the trigger will be, whether it is another big storm,
• 9:40
  Speaker 1: whether it's on the change in policy now. Last year,
• 9:43
  Speaker 1: the House Representatives looked at a measure that would have
• 9:46
  Speaker 1: required a higher flood insurance rates for most cases and
• 9:50
  Speaker 1: be disclosure by people selling their homes of the flood
• 9:54
  Speaker 1: risk facing those particular homes. Either those changes neither which
• 9:58
  Speaker 1: became law, but if they became and the Senate will
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  Speaker 1: take them up at some point this year, those could
• 10:02
  Speaker 1: have a real downward effect. Another thing could be if
• 10:06
  Speaker 1: people's attitudes change. It's so hard to measure the psychology
• 10:10
  Speaker 1: of climate change. At some point you could flip where
• 10:12
  Speaker 1: the average person Seal Florida says, I don't care about this,
• 10:15
  Speaker 1: and then bang, they wake up and something happens and
• 10:17
  Speaker 1: they do care, and and knowing when that might happen
• 10:20
  Speaker 1: is just impossible. Well, one one one interesting part of
• 10:23
  Speaker 1: the story that you wrote was looking at a man
• 10:27
  Speaker 1: named Albert Slap, whose business is surging in the wake
• 10:31
  Speaker 1: of increasing fears about flooding and climate change. Can you
• 10:35
  Speaker 1: give us a sense of his perspective and how this
• 10:38
  Speaker 1: could be one of the signs you were talking about
• 10:39
  Speaker 1: that attitudes might be changing a bit. Yeah, he runs
• 10:42
  Speaker 1: sort of a boutique firm that will give you very
• 10:46
  Speaker 1: tailored flood risk information on a property if you're thinking
• 10:50
  Speaker 1: of buying it, if you're an insurance company, if you're
• 10:52
  Speaker 1: a lender thinking of is shoing a mortgage, he'll tell
• 10:55
  Speaker 1: you what the likely flood risk for that particular home
• 10:58
  Speaker 1: or parcelor land might be. And he said, since irma,
• 11:01
  Speaker 1: his business is just on fire. And I think he's
• 11:04
  Speaker 1: right in saying that what's good for him isn't necessarily
• 11:08
  Speaker 1: good for the market, because the more you'll pay attention
• 11:10
  Speaker 1: to this, the more they buy or don't buy a
• 11:13
  Speaker 1: home based on risk and not just how pretty it is.
• 11:16
  Speaker 1: The more people will say, you know what, it's lovely here,
• 11:19
  Speaker 1: but these title floods will just get worse, These storms
• 11:21
  Speaker 1: will get worse, and the seas will come up. Uh,
• 11:24
  Speaker 1: And so eventually there's some intangible trade off that none
• 11:28
  Speaker 1: of us can understand. But it happens inside the head
• 11:30
  Speaker 1: of every potential homebuyers saying is it worth the risk
• 11:33
  Speaker 1: to live somewhere this gorgeous? And that that calculation is
• 11:37
  Speaker 1: impossible to predict, but it will eventually flip over to
• 11:40
  Speaker 1: probably not. Well, Christopher just quickly, he says that there
• 11:43
  Speaker 1: was a quote of a story where he talks about
• 11:45
  Speaker 1: how when you have fish swimming in your driveway, it
• 11:48
  Speaker 1: is not an amenity like a swimming pool. Not everyone
• 11:51
  Speaker 1: wants fish in their driveway, but you know, if the
• 11:53
  Speaker 1: view is lovely, maybe maybe you'll suck it up for
• 11:56
  Speaker 1: a little while. Uh, eventually, probably that's not the kind
• 11:59
  Speaker 1: of market you want to in. Christopher Flavel with the
• 12:02
  Speaker 1: outlook on fish in your driveway, Climate policy reporter for
• 12:06
  Speaker 1: Bloomberg News, coming to us from Washington, d C. The
• 12:24
  Speaker 1: tax bill has been passed. President Trump has signed it.
• 12:29
  Speaker 1: The question now is what is it and what will
• 12:31
  Speaker 1: the effect be on real estate markets, particularly in big
• 12:35
  Speaker 1: cities that have notoriously high tax rates like New York.
• 12:39
  Speaker 1: Here to explain to us his vision of it is
• 12:41
  Speaker 1: Seth Pinsky, Executive vice president and investment manager of the
• 12:45
  Speaker 1: r x R Metropolitan Emerging Market strategy for our x
• 12:48
  Speaker 1: R realty in New York City. Seth You're quoted in
• 12:52
  Speaker 1: a story in the Real Deal saying, this is a
• 12:55
  Speaker 1: dramatic new reality that New York City is going to
• 12:57
  Speaker 1: be operating under. In many ways, this Hacks bill was
• 13:00
  Speaker 1: deliberately and maliciously designed to hurt this region. How much
• 13:05
  Speaker 1: is it going to hurt it with respect to real estate?
• 13:07
  Speaker 1: You know, it's very hard to say. Actually so disturbing
• 13:09
  Speaker 1: about the tax bill. In addition to the fact that
• 13:11
  Speaker 1: it was designed to harm this region and regions like it,
• 13:15
  Speaker 1: is the fact that I'm fairly certain that very few
• 13:18
  Speaker 1: of the people who voted for the bill, let alone
• 13:20
  Speaker 1: the person who signed the bill, actually know what's in
• 13:22
  Speaker 1: it um. And it's likely that there are elements in
• 13:25
  Speaker 1: it um that are going to be quite harmful, especially
• 13:28
  Speaker 1: to homeowners in high cost suburbs areas with very high
• 13:32
  Speaker 1: property tax um. But there also could be parts of
• 13:35
  Speaker 1: the tax bill that could be very beneficial to the
• 13:37
  Speaker 1: city's economy. And I think it's gonna be one of
• 13:41
  Speaker 1: these things that we're just gonna have to watch play
• 13:43
  Speaker 1: out to see what the net impact is. But there
• 13:46
  Speaker 1: will certainly be winners and losers in this region. Talk
• 13:49
  Speaker 1: a little bit about the connection between infrastructure and real
• 13:53
  Speaker 1: estate development and how it has evolved, let's say in
• 13:56
  Speaker 1: big urban areas like New York or other metropolitan region. Well,
• 14:01
  Speaker 1: infrastructure is really the key to affordability UM in any region.
• 14:05
  Speaker 1: UM In a place like New York, where more and
• 14:08
  Speaker 1: more people are trying to squeeze into the same amount
• 14:11
  Speaker 1: of area, the only way really that you can lower
• 14:13
  Speaker 1: costs is by building more. And as we've seen in
• 14:17
  Speaker 1: the city over the last several years, when you try
• 14:20
  Speaker 1: to increase development in the same small number of locations,
• 14:25
  Speaker 1: you end up hitting political roadblocks. People don't want to
• 14:28
  Speaker 1: have a hundred story towers next to them. So if
• 14:31
  Speaker 1: you're going to address that, you really need infrastructure to
• 14:33
  Speaker 1: spread people out. The idea is not so much to
• 14:36
  Speaker 1: create sprawl. That is a recipe for for significant problems
• 14:40
  Speaker 1: that we've all seen in the suburbs. But the idea
• 14:43
  Speaker 1: is to use infrastructure to make it so that people
• 14:45
  Speaker 1: can live farther away by distance but still be close
• 14:49
  Speaker 1: to the city in terms of time. But having said that,
• 14:52
  Speaker 1: that's an issue that devil's not just New York, but
• 14:55
  Speaker 1: I think of Silicon Valley where people's commutes have been
• 14:58
  Speaker 1: extended to to hours, in some cases three hours, and
• 15:02
  Speaker 1: they're driving. Uh, you have Los Angeles the same kind
• 15:05
  Speaker 1: of situation Atlanta, huge traffic snarls. Is there a better
• 15:11
  Speaker 1: way to think about how to invest money in real
• 15:15
  Speaker 1: estate so that we get the outcome that doesn't involve
• 15:18
  Speaker 1: sitting in a two and a half hour commute each way? Sure. UM.
• 15:22
  Speaker 1: One of the things that we at r XR have
• 15:24
  Speaker 1: been doing is focusing on suburban transit lines, looking at
• 15:29
  Speaker 1: rail nooads around which in many cases you find acres
• 15:32
  Speaker 1: and acres of surface parking lots, even though they're easily
• 15:35
  Speaker 1: accessible to everything that is beneficial about New York City.
• 15:40
  Speaker 1: For example, UM, we worked with the City of New
• 15:42
  Speaker 1: Rochelle to entitle about eleven million square feet of development
• 15:46
  Speaker 1: in downtown New Rochelle. The travel time from New Rochelle
• 15:49
  Speaker 1: by Metro North into Grand Central is actually shorter than
• 15:53
  Speaker 1: the travel time from my neighborhood in Brooklyn Park Slope
• 15:56
  Speaker 1: to Grand Central. So these are areas that are incredibly
• 15:59
  Speaker 1: trans accessible, that have the infrastructure today, but that we're
• 16:02
  Speaker 1: simply not taking advantage of. You know, I'm struck by
• 16:05
  Speaker 1: the fact that actual transactions sales of used homes in
• 16:10
  Speaker 1: New York City declined in the fourth quarter, and I
• 16:13
  Speaker 1: believe where the lowest and is two thousand and eleven.
• 16:15
  Speaker 1: A lot of this had to do with the uncertainty
• 16:17
  Speaker 1: around the tax plan. What the mortgage intrasductibility might look like, Uh,
• 16:23
  Speaker 1: what the salt deduction might look like. I'm just wondering,
• 16:27
  Speaker 1: you know, especially as you see development continuing in this region.
• 16:32
  Speaker 1: You know, is this uncertainty that could basically send values
• 16:36
  Speaker 1: down substantially in a way that people are not expecting
• 16:39
  Speaker 1: right now. Well, it's hard to imagine that the loss
• 16:43
  Speaker 1: of deductibility of property tax um even more than income taxes,
• 16:47
  Speaker 1: is not going to have an impact on the price
• 16:50
  Speaker 1: of homes, especially in the suburbs, where property taxes in
• 16:53
  Speaker 1: many communities are twenty thirty plus thousand dollars a year um.
• 16:58
  Speaker 1: At the same time, though, there are larger economic forces
• 17:01
  Speaker 1: at work um. And you can imagine a world in which,
• 17:05
  Speaker 1: through the Trump administration and what the Republican Congress is doing,
• 17:09
  Speaker 1: an industry like Wall Street were to boom, and in
• 17:12
  Speaker 1: that case, that would have a positive impact on values.
• 17:14
  Speaker 1: And that's not necessarily a good thing for society. It's
• 17:17
  Speaker 1: not necessarily a bad thing for society, but the impact
• 17:20
  Speaker 1: is really very hard to evaluate at this point, um.
• 17:23
  Speaker 1: And again, until we start to really be able to
• 17:26
  Speaker 1: unpack this bill, which was passed under the cover of darkness,
• 17:29
  Speaker 1: it's going to be hard to say whether it's it's
• 17:32
  Speaker 1: net effect is going to be good or bad. But
• 17:33
  Speaker 1: right now commercial real estate investors seem to be pretty
• 17:36
  Speaker 1: excited about it. Yeah, Look, there are things in the bill, um,
• 17:42
  Speaker 1: maybe accidentally, maybe done on purpose, given the profession of
• 17:46
  Speaker 1: our president that clearly we're designed to help the real
• 17:50
  Speaker 1: estate industry, and so from the real estate industry's perspective,
• 17:53
  Speaker 1: those changes are going to be positive. But at the
• 17:55
  Speaker 1: end of the day, the success or failure of the
• 17:57
  Speaker 1: real estate industry is really driven by the success or
• 18:00
  Speaker 1: failure of the market in which the real estate is located.
• 18:03
  Speaker 1: And again, until we see how all the different forces
• 18:06
  Speaker 1: play out, it's gonna be hard to say exactly how
• 18:08
  Speaker 1: it's going to impact our market. Just to go back
• 18:11
  Speaker 1: to the New Rochelle example, because you put together a
• 18:15
  Speaker 1: group of interested parties, investors, plus the city, this is
• 18:19
  Speaker 1: a part of a larger redevelopment. Is that where we're
• 18:22
  Speaker 1: going to see in more of these I want to say,
• 18:25
  Speaker 1: satellite communities, that they're going to be major redevelopments all
• 18:29
  Speaker 1: along the coast and really in every place that's centered
• 18:33
  Speaker 1: that uses a big urban area as a center. It's
• 18:35
  Speaker 1: a good question. And what's interesting is that historically the
• 18:38
  Speaker 1: suburbs were actually quite averse to high density development UM.
• 18:43
  Speaker 1: Many of the people who moved to suburbs moved to
• 18:45
  Speaker 1: the suburbs intentionally to get away from everything urban. UM.
• 18:48
  Speaker 1: What's been happening over the last couple of decades, though,
• 18:51
  Speaker 1: is that UM the urban areas have become more and
• 18:54
  Speaker 1: more successful. They're especially attractive to young professionals and aging
• 18:57
  Speaker 1: baby boomers and empty nesters, and that's made it difficult
• 19:01
  Speaker 1: for the suburbs to attract the businesses that are looking
• 19:03
  Speaker 1: for that workforce. That in turn has undermined the tax
• 19:06
  Speaker 1: basis of these communities. And so you are starting to
• 19:09
  Speaker 1: see an alignment now that didn't exist in the past
• 19:12
  Speaker 1: between these communities and the development community. And the key
• 19:16
  Speaker 1: I think to being successful in these communities is not
• 19:19
  Speaker 1: coming in and simply imposing a vision on the community,
• 19:21
  Speaker 1: but working with the vision to understand what the community.
• 19:24
  Speaker 1: With the community, I should say, to understand what the
• 19:26
  Speaker 1: community's vision is and then to to help to realize
• 19:29
  Speaker 1: that vision in a way that's collaborative. Thank you very
• 19:32
  Speaker 1: much for being with a. Seth Pinsky, Executive vice president,
• 19:35
  Speaker 1: investment manager of the r XR Metropolitan Emerging Market Strategy.
• 19:55
  Speaker 1: Trading is relatively muted, and there's a question about whether
• 19:59
  Speaker 1: this just because everyone's getting back to work and doesn't really,
• 20:03
  Speaker 1: uh I feel like doing too much quite yet, or
• 20:06
  Speaker 1: is this because Miffed two just went into effect today.
• 20:10
  Speaker 1: Here to talk about those regulations, which are the biggest
• 20:13
  Speaker 1: regulatory overhaul in ten years for Europe is Trista Kelly,
• 20:17
  Speaker 1: Markets structure team for Bloomberg who joins us from London. Trista,
• 20:21
  Speaker 1: how much can we really tell about how smoothly Miffed
• 20:25
  Speaker 1: two is going at this point, given the fact that
• 20:27
  Speaker 1: a lot of the biggest venues are not yet forced
• 20:31
  Speaker 1: to be in compliance. Yeah, that's a good question. I think.
• 20:34
  Speaker 1: One of the the things that traders have been saying
• 20:37
  Speaker 1: is there is a cap coming on dark pools and
• 20:41
  Speaker 1: that does not kick in until next week, and so
• 20:43
  Speaker 1: once that dark Pool cap comes in, then we're gonna
• 20:46
  Speaker 1: see uh, probably see some flow start to scatter around
• 20:49
  Speaker 1: all these new trading venues and that might affect liquidity
• 20:53
  Speaker 1: as well. Just back up for one second. Dark pool
• 20:56
  Speaker 1: cap can you just explain what that is? Sure? Basically
• 20:59
  Speaker 1: that EU is saying there's way too much trading. That's
• 21:02
  Speaker 1: that's happening in the dark right now. So with MiFID,
• 21:05
  Speaker 1: let's cap or limit the amount that can go into
• 21:09
  Speaker 1: dark pools. And a lot of these dark pools, uh,
• 21:11
  Speaker 1: some of them are run by exchanges themselves. For example,
• 21:15
  Speaker 1: the London Stock Exchange has one called Turquoise, so they're saying,
• 21:20
  Speaker 1: let's get that onto that trading onto liquid lit lit exchanges.
• 21:24
  Speaker 1: Excuse me, and uh so, but those limits will not
• 21:28
  Speaker 1: kick in until next week. And a lot of banks
• 21:31
  Speaker 1: are saying, okay, well we can have our alternative trading
• 21:34
  Speaker 1: venue called a systematic internalizer. This is getting geeky very quickly,
• 21:38
  Speaker 1: I apologize, No, this is what it is. And you
• 21:40
  Speaker 1: know this is a fIF page bill we should say,
• 21:43
  Speaker 1: with more than two billion dollars of expense put into
• 21:47
  Speaker 1: compliance with it. Lots of geeky sections, but they have
• 21:49
  Speaker 1: a significant impact, please go on, right. So, so the
• 21:52
  Speaker 1: biggest banks are saying, okay, well we have these new
• 21:54
  Speaker 1: venues called systematic internalizers because we won't be able to
• 21:58
  Speaker 1: use what's called a crossing network anymore. So everybody's expecting, oh,
• 22:03
  Speaker 1: these a lot of this flow once these dark pool
• 22:06
  Speaker 1: caps kick in, is going to go to these systematic internalizers.
• 22:09
  Speaker 1: Systematic internalizers are not subject to dark pool caps, and
• 22:13
  Speaker 1: let's face it, once you get over the standard market size,
• 22:15
  Speaker 1: they can go pretty much as dark as they want.
• 22:17
  Speaker 1: So that's one of the reasons, one of the many
• 22:20
  Speaker 1: reasons a lot of people are saying these big bulge
• 22:22
  Speaker 1: bracket banks are going to do so well out of
• 22:25
  Speaker 1: this trista. Do you get the impression or maybe maybe
• 22:29
  Speaker 1: you have another thought about it that the people who
• 22:31
  Speaker 1: put together these regulations do they understand who actually works
• 22:34
  Speaker 1: in the financial industry and how they think. Well, if
• 22:38
  Speaker 1: we if you read our our top live blog today,
• 22:40
  Speaker 1: we had a lot of traders complaining both on Twitter
• 22:43
  Speaker 1: and elsewhere. I mean it's not new, They've been complaining
• 22:46
  Speaker 1: for a long time, but that's I mean, that's what
• 22:49
  Speaker 1: market market traders do, and regulators obviously say, well, come on,
• 22:53
  Speaker 1: we're just trying to make things more transparent and better
• 22:56
  Speaker 1: for the little guy. You know, there's a yin and
• 22:59
  Speaker 1: yang here and what it remains to be seen if
• 23:02
  Speaker 1: you know which has the better point. But I mean, yes,
• 23:05
  Speaker 1: there are some unintended consequences and some big loopholes. And
• 23:08
  Speaker 1: I mean, I will add the U s SEC has
• 23:11
  Speaker 1: a totally different rules than miffed when it comes to
• 23:13
  Speaker 1: how research has paid for. So these types of things
• 23:16
  Speaker 1: are gonna have to be worked out at some point.
• 23:18
  Speaker 1: And so that's why people are saying, well, what about
• 23:20
  Speaker 1: miffid three And yeah, it's it's kind of giving me
• 23:22
  Speaker 1: a headache already, Dave, Just real quick trading usually is
• 23:27
  Speaker 1: muted at this point in the year, correct, Like, it's
• 23:29
  Speaker 1: not an anomaly that we're just seeing light volumes right
• 23:32
  Speaker 1: now or we can't attribute that pure it tends to be.
• 23:35
  Speaker 1: I mean, I will note that if you look at
• 23:37
  Speaker 1: trading in NYC and NASDAC listed shares UH ninety five
• 23:44
  Speaker 1: million or so in the first hour up roughly from yesterday.
• 23:49
  Speaker 1: Some things are gearing up for a new year, and
• 23:53
  Speaker 1: that's playing out in terms of the kind of numbers
• 23:55
  Speaker 1: we're seeing. Dave Wilson, Thank you very much, Bloomberg Stocks
• 23:58
  Speaker 1: Commas send David e mail at d Wilson at Bloomberg
• 24:02
  Speaker 1: dot net and sign up for his daily free email newsletter.
• 24:06
  Speaker 1: It will make you a smarter investor. Our thanks also
• 24:09
  Speaker 1: to trist To Kelly, market Structure team leader for Bloomberg.
• 24:17
  Speaker 1: Thanks for listening to the Bloomberg p m L podcast.
• 24:20
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 24:24
  Speaker 1: or whatever podcast platform you prefer. I'm pim Fox, I'm
• 24:27
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 24:32
  Speaker 1: It's one before the podcast. You can always catch us
• 24:34
  Speaker 1: worldwide on Bloomberg Radio