Latest / Bloomberg Intelligence / Fed, Chips, Battery Mining, Markets, and Real Estate (Podcast)

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Fed, Chips, Battery Mining, Markets, and Real Estate (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever
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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
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Speaker 1: A lot to chew on in terms of, you know,
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Speaker 1: kind of where these central banks are going, where rates
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Speaker 1: are going, we had clearly this this ECB panel in Portugal.
0:31
Speaker 1: A lot to chew on here, but I think the
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Speaker 1: consistent message and again I think the central banks have
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Speaker 1: been consistent from day one. Yeah, we are fighting inflation
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Speaker 1: after they you know, I think the FED obviously was
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Speaker 1: late to the game. You could argue with that whole
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Speaker 1: transitory talk a couple of years ago, but since then,
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Speaker 1: I think it's been pretty consistent. Yet if you look
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Speaker 1: at the WRP function, the markets are kind of suggesting
0:53
Speaker 1: that there may be some changes to that, so we'll
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Speaker 1: have to see you about it. Our next guest actually
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Speaker 1: has an informed opinion, which is great because we're just
1:00
Speaker 1: kind of, you know, we're amateurs here. But Tim Dewey.
1:03
Speaker 1: He's the chief US economist at sg H Macro Advisors,
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Speaker 1: and he's a professor at the University of Oregon at
1:09
Speaker 1: The Ducks joined us here in our Bloomberg Interactive Broker Studio. So, Tim,
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Speaker 1: we heard from the central bankers today in Portugal. You know,
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Speaker 1: it seems like that they're pretty consistent with our job's
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Speaker 1: not done.
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Speaker 3: You right, right, And that was the message from the
1:23
Speaker 3: dots for the Fed two weeks ago that they were
1:26
Speaker 3: looking at another fifty basis points of raid hikes this year.
1:30
Speaker 3: And Paul actually, I think sort of opened up the
1:32
Speaker 3: chance for even more than that when he sort of said, well,
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Speaker 3: maybe we'll have to move in September two or you know,
1:38
Speaker 3: we want to rule out moving every other meeting again.
1:40
Speaker 3: And that's something that I don't think has really been
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Speaker 3: on the radar yet, the possibility that six percent is
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Speaker 3: still out there as an outcome.
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Speaker 4: And you think next meeting is a definite hike.
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Speaker 3: Yeah, I think I think we're I mean, i'd almost
1:53
Speaker 3: say one hundred percent, just just because I don't know
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Speaker 3: everything all happened between now and then, but I think
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Speaker 3: that decision was made. In fact, if Paul is saying
2:01
Speaker 3: we might have to go again in September. That would
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Speaker 3: tell me that that July is for sure.
2:07
Speaker 1: So where does that take us into our discussion about
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Speaker 1: a recession? Where do you think that kind of shakes
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Speaker 1: out here? Because the economic data is still pretty solid.
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Speaker 3: Well, the economy is always more resilient than people give
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Speaker 3: it credit for. You know that the focus right now
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Speaker 3: is on recession because you can you can really chase
2:22
Speaker 3: those rate cuts down from from a market perspective, right
2:25
Speaker 3: you know that there's there's a potential for some for
2:27
Speaker 3: for some big gains on that. But uh, it's it's
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Speaker 3: hard to knock the US economy down, is what we're
2:37
Speaker 3: learning here, especially now when we're still on the side
2:39
Speaker 3: effect of an enormous amount of phiscal stimulus and easy
2:43
Speaker 3: monetary conditions that I think are still you know, propelling
2:47
Speaker 3: underlying activity. So, uh, it is a recession going to
2:52
Speaker 3: happen eventually? Can I tell you that it's going to
2:55
Speaker 3: happen in the third quarter? It won't. Can I tell
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Speaker 3: you it will happen, you know, second quarter of next year? Maybe?
3:01
Speaker 3: You know, I think that from my perspective. The interesting
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Speaker 3: thing here is that if you don't get that recession
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Speaker 3: anytime soon. There's really room for central banks to keep
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Speaker 3: hiking here in the second half, and it'll go on
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Speaker 3: beyond July.
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Speaker 4: Well, you mentioned stimulus, but Powell said that excess savings
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Speaker 4: is not the main driver of inflation. He's more concerned
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Speaker 4: about the labor market driving up income and consumption.
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Speaker 5: How would you rate that comment.
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Speaker 3: I think that's that's a real real issue, is if
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Speaker 3: you don't cool down the labor market eventually, you know,
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Speaker 3: the we've got some benefit right now, and we've got
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Speaker 3: certainly got lower energy prices. We're seeing headline inflation come down,
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Speaker 3: We're probably use car prices come down, shelter prices, so
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Speaker 3: we've got some benefits there that are really I think
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Speaker 3: going to likely hold down inflation here in the second
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Speaker 3: half of the year. We'll see those any of those
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Speaker 3: forecasts have actually you know, turned out badly in the past.
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Speaker 3: But but you know, if you if it's almost like
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Speaker 3: the pause that refreshes though, right, is that that's kind
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Speaker 3: of bringing down bringing up real incomes and spending capacity
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Speaker 3: that then would come to bear in the first first
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Speaker 3: half of the next year. So you know, if you
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Speaker 3: don't really I think that if you don't think the
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Speaker 3: Fed's right. If you don't start getting a little bit
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Speaker 3: more softer even software activity in labor markets, you are risking,
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Speaker 3: you know, a repeat of inflation.
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Speaker 1: Are you surprised that the labor market's been as resilient
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Speaker 1: as it has been. We still have a jolts number
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Speaker 1: that's near ten million job openings. You have to make
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Speaker 1: of that.
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Speaker 3: I think that people again underestimate the resilience of the economy.
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Speaker 3: Is that what has really amount is that we really
4:34
Speaker 3: stoked it stoked, stoked the fire pretty hot. And so no,
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Speaker 3: I have I haven't been surprised. I'm not surprised by
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Speaker 3: the rebound in the housing market at all. I think
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Speaker 3: that you know, the FED has more work to do here.
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Speaker 4: Well, can we talk about housing numbers as well, because
4:50
Speaker 4: housing starts leaping in May. I wonder if you think
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Speaker 4: that the FED failed to anticipate how higher rates would
4:58
Speaker 4: sort of convince people to not put their homes on
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Speaker 4: the market. And if that's something that you are weighing in.
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Speaker 3: Your speration, it certainly seems to be like, Hey, it's
5:07
Speaker 3: that the FED miss missed this. And we know this
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Speaker 3: because you know, last week during Paul's testimony. In the
5:13
Speaker 3: first day he is written testimony, he says the housing
5:15
Speaker 3: markets a week, and the second day he says, well,
5:18
Speaker 3: we met with some builders yesterday and it turns out
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Speaker 3: the housing market's not that way right. Actually, it's rebounding.
5:23
Speaker 3: And then we see the numbers start to come out. Now,
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Speaker 3: I think that we've been writing about this forever because
5:30
Speaker 3: it seemed obvious to us that you really did break
5:34
Speaker 3: the housing market in some respects by holding interest rates,
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Speaker 3: you know, near zero the policy level for so long.
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Speaker 3: You have so many people locked into these three percent
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Speaker 3: or less rates. There's no selling pressure. It's not like
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Speaker 3: two thousand and five, two thousand and six, two thousand
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Speaker 3: stas and even if some people start losing their job,
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Speaker 3: you're not gonna have mass selling pressure. At the same time,
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Speaker 3: you have the demographics of more and more millennials wanting
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Speaker 3: to buy homes, and so the only game in that
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Speaker 3: talent then becomes new construction. So, you know, we've thought,
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Speaker 3: you know, that the housing market was going to be
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Speaker 3: more durable than people anticipated for for what's really a
6:11
Speaker 3: substantial increase in mortgage rates.
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Speaker 1: Yep, tell me about you.
6:14
Speaker 3: Know, so if anybody's trying to move lately. It's kind
6:17
Speaker 3: of a shocker, but you know, these are things that
6:20
Speaker 3: once you sort of wrap your mind around and you
6:22
Speaker 3: need a house, you say, okay, well, you know seven percent,
6:25
Speaker 3: Eventually I'll be able to refinance it in five percent
6:27
Speaker 3: or four percent, and I got to just pull the trigger.
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Speaker 1: So, Tim, what's the biggest risk to this economic outlook
6:33
Speaker 1: for the next twelve months? Do you think is it
6:35
Speaker 1: something exogenous or is there because we had the bank
6:38
Speaker 1: issue a few months ago, people thought that might be
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Speaker 1: a real challenge for the economy. That's kind of abated
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Speaker 1: a little bit. What's the biggest risk out there?
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Speaker 3: Yeah, so it's it's it's always the exogenous shocks that
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Speaker 3: gets you at the end, right, I mean, so one
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Speaker 3: risk is the FED. I mean, it's sort of a
6:52
Speaker 3: conventional story is that the FED has you know that
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Speaker 3: the Fed's already overtightened or will overtighten, and eventually that
6:59
Speaker 3: will crash fresh investment activity and eventually firms will have
7:03
Speaker 3: to lay off workers. Right, that's kind of the standard
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Speaker 3: recession story. But what seems to be emerging is right
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Speaker 3: now the FED is slowing the economy, and maybe it's
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Speaker 3: not until we get a real good shock, you know,
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Speaker 3: like last year, that Ukraine shock, or the energy shock
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Speaker 3: from Russia's invasion of Ukraine. That could have been the
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Speaker 3: sort of recessionary shock had not the economy been flying
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Speaker 3: so high at that time. So, you know, I again,
7:32
Speaker 3: will a recession happen? You know, no, But these are
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Speaker 3: recessions are fairly rare. I mean, yeah, so, and they're
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Speaker 3: all adiosyncratic. There's a lot of you know, we tell
7:42
Speaker 3: different stories about every session, and we'll tell a different
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Speaker 3: story about the next one than we have in undeath
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Speaker 3: the rest.
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Speaker 1: Tim for better worse. You are one of our go
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Speaker 1: to people for the Pacific Northwest. Your professor, University of Oregon.
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Speaker 1: That's where you got your PhD undergraduate, the University of
7:56
Speaker 1: pujit sound most of us don't get to go to
7:59
Speaker 1: that part of the world, maybe as much as we
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Speaker 1: would like, kind of kind of remote talk to us
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Speaker 1: about the economy out there, housing market, just job market.
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Speaker 1: How what's what's the feeling of the person on the
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Speaker 1: street in University of Oregon.
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Speaker 3: Well, you know the job I mean, during the pandemic,
8:14
Speaker 3: you had a lot of people move to you know,
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Speaker 3: move into these you know, western towns, to be able
8:19
Speaker 3: to gain gain gain advantage of that. I think some
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Speaker 3: of that has faded in the Northwest, and the Northwest has,
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Speaker 3: you know, more recently, I think struggled with some of
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Speaker 3: the things you see in a lot of the West
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Speaker 3: Western cities, you know, the the higher rates of homelessness
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Speaker 3: and so uh. You know, I think the economy is
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Speaker 3: is solid out there, but maybe not as solids as
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Speaker 3: we would we would have expected coming out of of
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Speaker 3: of this pandemic relative to where other places have been.
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Speaker 1: So did you guys get that influx of I don't know,
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Speaker 1: I mean just California for example, did they come up
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Speaker 1: to that part of the world.
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Speaker 3: You know, the Northwest has regularly been a receiver of
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Speaker 3: of of emmigrants from from California, just like a lot
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Speaker 3: of other places. And so yeah, that's certainly been a
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Speaker 3: long time trend that supported Organ's growth in particular. You know,
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Speaker 3: one one one interesting thing is Organ's internal natural rate
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Speaker 3: of growth has really slow to to basically zero.
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Speaker 1: So what are some of the core industries out there
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Speaker 1: that still.
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Speaker 3: Well, you know, the big ones that people talking about.
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Speaker 3: Everybody knows Nike obviously, Nike's got a big private vision
9:26
Speaker 3: there and you have Intel has a large manufacturing facility,
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Speaker 3: and of course you have uh in Seattle, you know,
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Speaker 3: the Amazon Microsoft that's sort of that sort of tech around.
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Speaker 3: Tech is big in the Northwest. We have still forest
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Speaker 3: products certainly also another historical uh you know, element of
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Speaker 3: the of the of the Northwest economy.
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Speaker 1: All right, good stuff. He's one of our go to
9:50
Speaker 1: people there. You don't see too many people come through.
9:53
Speaker 3: Our office from you know, I'll try to do it
9:55
Speaker 3: more often.
9:56
Speaker 1: Yeah, exactly right, Dewey. He's the chief US economist S. G. H. Macroadvice,
10:01
Speaker 1: which is also a professor at the University of Oregon.
10:05
Speaker 1: The Ducks right there, PCUM coming into our Bloomberg Interactive
10:07
Speaker 1: Brookers studio. Right now, let's get a little bit of
10:09
Speaker 1: a reset here. We're going to get a business last
10:11
Speaker 1: with mister John Tucker.
10:12
Speaker 6: All right, Fares Stocksco. Right now, the major averages they
10:15
Speaker 6: are mixed to. Little change now. The message that investors
10:20
Speaker 6: for now seem to be latched onto from Fed cheer
10:23
Speaker 6: Jerome Pal. A recession, he said, is not the most
10:27
Speaker 6: likely scenario, as the economy remains fairly resilient. At that
10:32
Speaker 6: Central Bank confab taking place in Portugal, so we're seeing
10:36
Speaker 6: a rally in megacap stocks like Tesla and Amazon dot Com.
10:40
Speaker 6: The chip makers also trimming some of the earlier sell
10:43
Speaker 6: off that was driven by a report that the US
10:46
Speaker 6: considering new curbs shares of Nvidia. Right now, that's one
10:50
Speaker 6: of the laggards in the Nasdaq one hundred. It is
10:53
Speaker 6: down just about one percent right now. Overall, SMP five
10:57
Speaker 6: hundred one point lower, the Nasdaq one hundred up forty
11:00
Speaker 6: seven points. That's up three tents of a percent.
11:03
Speaker 3: Now.
11:03
Speaker 6: The down jones of Dunster larverage one hundred and twenty
11:06
Speaker 6: points lower. Right now. I'm going to see if Madison
11:10
Speaker 6: knows this one. I know that I know that you're
11:12
Speaker 6: going to get this. No, the guy, the man who
11:16
Speaker 6: brought you chachia and clap on, clap off has died. Really,
11:21
Speaker 6: Advertising executive Joseph Pettitt turned the Chia pet and clapper
11:26
Speaker 6: light switch into retail sensations.
11:28
Speaker 7: I know it was going to be a sad story.
11:30
Speaker 7: You had me popping into the microphone.
11:32
Speaker 6: It was ninety one.
11:33
Speaker 1: He had clap on.
11:35
Speaker 7: Now I see the founder clapper crapper, So.
11:39
Speaker 1: Yeah, he's going Okay, that's a giant in the in
11:43
Speaker 1: the business. All right, John Tucker, thank you so much.
11:45
Speaker 1: We appreciate it.
11:48
Speaker 8: You're listening to the team can't Live program Bloomberg Markets
11:52
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11:57
Speaker 9: App, or listen on demand wherever you get your guess.
12:02
Speaker 1: Now, we've got the US government saying, hey, hey, let's
12:04
Speaker 1: think about what chips were exporting to China, and that's
12:07
Speaker 1: an issue for Nvidia and some of the other names.
12:09
Speaker 1: So let's bring in somebody who kind of smart on
12:11
Speaker 1: this stuff. We pay him to be smart on this stuff.
12:13
Speaker 1: That's Man Deep Singh. He's head of our tech research
12:17
Speaker 1: at Bloomberg Intelligence, along with some other guy in Chicago.
12:21
Speaker 1: Man Deep talk to us about kind of just the
12:23
Speaker 1: news today about the government and it's wanted to maybe
12:26
Speaker 1: put a curb on the export of some of our
12:29
Speaker 1: best chip technology to China.
12:31
Speaker 10: Well, so, I think so far this was probably a
12:34
Speaker 10: little you know, probability event when you think about the
12:38
Speaker 10: odds of you know, government going full into you know,
12:43
Speaker 10: imposing a band and which happened in Russia by the way,
12:46
Speaker 10: last year when the war broke, And I think, right
12:51
Speaker 10: Now what investors are grappling with is what happens if
12:55
Speaker 10: that does occur, Like how does Nvidia get hit? And
12:58
Speaker 10: the answer to that is all they have, you know,
13:01
Speaker 10: fifteen twenty percent revenue expert. Now, what they did the
13:04
Speaker 10: last time around such a ban was imposed was they
13:07
Speaker 10: offered a lower performance variant which didn't fall in the
13:12
Speaker 10: restrictive category and they were still able to sell to China.
13:15
Speaker 10: So you could expect something similar from the chip makers.
13:18
Speaker 10: They'll try to skirt around those restrictions by offering some
13:22
Speaker 10: of their variant. I still think, you know, relocating the
13:26
Speaker 10: supply chains is going to be much harder, and that
13:29
Speaker 10: is the biggest risk for all these chip makers. Is
13:32
Speaker 10: you still going to Taiwan. Taiwan has elections next year.
13:36
Speaker 10: There's a lot that could happen, you know, in terms
13:39
Speaker 10: of low probability events actually happening or there is that
13:43
Speaker 10: risk that they could occur. So that's that's where we
13:46
Speaker 10: are at, you.
13:47
Speaker 4: Know, in terms of the risk of bringing things stateside.
13:50
Speaker 4: I'm curious about the Chips Act because Anawan had an
13:53
Speaker 4: amazing piece about this looking at how the Chips Act
13:57
Speaker 4: could be adding to the us GDP and having a
13:59
Speaker 4: negative effect on those inflation pressures because we're seeing so
14:03
Speaker 4: much investment and construction regarding chip making here in the States.
14:08
Speaker 4: Are you hearing about that from your sources? Kind of
14:10
Speaker 4: a flood of money into that state side?
14:13
Speaker 10: I mean there is, and every government right now wants that,
14:16
Speaker 10: you know, manufacturing to come back. When it comes to semiconductors,
14:20
Speaker 10: the problem is these are multi year investments. So you
14:24
Speaker 10: start building a fab now, it's not going to be
14:27
Speaker 10: productive for a couple of years. And that also is
14:30
Speaker 10: a phased approach when it comes to you know, the
14:33
Speaker 10: three nanometer or the five nanometer, we're talking about leading
14:36
Speaker 10: chips here. Those are the ones that are being restricted
14:39
Speaker 10: in terms of sales, and I would argue it's not
14:42
Speaker 10: going to be at least three four years before you're
14:45
Speaker 10: going to see leading node manufacturing here in the developed countries.
14:50
Speaker 1: So where are we now a week later, since maybe
14:53
Speaker 1: a lot last time we talked to you about AI.
14:56
Speaker 1: What are you hearing from an investors here? How are
14:58
Speaker 1: they going about trying to play this team? I know
15:01
Speaker 1: you guys have a big research report on which I
15:03
Speaker 1: highly recommend to folks that are on the Bloomberg terminal
15:07
Speaker 1: kind of laying out the market and the opportunities and
15:09
Speaker 1: so on. But when you talk to institutional investors, how
15:11
Speaker 1: are they playing it right now?
15:12
Speaker 10: Well, so clearly everyone wants exposure and hardware and semiconductors
15:17
Speaker 10: is still the most tangible thing. On the software side,
15:20
Speaker 10: you know, you have Snowflake and other database companies that
15:23
Speaker 10: are trying to leverage the capabilities that in video or
15:28
Speaker 10: some of these new types of chips offer. But at
15:31
Speaker 10: the end of the day, everyone is trying to build
15:34
Speaker 10: the compute capacity to you know, ingest their proprietary data
15:39
Speaker 10: to build a large anguage model, and over time you're
15:42
Speaker 10: going to find new use cases emerge which are more
15:45
Speaker 10: domain specific. But right now everyone wants to build on
15:49
Speaker 10: top of chat, GPT or you know, the large anguage
15:52
Speaker 10: models that are out there and see what they can
15:55
Speaker 10: get in terms of new output. And I think that's
15:59
Speaker 10: the phase wherey but everyone feels this is a strategic
16:02
Speaker 10: comparative right now from an IT spending perspective, and this
16:06
Speaker 10: is as non discretionary as it can get.
16:09
Speaker 4: Does it seem to you that the C three ais
16:14
Speaker 4: those those kind of they're not meme stocks but MIMI
16:18
Speaker 4: stocks and air quotes.
16:19
Speaker 7: There are falling to the wayside.
16:22
Speaker 4: Now, are we still seeing more euphoria around some of
16:27
Speaker 4: those smaller names.
16:29
Speaker 10: I think the way you have to think about it,
16:31
Speaker 10: and we lay this out in a report. There is
16:33
Speaker 10: that infrastructure layer for generative AI, which is dominated by
16:37
Speaker 10: the hyperscalers along with Nvidia. And then you have the
16:41
Speaker 10: platform layer, where every company is offering you a platform
16:46
Speaker 10: or something a workbench where you can build your applications
16:51
Speaker 10: on top of. And so the compute capacity will continue
16:53
Speaker 10: to come from the hyperscalers, but when it comes to
16:56
Speaker 10: the platform layer, it's very fragmented and it's going to
16:58
Speaker 10: be very domain Specif every industry, whether it's healthcare, you know, industrials,
17:04
Speaker 10: they'll have their own player in terms of offering a
17:06
Speaker 10: platform where you're going to build an application. So C
17:10
Speaker 10: three dot A I would fall in that platform layer.
17:13
Speaker 10: How big that opportunity is going to be, no one
17:15
Speaker 10: can tell right now, because ultimately it comes down to ROI, Right,
17:20
Speaker 10: can you generate ROI?
17:21
Speaker 4: I guess I'm curious then, what you think about a
17:24
Speaker 4: company like a Kroger mentioning AI eight times in their earnings?
17:28
Speaker 4: Do you think that there are some companies that like
17:31
Speaker 4: you don't need to be mentioning this.
17:33
Speaker 10: Any company that has large amounts of data and they
17:36
Speaker 10: have digitized their systems, okay, fields, they have proprietary data
17:40
Speaker 10: to feel this to this large anguige model. Yeah, what
17:44
Speaker 10: kind of output or productivity they can generate? I don't
17:46
Speaker 10: think they have a clue, but at least they're investing
17:49
Speaker 10: with the hope that they can leverage their proprietary data.
17:53
Speaker 1: What's the number one topic with your clients these days?
17:56
Speaker 1: Is it AI?
17:57
Speaker 10: I think everyone is focused on generative AI, but they
18:01
Speaker 10: want to go to you know, the medium to long
18:05
Speaker 10: term outlook in terms of who has a real mode
18:08
Speaker 10: versus you know, what is near term and it will
18:12
Speaker 10: phase out because right now, as Madison said, you know,
18:16
Speaker 10: every company is talking about it in their earnings call.
18:20
Speaker 10: Obviously some of it is hype, and I think you
18:23
Speaker 10: will see some real winners and losers emerge.
18:25
Speaker 1: All right, Madison just sent me this really cool tweet
18:28
Speaker 1: about Airbnb, and I don't know it's from this guy, Nick Girly.
18:32
Speaker 1: I don't know who it is. Talking about Airbnb revenue
18:35
Speaker 1: top ten cities. It's dropping like crazy, forty fifty percent.
18:39
Speaker 1: Why is that?
18:40
Speaker 10: Well so travel? I think is in that phase where
18:43
Speaker 10: consumer travel was very strong, very resilient, and right now
18:48
Speaker 10: you could argue the concert are getting tougher for these companies.
18:52
Speaker 10: And if there is any type of slowdown, the one
18:55
Speaker 10: area where you think it's gonna hit is I think
18:58
Speaker 10: consumer travel, business travel contine news to be strong, but
19:01
Speaker 10: it was slow to come back. And that's fair. Uh,
19:03
Speaker 10: there is that risk that you know, growth can de
19:06
Speaker 10: cleberate sharply. Airbnb. We know it's still alternative accommodations, and
19:11
Speaker 10: I think a lot of people are thinking about the
19:13
Speaker 10: addressable market. Is it really that big to justify a
19:16
Speaker 10: premium that Airbnb had.
19:18
Speaker 1: I mean, it's interesting again, Maddie, thanks for forting this
19:21
Speaker 1: tweet here. But like Phoenix year every year for the
19:24
Speaker 1: month of May, Airbnb revenue Phoenix off forty seven percent, Austin,
19:29
Speaker 1: Texas off forty six percent, Myrtle Beach forty five percent.
19:32
Speaker 1: These are you know, actual North Carolina off forty two percent.
19:35
Speaker 1: So these are towns that just were COVID towns, if
19:38
Speaker 1: you will, COVID cities, people bailing out of the coast,
19:41
Speaker 1: going to the the you know, the Austin Texas is
19:44
Speaker 1: the Phoenixes of the world, and I guess that was
19:47
Speaker 1: a huge benefit for Airbnb at the time. Now you're
19:50
Speaker 1: just saying maybe some comps issues.
19:51
Speaker 10: Absolutely, and we've seen that time and again. I mean
19:54
Speaker 10: look at Zoom. You know, great covid pull forward, but
19:58
Speaker 10: after that the comps got so m's tougher that you know,
20:01
Speaker 10: they struggled for a while in terms of the top line.
20:04
Speaker 10: And so I'm not saying this is going to be
20:06
Speaker 10: another Zoom, but there's clearly a parallel to be drawn.
20:09
Speaker 1: Yeah, an Airbnb stock is still fifty to fifty year
20:12
Speaker 1: to date.
20:12
Speaker 4: Yeah well yeah, so sorry Paul to step on you,
20:15
Speaker 4: but it's interesting to look at just the read through
20:19
Speaker 4: to the stock.
20:19
Speaker 7: Does this have that impact?
20:21
Speaker 1: Yeah? Interesting? All right, Now, Man Deep sing thanks so
20:23
Speaker 1: much for joining us. Man Deep Singh is one of
20:25
Speaker 1: our leading technology analysts at Bloomberg Intelligence, along with anarag
20:30
Speaker 1: Rana and the whole tech team globally. And what's interesting is,
20:35
Speaker 1: you know, there's Man Deep in the team came out
20:38
Speaker 1: with this really big report on artificial intelligence, one of
20:40
Speaker 1: the most red research reports from BI so you can
20:42
Speaker 1: check that out on Big But it's also just kind
20:45
Speaker 1: of investors are really clamoring to kind of figure out
20:48
Speaker 1: what is AI.
20:49
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20:56
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21:09
Speaker 1: All right, we've had some funky C suite conversations in
21:11
Speaker 1: the studio, and this one I think my top the list.
21:13
Speaker 1: Get this deep sea mining for like metals that they
21:17
Speaker 1: use in batteries. I don't know what's going on here,
21:19
Speaker 1: but we have the CEO here, Gerard Baron, Chairman and
21:22
Speaker 1: CEO of the Metals Company. The symbol is it trades
21:25
Speaker 1: on the Nasdaq, the symbols TMC. That's what you enter
21:28
Speaker 1: into your Bloomberg terminal and check that out. Gerard, thanks
21:31
Speaker 1: so much for joining us here in our Bloomberg and
21:33
Speaker 1: Arctor Broker studio. What does your company do? Talk to
21:36
Speaker 1: me like me and Maddy like we're five year olds.
21:39
Speaker 3: Well, great to be here.
21:40
Speaker 11: So the Metals Company are focused on developing a very large,
21:44
Speaker 11: abundant resource of polymetallic nodules that lie on the sea
21:49
Speaker 11: floor lie unattached. It's on the Pacific Ocean, about one
21:53
Speaker 11: thousand miles off the coast of Mexico, and they were
21:56
Speaker 11: discovered way back in the eighteen seventies, so almost one
21:59
Speaker 11: hundred and fifty more than one hundred and fifty years ago.
22:02
Speaker 11: And what they found is that they're very abundant in
22:05
Speaker 11: nickel and copper and cobalt and mangetes. And it's a
22:08
Speaker 11: really interesting project because when we think about the transition
22:13
Speaker 11: away from fossil fuels, people have realized that we're going
22:15
Speaker 11: to need a lot more metals, and we're pushing into
22:18
Speaker 11: frontiers that are very bio diverse, and you're having to
22:23
Speaker 11: dislodge indigenous communities having tremendous environmental impacts as opposed to.
22:29
Speaker 11: What we're doing is we're collecting these nodules from an
22:33
Speaker 11: area known as the Abyssle zone. It's the most common
22:36
Speaker 11: area on our planet. About forty percent of the entire
22:39
Speaker 11: planet is classified Abystle zone, where four thousand meters below
22:42
Speaker 11: sea level, there are no plants, so zero flora, and
22:46
Speaker 11: most of the fauna is bacteria living in the sediment,
22:50
Speaker 11: so it makes sense that we're increasing extractive industries in
22:54
Speaker 11: parts of our planet where there's the least life, not
22:57
Speaker 11: the most life.
23:00
Speaker 4: Oh again, like I'm a five year old, What can
23:02
Speaker 4: this do for us on the planet Earth above the ocean?
23:08
Speaker 11: Well, two things. The International Energy Agency predicts that will
23:12
Speaker 11: need to increase extractive industries between five and six hundred
23:16
Speaker 11: percent per annum by twenty forty. So the question is
23:20
Speaker 11: where are those metals going to come from with the
23:22
Speaker 11: lightest planetary and human impact. So we have to look
23:27
Speaker 11: at a full life cycle analysis that well, what's it
23:30
Speaker 11: going to mean for indigenous communities, what will it mean
23:32
Speaker 11: to carbon SINCS and CO two emissions and impacts on biodiversity?
23:38
Speaker 11: And so what this resource can do is supply a
23:42
Speaker 11: supply of these important battery metals at the bottom end
23:46
Speaker 11: of the impact curve. And it can also address the
23:50
Speaker 11: issue of geopolitics, because what the world has woken up
23:53
Speaker 11: to is that when it comes to battery metals, China
23:57
Speaker 11: is opec. They dominate it, They've invested stood ahead of
24:00
Speaker 11: the curve, and there are no real resources other than
24:04
Speaker 11: this one that could provide mineral independence to the USA.
24:09
Speaker 11: And we saw in the recent one hundred day review
24:11
Speaker 11: that the number one strategic priority was to build nickel
24:15
Speaker 11: processing capability in the USA. But the problem is, of course,
24:20
Speaker 11: a lot of land based all bodies are very low
24:22
Speaker 11: in grade, and you have to build the processing where
24:25
Speaker 11: the deposit is. And no one wants a mine in
24:28
Speaker 11: their backyard. Even if you found one in America, getting
24:30
Speaker 11: it permitted is almost impossible, whereas we have an ocean
24:34
Speaker 11: based resource. By the way, we've identified one point six
24:38
Speaker 11: billion tons of these nodules, and that's enough to electrify
24:42
Speaker 11: at least two hundred and eighty million mid sized EV
24:45
Speaker 11: batteries using a nickel rich cathode chemistry. So that's enough
24:50
Speaker 11: to electrify the entire USA passenger fleet. So we can
24:54
Speaker 11: do two things, supply low impact battery metals and address
24:58
Speaker 11: the secure already of supply issues that are now top
25:02
Speaker 11: of everyone's mind.
25:03
Speaker 1: All right, I understand that. Now explain to me how
25:06
Speaker 1: you actually what are your mining and how do you
25:08
Speaker 1: get it?
25:09
Speaker 11: Well, so these nodules literally lie on the ocean floor.
25:13
Speaker 11: Think of a golf driving range, So we're literally picking
25:16
Speaker 11: up golf balls, and so that means we send down
25:20
Speaker 11: a robot. We're four, two hundred meters below sea level.
25:24
Speaker 11: We have a production vessel that sits on top. We've
25:27
Speaker 11: already secured our first one. In fact, last year, for
25:30
Speaker 11: six months we ran our first trials and to end trials,
25:34
Speaker 11: and that was done for two things. One was to
25:37
Speaker 11: test our system to get make sure it's production ready,
25:40
Speaker 11: and secondly to understand the environmental impacts. So we had
25:44
Speaker 11: another boat out there for six months with eighty people
25:47
Speaker 11: on it, many of them scientists, observing the impacts of
25:51
Speaker 11: the area before we harvested, During harvesting, and after we'd
25:55
Speaker 11: collected all the nodules, and so our robot crawls along
25:59
Speaker 11: the sea law lifting these nodules, pulling them into an
26:02
Speaker 11: air riser which vertically transports the nodules to the production vessel,
26:07
Speaker 11: and then that production vessel will stay in production constantly,
26:12
Speaker 11: so it offloads the nodules to a transport vessel which
26:16
Speaker 11: then carries them to shore. Now the opportunity, of course,
26:20
Speaker 11: for North America or the West, is for us to
26:23
Speaker 11: process those nodules in their backyard. But what we've announced
26:28
Speaker 11: is that we're quite advanced with a company in Japan
26:31
Speaker 11: because we're also able to utilize existing onshore processing facilities,
26:37
Speaker 11: and that makes it a very attractive economic proposition because
26:41
Speaker 11: of course, normally you have to build your processing where
26:44
Speaker 11: the mine is, but in our case, we're in the
26:46
Speaker 11: middle of the ocean. And the other great thing about
26:49
Speaker 11: this resource is that if I was to show you one,
26:52
Speaker 11: it's about the size of a potato, and we turn
26:56
Speaker 11: one hundred percent of the mass of this nodule into
26:59
Speaker 11: savailable usable material, so we generate no waste and no tailings.
27:04
Speaker 11: But the first plant is likely to be in Japan,
27:08
Speaker 11: and that means we'll produce the battery intermediate products of
27:14
Speaker 11: nickel and copper and cobalt and manganese in that market.
27:17
Speaker 1: All right, let me talk about the economics of this.
27:20
Speaker 1: You guys are pre revenue right now, is that correct?
27:22
Speaker 11: That's right?
27:23
Speaker 1: Do you have the capital you need to kind of
27:25
Speaker 1: get to that revenue stage.
27:27
Speaker 11: We will require some more capital. We've raised money in
27:31
Speaker 11: the last year from existing shareholders. We have some very
27:35
Speaker 11: successful large shareholders, including Allseas, which is our partner on
27:40
Speaker 11: the offshore side. We count Glenkor as a shareholder. They
27:44
Speaker 11: also have an off take and we are talking, as
27:46
Speaker 11: we've told the market to some strategic partners about earning
27:50
Speaker 11: into the asset. Because the net present value for our
27:54
Speaker 11: first area that we're developing, we know it as Nori
27:56
Speaker 11: Area D is around thirteen billion dollars today now, so
28:01
Speaker 11: it's a very valuable asset, and so we're talking to
28:03
Speaker 11: strategics about earning into that asset and they tend to
28:07
Speaker 11: like that. That's what smaller resource companies, whether it's in
28:10
Speaker 11: mining or oil and gas, tend to do. They invite
28:12
Speaker 11: the big guys to come and take an economic interest.
28:15
Speaker 11: In our case, though we have such a broad array
28:18
Speaker 11: of strategics. We have people from the oil and gas,
28:21
Speaker 11: the mining world, the battery precursor world, actual customers. We're
28:25
Speaker 11: seeing ev companies now start to invest in these supply
28:29
Speaker 11: lines because they worried about where are the raw material
28:32
Speaker 11: is going to come from, and so we're talking.
28:35
Speaker 1: To many fascinating, fascinating story. I want you to come
28:39
Speaker 1: back when you kind of get closer, to get further
28:41
Speaker 1: along here, give us an update because this is really interesting.
28:43
Speaker 1: Drod Baron, he's a chairman and CEO of the metals
28:46
Speaker 1: company traded on the Nasdaq TMC. Fascinating story about the
28:51
Speaker 1: something I didn't even know existed. I know these things
28:53
Speaker 1: are on It literally looks like just a little rock
28:55
Speaker 1: and you bring it up and you can make that
28:57
Speaker 1: into the stuff we need for these batteries. So story
29:00
Speaker 1: c suite conversations here in Bloomberg Markets, you never know
29:03
Speaker 1: who Eric Molow is going to book for us.
29:07
Speaker 8: You're listening to the team Ken's are Live program Bloomberg
29:11
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29:14
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29:17
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29:21
Speaker 1: Madison Mills and Paul Sweeny Here in our Bloomberg Interactive
29:23
Speaker 1: Broker studio, let's get right to our markets around here. Yeah,
29:26
Speaker 1: let's we get some players in here. Vinceignarelli, macro strategist
29:29
Speaker 1: for Bloomberg News. And Callie coxhe is the etural strategist. Callie.
29:35
Speaker 1: Let let's start with you. In that clip that Charlie
29:37
Speaker 1: just played Doug Cask we had on this morning, he
29:40
Speaker 1: was just saying, basically, he thinks his market is super expensive.
29:43
Speaker 1: He's very nervous about the market, and he goes net short,
29:47
Speaker 1: net long. He's net short right here. What do you
29:49
Speaker 1: think about this market. Is it overextended? Are we too
29:52
Speaker 1: far over our skis here?
29:54
Speaker 5: Yeah?
29:54
Speaker 12: So I think this comes down to if you think
29:56
Speaker 12: the bull market can't continue, and that seems pretty obvious.
29:59
Speaker 12: But if this is a bull market, you have to
30:01
Speaker 12: remember that bull markets can be fierce even though we
30:04
Speaker 12: have an uncertain future ahead of us. Since nineteen fifty,
30:07
Speaker 12: the first year of every bull market, or in the
30:09
Speaker 12: first year of every bull market, the S ANDP has
30:12
Speaker 12: risen an average of forty three percent.
30:15
Speaker 5: So we're a little cautious here.
30:16
Speaker 12: We wouldn't say that we're so pessimistic that we would
30:19
Speaker 12: think prices could go down, but we do think that
30:21
Speaker 12: investors need to travel caution and really think about quality.
30:24
Speaker 4: Well what about you, Vince, what are you thinking in
30:26
Speaker 4: terms of whether or not this is a real bull
30:29
Speaker 4: market or if the Wilson's of the world are going
30:31
Speaker 4: to be correct.
30:32
Speaker 13: I think it's a real bull market, and I think
30:34
Speaker 13: mister Wilson's going to have a nice interesting conversation with
30:38
Speaker 13: the world come the end of the year.
30:39
Speaker 7: I think I think forty nine hundreds in your prediction.
30:42
Speaker 13: No, I think we could backtrack, you know, one hundred
30:45
Speaker 13: hundred and fifty points in the SMP. I mean, we've
30:48
Speaker 13: come a long way, but the longer term outlook, you know,
30:52
Speaker 13: the markets do not believe with the FETA saying I
30:55
Speaker 13: do not believe with the FETA saying it's a credibility
30:57
Speaker 13: issue for the FED to keep pushing this higher raise scenario.
31:01
Speaker 13: I don't think it's real. I don't think it's justified.
31:03
Speaker 13: And when the Fed does pause, this market's going to
31:06
Speaker 13: rock and I think you could easily see it up
31:08
Speaker 13: around forty eight hundred in the next twelve eighteen months.
31:11
Speaker 1: So but Vince, you know, for better or worse. We
31:14
Speaker 1: just listened this morning from you know, the ECB had
31:17
Speaker 1: their panel in Portugal, and you know, leader leading banker
31:22
Speaker 1: after another, including j Powell and Christine Leaguard talking tough.
31:25
Speaker 13: They're they're talking tough because again I think they're so
31:29
Speaker 13: trying to recover from the errors they made by calling
31:33
Speaker 13: inflation transitory and they need to put a face on it.
31:37
Speaker 13: And I think they're going to keep talking that tough
31:41
Speaker 13: to a point where we're going to see real yields
31:44
Speaker 13: rise because inflation is going to come down below levels
31:47
Speaker 13: until they're ready to cut. And what that's going to
31:49
Speaker 13: do it's going to drive a rally in the bond market,
31:51
Speaker 13: and then it's going to drive that rally in the
31:53
Speaker 13: stock market. And all the time they were talking this morning,
31:57
Speaker 13: eels went down in the US, stocks went up in Europe.
32:00
Speaker 4: Well, Kelly, talk to me about that global picture, because
32:03
Speaker 4: you mentioned in your notes that six out of the
32:05
Speaker 4: last seven bull markets started as the FED lowered rates.
32:08
Speaker 4: So if they cut, does that.
32:10
Speaker 7: Ruin their end goal here?
32:12
Speaker 12: So I don't think they're cutting anytime soon unless we
32:15
Speaker 12: see a recession. And I think obviously that's the wildcard
32:18
Speaker 12: that everybody's grappling with. And you know, the lower FED
32:22
Speaker 12: rates have come with recessions or have come with crises.
32:25
Speaker 12: So the FED right now doesn't have a good reason
32:27
Speaker 12: to cut rates.
32:29
Speaker 5: And they see inflation, you know.
32:30
Speaker 12: Quite high, persistently high, so they have a good argument
32:33
Speaker 12: for keeping rates higher.
32:35
Speaker 5: You know. I think that's a good story.
32:36
Speaker 12: It shows that the economy is rocking and rolling, especially
32:39
Speaker 12: when a recession is at the top of investors' minds.
32:42
Speaker 12: But at the same time, I mean, a lot of
32:44
Speaker 12: the rate sensitive sectors have rallied on the back of
32:47
Speaker 12: some hope for lower rates, So I think that it's
32:50
Speaker 12: an awkward truth to grapple with the fact that most
32:52
Speaker 12: bull markets start in the depths of a recession. But
32:56
Speaker 12: I'm not sure that has to be the same case here.
32:58
Speaker 12: And we've seen a lot of things over the past
33:00
Speaker 12: three years or so, and quite frankly, we could be
33:02
Speaker 12: having a rotating recession at the moment.
33:05
Speaker 1: Hey, Vince, what do you look at all over the market, commodities, rates, currencies,
33:10
Speaker 1: all that kind of good stuff. What are you seeing
33:12
Speaker 1: other parts? What are you hearing from some of the
33:14
Speaker 1: traders that you talk to, just in terms of I
33:16
Speaker 1: guess their willingness to take on incremental risk here.
33:20
Speaker 13: I mean, I think they like the risk scenario in general.
33:24
Speaker 13: They think the for the most part, the dollar was
33:26
Speaker 13: run its course, that equity use a for real with
33:30
Speaker 13: the you know, there are obviously exceptions out there, you know,
33:34
Speaker 13: to the point kindly just made it about interest rates
33:37
Speaker 13: and potential FED rate pause. You know, I don't think
33:40
Speaker 13: they I agree, they don't have a scenario right now
33:43
Speaker 13: where they're going to be cutting rates anytime soon. But
33:45
Speaker 13: if you look at all the data for June, it
33:48
Speaker 13: points to them holding In July as well. CPI was lower, PPI, lower,
33:52
Speaker 13: export import price is lower, prices paid lower in all
33:56
Speaker 13: the scenarios, sentiment better in terms of expectation.
34:00
Speaker 1: So you don't think they're going to raise in July.
34:02
Speaker 13: I'm not saying they won't. I'm saying they don't have
34:04
Speaker 13: a reason to. The data suggests that they should hold
34:07
Speaker 13: one more time.
34:08
Speaker 9: Now.
34:08
Speaker 13: If the data from June matches the data going into
34:12
Speaker 13: the middle of July, then I think they should hold.
34:14
Speaker 13: Whether or not they do again, I still think it's
34:17
Speaker 13: a credibility issue, not a data issue.
34:19
Speaker 4: Kelly, talk to me then about how retail investors should
34:22
Speaker 4: be looking at FED moves in the market. More broadly,
34:25
Speaker 4: you have a great tweet about how at least one
34:28
Speaker 4: stock from each S and P five hundred sector except
34:30
Speaker 4: for energy, has hit a fifty two week high in.
34:32
Speaker 7: The past month.
34:34
Speaker 4: How should retail investors be looking at and digesting that.
34:38
Speaker 12: Yeah, so I want to remind everybody that retail investors
34:41
Speaker 12: are mainly longer term investors. They get a really bad
34:43
Speaker 12: knock in the market as being these short term day
34:46
Speaker 12: trading type speculators, but a lot of retail investors are
34:49
Speaker 12: just investing for a retirement or that nest egg, you know,
34:52
Speaker 12: long term security. So if you're a retail investor, you're
34:55
Speaker 12: looking long term, you're just taking some money from your
34:57
Speaker 12: paycheck chucking it into an index fund. You know, review
35:01
Speaker 12: the headlines, be aware of what's going on. But at
35:04
Speaker 12: the same time, remember that ninety percent of these headlines
35:07
Speaker 12: don't matter to you, and that you know, even if
35:09
Speaker 12: we do plunge into another bear markets, every bear market
35:12
Speaker 12: that we've hit, we've recovered from.
35:14
Speaker 5: It's all about emotion management.
35:16
Speaker 12: If you are a little bit shorter term, I would,
35:18
Speaker 12: you know, I would be a little more cautious. I
35:20
Speaker 12: would definitely, you know, consider the headlines more. This is
35:23
Speaker 12: an interest rate sensitive market at the moment. I mean,
35:26
Speaker 12: we've been talking about the FED for this entire conversation,
35:29
Speaker 12: and the FED has a really good argument to keep
35:31
Speaker 12: rates high no matter if they hike or pause in July.
35:34
Speaker 12: So if you're looking over the next three to six
35:37
Speaker 12: months or so, I would really focus on the companies
35:40
Speaker 12: that have those quality balance sheets that can operate in
35:43
Speaker 12: a slowing growth, high rate environment. And that's what we've
35:45
Speaker 12: been telling our customers. We really pay attention to what
35:48
Speaker 12: you're investing in and what can can survive these grinding conditions.
35:52
Speaker 4: Well, Kelly, I want to ask you a follow up
35:54
Speaker 4: on that because Goldman had a note recently about how
35:56
Speaker 4: when retail investors start to take a little bit of
35:59
Speaker 4: care they start to get out. That's an indicator that
36:02
Speaker 4: they're about to miss out on a rally. Talk to
36:05
Speaker 4: me about your view on that. Why do you think
36:07
Speaker 4: that the retail investor just gets such a bad rep.
36:10
Speaker 12: Well, it's a mystery to me. And I mean, you
36:12
Speaker 12: know that I work for a retail brekerage, so obviously
36:14
Speaker 12: I'm biased here. But individual investors have been stronger. They're
36:18
Speaker 12: the most have thought in this cycle. I mean, we
36:21
Speaker 12: take a quarterly survey it's called the Retail Investor Beat Survey,
36:24
Speaker 12: and we flat out ask investors, what are you investing in?
36:27
Speaker 5: What are you thinking about? What are you worried about?
36:29
Speaker 12: Where do you see your money going in the next
36:32
Speaker 12: three months? And their allocations have held pretty steady, even
36:34
Speaker 12: though they've diversified a little bit. They've become a little
36:37
Speaker 12: bit more tactical, and they, like every kind of investor,
36:41
Speaker 12: are worried about the future. They're watching their risks. So
36:44
Speaker 12: I'm not quite sure, you know, I think that there's
36:47
Speaker 12: been a change in psychology and sophistication of the retail investor.
36:50
Speaker 12: You know, since the global financial crisis, and consumers, let's
36:54
Speaker 12: be honest, are in a really good position right now.
36:56
Speaker 12: And most people invest when they have money, So I
36:59
Speaker 12: have no doubt that people are taking chips off the table,
37:01
Speaker 12: let's be real. But in mass you know, I think
37:03
Speaker 12: investors are.
37:04
Speaker 5: Still in it.
37:05
Speaker 1: Hey, Vince, we got a company that people kind of
37:08
Speaker 1: come in contact with every day, General Mills, make, you know,
37:11
Speaker 1: consumer product stuff. They basically said they can no longer
37:14
Speaker 1: pass price increases through to me and you and Callie's
37:17
Speaker 1: walking down the supermarket aisle. That to me, if I'm
37:20
Speaker 1: the Federal Reserve, that's real inflation peaking, if not completely
37:24
Speaker 1: you know, coming down, which you know, it's just confirms
37:27
Speaker 1: what we've seen from the government data. But there's a
37:29
Speaker 1: real company touching real people every day, you know, do
37:35
Speaker 1: I mean, does the market do? Do feed officials look
37:38
Speaker 1: at that kind of stuff?
37:39
Speaker 13: They do? I mean I interviewed Charles Ploster once when
37:42
Speaker 13: I was with Wall Street Journal, and I started the conversation.
37:45
Speaker 13: He cut me off and said, yes, I do go
37:46
Speaker 13: to the supermarket and I do look at the cereal prices,
37:50
Speaker 13: So I'm gonna I'm gonna hope that the rest of
37:52
Speaker 13: them follow his lead and still do that. And I
37:55
Speaker 13: think it speaks volumes that when when you have a
37:58
Speaker 13: large retail company that touched retail and basically says we're
38:02
Speaker 13: at a wall. You know, people are just not going
38:04
Speaker 13: to buy if we keep raising prices. That suggests something
38:07
Speaker 13: that's rolling over. That's a consumer that's starting to change
38:10
Speaker 13: their buying habits, and consumers do. It's the old story.
38:13
Speaker 13: If state gets too expensive, if beef's too expensive, you
38:15
Speaker 13: buy more checking and it happens, and people will move
38:19
Speaker 13: to alternatives if they have to. When a prices were
38:23
Speaker 13: through the roof, people went to alternatives for breakfast, and
38:27
Speaker 13: I think they'll they'll do the same. And considering how
38:30
Speaker 13: much sugar is in cereal, it's probably good idea.
38:33
Speaker 4: Okay, fair enough, but I do want to get your.
38:36
Speaker 7: FX expertise while we have you here. You're an FX guy.
38:39
Speaker 4: Obviously, how badly does a company like a General Mills
38:43
Speaker 4: or more broadly, other consumer packaged goods companies that have
38:46
Speaker 4: strong international exposure, how badly do they need some more
38:50
Speaker 4: downside for the dollar to be successful?
38:52
Speaker 13: In the second half of the year big time because
38:54
Speaker 13: they don't hedge. And I've marketed to them forever and
38:57
Speaker 13: they don't. They somehow think the dollar is always going
39:01
Speaker 13: to be strong, and you know, they're they're going to
39:06
Speaker 13: have where the dollar is going to be weak rather
39:08
Speaker 13: and they're going to have this great situation. The dollar
39:13
Speaker 13: is going to come down.
39:14
Speaker 9: It's overdone.
39:15
Speaker 13: And you know, the the large corporations, the large cap
39:19
Speaker 13: companies just literally just don't hedge, and they you'll always
39:23
Speaker 13: see I mean, you watch the earnings numbers, and the
39:25
Speaker 13: earnings numbers that came out last year in particular were gruesome.
39:29
Speaker 13: With the strength of the dollars. They were reporting some
39:32
Speaker 13: huge FX losses.
39:33
Speaker 1: So why don't they hedge?
39:36
Speaker 13: It's a it's a cya story. I remember speaking to
39:39
Speaker 13: a guy buying a company buying a railroad in Australia,
39:42
Speaker 13: and I put a pitch together for them to save
39:44
Speaker 13: them potentially thirty million dollars ten percent, and the treasurer
39:48
Speaker 13: said to me, flat out, he said, if I do
39:50
Speaker 13: this trade and you're wrong, I'll lose my job. I said,
39:55
Speaker 13: but what about if I'm right and you say thirty
39:57
Speaker 13: million dollars? He said, no, one will.
39:58
Speaker 7: Knows every job is the same.
40:01
Speaker 13: They said, there's no reason for me to take this
40:04
Speaker 13: kind of risk. I don't get paid to save the
40:05
Speaker 13: company money on this scenario.
40:07
Speaker 1: Interesting, Kelly, for your clients, your customers, what are you
40:12
Speaker 1: suggesting sector wise they allocate some where did they go
40:16
Speaker 1: in the market here? Do you have any some sectors
40:18
Speaker 1: that get that screen well for you guys?
40:20
Speaker 5: Yeah?
40:21
Speaker 12: So when I think about sector allocations, first, I think
40:24
Speaker 12: about the economic trend, and I think that's pretty clear
40:26
Speaker 12: at the moment. The FED has the economy and the
40:28
Speaker 12: vice a vice. They're not letting up anytime soon.
40:32
Speaker 5: You know.
40:32
Speaker 12: If we hit a recession, then you have to rethink
40:34
Speaker 12: the sector allocations, of course, But for now, in a
40:37
Speaker 12: slow and growth, high rate environment, I think it makes
40:39
Speaker 12: sense to look a little bit at defensives while keeping
40:43
Speaker 12: your toes and some quality risk as well. When I
40:45
Speaker 12: say quality risk, I mean looking at those rate sensitive sectors,
40:49
Speaker 12: looking at those sectors that do well in an early
40:51
Speaker 12: bull market, but focusing on the bigger.
40:53
Speaker 5: Companies that you think can make it through.
40:54
Speaker 1: So where does tech fall out in there?
40:57
Speaker 9: For you?
40:57
Speaker 1: Because Tech's been you know, the miracle sevens that have
41:00
Speaker 1: been just kind of the stalwarts so far this year,
41:03
Speaker 1: making up a lot of what they lost last year, granted,
41:05
Speaker 1: but worst tech fit in for you.
41:07
Speaker 12: Guys, Well, we all know that there are a lot
41:10
Speaker 12: of flavors at tech. So there's big tech, you know,
41:13
Speaker 12: there are the AI, you know, rising stars that people
41:15
Speaker 12: have been looking at. I like to tell people this.
41:18
Speaker 12: You know, if you're looking at the speculative smaller tech
41:21
Speaker 12: companies that you you know, maybe believe in their story,
41:24
Speaker 12: then sure, stay invested in that. But at the same time,
41:27
Speaker 12: remember that this is a very tough operating environment for them.
41:30
Speaker 12: Investment is going down, especially in the early stage companies,
41:33
Speaker 12: and these are the types of businesses that get squeezed
41:36
Speaker 12: by the higher costs and you know, higher.
41:39
Speaker 5: Higher financing rates generally.
41:41
Speaker 12: So, you know, big tech obviously they operate in the
41:44
Speaker 12: same environment.
41:45
Speaker 5: You know, I have some thoughts.
41:46
Speaker 12: On if they'll lead the next wool market. They're looking
41:49
Speaker 12: a little big and bloated to me. But big and
41:51
Speaker 12: bloated could work here. You know, they have really big
41:54
Speaker 12: cash modes and they have strong, healthy profit margins. So
41:58
Speaker 12: investors looking at big tech that doesn't surprise me. I
42:01
Speaker 12: think that that's a smart idea, especially if you're thinking
42:04
Speaker 12: bigger and durable, smaller tech.
42:06
Speaker 5: You know, I would say, probably think twice about that.
42:08
Speaker 4: A lot of people looking into AI as well.
42:11
Speaker 12: Yes, yeah, so we've seen that on our platform, you know,
42:13
Speaker 12: we see it in the surveys that we watch.
42:15
Speaker 5: And does that surprise you? It doesn't surprise me.
42:18
Speaker 12: I mean there's a lot of hype out there around AI,
42:20
Speaker 12: and I think, you know, you have a good argument
42:22
Speaker 12: for saying that AI will probably change the world.
42:25
Speaker 5: In some form or fashion.
42:27
Speaker 12: You know, I'm a little cautious about how how much
42:31
Speaker 12: we attribute to AI at the moment. You know, I
42:33
Speaker 12: think it's a groundbreaking technology, but we need to see
42:35
Speaker 12: it flow into economic productivity. We need companies to spend
42:38
Speaker 12: on it, we need we need real utility from it.
42:41
Speaker 12: We don't just need to talk about it. And I
42:42
Speaker 12: think we can get there, but it's too early to tell.
42:45
Speaker 1: I Ben's real quick. Just about thirty seconds. I'm going
42:47
Speaker 1: at WTI crude oil sixty nine dollars a barrel. I mean,
42:51
Speaker 1: where does it go from here? Do I just have
42:53
Speaker 1: to be right on demand?
42:55
Speaker 13: I think it's actually going to be more of a
42:56
Speaker 13: supply issue. I think for it to go up I
42:58
Speaker 13: think the Sudis are going to have to end engineer
43:00
Speaker 13: another cut, opek engineer another cut. We're not yet, As
43:05
Speaker 13: as Kelly said, We're in a slower growth environment. This
43:08
Speaker 13: isn't an explosive growth environment. I don't think it's going
43:10
Speaker 13: to come from the demand side as much as it
43:12
Speaker 13: needs to be reduced from the supply side. I mean,
43:14
Speaker 13: we keep hearing about you know. I mean they just
43:18
Speaker 13: cut recently yep, and oil went down yep. So it
43:21
Speaker 13: clearly isn't a demand issue to be There's just too
43:24
Speaker 13: much supply out there.
43:24
Speaker 1: All right, Vince, thanks so much for joining us. Vince Cignorella,
43:27
Speaker 1: macro strategist for Bloomberg News, and Kellie Cox, us equity
43:31
Speaker 1: analyst with Intro, joining us here in our Bloomberg Interactive
43:34
Speaker 1: Broker Studio. We appreciate getting both of them together talking
43:37
Speaker 1: about these markets.
43:39
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43:42
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43:45
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43:47
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43:49
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43:58
Speaker 1: Madison Mills, and Paul Tween Here in our Bloomer Interactive
44:00
Speaker 1: Broker's studio, let's talk real estate. Let's talk residential real estate,
44:05
Speaker 1: and we can do that with our next guest, Selma Hepbitt.
44:08
Speaker 1: She's a chief economist of core Logic. Salma, thanks so
44:10
Speaker 1: much for joining us here. I guess my understanding is,
44:14
Speaker 1: if you want to buy a new home, you really
44:16
Speaker 1: only have one choice because people aren't selling their existing home,
44:19
Speaker 1: so you got to buy a new home new construction,
44:21
Speaker 1: and that had a huge number, the fastest pace in
44:23
Speaker 1: more than a year. Just recently, give us a lay
44:26
Speaker 1: of the land of how the residential real estate market
44:28
Speaker 1: is right now.
44:31
Speaker 14: Yeah, of course, thanks for having me on the show.
44:34
Speaker 14: So home sales activity are sort of a tale of
44:37
Speaker 14: two different markets. In terms of new home sales, they
44:40
Speaker 14: are doing really, really well, as you mentioned their increase
44:43
Speaker 14: to a fifteen month high, as builders have been able
44:47
Speaker 14: to provide more incentives on one hand, and on the
44:51
Speaker 14: other hand, as existing home sale inventory is almost non
44:55
Speaker 14: existent in many markets.
44:58
Speaker 7: So what needs to happen to change that?
45:01
Speaker 4: I know that's kind of the million dollar question here,
45:03
Speaker 4: but is there anything that I mean.
45:08
Speaker 7: That can be done to kind of shift that dynamic.
45:12
Speaker 5: Well, I think, you.
45:13
Speaker 14: Know, the further we move away from those three percent mortgages,
45:18
Speaker 14: and as people you know, and there's always a natural
45:22
Speaker 14: transition that people go to through and sell their homes
45:26
Speaker 14: and you know, they get a divorce, they have to
45:30
Speaker 14: move for schools, they have to move closer to families.
45:34
Speaker 14: So there's always that natural process of home sales activity
45:38
Speaker 14: that happens. And so one combined with the other, I
45:41
Speaker 14: think down the road we are likely to see more
45:43
Speaker 14: new home sales on the market. The other thing is,
45:46
Speaker 14: you know, baby boomers are the largest cohort that with
45:51
Speaker 14: the highest home ownership rate, and of some fifty percent
45:55
Speaker 14: of baby Boomers have on their homes free and clear,
45:58
Speaker 14: and so for them, low mortgage rates, you know, are
46:02
Speaker 14: not making any difference right now. It's more about making
46:05
Speaker 14: that decision to leave their home, you know, and in
46:09
Speaker 14: light of the fact that that home prices have gone
46:12
Speaker 14: up so much, so that may be a difficult decision
46:14
Speaker 14: for them. But the mortgage rates themselves are not a
46:17
Speaker 14: constraining factor. So I think, you know, again, as we
46:20
Speaker 14: as we move away from those really really favorable mortgage rates,
46:24
Speaker 14: we're likely to see more turnover in terms of existing
46:27
Speaker 14: home sales.
46:29
Speaker 1: So what are the builders actually building these days? Because
46:33
Speaker 1: it seems like what I hear from you know, pros
46:35
Speaker 1: like you, we really need you know, kind of first
46:38
Speaker 1: time home buyer kind of homes, entry level homes, and
46:41
Speaker 1: that's not the stuff that's getting built. Because when I
46:44
Speaker 1: talk to homebuilders, they say, I can make a much
46:46
Speaker 1: better profit margin on some of these McMansions and I
46:48
Speaker 1: can on an entry level house. What are they actually
46:51
Speaker 1: building these days?
46:53
Speaker 14: Well, I mean, so you know, it's very different regionally,
46:57
Speaker 14: very much. And I think in markets where you don't
47:00
Speaker 14: have a lot of regulatory constraints which increase the cost
47:05
Speaker 14: of construction, that those are the areas where you're likely
47:08
Speaker 14: to see more affordable or smaller homes, you know. And
47:12
Speaker 14: and then on the on the flip side, the markets
47:14
Speaker 14: that are more expensive, such as the West Coast markets
47:17
Speaker 14: and Mountain West markets with a lot of regulatory constraints,
47:20
Speaker 14: a lot of costs coming into the construction just to
47:25
Speaker 14: start build building a home, that's where we are not
47:28
Speaker 14: likely to see a lot of affordable housing. So you know,
47:30
Speaker 14: it plays out very interestingly in how where people are moving.
47:34
Speaker 14: So people are moving to those more affordable parts of
47:37
Speaker 14: the country and to you know, where there is more
47:39
Speaker 14: new construction because that's where they can afford.
47:43
Speaker 4: Have we seen a reversal or at least declines though,
47:46
Speaker 4: and people moving to those areas that are a little
47:49
Speaker 4: are a little bit more affordable as we've seen you know,
47:52
Speaker 4: employers pushing people to get back into the office for example,
47:55
Speaker 4: have we seen that decline? And you know, people moving
47:58
Speaker 4: from New York City to Austin and for example, right.
48:02
Speaker 5: I mean, I think we do.
48:04
Speaker 14: But again there's two different types of buyers. There is
48:07
Speaker 14: the retired buyer and there is the buyer that is
48:11
Speaker 14: still working. And for the buyer that's still working, they
48:15
Speaker 14: are likely to be going back to larger cities. And
48:17
Speaker 14: in our coreologic homepress index, and actually a case Shiller
48:20
Speaker 14: index that came out yesterday showed a stronger home press
48:24
Speaker 14: appreciation or at least a less of a declined deceleration
48:29
Speaker 14: in home press appreciation in markets that are more larger
48:32
Speaker 14: employment markets such as Boston and Chicago for example.
48:36
Speaker 5: And then you still have the.
48:38
Speaker 14: Markets in southeast and south in Texas and Florida, and
48:42
Speaker 14: Carolina's for example, where you do have retiree is going
48:46
Speaker 14: and where you do have those folks that are not
48:48
Speaker 14: necessarily tied to a desk in an office. So, you know,
48:52
Speaker 14: I would say that the rate of migration has slowed
48:55
Speaker 14: in some ways, but it has not completely stalled, you know.
48:58
Speaker 14: I think what we're seeing is we're seeing trends going
49:01
Speaker 14: back to pre pandemic levels. And you know, even at
49:05
Speaker 14: those times, we did see a lot of migration to
49:08
Speaker 14: those more affordable markets.
49:11
Speaker 1: Someone talk to us about just kind of this new
49:14
Speaker 1: construction market, new home sales market. We've heard that some
49:18
Speaker 1: builders are actually offering to buy down a buyer's mortgage.
49:22
Speaker 1: So the six or seven percent maybe is more like
49:24
Speaker 1: a three or four percent are you seeing? Is that
49:27
Speaker 1: pervasive out there? Is that a good business practice? Is
49:29
Speaker 1: that what's needed to get people into these homes?
49:33
Speaker 14: Well, I think in terms of affordability, it does seem
49:37
Speaker 14: like it was needed. It wasn't until you know, in
49:41
Speaker 14: new home sales inventory climb to some ten months supply
49:45
Speaker 14: at the end of last year when mortgage rates peaked
49:47
Speaker 14: and seven percent, and that's when homebuilders started of providing
49:52
Speaker 14: mortgage rade buydowns and we did see home buyers coming
49:55
Speaker 14: back sort of in hoards in some way. I mean
49:57
Speaker 14: we can see that by the numbers that were just
49:59
Speaker 14: released yes today. So people are sensitive to mortgage expenses,
50:04
Speaker 14: and typical mortgage payment rose to all time high at
50:08
Speaker 14: the end of last year. So a lot of people
50:11
Speaker 14: are pushed out of the market. So I think it
50:13
Speaker 14: is helping, it is helping bring folks back. But you know,
50:17
Speaker 14: on the other side, I think one thing we have
50:20
Speaker 14: to keep in mind is that people, you know, there
50:23
Speaker 14: is no inventory in a lot of markets out there.
50:25
Speaker 14: There's just simply nothing to buy. So people are turning
50:28
Speaker 14: towards areas where there is something to buy. Because we
50:31
Speaker 14: do have you know, millennial population largest cohort in the
50:35
Speaker 14: US that is becoming of coming off first time home
50:39
Speaker 14: buying age. And there's some fifteen million of them. And
50:42
Speaker 14: so they you know, they have good jobs, they you know,
50:45
Speaker 14: they went through school, they have good incomes, and so
50:48
Speaker 14: they are you know, likely to want to buy a home.
50:51
Speaker 14: Irrespectable mortgage rates are right now, looking at the overall
50:57
Speaker 14: share of mortgages that were they were originated with mortgage
51:02
Speaker 14: rate buydowns, it has increased from zero. You know when
51:05
Speaker 14: we were at a record low mortgage rates to some
51:08
Speaker 14: three percent at its highest points in November in November
51:13
Speaker 14: of last year. So it does seem, you know, it's
51:16
Speaker 14: not a huge increase, but it is. It has helped
51:20
Speaker 14: us spur market activity again.
51:22
Speaker 7: Some really quickly.
51:23
Speaker 4: Final thirty seconds here to what extent are some of
51:25
Speaker 4: the headwinds you're talking about forcing millennials to kind of
51:29
Speaker 4: just say, all right.
51:30
Speaker 7: I'm never going to own a home. I'm just going
51:31
Speaker 7: to keep renting. Are you seeing that?
51:34
Speaker 5: Yeah?
51:34
Speaker 14: I mean I think that's always sort of been the
51:37
Speaker 14: case for younger you know, younger people when they were
51:40
Speaker 14: in their early twenties and up to you know, maybe
51:43
Speaker 14: twenty five, and they you know, get out of school
51:46
Speaker 14: and they get that first job and maybe it's not
51:48
Speaker 14: paying what they were hoping to, so they're very pessimistic
51:52
Speaker 14: about their home ownership opportunities. I mean, when you think
51:55
Speaker 14: back about a decade ago when we were talking about millennials,
51:59
Speaker 14: you know, becoming that eventually becoming that largest population, and
52:02
Speaker 14: we survey them and they said, no, I will never
52:05
Speaker 14: buy because what's the point, you know, it's so expensive,
52:08
Speaker 14: and they eventually did. So I think, you know, if
52:12
Speaker 14: We give people enough time to you know, understand housing
52:16
Speaker 14: market conditions to save some down payment, you know, and
52:20
Speaker 14: their wages go up and they they couple with another
52:24
Speaker 14: person to have more down payment and more income for
52:27
Speaker 14: that home. I think they will, they will come into
52:29
Speaker 14: the market.
52:30
Speaker 1: Salma, thank you so much for joining us. I always
52:32
Speaker 1: appreciate getting your thoughts and analysis. Sama have chief economist
52:36
Speaker 1: at core Logic talking about the residential real estate market again.
52:40
Speaker 1: We got that new home sales number was just really
52:43
Speaker 1: gangbusters and the fastest pace in more than a year.
52:50
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
52:53
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
52:57
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
53:00
Speaker 2: at Matt Miller nineteen seventy three.
53:03
Speaker 1: And I'm Faul Sweeney. I'm on Twitter at pt Sweeney.
53:05
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53:08
Speaker 1: Bloomberg Radio.