Latest / Bloomberg Intelligence / Apple, Real Estate, Russia, and Carvana

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Apple, Real Estate, Russia, and Carvana · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
0:04
Speaker 1: my co host Matt Miller. Every business day, we bring
0:06
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
0:11
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
0:15
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. Let's talk about the
0:21
Speaker 1: tech space PCs. People are still out there buying PCs,
0:25
Speaker 1: Apparently they bought a lot during the pandemic, and maybe
0:28
Speaker 1: comps are getting a little tougher here. But let's figure out.
0:30
Speaker 1: We got some news out there that PC shipments are
0:32
Speaker 1: down pretty big. Anna rog Rana, senior tech an also
0:35
Speaker 1: Bloomberg Intelligence, joins us, what's going on in the PC
0:38
Speaker 1: market is just us tough comps. I'm seeing minus twenty,
0:41
Speaker 1: minus thirty even Apple minus forty percent on PC deliveries,
0:45
Speaker 1: even though, as Matt Riley points out, Apple doesn't sell PCs,
0:49
Speaker 1: they sell max. But what's going on in that PC space? No? No,
0:53
Speaker 1: I agree, I mean I think it tough. Comps is
0:55
Speaker 1: one thing, but you know, the street already had MAC
0:59
Speaker 1: revenue going down twenty two. But if the unit shipments
1:02
Speaker 1: is down forty percent. I think those numbers need to
1:04
Speaker 1: come down a little bit more, which to me tells
1:07
Speaker 1: me that the consumer spending is actually worse than what
1:10
Speaker 1: we anticipated a quarter ago, and that should bleed into
1:13
Speaker 1: other product categories as well. So I'm expecting a lot
1:16
Speaker 1: more downward revision of consensus estimates over the next couple
1:20
Speaker 1: of weeks. So you expect down or revision of senses estimates,
1:25
Speaker 1: meaning that you also expect the stock to drop, right.
1:30
Speaker 1: That depends on if you are renting it for a
1:32
Speaker 1: quarter or if you're buying it for the long run.
1:34
Speaker 1: So that's usually, you know, truly depends on who the
1:37
Speaker 1: buyer is. But I don't expect the revenue numbers to
1:40
Speaker 1: come down now that that may mean that whoever is
1:43
Speaker 1: taking those numbers down maybe increasing it the year from now,
1:46
Speaker 1: because it's not as if you know the buyer of
1:48
Speaker 1: that particular MacBook Pro like yourself. You know, if you're
1:51
Speaker 1: not buying it now, you're going to buy it six
1:53
Speaker 1: months from now or twelve months from now. Okay, the
1:55
Speaker 1: fact that I bought it twelve months ago because I
1:58
Speaker 1: had some stimmies and and you know, I had to
2:03
Speaker 1: work from home or had to do school from home.
2:05
Speaker 1: Now I can work in the office, I can go
2:08
Speaker 1: back to school. And plus, why would I spend money
2:11
Speaker 1: on that kind of thing now that I don't have
2:14
Speaker 1: the government sending me checks. Well, if you know the
2:18
Speaker 1: people who the government was sending the checks, we're not
2:21
Speaker 1: buying MacBook pros in my view. So if you are
2:24
Speaker 1: a gamer and you're looking for MacBook Pro with the
2:27
Speaker 1: next M two chip, you know you will spend fifteen
2:30
Speaker 1: hundred dollars or two thousand dollars to buy it. But again,
2:33
Speaker 1: that's a that's a luxury product. That's not something that
2:35
Speaker 1: you know everybody can buy. All right, I just want
2:39
Speaker 1: to get the generic Apple call here. What do you
2:41
Speaker 1: think they gets census calls for this stock? Right here?
2:43
Speaker 1: It's up twenty four percent year to date, still about
2:46
Speaker 1: five percent down on a trailing twelve month basis, So
2:48
Speaker 1: stick at trying to dig itself out of that twenty
2:50
Speaker 1: twenty two hole. What's the when you talk to some
2:53
Speaker 1: smart tech investors out there, what are they saying about Apple?
2:57
Speaker 1: You know, I think if you look at both Apple
2:58
Speaker 1: and Microsoft, they have been a safe stock for the
3:00
Speaker 1: past several weeks. As people are trying to figure out
3:03
Speaker 1: where they go from here. The valuation has gone up
3:06
Speaker 1: for both these companies quite a bit in the last
3:09
Speaker 1: two I would say, several weeks. Now the question is,
3:12
Speaker 1: you know, what happens to the rest of the tech portfolio.
3:15
Speaker 1: If we do see some stabilization in other tech stocks,
3:18
Speaker 1: then you would see some kind of I would say,
3:20
Speaker 1: a sector reallocation from you know, these two safety stocks
3:24
Speaker 1: to some of the other ones. Now, having said that,
3:26
Speaker 1: this is the first time I'm seeing a clear indication
3:29
Speaker 1: that Apple numbers needs to come down. You know, that
3:32
Speaker 1: wasn't the case. I would say in the last twelve months,
3:35
Speaker 1: what do you think about chip usage? I mean, the
3:39
Speaker 1: Samsung story and Taiwan Semiconductor as well, has really affected
3:44
Speaker 1: the US market. Today we see a jump at Micron.
3:48
Speaker 1: Does this mean that a lot of chip suppliers are
3:51
Speaker 1: going to have fewer orders or have they bottomed at
3:55
Speaker 1: this point? You see, that's a very tough call to
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Speaker 1: make because a lot depends on you know, autos and
4:01
Speaker 1: other industries. It's not so much always tied with PCs,
4:04
Speaker 1: although consumer spending you know, in PCs is a big
4:07
Speaker 1: portion of chips. But I don't think Apple has ever
4:10
Speaker 1: had an issue with supply chain when it comes to
4:12
Speaker 1: you know, they get it first before anybody else. I'm
4:15
Speaker 1: I'm less concerned on those factors. For my biggest concern
4:18
Speaker 1: at this point for Apple is, um, you know, what's
4:21
Speaker 1: really going to happen on the on some of these
4:24
Speaker 1: products and how bad it's going to get in twenty
4:27
Speaker 1: twenty three before we see a potential bounce back next year?
4:31
Speaker 1: Do they have do they have to introduce a killer
4:34
Speaker 1: new product? Are they going to make some kind of
4:36
Speaker 1: virtual reality aar eyeglasses. Are they going to come out
4:43
Speaker 1: with new air pods that blow us away for this
4:46
Speaker 1: new function that we never knew headphones can have? Or
4:50
Speaker 1: is the car coming soon? I don't know about the car,
4:53
Speaker 1: but Mark German said that you know, they will launch
4:56
Speaker 1: the new mixed reality headset in the summer. You know
4:58
Speaker 1: that is going to truly vibe the whole metaphors discussion.
5:02
Speaker 1: But I don't think mathematically it adds anything at least
5:05
Speaker 1: for the next you know, this financial year. Next year,
5:08
Speaker 1: perhaps it adds a few billion dollars, But you know
5:10
Speaker 1: the big thing for Apple is going to be the
5:12
Speaker 1: iPhone fifteen launch by the end of this year and
5:15
Speaker 1: a revival potentially in the services division. So I think
5:18
Speaker 1: comps are getting easier and easier for Apple for a
5:21
Speaker 1: bounce back next year. But before that, I think we
5:24
Speaker 1: need to have a take a step back on numbers
5:27
Speaker 1: before we can jump back and say revenue growth is
5:30
Speaker 1: going to get back again into that eight to ten
5:31
Speaker 1: percent range. So I'm looking at the PGeo function on
5:35
Speaker 1: the Bloomberg termo for Apple. I see about twenty percent
5:38
Speaker 1: of their sales are in Greater China. Are the Chinese
5:42
Speaker 1: buying watches and phones and all that kind of stuff?
5:45
Speaker 1: What's the market like? I think this, You know, that's
5:48
Speaker 1: probably only going to be the one bright spot for
5:50
Speaker 1: Apple over the next six months, because you know, the
5:53
Speaker 1: China reopening trade and the Chinese consumer really hasn't spent
5:57
Speaker 1: quite a bit over the last twelve months. You know,
5:59
Speaker 1: we could see some relief over there to offset the
6:02
Speaker 1: other things that we are talking about. But you know, again,
6:05
Speaker 1: I think the big jump is going to come from
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Speaker 1: a new hardware design from the iPhone fifteen, which is
6:11
Speaker 1: most likely going to be in the September October timeframe.
6:14
Speaker 1: All right, Now, Tim Cook was over there right in China,
6:16
Speaker 1: and what was she trying to do. It's trying to
6:19
Speaker 1: be nice to them. That's where they you know, it's
6:22
Speaker 1: it is. It is the heart and lungs off Apple
6:25
Speaker 1: supply chain. If something happens to that, Apple's going to
6:28
Speaker 1: be in really tough time. So he's just kind of
6:30
Speaker 1: trying to smooth things out that otherwise it's getting worse. Frankly,
6:34
Speaker 1: Hey guys, you look great today. Hey, anybody wants the
6:38
Speaker 1: new iPhone? Isn't Taiwan yours anyway? Yes, exactly, So I
6:43
Speaker 1: love to see about that. I don't know that's that's
6:45
Speaker 1: still a huge risk there, but I guess trying to
6:47
Speaker 1: smooth it over a little bit. On agron I, senior
6:49
Speaker 1: technology analyst with Bloomberg Intelligence, joining us on the phone
6:53
Speaker 1: talking about Apple, mac shipment's PC shipment's across the industry.
6:59
Speaker 1: You're listening to the Team Cancer Line program Bloomberg Markets
7:03
Speaker 1: weekdays at ten am Eastern on Bloomberg dot com, the
7:06
Speaker 1: I Heard Radio app and the Bloomberg Business app, or
7:09
Speaker 1: listen on demand wherever you get your podcast. Let's get
7:14
Speaker 1: to the next company, which I find really fascinating. I
7:17
Speaker 1: was initially interested because it's called the Howard Hughes Corporation,
7:21
Speaker 1: and who isn't interested in Howard Hughes, right, But it's
7:26
Speaker 1: actually got that name in a roundabout way. Howard Hughes
7:31
Speaker 1: bought the property for one of their master planned communities.
7:36
Speaker 1: And now that's the business that they're in. But it's
7:41
Speaker 1: not all stuff they got from Howard Hughes, mostly general
7:43
Speaker 1: growth properties. David O'Reilly joins as CEO of the company.
7:47
Speaker 1: The ticker is HC. It's publicly traded on the New
7:50
Speaker 1: York Stock Exchange. David, so talk to us first, give
7:54
Speaker 1: us the overhead view of the Howard Hughes Corporation. You
7:57
Speaker 1: have at least three master planned communities, right, These are big.
8:01
Speaker 1: It's not like a few thousands, like one hundred thousand
8:04
Speaker 1: people live in them, and there are thousands of acres.
8:07
Speaker 1: So what's the business. It's the end of the day.
8:11
Speaker 1: We play sim city. We're developing real estate to create
8:15
Speaker 1: the greatest places to live, to have the greatest and
8:17
Speaker 1: positive impact on our residents, tenants and visitors lives. Sell
8:21
Speaker 1: land to home builders, take that capital to amenitize built office,
8:25
Speaker 1: multi families, shopping within our communities, which in turn makes
8:28
Speaker 1: it better places to live where more people want to
8:31
Speaker 1: come live there, our land values go up, and that
8:33
Speaker 1: self fulfilling cycle goes on and on. We essentially play
8:37
Speaker 1: sim city. We decide where the roads go, where the
8:39
Speaker 1: hospitals are, where the homes are, and create what we
8:42
Speaker 1: think are the best communities to live in America. And
8:44
Speaker 1: then they have then they hopefully you know, they have
8:47
Speaker 1: the best plumbing, the best WiFi, pickleball on demand yep.
8:53
Speaker 1: And they also had a good golf course then in Houston.
8:55
Speaker 1: So all right, when I see a new company, I
8:57
Speaker 1: got right to the board of directors. I see your
8:59
Speaker 1: chairman of the boarders, Bill Ackman. Why is he the chairman?
9:02
Speaker 1: Then I go to the HDS screen gives you the
9:04
Speaker 1: shareholders and thirty two percent of your company. What's going
9:07
Speaker 1: on there? Wise? Persian there? Why are they big? Wise? Bill?
9:10
Speaker 1: On your board? Well? Bill took over General Growth when
9:12
Speaker 1: it filed for bankruptcy. And when he went through the
9:15
Speaker 1: assets of General Growth, he saw these communities, these great places,
9:19
Speaker 1: these unique development opportunities that didn't belong in a public malread.
9:23
Speaker 1: So the Howard used corporation is Bill's idea. He came
9:26
Speaker 1: up with it. He spun us out into our own
9:28
Speaker 1: entity about twelve years ago, and he's been an incredible
9:31
Speaker 1: supporter and incredible chairman ever since day one. So what
9:34
Speaker 1: do the numbers look like? I mean, how are you
9:37
Speaker 1: doing on the top and bottom line and give us
9:40
Speaker 1: your five year view. Things have been incredible. The pandemic
9:44
Speaker 1: has been an incredible tail winds to our business. We've
9:47
Speaker 1: sold more land to home builders, which is one of
9:49
Speaker 1: the three main areas of revenue for us, over the
9:51
Speaker 1: past two years than we have ever before. And we
9:54
Speaker 1: see that momentum, despite a rest bite in the fourth
9:56
Speaker 1: quarter of last year, coming right back very quickly this year,
10:00
Speaker 1: despite higher mortgage rates. That's kind of where I wanted
10:03
Speaker 1: to go. We've seen that spike in mortgage rates. It's
10:05
Speaker 1: scared a lot of people out of the market. Not me,
10:07
Speaker 1: but it scared some people out of the market. What
10:09
Speaker 1: are you seeing kind of in this spike in real
10:11
Speaker 1: estate more mortgage rates. I don't think it's the spike
10:14
Speaker 1: of rates that changes home builder demands. I think it's
10:17
Speaker 1: the change the volatility of rates forces homebuyers to pause.
10:22
Speaker 1: Once it settles in, they're right back to the market.
10:25
Speaker 1: We're looking out between a three and five million unit
10:28
Speaker 1: shortfall of housing units needed to meet the household formation
10:32
Speaker 1: of the past ten years. It doesn't exist today. People
10:35
Speaker 1: need places to look. I'll tell you what exist is
10:37
Speaker 1: all the McMansions everywhere. What doesn't exist is starter homes
10:42
Speaker 1: because those guys can't make the same margin on it.
10:44
Speaker 1: How do we fix that problem? Do you think? Oh? Look,
10:46
Speaker 1: I think that it's tough for me to say that
10:50
Speaker 1: there's a magic wand to solve that. Across the country.
10:53
Speaker 1: Within our Masterplant communities, which are twenty thirty thousand acres plus,
10:57
Speaker 1: we're prescriptive in terms of what homes are being sold
11:00
Speaker 1: for what price wear prescriptive in terms of the setbacks.
11:03
Speaker 1: That sizes the pricing so that we can meet affordability
11:07
Speaker 1: across every price point within our community. Look over the
11:11
Speaker 1: past year, we've seen home prices shoot up, and that
11:15
Speaker 1: part of that material prices getting higher. Part of that's
11:17
Speaker 1: labor higher, part of that's my land has been more expensive,
11:20
Speaker 1: and part of that has been home builder margins. Home
11:23
Speaker 1: building margins have been in that eighteen to twenty percent
11:25
Speaker 1: since I can remember, and last year they peaked at
11:28
Speaker 1: twenty nine percent. So there's room. We're seeing material prices
11:31
Speaker 1: come down. We're seeing home builders except lower margins. We're
11:34
Speaker 1: seeing homes land sellers like ourselves, except slightly lower prices. Now,
11:38
Speaker 1: where do you buy land, like when you decide I
11:40
Speaker 1: want to build another woodlands, where do you find How
11:44
Speaker 1: do you identify our market that is worthy of your
11:46
Speaker 1: investment of land? So for us, we belt We bought
11:49
Speaker 1: our last master plane community at the end of last year.
11:52
Speaker 1: It's called Terra Vallis outside of Phoenix, thirty seven thousand
11:55
Speaker 1: acres today, population zero. The characteristics that make that great
12:00
Speaker 1: it's fully entitled fore hundred thousand homes in fifty five
12:03
Speaker 1: million square feet of commercial space. It is immediately adjacent
12:06
Speaker 1: to Phoenix, just north of the I ten that connects
12:08
Speaker 1: to Los Angeles. So great transportation, great access, lower tax,
12:13
Speaker 1: business friendly community, warm or less expensive to live. Affordability
12:17
Speaker 1: helps drive our decision. Make is that only going to
12:19
Speaker 1: be you know, the older people like Paul and Tucker
12:23
Speaker 1: or kind of young buck like Megan and on that
12:28
Speaker 1: I would tell you that we're going to see this community.
12:30
Speaker 1: I think it's going to be more starter homes. I
12:32
Speaker 1: think it's going to be more younger families coming into
12:34
Speaker 1: the market. I think this is going to be not
12:38
Speaker 1: your age restricted community. Will have age restricted communities within
12:41
Speaker 1: the overall thirty seven thousand acres, but the predominance is
12:44
Speaker 1: starting here is going to be your young families moving
12:47
Speaker 1: into the area finding that quality of life that they
12:49
Speaker 1: can't get in La Sanford. So you're so you're now
12:53
Speaker 1: a kind of a ground zero type of situation in
12:55
Speaker 1: that community in Phoenix for that property. What's a lifespan
12:59
Speaker 1: before you get to a Woodlands where it is built
13:01
Speaker 1: out and it looks like it's been there forever. Well,
13:03
Speaker 1: the Woodlands is celebrating its fiftieth anterimursary next year, and
13:08
Speaker 1: we're out of residential land. All twenty twenty eight thousand
13:12
Speaker 1: acres or of the residential side are gone. We're down
13:14
Speaker 1: to seven hundred acres of commercial space, which is another
13:17
Speaker 1: twenty or thirty years of commercial development. So the life
13:20
Speaker 1: cycle of Tera Vallis and Phoenix could be forty or
13:23
Speaker 1: fifty years. Wow, I think it'll be quicker this. And
13:25
Speaker 1: you have developers, did that you know you want to
13:27
Speaker 1: work with to build the homes, to build the commercial space?
13:30
Speaker 1: Is that do you pick those? We are the commercial developer,
13:34
Speaker 1: you're the career master planning. We're just signing where those
13:37
Speaker 1: roads are gonna go. We're gonna build those office buildings,
13:39
Speaker 1: so you build them as well. Okay, we're gonna own
13:41
Speaker 1: them forever. We'll sell the land to home builders, okay,
13:43
Speaker 1: and they'll build a single family homes and got in
13:47
Speaker 1: the residence. So you can't help us up with a
13:49
Speaker 1: good contractor. I mean I was going to ask you.
13:52
Speaker 1: I was gonna see if you had a couple of records.
13:54
Speaker 1: Everybody wants to know because that kind of labor is
13:56
Speaker 1: tough to come by. But I guess you outsourced the
13:58
Speaker 1: home building process, so you're not as worried about, you know,
14:01
Speaker 1: finding people to put it up. Our labor is horizontal development.
14:05
Speaker 1: It is putting in the water, sewer, roads, curbs parks,
14:08
Speaker 1: and that labor is still very difficult to find. I
14:12
Speaker 1: think our competitive advantage is that when we're spending a
14:15
Speaker 1: billion and a half dollars a year, and we know
14:16
Speaker 1: we're going to spend it for the next forty years,
14:19
Speaker 1: we can keep someone's attention real time, rather than have
14:22
Speaker 1: them worry about moving to the next project in six months.
14:24
Speaker 1: So what are some of the big variables for your business?
14:26
Speaker 1: I mean, if your business can perform presumably you know
14:30
Speaker 1: you're saying, even at these levels of interest rates, what
14:33
Speaker 1: are some of the big variables that kind of you
14:35
Speaker 1: have to manage as a CEO. I think some of
14:38
Speaker 1: the biggest thing is there's two areas. One in the
14:41
Speaker 1: residential land development. We're trying to develop lots just to
14:44
Speaker 1: keep up with underlying home sales, right and underlying home
14:47
Speaker 1: sales are very difficult to predict, but we're watching them
14:49
Speaker 1: every day to see which size lots selling, which size
14:52
Speaker 1: homes are selling, and making sure we have those lots
14:55
Speaker 1: available for our home builders to get back into their inventory.
14:58
Speaker 1: And the other side of the equation is really just
15:00
Speaker 1: trying to get a pulse of our residence. We're most
15:03
Speaker 1: successful when we're building the amenities that our residents want,
15:07
Speaker 1: whether that's the Kirby Ice House in the Woodlands or
15:10
Speaker 1: whether that's another multi family apartment building. Because we're full
15:14
Speaker 1: and rents are raised rising too quickly, we need to
15:17
Speaker 1: be we make sure we have a finger on the
15:19
Speaker 1: pulse of what our residents want and meet that demand.
15:22
Speaker 1: I'm telling you it's pickaball. It's pickaball. Yeah, I don't
15:25
Speaker 1: know it has been. It's been amazing how we've seen
15:29
Speaker 1: parking garages and tennis courts being repurposed for pickaball and
15:33
Speaker 1: it gets used. So I see a big drop in
15:36
Speaker 1: revenue in twenty twenty. Was that just all pandemic driven?
15:39
Speaker 1: You guys kind of had to shut down development? It is,
15:41
Speaker 1: But we also another part of our business is selling
15:44
Speaker 1: condominiums in Hawaii, where we have sixty acres on the
15:46
Speaker 1: beach in an area known as Ward Village between Waikiki
15:49
Speaker 1: and alamo Ona Mall. If we don't have a condo
15:52
Speaker 1: tower closed in a particular year, the revenue will drop off.
15:57
Speaker 1: You know, We're not running our business for next quarters earnings,
16:00
Speaker 1: running our business to drive value creation for the next one, three, five,
16:03
Speaker 1: ten years. Fascinating stuff. I knew. I knew the Woodlands.
16:06
Speaker 1: I've been there a couple of times. I didn't know
16:07
Speaker 1: as you guys, so very very cool Slumberland. Is it
16:09
Speaker 1: called Summerlin outside Vegas? Yes, I played their tid. Hughes
16:13
Speaker 1: has been gone for about fifty years as well. I
16:16
Speaker 1: think he died in nineteen seventy three. Yeah, you fly
16:18
Speaker 1: into Lax you see the Hughes aerospace, which is very cool.
16:21
Speaker 1: David O'Reilly, CEO of Howard Hughes Corporation, trades on the
16:25
Speaker 1: NYC h HC talking about some planned communities, some commercial
16:30
Speaker 1: real estate. You're listening to. The tape cans are our
16:32
Speaker 1: live program Bloomberg Markets weekdays at ten am Eastern on
16:36
Speaker 1: Bloomberg Radio, the tune in app, Bloomberg dot Com, and
16:39
Speaker 1: the Bloomberg Business App. You can also listen live on
16:42
Speaker 1: Amazon Alexa from our flagship New York station, Just say
16:45
Speaker 1: Alexa play Bloomberg eleven thirty twenty twenty two. There was
16:51
Speaker 1: nowhere to hide really in the fixed income space. But
16:54
Speaker 1: I look at my i nd go function on the
16:57
Speaker 1: Bloomberg terminal for the Bloomberg Index browser, and I see
17:00
Speaker 1: the Bloomberg US Aggregate fixed Income Index is up three
17:04
Speaker 1: point five percent this year. So a much much better
17:06
Speaker 1: start to twenty twenty three. Let's see if there's more
17:09
Speaker 1: life in the fixed income space. Jason Greenblath joins us.
17:12
Speaker 1: He's a senior portfolio manager in American Century Investments, proud
17:15
Speaker 1: alumnus from Penn State University, joining us here in our
17:19
Speaker 1: Bloomberg Interactive Broker studio. So what do you do in
17:22
Speaker 1: this year? Jason, I mean twenty twenty two, let's just
17:24
Speaker 1: flush it. That's how bad it was for the fixed
17:27
Speaker 1: income folks. How'd you guys start this year and what
17:30
Speaker 1: do you think right now? Yeah, thanks for having me on.
17:32
Speaker 1: I appreciate it. Our highest conviction this year is duration,
17:36
Speaker 1: belong duration coming in. We've certainly seen some evidence last month.
17:42
Speaker 1: We saw evidence back in September that higher rates are
17:45
Speaker 1: starting to break things down in the economy. Last month
17:48
Speaker 1: was the banks back in September, with UK pension plans
17:52
Speaker 1: having problems and so being long duration in our mind
17:56
Speaker 1: is the economy's slowing is our highest conviction position. And
18:00
Speaker 1: at the moment, yeah, we saw, well, there's a Bloomberg
18:03
Speaker 1: story out overnight about one and a half trillion dollar
18:08
Speaker 1: wall of maturity coming due in just commercial real estate
18:15
Speaker 1: by twenty twenty five. So it started to kind of
18:18
Speaker 1: freak me out. I was worried, as had nightmares as
18:21
Speaker 1: I read this last night, because these higher rates could
18:24
Speaker 1: really break something. Right, We've already seen as you said,
18:27
Speaker 1: the banking crisis. Are are we giving up on the
18:31
Speaker 1: idea of a soft landing? Can the Fed not achieve that?
18:34
Speaker 1: In our minds, it's a low probability. The probability recession
18:38
Speaker 1: harder landing certainly has has grown the beginning of March
18:42
Speaker 1: with the banking crisis certainly illustrated that, Matt, you mentioned
18:47
Speaker 1: series and what's going on with maturity walls. I think
18:50
Speaker 1: if you look inside the data, there are certain loans
18:53
Speaker 1: even here in Manhattan that are being marked at fifty
18:56
Speaker 1: cents on the dollar. You can certainly see that cap
19:00
Speaker 1: rates have gone up substantially. Office vacancies, you know, are
19:04
Speaker 1: certainly playing into that, and I think you know higher
19:08
Speaker 1: rates are also causing issues with refinancings A push that
19:13
Speaker 1: blue button. Are you concerned about financial institutions banks and
19:17
Speaker 1: their real estate portfolios, because I'm not sure. Some folks
19:21
Speaker 1: are saying it had the big money center banks don't
19:23
Speaker 1: have to worry about it so much. It's more the
19:24
Speaker 1: regional banks. How do you think about that? Yeah, I
19:27
Speaker 1: think the regional banks certainly for sure have the higher exposure. Right.
19:32
Speaker 1: It's something like forty percent of their U of small
19:35
Speaker 1: business loans are coming out of these regional banks. So
19:37
Speaker 1: we need that part of the plumbing to certainly be
19:40
Speaker 1: be flowing and working. And you know, you guys at
19:43
Speaker 1: Bloomberg had a great story over the weekend on financial
19:46
Speaker 1: conditions and loans coming down the last two weeks of March,
19:49
Speaker 1: there's clearer evidence. I think we'll see a little bit
19:52
Speaker 1: more over the next one to two weeks with bank earnings,
19:54
Speaker 1: but we also need one to two more quarters to
19:57
Speaker 1: see if this becomes a trend or not. We talk
20:01
Speaker 1: about first of all, we're not great it running the
20:05
Speaker 1: audio today. No, it was a weekend. True, it was
20:08
Speaker 1: a long weekend too. It's a Monday. We talk about
20:11
Speaker 1: the world insurrate probability screen a lot. I'm sure you're
20:14
Speaker 1: familiar with it on the Bloomberg terminal. It shows what
20:16
Speaker 1: the market is pricing in terms of the Fed moves right,
20:19
Speaker 1: and currently we're pricing in four rate cuts through January
20:25
Speaker 1: thirty first, twenty twenty four. Does that make sense to you?
20:28
Speaker 1: Do you buy it? Our thought is the Fed's going
20:31
Speaker 1: to raise one more time next month and early meg
20:34
Speaker 1: and then pause. If something else breaks, then maybe they
20:37
Speaker 1: will cut, but we think they're going to hold that
20:39
Speaker 1: just to ensure that inflation is really under control. So
20:44
Speaker 1: those four rate cuts probably don't happen in twenty five
20:47
Speaker 1: bases point increments in our minds, they happen in hundred
20:50
Speaker 1: or two hundred bases point increments when something really breaks. Well,
20:53
Speaker 1: that's terrifying though it is it is, And so I
20:56
Speaker 1: think the other element we talked about being long duration.
20:58
Speaker 1: The other element is being credit risk. Credit spreads, in
21:02
Speaker 1: our mind do not reflect a recession, a hard landing.
21:06
Speaker 1: You know, in the mid to high four hundreds and
21:08
Speaker 1: high yield credit spreads, it's kind of normal and average
21:11
Speaker 1: over the last ten years. What's not normal is eight
21:14
Speaker 1: and a half percent because treasury rate rates are higher.
21:17
Speaker 1: So in our mind, credit spreads are not reflecting that
21:20
Speaker 1: hard landing. And we like being short here and waiting
21:23
Speaker 1: for a better entry point. I know earlier in your
21:25
Speaker 1: career you looked at the high yield space. That's distressed space.
21:30
Speaker 1: Do I take some risk here and go into the
21:31
Speaker 1: high old market? If so, where can I go in
21:35
Speaker 1: high yield? We like shorter duration, high qualities. So Doublebees
21:38
Speaker 1: that's a place that we think offers some value, some safety.
21:42
Speaker 1: There's still some names out there that we think will
21:45
Speaker 1: migrate up to investment grade, so there is total return potential.
21:50
Speaker 1: You know, we had the Citrics deal that that came
21:52
Speaker 1: price what's happened to that? So that the second lean
21:55
Speaker 1: the priced at seventy nine cents, and we had some
21:57
Speaker 1: banks unload off their balancy a leveraged buyout from last year. Now,
22:03
Speaker 1: is that something that you guys traffick in that kind
22:06
Speaker 1: of stuff? That really looks like the banks are just
22:08
Speaker 1: kind of, you know, chucking in on the market wherever
22:11
Speaker 1: it landed. You know, I think at a price, certain
22:15
Speaker 1: investments look interesting coming at at an oide of twenty
22:18
Speaker 1: one points. Pricing at seventy nine cents in the dollar.
22:22
Speaker 1: The market certainly warmed up to it. It's it's up
22:24
Speaker 1: about four points since it priced last week. All right.
22:27
Speaker 1: By the way, I thought, I saw another interesting story
22:30
Speaker 1: on the Bloomberg terminal over the weekend, and I wonder
22:34
Speaker 1: if I could put it to a genuine fixed income investor.
22:36
Speaker 1: Great to have you. Here. We see volatility just off
22:41
Speaker 1: the charts right in rates in the Western world. That
22:46
Speaker 1: moves are mind boggling, sixty seventy basis point moves in
22:51
Speaker 1: a day on the two year, And the Bloomberg story
22:54
Speaker 1: is that that's driving some fixed income investors to China
22:58
Speaker 1: where they have almost volatility. Do you find that believable.
23:05
Speaker 1: I mean, look, going from a DM market to an
23:08
Speaker 1: EM market and in a more esoteric, you know, less
23:11
Speaker 1: regulated environment, to me, does not make a whole lot
23:14
Speaker 1: of sense. You know, we like transparency and being able
23:18
Speaker 1: to dig through financial statements and have a more substantial
23:21
Speaker 1: regulatory body. I think the volatility here in the US
23:26
Speaker 1: needs to settle down. Once that settles down, we certainly
23:29
Speaker 1: will have more interest and inflos into the asset class,
23:32
Speaker 1: but we need volatility to come down. So what are
23:36
Speaker 1: some of the sectors that you guys are doing work
23:38
Speaker 1: in these days? And maybe conversely, what are some of
23:40
Speaker 1: the sectors you just staying away from? Yeah, I think
23:44
Speaker 1: to answer the latter first, I think CMBs and leverage
23:48
Speaker 1: loans are parts of the market that we're most concerned about,
23:52
Speaker 1: probably like a lot of our competitors. The rising rates,
23:56
Speaker 1: the maturity walls that we mentioned before, those are certainly
23:59
Speaker 1: areas of of concern. What do we like We like
24:02
Speaker 1: We like short spread durations, so short maturities um particularly
24:07
Speaker 1: in parts of more esoteric areas in the securitized market,
24:11
Speaker 1: in my space and corporate credit. You know, I think
24:14
Speaker 1: there's haves and have nots in the banking sector. So
24:17
Speaker 1: that's high quality investment grade. UM. I think that there
24:21
Speaker 1: are disclocations there. The proverbial may be thrown out. With
24:24
Speaker 1: the bathwater certainly created some opportunities last month. We're expecting
24:28
Speaker 1: more in the nearer term of these disclocations. I'm just
24:33
Speaker 1: looking through historically the matchups between Penn State and the
24:38
Speaker 1: Ohio State University. Last year it was a loss for
24:41
Speaker 1: your lions. The year before that, it was a loss.
24:44
Speaker 1: Before that, it was a loss. The year before that,
24:46
Speaker 1: it was a loss. The year before that, you lost.
24:50
Speaker 1: The year before that, we won. So when do you
24:53
Speaker 1: think Penn State can come back and beat the Buckeyes.
24:57
Speaker 1: So so, Matt, You're you're talking like a true cynic
25:00
Speaker 1: in the fixed income world, loss after loss after loss.
25:04
Speaker 1: I will tell you I visited Columbus, Ohio for the
25:07
Speaker 1: first time in my life my career a month ago.
25:11
Speaker 1: Nice city, but glad to be back on the East coast,
25:14
Speaker 1: all right. Jason Greenblatt, Senior portfolio manager, American Century Investments,
25:18
Speaker 1: with a zinger at the end, This is Bloomberg. You're
25:22
Speaker 1: listening to the Team Cancer Line program Bloomberg Markets weekdays
25:26
Speaker 1: at ten am, eas daring on Bloomberg dot Com, the
25:29
Speaker 1: I Heart Radio app, and the Bloomberg Business app. We're
25:31
Speaker 1: listening on demand wherever you get your podcast. I want
25:35
Speaker 1: to get right to our next guest listening fascinating discussion
25:38
Speaker 1: Alexander Isakoff. He is the Russia and CEE economist at
25:42
Speaker 1: Bloomberg Economics based in the Middle East. Alexander, you are
25:48
Speaker 1: out with a fascinating Bloomberg Economics column today story today
25:52
Speaker 1: talking about President Putin's to prioritize his twenty twenty four
25:56
Speaker 1: reelection over the war. How can me do that? Isn't
26:00
Speaker 1: the war front and center for everything and super popular
26:04
Speaker 1: at home? Yeah, so that seems like it would be
26:07
Speaker 1: the center of his election re election platform exact. So
26:11
Speaker 1: what are we seeing, Alexander H. We're seeing that Russian
26:17
Speaker 1: government and Pussing were able to stabilize the economy in
26:20
Speaker 1: the past months. So you're looking at an economy with
26:23
Speaker 1: inflation rate of like three percent and unemployment which is
26:28
Speaker 1: just a bit north of three percent. Our call is
26:32
Speaker 1: that because the labor market is so tight, essentially a
26:38
Speaker 1: Pussin face the dilemma whether to try and mobilize more people,
26:45
Speaker 1: uh and take a cost of cost of this in
26:49
Speaker 1: terms of public support mobilization, I'm never too popular with people,
26:55
Speaker 1: or just try to model through until his elections XTA
27:00
Speaker 1: in March and just postpone mobilization. So I think our
27:05
Speaker 1: call is that you will prefer the letter. So when
27:09
Speaker 1: you say mobilize, you mean draft people essentially force probably
27:15
Speaker 1: you know, young able bodied men to go to the
27:19
Speaker 1: front lines where they risk their lives. That's something that
27:22
Speaker 1: Russia hasn't done yet. What are they doing, What are
27:25
Speaker 1: they doing to you know, fill their ranks? Yeah, exactly.
27:31
Speaker 1: So they've drafted around three hundred thousand people lost October.
27:38
Speaker 1: But this means that in six months most of those
27:42
Speaker 1: people will be back at home and Russia would need
27:46
Speaker 1: to replenish its troops and it will not be easier.
27:51
Speaker 1: So Russia needs to find a way which will be
27:57
Speaker 1: less coversive but also very effective and finding another three
28:01
Speaker 1: hundred thousand people which will be very very hard. So, Alexander,
28:05
Speaker 1: to what extent, if any, are the Western sanctions having
28:09
Speaker 1: a negative impact on the Russian economy just given some
28:12
Speaker 1: of the data you just recited, doesn't seem to be
28:16
Speaker 1: hurting that badly. Yeah, I mean, the thing is that
28:24
Speaker 1: most of the numbers we are used to look at
28:27
Speaker 1: don't capture the pain, the economic pain that Russia undergoes.
28:32
Speaker 1: For example, if you look at imports, which were like
28:35
Speaker 1: down twenty percent, they reflect the quality of consumption and
28:41
Speaker 1: quality of investment in Russia. These both are declined pretty
28:45
Speaker 1: substantially last year. But from the GDP perspective, any decline
28:49
Speaker 1: in imports is actually neutral. Imports don't affect the GDP directly,
28:55
Speaker 1: so it doesn't show the GDP numbers. But Alexander, from
28:59
Speaker 1: an economic perspective perspective, given you your Russian background, do
29:05
Speaker 1: the Russian people is a Russian government prepared or the
29:08
Speaker 1: Russian people prepared to be what they are today, which
29:10
Speaker 1: effectively sealed off most of the world from an economic perspective,
29:15
Speaker 1: trading perspective, all the type of stuff. Are they prepared
29:18
Speaker 1: to do this for the long term? I think dances
29:23
Speaker 1: yes and no. If current continuitions, especially in the commodity markets, prevail,
29:29
Speaker 1: if oil prices remain north of eighty percent, then I
29:34
Speaker 1: think Russia can tellierate these functions a long time. But
29:40
Speaker 1: on the other hand, because Russian international reserves have been frozen,
29:44
Speaker 1: the country is very, very sensitive to any drop in
29:47
Speaker 1: the oil prices. So if COMMITI prices remain high, the
29:51
Speaker 1: country can't delierate that. But it's very fragile to any
29:54
Speaker 1: downside shock for oil price and it must be very
29:59
Speaker 1: fragile and lation situation because it's been relatively low. But
30:03
Speaker 1: with this tight labor market, especially if they need to
30:08
Speaker 1: draft more troops, that means wages are going to have
30:12
Speaker 1: to rise, are they not? Yeah? All correct? And in fact,
30:17
Speaker 1: we are looking at the data on the prestability of
30:20
Speaker 1: private enterprises and the lost mobilization actually was pretty detrimental
30:25
Speaker 1: to that. We see that the private sector margins are
30:28
Speaker 1: shrinking and I think, yeah, the labor costs will definitely
30:34
Speaker 1: reduce growth in the coming year. So, Alexander, just from
30:38
Speaker 1: you know, the consumer data, it seems like the war
30:41
Speaker 1: is having little to no impact on the consumers at
30:45
Speaker 1: home as at the case and B does it feel
30:51
Speaker 1: like that can go on going forward? I think so.
30:57
Speaker 1: If you look at historically at the impacts of wars
31:01
Speaker 1: on the labor markets, what they typically do is they
31:04
Speaker 1: reduced the premiere for high skill labor, but actually increased
31:09
Speaker 1: the wages for those who don't. We're not earning as much,
31:14
Speaker 1: so Essentially, they are reducing the inequality and labor incomes.
31:20
Speaker 1: This is what actually is happening in Russia. So you
31:23
Speaker 1: don't see much wage growth in the high pay success
31:29
Speaker 1: secious information technology or banking of finance, but actually you
31:33
Speaker 1: see a lot of growth in the manual labor, manufacturing
31:37
Speaker 1: and services, etcetera, etcetera. So what you see is that
31:41
Speaker 1: consumption is being supported by growth in in those UH
31:47
Speaker 1: kind of sectors where wages were low previously. All right, Alexander,
31:52
Speaker 1: thank you very much, Really appreciate your reporting here. Alexander Isakov.
31:56
Speaker 1: He is the Russian UH and CEE economist Blomberg Economics.
32:00
Speaker 1: He's based in Dubai. We appreciate getting some of his
32:03
Speaker 1: time there. You're listening to the tape cancer live program
32:07
Speaker 1: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
32:11
Speaker 1: the tune in app, Bloomberg dot Com, and the Bloomberg
32:13
Speaker 1: Business App. You can also listen live on Amazon Alexa
32:17
Speaker 1: from our flagship New York station, Just say Alexa play
32:20
Speaker 1: Bloomberg eleven thirty. Let's talk about Carvana. Yes, well, we
32:25
Speaker 1: have my favorite headline writer in all of Bloomberg in
32:29
Speaker 1: the studio, right now, Joel Levington writes these headlines that
32:33
Speaker 1: get me to click no matter what. Even now I
32:37
Speaker 1: see them and I'm like, I know this is one
32:39
Speaker 1: of Joel's headlines. It's gonna be a bi credit report,
32:42
Speaker 1: but I'm still clicking because it's like Ferrari eats Maserati's lunch,
32:47
Speaker 1: you know. But so, Joel, thanks for coming to the studio.
32:51
Speaker 1: You have a great story out about you know, barbarians
32:54
Speaker 1: at the gate, except for they're not at the gate,
32:56
Speaker 1: they're at the Carvanna. What do they have like vending
33:01
Speaker 1: vending machines? Um? This story has been amazing on the
33:05
Speaker 1: stock side, right because just climbed so high during the
33:09
Speaker 1: pandemic and then came absolutely crashing down, paying stilly prices
33:15
Speaker 1: for used vehicles and then apparently not selling them for
33:18
Speaker 1: um similar amounts. What's the story on the debt side? Yeah,
33:23
Speaker 1: well it's been equally crazy. You know, it's just a
33:26
Speaker 1: few years ago that they were issuing bonds with you know,
33:28
Speaker 1: like a five handle on it or a little over
33:30
Speaker 1: five percent. Now those bonds are more like forty five percent.
33:34
Speaker 1: So it's it's been a dramatic turn, and unfortunately for
33:38
Speaker 1: for stakeholders. It hasn't been good a good run. So
33:40
Speaker 1: where I mean there's they've not, they've not. They're just
33:45
Speaker 1: proposing a debt exchange, right, right, So this is Carvana.
33:48
Speaker 1: They sell these cars market they don't or they don't
33:52
Speaker 1: market kind of dried up. Now they've got problems with
33:54
Speaker 1: their equity, but they really got problems with their debt.
33:58
Speaker 1: They did too much debt going into this rough patch.
34:00
Speaker 1: You're totally right, Paul, And this is one of those
34:02
Speaker 1: cases where it's the balance sheet that's driving the equity
34:04
Speaker 1: story as opposed to the opposite. In this case, they've
34:08
Speaker 1: levered up. They have eight billion dollars worth of debt.
34:10
Speaker 1: They're not supposed to generate positive ebada until twenty twenty five,
34:14
Speaker 1: So you know, like, how do you make that lending
34:17
Speaker 1: on no cash flow? I mean, you were lending on
34:20
Speaker 1: just the big equity cushion underneath, like a lot of
34:23
Speaker 1: tech companies will do. You know, yeah, exactly over the
34:25
Speaker 1: last couple of years, you could pick out any startup
34:28
Speaker 1: tech company or in my area, Tesla where it was
34:31
Speaker 1: issuing bonds also where the five percent handle on it,
34:34
Speaker 1: and people love the equity story, and they'll tell you like, hey,
34:36
Speaker 1: there's billions of billions of dollars a cushion as opposed
34:39
Speaker 1: to you know, like, what are the fundamentals and where
34:42
Speaker 1: can this company go? In the case of Carvana, it's
34:45
Speaker 1: in an industry where you have very thin margins and
34:48
Speaker 1: high capital intensity, and it really can't handle a lot
34:51
Speaker 1: of volatility. So when you put a lot of debt
34:53
Speaker 1: on that, you're kind of setting the stage for problems.
34:55
Speaker 1: And unfortunately they've run into it. All right, the stock
34:58
Speaker 1: on all thirteen twenty twenty one, three hundred and sixty
35:02
Speaker 1: dollars stocks training below nine? Isn't that guy? And so
35:06
Speaker 1: I can see. I can see buying debt when you've
35:09
Speaker 1: got all this equity underneath me, even though I wouldn't
35:11
Speaker 1: do because I only lend on cash flows. That's how
35:13
Speaker 1: I was. I was taught at the Chase Front and
35:15
Speaker 1: Bank Credit training class nineteen ninety one. Um, that's how
35:19
Speaker 1: you do it. But now what happens to these debthholders?
35:22
Speaker 1: What are they trying to do here? From credit to
35:25
Speaker 1: star that's the way it goes bossweek Okay, yes, well
35:29
Speaker 1: well really what what what Carvana is doing is trying
35:33
Speaker 1: to set the stage four there's going to be an exchange,
35:36
Speaker 1: or they're trying to make an exchange happen. Now this
35:38
Speaker 1: is if they do this, it's really the first of
35:41
Speaker 1: many steps that they would have to do to change
35:43
Speaker 1: their balance sheet because really here you're trying to exchange
35:46
Speaker 1: about a billion three of debt for a new billion
35:49
Speaker 1: dollars offering, and essentially you're saving about three hundred million
35:53
Speaker 1: worth of debt and fifteen to twenty million of interest
35:56
Speaker 1: expense for a company that has as much debt and
36:00
Speaker 1: so little cash flow as they do. This is just
36:02
Speaker 1: a beginning. It's really just a start to you know,
36:04
Speaker 1: like get the barbarians, to get the Apollos and the
36:07
Speaker 1: Arias out there to come up with a deal where
36:10
Speaker 1: they can restructure the balance sheet, but do it in
36:13
Speaker 1: a way where the Garcia family can we make in control.
36:16
Speaker 1: And that's really why family to remain in control. They
36:19
Speaker 1: want to remain in control. Well, as a neutral independent party,
36:22
Speaker 1: I would say you would not want them in control
36:24
Speaker 1: because they have made so many bad choices along the way,
36:27
Speaker 1: including debt financing a two billion dollars acquisition of Edessa
36:31
Speaker 1: at a time where where the industry was starting to
36:34
Speaker 1: go down. They've missed earnings expectations for like nine of
36:38
Speaker 1: the past ten quarters. Really, what you need to do
36:40
Speaker 1: is strip out costs, reslate the balance sheet to have
36:45
Speaker 1: a clean balance sheet. We've estimated that it should be
36:47
Speaker 1: about ninety four percent of the debt needs to get
36:49
Speaker 1: wiped out. Oh so really this is hit. I mean
36:52
Speaker 1: your point is that debt holders may be happier in bankruptcy. Yeah, yeah, exactly, Matt,
36:58
Speaker 1: because if you came out with a clean company and
37:00
Speaker 1: a story of hey, let's get back to basics, let's
37:03
Speaker 1: reduce our thirteen percent difference in SG and A, and
37:07
Speaker 1: here's a path to growth, that stock price can certainly
37:11
Speaker 1: turn around. And our expectation is that if it was
37:14
Speaker 1: a clean balanty like bond holders might get seventy five
37:17
Speaker 1: cents back on the dollar relatives to where bonds are,
37:20
Speaker 1: which is kind of more in the forty to fifty zone.
37:22
Speaker 1: So let me ask. I look through your bank up
37:25
Speaker 1: stories that you work on, and you cover the car
37:27
Speaker 1: industry very closely. Obviously, one that catches my eye is
37:33
Speaker 1: a concern I think that we have across markets, which
37:40
Speaker 1: is about refinancing. I think the point that you're making
37:46
Speaker 1: here is Ford needs to refinance a ton of debt.
37:51
Speaker 1: Right as rates rise, Ford credit may face five hundred
37:55
Speaker 1: and seventy million dollars headwin and refinancing debt is the headline.
37:57
Speaker 1: As rates rise, this is going to be a problem
37:59
Speaker 1: for a lot of the ending arms are the big
38:00
Speaker 1: carmakers I think so, you know, and it becomes a
38:03
Speaker 1: game mat of where do you reduce the pain? Right
38:07
Speaker 1: when you have a captive finance company like a Forward
38:09
Speaker 1: or a GM, you can do that in the form
38:11
Speaker 1: of incentives on the you know, MSRP on on the
38:14
Speaker 1: price that you're paying for a car, so you could
38:16
Speaker 1: reduce that as a way to making things more affordable.
38:20
Speaker 1: But really that's the issue is affordability. It's forty eight
38:22
Speaker 1: thousand dollars for your average car, and when the average
38:25
Speaker 1: American makes seventy thousand dollars a year, you can't afford
38:28
Speaker 1: a car. So how do you make that work and
38:30
Speaker 1: keep the volume in your plant going? And it's either
38:33
Speaker 1: going to be through the finance company, in the finance
38:37
Speaker 1: company eating the interest rates on it, or it's going
38:39
Speaker 1: to be through pricing on the cars. I hope it's
38:41
Speaker 1: through the finance company eating interest rates. Why just because
38:45
Speaker 1: I don't want to pay it. I don't want to
38:46
Speaker 1: pay that much. Our prices ever kind of come down
38:49
Speaker 1: in the card and Street or they resetting these new
38:51
Speaker 1: highs because I mean, they've incredible inflation. I'm not sure
38:54
Speaker 1: with the numbers, but over the last three or four years,
38:56
Speaker 1: ridiculous increases in price. The monthly nut is just impossible
39:00
Speaker 1: to cover for the average shoe, right, It's ridiculous. And
39:03
Speaker 1: I think that's you know, it's it's a great question, Paul,
39:05
Speaker 1: and I think it if you even if you asked internally,
39:07
Speaker 1: I think our equity analysts might have a different view
39:09
Speaker 1: than I do. I personally believe that pricing has to
39:13
Speaker 1: come down. I think you're seeing that with Tesla, right
39:16
Speaker 1: if you look at any of their models are down
39:18
Speaker 1: twenty to twenty this year, and a Model three now
39:22
Speaker 1: is about thirty six thousand dollars or thirty seven thousand dollars.
39:24
Speaker 1: So if you're saying, hey, do I want the Model
39:26
Speaker 1: three or the Honda CRV, like, that's a battle, and
39:30
Speaker 1: that's where Tesla is going to be picking up share.
39:32
Speaker 1: And I think others are going to eventually have to
39:34
Speaker 1: follow because economically, you know, they're they're they're very high
39:41
Speaker 1: in terms of cost. I mean the four has followed
39:44
Speaker 1: with them with the Mustang Maki in terms of price cuts,
39:47
Speaker 1: but not yet with the F one fifty Lightning that
39:50
Speaker 1: you drove. What was the sticker price four large ninety
39:54
Speaker 1: four grand for a pickup truck, right, I mean, and
39:56
Speaker 1: that's what I mean, so honestly, I mean, I'm not
39:58
Speaker 1: even joking. I mean, the American pickup truck buyers already
40:03
Speaker 1: used to laying out forty fifty sixty grand. I'm sure
40:07
Speaker 1: that was you just can you do ninety I don't
40:10
Speaker 1: know four thousand. I don't know what demand destruction is
40:12
Speaker 1: going to look like there. And that's in addition to
40:14
Speaker 1: all the software that they're trying to sell behind it,
40:16
Speaker 1: so you know, like there's a recurring revenue stream that
40:19
Speaker 1: they're trying to attach to the electric car. So you know,
40:22
Speaker 1: like something has to give, and I would think this
40:25
Speaker 1: is a case where the companies are gonna wind up
40:27
Speaker 1: having to give. And they're starting to see it, right,
40:29
Speaker 1: you see, GM, Ford, Mercedes, they're all announcing headcut plans
40:34
Speaker 1: over the next years because they recognize, like you have
40:37
Speaker 1: to change your cost structure to be in a world
40:39
Speaker 1: that can't afford these crazy, you know, high prices. Does
40:42
Speaker 1: Lucid survive? Does Rivian survive? Do these ev startups make it?
40:47
Speaker 1: I think they survive because you find over and over again,
40:50
Speaker 1: and maybe McLaren is a great example of it. You
40:52
Speaker 1: find these companies that find people that are willing to
40:56
Speaker 1: take a bet on a brand name, Investors in the
40:58
Speaker 1: Middle East, and in the case of Lucid, it might
41:01
Speaker 1: be an investor in the Middle East because they already
41:03
Speaker 1: old and sixty percent of the company in the case
41:05
Speaker 1: of Review, and they have enough flexibility that they can
41:07
Speaker 1: last at least a year or two before before you
41:10
Speaker 1: have to worry about that good stuff as always Joe Levington,
41:13
Speaker 1: he is a director credit research Bloomberg Intelligence. He covers
41:16
Speaker 1: and his real day job he covers some autos and
41:18
Speaker 1: some industrial credits and things like that. The management is
41:21
Speaker 1: just a ruse. He actually does a real job and
41:24
Speaker 1: he's a real analyst. But appreciate having come into studio.
41:27
Speaker 1: You're listening to the Take Cancer our live program Bloomberg
41:31
Speaker 1: Markets weekdays at ten am Eastern on Bloomberg Radio, the
41:34
Speaker 1: tune in app, Bloomberg dot Com and the Bloomberg Business App.
41:38
Speaker 1: You can also listen live on Amazon Alexa from our
41:40
Speaker 1: flagship New York station, Jo Say Alexa, play Bloomberg eleven thirty.
41:46
Speaker 1: Let's talk real estate. Now, let's talk commercial real estate.
41:49
Speaker 1: And we can do that with our next guest, Christine
41:51
Speaker 1: Mastandrea Coo of white Stone Reet. That's a publicly traded
41:56
Speaker 1: reet WSR as a ticker you can load into the
41:58
Speaker 1: Bloomberg terminal about four D thirty million dollars marketap. Christine,
42:02
Speaker 1: thanks so much for joining us live in the Bloomberg
42:04
Speaker 1: Interactive Broker Studio. So post pandemic, you get a gold
42:07
Speaker 1: star for showing up live, not phoning it in. Talk
42:10
Speaker 1: to us about Whitestone. What type of real estate do
42:12
Speaker 1: you guys specialize in? Oh, I specialize in smaller center
42:15
Speaker 1: is basically focusing on community and convenience for our retail
42:18
Speaker 1: So you so okay? So not a technical term, kind
42:22
Speaker 1: of like a strip mall type thing similar and all right,
42:25
Speaker 1: So Amazon is a thing out there. I've actually become
42:29
Speaker 1: very very depth on Amazon since the pandemic in the lockdown,
42:33
Speaker 1: but I can't and I've heard this is not good
42:34
Speaker 1: for bricks and more to retail or retail. How do
42:37
Speaker 1: you guys approach that and deal with that? So we
42:40
Speaker 1: saw that coming a long time back, especially with a
42:43
Speaker 1: change of people in the workforce and time crunch consumers.
42:47
Speaker 1: Amazon just solved a problem for people. So we focus
42:49
Speaker 1: primarily on services. Okay, so I go to see one
42:52
Speaker 1: of your properties and it's not gonna be necessarily selling
42:55
Speaker 1: goods that competing against Amazon. It's a services, whether it's
42:58
Speaker 1: a nail salon or something along those. So primarily around food, grocery,
43:04
Speaker 1: services such as health, wellness, medical. In addition to that,
43:09
Speaker 1: there would be you know, your financial services, ups, logistics
43:12
Speaker 1: and so what kind of markets attract you guys? And
43:15
Speaker 1: I think I know the answer, but go ahead. So
43:17
Speaker 1: we focused on the southern markets primarily. Yeah, what's going
43:20
Speaker 1: on is the rest of this country. Everybody's abandoning us.
43:23
Speaker 1: Go ahead, So well, they came from Chicago, it is
43:26
Speaker 1: happening there, and so focused on fast growing markets. So
43:30
Speaker 1: we started in Dallas, Houston, San Antonio, then moved into
43:33
Speaker 1: Austin and also in the Phoenix market, Scottsdale all the
43:36
Speaker 1: way down to Mesic over channel all winners certainly post
43:39
Speaker 1: pandemic winners, right those are you just listed to the
43:41
Speaker 1: names of the cities. So when you go into a market,
43:44
Speaker 1: what do you I mean, do you look for population growth?
43:45
Speaker 1: Does that kind of a good job growth, job job growth,
43:48
Speaker 1: job growth? Yeah, okayly mobile, really looking for good strong
43:53
Speaker 1: secondary school systems as well. Okay, So I'm guessing you
43:57
Speaker 1: guys are like most folks in real estate interest rates sensitive.
44:00
Speaker 1: Talk to us about the market today versus you know,
44:04
Speaker 1: a year or two ago. Yeah, that's great deal of change,
44:06
Speaker 1: as you can imagine. But this provides the opportunity of
44:09
Speaker 1: people know how to operate real estate versus just financial engineering.
44:12
Speaker 1: So who were like, who were some of the people
44:14
Speaker 1: maybe you were competing against, you know, when rates were
44:17
Speaker 1: low versus kind of today, Like what happened to Who
44:21
Speaker 1: were those people and what happened to them? Well, in
44:23
Speaker 1: most cases passive investors that just bought the properties. In
44:26
Speaker 1: our case, we have smaller centers, so it'd be local owners.
44:30
Speaker 1: But passive owners versus active owners like we are. So
44:34
Speaker 1: they're getting squeezed out of the market. It gives us
44:35
Speaker 1: an opportunity. So we read a lot about or at
44:38
Speaker 1: least year in New York. You know, some of the
44:40
Speaker 1: big private equity funds getting into real estate. What's been
44:44
Speaker 1: your experience do you run into them at all? If so,
44:47
Speaker 1: are they how do you compete? They don't compete in
44:49
Speaker 1: our space. That's why we stayed in smaller centers. So okay,
44:52
Speaker 1: might be a little bit more of a hands on
44:53
Speaker 1: operation than a larger center, but it's benefit is right.
44:56
Speaker 1: So when you go look for new property, what do
45:01
Speaker 1: you guys look for? What does your team look for? Oh?
45:03
Speaker 1: In most cases and sticking us so we use place
45:06
Speaker 1: or AI and we also use as ray as digital
45:08
Speaker 1: platforms to understand the communities. So we really dive into
45:11
Speaker 1: our users and who's the end end user and that
45:14
Speaker 1: allows us to find to find the most attractive locations.
45:18
Speaker 1: So what type of I mean, do you like to
45:21
Speaker 1: have one or do your shopping center a retail space
45:24
Speaker 1: attend of like a big kind of anchor tenant and
45:27
Speaker 1: then you build around it. How do you like that?
45:29
Speaker 1: So I don't like taking a lot of risk in
45:31
Speaker 1: bake anchors. I mean there's always a difficulty if you
45:35
Speaker 1: lose a big anchor to have to re fit somebody
45:38
Speaker 1: moving into that space. So we have a tendency to
45:41
Speaker 1: stay in the smaller shout space. So we found that
45:43
Speaker 1: twenty five hundred square feet to about three thousand square
45:46
Speaker 1: feet is about the most interchangeable use with the widest
45:49
Speaker 1: amount of users. So who do you tend to compete
45:53
Speaker 1: against a lot? Like even now? Is it other rates?
45:57
Speaker 1: Is it just local privately owned real estate development companies?
46:00
Speaker 1: Who are some of your competitors? So mostly local, privately owned,
46:04
Speaker 1: although we're starting to see some other reeds move into
46:06
Speaker 1: our space. So if it typically if I go up
46:09
Speaker 1: against a private, local person, presumably that person has something
46:13
Speaker 1: maybe I don't, such as local knowledge. I mean, how
46:16
Speaker 1: do you guys build that? Do you buy like said,
46:19
Speaker 1: I want to develop Phoenix? Do you just send your
46:21
Speaker 1: team into Phoenix or do you maybe buy a team
46:24
Speaker 1: that's already in Phoenix that knows how know? We usually
46:26
Speaker 1: build our teams in our markets. So and very much
46:30
Speaker 1: focusing on location again, using as much analysis as possible
46:35
Speaker 1: that we can that we're provided with our platforms to understand.
46:38
Speaker 1: So what was your business like during the pandemic, Like
46:41
Speaker 1: how did it just impact you guys? Oh, we did great.
46:44
Speaker 1: I think it's counterintuitive to a lot of the national tenants.
46:48
Speaker 1: In our case, we had the highest recovery rates and
46:51
Speaker 1: also the highest collection rates in the industry. So what
46:54
Speaker 1: why is that? I mean, I just I would think
46:56
Speaker 1: like just Main Street USA, Talent I live in, and
47:00
Speaker 1: a lot of vacancies, a lot of company businesses went
47:03
Speaker 1: out of business. So it was almost every third or
47:05
Speaker 1: fourth or fifth store was out of business. Now that's
47:09
Speaker 1: literally Main Street USA, not at a shopping center. Did
47:13
Speaker 1: you experience that and if so, did you get people
47:16
Speaker 1: back in there? No? I found, especially in our markets,
47:19
Speaker 1: people were pretty active, and in addition to that we
47:22
Speaker 1: had we were pretty I'm always amazed at you know,
47:26
Speaker 1: American business and especially growing entrepreneurs. They're the ones that
47:29
Speaker 1: flex the first. They caught the opportunity with a lot
47:32
Speaker 1: of customer switching at that point, especially at the nationals
47:34
Speaker 1: when they're closed because they're dictated by you know, their
47:37
Speaker 1: home office. Right. The other thing that I found really
47:40
Speaker 1: interesting through this whole thing is kind of the resilience
47:43
Speaker 1: of our portfolio and also the resilience of the American
47:46
Speaker 1: entrepreneur yep as We've talked about that a lot on
47:49
Speaker 1: the show. But if you go down to Electionton Avenue
47:51
Speaker 1: right there, a lot of empty retail between fifty eighth
47:54
Speaker 1: and fifty nine Street. It was once it was before
47:57
Speaker 1: the pandemic. It was full Victoria's Secret and some other
48:00
Speaker 1: box door or something I can remember. Now there's just
48:03
Speaker 1: a chocolate store that survived the pandemic. People bought chocolate
48:07
Speaker 1: during a pandemic in the lockdown, and a bank just
48:09
Speaker 1: opened up on the corner. But you see town cities
48:11
Speaker 1: like this, you're probably like, boy, I'm glad I'm not
48:13
Speaker 1: in big cities. Right. Yeah, we've avoided the big central
48:17
Speaker 1: business districts. Again, pretty tough. The rental rates, they are
48:20
Speaker 1: pretty difficult to size space, the ability to flex to
48:24
Speaker 1: the user. Most of those are goods. It's a little
48:26
Speaker 1: difficult to put in a service user in those type
48:29
Speaker 1: of locations as well. So yeah, interesting, all right, Last question,
48:33
Speaker 1: what's what's the growth outlook for you guys over the
48:36
Speaker 1: next one to two years. Oh, I think we're well possessioned.
48:38
Speaker 1: I mean already in our markets, were over ninety percent
48:40
Speaker 1: occupantsy in all of our markets, and I think there's
48:44
Speaker 1: not a lot of retail being built because of what
48:46
Speaker 1: happened in the past. So things look good to come.
48:48
Speaker 1: Oh interesting, good stuff, all right, Christine, thank you. So
48:50
Speaker 1: much for joining a Christine at Most Andrea Coo of
48:54
Speaker 1: white Stone reet again, that is a publicly traded company.
48:57
Speaker 1: WSR is the ticker or the retail space, the commercial
49:02
Speaker 1: retail space. Some weakness out there and a lot of
49:05
Speaker 1: big markets, and we certainly see it here in New
49:07
Speaker 1: York City, certainly in Midtown, but a lot of the
49:09
Speaker 1: country doing very well and good for them. So it's
49:12
Speaker 1: good to see some good growth out there in retail.
49:14
Speaker 1: The consumer remains a very strong consumer has a job
49:17
Speaker 1: that's good for all things retail. Thanks for listening to
49:20
Speaker 1: the Bloomberg Markets podcasts. You can subscribe and listen to
49:24
Speaker 1: interviews at Apple Podcasts or whatever podcast platform you prefer.
49:28
Speaker 1: I'm Matt Miller. I'm on Twitter at Matt Miller nineteen
49:32
Speaker 1: seventy three and on Fall Sweeney I'm on Twitter at
49:34
Speaker 1: pt Sweeney. Before the podcast, you can always catch us
49:37
Speaker 1: worldwide at Bloomberg Radio.