This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
We're talking to I just tell you, like what I have. A great uncle passed away.
Sorry, he died a couple of weeks ago.
And he was renting a penthouse apartment with balconies on both sides on ninety six in Amsterdam. You know, for the past fifty years. I think he was paying like eight hundred dollars a month, and my brothers and I were always like, should one of us like move in with uncle Bud?
Yes, we adopt us. We failed it.
We didn't do it.
We didn't We didn't get it.
Matt, what's up with that?
What do you do for a living?
Did you know?
Did you ever see? Was it the No Seinfeld episode? Remember when someone died in wanted the apartment? A?
All right, right, we digressed, But we want to talk housing because the US is in what's traditionally the busiest home buying season. Right now, We've got some home data today. US home sales advancing and made of the fastest pace.
In over years.
So great roundtable to talk about it. Pat Clark is real estate reporter at Bloomberg News here in our interactive Broker studio along with Alison Schrager, Senior Fello at the Manhattan So Too Bloomberg opinion columnist. She has a column out about thirty year mortgages in the US, and we're going to get to that in just a moment. But Pat's at the stage in terms of the data and where we are in the US housing market.
Yeah, well, we just had a solid increase in home prices from March to April. We're still down a little bit year over year, which is a you know, that's been a pattern we've had for the last few months, with small monthly increases, but still down a tad. Probably indicates that we are bottoming out and that.
The worst is over.
You mean, well, yeah, the worst is over for home prices. I mean the housing market. I mean, the housing market is it's a market. It's too side. If you own a home, the value of your home is not going to go down more probably if you are looking to buy a home, that's bad news.
It's amazing to me though, that we're not going to go back down from here. I mean, if you look at the S and P. K Shiller chart from the beginning of the pandemic until now, it's prices have just absolutely soared, right because everybody wanted to get out of the city and COVID and we needed to distance. But now we don't have to anymore. We're like, calm down, the ULTI freaking out apply being low.
Right in terms of the house.
The supply, yes, the supply is really low, where inventory is something like something just short of half of what it was this time in twenty nineteen. But what that really speaks to is that, yes, there was this you know, there were stimulus. People wanted to go buy a house in the country, people wanted to people were forming households for the first time. But the prices were also supported by these really low interest rates, and those interest rates are locked in.
All right, So let's get to Allison Trigger.
Come on in Allison on your column today where you talk about the thirty year mortgage could save the US housing market laid out for us.
Well, I mean I didn't even realize compared to two thousand and eight that Almost everyone who's bought a house in the last ten years has had a thirty year fixed rate mortgage, which means and I'm one of these people. I had locked in a really low interest rate during the pandemic, and effectively I'm never moving.
And that's congratulation exactly.
Yeah.
You know, it's funny. I you know, we were talking about FED policy and how lowered rates. I was having our coffee with a member of the FED board during the pandemic, and I was.
Like, oh, I heard you bought an apartment.
I'm like, yeah, it's great, paid nothing for it, and he goes, you're welcome.
Oh right.
Yeah.
By the way, I just looked at the Cashiller index. So from March of twenty nineteen until the peak that we hit in the middle of last year, home prices rose fifty one percent. That's insane. Froth like, how does that not come off when you're the starting point March nine? Okay, Oh, I guess that's a little bit too early. I should
have started March of twenty twenty. The point is, though prices have marched higher, and your column, Allison kind of explains why we're not going to see a lot of movement back to the downside.
Yeah, because if you remember in two thousand and eight, with thirty percent of people had those adjustable rate mortgages, so as rates went up, they couldn't afford it, and in fact, all of a sudden they found there are underwater. And what's interesting is that pretty much every other rich OECD country is seeing big drops in housing prices, but
they also mostly have adjustable rate mortgages too. So the fact that people like us are locked into these very low rates means we're going to be very reluctant to move because, I mean, where can you go?
Can I just wait, hat did you? Did you lock in a low rate path? No?
Pat didn't get it.
Can I just say that one stat in your story? By twenty twenty one, only two point two percent of mortgage applications were for adjustable rate mortgages. Well, in twenty twenty two, eighty five percent of mortgages were fixed thirty year Like that number.
That's such a flat It's amazing.
It is, and it's hard to imagine anyone even if home prices do fall a bit and they find their underwater with their mortgage.
Is why people would leave.
I mean your monthly outlay is going to just only go up if you go anywhere, even.
If you downsize demographics though, I mean people are getting older. I have nieces and you know who are getting married, and they're buying homes and they're starting families and nephews and so on and so forth. I mean, eventually demographics, people will be moving or what.
Well, people are going to want to form households. People are going to need homes. Whether that means, you know, can they buy them. It seems like right now in order to buy them, they're going to have to pay up to get them. They can go rent them too. I mean there's a you know, the other side of demographics is at some point people will die die, or at least they age out of a place where they want to live in a house in the suburbs and need to be in a community where they're getting more assistance.
But that happens very slowly in overtime. You know, we imagine like that that we imagine the boomers all dying off all at once, but it's not how it really.
Well look at in slock from Apollo, he sent around a chart. I don't know if you guys are on his list a couple of weeks ago showing the average new mortgage monthly mortgage payment, and it goes back twenty years. So over the past twenty years we've been bouncing around between one thousand and fifteen hundred, and now it's three thousand. So the current average new mortgage payment average across the country including the middle is three thousand dollars. That's insane.
I remember when we bought our house years ago, decades ago, and it was like the mortgage was the same as our rent, Like it was just such an easy transition. Having said this, Alison, I think about broader economic implications. If people have great thirty year mortgages like yourself and he ain't moven, what does that mean in terms of economic activity?
Because when we buy a house, we tend to buy a lot of stuff.
There's just amount of an economic activity component as a result of that movement.
So you mean, like people buy other things to go to house or are gonna want us maybe as well, do renovations stuff like that, home.
Depot, real estate agents, commissions, I mean everything you can think of associated with buying a house or forming a household. Right, that kind of activity is maybe gonna lessen substantially, right, if we don't see a lot more transactions.
Yeah, and now why I don't think anyway the thirty year mortgage might save us from a housing collapse. I don't think it's all necessarily good because anyway, it might save us some short term pain. It's also good to move. Like if you're thinking, I want to move to another city for a better job, but the housing costs are just too high because you have to sell your cheap house and go to something with a more expensive mortgage, maybe you won't and that might make the economy less dynamic.
And as you say, younger people forming households might be priced out. That's not good either. So I think we're giving up some short term pain, but you know, might end up with a sort of just less dynamic economy in the process.
So your takeaway was the thirty year mortgage has kind of saved us from falling off a cliff.
Edge right now versus other countries, right versus.
What you see in the UK. But in the long term, we're going to lack that dynamism that has made America so great.
It will be less dynamic than we otherwise could be. We're always more dynamic than the UK, but I mean it's all relative, correctly.
That's always dynamic.
Up Papa coming in in terms of when you look at the residential real estate market, are home builders getting ready to amp up by land and build or what.
It's a good time to be a home builder because you're not competing with existing home inventory, right, So I think certainly builders are feeling optimistic and see a great opportunity. What level they actually produce homes into, I guess is a question. And you know, they got burned.
Fifteen years ago, were so cautious.
Along with the rest of us, and they've kind of real you know, their business model operates in a way where they're taking less risk but also are less nimble in terms of capitalizing an opportunity.
Home Builder stocks are up almost fifty percent this year. Yeah, they're doing very well on a tear. Okay, thank you. We didn't talk about the Manhattan Law. Sixty three percent is ken? How do we not do that?
True?
Jennifer Epstein has a great story on the Bloomberg Terminal about fifty eight hundred square foot loft that may sell for four million, which is pretty low for such a gigantic pad. Because there's a renter in there that's going to stay forever and only pays twenty three hundred dollars a month in rent.
That's how it works in New York City. All Right, Pat and Allison, thank you so much.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or watch us live on YouTube.
All Right, as we try to figure out when we should go apply to be a Citadel intern, in the meantime, we continue to kind of passe through economic data points headlines on a lot of things. We talked about residential housing earlier with our team, and we know the current issue of Bloomberg Business Week is all about the office real estate market and noting that.
It's getting scary. But then we had essel Green yesterday.
Selling a stake in a park a Park Avenue tower. A value of about two billion put on that skyscraper as a result of the deal, and that showed to be or was looked at, Matt, is some optimism when it comes to the office real estates. Yes, I think in certain markets, certain areas.
I won't use the.
Tale of two cities cliche, but clearly there's a difference. Right if you have a great office building on Park Avenue in a place where everybody wants to be, or if you've got one of the buildings on the Third Avenue canyon down here that nobody wants to work in or will ever be able to live in. There's a very big difference in the value of those aspets.
It's not apples to apples.
Well, we have a great guest to comment on the commercial real estate world with us is Michael Chauveau. He is founder, chairman and CEO of the international real estate development and investment company that bears his name. Is company owns the Transamerica Pyramid in San Francisco, brought that back in twenty twenty other properties around the world, and we welcome him in our Bloomberg Interactive Brokers studio.
Hello, Hello, Hello, good morning, afternoon.
It's morning somewhere?
Is it morning?
Yeah?
Bloom this morning?
When when Carol and I get our Citadel internships, have you got a place for us to hang out in Miami?
By the way, the Citadel Play in Miami is something that everybody's been talking about because you know, the move of citviel to Miami from Chicago has been a big generator of kind of other companies moving there. This whole interest thing is a phenomenal marketing tool. Right now you've
got every top, every top, yeah, coming to Citadel. But you know, when when you're looking at the market and you were talking about theesyl Green deal, Essel Green deals is interesting if you if you go through the details, a lot of it was actually a transfer of debt, right, so the Japanese firm actually took over a bunch of the debt. But the fact.
That it was great for sl Green.
It was amazing for us. Greening to the fact that the building is worth more than the dead was a miracle on that specific acid. But as you said, it's not even a tail of two cities, it's it's it's a building specific today and the separation between good and not good, or good and really bad is huge. There's no more in between. It's either your winner, which means you're a trophy building you're generating rents of two hundred bucks a foot plus in that market's on fire, or
you're dead. There's no in between. Because, as you said, nobody wants to go to Third Avenue because those buildings have expired. The idea that real estate lasts forever is something that people are now realizing is probably not true.
By the way, what do you do with those buildings on Third Avenue, Because we've heard from people that look into it. Not only does nobody want to work in them as office buildings, but they cannot be repurposed as residential.
I'm gonna ask it, when you open your fridge and you see the milk expired, what do you do with the mill? Throw it away exactly? And that's what's going to happen with these buildings. So when we're looking at these buildings, we don't buy on Third Avenue because I don't really it's it's not our neighborhood. We only focus on super prime real estate. But at some point, the value of those buildings is going to trade at land value and there will be an opportunity to demolish them
and build a new office, a new building. It's not that nobody wants to live there, but you can't convert. You can't take bad stock and make make You know, you're not going to take the sour milk and make a cake out of it, It's still going to be a sour cake. And that's really the problem with a lot of these conversations about converting office to do RESI. It works in really specific cases with buildings that have the right column with and things of that native.
For example, you've been to the Net in London.
Yeah, gorgeous.
It was a bank and now it's a really cool hotel with like nine restaurants.
But once we take down the sour cakes, are we going to build new cakes? In other words, new offices or a we're going to do something else with that lane.
Well, we're in certain cases whereas there's demand, we're going to build new office. I mean, I'm a big believer that the idea that everybody's worked from home is nonsense. You know, pre COVID, we all remember everybody wanted to be Google, Apple, Facebook, We all wanted big offices, hold hands, you know, and in collaboration years ago. I'm just going to I want to say that every time I come to this office, this was built in two thousand and five.
What a visionary mic was to do this, to bring people together, forces you to come together in London as well, before you go to your office. This is it's brilliant and he's a true visionary.
It's a fantastic place to work. And our new office in London, by the way, I Norman Foster designed that as well, So.
We're so I just toured that actually with Norman. Norman's designing four buildings for us. He's also doing the Trans America Pyramid in San Francisco, and you know a couple of the new office buildings in Miami. The building is amazing. But just to go back here to your question, we're going to build office, We're gonna build residential. We're going to build the right thing at the time, but the value of the land will start making sense.
Go to San Francisco. You bought that Trans America Pyramid back in twenty twenty. I think it was six hundred and fifty million dollars and you're putting a ton of.
Money and to renovate it. Any regrets about that property and help me understand San Francisco.
By five times again if I could. It's it's the first thing, as I said, focuses only on elevating super prime real estate. It doesn't get more prime than the Trans America period.
So what's going on San Francisco.
We have a cover story on Business Week at San Francisco's go through really tough.
So if you read the press, you know, and you think San Francisco is dead and it's about the sink and the cable cars are going down the ocean. You guys reported recently about the Trans America Pyramid. We've signed multiple leases between two hundred dollars to two hundred and
fifty dollars a foot in the pyramid. Now, that makes the Trans America Pyramid the third most expensive building in the country, more expensive than the building that essel Green just sold as far as rents, right, it's at the top of the market is rents. And this is in San Francisco, which a market that in general has a lot of negativity. It shows you that even in difficult markets,
there's a flight to quality. And we're getting the investment banks, we're getting you know, the BC is there that are willing to pay if you give them the right thing. And obviously with Norman Foster and we're investing hundreds of minutes of dollars, we're seeing that. But San Francis, guys, obviously some existential issues that that will eventually get solved. I think that there's a lot of a lot of eyes on us with what we're doing at the Pyramid,
with how we're going to rejuvenate the park. We have the Redwood Park there to really ignite that whole neighborhood Jackson Square, that's going to happen towards the end of the year early next year. So there's a lot of hope that that brings life to get.
Ahead of itself.
Also, I mean, I feel like we've been talking about that, the housing problems and situations, the expensive nature of San Francisco city like San Francisco for years. So did it just kind of need to write itself or is it the pandemic.
I think I think it's a combination. It's it's the star align the stars aligned in the wrong location, and that's says because the pandemic took a hit. The largest groups that suffered from the pandemic, or in the sense from an office perspective, is the tech tenants because they all all of a sudden figured we can work from home. But that's all changing, right You're seeing a change of that and right now we're seeing even in San Francisco we're seeing Monday to Thursday. You know the card swipes
right now, people are, people are at the office. Friday is still is still quite quiet. But all that really means is you got to give people a reason to come.
You've got to endow or ED. Lola, who's dinner.
San Francisco Bureau is listening, it says, ask him, what's going to happen to downtown San Francisco, Westfield and all the corporate real estate is empty.
Everyone wants it rezoned.
So well, they're working on ED. But again, part of part of the issue there is, as I said earlier, not every building works as as as a converse conversion to residential. San Francisco from all market needs it more than anything else because housing prices are out of control. You know, unemployment in San Francisco is sub three percent today, which is something really important to understand. People are there.
There is going to be a back to work, but we will see the bad stock exactly like Third Avenue is you're talking about the creators at Third Avenue. There are buildings that expired in San Francisco in every market. Chicago is no different than New York is no different. We have to get rid. We have to get rid of the buildings that are not relevant anymore and and build new buildings stead of them. And it's that that's
a transformation. That's what we're going right now. COVID has accelerated all this, kind of all this, I would think that's gonna that was gonna happen anyway.
I would love to hear your take on New York because San Francisco, when I see that rents are going down there, it just makes me excited because I want to live there and maybe I can afford it one day. Miami, obviously it is white hot, not just Citadel. I mean even before Ken Griffin thought about moving to Miami, everybody wanted to be there. But New York feels kind of dead. You know. Even on this block, we had all of these big tenants downstairs, and those stores are empty still, right,
Jay Crew and Curry Secret, they're all gone. So I just wonder what happens to New York.
You had the containers store that went away, right, Yeah.
We had gone.
He used to have Williams Sonoma and Pottery Born. They left and I asked Himika, why are you leaving? It's a great place to be and they're like it got.
Too expensive, right, so twenty seconds then we're going to bring you back.
Okay, Well, there was an issue with obviously the cost. As you said, the cost went up, they couldn't afford it. The business interruption. But you're seeing if you look at Madison, Madison rents went up from it that it was a thousand bucks a foot down to four hundred. You're back at nine hundred bucks a foot on Madison. There is a bounce back in the locations where people want to be.
All right, We're going to continue with Michael Schave he's founder, chairman and CEO of Cheveau real Estate. They are doing deals and we're going to continue talking real estate. We want to roll into the conversation though also our Ed Ludlow, who of course is co host of Bloomberg Technology, because we've had some news on the EV space. But before we get into it, you know, you really kind of popped in some good questions on San Francisco. You're living
in the San Francisco area. Do you buy that San Francisco is going to be?
Okay?
I don't buy it in either direction. I asked the question because it's what the debate is here among everyone, residents, the industry. We had our Bloomberg Technology Summit last week, Michael, and the future of SF was everything that people were talking about. Alongside Ai and the mayor, London Breed was here, and I think what we're talking about is downtown SF.
That the real estate you're talking about, And the mayor's proposal is that investors buy in and redevelop existing or knock it down and do something new with what's already there. And my question to you, Mike, was how attractive is that as an investor to get involved in a project to reimagine what downtown SF looks like.
So you're asking the person that has the largest investment in downtown San Francisco. We have a billion dollars invested at the Trans America Pyramid Center, which is a full, full city block. I've had multiple conversation with the mayor about this whole idea. These things take time. It's not happening in five minutes. And the biggest city of San Francisco has and has had for a long time, is
bureaucracy of getting things approved right. So now there's an emergency there trying to push everything quickly, which is good because I think that's going to make a change, but it's still going to take time. That is not going to be the immediate solution. There's a security issue in San Francisco that has to be dealt with, and it's it's this cycle where there's no people, so there's more.
PRIDW do you deal with that?
It doesn't seem like that will be dealt with. I remember going to San Francisco ten years ago to interview people around an Apple product release and Chris Sokka had to break up a fight between two homeless people behind us because they didn't know who owned the joint right. So, I mean, the homeless issue has been a problem for decades. That's not going to get solved well.
But you didn't feel the homeless issue when you had people on the street right. Part of the issue with the homeless issue. When there's nobody on the street and it's mostly homeless and you're in you're and and the ratio between homeless that the non homeless people is upside down, you feel it a lot more right. And that's where you start seeing crime. That's where you're seeing drugs. I mean, the whole area in San Francisco that's problematic. But on
the bright side, think about think about what's happening. You ask me what's going to change. What I think is going to change is that that you have voters and this tremendous amount of pressure on the mayor and on the on the entire board there to make a difference. You know, they've they've changed some of the some of some of the people. They're both on the education side
and to fight crime. If you ask me if they're doing enough, it's probably not enough yet, but they're at least directionally going there because they know that that there is no option. And unfortunately the press has been has been very brutal on San Francisco, but it does it did give a kick in the butt to everybody there
to move forward. But I think that what's interesting and why I find fascinating is, as I said earlier, if we're getting rents between two hundred and two and fifty dollars a foot, which is twice the market in San Francisco pre COVID. Pre COVID that this building was at sixty five to one hundred and five dollars. Today we're at one twenty to two fifty. Trending to three hundred. That tells you that that there is the first thing
that that San Francisco is not dead. There is there is a belief at the top of the market, right that people want to be there. Right, So at the relevant real state and the relevant locations, I think that we're going to see We're going to see positive news and and like I said, there's a lot of eyes on us, you know, towards the end of this year really to be the the ignite downtown San Francisco, with with opening the Pyramid and opening the park and opening that whole neighborhood.
And I want to bring you.
In because initially we wanted to talk to you about what's going on at Stilantis, and I'm thinking about EV charging units. Right, you've got another kind of Stillantis taking a page from Tesla's playbook in terms of lining up other automakers and I and we can talk about EV infrastructure.
Tell us the.
News though, Okay, so summing up the news from Stilantis. They're basically making a standalone power unit much like Tesla has so down the road they can order they can offer the charging at home infrastructure, energy storage and then the charging products. The thing is we don't know anything about it. It's going to be through third party partnerships, investments, through their venture arm and in this country, Matt's probably
thinking what is he talking about? In this country, STILLANTIS has no EV offering at all, so you know, they are so behind the curve here. I think the big question for everyone is did they join the NACS club, which we discussed last week, right, they joined Tesla's technology standard, but this is at least STILLANTIS making squeaks. Raises a good point for Michael though Carroll, which is, you know, where does the energy come from the private sector or
the public sector? Always talking about the infrastructure bill, but you know, the private sector just gets going quicker. It just does it like Tesla just did it. In the case of this charging it.
Michael, how do you think about this stuff?
So we just completed the Mandarin Oriental Residences in Beverly Hills on Wilshire Boulevard, and you know, in California, obviously, as you know, evs are are extremely popular. I think you know a quarter a third of our parking spaces are actually are actually all facilitated with private charging station and we provide that to people that move in and
that's where you're seeing. As you said, the private sector is much quicker to react because there's there's a true roy Right, if I have a guy that wants to buy or a family that wants to buy an apartment that the poor bedroom and needs three charging stations, there's a true ROI and providing these facilities versus you know, waiting for the you know, waiting waiting for the government to do it, or waiting for for for the for public funds for that.
So it's becoming a bigger, bigger part, right, is it becoming a bigger part of you as you develop?
For sure on the West Coast way, I think that it's really the mindset of the consumer. The West Coast consumer is very focused and there's a lot of demand for ev for for for evs.
But don't you have to plan ahead, Like if you're putting up a building or you know, re engineering a building here in New York, if you're building something in Miami, don't you have to say, like okay, as Ed pointed out, Stillantis doesn't have electric vehicles in America this year, but in two or three years they're going to have a ton of them. And so eventually you know. I mean, you've got to think five, ten, twenty five, thirty years ahead.
Right do you.
I'm thinking about my internship I tended. But the answer to question is yes, New York is a unique market. You don't really we don't build a lot of parking here. And as a good point, you know, there's just a change, even this change that you see now with with the taxes on traffic that was proposed yesterday here in New York City. But in Miami, for sure. Miami is another market that we are incorporating ev charging stations, the whole energy you know, we're the building we're building with Norman
Foster in Miami Beach is in is it totally? You know, is an energy efficient building where very much like your headquarters in London, you know, being environmentally friendly and environmentally neutral.
Where's your favorite place for opportunities or to build? Right now when you look around the globe and let me.
Ask you about the US versus the rest of the world on that note, good, you know, because right now America is going through a tough time. My wife's from Spain and she has issues with our government and our people, you know, but how do you look at it? As someone who immigrated here also, you know, twenty thirty years ago.
Well, that's a load of question. We don't have that many that much time left to even answer that. But if you think about how other people look at how foreigners look at at America, we're still looked at the best place to invest. And that's it goes back to the sel Green deal. The Japanese just put tremendous amount of investment in here because the US has looked at it's the safest place to invest. Europe is a disaster from an investment point of view. They have you know, Spain, Germany,
I mean, these markets have tremendous amount of problems. We all have the same issue with cost of capital. Right, cost of capital is expensive here, it's expensive in Europe. But there's the sense that the US is a more evanced market and it's safer market to invest. So we're seeing I mean, we're partners with some of the largest
German state owned pension funds and insurance companies. They're still investing in the US more and more now here than they are they're in their own in their own backyard, because they do have problems there that have to do with you know what well, regulation, regulation, and for years they were in very low return environment that now is with high cost of capital. It just kills you.
So, Michael, thirty seconds left here. So I'm not gonna poop poo some of the.
Journalism that we've all been doing and the narrative out there about the concerns about office real estate. But do you think there is a crisis brewing? And just got about thirty seconds twenty five.
It's as you said, there's it's not a crisis. It's not an overall market. It's there's a crisis in the B and C class office and and it's not a crisis that has expired. It's got to be demolished. It's got to be a replacement.
I talked to someone who was overseeing kind of all of the old assets from like sears and so and so forth, and just saying, you know, I'm so glad we're not talking about the demise of the mall anymore. Like we've moved on to office and it just sounds like we're cleaning house at this point just a little bit.
There's a reset and like you said, old inventory out, new inventory in, and people are paying for it. The good thing is there's a lot of money out there to pay for new inventory.
Come back soon. This was really really fun pleasure.
Thank you so much, Michael Schoe.
He's founder, chairman, CEO of the company that bears his name here in our interactive brokera.
Thanks Ed, Yes, thank you.
At Ludlow, you're listening to the Bloomberg Business Week Podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business App and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Am. Bromarco Journal.
How about you let me drive?
Oh no, no, no, no, who's going to drive?
Honey?
Please, I'll travels.
I want to drive.
It's a good question.
This is the drive to the clothes me well by around yelling Don on Bloomberg Radio.
All right, everybody, we've got just about seventeen minutes left in today's trading session here on this Tuesday, June twenty seventh, and as you heard from Charlie, Equity is definitely on a rally outperformance among the Nasdaq one point seven percent higher and maybe some expectations that the upbeat US economic data that the economy might be maybe won't fall apart.
If we get a recession will be easy. But we have seen also rates moving up a little bit today.
Matt right.
And the concern I think if you're buying into this market is that rates need to rise further. Yea, as has been indicated by Jerome Powell and the Federal Reserve dot plot, But the markets don't seem to buy it.
Yeah, all right, so let's get to it.
Christopher Zook is with US, founder, chairman and chief investment officer of CEZ Investments, works with endowments, high net worth individuals, and family offices.
He joins us on Zoom in Houston.
Hey, Chris, good to have you back with us. First up, got to ask you about Houston temperatures, Texas records. Talk to us about the heat and the stress, the great stresses, because it's something we're going to dig into a little bit deeper. But I'm curious firsthand what you guys are seeing.
You know, it's amazing. We had a very actually mild start to this spring in the early part of summer, and then it has really hit with a vengeance here the last couple of weeks, you know, the grid is under stress. What I will tell you is that most of the things that were done after the freeze that we dealt with in twenty twenty one have really improved the health of the grid, and the leadership, you know, of the new leadership that has taken over there, has really done a very very good.
Job so so far.
Even though it is very hot here. It's seventy two degrees everywhere you go, your car, your your office, and your home, because that grid is very much intact, all.
Right, So you're staying cool with the ac on. Markets are hot right now, we're up again today, or we've broken the last the losing streak of the last couple of days, one point two percent on the S and P another one in three quarters percent on the Nasdaq. These these tech docs continue to run. How much longer can this go on?
Chris?
You know, it's it's hard because of the fact that the market could be anticipating either a soft landing or an economic recovery on the other side, or the market could just be flat out wrong. And right now it feels like we had this huge dichotomy to where in the S and P five hundred, twenty names have made up over ninety percent. Four percent of the names have made up over ninety percent of the performance of the
S and P five hundred year to date. So we have this dichotomy where it looks like the bond market is wrong because the stock market is going up. I personally believe, and we believe as a firm, that the bond market is right and the stock market is wrong, and that this is going to end badly over the summertime in the fall as the recession really does arrive.
Having said that, if I look at the S and P five hundred major industry groups, most of them are up on the year, and yep, it is some of those big tech names that are definitely leading the way communication services that named group, but nonetheless, but consumer discretionary industrials are also gaining on the year.
Materials, you know, there are we were for a while, it feels.
Like Chris, you know, talking about some of the plain vanilla old industrial stocks that were leading the way, and we were seeing some rotation. So having said that, does that not speak to you that maybe things are a little bit more broader in terms of the outperformance, and maybe it makes sense for tech to be such an outperformer and big influence, considering our world is so much tech, you know.
It's those are very fair points and very fair questions. And at one point there was the appearance, based on what was happening in the bond market and in the stock market, that the Federal Reserve was going to be able to thread the needle and to be able to manufacture a slow, you know, slowing economy, beat inflation and then at the same time not destroy earnings and profit margins.
Really doesn't look like that is the case right now, but FOMO was kicking back in again fear of missing out on the rally that is causing people to go, okay, what is not absurdly expensive? And so you are seeing a little bit more participation, but the actual indices themselves, they're still not performing like you would expect them to.
And when you look at what the overall stock market is done, when you look at the S and P, and when you look at the Nasdaq, what I will say is this, most people right now believe the Fed is going to raise rates more, but yet they're trading stocks like that's not going to happen. That to me is a message of hope, and hope is a bad investment.
So I'm just going to tell you christin math that sounds like with my husband's like, yeah, honey, you know, fair point for a point, but you know you're wrong.
So it's okay. Would I ever do that now?
I would? No, I hope you would.
I hope you would push back.
I hope you would.
But anyway, in terms of you know, I've seen this hope playing out when I go to lunch with Wall Street fund managers.
Who are like, Yeah, the Fed's got.
A cut, They're definitely gonna cut.
You know.
Do you expect Powell to I guess at this point he'd be kind of reneging on his promise because he said last week they're not going to cut for years.
I think that it is definitely wrong to think that the Federal Reserve is going to turn around and go the other way. The FED is in one of the most difficult boxes that they have been in the last forty years. If they raise rates too much, they know they're going to derail the economy and do so in a pretty significant way. But they may have to do that to whip inflation. To use the term of the
early eighties. But at the same time, if they lower rates because the economy starts to show that recessionary environment and then all of a sudden inflation rears its ugly head again, then they look like they're completely incomfident. The markets lose confidence, and that is exactly what happened to
the Federal Reserve in the late seventies early eighties. They cannot lower rates until they know for sure that inflation has been beaten to the ground and that they have literally laid on top of it for a while to make sure that it's going to stay down, which is that is when they're going to cut rates, and that's probably not anytime in the next.
Twelve Don't you feel like Ja Pow was just throwing cold water at everybody, basically saying, come on, guys, stop talking about cutting rates already.
That just doesn't make any sense. We're not even close, you know.
But as I just texted or message to IBEAD Matt data dependent. I mean, if that's going to watch the data points, if inflation gets down and settles, you know, they certainly don't want a deep, deep recession either.
Just got about thirty seconds Chris.
Totally agree with you. And if they literally do see data that completely surprises people and then inflation is whooped. Yeah, And then if you don't see this bad recession coming, you know, there's no reason for them to keep raising rates.
Hey, listen to twenty seconds, because you do make investment decisions. What's your favorite investment play against risk right now?
Very quickly?
Absolutely owning the stakes and private asset management firms. They have the biggest tailwind, they have the best profit margins, the most predictability.
In the most upside.
Got a favorite ticker.
So in the public mortgage right now, we do own out blue out. That would be our favorite as far as the names in the public.
Markets love that we got it in well, Stay cool. Christopher Zeck, Founder, chairman and chief investment Officer at CZ Investments on zoom from a pretty warm Houston, Carol Master, Matthew Miller, And this is Bloomberg Radio.
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