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Let's transition to another story. Matt, And you know we talked about this.
We've talked about it so many times. We continue to get this story on the Bloomberg terminal. The US government is considering asking a federal judge to force Google to sell off parts of its business.
The last time.
We had this story, it was people familiar. Now the company or sorry, the department. We've got a filing has confirmed it. Of course, there are other options as well, and we're not going to get even the beginning of this part of the trial until spring of next year. But I want to bring a Nyland as well as
Man Deep Sing from Bloomberg Intelligence here to talk about this. Leah, We've got you know, there's a lot of time between now and when uh this, I guess sentencing maybe not the right word, but this part of the trial is gonna is gonna start. What kind of breakup is the federal government.
Gonna go for.
Yeah, so that remains a question. We'll find out next month.
So what they filed yesterday was what they called sort of the menu of options that are on the table for the judge, And so at the one end is a breakup, and they have said that they may consider asking for forcing Google to sell off either Chrome, Android or Play, And probably if it was Android, it would be Android and Play because Android is the operating system and Play is the you know, the app store that goes with Android, And that's sort of like the extreme
end in the middle. They sort of had these options to sort of force Google to share a lot of the information it scrapes from the web to make its underlying search results. And the government said that if they do that, you know, that could be used by other search engines. It could also be used by AI startups who sort of need this data to sort of create their models. And then the sort of like wimpiest one is you know, just sort of ending the contracts that
the judge found to be illegal. These are the ones in which they paid other companies like Samsung and Apple billions of dollars to make their search engine the default. So these are our options, and they're going to officially, you know, set down what their request is in November, and then the judge is going to let them do some more discovery, asking Google some questions about how this would impact their business. And then we have our mini trial in April, and then the judge said that he
will issue his decision by August of next year. So we still have how many months is that eight or nine months before we get to the end of just this part.
But yeah, it's a busy.
A lot to look forward there too. Man Deep Singh come into this conversation. You take a look at Google shares right now, currently off by about two point four percent. When we were looking at it in the morning, which feels like a long time ago, it was pretty much unchanged. But now taking a leg lower, let me put this into context for us. Of course, there's a lot of wood to chop before we get to any real action. But how much does this matter to Alphabet How much does this matter to Google?
I mean, look some of the remedies that were suggested in terms of for sale of Android or you know, some of the businesses that they own, Chrome browser, I think is just so unlikely, simply because the way Google is run, it's all one shared infrastructure that's powering YouTube, that's powering the browser, that's powering the cloud business. How do you take an entity out? And so the one I guess area where there's another lawsuit, dog lawsuit on the ad has so many.
There's lawsuits, dude, one on the ad tech marketplace. There's a bunch of states that are suing the ad tech for as your browser.
There's the EU.
Obviously, Margaret Vestiger is going to decide by the end of the year. She says breaking it up is the only solution she can imagine.
I'm forgetting. There are other lawsuits, yes this year.
Yeah, And the common thread I find across all those different lawsuits, the most commonly pointed issue is their ad tech stack, which is where I feel like you could make a case why does Google own you know, the supply side AD platforms, the demand ad platforms, the marketplace, and then it has a pricing advantage. Everyone can see that. And that was built on their Double Click acquisition back in two thousand and seven, so you could say they
didn't build this organically. It is something they acquired and then over time they really had an advantage.
But that's they've tuned it up.
They did, and that you could say that even Android was an acquisition. YouTube was an acquisition for Google. So they've tuned all these things over time. But I think ad tech is the one that is the strongest or the most convincing, at least to me, out of all the things they are offering as remedies. I can't imagine you know, Google for sale of Android or you know, all these products that are integral to their LLLM strategy.
I mean, that's the future. So Leo, what do you think.
I mean, first of all, we haven't seen a big breakup in the US since like well none of us was born except for me, even when ma Bell got broken up. And then second of all, this is like a national security issue. Not only is Google dominant in search, but America's Google is dominant worldwide. Do you ever talk to anybody in your reporting who says, like Google is a champion, how could we break it up?
That is a point that Google likes to make that by breaking it up it might make it less competitive, particularly against China. I will tell you the anti trust enforcers are not particularly persuaded by that. They don't like the idea of supporting a company simply because it's a national champion. I mean, America's competition policy is built on the idea that the more companies we have competing, the better products and services we have for consumers and for
other businesses. So they would say, you know, maybe like, we don't really care that this makes Google a little bit less competitive globally. We want there to be other businesses.
And I'm just curious.
I mean, as a reporter, you cover anti trust, you cover, of course, the DOJ, you cover the FTC. It just feels like the anti trust landscape over the past few years has really gotten more aggressive, more emboldened. And I mean, just talk to us about that, about how your beat has changed before your eyes when you think about I don't know, just the last couple of years.
Yeah.
I have been on the anti trust beat for twelve years, and I have to say when I first started, I never expected that the stories I was covering would be like on the front page of the New York Times. Definitely, the Biden administration really took this as the thing that they was going to differentiate themselves from the Obama years. Because the Obama years were sort of seen as very beholden to business. They didn't do any of the things against the tech companies, and they feel that that was
a big mistake. So Biden brought in a trio of very aggressive enforcers, Jonathan Canter at the Justice Department, Lena Kon at the FTC, and Tim Wu at the White House. Tim is now gone, but Lena and Jonathan are still there and they are still making moves. You know. The Google trial just ended a few weeks ago. They just sued Visa and the FTC, you know, just sued a bunch of the pharmaceutical benefit manufacturers. So they have been more aggressive in the past three years than people had
been in the last four decades. It's very much a conscious decision on their part to sort of reject the more lays affair capitalism that they say was brought in by the Reagan years and they feel did not do very well for the average American consumer.
And uh, Leah, I think we're twenty six days away from the presidential election, if you can believe it. And it's I mean, especially among the Wall Street firms that we talked through the Wall Street guys and gals that we talked to, there's been a lot of frustration that it feels like you can't get a merger done that with this FTC, with Lena Khan in charge, it's been really,
really difficult to get any deals done. At the same time, jd Vance, we know, has had nice things to say about Lena Khan in the past.
When you think about what.
Does that mean that jd Vance loves.
Her, I don't know.
I want Leah Away in here because you think about the change in administration, even if Trump wins the White House, I mean, are you expecting much much change when it comes to the anti trust beat.
It's a little bit hard to say, but the answer is not on tech because you know, a lot of these cases, including the one that we're talking about right now Google, was actually brought during the first Trump administration. So the Trump administration and Republicans like jd Vance really don't like the big tech companies. So I can't really see them pulling back on any of the cases that
the Biden administration brought against the tech giants. Where you might see changes definitely in the merger area, because you do hear a lot that while the Republican folks maybe like what Lena Khan has done on big tech, they're not as thrilled with what she has done in the merger area, sort of chilling mergers and making it more difficult for businesses to sort of go about their regular business.
I want to also point out that being on the Bloomberg top page is just as good as the front page of the New York Times, Lea, so you should be proud of the entirety of your career here man, Deep want to ask you about the stock obviously at Bloomberg Intelligence. You know most people are going to follow your research to see how that does. On the equity side, it's up over the last five years. One hundred and
six seventy percent. Hasn't done great this year compared to the S and P, but compared to the other Fang or mag seven stocks minus and video, it's holding with the pack well.
I mean, I think there is a clear overhang when it comes to the anti trust side of things and the scrutiny that Alphabet gets. But when you look at the sum of the parts, even in a worst case breakup scenario, you could argue the sum of the parts for Alphabet is way more than you know its current valuation, and it's just driven by the fundamentals of the cloud business, the YouTube business, the fact that they have a native LM advantage that even Microsoft doesn't have. Microsoft is reliant
on open AI for the LLLM. So I think given everyone is so fixated on generative AI and LLLM, that's why all these products are core to Alphabet as a franchise, you know, when it comes to them deploying their LLM on the cloud or on Android, and I think it's a huge comparative mode.
All right, Okay, thank you very much. Man Deep Singh.
Coming to some Bloomberg Intelligence and leehon Island. Sometimes on the front page of New York Times maybe, but definitely on top Go Bloomberg News.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple, car Play and and brou Otto with a Bloomberg Business app, or watch us live on YouTube.
Now, we've been talking about commercial real estate as if it's the next year to drop for.
A couple of years.
Oh yeah, and even lately we've gotten sort of warnings from people involved in the industry.
I think exactly exactly.
Victor Koschlaw, the founder of credit investor Strategic Value Partners, recently said their problems galore.
He says there's.
Tsunami coming, but he's talking specifically about office and there's not only big regional differences, but also you know, if you are investing in student housing, you're doing fine right now. Medical is you know, still obviously a thriving business. So let's bring in an expert right now. Mark Gibson joins us in the Interactive Broker studio here at seven thirty one Lex. He is the America SEO of Capital Markets for JLLL. I know them as Jones langlessal. Have you
gone through an official name change? Is it just JL now JLL? Okay, So, but you have really an incredible seat from which to watch all of this that's going on. Where would you say we are, say, if it were a baseball game, right and you know the fall of commercial real estate was in which inning would you say?
That is a hard question to sound bite, Matt. But let me let me back up for a minute, because you started out with a tsunami of issues and you limited it to commercial office. But in reality, when you step back a minute and you look at in general what has occurred in commercial real estate, and there has been some centicism around, you know, any kind of risk that might be out there for a financial institution, systemic risk or things like that, But in reality, what has
caused this is a fast increasing cost of capital. So when the demand has largely been there, including ironically in office.
Although it's shifted right, it's come out of the city centers and gone out to urban it's.
Exactly re emerging and there's in it again. It is very different story geographically, so it's hard to sound by it and talking global discussions, but in general it hasn't been a demand issue from a commercial real estate standpoint.
It's been a cost of capital issue. So when you think about the fed's recent actions and you're an investor and you're worried about inflation, because you're concerned if you invest today in the cost of capital increases, you might look somewhat early, so you want to wait and see if that's really going to be con The investor community today believes the FED is indeed going to conquer inflation, and it may take a little bit longer because we
have government stimulus in terms of building back infrastructure and things like that. But generally speaking, monetary policy has worked and so then when you have a normalizing YO curve. So if the issues and they have been limited relative to what was discussed earlier in the year, problems in commercial real estate because demand is not waned it was due to the cost of capital. When that starts reversing, then real estate by and large, and it's different for
different product types. Self corrects.
Yeah, well, just focusing on US office, it's interesting to hear what you're saying that this is a cost of capital problem, because some people might make the argument that, no, this is structural. You know, life changed during the pandemic, and the US office market is different. Now there's people who you know, are doing hybrid work and that's a trend that's here to stay. It sounds like you're you're making a different argument.
No, I think it's a valid point. I do think that what I was talking about is in general, commercial real estate was thrown, to Matt's point, into one basket and discuss globally, which you really can't do. You have to back it down by product type. But on office specifically, the data would suggest otherwise in terms of what is
currently happening now. So when you look at occupancy by cards wipes, and you look at the vibrancy of New York, for instance, and you see what is happening in the marketplace, it's a very different story than what we have been talking about for some time. So we think that office.
Is not bad going to have issues, well, it is.
Of all the product types, it will have issues for a host of reasons. We don't have time today to really go through it, but it will have more issues than other sectors in commercial real estate. But nonetheless, it's not where people believe it is from a from a distress standpoint. There's going to be quite a bit of distress in the space, but it will be a have and have not scenario. The better buildings are doing quite well.
In fact, some of them are doing better than they have ever done in US history, and then others aren't. So of all the real estate classes, it's the largest divide.
Of At the same time, it seems like there's a flood of capital that wants to get in. We talk about private credit more often than we talk about commercial real estate. Is it is there so much money there looking for a home that it helps ease the blow a bit.
Yeah, it's good. It's a good view, Matt. What really is happening is there's no lack of liquidity for commercial real estate. And the fact of the matter is if you buy good real estate and you don't overleverage so you can survive cycles, it goes up and it's a good long term store of value. So people are looking at the right entry point to get into commercial real estate. Across the board, there's no lack of liquidity. It's been the cost of that liquidity that has been the issue
of late. But now we're having a you said a light switch went on. It almost is a light switch in terms of what has occurred. So the amount of capital that wants to invest in commercial real estate is substantially higher than it was, and at the same time, you have people that are looking to absorb that capital and are willing to accept the cost of it and
the various risks. So we're seeing a bit ass gap narrow which is why transactional volumes have been muted some wat and commercial real estate we're getting to see that.
Tick up and we have only about a minute left with you.
Mark, we have to have you back for a longer conversation, but talk to us about magnitude when it comes to the cost of capital coming down. Of course, the FED has started on the rate cutting cycle.
A lot of questions about.
The trajectory's trajectory though, I mean, how much do rates have to come down before you know you.
Really see activity accelerate? Broadly?
I don't think much, Okatie, it's a good question. Real estate investors tend to look longer term, so they're looking at the ten year bond versus necessarily the short end of the Yell curve. But nevertheless, as you see in normalizing yll curve, you will have more transactional activity. We're already beginning to see it, but no one is betting on that to have any significant impact across the commercial real estate industry.
All right, Mark, great conversation. Really appreciate your time. Of course, joining us in studio. That is Mark Gibson. He is America's CEO of Capital Markets talking to us about real estate, the commercial real estate market, the cost of capital. That ten year treasury bond currently camped out at about four percent.
You're listening to the Bloomberg Business Week Podcast. Listen live each weekdays starting at two pm Eastern Dot applecar Play and androyd Auto with the Bloomberg Business And you can also listen live on Amazon Alexa from our flagship New York station. Hey Alexa, playing Bloomberg eleven.
Let's talk about nuclear. We're talking about a lot more these past couple weeks. Of course, you think about Microsoft's announcement to partner with Constellation Energy reopen Three Mile Island, and of course has breathed a lot of life and excitement back into nuclear, back into uranium. Let's break it all down now with John Kotech. He is senior vice president of Policy Development and public Affairs over at the Nuclear Energy Institute.
John, it's great to have you with us.
Matt and I have spoken to the CEOs of a couple of different uranium miners in the past week or so, and the question I keep asking them is what does this moment feel like? Of course, it feels like there's been broad support for nuclear for a while now, but we were looking for a catalyst.
Now we have one. How would you describe this moment?
Yeah, well, first, thanks for having me. I described this moment as a long overdue recognition of the value of nuclear energy is part of a clean, reliable, and affordable energy system.
What's happened in the.
Last few years is as companies focus more and more on reducing the carbon intensity of their energy production or their energy use, to come to recognize that having something like nuclear power that's available twenty four to seven, that can run eighteen to twenty four months at a time while producing carbon free power is enormously valuable in addition to things like the job creation, the tax base, the
other economic benefits that come from nuclear power. So we're seeing a moment where people are recognizing that it's really important to both keep the nuclear we have and get on a.
Path to build more.
I wonder about the affordable part of that. I mean, nuclear is clearly, you know, we don't there's no carbon emissions, right, you only have to deal with the waste, and we can talk in a bit about ways to deal with that. The affordability part is what always dogs me, and I talked to experts like our reporter William Wade. Is it really can we really get there? Because it seems like the cost, the initial layouts are so high.
Yeah, and so great point. There's a couple of things you need to recognize here. One, yes, the initial layout is high, and frankly, when we built the nuclear power plants that we have today, they cost more than the coal plants, for example, that we're being built at the time. But they become an asset that's available for sixty eighty, even one hundred years, and once you've paid off that initial construction loan, what you've got is an asset that's
producing very affordable zero carbon power. And so it really is something that is almost a gift of future generations. We're benefiting from the investments that were made in the plants that we have today back in the seventies and eighties. Future generations should benefit from the investments we make today.
So that's one part.
The second part is you've got to distinguish between the cost of a particular resource. In the CYSM, some costs, and what I mean by that is, look, we're going to build a lot more wind, We're going to build a lot more solar, but because of the intermittent nature of those technologies, to run a whole brid using just those technologies, you have to enormously overbuild both those technologies. And the storage that's needed to carry you through periods where you don't have.
The wind or the sun that you need.
You also need to build out enormous amounts of transmission, which is very difficult to get built.
Nuclear helps you avoid having to do that.
And so even though that particular increment of nuclear generation might look more expensive than a solar farm, for example, on a system basis, by having nuclear you can avoid a massive overbuild of these other technologies and ultimately save consumers money. And what matters at the end of the day is what are consumers paying?
And of course you're talking about expenses here. Something that Matt and I have been talking about over the past couple of weeks is just the timeline. Of course, the point has been made to me that spinning up and turning back on these nuclear reactors it's not like switching a light switch necessarily.
So even with all of.
This momentum, of course, you have Google too thinking about using nuclear to power their.
Data centers as well Amazon exactly.
I mean you have to imagine all the big tech companies reported or not are looking at this. So I mean my question to you, John is what kind of timeline does it take to actually spin up.
Some of these.
Yeah, so as we look down the road to some of the new technologies that we're looking to bring online, those should be able to be constructed in a much shorter period of time than we've seen historical nuclear power plants built. If you look at the experience in Japan, for example, about twenty years ago. In South Korea more recently, they were building large reactors in about five years.
The experience here in the US has.
Been significantly longer than that, but that's because we haven't had a sustained program of new built.
These are big machines, they're complicated.
And so the more that you have experienced building them, the better you get at it.
We've even seen that with the two new reactors.
That came on in the State of Georgia recently, called Vowel Units three and four. As they went from Unit three to Unit four, they saw a twenty percent reduction in cost and a thirty percent increase in efficiency in the construction, just from the learning is going from.
One unit to the next.
If we can start building these things at scale, we're going to get very good at them, and we're going to shorten those timelines.
It's an interesting point about the expertise needed, and of course nuclear it's a really exciting time. I mean, you put ai, you attached that to anything, and suddenly it's very exciting. I'm curious what talent retention and recruiting has been like over the past couple decades since again, nuclear it's been waiting for a catalyst, but it's been waiting for a long time.
Yeah, And what we've seen is that we can attract nuclear into or we can attract people into nuclear jobs in a large part because people recognize these as very long term careers and very.
Well paying careers.
So when I've asked leaders of organized labor, for example, about their concerns in finding the workers to serve as the electricians or the construction workers, what have you in these facilities, they say, show me the jobs and I'll find you the people. Because the people see these jobs as a pathway to the middle class. They see a safe job, they see a long lasting job. Right, these reactors can run sixty eighty we think maybe.
Up to one hundred years.
So the type of facility that you can build a community around the type of career where you can set down roots in a particular in a particular community. So we thinks as these projects move from the planning stage into construction and operation, that will be very competitive in bringing new workers into nuclear.
I want to talk about I always talk about the Bill Gates documentary on Netflix.
I'm sure you've seen it as well.
Inside Bill Gates' brain, he talks about small module or reactors and new technology that allows you to reuse the waste in terms of reuse spent fuel, and this has obviously been one of the big problems with nuclear. When you get the spent fuel, you've got to bury it under like the Shyenne Mountain Range or something and leave it there for the rest of eternity.
Is is there a solution to that?
Yeah, So first to the Bill Gates thing. I'm really excited about that technology.
I actually worked at the facility in Idaho where the predecessor to that technology was demonstrated, and so it's really exciting to see that going into commercialization. I should point out there are actually several other reactors, both here in the US and in Canada where construction has started on building.
Next generation reactors. So that's all very exciting in terms of the waste question.
It's important to recognize that the waste generation from nuclear is very small. If you or I got our lifetime of energy, not just electricity, but total energy from nuclear, the waste from that could fit in a coke bop. So it's a small amount of material. We also know where it is. It's very well accounted for. I worked at the facility. I worked at an Idaho at several spent nuclear fuel storage sites within a couple hundred yards of my office, so we know.
How to manage this as straightforward.
You put the material, after a significant sufficient cooling period into a concrete and steel overpack and you can air cool these things.
That part's not difficult.
Ultimately, we are going to need to find a final resting place for this material.
Fortunately we know how to do that too.
You want to put it into a stable geologic environment, maybe fifteen hundred feet underground. Our friends in Finland have developed their repository.
They're in their testing phase.
Now.
Sweden has selected a site. Our friends in Canada are down to two sites to host such a facility. So other nations are moving forward. We know how to do it.
I would just shoot it off into space.
John, You know it's.
Funny you mentioned that people actually considered that back in the fifties and sixties, and then the Space Shuttle blew up and that that idea.
That would be bad enough.
Yeah, okay, yeah, that would be bad. But so other countries are moving forward with this.
We are at a political impass here in the United States. I should note that funding to pay for this has been collected. The government put a tenth of a cent charge per kill a loot hour of electricity generated from nuclear a tax on spent nuclear fuel. As a result, there's more than forty five billion dollars sitting in the treasury to pay for this.
When we can get Congress and the Administration of granted path forward.
And John, I mean, we've been talking about Microsoft Alphabet, We've been talking about you know, Amazon, and I made the point that reported or not, probably all of these big tech companies are talking about partnering with you know, nuclear provider in some way.
I mean, are you seeing that in your role at the.
Nuclear Energy Institute again, your SVP of Policy Development and Public Affairs, I mean, what sense of you have of the conversations that are going on in the industry right now?
Yeah.
Absolutely, As more and more companies focus on decarbonization. They're coming to nuclear and so the big tech firms that you mentioned. Another thing is oil, gas, chemical, steel, pulp and paper, a wide variety of companies that need not just clean electricity, but also need clean heat. So nuclear power plants run it high temperatures. Next generation reactors like the Bill Gates when we talked about or will run
it even higher open temperatures. As a result, that can serve as a source of process heat to help clean up some industrial processes that currently might rely on coal or on natural gas as their source of heat. So I think you're going to start seeing more than just the tech firms, but companies like Dow which is partnered with a company called ex Energy from Maryland to build a gas cooled reactor in Texas to help provide carbon free book heat and power.
John clean up at that facility, So a lot of opportunities.
I got to cut you off. Unfortunately, Katie and I could talk to you about this for hours. Truly fascinating. I didn't even get to ask you if it's annoying when people say nuclear, But thank you so much for joining us. John Kotek from the Animo Journal, how about you let me drive.
Oh no, no, no, no, honey, please, I'll I want to drive.
It's good question.
This is the drive to the globe dot com for me effect well drug on Bloomberg Radio.
All right, this is Bloomberg BusinessWeek. I'm Katie Greifeld alongside Matt Miller. Of course we are filling in for Tim. Sound of it, Carol Mass are on their way to Los Angeles and they're missing an interesting market. Of course, we are less than twenty minutes until the closing bells. Of course, we have green on the screen when it comes to the S and P five hundred currently of about seven tenths of a percent. We'll see if it can hold it for the next eighteen minutes or so.
But let's zoom out and let's talk about these markets. We're going to do that with Max Wasserman. He is the co founder and senior portfolio manager over at Miramar Capital. He joins us from Northbrook, Illinois. And Max, of course, we are counting down to those CPI figures coming out tomorrow morning at eight thirty am Eastern.
You think back to what we learned on Friday.
When it comes of course to the US labor market, there was a little bit hotter than expected wage growth that seemed to spook the bond market a little bit, and Max it seems like that has raised the states a little bit.
For the CPI numbers that we're getting tomorrow.
Where do you stand when it comes to whether or not you know we can kind of look past them focused on all the good noises coming out of the economy, or whether you know this could be an issue for the market.
I think it's gonna be a short term issue if it comes in hot, because then you may not get another fifty basis points that everybody's anticipating. But the Fed is telling you it's easy rates. They're seeing, you know, the long term trend of the CPI coming down, so you may have some hiccups along the way, but they're not going to go fifty basis point cut then turn
around and hike it. So they just may two to twenty five basis points, but I think they're gonna cut it around another one hundred and eighty basis points in the next twelve to eighteen months, because if you have the FED funds rate around four eighty and they're anticipating the real trend on CPI is under three. That gives them almost two hundred basis points to bring it down.
What if we get jumping inflation. Are you concerned at all about that? Because you know, with the labor market doing well, if inflation starts to look concerning again, maybe they won't hike, But they could skip a meeting.
Yeah, they could, I mean, and I think that's a short term look, and that would spook the market a little bit because it's running on such optimism right now in light of all the catalysts that are out there. But if you still look at the long term trend, the long term trend is they're gonna cut. So I think they're still going to do a quarter and then maybe slow it down, or they may just say, well, skip it and see more information. There's a lot of
other things. You have the hurricanes and what that's going to disrupt the economy. You have what's going on with the strikes, you have what's happening with booneing. There's a lot of issues out there. So I'm not convinced that they're going to stop cutting just because you have a slightly higher CPI. And I do expect, by the way, the inflation is going to be much more stubborn. I think the FED was too aggressive, in my opinion to go fifty. I would prefer they go quarter points along
the way and let the data come in. But given the fact the already made a commitment to fifty, it'd be very hard for them to slow down too drastically.
Well, it's interesting to sort of think about the different factors there with the strikes. Of course, any one union probably isn't going to show up in the national numbers, but you autom all together and you could say that maybe that's going to keep the pressure under wage growth for a while. And then you think about the hurricane.
And this is a conversation we've had with our own Mike McKee that, of course hurricanes are horrible events and their natural disasters, but the cold economic fact is that you have, of course the rebuilding effort that comes after, which leads to an uptick in economic activity. And I guess I'm wrapping this all together for a question that is, basically, do you think that there's risk that the FED sort of overheats the economy and we see a bit of a melt up in the stock market.
Yes, I do, because I think the euphoria based on the FED cutting drastically. You know, they're looking for another maybe another fifty to a quarter by year end. May be much too optimistic given what's actually happening. I think the FED is behind the curve so many ways. They were behind it when they were raising, they were behind it when they're cutting. But with all the data that's out there, there's no clear cut picture that says that se and inflation is going to drop right down to
two percent. You do have strong employment, you do have a lot of catalysts that drive the economic recovery that we're going to experience with a you know, disasters that you're going to see in Florida. But I think the FED has made such a commitment with that fifty basis points. I think it was such a strong statement that says they want to cut rates because they think the long term trend of inflation's down. So I don't know that a small term hiccup inflation ticks up is going to
spook the FED or to change their policy. I think they'll just slow it down. But they're they're leaning to cutting, and I think they're going to do it over the next twelve to eighteen. What they do in the next month or two that I don't know, but twelve to eighteen they're going to cut rates.
So.
That would I guess help smaller cap companies. In terms of the large caps, we know, you know, the AI play has been energized for so long energy because of AI and because of maybe what's happening in the Middle East. Pushing prices higher has also been a big a good bet.
And of course if you look at.
What's going on in the Middle East, I guess defense stocks also could be a good bet.
But what about small caps?
I mean, as the FED cuts, are the companies on the Russell two thousand going to be doing better and better?
I think money's going to move around, and should they do better? Yes, I think lower interest rates would lead the market to go to small caps, just because the large cap tech play has been done, and I think it's a little extended, to be candid, but you know, I think the whole market will spread out. I think you're going to see it in the market spread out from just the strong you know, large cap tech, and
you're going to see the mid caps. I think you're going to see the whole broader market take advantage of it. As money will go to where it's treated best, and at these multiples of technology, I don't think it's going to be treated that great going forward for the next six to eight months, but you could see it in
other areas of the market with lower interest rates. But in order for that to happen, you need interest rates to really come down a lot more than they currently are, because money markets right now are still giving you four four and a half percent. The move that I think you need for even a broader, stronger market is you need another fifty to one hundred to come out where
money markets are basically under three percent. Then people will be taking money and looking for a more aggressive place to get cash flow to get growth.
Max is a great point, of course, it is hard to break up with cash when we're still talking about yields of four four and a half percent or so. Definitely a difficult sell there. But you talk about rates coming down and benefiting the market broadly. But I would like to get specific here because in your notes you talk about specifically the housing market, consumer discretionary stocks over the next twelve months. I mean, name some names here who do you think specifically.
Will benefit well, sure, I mean, now it's you know, in the fact that what's happening with the hurricane, everybody's looking at the home depots and the lows. We have investments in home depot, but I'm looking at it. If rates are going to come down over the next twelve to eighteen, the market's going to forecast that. You're looking at home improvement stocks. If mortgage rates are coming down, people are going to more apt to refinance and go somewhere else and buy new homes or they're going to
do home improvements because rates are lower. So to me, the home depots of the world, the lows would tend to do much better, even though they're trained at fifty two week highs now given what's happening, and also any
rebuilding would do that. I think the consumer would do better because if they're less strained on higher interest rates, if they have more freedom capital, I mean you're going to see that Like in a McDonald's you're seeing I mean, they're becoming very successful at that five to ten dollars happy meals that they're putting out. So I look for
those type of companies. Another one we like is General and Parts because people are keeping their cars longer and they're going to do the repairs on them, and they'll benefit for that because they own the Nappa stores. But anyone that puts more pocket in the consumer will ease up the pain that they're experiencing with inflation. So it's not just interest rates coming down, it's also cost coming down.
All right, Max, Thanks so much for joining us.
Max Washerman, their co founder and senior portfoliofolio manager at Miramar Capital.
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