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I'm Alexi alongside Paul Sweeney. This is Bloomberg Intelligence Radio. We bring you all the top news and business, economics and finance through a lens of our Bloomberg Intelligence folks, and we have one of them here for it with us right now, Man Deep saying he's Bloomberg Intelligence senior technology analysts. I'm this ASML News, so let me update you on what we see ASML has been halted a
few times for volatility. The stock dropped like a stone after cutting its twenty twenty five net sales and gross margin guidance, and its third quarter bookings also missed estimates. And these guys make the machines that you need to make AI chips, Mandeep. Is this a negative sign for a chip demand?
I mean, look, when it comes to ASML again, everything is driven by Kapex. And when I say Capex, it's really coming from the foundry guys like TSMC, like Samsung. We know Samsung had layoffs recently, so clearly they are not doing very well. But TSMC is so the fact that their buyers are so concentrated and the geopolitical tensions continue, and you know, the second half estimates the comps are tougher. To me, this is just a sign of expectations kind of going up to the point where you will not
see any positive revisions from the print this quarter. And that's what happened with the SML. Expectations had gone up and they didn't surprise to the upside, so we could expect the same from others.
The magnitude of the miss on the orders versus the estimate seemed huge to me. Yes, that typical or not to play. When they missed, they really miss.
So that's that comes down to how SEMIS typically is when you go back to prior cycles. When these companies miss, they miss big. We've seen that with Micron, we have seen that with some of the other names. But in the case of ASML, the secular drivers are intact. When you think about you know, every foundry looking to use their machines, looking to go to you know, smaller nodes. TSMC actually doing very well, so they are their largest customer. And when you think about you know how well TSMC
has done in terms of their AI revenue. I don't think they are cutting back capex, but it's always about that incremental buyer when it comes to these semi companies, especially the ones that are reliant on CAPEX spend, and if you take China out of the equation or the fact that they are restricted in some way, those are some of your incremental buyers. So that's where it has an impact.
We have a great function on the terminal. It's SPLC. It's a supply chain analysis, So if you type in as and then go to the supply chain, you can see who their competitors and their customers are. So competitors are Applied Materials, KLA LAM Research, so you can kind of see all of them are going to be down on this news. And then to Mandeev's point, customers are folks like TSMC, Samsung, Intel also although albeit not a huge customer anymore, but you know the problems that Intel
has had a semiconductor manufacturing Micron. So watch that stock sk Heinex am I saying Heinex, Yeah, memory yep, and then you have global founderies as well. This is a really ignorant question. Where does in Nvidia sit in this story that we're talking about.
Well, Nvidia is sort of the first derivative. So if TSMC is not buying machines from ASML, that means they are not expanding their supply for the latest cost packaging and the foundry side in terms of manufacturing and video's chips. So TSMC determines what kind of capacity expansion they're looking for for twenty twenty five and beyond, and based on that they are placing an order for ASML equipment. So
it is a very big sign. And to your point about Intel being a buyer, well, Intel is under pressure to curtail their capex as well, so you're taking a lot of the incremental buyers out of the equation, even though there is no substitute for ASML. So it's not as if ASML is losing market share to anyone. It's just the incremental buyers are fewer compared to where they were. You know, a couple of quarters back.
Okay, what I know about AI you can put into a shot class. So answer this question like I'm a five year old. Is this fundamentally changed the AI story for tech?
It doesn't.
It's just that everyone is expecting some sort of digestion period when it comes to AI. We have had you know, a long up to the right sort of scenario so far. When it comes to generative AI, and everyone expects a pause at some point, their signs are you know, in Vidia chip demand remains insay siable despite the restrictions. But when it comes to you know, semis, the way it works is first your foundry guys are gonna slow down
their supply expansion. Then you know and Vidia will see fewer beat and raises, and so there is a derivative aspect to how.
It flows through.
It doesn't all happen in the same quarter, and to me ESML missing is one of the first signs that you know, things may be cooling down a little bit. It may not get reflected in a video's quarter this time around, but two quarters down the line in Vidia could get affected.
Which then also reads the question like which customer is the problem for ASML, Like what are their customer lists are calling them saying like guys, look, we don't really need the equipment, like we know it may not be TSMC, So then is an Intel because that's more of an idiosyncratic Intel issue rather than like a broader AI chip story issue.
Yeah, and Intel and Samsung, I mean, look, Samsung, we know isn't doing very well on the manufacturing side. When people talk about generative AI chips and GPUs, everyone is going to TSMC as if there's only game in town. Samsung isn't able to make that latest switch to that latest note for you know, generative AI chips, and that's where we heard Samsung doing a layoff, So clearly they
are curtailing their costs. Intel is curtailing their costs. So you take out two of the top buyers of ASML gear and we know they sell you know, multimillion dollar machines, So these are expensive purchases. And it's not as if ASML is losing business, it's just it won't get reflected in the next quarter or you know, the couple of quarters.
So this ASML deposit us depository receipts down twelve percent. Is that a reasonable reaction do you think in this market? I think so.
I mean, given we are seeing some gross margin compression and for semi's companies, gross margin is huge. Anytime you see gross margin compression, that is your first sign that you know thinks are aren't going your way, and it's it's a sign that the demand is somewhat cooling off or your costs are going up. In this case, I think it is a function of orders getting delayed. And uh, I think the reaction was warranted. Probably you may see an ore reaction today. People may realize they still have
a strong mode tomorrow and then buy the stock. But I think the reaction was warrant.
We've been looking for this, like a little bit of a pickup.
Or a crap or just something right, like not everything in sunshine and roses like all the time, and diy'd be really appreciate it. Thanks for the hustle, Mandy saying, is there anything you don't know? I wonder if we talked to him about.
Like Childen technos on Wall Street for real, you need to stuff I was funding back in the day for you.
Unbelievable man need Bloomberg intelligion.
By the way, he's got a cast on, so who knows what's going on?
Oh okay, well we'll get that.
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And these banks just I know, Rush did today, I mean really really really solid numbers. Although Golden sastock is now down by about seven tenths of one percent. Yeah, that's actually kind of surprising for me, But I'm taking a look at say, Bank of America. That stock is also down now by eight tenths of one percent. But on the surface, these numbers looked really great. City stock, yeah, I thought.
And the capital markets, yeah, the capital markets. The trading business I thought did very well. But I know the street likes the more predictable feed business in this special.
Yea, But they didn't seem to care about that when it came to JP Morgan, Malls Fargo. You know who might know the answer to this, I think I know Alison Williams, Bloomberg Intelligence senior analysts for global banks and asset managers. So for my you know, let I read here there were really good numbers, and then the stocks were down and tell us why they were, And it.
Is all about the expectations. Keep in mind that we did get sort of a change in expectations not necessarily baked into the numbers with the reports on Friday, the very strong trading and fees for JP Morgan, which set the tone, and the banks delivered on today net interest income, which you know for JP Morgan basically they had talked it down in September. Then they beat the numbers and raised four Q guidance, but Jamie still talking negatively about
next year. And for Bank of America, really they did exactly what they said. Interest income trought, the number came in and they are not going to talk about guidance for not interesting income until you know the next call for next year. So I think it's I think the stock is probably fine, just reacting to things coming in basically as you know, good but versus sort of raised expectations.
What's the expectation here for when you talk to your invest about just regulation of banks, where's that headwind? Because I know it has been a headwind off and on for really since a great financial crisis. Where are we now with the basil?
Yeah, it is, and it's depends on the election, Okay at this point, right, so if you know, Trump wins, then the role could be derailed sort of indefinitely. So that would be positive for banks if you know democratic when will sort of continue on the same path. So Basel, you know, the rules were very onerous that were introduced last year. Basically we've we've gotten the signal that they're
going to be lighter. You know, we sort of had had those expectations set within the last several weeks, but we're still waiting for that proposal.
When we just break down the broader sort of investment banking, can we say M and A's back, so like they seem to be talking good about it, that's not a sentence. They seem to be talking like positively about M and A.
So it is, and you know so from Goldman Sachs, who's the leader in EM and A. Very good numbers and the fact that their pipeline is upsequentially.
Is very good.
But fourth quarter does tend to be seasonally strong, so we do have to see is it, you know, is it just the typical seasonality or is there a little bit more momentum.
Are all our friends on Wall Street are thinking get paid like really well.
This year, I mean it, you know, bonus bonuses do look good for this year, especially for death fees. I mean really that for September.
Yeah, well, underwriting right was was really quite strong across the board. What are some of the questions that you have now? And whichever bank you want to focus on, Like what's a big glaring.
So you know, the election is is going to be important in terms of what that means for the for the capital rules. I think that's that's sort of the big structural question. You know, markets are strong. Things look that momentum is likely to continue in the fourth quarter. I think maybe the next thing that we're looking at is, you know, can we get signs of improving long growth because that is really you know, interesting income. That recovery is what investors are looking for. Can we get a
momentum there? You know, the other side of the lending business is credit, and all signs are are pointing pretty good right there.
All right, As a former city banker, I have an interest in that institution. Where is Jane Fraser in the turnaround of that bank? And does the street believe that she can get it to the point where it generate really competitive returns.
You know, I think, you know, the street has been burned so many times for getting their hopes up on City Group over the years, and so City Group is delivering on what they want to do. We saw that in the in the numbers this quarter. They like the other banks, are getting a lot of upside from markets
by keeping the costs stable. And so for them it's really you know, these regulatory headwinds which are so hard to predict, and you know, I think the best thing that could have happened to City is this you know, regulatory scrutiny that finally is making them, you know, make a lot of the changes that probably should have been done a long time ago, you know, getting the risk systems together, improving their operating efficiency, which at the end of the day will will be helpful in the long term.
On Friday, we talked about a well spargo in particular, and you were saying that the big question you have is when the loans pick up, whend a loans pick up, and what do we learn from say City and Bank of America on that.
So it's hard to say, you know, I think that it's it's going forward, right. So the FED cuts happened in the last couple of the weeks of the quarter, so we're not necessarily going to see the impact of that right away. Maybe the Senior Loan Officer survey will give us a little bit of insight when that comes out in a couple of weeks.
All Right, we got more inans Stanley tomorrow, I believe.
Organ standing tomorrow. They have you know, really raised the bar for them all these all these banks, especially Goldman, strong numbers today, so we'll see if they can deliver on that. They tend to be more skew towards equities trading. That's been the source of strength, So we'll see.
And are they going to be like past cycles they being all the big banks like next week all issuing that.
Yeah, that tends to be. That tends to be the focus.
And one more thing I'll add about them. You know, while the institutional there's a lot of positive momentum, I think it will be all about the wealth flows for them, So they will need to you know, if they get institutional right and ride this way with everyone else, that's great, but they do need to deliver and show that that wealth business is continuing together at which they always which you know, the markets should be very helpful on that front as well.
Right, because it's expanding pie that they're all competing for now, Right, it's not like tiny pie that isn't growing at the end of the day. One more question about Goldman and this is a little personal for me because I have a Marcus account for their consumer Did they what they say? Did they say that they're lowering rates a lot and they of.
Steel inflows were noted during the four point one Now, yeah, it's just another message.
I mean, come on, guys, like they just lowered ones. Anyway, How are they doing on offloading all the risk and stuff for their consumer business? I know that they already offloaded a lot to GM. They took a write down for it or charge for it. Where are they in this process?
Yeah, so one step closer with the sale of the of the GM portfolio. They are hanging on to Marcus. But you know, FED lowers rates. That positive for the banks means that there's less competition, less competitive pricing pressure, but for the consumer, you know, not as favorable.
You know what I'm gonna do, I'm gonna find something that is competitive. I'm gonna go to those munis like Plasman saying like, see later we're gets some take my money and run free.
Yeah, but you can't pull your money out at a moment's notice, Marcus.
No, I know, I know, but I'll know, Like in general, I should have known when John Tucker going to Marcus account that that was the top.
Yes, you're playing data.
Yeah, totally fault. All right, Alison, thanks a lot. We really appreciate. Alison Williams, Bloomberg Intelligence, a senior Global banks and Asset Manager analyst.
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Let's not bowing. They are back in the news again, and when we talk news. George Ferguson again. George Ferguson, senior Aerospace defense analyst for Bloomberg Intelligence. George, I'd like this move. Boeing puts up a twenty five billion dollar shelf offering gives us some flexibility to shore up it's balance sheet. I know we have to talk about dilution, but tell us what Boeing is doing here with this twenty five billion dollar shelf.
Yeah, so I think Kelly Orpberg went out and brought up the big guns, right so, I think he wants to shore up the balance sheet. I think so he can show the union that Boeing has plenty of cash to make it through this strike. I think that's part of a strategy, you know, to get the union back to the table and get them to rethink probably some of their demands.
That's that's what I see here.
And what is the sense of their balance sheet? Just give us sense, George. I know you've been calling it out and highlighting it for us for quarters. Now talk to us about kind of the cash on their balance sheet, the cash burn. How long can they go before they really do need to think about fresh capital.
Yeah, so I think they need capital now, right So, I think it is part of why Kelly or Berg and Boeing and going going to the market, because you know, they just pre announced earnings for the third quarter. Cash balances were right around ten billion. That's about what they've told us they need to operate the kind company. So I think that really put their back up against the wall.
As you know, they're managing a dance with the creditors as well, because you know, they're really up against the edge on their investment grade credit rating.
So I think it really precluded going to the.
Debt markets here, and so you know, I guess the question is too now is it's a stain power right now? Long can Boeing manage with the ten billion? They couldn't manage very long strike, And so to get better negotiating leverage with the unions, I think if you put another ten fifteen billion dollars in the balance sheet here, I think it gives you at least a quarter, probably multiple
quarters of potential cash burn. So you can tell the union, look, I'm gonna I'm gonna wait this out into you, you know, bring me some demands that I can make.
Just hold that thought for one second, because I want to point out ASML, which is a company that makes lithography machines so you can make AI is now halted after a steep drop and earnings that did not look great. Third quarter net sales did come in higher than estimated, but their third quarter bookings fell below about two point sixty three billion euros, substantially below the estimate. They're also taking a look at twenty twenty five net sales, also
below estimates. This is quite interesting read through for AI Again, they make the lithography machines that help make AI chips, and that stock is now halted after falling steeply after those numbers came out at shocking shocking. Right, let's take a look at Videota in video down.
Four point four percent just on that news, just in the last couple of minutes.
Okay, so not only just from the news over the over the night, George Foy, let you go, how much time does this by Boeing?
I think ad buys them at least a quarter, if not more.
I mean, look, I think if you're negotiating with the union, I'd be really surprised if the average union member is ready to go a quarter without a job and so, you know, without income.
I shouldn't say without a job. They have a job at Boeing, I guess, but without an income. So I think it gives them plenty of staypowner. I think that's what Boeing has.
To do here, right, If they're going to get the union to come back to the table and negotiating good faith.
They have to be able to say, look, We're not over a barrel. We can wait you out.
Now.
Let's talk about some of the issues, especially I think the pension plan. Right, the emails talked about a return to pension plan. I don't think any major corporation is given back on a pension plan since they've retired them over the last number.
Of decades, so I think they have ready to go the distance to not have that happen.
All right, George, thanks so much for joining us. George Ferguson, he's senior Aerospace, Defense and Airlines sentals for Bloomberg Intelligence. Just kind of talking about the Boeing news.
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Alex Steel here alongside Paul Sweened. This is Boomberg Intelligence Radio. We bring you all the tap news in business, economics and finance through a lens of our Bloomberg Intelligence folks, and we are broadcasting to you live from our inactive
Booker Studio right here in Midtown Manhattan. As John Tucker was just talking about, you're looking a crewed off by over four percent, and the only headline that you could really find was perhaps Israel will not be targeting Iranian oil infrastructure, so raises the question are we looking at geopolitical risk being priced out? Also, the IA revised slightly down a demand forecast for this year and next, mostly a China story, but nonetheless. Dan Pickering is Chief investment
Officer Pickering Energy Partners. He joins us from Houston, Texas. He's honestly one of the best in the industry. He's been around a long time, He's kind of seen it all and he has a great insight into what companies will do as well. What's your take on crewed off by three bucks?
Yeah, Alex, good morning.
It's definitely this news that we potentially are not going to see any escalation of violence in the Middle East. If Israel doesn't hit the Iranian oil facilities, then we have kind of continued status quo, which is oil has been flowing out of the Middle East with no problem, and so we're taking the air out of the risk of supply disruption and getting back to a more fundamental market, which has been pretty soft over the last couple of months.
What's the fair price you think for oil?
Yeah, fair price for oil, I'm an eighty dollars through twenty twenty seven, that's my forecast, but I think twenty twenty five is going to be tougher. Fair price for oil in twenty twenty five is probably seventy give or take, maybe a five dollars band around that. If we have challenges in the Middle East, all bets are off. If it's supply and demand. My expectation kind of seventy to seventy to eighty sixty five to seventy five something like that.
Dan, I always joke or often joke that you know my next lefe I want to come back as an energy m and a banker. Every Monday we come in. It seems to be something on the Bloomberg terminal talk to us about consolidation in the energy space. Where are we what are you likely to see over the next year or two.
Yeah.
So it has been a very active M and A market with companies focused primarily on four things. They're adding inventory, they're going for size, they're looking for scale, and it's happening at pretty good values. And so because the market has not been that interested in energy, right, it's an underperformer last year, it's an underperformer this year.
Because these stocks are pretty cheap.
The companies are buying each other, and as they're doing that, they're replenishing the inventory that they that they drilled up during COVID. They're getting bigger, which is important. You know, bigger companies are getting more attention from the market, they're getting more profitable, and they're doing it at three or four times cash flow.
All of those attractive things. It's going to keep going.
Yeah, Dan, that's such a good point because, first of all, I want to point out, Paul, you wouldn't want to admit an m and a banker like a few years ago, there was like a whole that and nothing happening. But the idea is, if you're an investor or, you're a pension fund or something like, you can't own a huge bunch of oil stocks. Like your investors are not going to like that. So it's like you have to gussie yourself up to be the top one or two oil players out there. So to that point, who needs to
still buy stuff? And who needs to be sold.
Yeah, I think if you look at all levels, companies are trying to get bigger, whether it's Exon buying Pioneer, or you move down into as much smaller market caps. So I think that we'll continue to see probably fifty billion as a give or take the point.
Of relevance for the broad markets.
And so my expectation is folks that are below that are going to keep buying trying to get to that size, and that folks that are sort of smaller than Exon are going to going to keep merging. So it's kind of across the board right now, Alex. And again, these companies will keep buying each other until the market decides that they're going to buy the stocks.
And Dan, you mentioned that the energy stocks have been underperformers. What is the bowl case out there for energy? Is it simply maybe just valuation here?
Yeah, the bull case is strong yields, very good free cash flow. The companies have turned into real businesses since the shale bust, and so they're throwing off a lot of cash. We're turning a lot of it to shareholders. The other piece is it is an inflation hedge. Nobody's
thinking about inflation right now unless it comes back. And then you have this sort of geopolitical element, which is, if things do spiral out of control, you're going to want to own some energy stocks, So there's a bit of a hedge, and then there's value.
Those are the two arguments for the energy sector right now.
Do you think that oil producers will keep producing more oil? Let me define that question a little bit. Have they run out of the good stuff? And that's another reason why we're seeing the m and and I don't want to underestimate shale players because we know that innovation and technology is huge, but they have a lot of other stuff they need to spend on, particularly in the energy transition. So can we count on technology to make the rock good?
The answer is yes, on the margin. There's another lag up in efficiencies that's been happening this year. I think the reality, though, is that US shale is maturing, and what that translates to is likely sort of an upward push on cost structures and upward push on commodity price. Remember, you know shales now over half of much more than half of US production. The Permian alone is six million
barrels a day. That is a meaningful player in the global market, and so as those assets mature, there's an upward bias to price. Never count out ingenuity and efficiencies. But as this as this industry matures, we're going to to see a slow upward push.
On cost and price.
And for let you go, Dan, how do you think the election is going to affect Big oil at all? I know that the talk is going to be like, we want oil friendly, blah blah blah, But in reality, they're not going to want build a drill, baby drill because they don't want to do that. They're going to tank the oil price materially. Do you think the election matters for oil companies?
Snipple answers know, Alex. I think that these companies it may be a little bit easier or a little bit harder to interact and run the business depending on who gets elected.
The reality is that, you.
Know, politicians have proved that they want low gas prices. We're not punishing bad actors globally, We're letting them produce their oil.
We want US oil. We're not going to punish this industry too much.
And the industry itself is not going to step up and get super active unless there's a price signal. So the election it matters for a sentiment perception. I don't think it matters a ton for reality.
All right, that's great stuff. Dan appreciate it as always. Dan Pickering, Chief investment Officer, Pickering Energy Partners. I've known Dan as a voice on energy for thirty years. It's yeah, And Buddy Man used to work with him. David Bradshaw, my energy investment banker. He's my go to guy all things there.
Nice.
Well, let's get him on too, we will, right will.
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So the FED isn't a rate cutting cycle at this point. How much they cut TBD, but the idea is that they're in a global central bank easing with the exception of Japan. Does it make certain aspects of the market a little bit easier to stomach, like commercial real estate? So I want to check in on that with David Aurback, a chief Investment Office sir at Hoya Capital. He joins
us from Dallas, Texas. How have reads done? If we're taking a look since the FED first cut and then the trajectory now for this year and next, how are reeds performing well?
In the lead up to the interest rate cut? Reads performed very well post FED rate cut. The reds have not done so well. They've given back some of that return because the tenure treasury is back over four percent for the first time since August.
With the less.
Likelihood of more significant rate cuts on the calendar this year, I wouldn't expect the reads to respond accordingly. Obviously, if we can get the ten year back below four percent again, that should bode well. And the reason being the cost of borrow for the reads is they go to refinance becomes more attractive. Reads would obviously be able to borrow debt, would like to borrow debt with a four handle or a five handle let alone.
They don't want to borrow at a six handle.
So any movement at the that is able to go lower on the interest rates only provide some tailwinds for the reads as a whole.
David, what was the last fish concert you went to?
Good to see you, Paul, Thank you so much.
I was in Colorado at Dix in Labor Day and right now my next schedule concert will either be MSG in New Year's run or Mexico in February.
All right, how did you know that?
It's in the notes? You got to do your work here. Put and if you come to Manison Square Garden. If you come to the garden, you can see Matt Miller. He's there with his all his brothers and McKee.
Oh no, you're talking of fish.
I'm kind of the same same thing.
I mean kind of yeah.
I thought it's kind of.
You know, kind of ye did so, all right, David? Did the banks? Are they still lending to real estate?
David?
If I've got a project, can I go to my local bank? And are they going to make me alone?
Well, for a lot of the reads themselves, remember they're able to go out and borrow their own debt. They have strong balance sheets obviously on a one off off type basis.
For the individual investor, the answer is going to be it depends.
You know.
I think with some of the big big.
Banks, the JP Mortgage, the Bank of Americas, you know, they might be more likely to lend depending if the borrower qualifies. Obviously on the regional bank level, that becomes again on a case by case basis. But the lending window is open and the past month, two months alone, Reads have been able to borrow you know, takedown. Frankly,
billions of dollars of new debt. I want to say, it's close to like between five and ten billion dollars have been raised by a handful of rates, and so the money is out there.
What about residential reads.
Great place to be because of the housing shortage and lack of affordability, It's one of the core focuses of our JOYA Housing Index, and so as a result, when you think about the lack of affordability, it's the residential reads, the apartments, the single family rental guys that benefit. And also when you think about some of the other companies that are out there, you know, because a person can't go out necessarily and buy affordable home, they're putting more
you know, work into their exist stay home. And so again one of the unique funds of stories of the Hawaiia Housing Index is because we also include your home depots, your lows, your restoration hardwares, because again that affordable product isn't out there for the average consumer.
Can you explain to me how we got to this point, David, where they're really we always talk about a housing shortage. How do we get there? How hard is it to build a multi family apartment?
Well, the obviously higher rates of impacted construction costs, So that's why you're not seeing a lot of new apartment projects underway. I also do blame the COVID run up taking away some of that housing inventory, since we saw you know, flippers and people taking down second homes, guys wanting to get out of apartments and you know, taking the first home possible. But you know, when you look at some of the hottest markets in the country as far as rentals, it's in your neck of the woods
in New York City, it's in Chicago. I saw a story that Detroit is one of the hottest rental markets right now. And so the housing issue is a chose to co nationwide issue. You know, you could point to pockets of areas that have more problems versus others because again of that affordability angle. But think about a rental project. You know, I can rent an apartment here in Dallas for a couple of thousand dollars, and that same apartment's going to cost me forty five hundred dollars or more
in Los Angeles or San Francisco. So again the number one rule of housing or real estate location, location location.
When you take a look at the different reads, is it going to be in large cap reads, mid cap small caps? Like how do you guys look at it?
We skew our high dividendy Old Index RIET towards small and mid cap reads. The reason being reads as a whole, they only make up about two percent of the S and P five hundred or about seven percent of the S and P MidCap four small cap six hundred, So we see a lot of opportunities in hidden gems in the world of small and mid cap reads that's going to kind of provide that, you know, i'd say alpha,
that performance that you're looking for. We focus on dividends, and again it's really those smaller MidCap reates that offer the higher dividend yields are also our high dividend field fund. I believe this to currently the only ret in real estate product that's on the market that offers both common
and preferred stocks in one rapper. So with us taking a ten percent allocation or one third of the names of RIET into repreferreds, if you add up small and MidCap rates, mortgage red exposure plus our repreferred exposure, we're paying a monthly dividend that's annualized just under nine percent. And if you just bought a large market cap weighted ETF like a VNQ, your yield is probably closer to three point eight percent, because again it's really focusing on those big large cap names.
In terms of the dividends, David, what do you guys kind of value more dividend payout or dividend growth.
That's a great question. I mean, I hate to say it's a little bit of both. I think to the end investor, though, they really want the company to do four things. Grow revenues, grow profits, grow dividends, and grow annual guidance. For a lot of the reds, because of a RED is just a dividend income passed through vehicle, so they want to make sure that they are obviously maintaining, if not growing that dividend on an annual basis if possible. So I think you're kind of looking at both sides
of it. How do we make sure that we don't have to cut our dividend, and what are the tools in place that we can put there to grow our dividend.
And it's really both sides of the equation.
It's how do we maximize our revenue growth and minimize our expense growth? And for like you talk about residential, you know, the big issue with residential right now is insurance. What we're seeing in Florida unfortunately with the hurricanes and property taxes, especially for the single family rental guys. So we can minimize their expense growth and maximize revenue growth that should hopefully lead to a higher dividend payment in investors pockets.
But you go want it. Also get your take on sort of other property sectors within the re market. Retail. When I say retail, what am I asking? Is it big malls? Is it like smaller retail presence? Like how are those reads performing?
Yeah, they've actually come out pretty well over the past couple of years when they were really kind of not really well received by investors.
And I think it's due to a couple of things.
Again, lack of new supplies, Like we're building a ton of new shopping centers coast to coast, you're looking at an evolution of the product. A good example is Tanger, a typical factory outlet mall. The tenant offerings are different today than what you would have seen just a couple of years ago. A lot of these companies also, like the mall guys, are trying to bring in more experiential type offerings, not stuff.
That you can replicate online.
And so the goals to try to bring the family to the mall, you know, provide them in a lot of activities that you've captured that consumer for multiple hours in a day. But really, you know, think about your typical grocery anchor shopping center. We're going to get groceries every single week, right. Obviously we see the inflation side of it since the prices of a lot of the goods are up, but that anchor tenant, that grocery store, it's not there going away really anytime soon.
Now. Obviously we've got some stop with.
The Oppersons Kroger merger that is going to kind of send some shock waves through the grocery anchor industry. But I think with the lot of these reads, with the relationships that they have and the experienced management teams, these anchor spaces are not going to be dark for very long.
All right, we appreciate it. Thank you so very much for joining us on those reads. David Aurbak, chief investment Officer at Hoya Capital.
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Happy to everybody. I'm Alex c alongside Polsweenia John Tucker. This is Bloomberg Intelligence Radio. We're broadcasting to you live from Interactive Broker Studio right here in Midtown Manhattan. We have a great pig Take story out for you. We love diving deep into all the topics and subjects that
you need. It's a great Big Take podcast, and then you can also get it on Bloomberg dot Com as well as The Terminal and Today's Big Take a Big Take story is on how VW so Volkswagen and Mercedes are getting just left in the dust by China's evs. The whole industry is getting squeezed by these cheap EV's from China. How do they recalibrate? Oliver Cook joins us. Now Crook, excuse me, Oliver Krook. Bloomberg gear of correspondent joins us. Oliver, it's been way too long since we chatted,
so hello. Indeed, it's so good to see you.
We know that.
Volkswagen and Mercedes are struggling and are left in the dust. Just how far behind in the dust are they?
So listen, Alex.
It defense kind of where you want to approach this question from when we talk about the Chinese market, which again is a very key market for Mercedes, bm W and Volkswagen. This is their biggest market, or has traditionally been their biggest market for a very long time. You look at just the three third quarter deliveries that we got just a couple.
Of weeks ago.
BMW alone was down thirty percent in terms of the sales that they were making in China, and that is their biggest market. So that illustrates the scale of the importance of this here. The problem is is that this is not just a question of the Chinese slowdown, right. This isn't a question of just we're going to put some stimulus in demand's going to come back. The nature
of that demand in China is now changing. So what we see now in the Chinese market is that more than half of the car is being sold there are evs. And so while they still retain a lot of these German car companies some of that market share, a good amount of that market share, it's really not in the EV section and they're not even in the sort of top five or ten in the leader board for evs. So the question is going forward, how do you get competitive again. The problem they have is they had that
IC market share. It's about winning that electric market share, and they're just way behind on the inside of the car and the electronics.
Yeah, the IC is the internal combustion engine part, which is the hardest part for these guys. Is it actually the battery? Is it just doing it all cheaply? Or is it the bending in the metal for the evs? Where is the struggle?
I mean, it's a combination of all of these things. There is, of course, are the battery components, even the sort of the evs that are sold here in Europe, even the ones that are produced here in Europe. The batteries are still coming from China. All of the components are coming over from China because they've really sort of been very proactive with their raw material policy, everything from the lithium to this processing that all goes on to China.
The other issues, of course, the cost base, and we're starting to see that hit here in Europe where Volkswagen is talking about closing factories for the very first time in its history. They're talking about closing a factory in Belgium, closing a few factories in Germany. And to understand why that's so important, this is a company that has literally never done that before in Europe, in large part because you know, their supervisory board half of their seats are
held by sort of union representatives. So if they're moving forward and making that decision, it's because things are very very challenging the cost base. If you look at the hourly wages of its sort of autoworker in Germany, it's close to like sixty two year euros an hour. You go to Hungary, just not too far away, it's sixteen euros an hour.
Okay, how do they fix it? And that's a silly question, but like do they need a massive amount of subsidies to stimulate demand or do they need sort of unions to get out of their way. What would make this process a little bit easier.
It's going to be a combination of all of those things, and one thing that makes it even harder, Alex, if you haven't talked about yet, is there actually our new EU regulations coming into force at the end of this year that basically stipulate that they twenty percent of all the cars that they need to sell basically need to be EV's. The problem is there's a mismatch between what policy makers wants and what the market wants. Right now, the market is stuck. These guys are still selling below
fifteen percent evs. If they fail to hit that twenty percent by the end of this year, they're looking at potentially billions of euros worth of fines. So that's just another sort of overlay there. But this all, you know, I mean, the policy sort of dissonance that exists is one issue. But really these are car makers that have it's partially their own doing, right, They were just far behind on this. The former Volkswagen CEO, he really wanted to lean into electrification.
They were into that.
They got rid of him. They brought in somebody new and now they're really paying the price.
Hol or how much of this is nationalism we've seen with Apple with the iPhone. Maybe the concerns that the Chinese consumer on the margin doesn't want to buy Western products.
So listen, I think that that is going to be part of it. And of course this is the Chinese policymakers have been trying to gear their sort of economy to not have the kind of dependency that they've historically had. Remember, the Chinese were really sort of welcoming with open arms Volkswagen back in the nineteen eighties when they first sort of started producing cars in the Chinese market because there
was no automotive industry in China. What is interesting now is you're seeing some of these European car makers now sort of inverting that sort of same dynamic where you have the partnerships with say Stilantis and Leap Motor, a Chinese company have a joint venture here in Europe where now Stilandis owns fifty one percent, so that they are
starting to build Chinese cars at their own plants. And that is so we talked about the sort of threat to the Chinese market that is also coming very very quickly and very soon to the European shores as.
Well, which is so ironic because if Europe really wanted to green stuff fast, they would just import a boltload of Chinese EV's on the cheap and have their consumers buy them. To your point, then it becomes like a nationalist point, Paul, who Okay, who's in the worst who's in the best spot of this debacle?
Are you really really putting me on the spot here? We try to get forty five second?
I mean, listen, I'll tell you this.
The Lansas is down forty five percent this year. They're down almost lost a fifth of their value since a profit warding two weeks ago. For thinking about companies that are really well physicianed in Europe.
You think about Tesla.
They've got manufacturing over in Germany, and guess what they make only EV's, so they're able to even sell some of those credits when those regulations kick it next year.
Okay, so you didn't twenty seven seconds? What are you complaining about it? He's totally fine, Oliver Cook, Thank you so very much, really appreciate it. Great to chat with you. Bloomberg Europe a correspondent joining US in the Big Take story Volkswagen Mercedes getting left in the dust by China's EV's, and you can read more of the story on Bloomberg and at bloomberg dot com slash Big Take.
I didn't even think that would be a risk for the West. I thought the brands were so strong over there that and the quality was so much better. But maybe that's not the case.
I think maybe it's just a price point. Yeah, me at this point, and like everyone wants a super cool, luxury hot EV right like that in essence, isn't a problem. Like if you want to pay a bazillion dollars for a Porsche that has an EV engine, no problem. But that's not the issue.
I didn't. I want the guess.
Yeah, but you're not going to buy a Porsche. Okay, you've bought your Vespa.
This is different a Vespa, Yes I did.
Would you buy an EV Vespa?
No?
Please?
No?
Please?
Okay.
Le's kind of thrawl the lines somewhere, but that's so easy.
It's a little thing. You plug it in anyway.
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