Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside my co host Matt Miller. Every business day, we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news. Find the Bloomberg Markets Podcast on Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. I'll tell you the big take story today is awesome. I used to work with Credit Swiss, so I had an interest in it.
Um and the story is just fascinating. Um. You think about these Russian billionaire oligarchs and their super yachts and owning you know, football clubs in London and so on and so forth. There's gotta be some bankers to those folks, and sure enough, Credit Swiss found. Can you believe? There in Switzerland? Shock. Marion Hofftemeyer, also in Switzerland, she's a
finance reporter for Bloomberg News, brings us this story. Mary talked to us about Credit Swiss and the business it had built has built in Russia and kind of where we are today with the sanctions and so on. Yes, sure so, Credits WECE actually is one of the earliest banks to have a big presence in Russia. They came in post you know, sore Week, Soviet Union UM, and they really started to connect with a lot of these individuals who are gaining UM access to privatization and gaining
wealth from that. And so you know, a lot of the money started supporting and then the first place you think of when you're looking for with private banking or for private banking in Switzerland, it's it's got an expertise in it, so you know, you end up having this this man but like Desmalsci, who was in a position to really receive these individuals who needed, you know, advice on how to buy companies, where to invest their money, you know, how to how to structure different transactions they
were trying to do. And so that's where Credits really played a NSI and of course other banks have also been present in this space, but Credit seems to have a little bit more UM exposure and connection to the Marion. I once heard a story and I don't know if it's true, so you can correct me if I'm off base, but I want to just share it to illustrate UM.
The perception of Swiss bankers in the Second World war, the Nazis were killing Jews and taking the gold from their teeth and storing it in Swiss banks, and these bankers knew what they were taking, right, There's this perception that the Swiss are willing to be bankers to the most evil people on the planet. UM. Is that that is that is a perception. UM. It's a perception that stems from some truth, obviously, but but it's it's not that they're choosing to bank with the you know, the
most horrible people of the world. It's just Swiss banking has traditionally UM welcomed money UM and hasn't asked as many questions as as other jurisdictions have. And they've they've been really entrenched in this idea of banking secrecy UM to protect wealth. And you know, with that you bring that example up, they were they were actually also protecting many Jewish families wealth UM, avoiding avoiding that wealth from being taken by the Nazis. So there's both sides to it, UM.
And so there have been you know, long debates and court cases around this UM. But it's difficult, it is a difficult area to operate in. Now, of course, we have the fall of banking secrecy. So there's a lot of accordance with other countries and tax you know, agreements, and so there's a lot less secrecy around it than historically has been well, and there must be some reputational um concern on uh the executive level. Right. They don't want to be seen as the banker to Kim Jong un.
They don't want to be seen as the banker to Vladimir Putin? Do they? No? No, I mean definitely not. And in banks in general, I mean especially so thanks
for other banks as well. I have have in recent years with k y C anti money laundering or you know, the extra restrictions are being put in place have avoided some of these individuals, these politically exposed individuals, because precisely, you know, if the person, the person could be fine for now, but who knows, you know, in a couple of years from now, what that person might get involved with that might paint you know, the bank and then
alienate their other clients who don't want to be associated with the bank, who you know is banking people you don't want to associate with. So it's a difficult lyne to walk. But at one point, I mean a lot of these clients were not sanctioned. They were just regular businessmen. Yes, they made their money in the post plutin opposed to Soviet era um privatization process, but they were, you know, not untouchable. These were regular clients, and now they'd be
they've become untouchable. So it's with many banks, it's a it's a problem about assessing, you know, what what level of risk, what level of probability are these clients going to be untouchable? You know that you're reporting is just rich in detail here. I really love your news item here that you and Hugo Miller, your colleague put together.
The numbers are just amazing. At one point, Credit Swiss managed more than sixty billion dollars belonging to rich Russians and that brought in to Credit Swiss five hundred six billion dollars in revenue per year. What's happened to that business with all these sanctions? Here? This business is gone, it's dead. It's dead. And and and those aren't necessarily
my words, those are the words of the bank. Um. You know, it started when you have you know, the annexation of Crimea and some things just came out, Um that you know, it's started to show the bank you know, this might not be an area of growth for us anymore. Um, but that was sort of a limited uh downfalls to speaker decrease in revenues. Now we've really seen basically businesses it's dead. It's it's all, there's nothing left. All they're
doing is basically managing money that's in frozen accounts. But they can't do deals anymore. They can't transact, they can't trade for their clients, and that's really where they're making the most banks of their book. Yeah, there's a you have a quote from Gotstein in here, the CEO, saying you basically can't touch them. We don't have any business with Russian clients at all. Yep. It's interesting thing. So yeah, and you have some great photos in your uh in
story as well. In terms of Alisher's MS super yacht named Bill Barr, it's undercovers at the Bloom and Voss dockyard in Hamburg in March, and so it seems like everybody's trying to get their hands on those Russian Allegar yachts. I don't think it's an exercise and excess though, I mean, you have to have at least two helicopters on your Yeah, yeah, no, no question. All right, Marian, thank you so much for that. Marion Hofmeyer, financial reporter for Bloomberg News. She is based
in Switzerland. That's a great thing about Bloomberg News. We've got people all over the place. If there's news anyone who's planet, we're going to find it. Let's go right to our next guest, Kevin Nicholson, Global Fixed Income Co c i O, CO head of Investment Committee at Riverfront Investment Group. Kevin, I look at the corporate bond Total Return Index year to date down. What happened? Well, it's
been a year had everything has gone down. I mean you look at the treasury market, treasuries, you know, senior treasuries up a hundred and twenty five basis points from where it started the year. And uh, you know, corporate spreads have widened. So that's where why you've seen these negative returns in the fixed income market. And you know corporations are not uh you know, are not immune um from football out and so uh, you know you're going to continue to see yields rise in my opinion, across
the board as the FED continues. It's tightening cycle. Um. But if we expect the FED to go to three, um, they're almost there. It doesn't it become priced in at some point? I mean, uh, don't you start buying bonds for the yield? Oh? Yeah, I mean I think that bonds are attractive at this point in the cycle. Uh. You know, one of the things that I've been kind of preaching to our clients is that you know, you've taken the long term excuse me, the short term pain
to get the long term gain. Uh. You know, when you're purchasing bonds, obviously the starting yield that you purchase them at is going to most likely be your return UM, And so you want to make sure that you know, at these current yields, you're going to actually have some room or yields to go higher without the price depreciation
overwhelming the annual income generation. And so that's why we are focused at the front end of the curve, because you're getting more yield per unit of duration, and so that allows you to have a larger cushion for if yields wise, that you're not going to have that depreciation overwhelmed that income. Whereas if you go to the long end of the curve. You're not getting paid for that extra duration, and uh, you have a lot less cushion
about half as much. Kevin, how concerned are you in your team there riverfront about this federal reserve and its ability too? I know, engineer kind of a soft landing visa the rising interest rates and having a policy risk maybe going too far, too fast and pushing us into
a recession. How do you guys think about that? Well, you know, about a couple of weeks ago, we went through the exercise because we looked at the beds UM target for the end of the year of CORPC of four point one percent, and we were like, how did we get there by a year in um and have
a soft landing? So they speak um and over the last twelve months, CORPC has averaged about UM forty two basis points per month, and so therefore, in order for the BED to hit their rates target by the end of the year, that means that corp c a PC must average about thirty three basis points. So you're gonna have per month, So you're gonna have a huge slowdown.
We don't see the inflation cooling that fast, and so therefore we continue to believe that you know, yields are going to be materially higher by the end of the year. And so that's why we maintain um that you know, to have a shorter duration. And we don't think that the FED is going to have a soft landing. We think that they're going to overtighten and push us into
recession ultimately. And uh, do they then turn around and cut I mean, I know, now we're going pretty far out and it's hard enough to forecast you know, the next twelve months, But do you expect the Fed to uh try and fix a mistake? Well? I think the big thing here is that the FED wants to get rates normalized UM, so that if they do over uh, if they overtighten, they have the ability to have some
room to be able to lower rate um. You know, but at current you know, at current levels, even if we were to if they were to stop let's just say here or you know, a rate or two hikes more, UM, it's not going to be enough to give them dry
powder going forward. So I think that that if they do overtighten the economy, um, they will they will make sure that a the inflation is under wraps at this point I think inflation is the most important thing for them to fight, and so for the FED, if they send us in the recession and inflation is still high, then I don't think that they're going to stop there. Um, you know, because the FED poot is gone, and so now it's really about trying to get inflation under control.
Where you where are you? You're off? You're off? Where are you putting money to work? Kevin? Given your backshop, which is pretty darn didn't I would say, you know, kind of kind of a dark outlook. Yeah, I mean, you know, it's only dark in the in the short term, to be quite honest. I mean we're looking at opportunities and you know, and from a fixed income standpoint, we're still looking at bank loans and UH and high yield UH.
In the equity markets, UM, you are wanting to get paid to wait, so we're looking um for dividend paying stocks. We're looking at covered cost strategies UM. And combine that with our high yell UH and bank loan approach. That's the idea of you know, getting paid to weight. And so we think that we're going to you know, we're gonna be okay. It's just that the markets. As we all talk about all the time, uncertainty, and right now we're in an uncertain time and it just I just
feel like markets are going to be ranged bound. I'm not saying that it's harm again, I don't believe that. Um I think that, you know, if we go into recession, it's not going to be until late twenty three into so we have some time on our side. It's just a matter of being selective, all right, Kevin, good, good stuff. We appreciate getting your thoughts and your perspective there. Kevin Nicholson.
He's a global fixed income co c i O and co head of Investment Committee at Riverfront Investment Group in the lovely city of Richmond, Virginia, where I spent a lot of time back in the day. All Right, for my good friend Renny and I, we look at the summer as the Triple Crown, and this weekend is a first leg of the triple Crown. Memorial Day then of
course you've got four and then Labor Day. So when we get to the first leg of the triple Crown, you start thinking about seafood and laps to Mark Morrell. He does he does this lobster thing full time. He's a founder and CEO of Get Main Lobster Mark. Thanks so much for joining us here. A lot of folks are starting to think more and more about getting those fresh lobsters. Talk to us about the lobster market today. I mean, we see inflation everywhere return. How is it
with the lobster guys. Yeah, it's insane right because fuel, they labor, you know, everything is up. So the lobster men are feeling. It's the warf owners are feeling at the processors my company, so because then you have to calculate what was the market there, and the market understands what's going on, so they know they're paying a little bit more, and the die hard lobster lovers um you know, are still buying. So it's an interesting time for sure. Yeah,
I was wondering about the demand. I mean for me. Also, the summer is marked in July and August by the Lobster Party, by the place I go to, the beach place I go in the summer. We have the Lobster Party one each month and it's like the party to go to um. But as we're all sort of tightening our belts here because of six dollar a gallon gas and you know, um groceries that are all of a sudden costing of our paychecks rather than ten to fifteen do we still reach for the lobster demands? Has not
waned as much as I thought it would. Uh, really interesting and um, I mean one of the things lobster is very celebratory, so not something people eat every day, but if they want a special event to be that much more special than lobsters could go to. By the way, is lobster still the best? I mean I think of main lobster as the pinnacle right caught in some freezing cold waters by a guy with a sick accent in a sweet trawler like But um, is it still the
only way? Are there lobster farms? Are their genetically engineered lobsters? What's the story? Yeah? I think lab lobsters are in the future. I haven't heard of anything now here and me and the only thing I fell was wild caught by hand by an individual typically generational lobsters man or woman. So it's pretty cool, big heritage here and the process
really hasn't changed much. I mean, how have the the lobster people in Maine, in New England, how have they fared over the past few years with the pandemic, How's their business changed, how have they evolved? Because you know, whenever we talked to people that are in different parts of the economy, I was like to get a sense
of kind of how their life, how their business has changed. Yeah, it was different for everyone during the pandemic, and a lot of people don't understand in the lobster industry itself, when the shutdown occurred, you got rid of casinos, cruise ships, in a bunch of restaurants. Those are big, big suppliers of lobster that people don't realize. So when you have large purveyors that have tanks and freezers filled with lobster and nowhere for it to go, they rely on businesses
like mine, where are online direct consumer. We shipped the product so um. It was really interesting. Typically the price goes up and down throughout the year depending upon supply and demand. But demand was super duper high and supply was super duper high. Uh, and then supply started to get low um, and we had an entire year of not much price change. Um and then suddenly I've never seen lobster prices as high as they got recently it was it was wild and because demand was still really
high but supply was low. But it would the uncertainty what is this supply like, you know, is it a what is this lobsters? You know, natural lobsters? Is it? Is it on the rebound? Is it good? Is it endangered? Um? No, So main super sustainable and by designed by the lobster men and women themselves. So we're never going to have any supply issues from what is in the ocean. Um. So that's great news. Um. You know other markets from
the overly privy too. I don't study the Canadian on sometimes I have to buy Canadian but I don't, you know, study elsewhere. But we don't catch anything below a pound and nothing above four pounds, so that we can let them grow. And then the big ones, you know, we want to keep them around because they're you know, they're breathing. I will point out there have been you know, during the lockdown, Maine started selling recreational weed. I don't know
if that has anything to do with the demand. I don't know if that influences the demand picture or slows down supply a little bit. But um, but you're moving into a new era and I mean, like you said, everything's still done traditionally in sustainable ways and it's an incredible heritage. But now you're selling an n f T. What's that all about? What you got to tell us about it? It's crazy. So back in November, um, I
discovered a beautiful one million rare lobster that lobs. I'm gonna work with Billy or Smith harvested and we have a relationship where I acquire a of his catch. So um it was. Her name is Hattie Cotton colored cotton candy colored lobsters. She's like blues and paints. If you google or Hattie cotton candy lobster. I'm on it, and I'm on it right now. Yeah, I mean, mother nature created something epic. Um So I was inspired by her,
and I wanted to do some cool projects. One was created an I P A with shipyard called Hattie's Happy I p a UM And then the n f T project, which I'm super pumped about, is Hattie's Bay Club. And so it's this Web two or a Web two business jumping into Web three, and we're bringing what it's called in real life utility to the Web three world. Typically an n f T gives you access to an exclusive group of people. It may give you if you stake
it and make you earned down the road. For us, we want to use lobster in the web three world and say hey, you get this n f T, and we're doing monthly giveaways. We're giving tempercent fact and marine conservation. Those that collect and hold rare n f T get access to potentially lobster for a year and just a
bunch of fun, uh fun things. And we're actually launching a merchandise website called b Hattie dot com and of the profits are going to token holders, So if you hold an n f T, you're gonna get the profits on this apparel website that was inspired by by the way I'm looking at pictures of this lobster and she is amazing. One of a million chances of finding she still alive? Is how he still alive? Yeah? Yes, right, Sea coastein Center in Ryan, New Hampshire, and she's alive
and well, all right, Mark, awesome, awesome stuff. Best a lot to you and Hattie. Mark Morrell, founder and CEO of Get Main Lobster. All right, let's talk real estate, because I the peak of real estate when Matt bought his home. I'm going to call that the peak. We got interest rates rising here, so I'm just wondering what the impact is on not just residential, a commercial real estate as well. Has some Naji, President and CEO of Marcus and Millichap joins us Hassan, thanks so much for
joining us here. Has real estate peaked here? I mean, it's been such a great asset class during the pandemic, but has it peaked? Good morning, Thanks for having me on the program. Their market is definitely going through a transition when you have interest rates at zero and now having to move up to what is really considered normal interest rates. Three year on the ten year treasury yield or even frankly three and a half or four yield on the pin your treasury is not high interest rate
by historical standards. We're going from zero and going rapidly because the Fed now has to react to the inflation threat or these inflation reality. I should say it is causing a market transition, especially on the for sale housing side of the equation, because prices are up so much since the prior to the pandemic, and now you have
higher interest rates moving people into apartment rentals. On the commercial side, the lack of overbuilding and really strong fundamentals prior to the pandemic and still today is really the safety net on top of renk Walks rank well for commercial real estate is coming back extremely strongly. And that's why commercial real state is an inflation well cause has some We have columnists here Cameron Cries who wrote a piece today about housing the housing market saying that's not pretty,
but it isn't two thousand six. This isn't going to be a repeat of the bubble bursts that caused the Great Financial Recession, because a great financial crisis, because um, you don't have the rising supply that you did. We've seen these incredible UH price increases and in fact, if you look at the average median you know, on the residential side, the average median home, um, the mortgage payment
has gone up more than fifty percent UM. But you don't have the overproduction that you had back then, and I wonder if it's the same on the commercial side. That's exactly right. On top of the lack of overbuilding for all those estates, housing and commercial, you also had
lenders that stayed very disciplined during this last cycle. Unlike oh five, oh six, oh seven, where there was so much leverage in the system, underwriting standards had loosened so much, and there was a lot of non performing loans when the O A O nine recession hit. That is extremely different from what we're experiencing now. As lenders did stay disciplined.
We don't have a six bank system, we don't have a bunch of loans about to go into default, and so all of that provides really good sort of a safety net on valuations. But prices are adjusting. Obviously. When interest rates go from you know, three or three and a half percent on your average apartment loan to four and a half percent, you know in a matter of
a few months, that's going to create some pricing pressure. Uh. Same with the office buildings, who are suffering even more because the demand side on office is much more questionable than apartments, storage units, even retail that is now seeing kind of a revolution of the use of brick and
mortar retail creating a lot of investment opportunities. So I think fundamentals are going to prevent a wholesale price correction, but we're seeing pockets where a lot of appreciation has led to record pricing, those are adjusting a little bit. And I'll say it again, rank growth is the key apartment rents nationwide. Of for the first quarter of this year, we're up more than year earlier, and people have nowhere else to live, So that rank growth is going to
continue at a healthy place. Maybe not quite as as hot as this then, but definitely in the double digit range. Hassam talked to us about supply of residential housing. You know, I think one of the themes that I've picked up over the last several years, if not longer, was when the builders build stuff, they're building the McMansions, the stuff where they've got a really nice profit margin, and not
necessarily building the entry level home. And that's part of the big problem we're seeing in in rents, for example, is that changing at all our builders trying to cater to some of the entry level. The design has really changed in the last ten years, from mega mansions to more of the median affordable, you know, three to four
bedroom homes that that families can actually afford. The change, though, is the fact that land prices have skyrocketed, supply material costs have gone way up, and labor costs have gone way up, so it's become a lot harder to build, it's become a lot more expensive to build. And we're also seeing a new phenomenon of institutional capital coming into the built for rent single family market, where a lot of the inventory that's being built is being built to
be rented, not to be sold. So if you look at this various trans affecting for sale housing, that's a pretty important one in which is really evolved over the last five years. What do you expect from the Fed here? Some I mean, um, you know, a huge portion of the price increase I think uh. Cameron Cries wrote earlier that you know of the increase in monthly payments over the last year has come from the Fed's efforts to
curb inflation. So does that continue into we see mortgage rates continuing to rise and does it infect effect commercial as well? Yeah, I think the set is gonna have to stay aggressive. They can't back off. Now. I don't think they're gonna have to go overboard. But the remainder of this year I believe will bring significant successive interest
rate increases, and it is to be expected. The inflation phenomenon is something that was not predicted and it's really a function of recovering from this terrible pandemic and the liquidity that was pumped into the system. You could argue that they overdid it, but better to have overdone it than undershot and have us being a deflationary environment, which,
as you know, it's much harder to fight. I think interest rates are going to be on the rise, but I, unlike many, I don't expect it to get out of hand. I think the market can absorb another fifty It is seventy five basis points two three and a half percent on the tenure, and we'll be fine, all right, Some thank you so much. We really appreciate it. As some Nagy President and ce Oh of Marcus and Millichip getting a latest on real estate. Thanks for listening to the
Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller. Yet on ball Sweeney, I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.