Fed Leadership Uncertainty And US Travel Requirements

about UM. Well, first, awfully, so what do you make of the moves we're seeing today in sovereign bonds? You know, rates markets are always kind of funny, right You get a pp I print which admittedly is at expectations but still nearly nine percent, and you have you have US rates rallying and the curve actually flattening. UM. You know, I think the bottom line is that the FED has basically given markets the green light to um take a

little bit of risk. Although admittedly we're not saying that in equity markets today, but in bond markets they're saying we're not doing anything for the foreseeable future. Some of the rate hikes that were discounted into markets a week ago have come out. Um, you're hearing a little bit more about Lele Brennard on the on the maybe more do a shide of the equation. Um. That's perhaps giving

a little bit of a bid to rates markets. UM. And you know, just generally, I think the move to higher yield happened fairly quickly and perhaps um, perhaps a little too quickly for markets that I think we're just getting a bit of a reversal of that right now. At least. It's really interesting because early in the year or late last year, you made a prediction about inflation, and you made a prediction about how UH the Fed

may need to start to move to control it. I'm wondering now as we head towards the end of twenty twenty one, on what you're expecting into next year. Yeah. So our view on inflation, particularly early this year and late last year, was that it was going to be much longer lasting than markets expected it to be. And I think we are getting, um, you know, some some satisfaction on that in that in that transitory is UH is not necessarily a number of months, but being measured

in maybe years. UM. And and you know, our view is is still fairly consistent. We think some of the inflation we're seeing today will come off, some of these supply chain issues will certainly moderate UM, but inflation is probably still going to run higher for the next several years than it has done over the last several years UM. A number of reasons for that, you know, ranging from

FED policy to the political environment that we're in too. Frankly, a lot of the efforts being made UM by by by governments to move towards more sustainable UH policies in terms of infrastructure and energy policy. I mean, those will require huge investments in commodities in our view that it's still UM need to be priced into markets. So this

should be a fairly supportive environment for inflation. UM. Now that being said, we're still faced with the fact that that's FED is seemingly airing towards overweighting its employment side of its mandate versus the inflation side. And so I think that they are very cognizant of of of getting to full excuse me, full employment UM and letting inflation run a bit hotter than it has in the past.

They've been fairly explicit about that and I think if Brainard is in fact the new FED chair um that you know, she will take an even more aggressive stance on that. Um. If that's true, then the market has gone went pretty far in discounting almost at one point three rate hikes into in our view, that was probably too aggressive. Maybe it should be done, but it's not necessarily what this FED is going to deliver. Um. So that to why we're you know, we are being we're

we're more cognizant of a range trading environment in rates. Yes, we think tenure should probably be a bit higher than they are today. Um, but it's not necessarily can't can't get there all in one self swoop. I think we need to have a little bit of give and take in the markets. Lisa, what do you buy right now? I mean, you spent a decade in the trenches as a PM before you became the big boss as the

head of US multi sector fixed income. It's probably not easy. Ah. Yeah, So that's sort of an understatement for the whole team, I'm sure. Um. You know, markets are are challenging right now. You look at valuations across particularly credit markets, and you see that they're in the bottom death stile of their historical ranges, so nothing really looks cheap, particularly on the corporate side, there is a little bit of opportunity opening

up in our view. On the emerging market side, we have seen, um you know, some of these issuers underperform a bit as as the dollar has been fairly strong and that's been a headwind for them. UM So we are starting to take a little bit of a dip into into some of the e M names, particularly those with with strong capital accounts, those are that are more geared to the U S and global economic recovery, those

geared to towards commodities, as um I mentioned earlier. UM you know, there's also perhaps some opportunity in some of the securitized markets as well. Um less so maybe on the agency space, but a little bit more on UM in areas like triple A c l o s that we still like that still look from evaluation perspective reasonable compared to the rest of the alternatives. They're floating rate in nature, their short duration um so where we can pick spread there. We like the we like the structure.

Outside of that, it's really hard to make a compelling argument for fixed income. I mean if we're being completely frank. It's more of a carry environment at best. There's not a lot of potential in our view for further spread compression from here, so we're waiting for a little bit more volatility and markets to take advantage of that. Well, I hope we get to talk to you again, Lisa. Great to get some time with you. Thanks very much for joining us. Lisa Hornby is the head of US

multisector fixed income over at Schroeder's. Let's get back to um uh more realistic corporate stories. Dream Hotel Group. I'm sure that j Stein wouldn't mind a two point for seven trillion dollar valuation, although it would probably be a lot more work. You have to hire a lot more people, and that's not easy in this economy. Jay Stein is

the chief executive officer of the Dream Hotel Group. Jay, I want to start there with with hiring people, because when we talk to you here on Bloomberg Radio recently, you've pointed out that it's not easy to get employees in. Has that changed at all? Not much, unfortunately, Thanks for having me on. By the way, um, you know, it's still very difficult to to attract people to come back to work. Um. Also our industry, it's it's been difficult.

People are opting to stay at home if they can, or maybe not come back into cities if they've vacated the city. So it's it's still a challenge. We're doing a lot of interesting things in our different hotels, uh, you know, offering incentives and offering parking and many different things to try and make it more comfortable for people to uh look at us as an opportunity. But it is still very difficult. Yeah, we've we've been wondering about this.

What is keeping people from coming back? What can bring them back? Is it a matter of wages? Especially in hospitality, It's it's harder to be flexible in terms of working from home. I mean, what can you do to kind of support the demands of this workforce? Yeah, I agree with you, and I think part of it maybe immigration, right, Maybe we need more people in the country uh that are going to look to take jobs that other people are just don't want to take, and we need more

more people available to work in the workforce. Uh. Um. Other than that, uh, you know, I said, you know, let's end the enhanced unemployment, and you know that that's ended. I think unemployment in general is going to start to uh, you know, stop for a number of people, and people are gonna, you know, realize that that they need to go back to work. But you know, I don't think

that's really the answer. It's it's a it's a unique situation that we're in and a lot of the younger people are looking at life differently, and we're gonna have to find solutions. Because you said, my industry is dead without without worker is so well, the economists still tell us jay Um and the Federal Reserve will say, we're

not at full employment yet. So before we start bringing new people into the country, we still have a lot of people that are out there looking for jobs, or could be looking for jobs, or should be looking for jobs. What do you think is keeping them on the sidelines. I think they have savings, and I think they started getting unemployment and uh, they're saying, you know, I want to do what I want to do. Um And until they're here, you know, out of unemployment and their savings

are dwindling, they're staying on the sidelines. All right, Let's get back to the business of travel and leisure, the hotel business. As borders are opening up Um, I think yesterday was November eight, right, So, Um, Europeans are coming back into the US. Do you feel that have you seen already a big bump in reservations and occupancy? Yeah, we definitely see an increase. Um. I wouldn't say a big bump yet, it's it's gonna ramp up. Um. But I do think, um, you know, we're coming into the

holiday season, we'll see a good impact. The UK is a great freedom market into the New York markets. Um. But what I am excited about is I think we'll see a bigger business coming through in January and February than we normally would because of all the pent up to Man, I think they'll be shoot flights coming over from Europe, and with Broadway open, and with restaurants open, with great you know, luxury type shopping reasonable here the

niche typically in Europe. I do think you'll see uh better business coming in those months where it's usually slow for US. I mean, it's interesting because we talk about things about to reopen more. If you've walked through Times Square the theater district, you can't really walk far it's so crowded, And so I'm wondering, Jay, you know that for the people who are do have pricing pressure here are Is it getting more expensive? Is it going to become difficult very soon for people to get rooms when

they're looking to travel. No, I don't think we're at that point yet. Our hotels. You know, we have five hotels here in New York. We just opened the Chatwell Hotel just last Monday. That was the last of our properties that was still closed, and that's our high end luxury property, and we have to dream hotels, uh, and the time that have all been open since May, and

we're still not back to regular. Ocupency levels in the city runs higher than most areas we're typically close to, and we're still down and around the seventy percent range. So there's still a lot of rooms. Inflation for us to lifted the rates like we're seeing in other industries has not come to us yet uh in New York as as although I'm sure it will over the next year, and I think we'll hit the new highs in a

d RS that we haven't seen you in the city. Yeah, I mean, I imagine that you're gonna have to lift prices at some point to get your margins back to normal, right, because you have to pay people exactly exactly. And I think I think the public just like you. You know, when we go out to eat now, you're paying probably more for an entree than you did a year and a half ago, but you know, you're still going out

to dinner. And I think that instead of paying for a room and you're paying three seventy five and you're going for a weekend, uh, he'll be happy to pay it and stay in a great hotel. So I think that's, uh, you know, something that the industry actually has the opportunity to look forward to and be able to raise rates rates of staging for for a longer time. Right now, great to get your insight. Always appreciate having you on

the program. Thanks so much for your time. J Stein is the chief executive officer of the Dream Hotel Group. Talking to us about employment, international travel, and inflation. Really important. UM. Insight there. Let's talk about a little bit more about what's going on in the labor market, especially from the

perspective of the housing industry industry. UM. But I first want to tell you that Bloomberg Markets is brought to you by Commonwealth, supporting more than two thousand independent financial advisors with solutions they need to grow thriving business. Commonwealth go where you grow. Visit Commonwealth dot com to learn more. Now let's get to Jack Trong right now. Uh. He joins us at the CEO of James Hardy to talk about this market, this housing market and um, the difficulty

in hiring people. Has it gotten any better? Jack? Um? Good morning, Matt U. Sertainly within the new construction the markets, Um, the it's still quite tenable. But but we also are exposed to the remodeling segments and um, and it's actually

not as bad as in a new construction side. Well, I'm wondering how long this construction boom really goes on for you know, I know a lot of people who are looking to build a home right now facing so many delays, and I'm wondering if there's a point at which this starts to taper off, whether more people coming back into the workforce will start to ease some of that pain Porsonally, you know what new construction is already very quite a complex supply chain to build new homes,

and I need you have the different different type of products and going to building home like with appliances, Wind windows, doors and so and so forth. So you have also have different skill laborers to complete the home. So we we don't see that it's gonna gonna be abated anytime soon. Um certainly at least within the next year or so.

But where we see um really light at the end and tunnel, it's really in the remodelate side, where where there is a there's a uptick in in the remodeling of the big ticket items, big ticket project like the re residing, remodeling or fixing your the exterior of homes. UM that that's been growing. It's quite nicely in this past quarters where we grouped by Cote and Insinceance, the supply chain is not as complex and we do see the labor it's quite really available in that remodeling sector.

So um, the remodeling is your focus. But it does seem like this market needs more new construction, it needs more supply. Um. How do you see that? Well, you know, so you new constructions to read about between six or eight percent of homes so to the how housing stock in America today, So we still a relatively small part of the housing availability in the US, UM. So UM in in the short term, Yeah, it's gonna be limited

in terms of the new construction start. I think we kind of horror around one point one million single family new construction right now for several months now. And also because of that complex of blind chain as we always the lack of skill labor. We don't see that changing anytime soon. But where we see more and more that home owners are not going to move from their homes and there's more tendency now for the of all owners to stay where where they're at and then to put

that money to our renovated and remodeling their homes. You're not gonna believe this guy's My parents actually moved to India for four months because their house is so far delayed being created and they had to sell. UM wondering about next year? Does it get better given that we're not going to see so much new supply so quickly. Yeah, I think I think the next next year we'll get better. That's thee that the industry work out of the complex

supply chain for new construction. Um. But you know, but anything can can happen now to then and certainly uh, you know, with the interest rate continue to be lowest and this now and we were going to see that the demand will have housing that might start to rise. Um. We only have a minute or so left here. But

what about climate change? You know, it's interesting because I'm wondering what you're doing to kind of prepare for bad weather into the winter and all of these crazy fires that we've been seeing as well or the soonality an accident. That's a very very good question. You know. We're we're very fortunated, James Hardy, that that we had a very unique technology that we're product to make them from our

five cement technology. And not only that we deliver the different designs and and aesthetic to the to the homes, but they also protect the home from all the elements. You know, it's it's noncombustible UM. It's also do durable that we guarantee for filty years UM. And at the same time, it's uh it's rated for hurricanes. You know it's gonna be it can would stand when the up to two and twenty nine per hour UM. And it also rated by FEMA, say class five in the Class

five flood zone. So it's quite uh moisture resistance. So our product is really um quite um well suited for for the changing climate right now. All right, Jack, thanks so much for joining us. Jack Trong there, chief executive officer at James Hardy talking to us about the housing market and um, the renovation situation right now. All right, let's talk about our big take story of the day.

Reddit's latest obsession is the FEDS Reverse Repo Facility. Alex Harris wrote the story and he's here to talk about it with us. So, um, Alex, this is something that we are often obsessed with as well. And as you point out, money market traders are glued to the screen every day to see the results of the reverse repo agreement.

Can you explain what it is to the layman? Yeah, So what has happened is, you know, when the Fed does these asset purchases, when the Treasury is holding onto a lot of cash um and they start sort of removing that or spending that down, that all goes into

the into the financial system. And so what the FEDS Reverse Repo facility has been created to do is to actually mop up this so called excess liquidity that there's just there's too much out there, and so this facility has been designed to sort of you know, redirect some of it. So as to not overwhelm the financial system

and financial market. So I don't understand why the everyday trader who's normally interested in the stock market, which they can actually participate in, is so obsessed with reverse repo which they have no exposure to. Yeah, initially it's a good question, and one even after this story and so asking myself a bit um just because they happened to glance at the at the comments on Reddit in response

to the story. Um, you know, I think it's sort of almost like an instinctive thing when you see a number like this growing and then you start assigning sort of assize and scope to it. Um, there has to be some like absolutely insane reason as to why something is behaving the way it is when it when it's growing like this. Um, you know, and and really you know, the reverse repo facility like on it on its front. You know, people can say cool things for making repo fun. Again,

it's just intended to be boring. It's intended to just clean up the market, you know. Well, but not at these levels, right, I mean, it's huge. This isn't something that's insignificant. It's not like, you know, move away. They're nothing to see here. There is something to see here. I mean, I think, if anything, and it's telling you that what the said and the Treasury did in response to the economic catastrophe that was the COVID pandemic in

the early days of it, um was actually monumental. Because that's what essentially we're cleaning up right now, is that the remember the fact is still doing quantitative using, it's still purchasing treasuries, and it's still purchasing mortgage backed securities, um. You know, so it's still pumping cash into the system, and and it's quite a lot, you know. And we're also getting cash from the Treasury because they were holding at one point eight trillion dollar cash balance, which was

just unprecedented as well. I mean, we hadn't had when the when the rest People facially was created in two thousand and thirteen, at first launched, we didn't have fiscal policy and monetary policy. Monetary policy. I think it was Chuck Schumer in the Senate had told Bed Bernaki was the only you know, they were the only game in town.

And and so that's why you didn't sound now in a sense though that the explosion in the reverse repo facility is emblematic of um, the amount of cash going into things like game stock and uh bit dog right. I mean there's just so much cash out there with no place to go. Um, these big institutions are putting it at the RP, but Wall Street bets bros. Are putting it into a MC. You know, I think it is emblematical the fact that there is just too much

cash out there period. You know, I think you know when you look at the you know, amount of money it costs for a used car, use phone. You know, yes it is. But you remember these are money market funds that are primarily using the reverse repo facility. Um. You know these aren't the banks. The banks have you know, interest on reserve balances that pay fifteen basis point for cash and this is this is money son. You make this other point in the story that I think is

really important. It's really important for people to understand how the FED works, especially the most you know, basic things to keep the economy safe. Right. But you have said that there's a lot of FED miss run by a very dangerous man though according to well, let's not go there.

But you know that there's a lot of FED misinformation spreading on Twitter you know, what are some of the misconceptions that people have about this that then need to be debunked, you know, I think because again it's so big and and you really have to, i think, want to understand exactly how the mechanics of the financial system works. And with that, you have to understand kind of how

these said faces amilities work. And one of the things that you you know, that was a misconception that we found is that UM hedge funds were regular users or the reverse repo facility and they were taking you know, the securities that they were getting from the set in these operations and and then lending them out UM and you're using them as collateral UM, which is not the

case because hedge funds are not counterparties. So the reverse repot facility, you know, the bulk of the counterparties that actually use it our money market funds, followed by your Fannie MA, Freadie MAC and your federal homeland banks. So

that was a big one. You know. The other the other misconception is the idea is that the larger this gets UM, the more likely to pretends some sort of economic collapse UM, when in fact, you know, the set had created um, the reverse repo facility and now what's called the standing repo facility to sort of um, you know, guard the market, you know, against these sort of catastrophes, especially in the plumbing market, you know, where things can be so fragile and so sensitive, as we saw even

you know in nine, you know, when overnight repo spike to ten. It's like according to your you have a great great um you quote a great Reddit user, old man repo. He says his mom thought he was out there stealing cars like the great Amelio Estevas film repo. Man Um, he's doing something else, Mom, Yeah, I mean that's exactly what it is. And I think he had actually, you know, it was such a it was such a

nice analogy because that's exactly what it is. Is that you know, what had happened was, you know, the COVID and the and the pandemic and everything broke, and the reverse repo facility is sort of what you're using to sort of get back to health and and so that's what we're seeing right now. It's just that, you know, again, unprecedented times called for unpressd then did the amounts of liquidity from both the FED and the Treasury, and and

that's why we're getting the usage that we're using. And because again it's it's a piece of the plumbing, and no one really looks at the plumbing unless it breaks. That's why we are getting the reaction we're getting. Alex. Thanks so much, Alex Harris writing our big Take story for today. 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 three. Put on fall Sweeney. I'm on Twitter at pt Sweeney Before the podcast. You can always catch us worldwide at Bloomberg Radio