Housing, Return-To-Work, And Travel (Podcast)

now we do. Now we do absolutely, Erica Aidelberg. She is the mbent strategist for Bloomberg Intelligence. He joins us here in our Bloomberg Interactor Broker studio, Adelberger Aidelberg. Is there a difference, Well, there's an a So if there are two different German words adel and ood li and um, but they're both spuilt either a d e L or E d e l and they both kind of mean noble or royal. So okay, anyway, we are today by your President, Yes we are, Eric, We have a federal

reserve that's going to start selling mortgage backed securities. Is that something you're looking for? So? How does that impact your market, the mortgage back securities market, It's got to be a tectonic shift. Well. Yeah, Traditionally, the FED just allowed the portfolio to actually, you know, decrease the size of its portfolio, of its FED footprint, by letting the principal paydounds run off as prepais came in and as

scheduled deamorgiztations came in. But they've put in a lot of language recently into their speeches that says that they're seriously considering selling because the size of the NBAS portfolio has gotten so large at two point seven trillion and about a third of the mortgage index. So they're actually

talking about selling. They've said they'll give a lot of lead time if they do so, but I think a lot of people are now actually taking them at their word and saying, even though it will involve some write down losses, perhaps that they may actually start selling as early as late two thousand or early uh two three. So So what is this like for them? I mean I imagine this must be like, um, you know, a nine pound guerilla gets out of the pool, right, that's

very accurate. Yeah, there there's gonna be a lot of water that has to be absorbed by the rest of the market, if you will, or mortgage backed securities in this case. So we've already seen a lot of spread widening. UM. The mortgage spreads are definitely wider than they were before this uh QUE four before this round of quantitative easing. So the big question is is that going to be enough and who's going to absorb the rest? So, you know,

it's interesting here. The first quarter was really tough for fixing come investors, really tough and return perspective. How's the MBS market, how's that been trading? The NBS market is definitely on tap for one of its years on record already. We're calling for probably the first ever consecutive year of negative absolute returns and probably very very likely the third ever consecutive year of negative excess returns that has returns versus their hedges. So yeah, it's it's not looking like

a great year from morgas backed securities. UM. On the bright side, we've widened so much that we think the rest of the year could be a lot better. Uh you know, do the Wall Street trading firms have big MBS trading operations still on these days? Relatively small. Actually, Um, nobody has a big trading operation compared to the FED right now. But uh, no that the the they haven't Actually, if you will, they're not actually probably going to provide

that much intermediation unless spreads get really cheap. So uh, for better for worse? Did they before the financial crisis? Um, they were a little bit more involved, But you know, I think I think for years now the bigger holders have been banks, the FED into some degree money managers. But are we back to um, you know, people wrapping

mortgages in big collateralized debt instruments. We're not. No, almost everything is currently just an agency NBS and again held by uh combination of other investors taking up about a third of the market, banks holding about a third of the market, and the FED holding about a third of the market. Just an agency NBS pools. I just asked because I went to a dinner. I went to a

passover sater on Saturday. Good and uh it was great fun. Um. But one of the things people were talking about was the relentless rise in housing prices and the fact that you know, everyone that we we were talking to at the table had just sort of stretched as far as possible financially to buy a house, and if prices come down, it's bad. But I guess what I hear from people in in the industry is that nobody's leveraged up the

way they were in two thousand seven. Right. The big difference UM right now is that both household leverage and mortgage finance leverage are much much lower than they were in two thousand eight. So not only that, but I think very few people are actually calling for a housing downturn. They weren't in two thousand and eight either, to be fair, but they because of the fact that the amount of supply currently is so much lower and there's a real

inventory crunch, so they think that's going to keep. They think housing prices will stop going up as as dramatically as they've been going up. You can't sustain year, especially at five plus mortgage rates. But they do think that, um, you know, the housing market probably will just slow. Housing starts are picking up to try to alleviate some of that supply. UM. Home prices never go down. Never. Yeah, we had good housing start numbers out this morning. Erica Aidelberger,

thank you so much for the bad confidence. But bad confidence. Remember yesterday, John Tucker was telling us homebuilder was confidence in a seven month low's still it's still pretty good. I'm geting more stuff coming ry. Eric Adibor, thank you so much for joining us. She's an NBA strategist Bloomberg Intelligence, joining us here on our Bloomberg Interactive Broker studio. Alright, let's talk markets here and we do that with Mark Smith.

He's a senior vice president for investments at Wells Fargo Advisors. Mark, We've got a FED that's talking about, you know, and in a big way, raising interest rates. Yet I've got I've got a market that's still feels pretty risk onto me. What are you telling your clients? Well, I'm telling my clients right now that you've got to be nimble. Well, we're in an environment right now where you have a St. Louis FED member James Bullard saying that we could possibly

see a seventy basis point rate hike. Um, you know that should cause pause for anybody. Look to anyone looking for some stability in the markets, because you know, traditionally, you know, we've seen small incremental moves twenty basis points. Um. You know, over you know, a year and a year and a half period. If you're talking about moving rates of seventy five basis points, of course, that's going to affect the market. That's going to affect everything from buying

a home. You know, I'm already seeing clients of mine who are going and putting offers in and the and they're getting bit out by all cash buyers. And so in that environment, you've got to slow it down. But at the same point, that's gonna that's going to definitely have an effect on the real estate and you're gonna see that prices will have to go down because my clients are buying homes based upon their cash in cash out every single month, and that's how many Americans buy home.

It's based upon what they could afford. If you're raising rates double what it was a year ago, that's going to have to affect the price of real estate. I was the only one freaked out by the Bulleard story. Everyone's taking it so calmly today, I know, look at the market. Uh all right, so, um, Mark, what do you think about this housing market? I mean, we were talking with an MBS specialist previously. You said nobody's worried about a return of two thousand seven, two thousand eight,

And it's true. I haven't heard a lot of people voice concerns about it, but we've had prices go so far up so fast. It's it's gotta be people are stretching to buy the houses that they are. Yeah. Yeah, the housing market right now is going to be a conundrum for anyone and for anyone to guess office is all going to play out. You know, you really do need a crystal ball. Um what what what? What's happening right now is you're seeing some of the lowest inventory

in the last forty years in housing. Um, you're seeing rates still historically at all time lows. I mean, people are talking about rates going up, but my mom bought a more had a house in her rate was nine and a half. So when you're you're talking about right now, if you've got an the asset to the bank, you're looking at still right now four percent rates still not horrible complaints and historical averages. And so you've got a lot of demanders, more cash in Americans pockets than ever

in American history. Ever, that's an underlying that's not a ten year, twenty years than ever, and that's because a lot of people were locked down for two years, stays up a ton of money, UM, didn't lose their jobs, stayed at home. You know, watch Netflix, And now they're coming out and they're saying, Okay, we want to buy a home because we were a flush. And so that is the environment. You're seeing low inventory, folks that have a ton of cash and so right now, that's keeping

the markets up. But I do think that if rates start to be effected and you're seeing a race right now five plus on a thirty year fixed mortgage, Okay, if that continues to go up into the sixes and sevens, you've got a completely different UH consumer was going out there and saying, wait, maybe I can't afford is three million dollar home UM when rates are double what they were a year ago. Good stuff, Hey, Mark, thanks so

much for joining us. Always appreciate getting your perspective. Mark Smith, he's a seen your vice president for investments at Wells Fargo Advisers. Before that, he spent fourteen years at UBS UH in a similar role, so lots of experience. They're giving us his thoughts on UH investments and financial markets. Right. Matt Miller and I are in the office every day because that's how it works in radio and TV here

at Bloomberg. But we are certainly the exception here and I think companies across the border globally are thinking about what the new work environment means. Are we coming back five days a week? Mark Dixon, founder and CEO of i w G formerly Regius. So those are the folks that rent out office space. Presumably these guys are great position to kind of meet the changing needs of business. Mark, thanks so much for joining us here. Um, give us a sense of what you're hearing from your clients, your

customers about the new work environment. Yeah, we'll look. Essentially, we are the market leader globally and providing for this new way of companies working, which is not much less space on a fixed basis I long term leases and companies that want to use space in a much more fluid way. They want to take it when they need it and take it more importantly where they need it.

So we're seeing a lot of companies changing. We're seeing a huge uptick in in particularly larger corporations that are moving to hybrid work and becoming our customers and using space across the country rather than having space sort of concentrated in individual cities. So I mean, as more people work from home, I would expect companies to need less space. On the other hand, just anecdotally when we talked to managers, it seems like for some reason they're getting there, They're

they're leasing more space. Why is it? What's what's a hybrid workspace look like? Well, a hybrid workspaces then we answer that question personally, I come to the sort of misinformation that's out there in a in a in a second, but hyprid workspaces space that's already set up, ready to work. It's officers that all built, all the services are there. They're already staffed with support staff. You can use them for an hour a day, a month, a week. And

they're all over the country. We're in in the United States, were in about eleven hundred over eleven hundred locations throughout the country. UM, and we're opening lots more because this huge demand for this work locally. Mantra. It's not necessarily people working from home. It's people that don't want to waste an hour two hours a day commuting. They want to work down the road. Some of them work from home.

A lot of them will want to work locally. So UM when you know there's a lot of common commentators talking about, yes, there's a lot of space being leased up, that's not true. UM research out by Jones Lane this week that talked about the Great Leak lease resignation, where you've got people giving up leases on an unprecedented basis and and this is long term leases they're giving up in order to either have people work from home or

have people work locally. They are finding it difficult to persuade people to spend time and money commuting when it's unnecessary in a digital world. But it could be homework, but for most it is local work that is what they're looking for. Mark, are you sensing UM regional differences for examples? Is the United States more of a hybrid model than say Europe or the UK? Well, i'd the US is much more. It's much more of a higher adoption model. And what we know, we've been in business

in those states for thirty years. The US is really at the forefront of adopting new practices. If something works, US companies adopt it, and this one is one that works. It saves companies money, it's what their workers want, and it's good for the environment. It takes those three boxes um and and and therefore companies are adopting it on mass um. In the United States, they're much quicker to move. In Europe you get more traditional. Some countries that are

much more traditional much less likely to move. And clearly countries like the UK you mentioned, leases are much longer in the UK. Therefore, companies, you know, in order to move to hybrid, they've got to be able to give up the space they already have. They need a lease end at least termination that they can do. Um and So the movie is slower in the UK, faster in Europe, very fast in the US. What about mark the technology.

I've noticed that since we started this whole journey about two and a half years ago, we have used very different technology or there's been at least one big change in terms of our providers at this company. Are are you do you see technology is changing rapidly? Do companies need to quickly adapt to keep up and spend to keep up with new technologies? The answer to that is absolutely they do and they are. I mean, this is

relatively cheap technology. It's mostly streaming technology. So look, you just look at the two most commonly used platforms Microsoft Teams and Zoom. They have hugely improved. They're offer the quality of service that's available today and the functionality available today is nothing like you would have found even six months ago. UM and that, and there's lots of other software platforms that allow better management of people that are

working in a decentralized way. So you know, your people could be all over the country, all over the world, you can manage their output's better with new technology basically new software. All of that's coming together to make this hybrid way of working something that's absolutely mainstream and prime for adoption. Yep, but it certainly appears to be the new trend here. Mark Dixon, founder and CEO of i W GPSC that's formerly Regius. You'll see those Regious offices

all over the US and the world. Travel stories that perfect Seguius Tunking would say into our next guest, Alicia Kapor, Senior industry manager for Similar Web, Alicia, we just heard from a report about business travel still not back. So I guess my understanding of the global travel business right now is that leisure travel is close to being back to pre pandemic levels. Maybe we'll get there this summer, but business is not. What's your takeaway, how do you

think this is going to develop? Yes, the great analysis, major travel is definitely picked up, and consumer demand is very very high, especially given that we have so much tense of demand. So many restrictions are lifting across the board UM just recently the mass mandate being listed on planes and public transportation. UM. With business travel, I think many experts in the industry expected that there would be a slower rebound, so the numbers that were mentioned earlier

don't surprise me. That being said, when you look at traffic to the top business travel sites, so ex some sites like concur and then just actual sites to facilitate bookings for corporations, we're seeing a steady increase, especially over the past few months. We're seeing that businesses are dipping their toes back in UM. Anecdotally, I've been to a few conferences. I know a bunch of my colleagues are preparing to go to conferences both within the US and

outside as well. So I think that there is a positive trajectory and when we get into three I do expect to see recovery UM, hopefully full fred pledged recovery for corporate travel, But at this point, I think we just still need a little bit of time, especially with the return to office. I think as that process comes into play, and as most businesses bring people back to offices, will see the return of corporate travel will probably seamlessly

follow that. But so you expect us to get back to pre pandemic levels because my understanding was, you know, a lot of business practices have changed for good. You don't really need to travel as much as we had been in the past. Yeah. I think that's been the huge debate across the industry. I do expect us to get back to pre pandemic levels. That being said, I don't expect the nature of business travel to be the

same right the pre pandemic. For example, I was traveling for almost every client meeting I had, right, I'd go to Data Florida, Data Vegas, etcetera, etcetera. Now Zoom has made that so much easier that in exchange, I think what we're seeing is that corporations are putting a lot more money into conferences, um to bringing maybe remote employees

to the office for a week span or a month span. Uh, team retreats are going to be huge, So I think that corporate travel itself will recover, but the nature of corporate travel will be very different post pandemic than it was pre pandemic. You know, at Licia, when we talked to the you know, big hotel operators, maybe even the hotel casino operators in Las Vegas, for example, one of the areas that is key for their corporate business is the conference business. I mean, you think about some big

hotel cousinos in Vegas. They have such huge conference space out there, and I guess the question is, will that conference business continue to be a driver for some of these big destination markets. Yeah, I believe it will. I think that conferences are going to be to have a huge resurgence this year into next year. I mean we're already seeing it across many different industries. I think people are really dying for that in person um kind of networking, right.

So I think the more that we're able to convinced consumers or convinced corporations that that is the safe bet and that they can kind of send their employees to a conference without worrying about other risks um, the better off the industry will be. And I do believe that a lot of those large conferences or large scale conferences that we saw pre pandemic will return, UM, but that timeline is just a little bit more uncertain with some of the headwinds facing the industry. I'm excited for flying

to get more enjoyable. It's I mean, it's never been an incredibly fantastic experience, certainly not if you're flying you know, economy class. But recently I feel like, uh, it's it seems like a lot of the airline personnel UM are in a police role, right, always reminding you to put your mask back on between SIPs and um, you know, getting very defensive about any kind of criticism like anger management. But in real life, is that going to change? You think?

Is our airline is gonna have to make flying an enjoyable experience for us again. You know, that's a good question. I think there's opinions on either side of the aisle with regards to this topic as well. UM. I think on one hand, especially as mass mandates are being listed, as consumers are flying again, UM, and as airlines are really kind of pushing for that business from the leisure sector, UM, there will be considerations that certain airlines will most definitely

take to make sure that their consumers are happy. On the flip side, I think that some airlines have kind of used this time to maybe condense their operations. UM. We are seeing some mergers across the industry, and I think that at the end of the day, UM, I don't necessarily know if I have that crystal ball that can tell you what flying will look like in the next five to ten years. I think that flying will

be a lot more sustainable. You we've already seen a lot of efforts from major airlines to really put a lot of kind of thought and work into their sustainability pages. UM. And then we're seeing, for example, on Google Flights there's the carbon emissions feature which shows you, Okay, this Ryanair flight for example, might have less or more carbon emissions, and this easy Jet flight UM if you're in Europe.

But at the end of the day, I think the the industry itself UM is really just focused on recovery at the moment, and some of those some of those perks that may come from for consumers UM or that may have happened during the pandemic may not be as common UM as we go forward. All right, Alicia, thank you so much. For sharing your thoughts. Alicia Kapoor, Senior industry manager for Similar Web joining us. 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 false Sweeney I'm on Twitter at pt Sweeney before the podcast. You can always catch us worldwide at Bloomberg Radio