Markets, Juneteenth, And Turks & Caicos (Podcast)

We'll to find out. Mak mood Arani joins us. He's a co founder of quant Insight UM and Mak mood I don't you know? The drivers have been, uh well, going in different directions. Right on Wednesday, the market rallied because the FED raised basis points, raised rates seventy five basis points. And then yesterday the markets tanked because the FED raised rates seventy five basis points. No idea, what's going on today? How do you? How do you play

these markets? Okay, well I wouldn't focus too much on a single day, um, but you know what we do is we asked the data and we gather large amounts of data about what's going on with economic fundamentals, real GDP growth, inflation, financial conditions, which includes you know, real interest rates and across the corporate borrowing and how much is priced for the FED for the next twelve months, and the strength of the dollar and so on, and we connect to all that to what markets are doing.

And what we've seen for several months now is that if we take the S and P five, the by far the most important driver is real interest rates and tightening of financial conditions is moving equities lower. And of course what's driving driving that tightening of financial conditions is inflation moving higher. And the FED of course move seventy five. I mean, you had almost seventy priced the day they moved, anyway,

so it wasn't a massive news event to be honest. Um. And in terms of going forward, what we can see is that everything is really driven by this momentum of inflation, real interest rates, and credit spreads corporate high yield corporate credit spreads. Now the question then is what's going to shift that momentum. And I think if you put a forward looking hat on and you have this framework, that's kind of giving you a good sense for what's going

on right now. Under the surface. The game that's ultimately going to be played here is markets need to get some sense that inflation has peaked. And what want yea so well exactly if inflation peaking, do you need to wait for their next read or is there other data

that gets you there? Um. So, if we're looking at headline inflation, clearly you know one of one of the facts here is that if you look at long term inflation expectations, and we know the FED looks at this, those are quite closely correlated over many years to crude oil prices. So there is undoubtedly a dynamic at play that you know, if crude oil prices dropped sharply, you're going to get um inflation expectations going south, and that's

going to be a comfort for the FED. Conversely, and we're starting to hear more and more about the physical energy market not working especially well, crude oil not getting to the places it needs to get to UM, and so there is this specter hanging over the market of a further increase in crude oil prices. And you can add to that the possibility of sort of China emerging from the latest kind of COVID lockdown. To add to global energy demand. And so if you do get inflation rising,

that's going to move inflation expectations higher. That's going to keep the FED on edge. And you know, if you if you look at the last twenty years of hiking cycles, what the market needs to go up is essentially to get some idea of where the terminal rate is. Right now, we don't know. We're pricing sort of three and a half, but we don't really know all the FED to tell

us that it's close to done. And again we're a long way from that, so markets hit on even has to be a long way from that, right, I mean, if we're looking at nine inflation um in order for the FED to get to neutral, doesn't it have to be much higher? Yes, you know, from a textbook perspective,

it does have to be much higher. And that's one of the reasons the market is stratching instead and why equities couldn't really get out of bed after that, because at the end of the day, there are nowhere close to done. By the way, is it also is there also a difference this time compared to you know, the last twelve thirteen years in that there's no FED put I mean most most people are used to the FED coming in and saving the day, and they can't do

that now. They can't do that because inflation is too high. You had a FED put in the past, because inflation was solo. In fact, that the underlying fear of all central banks in the decade after the financial crisis was deflation and disinflation. That was the problem. Uh. And so they were always willing to come in with the FED put because the inflation cost was very low. They weren't They didn't feel they were risking letting inflation out of

the box. This time, inflation is already out of the box. The stripe on that put is a very long way down. So I don't think there's a FED put anywhere nearby. UM. And you know, the key driving here is inflation. I don't think though, that central banks, whether it's the FED or the ECB, are going to be putting too much weight on the idea of a neutral rate right now. And they're certainly not going to use spots inflation. So spot inflation might be nine percent, but you know, five

year inflation expectations are more like four and a half. UM. So I don't think that, you know, the central banks know that their actions have lags and it takes time for those actions to feed through to the real economy. They don't like to overshoot their conservative institutions by their nature, and they're definitely not going to say, gee, inflation is nine percent. If I need real interest rates that there, I'm gonna I'm gonna have to put them at nine. No,

they're not going to do that. Thanks so much, Thanks so much for joining us. Mak Mudnarani, their co founder of quant Insight, talking to us about UM what the market drivers is all right. Greg Jarrett there with the

Bloomberg Business flash, Thanks very much for joining us. UM gas matters to some extent right now, because it's a long weekend most right, we've got Juneteenth coming up on Monday, UM, and it's a new holiday and important holiday, especially as we UH celebrate and value diversity, hopefully more UM than we have be before. Kim Crowder joins us right now, founder and see of Kim Crowder Consulting UM and Kim, let's talk first of all about what companies UM should

do to avoid making a mistake. I mean, obviously you're giving employees the day off, but you're also sometimes holding um events, or allowing employees to celebrate in the way that they want. We had a really cool poetry reading in the in the cafeteria area here a couple of days ago. What what are you hearing about? Yeah? I think the biggest thing that organizations can think about when figuring out how to celebrate Juneteenth is how are they

doing this beyond just the day? Right? Letting folks off is great, um all, so you know, providing information around what June tenth was that education pieces always great, but also what are they looking at around things like pay equity, What does that look like? Around leadership? Are they providing opportunities for leadership and mentorship for team members? What does visibility look like around celebration for visibility around certain projects,

but also visibility around wins for team members? So how are they looking at this three and sixty five days of the year instead of just sort of this one holiday, one time, you know, in all the twelve months. One thing that's really interesting is, you know, we look very closely here at the e O one data. That's the data that really disclosures how companies are doing on diversity and inclusion goals when it comes to their own ranks and it's choppy. It's really choppy. There's some companies that

have actually regressed. I'm wondering, you know, what's the push to for companies to really renew the promises they've made in terms of achieving equity. Yeah, I think the biggest

thing is looking at retention internal rates. What we find is when we're working with the organization that retention rates are, it can be low, particularly when we start to look at folks wore from historically ignore backgrounds, whether they be you know, oftentimes their black employees are cycling out really quickly,

and that costs organizations money. Right. Um. Also you don't get you know, there's a benefit to having someone on the team with a different perspective but also different experiences and different approaches to the work. And so workplaces are losing out on that when they're not keeping those team members in place, but also not engaging those team members or providing opportunities for them to move up. Because despite what organizations think, folks have options. Especially right now, you know,

we're still in the midst of the great resignation. Um. If you follow any HR facebook uh you know facebook page, you know that HR is still looking to keep people on or even to bring people on. And so it really is important that organizations realize that it is sort of you know, no longer sort of here's this job. You should be so grateful, But employees are really pushing back and saying, I wouldn't been a workplace where I'm valued. I want to be seen, but not only that, I

want to be paid. Well, I'm gonna have the opportunity to move forward. And so that's that's the approach that organizations should be taken at this point. So that's what organizations should do in terms of hiring their employees, looking UH to diversify their workforce and treat those people right,

treat them equally UM. But there's more right, especially for bigger companies that have UM vendors that have third party relationships, they can look to work with black owned businesses, for example, or they can look to give contracts to UM minority run businesses. Right, that's absolutely right. And also what I would love for organizations as they're doing that is to not just go with the same few that always get the opportunity to actively look for partners who they have

not necessarily engaged with. Also actively look to make sure that they're paying them equitably. Are they paying them the same way that they would pay a non black owned business. UM, Are they making sure that in their expectations that they're fair. One of the things that we see, particularly with job descriptions, and so I'm gonna make a parallel here with job descriptions, uh that black women typically are more harshly UM give

received harsher criticism and job performance reviews. And if that's the case, is that translating into the way that they are working with vendors where that that sort of um natural look is more Uh, it comes with more criticizing, UM, it comes with more expectations that wouldn't be necessarily UM looked for and non black owned businesses. And so this really is a holistic viewpoint in the way that organizations

can really move this forward. But the goal is Black liberation, and so in that theations should be looking to say, how can we continuously create and create opportunities and to move forward black liberation, including the type of organizations that we partner with. Where we put our money is what communities are we celebrating on a regular basis. If we have lobbyists, what are we asking them to look for and watching and so all of those ways the organizations

can really make this tactful. But I feel like we may have lost him there. Did the line drop? I think the line may have dropped, you know, Nally. I think the interesting thing is, of course, for June tenth, we're celebrating, um, the freedom of of black people in America, that the end of slavery, UM, and of course black liberation and equality should be goals. But when you practice uh, you know, these kind of diversity and inclusion UM ethics,

you also raise your own organization financially. You also increase your revenue growth. You also can increase profitability. Do we have him back? Can you know? For for selfish business leaders out there, UM, this is about more than just doing the right thing right you You become a better business.

You make more money for yourself and for your shareholders, your stakeholders if you if you practice these diversity and inclusion techniques correctly, you do One thing that I really try hard not to do is to focus on that

revenue piece. And I'm going to tell you why. When we think about why June tenth was in place, it was because of black labor being used in ways that were um inequitable, being used in ways that were unfair and basically with prossibility right, it was based on capitalism, and so I tried to move away from seeing it's from providing that viewpoint for organizations as to why this is the right thing to do, to say, hey, you can make more money if you just use black people

this certain way. I really like to focus on, you know, what are the things that go beyond that again and the innovation piece, what are ways that you should be looking at that the moral of your organization in totality, what are some ways where you might be missing out on having a great leader in place that could really turn the organization around, but because they're not given that opportunity, they can't do So, how do you keep employees in place?

Because now that does cost you money, right to make sure that employees are in place. And so that is where we really like to focus beyond this idea of you could make more money if you treated people people better. That could be a byproduct, but it's bigger than that, all right, Kim, great to have you and thanks so

much for joining us. Kim Crowder their founder and CEO of Kim Crowder Consulting certified d e I and six Sigma Leadership CEO Lyle Honba joins us right now a partner with Granted Group Advisers, to talk about what we should be um doing in terms of um our investments. Have we gone far enough? Lyle, do you think at this point that, especially if you have a long enough window, you should start buying? You know, great question, Thanks for

having me. Yeah, listen, I think you know everything's about valuation, valuation, valuations, So to your point, you know, just to give you a little history, U two thousand two, we traded in a recession at eleven times forward numbers, and then back in we were trading also at eleven times forward numbers. Right now we're trading at about fourteen times forward numbers, which is historically below the long term average of fifteen and well well below the seventeen and a half average

of the last ten years. So I think it's a really it is a time to start looking and start taking things around. We personally don't believe that we're going to be in a recession. The valuations in the market are accurately predicted a slowdown the market. Since we're trading at fourteen times numbers, So I think it's time to

start dipping the toe. And I wouldn't go full more, but I would definitely start looking at you know, like the financials and uh some of these other uh, you know, sectors that have been really just disserrated beyond where they should be. There's the valuations, some valuations in certain stocks. Talk more about that because you know, on one hand, if you got into the market now and the market

faces for the decline, you face a loss. But if you don't start dipping your foot in, you know are also works very closely with Bloomberg for Masters of Business is Barry Riddholt, and he makes the point that a lot of investors don't get back in at the right time and therefore lose a lot of money that way, they get back in a too high a price. So talk about that kind of issue that investors face here. And you know, to what extent do you face a

risk of not getting back in at this point? Yeah, I think if you have a long term view, and I wouldn't dip your you know, your foot and I would dip a toe in, right, So I think I would. I would absolutely if if investors don't go back in, it's a they will be very sorry a few years from now. Right, So those people who are just indiscriminated selling now, I think are going to be upset in in a couple of years. Now. Stock market is a long term gain. It's it's not not a short term price.

You know. We we actually are fiduciaries to UH uh to four owing case, and we've noticed people are cutting back on their contributions to offset so they have the cash flow to pay for higher gas prices. And to your point, they're going to miss out on UH. They won't get back in right away, and they're gonna miss out on, I think on some pretty good prices. Yeah.

John Author has had a piece today pointing out that UM, even if you'd gone back into the market just two weeks after the collapse of Lehman Brothers UM right now, you'd be looking at four hundred and forty games, right, because there was still a long way to go at that point. I think markets were only down twenty five or thirty percent, and we ended up down at the end of it all. But it's difficult to time the bottom.

I mean, even the best investors get burned trying to do that, so, um, what what kind of valuations do you think we should be seeing longer term? Lyle? What's normal that's a great and what's normals fifteen into sixteen? I also know we also think that, uh, you knows, the ten year bond yield will is pretty much maxed out here for the short term. It's already actually anticipated everything. And the reason why that's important for your listeners is

that it'll sort of helps dictate the valuation. Right, So if we think that this is sort of tapped out here for the short term, you know, a valuation of fifteen, sixteen or even sixteen and a half could be a good a good valuation point. But we're trading at fourteen,

So I think there's some real upside here. You know, if my friend dropping go little bit cred swist says that we're gonna have seven point five percent predicted earnings growth, well, if we have seven point five predicted earnings uh increase for companies and we're trading at a real slow down level, you know, I think it's it's it's a good time

all right, Lyle, thanks so much for joining us. Lyle Hamba, their partner at Grand Group Advisers, talking to us about UM, the point we are where we are in these markets now, UM, we are going to focus on uh, something that one of my producers put together, and I'm pretty impressed. Travel is finally bouncing back from the pandemic. Tourist destinations took a big hit over the past two years, but exclusive,

upscale destinations are still doing fine. And when it comes to real estate, perhaps no destination has been as resilient as the Island of Turks and Caicos. Bloomberg's Eric Mallow tells us more in this report, there's a lot to like about the white sand beaches and clear waters of Turks and Caicos. The likes of Christie Brinkley, Keith Richards, and Bruce Willis have owned properties there, and now more

people are getting in on the action. We've had fairly consistent growth and in en obviously that reached an apex kicked in and we virtually doubled the kind of numbers that we had. In twenty nineteen, after years of steady growth, the island's real estate sales increased one hundred and fifty eight percent and condominium sales nearly tripled, massive jumps that portend another strong year in two, So what's driving the growth. Grace Bay Resorts CEO Mark Durleyot points to a few things.

All of our properties are residential resort hotels. We're able to sustain our tourism product year round and also brand these properties as stillbone hotels, and it makes the customer who's not a buyer of residential makes them comfortable on the tourism side. So there's two markets happening at the same time, ownership and those who are just coming as a tourist. Southby's Nina seegin Thaler was the listing agent when Bruce Willis sold his property on the island. She

tells me the environments comfortable for visitors. In many ways, it is an extension of the US. On the other hand, it is a British overseas territory. So it's just a wonderful combination. We used the US dollar, English is the spoken language, the only correctives. We drive on the left side of the road. And the tax component opens up more opportunity for investment. We have a one time tax

that table upon purchases. It's called a stamp duty. And then we have import duties and you know, their local business license fees and work permits, feeds and accommodations taxes, but on property on an ongoing basis, you do not have a property tax yet. Nina and Mark have high expectations for Turks and Caicos real estate market in two.

But how might luxury real estate properties hold up in an inflationary environment where interest rates are rising the housing market shifting here in the US, US new home sales recently plunged to its lowest points since the start of the pandemic, and interest rates and inflation are slowing the economy and squeezing a lot of buyers out of homes. I think there's becoming a bay economic divide with the high and the low, and the high just keeps getting

higher and the wealdy keeps getting wealthier. And I think that's what we're seeing that fall out in the luxury market. Correy sass Hour is an associate real estate agent in another top luxury market, Westchester County. She tells me buyers were moving quickly to start the year, but she noticed things started to slow a bit in April, one of the most popular times for showings in the area. I think people feel like they're getting hit from every direction,

from gas to furniture to their kids classes. And at some point, if you're not making enough to subsidize the inflation, then that's going to prevent people from be able to afford the monthly that they need to pay. Even if buying word of slow In Turks and Caicos, property owners can supplement their income. Here's Mark Durley out in, the

CEO of Grace Bay Resorts. Once again, we have this perpetual tourism market that helps to prop up all of these single family homes because if there is a void in the residential investment market, which we had in two thousand and eight to twelve, the reason it didn't freefall is those owners were able to rely on the tourism market to continue to help support economically the cost of ownership. Nina segn Thaller of Southebyes says that's pretty common. Most

owners do not spend the entire years here. During the time that they're not here, it's really nice to be able to offset the operating costs with the rental of a property. Dream Hotel Group CEO J Stein tells Bloomberg he expects a surgeon travel this year, which should give

property owners a lot of opportunity to rental. Leisure is not only back, it's it's stronger than it ever was because what we call leisure people traveling from business and leisure that a lot of them are working remotely anyway. So we used to just go work for a weekend. Now you can go for Florida's and still work on a couple of those days. So the leisure is actually stronger than it ever was, more than just back. And there's even a question of buying wood slow in a

place like Turks and Caicos. Sass Hour points out that in her experience, many people looking to buy luxury property usually are able to There's more luxury buyers now than ever before. I think if you asked them in eighteen to nineteen and fifteen to sixteen, what was the trajectory, how many luxury sales were there, how many were the d's on the market, or however they kind of want to look at it, I think you'll see a very

similar situation. While there are pressures all over the U. S. House market, Turks and Kikos has shown it was able to weather the economic storm of COVID and with its limited supply, broad appeal and consistent growth. It's once again poised to weather economic pressures. In two for Bloomberg News in New York. I'm Eric Mollow. Eric Mallow, who produces this show and does a fantastic job of it every day. Somehow found the time to put together that package on

turks and Kikos. Have you been Shinali? Maybe that's what's next. That should be what's next for us for sure. 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. Pen On fal Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio