Markets, REITs, And Flying Private

just make it today's trading? They thanks for having me. Yeah, I mean, I think volatility is going to be the theme for the first quarter. This seems a little bit like deja bou of the first quarter of last year, where we saw interest rates start to pick up and

you know, obviously meaningly meaningfully kicking up this year. At the same time that's kind of pushing technology to roll over, and right now we're dealing with the fact that that the consumer is starting to weekend as well, just an and their behavior and the mentality on what they're doing, what they're spending money on. So altility is going to be here for the foreseeable future. So what kind of rate increases they're expecting, what kind of curve flattening you're expecting,

and what what does that due to risk assets? Yeah, so I mean the curse flatten considerably h eighty basis points just over the last three months or so. So the bond market is absolutely telling you that that there's something going on here um and and to just blame it on COVID and COVID variants I think is incorrect way to look at. And if you looked at retail sales after the delta Barrea came out, actually jumped, but if you look at the reading here in December, saw

the retail still has actually rolled over. And then you look at savings rates are now back to pre COVID levels, and then just most recently consumer sentiment was back at its lows. So all of those factors are going to lead to a slowing economy, which you're seeing in the flattening of the OL curve. And we think that's going to continue to get worse because the Feds likely not going to take their foot off of the accelerator of of tightening their policy. They seem pretty ole bent on

on tightening and raising rates. So likely we see them invert the curve, and so just you know, from that standpoint, it's just a matter of time when we see some sort of recession at the market. All right, So given that backdrop, Adam, kind of where are you thinking about, you know, allocating capital? Uh? Yeah, So, I mean, if you think rates are gonna go up, you would think fixed incomes not the place to be. But we particularly

like the long end of the curve. Credit spreads have widened a little bit of the last couple of weeks. So looking at your high quality thirty year bonds, I think is a good place to be. You get some yield pick up and there is potential for spread tightening. But really the theme is moving up in quality, whether you're in fixed income like I just mentioned, or even

in stocks. And really when we talk about high quality stocks, it's it's a lot of the names that that we've been in and that have worked over the last couple of years. It's kind of question of, you know, do you leave with the way you came to the dance with and I think we do. Um And when you look at companies like Apple and Microsoft's obviously in the news today and Alphabet, they have business models that can be sustainable through uh economic swings like we saw through

through COVID. We've seen it time and time again that as as those companies sell off because investors think either rates are going up and valuations are gonna come back down, they sell, but then they come right back into them because at the end of the day, they're cash flow machines that that effectively have turned themselves into the most defensive stocks in the SMP five. So we think that's going to continue to work, all right, Adam, thanks so

much for joining us. Always appreciate getting your perspective. Adam Coon's portfolio manager for Winthrop Capital Management. I note here he is a graduate of Indiana University. A Hoosier. Rough start to the trading week here, inflation, rising interest rates, concerns about the FEDS aggressiveness, all factoring into some unsteady trading show. We say, let's bring in a professional does this stuff for living? Liz Young, head of investment strategy for so Far. So, Liz, when you see a day

like today, I'm assuming it gets your attention. Anything more than that, well, of course it gets our attention, it gets everybody's attention, I'm sure, But when you see a day like today and even a month like we're having in January, I think it's to be expected given the

environment that we're entering. And this is an environment that is new to a lot of us, and it's something that I think still has a lot of uncertainty around it, around the paths of rate hikes, the speed of quantitative tightening, and the market is trying to understand what can still win in this space. And the tina I hate to use that acronym. I think it's very overused, but that tina mentality still very much at play because stocks offer

the best reward opportunity. It's still better than fomo, UM and yolo definitely better than you. That's true. That's true. UM. So I wonder when you're when you're looking at UM, a way to hedge against inflation? Is our stocks? The best way? Do you think? I mean depends obviously on what you buy, but UM, is there anything else that's better? I think stocks are the best bet right now because we're in a place where the set is trying to

control inflation. Right so, if you're looking at let's say six months out, the set is trying to control inflation on input costs and food and energy, so commodities are going to see a volatile period. Uh as the said tries to put a lid on a lot of that price pressure that's moving upward. So when you look at stocks, you have to choose your spots. But stocks can still

do pretty well in an inflationary environment. I think there's been this belief that the stock market has to fall if there's inflation, and that inflation is all bad, and that's not true. It's just that certain pockets of the stock market are not going to do as well as they did in a low inflationary environment. And that namely is tech or even just the NASDAC broadly given all

of its tech exposure. And you look at things like the broader SMP or the TAO, or even small caps, even though I know that the growthy part of small caps are really getting hurt this year already. Uh, there are pockets of the stock market that can do really well. And I would point out look at the spread between small cap growth and small cap value. Small cap value coming into today was actually positive year to date, small capt growth down almost eight percent. So it matters is

the style that you're in. It matters the sector allocations that you have in an inflationary environment. Liz, we've seen a big move up in oil prices and the in the energy space here again, oil w t A crewed up another one point three percent today, that just under eighty five dollars a barrel, continuing its climb. How do you think about energy stocks here? Is there more room to grow? Yeah? I do think there's more room to go in energy, not only in oil prices but in

energy stocks. Uh. And I don't think it's necessarily a long term play, but I think in the short term here a tactical opportunity and energy, especially as in the next few months we exit the winter months, and as you see, every time we have a new variant, we don't lock down nearly as hard right across the globe, so travel has really continued through oh Macron, and I think any new bouts of a new variant that we may have, travel will continue through that as well. And

that's just going to drive more demand for energy. And if we get to a point where we are finally real opening and out of this stop start cycle, there's going to be still quite a bit of demand for energy. And then just think about the second derivative aspects of it. How many people have bought cars over the last year, how many people are dying to drive those cars to further destinations and and dying to get on airplanes and go to further places. So I think there's room for

energy here. I would only caution investors that you don't want to see a ton of run up and energy to a point where it gets frosty or hits a spike, because when you get a spike in energy prices, very frequently a huge spike and energy is something that comes before a down draft in the economy. So we want to keep energy prices in control UM and I like to say things like I want them to take the stairs, not the elevator up by the way, another acronym that

I hate as USP. But what is the unique selling point or what makes so Far different UM from other investment businesses. Well, so Far is an all in one app so it's not just an investment business. We have ways that people can save, we have ways that people can spend. We have a credit card, and then we have the invest platform that really offers our members a great way to invest and get started if they're new investors.

It offers them a lot of different opportunities. You can buy I P O s on our platform, you can buy fractional shares on our platform, so there's a lot of great options. Crypto. You can buy a lot of crypto on our platform. But what what what's different about so far from say a robin Hood or a T dum merit trade or any of these other platforms that I guess younger investors are using to invest. Yeah, what's different about it is that we offer all of the

solutions in one place. So a lot of the ones that are out there offering just an investing platform and you still have to do your banking somewhere else, in your credit card somewhere else, and you're lending somewhere else, and you can do every single one of them on ours, alright. I mean, we hear so much about it, and yes, it's gotten so popular that I just wanted to that's interesting.

So you can do everything you don't need still a traditional bank account, you don't need to apply for a credit card elsewhere, and you can I guess use those uh services with each other, which probably it's got a market cap about ten billion dollars. Although the stock is off about prior twelve months after going public. I guess in October. All right, Liz, great to get a chance to talk to you. Let's talk about the office real estate space. Are people are gonna be coming back to

the office. Do we need the companies and corporations need the space the footprint they had before the pandemic. I'm looking around here and I'm thinking the answer is noble or do they need more? Uh? Yeah, made for We're all sitting at these cubicles like little rat race rodents. You know, he's got four square feet like I would like some room to stretch out. My dad, by the way, had an office. I had at the door on it and you would go in there and he was the

only person in there. You could close the door and have complete privacy. I had a table, a sofa like a little managing director at Credit Swiss First Boston. Those were the days, no Moss. Jeffrey Langbaum, Senior reat c R E equity analysts for Bloomberg Intelligence, joins us. Jeff. I keep seeing in the news companies in New York City and other urban areas continue the least space. Who's going to fill the space? I think the answer is

somewhere in between what both of you are saying. Um, but people may not be back five days a week like we were before. UM, but companies are setting themselves up for a situation where people will be back some amount of time and they need space for that UM. And for each individual person, they might actually need more space than they needed previously. UM. What that means for the overall size of the footprint still remains to be seen.

But the leases that we've that we're seeing getting done in many cases are actually for more space than what they had previously. So in terms of the return to work, we've had a couple of false starts here right especially on Wall Street, and everything seems to have gotten pushed back. You know, if you're a cool Stilicon Valley company, then forever. Um. If you're a conservative Wall Street bank, then like February fully boosted. Please, when are we going to see things

get back to normal? Well, we'll see about that forever. I'm still skeptical about that. I think that most people are going to need to be in an office UM a portion of the time, whatever that may be, And I think the reason is that the companies want them there the people making these leasing decisions want their employees

in person at least part of the time. UM and that's why leases are getting signed as far as when I mean, obviously, you know, every time there's going to be another spike of the virus is something that remains some amount of the normality going forward. You know, there's gonna be pauses and fits and starts. But I think at some point employers are going to want their employees back, and they're setting themselves up for when that's going to be um and and you know, we'll see how long

it takes for it to get uh, you know, fully immersed. Jeff, how do you think about just across the country. You know, we we had this migration of people from urban centers fleeing to whether it's Florida or Texas or wherever Idaho falls. I mean, is that a long lasting thing? Are you seeing that in the vacancies and the rents or or do you still see a future for the urban centers.

I still see the future for the urban center. I think that's where the the majority of the companies want to at least have their core, you know, central locations. You know, that's where the talent is that's where the young people want to be. I think for the most part, you're obviously seeing some corporate relocations. You're seeing some satellite offices opened, you know, throughout the South and you know,

the South Florida the new hotbed. But but you're not seeing too many companies relocate in full force down there. And I don't think that that happens. Um. I think that you continue to have demand for places like New York and San Francisco, even if on the margin there are people migrating away from those cities. It's a bummer, dude. I was hoping you were going to say, look, obviously we're gonna keep New York, Chicago, Los Angeles, but let's spread out a little bit, like we are in the office,

you know, Let's some of us go to Austin. Let's some of us go to like Taos. You know that. Uh, you know, I think I think some people are right, But it's not companies wholesale leaving for those locations. Yeah. No, that's what I thought. It would be cool. I mean, it would be cool if big companies, huge corporations would say we're leaving San Francisco, you know, and we're going to Myrtle Beach or whatever. Like. You know, we can

communicate with everybody in the world easily and electronically. We don't need to be down the street. So but that's just one of my pipe dreams. I want population centers just to spread out. I think we're too dense really. All right, well, Jeff's first, how about in New York City, what's just give us delay of the land in commercial real estate in New York City, Well, office leasing in the fourth quarter was the highest that has been since the fourth quarter of two thousand nineteen. Has been a

steady uptick. Now we're still below pre pandemic levels, right, the amount of LEAs is being signed is still below pre pandemic levels, and vacancy is elevated. Um rents are falling because the vacancy is elevated. But what is really happening, I think, is the a migration of tenants to higher quality buildings. There's going to be a bifurcation the newer and more recently renovated buildings with the highest amenities in

the best locations. Those are going to be the ones that attract pennants and keep occupancy high and rent high, and those that are on the opposite end of the spectrum, are really going to suffer and potentially you know, become obsolete as office buildings and need to find some other other use. And so I think that that will naturally, over time reduce the amount of space um uh, you know, overall available space, and get us back more towards a

period uh a position of equilibrium. All right, Jeff, thanks so much for joining us. Always appreciating your thoughts on the real estate space. Jeff Langbaum, He's a senior read analyst for Bloomberg Intelligence. He's been doing this for decades, but he used to do it from the office. Yeah, and I working from home today. And we'll see how long that lasts here at Bloomberg LP. I get a sense that we'll be coming back to the office at some point and not too distant future. We'll see how

that plays out. Every corporation seems to be uh kind of dealing with that as well. So many industries have been disrupted by this pandemic, by the economic disruption. One of them is just broadly defined transportation, but particularly aviation, and who wants to hop in an aircraft with two yr you know, potentially infected people that's been a real issue for the industry, and one of the results is private aircraft travel has actually picked up during the pandemic.

We want to get some more color on that. Tal Kanan, CEO of sky Harbor Group, joins us Talent, thanks so much for taking that time here. Just briefly, let's start off at just saying what is sky Harbor. What do you guys do within the aviation space? Well, thanks for having me conceptual Our business very simple. We we secure land at airports across the United States. These are mainly

airports and supports business aviation. We developed campuses of hangars for business aviation and then least them out long term to corporate or individual tenants and manage them. That's good business. And how did you I mean, you come from impressive education and you are a fighter pilot yourself. Um, what's your idea for this business that differentiates it from other businesses in the space. Yeah, so a couple of things. First,

I think it's it's a non controversial statement. There is massive unmet demand for hangar space in business aviation across the United States. And you know, just to kind of give you a sense, put some numbers on it. Uh, the square footage of the US business aviation fleet grew by twenty seven and a half million square feet between two thousand and two thousand and twenty. Now what's happened in the last two years is just a very very

dramatic acceleration of that trend. You know, what we have now is a situation where the vast majority you probably close, of those who can afford private air travel in the United States. I'm talking about both corporations and individuals UH close to have not availed themselves of private aviation. And what we're seeing right now, and I think your introduction was very appropriate, appropriate on that we're seeing right now is just a you know, the whole scale migration from

commercial aviation into private among those. By the way, why haven't day I mean, is it just not prudent to spend your money that way? Tal It seems like the jump from business class to your own jet is quite a bit. Yeah, I mean, for it is expensive. I think culturally a lot of things, a lot of people, a lot of corporations haven't like that look for a long time, but increasingly that is a responsible thing to do,

especially for a business. You know, that involves a lot of travel and sending people on kind of extended road trips today using commercial travel is disruptive. And you know, one of the things you'll see it's it's not just it's not just the risk of contracting COVID nineteen on a commercial flight, it's the airline's reaction to COVID, which has largely been to cancel and diminish a lot of routes.

So getting from secondary city to secondary city in the United States today is much more difficult than it was two years ago, and I think that's probably going to be the case for a while. Talent, how do you think business travel is going to return? And we've seen generally leisure travel come back depending upon where we are with with the various variants, but business travels something different. How do you think about it? Well, so a couple of things. First, in much of the country it already

has returned. And then some you know, if we look at kind of our facility in Miami, we look at the fuel volumes that fuel consumption by business aviation. We're hitting record years. If you see delivery of new aircraft was a record year. Delivery of new business aircraft two is going to beat it. About twelve, so the market is already speaking on this. You know, the the this, this business aviation fleet in the United States will continue to expand by literally millions of square feet per year,

I think for the foreseeable future. And I think one of the things that's worth looking at. Historically, the move from commercial to business aviation has tended to be secular. You know. On once a company decides it's going to start flying privately, it tends to go back to commercial aviation.

So we we think you can't go back. I will tell you I a good friend of mine as a CEO, was a CEO of Major Carmaker, and after he retired, his family made him take one trip on a commercial flight and he said, man, I never want to do that again. Awful, awful explorence um and it is bad. You know. They sit you right on top of each other. They don't care about the risk of COVID. They will they they will put you less than a safe social

distance apartment in the plane and on the bus. And tell I want to ask about Miami as a choice. I believe you're from Miami, but I know you studied at Georgetown and then in the Northeast You've advised government task forces in Israel where you served in the military, so you've been around. Why go back to your roots. Why choose Miami as a place to headquarter your company? Well, so it's it's it's only one of our facilities right now. Yeah,

we've been six facilities today. The company is actually headquartered in New York. I will say it is one of my favorites. And then you know, the just business growth of business aviation growth in South Florida has really been off the charts, even compared to what we're seeing around the country. Yeah, I wanted to ask you know what you thought of the city. We've been talking a lot about divertification away from New York, but I guess you, I guess what your experience proves is you still have

to be in New York. It's still an incredibly important hub. Yeah, you know, I think, certainly from a business aviation perspective, you could cut New York in half and it would still be you know, it still become a top five market in the country for US. And I don't think it's good to tell. You know, Matt's out there in the car market trying to buy a car and his supply chains at killing them. You can't find anything wait list. If I want to go out there and get an aircraft,

a private jet, can I get one? Am I going to pay through the nose? Can I get in discounts? What's the market like? Yeah, the short answer is you cannot. You're absolutely right. It's a very relevant question. Uh. If you look at the various websites you know where aircraft are traded, you know, they went from a year ago advertising aircraft and now kind of aircraft wanted to see a you know, like wanted um. So yes, There's been also a lot of move movement in the secondary market

for used business aircraft, which is pro us right. Europe as a net seller of used business jets to the United States the net fire of business jets right now, and prices have gone up considerably in the secondary market as well. By the way that those supply chain issues are also you know, I think the aircraft oms feel

that as well. But because the numbers are much smaller, you know, seven aircraft delivered in is a record years, nothing like the automotive industry, I think the impact of the supply chain issues is a little bit lighter, all right, So it sounds like I should hold onto my United miles. Then uh, Greg Jarrett proposes trade of plane. It's a website that I peruse quite often. But you're not finding a G six fifty there. This is more like um per cup exactly, more like a place for a piper cup.

Towns great to have, sorry, even though you'll see the christ that. Yeah, you know the prices are soaring. Um to you to use a bad punch, twel, I'd love to have you back on the program. I think really interesting stuff and um, it's a business. I think we all would like to see grow a little bit. I think we all want a little piece of that little piece of private I would to play and travel. Talking there with Talcane. He's the CEO of Sky Harbor Group.

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 V three. Put on false Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio