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Cliff Cupchin, he's chairman of the Eurasia Group. Cliff, thanks so much for joining us here again to speak with the Ros Mathieson and Bloomberg News.
The latest news.
President Trump appears to be taking a little bit of a pause here. How do you think this potentially could pay out play out? There's a number of scenarios. I know you've kind of kind of gamed out.
Most likely is there's talk for a week, ten days, the Europeans lead the way, Aaron refuses to give up domestic in Richmond, and the US takes out or tries to take out. I think probably can take out the flourido inrichment plant, which would you under a mountain? That would be escalatory, dramatically escalatory, you big spike in oil. There are other scenarios where I don't think you. I don't think Iron would try to close the straight straight
of hor moves. We can come back to that other scenarios where this does escalate and in even more in response to the US right on floidoh or on tries to tick out stop shipping through the straight of horm moves. And then there's a small chance, maybe one in five twenty percent, I think, is how game that out these talks actually work. But it's a really kind of a hail Mary, I think by all sides, because there's no no size one escalate. But I think it's a really a really small chance.
You know, Cliff, I've seen a lot of sort of guess work and estimates regarding how many missiles that Iran really has left in their stockpile. You know, they've used a lot, a lot have been destroyed by the Israels. Is it a possible scenario that in this two weeks they that stockpile just runs so low that they are unable to keep launching at Israel? And does you know, is that enough to sort of bring the temperature down on all of this?
I think the rate of missile salves from Iran is already dropping. They are like any country would, I think, and it keeps some in strategic reserve, and you know, No, I don't know anybody knows, at least the unclassified world exactly how many they have left. But I think they're all already running low. I mean, iron just doesn't have
good options right now. We'll see if they you know, hold to the hard line or which I think they will, or if it actually you know, they run out of resolve and they can see cliff.
Is regime change a policy or a strategy that Israel end or the US should proceed, or if follow in Iran set even on the table, do you think.
I don't think it's you know, verbally on the table. I think that Trump doesn't want it. It's you know, just stepping in too much. I think that Tamiyahu would like it if the Iranian people rose up and it diated what in his view is finishing finishing the job. From a historical perspective, almost every time the US has engaged in regime change, something unexpected happens and it doesn't work out like we thought it would. Iraq is the
best example. When we tried to we did take down sam Hussein, and we got we got a failed state. So I don't think it's very good policy. I think it's really risky policy. If you're Israel, you have a chance to take down the dell right now. History's on your side for the first time in decades. And I think for these Raelis this is a period of maximum baby of you know, the wins at our back and this is a generational chance to takedown are you know
arch enemy? So tricky policy. I think Israel would like it, may go for it. The US, No, no, it's not what's on the table for drum.
You know, Cliff, you mentioned the strait of who is like such an important part of global shipping and a potential bottleneck there, and you said you don't think I.
Ran will try to shut that down. Why what makes you think that.
It's a lose lose for them? They need to get their oil out tremendously depending on a little revenues one hundred percent chance the US comes into wear in a major way, they probably get the golf armies, French, UK involved. And you know, the writing leadership is smart and I've been there in a while, but I used to go a number of times. They're smart, they get it, and I think they know they couldn't keep the straight open for a long time.
They couldn't close it for a long time.
The thing I worry about is that when regimes get desperate, they do irrational things. And if the US takes down Florid, though and the nuclear assets Richmond are really blown up across the board, the regime could get desperate and we could see that would be interrational act. They could do that, and that's what I fear the most. That's the scenario that I fear most about, the straight and foremost.
Okay, Cliff, thank you so much for that. We appreciate your perspective. Clip Chen, he is chairman e RAS, your group joining us here to give us kind of gaming out some of the options on base case kind of a bad case and then maybe a stand down case everybody just kind of goes back.
So lots of options out there.
The next seems to be the role that President Trump decides that the US will play, if any, in any future action. So we will have continued reporting on that.
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When we talk about commercial real estate, I often make the mistake of just thinking about commercial real estate offices and stuff like that, when it's really it's a lot more than just office. It's industrial, it's retail and multifamily, all that kind of stuff, and each of those sub sectors have different fundamentals driving it. So we'd like to talk to some people who do this stuff.
For a living, who are experts.
Liz hard Joins is President Leasing North America at New March. She's in Cali at the moment, Liz, in the broader spectrum of commercial real estate, where do you guys see maybe the best value these days?
Well, I think what's really interesting right now. I mean the demand is really up, and that's the thing to talk about first, and then we can talk about where the value is created. So demand is up thirty percent year over year on a national basis. That's tenants touring the market and looking to expand. Of those tenants that are touring, two thirds of them are looking for the same or more space. And it's really shifted where in
the last quarter it went up by twenty percent. More tenants that are looking to expand, and I think when you see that kind of demand. Going back to your question about value, you want to look at those markets that have been a little bit more distressed but are now starting to see tenants that are touring again, looking for space and willing to commit to a longer term home lis.
I wonder what explains that uptick in demand?
Is it?
You know, My guess is it's that era of the work from home job is over.
Is that part of it?
That's certainly a part of it. But I think the other part to talk about is the resurgence of the tech sector. So during the you know, last five years, tech went from being a pretty major player in demand to being a little bit weaker. But now tech tenants are back to being twenty percent of the overall demand, just behind financial services as the top at twenty two percent.
So you're back to seeing tech back in the market, and you're seeing, particularly out of the San Francisco and New York markets, tech that's taking a lot more space year over year. You're seeing that growth from AI companies, So you know, no one talks about AI having less space, but it's interesting that the AI companies seem to be very committed to the office and being in person talk to us.
About San Francisco.
That was a market that arguably a poster child for you know, what can really go wrong in the post COVID world on so many different levels.
What's your view of that market right now.
I'm feeling very good about the San Francisco market right now. I mean it's always been a boombus market. That's something that real estate investors have known for years. But what's really positive again is we're seeing a couple things. First of all, the demand at pre pandemic levels. Keep in mind, right before the pandemic, there were two one million square foot requirements that were there. Do we have those again? No, we're not at a million square feed in big, big tenants.
We have some really good one hundred thousand square footers that are out there, and we have a lot of growth from companies that are under twenty thousand square feet and in the tech industry, you know that's just a couple more years until they grow again. So we're seeing a lot of resiliency. We're also seeing great commitment from companies that have been.
There for a long time.
JP Morgan just renewed their lease. Morgan Lewis just had a big move into the Trans America pyramid. So those are more traditional industries that are also committing to that market, showing the resiliency across more than just the tech sector.
How about that retail sector.
I mean, it's obviously been under pressure for years now with the shift to e commerce. Has that sort of bottomed out to some degree? Is retail firming up at all?
Well? I think what's interesting and might laugh at this, is you know, malls are back class A malls ninety five percent occupied that smaller format high Street performing exceptionally well, So we're excited about what we're seeing on that front as well. I mean, Americans love their brand. The whole world loves their brands right, and we like to go and experience it in person. And the other trend we're seeing is a shift more experiential retail. So when you
have that retail format, you are there to shop. You're also there sometimes to do your returns, but you're really there to interact with that brand and amplify your experience with it.
What interest rates are one of the reasons that we're not seeing a lot of activity in a residential real estate. How are higher rates impacting commercial real estate.
Look, rates are one of the things that impact the overall commercial real estate market. I think the thing that we're looking at a little bit more closely right now is the labor trends and the business formation trends, especially on the leasing side. But you know, I think people are adjusting to the reality that we're living in with
higher rates than we were used to traditionally. And at this point, you have to move your business forward, and to do that, you need to have your commercial real estate. You need to have a place for your people to go.
You know, Liz, the tariff policies and the sort of austerity policies under the Trump administration have had an effect, a trickle down effect on pretty much every aspect of the economy, or at least people are bracing for that. I'm wondering if there's any knock on effects for cre from everything going on.
Yeah, absolutely, I mean I think, look, the terarfs have been a catalyst for some and a constraint for others. Right it's going to be a little bit of a mixed bag. But I think, you know, probably the place you're feeling at the most is the industrial sector, and you will see some contraction in those West coast port cities, you know, just based on the tariffs and what's expected.
But what's interesting is you're seeing a couple shifts. As an example, Phoenix, Salt Lake City, places that have great intermodal infrastructure, they're doing exceptionally well right now. Another thing we're seeing that I'm kind of fascinated by is a lot of corporates committing to buy their industrial real estate. So I think that you know, we're seeing more than we've ever seen, and that's just a commitment to having, you know, more stable supply chains within the US.
Here in New York.
City, Liz, what's the call in this market right now? Mike and I are working in an A plus quality building here at Bloomberg, fully leased.
How about the rest of the market.
Well, you have one of the best buildings in the entire country. But the good thing about New York is New York demand is also back at pre pandemic levels. It's twenty seven million squre feet. It was twenty million right before the pandemic, So I think it's heading the right direction. Trophy has definitely been one of the more dominant stories in New York, and we think that it will continue to be a dominant story going forward post
twenty nineteen. Construction is definitely what a lot of the trophy tenants gravitate to, and we may even see a couple of new buildings pop up, you know, given that demand, right because that part of the market is exceptionally tight. Tech is also coming back in New York City. It's much bigger than it has been before. You know, there's a bigger tech concentration of tech talent in New York than anywhere outside of the Bay Area, so I'd expect to see some booming there too.
Liz, thank you so much. Appreciate it as always. Liz Harp, President for Leasing for Newmark. She's out there in California.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple, Cocklay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
We heard from the FED this week. I would say it kind of came in line with expectations, that.
Is that it's not looking to do a whole lot right now.
It's going to wait and see, maybe continue to take a look at the data, and that seems to be the play there. Ira Jersey, chief US interest rates strategist to Bloomberg Intelligence. He joins us from the cam down in Princeton, New Jersey. Ira, any takeaway SHM you from President FED Chairman J Powell and maybe his commentary or the reading of the note.
Yeah, I think a little bit.
You know that the Fed is still neutral right now, but they are I think prepared to cut if they need to. And certainly we learned a little bit more about the reaction function that we might get.
But you know, there's still this overhang of what will tariffs.
Do to inflation inflation expectations That was brought up again on Wednesday by by Fed chair Powell. So you know, until we wind up with probably two maybe three more kind of inflation prints to see how inflation is kind of adjusting itself because of these tariffs, we probably won't hear much from the FED now importantly, and this is something that he did talk a lot about, was about
their policy framework. So it's possible in August or September we'll wind up hearing from about changes to their communications policy.
Do they make changes to the DoD plot?
Do they make changes to the summary of economic projections, all of those things might come out, and he gave us a lot of information about that, a lot more than we had anyway previously about how those discussions are shaping up.
You know.
I then this morning we had FED Governor Chris Waller. He was on CNBC sounding very dovish, which I guess is not such a surprise for him. He is considered, you know, one of the sort of uber dubs at the FED. But he mentioned possibly cutting as soon as July. I wonder what you make of that? Is that really a far out there outlier of an opinion. Is he auditioning for President Trump's for the next FED?
What do you make of it?
So's that he's auditioning for to be the FED chair, you know, And he'd be an interesting choice because he is kind of a Yes, he's on the duvish side, but he's also a mainstream kind of FED thinker in general. Now, the fact that he's dubvish is because of his view
of the economy and the outlook. And you know, the thing that Governor Waller has brought up is, look, we need to do things in advance because of you know, the long legs that monetary policy takes to takes to affect things, it winds up being, you know, six months to eighteen months before an interest rate cut. One interest rate cut, much less several actually filter through the overall economy.
So I think his view is, hey, the economy is going.
To be much weaker this fall than I think most forecasters and his peers think, so therefore we should start cutting in July. Now he's in the minority with that very clearly, but there are these you know, the median suggests that we're going to have fifty basis points of cuts by year end, But there's also this whole other camp that thinks they shouldn't be cutting at all, right, and we can't discount them because that's a large minority of the committee.
So Chris Waller, yes, he's on the divers side.
But remember there's also these more you know, neutral to hawkish members that are suggesting, hey, we should really wait and see because the economy is not that bad and our outlook isn't terrible yet. So I do think that he's certainly the minority. July is off the table. There's no way that they're going to cut in July.
You know, one of the issues obviously facing the FED is inflation, and FED Chairman j Palace said that he believes higher prices are coming as a result of tariffs, but we just haven't seen it in the data yet. Ira, I mean, how do you think the Fed's thinking about tariffs thinking about possible inflation, because again, we just really haven't seen it yet.
Well, goods prices in some categories were a little bit higher in the if you look at the May CPI report. But keep in mind there's a couple of things. Part of this is timing, Like we always expect things to happen in a thirty minute sitcom type of situation on TV or now maybe a five minute YouTube video, right, So, but that's not the.
Way that the real world works.
We're still working through inventories that companies had prior to tariff's being implemented, so and then it takes a month or two for the new goods to come into the country and for those tariffs actually affect the prices of those imported goods. So we're only going to start really
seeing that in the June data. So that's why the next two I think inflation reports are going to be key to how much of the tariffs are being passed through to the consumer via you know, via higher prices, how much is being is being absorbed by both wholesalers and retailers in terms of or even manufacturers and in them lowering prices versus the higher tariffs. So all of these things are still question marks that we don't have
in any of the macro data. On the other side of that, Paul, you have to remember there were other things like service services and housing that actually saw slower price gains, and that's one of the reasons why you didn't see an aggregate uh CPI spike up at all because of the slightly higher goods prices.
All right, it's the summertime, which means I don't have to worry about soccer and all that stuff.
But now you got the Club World Cup. What is this?
The Club World Cup is a kind of a thing that FIFA made to try to make money and bringing bringing in basically regional champions of from all around the world. It's really not been a particularly good competition because you have you know, European teams are absolutely slaughtering teams from other places around the world.
Hey, hey, Miami did beat Porto.
That's yeah, that's true.
And actually PSG had what was upset as well, so there have been some good games, but I don't know.
I'm watching the Gold Cup.
The US men's national team beat Sordi Arabia last night, one nail, and you know, because that's that's a warm up to the actual World Cup, the real thing that's going to happen next summer.
Here.
I just can't there's so many tournaments in their clubs, THEES.
I just I can't keep tractors too much stuff. That's why we have Ira Jersey.
He does the interest rate thing on the side, but he's really our god to person on all things global soccer. Ira Jersey, Chief US interest rate Strategists for Bloomberg Intelligence.
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