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Let's go back to the housing market. Here. Drew Redding joins us. This is his job.
We hired him to be like the housing analysts. We had an housing analyst like the very early first days of Bloomberg.
He's not very good, so we had to upgrade. So we got Drew reading.
You brought Drew in and he's been a great homebuilders analyst.
Drew, thanks so much for joining us here.
Give us kind of a snapshot of what you're seeing out there in the US housing market.
Sure, so the US housing market continues to be a tail two markets. We had some data on the existing home sales front this morning. We saw which were roughly in line with expectations at about four point one nine million on an analyzed basis. Keep in mind, we're still down about thirty five percent from you know, the peak back in twenty twenty one, So this is a market that is still extremely depressed. The other thing you have to remember with the numbers we saw today is that
they represent closings. So these are contracts that were signed, you know, thirty sixty days ago when rates were more in the six and a half to seven percent range. So we think that going forward, you're going to continue to see a little bit of weakness on the existing home side of things.
On existing homes, are we seeing it a buyer's market or a seller's market? It basically, are the sellers willing to finally come down in price.
Well, you know, surprisingly we haven't seen all that many price corrections. We're still seeing medium prices rise. You're actually seeing prices in the new home market come down a little bit because builders are adjusting square footage and they're also you know, trying to meet the market in order to move their image, but not so much on the existing home front. And you know, at the same time, you know, one of the key stories on the existing side has been that there's just not a lot of
inventory out there in the market. We are starting to see that flip a little bit more recently, so that'll be something to watch if we start to get a lot of inventory coming to the market, you could see more price adjustments from sellers, but.
I guess the reality is drew.
I mean, everybody thinks they're an expert on the homebuilding business, so it must be frustrating for you because you actually are an expert. But I mean the reality is house comes on the market, boom, it's it sells in like fifteen minutes. I mean, because there's nothing out there and it doesn't really matter where the mortgage market is.
It seems like.
But you know, is that in fact the case where you're seeing across the country or is it regional?
Yeah, it's a good question. I mean, the market is regional. We had, you know, when we started to come out of that initial interest rate spike in the back half of twenty two, we saw that markets in the East, which didn't rise as much during the boom time, we're a little bit more stable, and markets on the west coast California, Washington, the Southwest were comparatively harder hit. What we've seen now is that the increase in themand has started to be more broad based as buyers have kind
of started to get more accustomed to higher rates. I think, you know, to some extent, if you need to move. There's not a whole lot you could do. You start to, you know, fine tune, you know, maybe what you can afford. But at the same time, if you have to move, you're gonna find a way to make it work. Now, it's interesting that you said, you know, despite high rates,
homes are flying off the shelves. We had earnings results this morning from d R Horton and they actually said that despite the higher rates, they're still seeing a pretty solid demand environment in early spring, which is encouraging.
What do you mean, I'm not a home building expert because I look at Zillow and Street Easy all the time in Brooklyn, exactly. Okay, that's just rude. That's just rude.
Paul.
Hey, Drew, I'm glad you brought up d R Horton because you've also mentioned concessions that we've been seeing with some of the new homes. What did R Horton say about that?
Yeah, so their commentary was pretty much in line with what it was last quarter, and that's that sales incentives are going to remain at elevated levels over the near term. And you have to keep in mind, you know, when they started this quarter back in January rates for six and a half. We're almost seven and a half now, so their goal and builders as a whole are generally trying to maintain a spread in mortgage rates versus you know,
what you see out there as a headline. So if we're looking at seven and a half, they're trying to offer their buyers something one hundred to one hundred and fifty basis points below what you would get in the resale market. So they do expect rates to remain elevate it. You know, that was one of the main things coming into the quarter is how would these elevated rates impact the use of incentives and ultimately their gross margins, you know,
and encouragingly, their gross margins. Looking out into the third quarter, we're only a touch below what consensus was looking for, you know. And I think the fact that the bar has been lowered, I mean, if you look at what the stocks have done over the last month, the bar was lowered coming into the print. So I think investors were comfortable with the commentary they heard today.
Drew.
I have a super dumb question, but if the housing market is still so tight and there is so much demand, why do they need to offer incentives.
Well, there's not a lot of inventory in the resale market, and they're trying to make their product more attractive. So part of the business of a home builder is that you need to turn your inventory over to make your business work. So they're seeing a lot of demand for spec homes. They want to move those speck hones because the longer they say in inventory, the more likely they are to come down in price or come down even
more significantly in margin. You know, just because there is demand out there, it doesn't mean that affordability is not bad. Affordability is still the you know, at some of the worst levels in history, and a lot of buyers are struggling out there, and they need these incentives to kind of get buyers through the door and make the math work for them.
Any markets showing signs of kind of peaking, and I'm trying to I'm thinking of the Miami's of the world, the Austin's of the world, of those markets peaked.
Yeah, those are two good names that you point out. Florida has been one of the strongest markets. But interestingly, what we're starting to see now is that inventory, particularly in some of those Southwestern and you know, Western markets like Tampa all down the coast, we're starting to see pretty significant increases in inventories now by and large. You know, across the US, inventories for the most part, are still
below where they were in twenty nineteen. But I think, you know, as a builder, that's really been your advantage. So every time inventories increased five ten percent, you're starting to lose a little bit of that advantage. So one of the main places we're seeing it is Florida. We're
also seeing it in Austin, as you mentioned. And you know what's interesting with the Florida market is it's an area where you've had a lot of single family housing converted to short term rentals, so you're starting to see maybe some of those come back to the market. But you're also seeing a market that's suffering from high insurance costs with you know, the storms and things like that. HOA fees are going up, so it's becoming more unaffordable market.
Yeah, I mean, I don't know, It just seems like some of those markets have to peak, if not now, and we're gonna go down in June. We're gonna go down to another hot market in Nashville, Tennessee. So Alex and I will do some on the ground reporting home builder analyst, Yes, exactly, how hard can it be? And you just predict her into interest rates are going. Drew Reading he is our top notch home building analyst at
Bloomberg Intelligence. Again, a significant upgrade from the first guy we had in there, So very good for Drew Reading there. Talking about the hazard market again, d R. Horton had some some good numbers out this morning.
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We did have some data coming out. We had housing data, but also we had the conference board US leading in. I'm not one hundred percent sure I know what that even is. It came it was down by about three tenths of one percent. That was worse than estimated. The prior month was revised up to two tenths of one percent, So it feels like that's a really big dip. Luckily, we have Dana Peterson. She joins us now from the conference board. This is her data. She can talk us
through it. Dano, what is this? How do I read this information?
Sure?
Absolutely so.
The US Leading Economic Indicator is a measure that's been out for a long time, and lots of people look at it and see it as a gauge for where the economy's going, whether there's a recession that's going to happen over the next six to twelve months or not. And basically, this measure did dip in the month, and when we looked at what was actually good, it was very little, just Leading Credit Index and also the stock index.
Everything else was either negative or flat. And indeed, when we look at this gauge over the long run, it has signaled recession. But the thing is that it's signaling weakness in some parts of the US economy, but it doesn't capture all parts.
All right, So talks about what we're seeing here again, The Leading Index came in at negative zero point three percent today. Consensus was a negative zero point one, so weaker than expected. What's driving it?
Sure well?
Things that were down in the month were job as claims. This is for March, not for April. So job as claims were down, consumers expectations for business conditions was down. Also, the yield curve was more negative, so you had a lot of things that just weren't really working well, and also permits weren't doing well. And certainly we know that the housing sector remains weak, as mortgage rates have actually ticked back up and are quite high relative to what
people experienced during the pandemic. And of course that's because the Fed has raised interest rates and is keeping them pretty elevated for some time.
Danny, before we let you go, can you overlay a five percent two year and a talk of a five percent ten year onto this kind of data.
Well, the thing is that we know that the two year yield is probably you know, it's reflecting what's going on more so in the FED funds rate. Meanwhile, you still have an outsized balance sheet and uncertainty kind of weighing on the ten year and so that's why the yeal curve is still negative. And for some folks that
signals recession, but it's not the only measure. And certainly we don't think a recession is going to happen in the US, but certainly we could see some moderation and growth as consumers kind of pull back after spending tons of money and pulling up a lot of debt. But we don't think that the labor market's going to crash.
It's probably still going to do well, and the Fed is still going to be looking at inflation gauges to see can they get back to two percent and can the Fed start cutting interest rates this year?
All right, Dana Peterson, thank you so much for joining us. Data Peterson chief economists at the conference board, breaking down some of the data coming out of the board. The leading Economic Innator indicator came in a little bit weaker than expected.
Today, you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Playing and broud Otto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Alex Steele, Paul Sweeney, we're live here in our Bloomberg Interactive Brokers studio.
We're also streaming.
Live on YouTube, so you can head over to YouTube dot com search Bloomberg Podcast and that's where you'll find us.
Let's talk a little airlines to air.
Alaska Airlines had some good earning stock US up four percent today. You know, for the longest time, until just recently, when I looked at an Alaska Airlines plane in the tail the tail fin have the image of an individual.
You know who I thought that was, until just recently, Jerry Garcia.
Who is it? Well?
I was sitting Okay, so Alaska Airlines on the tailfin, go google it. There's an image of an Eskimo. Up until just recently, I thought that was Jerry Garcia. And I was sitting in a Seattle airport talking to a pilot from Alaska Airlines. I said, boy, you guys are so cool. You have image of Gerry Garcia on every plane. He says, no, numb nuts, it's not Jerry Garcia. It's an Eskimo or a Lesque Airlines.
How stupid can you be? So that's something My bubble was bopped. Pop. George Ferguson, he covers all the airlines and airspace companies. So I guess, George, we.
Look at Alaska Airlines, the Jerry Garcia airline, what's happening?
And they have some good numbers?
Yeah, so pretty nice, you know, very nice numbers. Actually pretty surprised. It's all about strength and revenue right now. The surprises we're seeing, like United in Alaska, if your revenue line, you know, has coming better than expected, yields are doing better at these airlines, and again we expected going in, then you're getting a nice beat on earnings.
And Alaska cited return of corporate travel, continued, strong leisure trends, and you know, we were kind of looking for a slightly down yield number, and you know, they had a definitely with the adjustment for the panel blowout from Boeing, they would have had five percent unit revenue increase, so very strong, very impressive.
So I'm confused. I thought that the business airlines were like United, An American, and Delta, not Alaska air.
So Alaska does have premium you know, premium seats in the front of the airplane, so they are business airline. I don't see them as sort of a big corporate airline because they're they're pretty regional right there, very West coast focus, very Alaska focused, as it seems like Paul's become more aware of recently. Then they do a bit
of transcon right into the East coast. You've got to be able to provide your customer service into the other important population center of the US, but they lack a lot of i would say, the middle of the country routes, and they don't have any international. They partner up or they have a little bit of international. They go into Mexico and some of those leisure markets, but they partner
up with the other airlines to provide that international. And it's hard to be a big business airline if you can't get your customers all the way around the world, So that kind of keeps them to smaller businesses.
Hey, George, John Tucker was just telling me that gasoline prices to fill up his hummer. They're up almost seventy percent off of those lows three cfty at the wall wall exactly.
How about jet fuel prices? Is that an issue for the airlines here?
It is, It's going to be an issue in two Q So in one queue it was a tailwind compared to the one queue last year. But if it stays on this trajectory or just stays up these levels, it's going to be a bit of a headwind. Question will be you know, if demand is so strong, i'd expect the airlines to be able to push it through in pricing to the customers, and we're going to see that. I think the other big question here too is, you know,
we're kind of into earning season. We've seen Delta, we've seen United, we've seen Alaska, We've seen airlines with again premium product in the front of the airplane. We still have to see the low cost carriers come through, because I'm not convinced that this strength is in the back of the airplane.
But we're going to see right.
As we start to see the real sort of low cost leisure carriers report, then we're going to know how broad based this strength is.
I mean, having to be buyerpurcated would make sense because that's what we're seeing in the broader economy.
Right.
One part of the economy is doing well and the other this is not. Delinquency's are rising for credit cards. You're seeing more money being spent on credit cards, et cetera. We heard that from banks in terms of charge offs, So that were the case. Where are we in terms of valuation for say the front of the plane back of the plane carriers.
Well, I mean, first of all, airlines are always sort of valued lowly, right, They're not there if you go for a pe multiple, you're in the mid single digits. So, I mean airlines are kind of perennially a pretty cheap, pretty cheap stock. But I mean what we saw with United the other day, that big jump. Part of that is them starting to close that gap with Delta, which is an upper single digits, you know, kee valued airline.
So but again they're always kind of they're always kind of cheap because when things go bump in the night, airlines have a hard time with demand. Right, if we had a geopolitical problem, like the war really raged up in the Middle East, you probably start to see less demand going internationally all of a sudden. You can't feel airplanes a lot of operating leverage in this business, and so when that demand falls off hard.
It really hurts.
All right, George.
On the YouTube feed, I can see that you are in yet again another hotel room, which reminds me you're at another boondoggle that we are financing here. You're at the corporate I guess aircraft kind of thing out there in Arizona. If I want to go out there and get the latest golf stream, I don't know, six.
What's that going to set me back? Is a competition out there. How is that market?
So the latest is going to be the seven hundred and the eight hundred pace and you're going to be up in the seventy millions.
Range to own one of those. They're very long range.
You sorry, seventy five million US.
Yes.
And what we're hearing out here from these folks is, look, private aviation was very, very strong in the pandemic. Right as the very well healed. Some of them were flying in the front of the airplane for Delta and United. They moved to private aviation. And what we're starting to see is some of those you know, those people that were flying private, unfortunately, they're moving back to the airlines. And that's part of the trend. Those poor folks have to get back on a tube for the rest of
us other people in the world. So that's part of the trend too. That's helping the airlines, especially in the premium seats. They're seeing a little bit of an ebbing of demand of some of that really that those high end travelers. But this business is still pretty strong. Backlogs are two years for most of the manufacturers, better than they've been in a long time. Pricing was pretty good
in the pandemic. It's softening a little bit. So maybe you're getting that golf stream now for I don't know, seventy two.
Hey no, So I mean he's gotten excited.
Bloomberg televisions are putting up there on our YouTube feed, isn't that, Jerry Garcia? If you look at Alaska Airlines, I mean.
It's got to be we don't call them.
Yeah, all right, Paul still focused on that.
I just feel bad, Jerry Garcia.
I just feel bad that those people who fly private now have to come back. I mean, that's that's a tough stuff. That's a tough rating on that. George. I couldn't help, but notice that your backdrop is the same as yesterday, which means you've clearly been working really hard in and out of that hotel room. What else are people talking about right now?
Well, I mean there's always talk in the marketplace about Boeing. Right we've had this whistle blower go through DC. I'm not sure you know what we're learning there yet, but we're still kind of waiting on the Boeing report on how they're going to stabilize their manufacturing. So that's one of the things we're talking about. Everybody in the industry is talking about supply chain. These folks are talking about supply chain here too as well. Supply chain is still
in a deficit for workers. That means that, you know, in the aerospace business, there's aspirations for a number of building increases every year. Those aspirations are always harder to achieve given these supply chain labor problems, and there's inflation. Right, So again the very real, well healed. They're finding out that pilots cost more because the airlines paid them more. So now for their private jet they got to pay
pilots more. So, pity them as well. There the front of their airplanes costing them some fuel prices, arising, interest rates are higher. A lot of these people don't finance airplanes, but some of them do. That effects end a little bit. Same sort of problems are seeing throughout commercial aerospace, right, George.
If you know all this stuff, if you were to go out money in the object and you were going to buy a private jet for yourself, what would you get?
Wow?
Wow, you know, I think I would be one of those golf streams seven hundred, eight hundred folks, right, because that aircraft the ticky across the Pacific without a stop, and so the world is kind of truly your oyster at that point.
So are you asking for a friend or asking for a friend.
Yeah, I don't know. I mean, you know, you know, it's interesting. I mean there's a lot out there.
I'll stick with the Falcon jet. You like the Falcon If you go up to Teeterborough in New Jersey, the work at airport there, that's that's where many many Falcon jets aren't. Well, we go, It's Taylor Swift jet too.
Is that what Swift?
Now?
You got?
Now you got your Atten Swift is flying that. But you can got the Marshtown as well. I hear some private jets out there as well.
So I flew on one once like twenty years ago. It was cool.
We'll let George go.
George Ferguson covers all the airlines and aerospace for Bloomberg Intelligence. Back in the day on Wall Street, it was so crazy that these aircraft companies were giving us aircraft to try out and just take on road shows and giving it to us for a week.
And we're like, sure, thank you.
Just don't want to be Paul Like sometimes past.
I say the nineties, particularly the early with us.
I mean you would get a plane. Hey, Paul, do you need a plane for a week. I call up on my companies and we'd go out and see clients for a week in europeor and the West Coast.
Okay, crazy time me up. That's why I was asking George. I mean, if you're gonna go out and buy one, what would it be. Yeah, I guess it would be a coult.
Oh George, all right, you go buy that plane. You can borrow, let us borrow it.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Play and Android Auto with the Bloomberg Business. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa, playing Bloomberg eleven.
Thirty Alexi alongside Paul Sweeney. This is Bloomberg Intelligence Radio. We bring you all the top analysis from our top analysts that we have at Bloomberg Intelligence. They cover two thousand companies and one hundred and thirty industries around the world. We're back live in our interactive broker studio right here at Bloomberg Headquarters in Midtown Manhattan, and Lisa was just talking about Netflix and password crackdowns, sharing and all that.
They're also do the sports thing, right or maybe are they doing any gambling stuff or no, no, I don't know. Maybe video games. You'll do the video games. So there's opportunities here. So we wanted to get more with Mark Douglass, President and CEO of Mountain to get a perspective of what to look at. Mark, what are you looking at when Netflix reports today?
Well, I think everyone's expecting it to be great news because Netflix gave great guidance, So the near term looks like it's going to be spectacular. I think they'll probably, you know, really beat on earnings. That the thing about Netflix right now, virtually all their growth is flowing directly at the bottom line. So this is a where it
used to be a company I never made money. Now it's a company that's just spitting off profits, and I think that's going to actually start to take over as like the key thing investors look at rather than just looking at subscriber growth.
So Mark talked to us about some of these revenue drivers that I know the street's been talking about for the last couple of years. One of which is passwords sharing cracking down on that. The other one is the ad supported aspect of the vision. To what extent are those two issues contributing well?
I think the password sharing, clearly, it's easy. It is highly leverage. You just give a few engineers in a room and they just make it harder to use it to share passwords, and it creates huge amount of growth. And I think Netflix always knew they had that in their back pocket. The part about it where they're doing, you know, kind of discounted memberships in order and you get ads with them, that part is working well in
terms of selling the discounts. I think in terms of selling the ads, it's going a lot slower for them, but they do have a ton of upside there. So I think again that that is I think where you should be looking the future growth is how do they actually monetize those ads as opposed to just looking at subscriber numbers.
Here's my question, what is already priced in? Like you mentioned the whole they guided it to be good. So are we in like buy the rumor sell the news kind of thing at this point, which is unusual for what we would think is like a mag seven company, even though it's not technically in the mags, even.
Yeah, they I'm not sure it would sell the news, but I certainly wouldn't expect the password sharing to be you know, it's not an endless number of people that was sharing passwords. At some point that that's going to start to tail off. And so what kind of has to happen is the AD revenue has to come on strong at some point. Right now, it's it's pretty weak. I think people see numbers and they're over a billion, but you know, given the number of people watch Netflix,
it's not actually a huge number. So it's a lot of upside, but there's a lot of execution for them still to do. So if I you know, actually I was gonna say if I were holding stock, I do actually hold Netflix stock. I've done very well on it the last few years, and I would continue to hold the stock. I think it still has a way to go in terms of growth.
Hey, Mark, I'm just looking at the financials here and for county year twenty four, the street's got almost you know, almost forty billion of revenue, EBO margins twenty six percent, free cash flow six point three billion. That is a good good business model. How about the rest of the
streamers out there? How about the rest of them? I mean, how many streamers can have a similar type of performance in the streaming business Because you look at the stocks of the traditional media companies other than Disney, it's it's a disaster out there.
Yeah. So you know, there's two things that work here. One is you have to reach a break even point, which Netflix is clearly done, where you know, kind of the costs of the content and the number of users then you know kind of really line up. And then every incremental user is incremental profit and incremental cash flow. And so for Netflix, they're there. I mean we're talking over a quarter billion world wide, and by the way, I mean, why can't that be a half a billion worldwide?
So so you know, they're there, and for everyone else, they're just not quite there yet. I mean they struggle to keep the SUBSCRIBERSFLI I always said is like when you turn on your TV, it's the first place you go. It's like it's like the new cable guide. Let me go see what's on Netflix, rather than let me just
see you know, what's scrolling on the cable guides. And it's something to watch and they can't lose them, and people just won't let go of that, And so I think the other folks what's going to happen is going to be a lot of consolidation. If you don't know why you would go to c like I could. If you go Netflix, gonnay have everything. Go Disney because they have children's d to tame, and you go ESPN because of sports. Why do you go to CBS? Like nobody can name that? And if you can't name it, it's
not going to exist. It's going to be consolidated and just just essentially bought for as a library to fill Netflix essentially and maybe Disney.
Wait, do you really have a TV Guide subscription? Tucker?
No, I don't, but I will tell you that I was cleaning out the attic and I found my TVO and it's just like, I don't what to do with it.
I don't want to throw it out, but I think you're going to throw it out. Yeah, yeah, if.
Anybody wants a free TVO, Caul John Tucker.
Here's my very silly question, Mark, is that who is actually a true competitor to Netflix. We can name a bunch of the streamers, right, but they have so many other business models too. Like, if I'm an advertiser and you're pitching me, why would I go anywhere but Netflix?
Well, I think the consolidation that you kind of start to see happening with you know, Paramount being on the block, I think what you have to do is you have to build a big library and they and have a lot of original content and the ability to match that exists, but you have to piece together the right assets, like you need HBO combines with buying you know, everything from CBS and ABC that they have in their old library, and like you kind of have to piece that together.
So the question is who has the ambition to do it at the moment, no one, But I don't think that will lasts forever. I think someone will step up to the plate. They're gonna have to do it with a lot of money.
Though.
All right, Mark, let's just step away and take a look at TV advertising in general. Is does any advertiser merit even go on broadcasting cable television anymore? Or is it just the healthcare advertisers telling me some selling me some drug for some ailment I didn't even know existed.
Well, you know, the linear TV it's broadcasts. I think a lot of advertisers. The industry has split. Let me say another way, the industry has split in the two sections. So in one you have reaching frequency. That's why people like the Final four, the NBA Finals, you know, the NFL and stuff like that, and you just want to reach a big audience at once. The Olympics and that still plays a role. And there are you know, twenty five percent of this market is not going to let
go a cable anytime soon at least. And so if you're an advertiser and that reaching frequency is your goal, that's still attractive. I think for everyone else, you know, they want to do digital advertising, targeted, measured things like that. That's what my company does, Mountain. You know, we have more customers advertising customers than Netflix. You know, we're at and so you know, that's what everyone else wants, and there's room for both of them. But clearly you can't
sustain a TV network just on linear anymore. And that's you know, that's why Prior Mountain is on the block and because they can't get the viewers on streaming that they need to.
All right, great stuff, really appreciate it, Mark, Thank you very much. Mark Douglass, President and CEO of Mountain just looking at the stock here doing some coick math. We can look to the October low and Netflix is up seventy eight percent.
Yeah, yeah, just amazing.
I mean the volatility in that stock and the volatility of the stock around earnings is always a good one. So you feel like a plus or minus eight nine percent on when that release earned. It's a big volatility, it's a little bit less so because it's become, as Mark was saying, a little bit less of a subscriber story, maybe a little bit more of a profit.
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Blackstone m M.
I just I kind of don't remember just how huge they are, and I go look at the market cap, I look at their assets on their management So but anyway, we spoke with a Blackstone COO, Jonathan gray Lader today. He's concerned about higher rates are headwind for Blackstone's key business units, limiting evaluations and making borrowing costs more costly. And Blackstone COO Jonathan Gray thinks that the FED may not be as quick to cut rates as investors hope.
Let's listen in. I think the FED has had some real success on inflation.
You know, we had inflation north of nine.
The pace of disinflation has slowed, but the path is still downward.
That was Jonathan Gray, Blackstone COEO. But all the hubbabaloo, the stock was down like five percent earlier. Pre market trading collected more fees from big retail funds and credit strategies during the first quarter and that really helped to compensate for that slower pace of deal exits. But like some of those numbers are huge. Distributable earnings increased one percent from a year earlier to one point two seven billion dollars. Yep, that's a ginormous kind of number.
Let's get all they paid executive as well.
I understand I've heard such things. Yes, Joining us never more is Paul Goldberg, Bloomberg Intelligence senior equity analyst. He covers all these big asset managers as well as golobal banks. Hey, Paul, what did you make of the numbers?
I thank you for having me the numbers. I would break them up in three buckets. One the fee growth, which was fairly decent, but not the double digit Bracknate growth that we've seen in years prior to the painful twenty twenty three in late twenty twenty two. The second one is key themes and those things are getting better. So you do get a private credit business that was working pretty well. You have a wealth management business that
you mentioned that's working pretty well. They've reached two hundred and forty billion dollarsand assets in the wealth management with their goal of to fifty, so they're pretty much at their goal. And lastly, the painful part is the deal activity in terms of deployments and particularly realizations that produce performance fees, and that sort of becomes still a pain point for Blackstone and that's a drag on their earnings.
What's Paul, what have they been saying about that?
Because again, you're right, we haven't seen a lot of M and A activity, we haven't seen a lot of IPO activity, the you know, types of exit events that would allow them to realize some returns on their investments. What are they saying about the next six to twelve months.
Well, I would actually look a little bit beyond that, because on the call they were really talking about twenty twenty four and before they were really hopeful for the second half of twenty four to get better. But then Jonathan Gray was actually on plumber Tivity a little bit after the call in the last hour or so, and he kind of mentioned the more activity, return of activity is probably going to be more of a late twenty
four and into twenty five matter. So I would, yeah, I would look a little bit beyond the next six months, maybe the next twelve, nine to twelve.
If they have a hard time exiting investments, how do they then raise more money for new funds? How does that work?
Well, I think it's the issue not just we're kind of very focused on the private equity when we talk about that, but the third of their business is private equity. The third of their business is real estate, and there are still there are some opportunities, and performance in real estate gotten a little bit better. So the fundraising came back to some extent, the b read b cred the retail funds. The outflows kind of stopped there so perpetual
vehicles are doing pretty well for them. And the last category, the credit category, that has just been a very strong grower and that's reached out about a third of their assets at.
This Paul, Yeah, you mentioned real estate, and of course historically Blackstone's been a big, big player in the real estate business. What is their call on office A? Do they have a lot of exposure there? And B how concerned are they about it?
That there was nothing discussed in terms of office really on the cold this morning. They have about one or two percent of total assets in commer in office space, maybe even less than that, so it's a fairly small amount. They are super focused on the multifamily. During the quarter they made it ten billion dollar deal for air communities that take private deal, so they're still very focused on that.
That've been for over the last ten fifteen years. They also tooked gave some specific numbers around the logistics and infrastructure, So there's about fifty billion dollars of investments in that already we're talking about that's five percent of the total assets just in that.
So I have brought up the how did they raise more money they can exit? Did you read the big take article, Paul uh Sweeney, it was about this. It was basically that private equity executives have had all the power in terms of fundraising, and then now the tables have turned a bit and the dealmakers are being told to put more of their own assets on the line as they struggle to ring cash from their increasingly wary backers.
And that did some of the junior guys have to like put up a home or like you know, put up a car their second home or something in order to get these loans with like very high rates in order to do that. Paul Goldberg, did you read that? What did you think of that?
I did read that. There are some of that, But on the that basis, there's still a lot of demand for all sorts of alternative investments, especially in the areas if you go into wealth where the growth is much faster and the opportunities bigger. Because the wealth is a portion of the private investments, the portion of alternatives is much smaller, So there's a lot of opportunity there, and I think there's not as much power from the investors in those areas.
There's a lot of.
Demand coming from insurance companies. Blackstone has about two hundred billion dollars of their assets are coming from insurance, they earn them a little bit of extra spread. So I think there are different areas of fundraising and different areas of assets and clients that come to them, rather than just what we've kind of got from that article.
Private credit, Paul, what's Blackstone say about this business?
It's obviously just a booming business.
Assets under management is skyrocketing. There's some calls for maybe some greater transparency, maybe in some regulation of the private credit business.
What's the Blackstone take on that part of the business.
It's been very strong. As I mentioned, it reached about third of their assets three hundred plus billion dollars. They do have a lot of different vehicles there that do a lot of direct lending, but they're also have the largest business develop company which is geared towards retail b cred so's that's a huge vehicle for them. There was a lot of growth first quarter. There are actually some questions because you had a syndicated loan market with blending
from the banks. Come back to some extent reclaim in some of the module that the private credit got last year. But it's a long term game. So over time, there's still a lot of opportunity for private credit. We ran some numbers, but think if you think of investment credit potential for replacement, especially for those insurance companies, it could
be a forty trillion dollars addressable market. When private credit is we're talking about one point six one point seven trillion right now, So there's a lot of opportunities still to take the incremental one two three percent of that market still before we.
Let you go.
So Blackstones at the tone, what do you think the other big asset managers are going to come out with.
It's a little bit difficult because the earnings for them kind of idiosyncratic to some extent because these private investments they're large and sometimes they move in different different directions. There's about two weeks until the next one report, so there's most of them reports over the end of April and early May. I think from what we've seen from Blackstone, the private credit is going to hold fairly well, which
is a positive for companies like Apalla and Aarris. Private equity realizations exits is still a little bit more difficult, so it might give some pain to the guys like Carlisle KKR. They actually pronounced their realizations a few weeks before the end of the quarter, so we know the numbers were pretty light, so that's not going to be a surprise. But on the other hand, rates has stained
higher for longer. They brought out the Global the rest of the business from Global Atlantic, so the insurance business is going to do well and provide them some earniences in that area.
All right, Paul, thanks so much for joining us.
Paul Gilberg, he's a senior equityanas of Bloomberg Intelligence, following all the alternative asset managers then in our Princeton, New Jersey office. So Blackstone is just so huge and the private credit business has just been an amazing business. No surprise that Blackstones got a big presence there.
You know, I was thinking about it. I was like, I don't know if I'm one hundred percent clear of what Blackstone is anymore. Yeah, Like, because it's so big.
I used to have a lot of luncheon remember Blackrock used to be a part of that. To give you a sense of how big it originally was.
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