This is the Bloomberg Surveillance Podcast.
I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. Join us each day for insight from the best and economics, geopolitics, finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and anywhere you get your podcasts, and always on Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. Drew Matis's chief market strategist at MetLife Investment Management. He has been wonderful about gaming the optimism of the American
economic experiment. Drew, let's start with that glass half full, glass half empty at MetLife.
Well, the good news is there's not gonna be a recession this year. The bad news is it's still coming, and you know it's we've had to move back our forecast from midyear to the start of next year. The reason we went that far actually is because we think can so comers are still in this ballgame. They're still in this you only live once mentality post COVID.
But we do think when you get to the.
Start of next year, you'll have a lot of more headwinds and some of the data now that's currently pointing towards a recession will probably be even worse. And we think the turn of the year is about the right time.
The raging economic debate, and maybe this will be alluded to in the academics of Jackson Hole is whither our start? Whither the rate post pandemic? We're gliding too, Matt life is riveted to the actuaro return expected within longer term portfolios. Have you adjusted that view, have you lowered your expectations for return or can you be more optimistic about a better return post pandemic?
So I'll say this when we think about you know, so let's get past the next recession whenever that is right.
We think it's next year. But let's just say in.
The future, when you come out of that recession, what are you going to have? We're very optimistic there, and that means higher potential growth rates. We think that there's the potential for participation rate rebound even beyond what we're seeing.
Higher productivity, although it's hard to get lower than we currently are, but we expect the rebound and productivity that's sustainable and will be sizable, and we expect therefore that potential growth will be higher, and with potential growth being higher, we expect neutral interest rates to also be higher.
At that point, do.
You build that out a little bit more. What's going to drive higher that productivity, potential growth, high neutral interest rates? Where does all that come from?
I think so, first of all, from kind of a worker perspective, I think you're going to have people engaging in the workforce for longer, over longer periods of their lives, and during healthier periods of their lives. I think the healthy period of people's lives are going to expand, and I think that that's a consequence of some of the gains made in biotech during the during the COVID problem.
So I think that that So that's first and foremost. Secondly, work from home will encourage older workers potentially stay in the workforce for a little bit longer, and I think firms are going to respond to that by making it easier for older workers to stay in the workforce for longer.
And so not only are we going to potentially have this rebound that we're seeing in kind of the so called prime working age group, but we're also going to see other groups actually engaging more aggressively in the workforce and that'll be good for the US economy as a whole productivity wise. You know, I'm doing this for my
office via zoom, right. I mean, in the past, this would have been very difficult for us to pull off, and it's just a much more convenient and productivity enhancing arrangement. And I think if you go through and look at whether it's the cost of putting objects in space which is deteriorate significantly or lowered significantly, when you look at
gains in biotech. You know, for twenty five years we were promised miracles in biotech and we finally saw some, and no one's paying attention, right because we were distracted by the fact that, you know, it was a crisis situation.
But you know, those things all add up and they'll all begin to interact with each other in ways that you know, I can't probably fathom completely how they'll all interact, but they'll be productivity enhancing and I think we're in for a big productivity ride once we get through this next countern.
How right sensitive do you think the economy will be that you describe?
You know, I think initially every every economy is very sensitive because you have to finance all this stuff. But I think you know, in some ways, you know, the die is cast in some of these industries. You're seeing the deteriorate or the lowering of price and cost of getting things into orbit. That's already happened, and so you know, I think for Noaly, it's just a matter of how do we exploit it best? And you know whether or not, you know, my forecast is going to hinge on on on kind.
Of you know, you know, am I right? Am I wrong?
Which I know sounds obvious, but I do think that you know, the history has shown you should be optimistic for developments in technology, not pessimistic.
So then what does that give your GDP statistic out one year? I'm not talking about quarter to quarter or that on a longer broader term. You're in a meeting in met life for people's idea of short term is ten years? What's your GDP run rate? Can you get above two percent real GDP?
If I had to put potential growth ten years from now, I'd probably put it closer to three than two and a half.
Wow, three real percent real GDP?
I think that that is a reasonable estimation.
Wow, that John, that is a Wow, statistic from dumatics. I can't convey how off norm that is. And that goes to the responsibilities of an insurance company. Yeah, where they're really focused every day on a long term view.
As tray, can we finish on and this just quickly. If we get a rate hiking cycle ending with a hike this week, let's just say that, maybe you get another one, but who knows when they start cutting. Have you got firm ideas on what they cut back to, because clearly there's a consensus out there that we don't go back to zero. What's your view on that currently?
I think that I think there'll be a three handle at the low point for the next.
Cycle, Okay, and you think the bond market is well priced for that. Given the way you see the yell curve evolving in the last few months, I'm actually.
A little surprised at where the your curve is given this expectation that we're in a you know, we're going to have a soft landing. To be honest, I think you know, when you think about what a soft landing means, it means that the FED probably wouldn't have to refers course, so they're going to be stuck a kind of this fire, you know, five percent five percent plus for a FED funds, right, And so where should the rest of the your curve be in that kind of scenario? And what should that
yr curve be shaped like? And when I look at the current shape of the your curve, I don't I don't see that reflecting that belief.
Dree Matis, thank you of MetLife Investment Management.
Marilyn Watson briefs now had a global fundamental fixed income strategy at Blackrock. This is an incredibly important conversation, folks on what the prescription is forward which Maryland is to be flexible in nimble. I'm going to editorialize into twenty twenty five how am I flexible in nimble clipping coupons in fixed income?
So in fixed income at the moment, as you say, I think you do need to be flexible, and you need to be nimble because it's a very uncertain environment. Still at the moment you can get very attractive carry at the front end of the curve. Still also in commercial paper, in some short dated investment grade bonds, and at the moment it pays to actually not take too much duration risk, not take too much risk, but just
clip those coupons and get the income. But as the economy evolves in the US and in Europe and elsewhere, as we get more information from the FED tomorrow, from the ECB on Thursday, and over the next few weeks and next couple of months, as we continue to see more economic data from the US or from the Eurozone, which as you mentioned earlier, has seen some pretty weak data in the Eurozone at the moment, then we will continue to see a shift both in the Yelk curve
and in the opportunities that I think they're available. So at the moment, I think it pays to get the carry, to not take too much risk, but then to be able to really deploy that dry powder when the opportunities arise.
I need to conflate in here, Maryland the news now, and it's Torsen Slack writing for Apollo. Looking at loans. I mentioned loans in the previous hour is a mystery to me. The default rate of high yield and such. Is the market too complacent about what is to come in commercial real estate, what is to come in these strange leverage loan vehicles in derivatives within your world? Are we too complacent.
So I don't know that it's too complacent, but I don't think there's a very clear view on the trajectory of the economy going forward. At the moment, you know, our core view is that there won't be your recession this year in the US. We think that the US remains pretty resilient, and while it is slowing, it remains
on a pretty solid footing. And when you look at the commercial real estate sector then it has already been negatively impacted by the very aggressive rate hikes, but as you say, perhaps not as much as some people may have expected. When you look at leverage loans and elsewhere you look at, you know, high yield overall has performed very well this year. But I think at the moment, you know, a lot of investors are still looking at really getting in, i think, in the bottom up fundamentals.
So there's a big difference between the different bonds and the different issuers that you also buy within the highal sector and the spread and the total yield that you can get there as well. But at the moment, I think there isn't really a consensus on the trajectory of the economy and how bad if it's bad at all. It will be next year, so I don't know if it's complacent. I think there's just not yet enough data for the market to be able to tell.
Let's work through some of this work from Torston Slot this morning and Marilond good morning, all able to share their full quote. Markets are not taking the ongoing rise in default rates for high yield and loads seriously. Many investors argue that this is just normalization, or these are companies nobody has heard about, the reality is that more and more companies are defaulting because the cost of capital
is higher. Higher cost of capital is precisely how monetary policy works by making it more difficult to get financing. The FED hikes are biting harder and harder, and all investors should have a view on how high they think default rates will go during this cycle. Marilyn, can you
have a view on that today? And would that leads you to believe that you should back away from easure of this market which are going to face much much higher funding costs when they come back to market in maybe twelve months eighteen months from now.
Yeah, I think you can. And as I say, at the moment, you don't need to take the credit risk in the high yield sector when you can get very decent carry elsewhere much higher up the credit spectrum. I think also, you know, when you're looking at your overall allocation, when you look at the equity market versus the high old market, for example, we also like some of the beta in the equity markets, so you don't need to take the risk there, you don't need to take the
credit risk. So you can take a view, and our position at the moment, I would say is relatively cautious. It's relatively you know, high quality, and as I say, we're being very nimble and we're really stirring clear of too much duration risk, although we have added a little bit there. But we're also just being very very cautious from a bottom up perspective, and we want to know and understand exactly what we're buying in every single issuer,
in every securitized asset, in every investment grade bond. We want to understand exactly the fundamentals from bottom up perspective of the issue itself and of the sector as a whole. I think you can take a view and at the moment, we don't think it pays to take the risk further down the credit spectrum.
You mentioned they're taking on a little bit more duration risk. Can you give us a little bit more kind of there? What have you been doing?
So we've added a little bit on the margins because you know, it is our view that the Fed, you know, will hike again this week and then maybe pause. The Fed itself has indicated in the you know, the previous summary of Economic projections potentially one more hike, but we don't know that yet. Obviously, we need to see a lot more data to see whether that comes through or not. But we have been adding a little bit more duration in the front end and the belly of the curve
in the US. Also in the Eurozone, you know, we think that the ec people will hike again this week. They may hike again in September, but that's nowhere near a clear cut scenario anymore given the data, and it does we do think it now pays to take a little bit duration, more duration risk, a little bit more yields, and just to lock in some of those rates.
Not even the hawks on the ECB you want to commit to an I think beyond this week. Find that interesting, marinin Thank you, Mariam, what's in a black rock and Joy London mantin it's good to see it.
Yeah, I remember John when you whispered to me somewhere in May of twenty twenty General Motors, Tom, General Motors are going to do it twenty to sixty and then a challenge last year to say the least, and now ebbing and flowing you thirty five to forty. It has been a challenge for General Motives, including all manufacturers through
the pandemic and now they look to profitability. Joining us as chief financial officer driving the financial ratios at the complexities of the future of General Motors, Paul Jacobson joins.
Us this morning.
Paul defined profitability. We're in the income statement. Are you zeroed in on on profitability out twenty four months out five years for General Motors.
Well, good morning, Tom, and thanks again for having us. It's always always a pleasure to be with you, especially on a day like today where we're announcing the tremendous results that the GM team put forward, and I just want to extend a great big thanks to them worldwide for the results that they posted during the quarter. You know, when we're looking at when we're looking at profitability, you know,
it's a whole range of outcomes. Obviously, ebit matters. But one of the things I think we've been really focused on, and I think it's worked for us, is the combination of market share and margin and growth. So the end of the day, it's not just about producing and selling more vehicles. It's about making sure that we're maintaining and
expanding our margins going forward. And when you look at the track record that we've had, especially over the last six months, but really over kind of the last six quarters, the team's done an amazing job producing vehicles that customers demand, and you know, our biggest challenges we can't get them fast enough. But customers have really responded and we really appreciate that.
Okay, that's right where I want to go, and that there's a shortage of you know, there's always in every company four or five vehicles. Everybody wants the same car. Do you have a lot of pricing flexibility now into twenty twenty four, Can you raise prices?
Well, I'm not sure that we're going to be able to raise prices across the board, but one of the things that we've seen that has really manifested itself is customers demanding higher trim levels. In fact, we created over the last eighteen months the Denali Ultimate, which was a higher end trim level than our high end Denali on
the GMC Ukon's in response to customers wanting them. And now what we see when we look at our trucks in our SUVs, about seventy to seventy five percent of them are being priced at premium levels where customers are demanding that. So I think we've done a good job of responding to where customer demand is and what they're looking for in our products. As far as the core prices,
obviously the business is really competitive. We focus on price stability and I think I think our results show that we've done a good job with that.
John a pickup truck. This used to be you know, you.
You you wanted an old GM pickup truck that you could drive around with your guitar next to you, and you know, the.
Whole scrump yourself.
If you're done at Auburn University and you get an old GM pickup truck that you paid dead paid three thousand dollars, you could see the road through the floor. GMC Sierra Denali Ultimate Ready ninety one dollars. That's not Paul sell them today.
So Paul, are you telling us that you're expecting higher average selling prices in the second half.
Yeah, so, John, we we saw we saw higher ATPs in the second quarter, about sixteen hundred dollars higher than the first quarter sequentially. You know, I think we're going to continue to watch it. We've taken this whole year with a little bit of caution, just understanding the macro that's out there, and what we said at the beginning of the year was if the customer held in and we were able to maintain pricing, we expected to significantly
outperform the guidance that we posted. And then after the first quarter, we raise guidance by five hundred million dollars on the EBIT line, and now we're raising it by a billion dollars. So we see a lot of stability in the market. We're just kind of taking it one day, one month at a time and watching the results come in. We've got to be focused on quality, and we've got to be focused on getting production in the vehicles that customers want.
Let's just talk about customers a little bit more. We saw some data recently I think from the further reserve in the last couple of weeks about people being rejected for auto loans, Paul, can you give us an idea of how some of these purchases are being financed and the kind of trends you seeing develop.
So, you know, we've got a lot of good insight on that through our GM Financial captive company, and their results are pretty strong. We continue to write new loans. In fact, we've written at a higher share the first half of the year than traditionally, which is not a bad thing. We're there to meet our customers where they need us, and GM Financial has done a great job of that. We watch the credit metrics on a weekly basis across their entire portfolio, and we haven't seen anything that gives
us a reason for concern. You know, we have really good, high quality borrowers on our new vehicles and the credit is performing quite well from that, so we understand obviously in the subprime world in some of the used cars, where we've seen banks tightening a little bit, that's not necessarily our Forte, but certainly where we're lending on new vehicles, the results are pretty strong.
And Paul, I'm going to pick on Ittey mccaulley. It's City Group, and that you know from the pandemic from the end of twenty nineteen, I got a shareholder return of three percent, four percent per year, whatever the number is, it's low single digit. Clearly it's not acceptable. The fact is, somebody is knowledgeable, as Ittay mccaullay or the team over at Bloomberg Intelligence looks for huge share price.
Performance from GM.
What is going to be the catalyst for people to realize a new profitability of GM.
What's the thing that's going to.
Get me to it's McCauley's price target, which is a double.
Yeah.
So that's the question of the day, Tom, and one that we spend a lot of time thinking about. Obviously for our shareholders, you know, one of the things that we've got to do is we've just got to continue to consistently perform. I'm a big believer that the market can ignore fundamentals too long, and when you look at the type of performance that we've been driving, I think we're establishing a really good track record of credibility. So
that's job one number two. On the macro side, Clearly, it's been a bit of a headwind over the last eighteen months. As you know, expectations are consistently downward from where we are, which is why it's so important now that we've put two quarters out there with a raise on the guidance this year will be really, really strong. We're overcoming pension headwinds, we're overcoming some normalization at GM
Financials earnings. But you know, the results are going to be very similar, if not, if not potentially better better than last year. So that's what we're focused on. On the market, I think it'll come around. You know, we've got to make sure that the macro clears up a little bit. I think we've seen that over the last couple of months. And you know, I think we've got to make sure that we reach an agreement with the UAW not just for us, but as an industry because
obviously there's some uncertainty around that in investors' eyes. But we're focused on executing. We're focused on getting a deal that works for our people and rewards them for the tremendous work that they're doing across the board.
Paul, Ready, I'm fair of us to save this question until the end because we only have a couple of minutes left, but I need to get this in. There is some subtle indicators worldwide the EV demand is tailing. GOFF and I asked this question to you as a CFO, how do you manage the risk of a massive investment cycle and a huge push wholesale just going into EV not working out and in five to ten years consumers don't want this stuff. We see greater efficiency through hybrids,
maybe even fantastic sustainable fuels. Paul, as a CFO of a car company right now, how do you manage that risk?
Well, John, I think that's it's a great question, but it's one that you know, when I look at the portfolio of vehicles that we have really really great internal combustion engine vehicles and a growing EV business off of a platform where we've designed EV's from.
The ground up.
A lot of the evs that are on the market are you know, traditional ice vehicles where you know companies have put a battery solution into it and it's it's not optimized in that standpoint. When you look at the Altium platform of vehicles where we're growing production very very rapidly. Now we think we've got vehicles that customers demand, and you certainly see that in our order books across the board.
So one of the things that you haven't seen from us is the type of pricing volatility that many of our competitors are experiencing with some of those vehicles that were early to market. We think our vehicles, when you look at the Silverado EV forty percent more range than anything else that's out there across the board. We think we can win customers over over the long term, but we've also got a very good ice portfolio to fall back on and it's driving incredible performance for us.
I said it was unfair. It was unfair because we need a much longer conversation about this in the future. Paul, appreciate your time, sir, the General Motors c FO, this is a joy.
Let us SeGW me here right now. To Michael Jesus.
He's out of Georgetown with tours of duty along the way, particularly in municipal finance. He is now global head of fixed income research at Morgan Stanley and I just I can't say enough Michael, the idea of a guy with massive policy credit like you, a municipal bond, the granularity of municipal bonds in America doing global fixed income research. What does your skill set bring to this new position at Morgan Stanley. To me, it's radically different than most quote global heads of fixing.
Well, I think at the very high level, develop markets in general have had this interaction with public policy that we used to just really be the area for emerging markets, right, So I think you need those interacting skill sets, and even like day like today and tomorrow, where we're waiting on the FED, it's important to understand the public policy nuance behind all of that.
Right.
So one of the reasons that we're so constructive on the bond markets right now is that the FED is kind of, over the last eighteen months gone over this trajectory where it was creating substantial uncertainty in the bond market in order to deal with inflation that arguably was created by some of the fiscal policy choices made along the way by the US government and by both parties.
Understanding that trajectory means that whether or not the FED goes through with that second hike in September, that they're signaling that the job is almost done or that they've almost got inflation under control, as they feel they do. You switch from massive uncertainty in the bond markets for creating volatility in the way that I think municipal bond investors understand that if you've got elevated volatility and you've got negative total returns because yields are going higher, that
regardless of the fundamentals, that's a really negative backdrop. We're kind of reversing that and putting on right.
Right now, I'm fascinated by when I look at fixed income in the equity market, we all have a legacy of shadows and opaqueness out there. Right now, all my radar is up on this opaque word loans, yeah, or leveraged loans are that? Does Morgan Stanley Fixed Income Research feel there are challenges in the fixed income space, shadows that we really can't observe.
Well, yeah, absolutely. I mean, so, for example, once we get into twenty twenty four and then really escalates through twenty twenty eight, in leverage finance, there is a substantial wall of maturities and unless you get a meaningful amount of free cash flow growth, you're going to get an interest coverage going down substantially. So, for example, if you assume, which I think is a far too concern, the assumption
that you don't get any free cash flow growth. About a third of single bees, all of a sudden, have sub one one time's coverage. So that's a real challenge, and arguably it's one of the structural challenges that's kept spreads relatively attractive. Another one that's kept spreads relatively attractive is the bank demand issue and how that's changed since the regional banking crisis. So these are things we have
to watch on the horizon. They're secular headwinds, but I think the setup for high grade bonds right now is pretty positive, at least into your end, because they're taking away this uncertainty from the FED and fighting inflation.
Something we've been digging into over the last week or so is who is actually paying these market rates? And a question I've asked, and if you could give us an idea, don't expect the precise numbers, but just the difference between what a company's coupon is right now from debt isssue would issued in the last couple of years. So what the market rate for that interest is if they came to the market today, Just how wide?
Yeah?
Is that? Well?
Okay, So our chief process strategist Andrew Sheets wrote about this on Sunday, and it's fascinating that in a lot of ways across the capital structure of markets, the bond yield if the bond is yielding more than the assets financing, which is totally upside down. So the Investment Great Corporate Credit Index yields about five point four percent, the Russell one thousand, the earning yield is only about four point eight percent. That's not totally unprecedented, but it's pretty unprecedent.
It's only happened two percent of the time in the last twenty years.
Right.
That difference kind of makes sense if you thought that we were about to accelerate economic growth pretty substantially, but we've got the opposite. If you are economists think we're continuing to slow down. Obviously we haven't slowed down as much as we thought we would, but without that growth, then there's a problem if you're having to finance with a higher yield than you're actually earning.
From Tom touched on this, When does it start to bite? Can we just build that out just a little bit more that it's going to buy certain parts of the economy and certain issues more than others quickly than others, but just on average, what does it start to buy?
Well, I think it's already starting to bite, and I think the last CPI print sort of showed that right. And it's part of the reason that our economists that think that they were here, they would tell you that the Fed, yes, they're going to hike this month, but I think ultimately are probably not going to hike in September because the accumulated effect of everything that's being done so far is going to be tightening in and of
itself over the course the rest of the year. So that is also a good setup for bonds and bond yields and total returns.
What is a Bloomberg total return index to off Lehman and Barclays. I'm looking at a Microsoft. I picked Microsoft, folks, just because the yearnings. I believe or not, Microsoft does have debt. I don't know if you were.
Aware of that.
I go out ten years to Microsoft two and five eighths of thirty three, and I've enjoyed a time king price decline from one thirty down to ninety seven.
What's the likelihood, given a.
High rates is sustained high rates that we see a price breakdown through the lows of the last number of months.
I don't know that you necessarily get a substantial price breakdown. I think a lot of the return you're going to see is going to come off of yield and coupon, mostly because while the FED could be closer to the end h being done hiking, there's still the secular headwinds that we talked about, right, There's still the bank demand
headwind there's still some lingering credit issues. So it's not in the chilly environment where you're going to get yields moving a lot lower or spreads moving a lot tighter, But clipping that coupon in and of itself is quite attractive relative to equities, which are probably going to be more challenged than our estimates.
Channeling Mike Wilson there, I mean, you see you think channeling. You know, how much do you and the equity guys talk to each other?
By that, I mean, Mike's making all the adlines today talking about the challenges of a bear market.
Short Paul he hasn't changed his view as well.
But how much does fixed income and Morgan Stanley go back and forth with equity?
The collaboration is constant. Yeah, I mean We're still on the same floor by each other. We're on calls weekly, collaborating, making sure that we're challenging each other. So uh, the answer, in short is a lot.
Michael, this was great. That's going to say it, thank you, thank you, just awesome as a wise.
And now joining us the David Rubinstein as well with the Carlisle Group, and of course has worked for Bloomberg Wealth as well. What a timely conversation, David. What did Barry Sternlick say about the commercial real estate dibeccle to come.
Well, he thinks it's going to be a hurricane, you know, kind of a Category five hurricane. What you have is a combination of people not going back to work physically and people really uh, because of higher interest rates, not valuing buildings as much as they used to. So the result is you have an enormous amount of commercial office space in this country that's worth a fraction of what it was supposed.
To be worth.
And at some point over the next couple of years or so, Barry Sternlick would say, and others would say as well, this real estate is going to have to go into the fault in some way or another. The banks are not going to be able to really justify the debt that they have on the buildings, and the landlords aren't going to be able to pay the debt.
So you're going to see a very large effort to, i say, sell out of this debt at discounts, and it's going to cause some problems in the banking community and the real estate community.
There's a suppleness to Barry Sternlick's career. Folks, if you're just joining us, this is the conversation. They would like to say to mister Rubinstein. That will extend this discussion for one hour. But John Ferrell would be upset by that. At nine zero zero, David Rubinstein, this is so important. Who is Barry Sternlick and why do people like you lean forward?
Barry Sternlick is one of the major forces in the US real estate market. He built a very large company in the commercial office building and commercial real estate world, but he also built a large hotel company. He ultimately sold that to Marriott, but Starwood Hospitality was for a long time one of the largest hotel companies the United States. Consisted of major brands like Weston and Sheridan, among others. He also invented the W brand, which is now owned
in effect by Marriott. But even when he sold all that to Marriott, he kept his real estate company, which is now one of the largest in the United States, and it owns enormous amounts of properties across the spectrum of real estate properties, and he would say a lot of it is struggling. He has turned some buildings back to the lenders, as most real estate developers and owners
of real estate are beginning to do, unfortunately. And so he made his name, I would say, initially in the late nineteen eighties buying distressed real estate from the RTC. And I suspect he thinks there's going to be a lot of distressed real estate in the next couple of years as well. Hopefully he hopes it's not going to be his real life state.
Did well, okay, But to stress real estate, David Rubinstein clearly means the Japanese show up. We're beginning to see that Crane CJ. Hughes over at Cranes writing out new Japanese interest in the island of Manhattan as well.
Well.
History repeat itself in our commercial real estate Tobacco, where the foreigners show.
Up well, usually what happens is foreigners show up before the debacle curse, not after the debacle curse.
Right now, I think.
You're seeing a slow diminution and values in office buildings.
Anybody who's watching this show knows that when you go to a major office building in New York or other major cities todays, you don't see a lot of people there, and therefore, eventually the people using that real estate are going to say, I don't need as much space as I used to because people are working from home three days a week or two days a week, and therefore I'm going to shrink in my next lease the amount of space I have, And therefore you're going to see
enormous shrinkage in the I think, the usage of office buildings, and as a result, the values of the leases are going to go down, and as a result of buildings property of value is going to go down as well. In some cases, the banks are going to be forced to take over the building because the landlord can't afford to service the debt any longer. This is going to take place over another two or three.
Years or so.
Is Barry sternlicked an optimist? I guess the durability of work from home and the migration of commercial real estate office to individual residences. Does he think we could pull that off.
I think he thinks we're not likely overnight to be able to go right back to the five days a week and using all the space we used to do. And so I think he's quite cognizant of the fact that the world has changed in the United States. Outside the United States, he would say people are going back to offices, and it's not quite the phenomenon we have in the United States.
For a number of reasons.
The United States, you don't see people going back to the office five days a week, with very few exceptions. But he's a very talented real estate investor. I've known him for quite some time. And he also moved his entire operations from the Northeast to Miami ahead of everybody else moving to Miami. So he was ahead of the curve there, as he is in many other areas, and
I think he's operating quite effectively down there. His company now has over one hundred billion dollars of real estate properties, and while he has given some of them back to the lenders, on the whole, I think he's done pretty good shape.
Barry Sternlicka in the hotel business. Of course, Starwood is iconic there within hotels. What did he say about the future of hotels? All I know, David, is every time I call a hotel, the price is dramatically higher than it was twelve months ago or twenty four months ago.
Well, because they know you're going to stay there, they probably are jacking up the rate, thank you, because they'm sure you can afford it. But I would say that the hotel business has been is coming back from the depths of the COVID period of time when essentially nobody was using hotels and the stock price of hotel companies
were way down. Now hotels are coming back because we're seeing in the United States enormous amount of spending on discretionary travel, on discretionary going away from home kinds of things, restaurants, amusement parks, hotels, and so that the spending is up quite nicely in that area, and hotels are coming back.
He's not so much in the hotel business as he was, but he's a leading light in terms of his thought processes, and he's really helped create a number of brands, not only w but he also created the backer Rat hotel brand as well.
David, in the time we've got left, I've got to bring up a bombshell interview earlier this morning, Drew T Matdis was iconic at Ubs with Maury Harris. He now holds court at MetLife. Drew Madis, with exceptional optimism on the American economy, looked for long term growth that would approach three percent real GDP. That's a hugely optimistic view out of American exceptionalism.
Do you share that.
Optimism that we underplay what our real GDP growth is and what it will mean to our financial system.
Well, that's a very high real GDP growth an economy of our size, real GDP growth probably around two percent or two point two two point three percent is probably
realistic in the current environment. I think three percent or greater real GDP growth when inflation is still reasonably high, I think is quite a high growth because if you have three percent inflation and you're saying three percent real growth, that's really six percent GDP growth the way it's measured, and I think that's probably not likely an economy of our size. We did grow at six percent at one quarter after the after COVID because we were so low.
But right now I think economies of our size, real GDP growth two percent is probably realistic.
David, thank you so much. The most timely interview I've heard with very Sternlink. You'll see it tonight on Bloomberg Television, Very Sternlink of Starwood with mister Rubinstein in the Carlile Group. Subscribe to the Bloomberg Surveillance podcast on Spotify and anywhere else you get your podcasts. Listen live every weekday starting at seven am Eastern. I'm Bloomberg dot Com, the iHeartRadio app,
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Thanks for listening. I'm Tom Keen, and this is Bloomberg