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We just don't have a lot of economic data.
There's a lot of uncertainty out there in the marketplace as to where this economy is.
I don't help.
People do it who actually get paid to do this stuff for a living. Like our next guest, Sema Shaw, Chief, a global strategist at Principal Asset Management. Seema, what are you making of the last I don't know, two three weeks seem to be a little market seem to be just a little unsettled here. I mean there's only a three percent draw down and yes, and paid, nothing to really write home about.
But you know, what do you make of some of this uncertainty we're seeing the marketplace?
Good morning, Nathan.
Yeah, absolutely, this has been a really, really rocky and it's been interesting because I think what the shutdown did is just created this vacuum which has allowed some really kind of negative narratives to take route and the key one is that how the FED isn't going to be
interpreting the direction of the economy. I think coming into this, to the shutdown, the general consensus was that the doves of the FMC would have the upper hand and almost assuring a December eight cut, And if anything, what's happened is actually the more hawkish members have seemed to become a little bit more dominant, and as a result, we're in this point where now the odds of a FED cut in December is just down to fifty to fifty, and it really is rattling the market, partly because we
just don't have a clear narrative, as you said, So.
I'm looking at the VIX index, of course, that's Wall Street Sphere engage. I'm seeing it sitting around the twenty two handle. What do you make of the current volatility in the market. Do you expect it to sort of temper out here?
I mean, I think it could once we start to get a clearer direction, But again, it really does depend on how the FED is going to respond.
I think that's one thing.
And then of course there's the AI story, and those fears seem like they're really taking root. We don't want to jump to many conclusions because of course it got the end video earnings report coming, so everything could just completely turn around if that's a good release and start to you know, once again put some of those fears
to bed. But at least you know, as we're going into twenty twenty six and we are expecting a bit of an economic slow down, a bit of a labor market slow down, that is typically the time when you start to see some of these fears really start to take route, particularly when you consider it from a late cycle narrative.
S we're just in the process of finishing up this third quarter earnings release and buying large earnings were really pretty solid double digit, low double digit kind of growth rate. There is that enough to support this market?
Sea it should be.
I mean, typically you just need to have like positive economic growth driving positive earnings growth, and ultimately the S and P five hundred for example, is very very tightly correlated with our earnings performance, so it should do.
Now.
Of course, there's going to be some bumps along the road, and when you look at valuations, particularly for those big tech companies, there's going to be moments, potholes, air pockets, whatever you want to call it where the market really does have that moment of a hesitation where they.
Really start to question the direction.
But the key thing for us is, look as long as you can continue with positive growth in twenty twenty six, maybe a little bit lower than what we've enjoyed in twenty twenty five on the whole, but as long as there's positive growth, and really you should see this continuation of ardness growth and that should be enough to support
the act market. We're not, of course, expecting very significant gains through next year, but at least you know in a upper trajectory where it does become important where you're going to be positioned.
Which are the companies, which are the sectors?
So you mentioned you flicked at the idea. There's a lot of fear surrounding AI. We've been hearing so much talk about market valuations being too high. So where do you want to be in this market?
So we do have overweight to that megacab trade like everyone else is in the market. Has been really important to start doing well, to continue the analysis of these companies and looking at valuations now that valuations are frothy. That goes without saying, but I think the comparison to the dot com bubble is very much exaggerated. We have been very much reassured by the fact that the balance sheets of these companies are very strong, But there are
concerns and the concerns that we need to track. One thing which is driving which I don't think is going to be answered at anytime soon, of course, is how it's going to be delivering on all of that productivity potential that people are hoping for, and that simply will not be answered anytime soon. So then the key thing that we have to be keeping a track of is
how they're financing all of their AI capics. Is this debt financing becoming more of a trend in which case concerns around the bubble are going to increase if it's not matched by profit growth.
So I think we're at the.
Early innings of some of these concerns, which, unfortunate doesn't mean it's going to grow. But as long as these companies can continue to deliver on the earning side, we do think it can you know, dispel those fizz as they continue to grow. So it's an opportrajectory, but very very noisy.
Sea Michhaw, Thank you so much. We always appreciate getting a few innutes your time, Semashaw. She's a chief global strategist principal asset Management located over there in the city of London.
Appreciate that. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
I'll switch gears to commodities.
A lot going on out there in the space here, I don't know. I'm getting ready for the next season of Landman, which means I focus on oil, and I see wtacrud to oil below sixty dollars. I like that as a consumer, but I know the folks in the patch don't have they like seventy five dollars.
Of course, you know the cost of productions.
In a mid fifties, so they're making some good scratch there, but it's down here at sixty.
They're not so happy. You've got somebody who does this stuff for a living.
Francisco Blunch, head of Global Commodities at Bank of America Securities. I know them as Merrill Lynch back in the day, but they can call themselves whatever they want these days. Francisco, thanks so much for joining us here in our Bloomberg and Director Brokers studio. On the commodities front, what do your clients want to talk to you about these days?
They want to talk about going through all oil, They want to talk about gold yep, they want to talk about what's going on in the metal space, some of the tire if impact on agriculture, and they I think they also want to talk about power and AI.
All right, let's let's go with the power in the AI story, because that's kind of a new thing.
You know.
AI has been such a theme for this marketplace, certainly for the tech stocks that have direct exposure, and then people started looking for a derivative places and they come to your world, which is, how are we going to power all this stuff? How does that impact kind of the commodity discussion in terms of power?
So the biggest impact, the most direct impact, has been perhaps in the metals markets, which are kind of the pick and shovels of health. Christy, we you've seen that in the price of copper you've seen the price of silver, and we expected to continue or the course of the next twelve to eighteen months. So we are bullish on those two commodities. Just to be clear, we have a fifteen thousand dollar per ton copper target over the next twenty four months, and we have and we have over
the next twelve months or so. We got a sixty five dollar announced silver target. So we're bullishing those two commodities. Their key the best and the second best electricity conductors in the world as a commodity, so we think those two make makes sense. Strong exposure to or panels to grid. Also, people want to talk about gas and how gas powers electricity. In the US, we've seen a big rump up in
Henry Hog prices. You may have noticed that we are now trading around four and a half low or cinemmb to you, that's a pretty big pickup. And remember gas is in the US been hit by two things. First, demand for power has been very strong, although that's not really the reason why gas prices have risen. It's because of the LNG export story to power the rest of the world, and of course the US launched a large investment into LERNG export facilities, liquid natural gas export facilities.
These are coming online very quickly. They are soaking up all that gas, freezing it and shipping it to Europe and to other parts of the world. And that's been the true story for the last few months and will remain the big story for the next few months. So we're not I mean, we're not super bowlish, in part because we think producers are very good at.
Cranking out output.
So you talked about oil and how folks need higher price than sixty dollars a barrel to get a decent return, but for gas, the number is a lot lower than four and a half our MBTUS.
So we're going to see a ramp up there in activity.
So you're the expert in commodities, but I have the g lco go function on the Bloomberg termat Global Commodities, so I can see everything, and I can at a copto party, I can sell.
It an expert.
Honestly, I wanted to stick with that AI play that we were talking at a bit earlier. What are some other maybe derivative plays that you think maybe investors are underappreciating during this time period.
So we we like in the commodity world.
You can also look at power prices themselves, and we think those power prices are likely to need to go up. Wholesale power prices, we've seen pasty auctions very strong and across pretty in PGM, and in the northeast there's a huge data center build out as you know going on in Virginia. It's having uploided complication as well. Right, we've seen the cost of living remaining a core issue in elections, and we expected to remain so because it's you know,
we don't really see the pressures fading away. But one derivative side of power right is perhaps the most the most underappreciated, is aluminium. Aluminum is essentially solid electricity. When you have a lot spare electricity, you basically can make very cheap aluminum because it takes fourteen megal hours of power to make a ton of aluminum. So we expect
aluminum prices to also write rise quite significantly. And it's interesting because aluminium is one of the komaries that has been subject to a fifty percent diarrey, even though it's really a Canadian import, So we expect aluminum prices to trend higher globally.
That's one area.
We think as a result of the AI boom, and it's essentially solid electricity.
Looking at WTIQ to oil roughly sixty dollars a barrel of brent sixty four?
Is there an oil glut out?
There were in a period of.
Prolonged oversupply and crew do you think we are?
And that's the You know, it's interesting because we talked about all this energy demand and here we are with really pressed Cruler prices.
So what's going on? Simply we have we have a price war.
Right now between OPEC plus and rest of the world. For the last three years, in twenty two, twenty three, twenty four, price of oil average almost ninety dollars a barrel and Brent and mid eighties for WTI. But you know what, US production went up three million barrels a day. Saudi production went down two million barrels a day. They cannot keep doing this forever. And they're like, well, you know,
nineteel oil doesn't really work for us. It works too well for you, but it doesn't really work for us at all. So we got to get some of that market share back. And that's what's going on. They've been adding a lot of barrels, and that's the press prices. We've averaged about sixty nine dollars a barrel in brand this year, about four sunder.
From t I sixty five. Last year we averaged around eighty.
Right, So it's it's and honestly like there is like a lot and and OPEK ten days ago decided to pause and partly because they thought, well, maybe there's too much money in the market. We're going to the first quarter, which is seasonally weak, so let's put a pulse on things here because OPEC doesn't want to run a price war like.
Like twenty twenty or twenty fifteen. Right, you're based in Madrid right now?
Yah, Okay, here's the problem I have with the Madrid maybe Spain in general. Tell us I'm an early to bed, early to rhymes kind of guy.
These people don't go out to dinner till like nine ten o'clock at night.
What is that? What is up with that?
All right?
So, so just a quick historical five.
About one hundred years ago, maybe ninety years ago, Spain changed the time zone to align it with with Prism Berlin. Okay, really so, so Spain has a time zone which is aligned with really I mean today, if you go to Warsaw at the same time zone as Madrid, that doesn't make any sense because you go to the Grewch meridian and it crosses straight through Valencia.
Okay, so the whole of.
Spain should be on UK time zone, not on German time zone.
But that's kind of something happened ninety years ago and nobody seems to have been willing to change it. There's a big debate in the country as to whether that makes any sense.
Should we change that? Well, people love.
Going out I move. It's also pretty horrific. You wake up sometimes eight in the morning, eight to fifteen's the lark.
Oh my goodness, it is phenomenal. City loves that must be. It is awesome. Francisco, thank you so.
Much for joining us.
We appreciate our Francisco.
Blanchi's head of Global Commodities at Bank of America's Securities based in Madrid, but journey us live here in our Bloomberg Interactive Broker.
Studio, and we appreciate that. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us Live weekday afternoons from seven to ten am Eastern Listen on Apple Karplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Hassam Naji joins us. He's the CEO of Marcus and Milichip. That's the business that he does, retail, commercial, all that kind of stuff. He joins us here in studio, Hassan, talk to us about the country here in retail, commercial, real estate.
What's the market look like?
Good morning, Great to be with you again.
Retail has a short term and a long term picture that we have to talk about in order to really express the current state of the market. The long term picture comes from pain twenty years of reinvention of retail commerce, killing brick and mortar, and the industry stopped building any new product for the most part, and reposition so many shopping centers and retail concepts.
And we've come.
Out of that much tighter and a reinvented way of using brick and mortar retail, which is now being very successful. It's all pretty much driven by fitness, entertainment, food, and destination shopping. Those things are moving in a very positive direction in the near term because wages have been growing and consumer confidence has been really high and high net worth individuals have been spending thanks to the stock market
and other wealth creation mechanisms. Sales have been really, really strong, So two very short term and long term positive factors going. Some of the headwinds are the uncertainty related to interest rates tariffs that made many retailers pause for a moment in store openings, and balancing forecasting where consumer confidence may be going, which has weakened in the last few months. So it's really a battle between some of that uncertainty and very strong fundamentals.
So during the.
Break, you were talking to us about how some of the retail spaces are performing well in suburban areas.
Talk to us a bit about what are those.
Like regionally as we think about demand for retail space.
You mentioned New York right here at the heart of the capital markets, at center of the world. We're creating seventy to eighty thousand jobs a year. New York is back. Yet there is a lot of urban retail storefronts that are still empty or struggling.
The consumer habits, the you know.
Tourism hit that we took earlier this year, all those things play into street urban retail Suburban retail, on the other hand, has been doing much much better. And I would say urban retail is on the recovery, but not quite quite as strongly because the post pandemic effect of a lot of people flaying urban markets. That's changing, thank god, because of the mandate to return to office, which is also helping to improve both residential and retail.
You know now that I think about our Lectionington Avenue fifty eight fifty night, I mean, whoever owns those building and manages those buildings, they're doing a bad job.
I think I could sell that. I could sell that stuff.
I mean it's prime location, it's people are back, it's packed.
So I think so I don't get all.
You just hit the most important part of creating wealth through commercial real estate, and that is what are you going to do with the asset?
Why did you buy it in the first place, how did you.
Finance it, What was the value in and your expected value out and in between? What are you going to do to create value and make the property stand out. At the end of the day, it's just a business execution of that strategy, asset by asset.
Yeah, they got the signs in the Windo. I'm going to call that number and sit, give them a marine poll.
Get going here, all right? Interest rates are coming down, and that's good for your business? How good for your business?
Really fascinating to see what's happened with commercial reals did as a whole. We have three very positive forces working for the industry. One is price corrections. Since twenty twenty two peak March of that year, prices have cone down on average fifteen to twenty percent across the entire industry.
Interest rates are coming down.
As a second positive, and more important than that, is the fact that financing is back. Banks are lending again,
credit unions are lending again. And that doesn't capture much headlines because more than eighty percent of all transactions in commercial real estate are sub ten million dollars executed by high net worth individuals and high net worth households, not institutions, And so when debt becomes more available and lenders are more confident, the lender spreads come in, and that's why interest rates are coming down.
The only real headwind we have is.
This uncertainty around the government shutdown and the data that the federalies on and all the question marks about the effect of tariffs on inflation and what the Fed will or will not do. That's pretty much the only real headwind we're facing. Fundamentals look really great.
So in my previous role, before I became markets correspondent for Bloomberg Television, I was on our equities team.
Oh thanks, Paul.
I was on our equities team, and I covered real estate's box. I covered reads in particular, and I was surprised to learn that office reads only make up about less than four percent of reachs. More and broadly. So a lot of people look at commercial real estate is bad, bad, bad because of struggles in office. But it's really confleating that idea and really making it brought it out for the broader sector. But what other areas are you keeping an eye on? I know I used to senior housing
a lot. Is that an area that you're looking at as we think about the baby boomers.
Absolutely, we do business in sixteen sub categories of commercial real estate, self storage, manufactured homes, land, of course, medical office.
We cover all those property types.
And even within retail there is a huge divergence of shopping centers versus fast foods, single tenant or auto part single tenant properties. All of those different sub sectors have their own cycles and within office.
It's interesting you say that.
Because during the banking crisis of twenty twenty three, there was so much concern that commercial real estate was the next shoe to drop and put pressure on the banking system. And when you look at the total outstanding loans held by US banks, there's less than a five percent total exposure through office. And not every office building is distressed, I mean by far. In fact, suburban office vacancies have been running around eleven percent.
It's the urban.
Older assets that have thirty percent vacancy rates. So there was a lot of misperception about the impact of the whole post pandemic office issue.
Private credit, to what extent is up is it playing a role in your business.
It played a very significant role in twenty one and twenty two when debt funds were issuing loans at very aggressive underwriting and very unrealistic rent growth assumptions. Those loans are turning out and there isn't as much private credit to absorb all of those So some of those assets they're having issues and are distressed.
All right, Naji, thank you so much for joining us. Some Naji, he's the CEO Marcus and Milchap joining us live here in our a Bloomberg Interactive Brokers studio in New York City.
Stay with us. More from Bloomberg Surveillance coming.
Up this.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
The highlight of every Bloomberg Surveillance program is the newspapers. Lisa MANTEYA, what do you got for us?
All right, We're going to go up there, La.
This whole the fight for Warner Brother's Discovery, right, it has a deadline nearing. So this is in the Wall Street Journal. Their sources are telling them Paramount, Comcast, Netflix, they're preparing bids for an initial cutoff to submit non binding first round bids by November twentieth. They say, Warner Brothers Discovery hopes to have it wrapped up by the end of the year. And then you go to this article from Bloomberg on the terminal. It says Warner Brother's Discovery then.
Did the contract of CEO David.
Zavlov to make sure that his stop options remain eligible to vest even if the media company is sold.
So Zazo always gets paid. He there is, Ye're out.
He is usually the highest paid media executive, and not just the function of the the way they do their stock compensation. But good for him. Here's the problem I have with this deal. Okay, I've called all my banker buddies on the street. Nobody's talking to me because they're all hired by somebody one of these parties.
That's when everybody's engaged.
Everybody's engaged and nobody can talk. So like many conflict, I can't talk to.
You, Sweeney, because you know we got a deal going. So but I guess something will happen sooner, right Lisa.
I hope so. I mean, aside from the stock options, you know, remaining eligibles, he they're also saying that his employment term would extend to December twenty thirty under certain conditions, and his agreement ran through twenty twenty seven, so he's taking care.
So I think we can all feel better that the CEO's table.
What's interesting too, is that so Paramount just wants, you know, the whole company, but then you have different ones like what you know, other companies like are just looking for the concast side.
Yeah, because the cable network business, which was the jewel of Time Warner back in the day. Think about the turner all the turner networks, TNTTNN, CNN, all that kind of stuff. Those businesses which were the gym, which were the profit drivers, which were housed most of the value. They are in a secular decline due to cord cutting. So a lot of people just don't want that business these days.
All right, what else we got?
Okay, you were actually just talking about this in a previous segment. Were the tough news for the class of twenty twenty six. They're six months out from graduation and now it doesn't look so great as they look for a job.
There's this new poll.
It's from the National Association of Colleges and Employers, and it shows that more than half of the one hundred and eighty three employers surveyed they rate the job market for that class as poor or fair. Of course, the economic outlook right, they're hiring more conservatively, AI. You've talked about it, you know, and that it's taking over more tasks that usually these kids are tapped to do like
those entry level positions. A lot of companies giving priority to recruits with some experience as set of the fresh from college ones. So now you have these college seniors who are competing against junior workers who've been laid off, you know. So it's this whole circle that they're kind of dealing.
With a tough market right now.
I feel like it's so competitive to your point, imagine coming out of college that you're competing with people who already had experience, correct and we're recently laid off. So it's really hard right now for them.
There you go, all right, all right, this last.
One, yes, okay, Miss Universe. Okay.
So there's a battle brewing over this whole pageant. It's not a cat fight between the contestants, okay, okay, it's.
A fight between the two men that are running it.
So on one side, you have this Mexican businessman, right he's the president of the Miss Universe organization. Then on the other side you have this Thai entrepreneur. He owns a franchise in Thailand. That's what hosted this year's competition. So the issue is that you know, pageants are facing you know, they're trying to stay relevant. Right, it's the age of algorithms. They're trying to do what they can. So the Thaie entrepreneur, he wants to transform it into
like influencer driven and you know they're pushing products. You know, I want to try and make money that way. But the Mexican businessman saying, you know what, I don't want to do it. I wanted to remain like this empowerment platform for women. So it's this battle back and forth, and it got so heated that you had to tie entrepreneur fighting with miss Miss Mexico Miss Universe Mexico. It went online like it went viral. It's this hole behind
the scene thing, contestant storming off. So yeah, it's becoming like the drama.
Well attention might pay attention to.
It still a thing. Beauty pageants are still big in Latin America. I read in this article, so we'll go figure least.
Men to tell you.
Newspapers thank you so much. We appreciate that the highlight every day.
We kind of spend it the newspaper business.
Here.
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