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Joining us now. And just an incredibly important time. I think in all the years that I've talked to Robert Caplan, maybe this is the most important time. The chaos out there, the confusion that we have on steel tariffs, and tweets at two o'clock in the morning, a lot of unusual.
Truths that tweets their truths.
Truth excuse me? And fiscal discussion. A four hour conversation with Robert Kaplan of the Dallas Fed, of Harvard Business School, and of course always his Goldman Sacks, Robert Caplin. The Dallas Fed website is easily one of the two or three most interesting of our federal reserve system. And there is a brilliant article two days ago about a place twenty five miles northwest of El Paso called Santa Theresa, New Mexico, where they built an export import hub into Mexico.
I mean, this is the granularity of what we're dealing. It's like the Bridge and windsor Canada, except at Santa Theresa in New Mexico. With all your experience, Robert Kaplan, how turned upside down is our export import relations?
Well, it's challenging right now because if you're gonna domicile manufacturing in the United States, the relationship between Canada and Mexico, or with Canada Mexico are critical, meaning we tend to source goods which are helped by cheap labor from Mexico
and cheap or cheaper natural resources from Canada. And so you have these hubs like the one you mentioned in New Mexico that have been situated to facilitate integrated logistics and supply chain arrangements, other import export arrangements which are critical to North America and have allowed North America on the margin to take share from Asia. And so the recent tariff events have basically put sand in the gears of some of those relationships and made it more challenging.
These are the granularities, folks, that are so important. Robert Kaplan did when you were running the FED in Dallas, did you ever visit the LVMH factory in Alvarado, Texas.
I don't think I did, but I visited. I visited lots of sites north of the order and south of the border, and I learned about the velocity the frequency of goods going back and forth across the border.
Do you have a confidence weaken supply an American manufacturing might I mean, folks about Kaplan is one of the most qualified people on this question. I know he's a business guy working in economics. Robert Kaplan, can we actually develop a skilled American manufacturing working force?
We can develop it, but it's expensive. That's the issue. Most companies I talk with want to be able to use either Mexico, Canada, to some extent, even Vietnam, which is more farther afield. But they want they use these logistics and supply chain arrangements because if you did it all in the United States, their judgment is because costs
are hire that it would not be globally competitive. This allows them to domicile in Innia States predominantly manufacturer in the United States, and if they didn't have those relationships, it would be harder to do.
Damien Sas are with me this morning. Robert Kaplan here, expert on em in the Pacific RIM as well with Bloomberg LP Damien.
Mister Kaplan, Sarah, I'd like to ask you about global growth, right, I mean, as Tom just pointed out, right, we are seeing a weeker dollar, weaker oil. We are seeing fiscal stimulus out of the US, China, and the EU, and more importantly, we're seeing monetary stimulus out of the emerging markets, right because you know, basically China's dumping in a lot of them and they're basically suppressing inflation domestically. You know, isn't this good for global growth? I mean, walk me through this.
Yeah, So, going into this year, we had a oversupply and still do of goods globally. China over capacity is a big part of that story. So goods have been disinflating, including by the way, in the United States. Relation issue was in services, not in goods. The global goods disinflation continues, except there's a question whether it will continue in the United States because of what we do on tariffs. But the fact of the matter is we've had this goods
over supply. What the tariffs have done is caused businesses around the world and particularly in the United States, to pause and be more uncertain as to how they're going to redo logistics and supply chains. Remember, only twelve percent of US GDP is manufacturing. We import another twelve percent in goods. We're basically a service economy. But these tariffs have created uncertainty in both goods and services, not just here but globally, which have put a damper on growth.
And that's what you're seeing.
Mister Kaplinser. I'd like to get your panel some of the things we're seeing out here on the long end of the US Treasury curve tens thirty steepening. I mean, it's not a US specific phenomenon. We're seeing similar price action across global fixed income in Europe and Japan, etc. And you know, my question for you, is that more a function not of growth expectations in thirty year real yields breaking out, but is it more just the players at that end of the market, the limited number of players,
the lack of market depth. I'm just talking lifers, pension funes, endowments. There's just not that many of them out there, So talk to us a little bit about what you're witnessing out on the long end.
It's a supply and a demand issue. First of all, the world and the United States is in the middle of this is much more highly leveraged than we were right before. Covid Us is a good example. Debt to GDP or net debt was in the seventies. It's now over one hundred percent. The Western world and the developed world is more leveraged, and as a result of that, there's more paper to sell at the long end of
the curve. On the other hand, global buyers are very aware of that, and they're more reluctant to buy duration because they're worried. As we saw from Silicon Valley Bank and First Republic, you can lose a lot of money if you overdo it and buying duration. So we have
a supply and demand issue. That's why the administration, the Trump administration came into office saying we're going to try to chip away at that debt and that leverage because we're worried about the term premium and it doesn't seem to be materializing. But that was the motivation.
Robert Kaplan with US folks, who welcome all of you on your commute across the nation. Good morning, Serious XM Channel one twenty one, Flabbergasted by the support on the oldest of digital media. Good morning, Android auto was in a car yesterday or the Android auto? Good to see that as all they were listening to Bloomberg eleven three. Ah, I guess through Android Auto. Thank you Apple cart play good morning on YouTube. It's our new digital distribution, Robert
Caplan said, Tom, you got to get with it. So we did this YouTube thing and subscribe to Bloomberg podcast. It's shocking, the digital distribution, Robert Kaphen. That goes to the innovation of America. We've all noted the distinction of Europe versus America, the technology shift in America, the innovation it's going to a part of America. How do we drag the rest of America into our new technology, our new productivity.
Yeah. So technology enabled disruption has been with us for now the last several years. And oh, by the way, if you've lost your job in the United States in the last ten years in the past, that might have been due to globalization. In the last ten years, it's due to technology enabled disruption. And that disruption is accelerating. AI will accelerate it. And what we're seeing when I talk to clients across sectors in the United States and globally.
It's affecting every single sector. Any sector in goods and services, you name it is being affected by this. The challenge is when a worker loses his or her job or their job gets restructured because of technology, can we retrain them so they can stay employed either in that business or find a high productive job in another business. And
that's where the United States has been lagging. We need to improve early childhood literacy, secondary education, digital divide skills training, and we have not been as quick to do that. I would say as other countries.
Mister Kaplincer, private credit is consolidating. Private equity fundraising has plunged by more than a third over the first three months of this year. I'm curious to hear your thoughts on quote unquote shadow financing here in the US. You know, I'm hearing about these continuation vehicles deteriorating COLO demand weekem, and you know, I want to know if another year of needed realizations tom are going to sour long term investors on the asset class.
Well, so let's go through what's going on. First of all, as I just said, there's more business uncertainty, valuations, have recovered, but they're more muted. Cost of financing has gone up. You know, we talked about duration. Long end of the curve is stickier, and all that feeds together and makes it harder to either do monetizations or to do new transactions. And so what we're seeing is it's not that the
equity markets and other markets aren't open for monetizations. I think a lot of the firms feel like if they the prices they could sell out today are lower than some cases where they have the asset marked. And so there's indigestion in the system. It won't last forever. Right we're in the middle of it right now where we've got some indigestion where it's why you're not seeing more transactions, more modernizations, more equity offices and mergers because of it.
Okay, come on, Robert Kaplan to Danien's good question, and you're one of the great qual I think of you and Richard Fisher as being like at the apex of this of the link between economics, finance and investment. Robert Kaplan, as simple as I can mark to market in private equity, in private credit, is it a challenge right now?
It's a challenge right now. And I think many private equity firms will tell you that it's not that they couldn't sell the asset. They're just not happy with where they could sell it, and they want to do modetizations, but they want to do them at more attractive valuations.
What do you expect from the fedure to finish up here, Robert kaplan? A number of firms are saying they will do nothing until into twenty twenty six. I mean, on an next post basis, that's the safest path for mister Boyle, isn't it.
I don't know about that, So they'll they'll take it may turn out that way, but that's not I wouldn't. I don't think the FED is planning that. It's taking a one meeting at a time. And the reason it's shortening up the time horizon is you've got a tax bill. That's that's that we don't know what what out stimulative
it it's going to be. We have tariffs that haven't been set yet, and so this uncertainly needs to get clarified before the FED can be clear on what it wants to do next, and that may take at least until the fall. But I wouldn't assume that the FED won't act this year. But the FED can't prejudge that and can't get rigid about it. And so that's why you're seeing them be noncommittal, and they'll continue to be noncommittal.
Rour Caplin, thank you so much for the generous time this morning. Vice chairman at gulb and Sex always associated with Harvard Business School and his federal I say, mister Tier and the rest are saying it's not his bank. Robert Caplin and the Dallas Fed, thank you.
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Every time a crisis shows up, a new institution shows up.
That's magical. It is the Budget Lab at Yale with the backing of Pete Peterson's Foundation and many other good people, Martha Gimble and Ernie to Desk any others drive in this forward and they've had a profound impact on analysis and clearing through the depart in the phrase the bs of the moment, Ernie Tdesky joins us from the Budget Lab this morning, Ernie, what's a number one message you would send both Republicans and Democrats in Congress.
Number one message is that where we're at right now is not writing our fiscal shit. We need ten trillion dollars of deficit reduction over the next decade just to stabilize our debt to GDP, which is probably all the United States needs. We don't need to balance the budget fully, we just need to stabilize, you know, get debt growing at the same rate as the economy. And what they're doing in Congress right now is not even close to that.
It's a four trillion dollar bill if you make permanent all of the tax cuts in it, and even if you include tariff revenue, tariff revenue is only raising two trillion dollars at this point, so we're still making the debt situation worse.
The critics of earning to Desk and Martha Gimble and the rest, what they would say is the growth rate is too gloomy. At CBO, we're going to be more optimistic about mourning in America. We're going to get a better little g in life will go on. Is that possible? Feasible remotely be a constructive outcome.
I mean, look, any more growth that we can get is nice, it's cherry on top. But extra growth that we get is not nearly going to be enough to solve the problem for us. You know, even if we had three percent growth, you know, sustained for a decade, which is infeasible. Most most economists think that trend growth in the United States is two percent. We would not stabilize the debt to GDP over ten years alone by getting to three percent growth. And you know, this bill
they go above and beyond just straight TCGA extension. So there's probably gonna be a little bit of fiscal impulse in the short run. But this bill is not going to get us to three percent growth persistently, especially when you add on top the terrorists that they've passed, which you know, shave off half a point of growth this year, and keep you know, GDP persistently lower long run.
Ernie, I know you and your team have done a lot of work on this, but I think most market practitioners believe the effective twer F rate by the end of this year is going to come in somewhere between fifteen to eighteen percent. Yet you know, I mean, recession probabilities are like down, and basically people are calling for the US economy. I mean, I think it's growing at a four percent plus clip here in the second quarter. So look, we all wanted nickx Pacis to go nine games.
But just where is this catchup of the heart to the soft data here?
Yeah, like it's a great point. We're at fifteen percent effective rate right now, and and we think that that takes off half a point of growth off of twenty twenty five. Now, we want to be very sober about what that means. Half a point off of growth is
a significant headwind to the US economy. But on the other hand, if you thought that the US economy was two percent in twenty twenty five, and you shave off half a point, you're at one five, which is, you know, not as great as it was, but that's not recessionary by itself. I will say that what we don't capture in our modeling is the uncertainty effects of tariffs. And so what I tell people is that we probably don't have a central estimate in our estimates of terriff effects.
We're probably a floor in terms of the effects, So there is still more recession risk than there was a year ago.
A special Treatnie, you'dski with us for an extended conversation this morning with the budget lab all of us work for ed Himan at Evercore ISI over the years. Just a real treat folks within the market and the futures up thirteen. What's going on? You know what it is about our debt and deficit, Ernie. I was weaned on how Bronner's the debt in the deficit, a cruel accounting and all that. I don't want to go into that
too early in the morning. To go into debt. You are magical because you had to work for Ed Hyman. You had to work with the granularity of the American economy that Ed Heyman and ed Yardnny frankly invented at CJ. Lawrence years ago. When you look at the granu larity of the American economy, does this debt in deficit break us? Or do we just keep going with the American dream?
So?
I don't so. On the one hand, I don't think that it breaks the US treasury market, you know, I think you would need something close to a meteor strike or you know, maybe a debt ceiling in pass to fully break the treasury market. If we're talking about just adding to our debt, I think it's going to have a mostly linear effect. I think it's going to just keep adding to interest rates. Now there's a limit to that. We can obviously go too far, but I don't think
that that's a short run risk. On the other hand, like when you look at estimates of the term premium, there we go term premium is up and it's and it's up not just because of debt, it's up because of tariffs as well. You know. The big Uh. This continuity in the rise of the term premium recently was after April second, not after we got news about what
was going on in Congress. So I think what we we need to appreciate, without getting too pollyannish here, what we need to appreciate is that it's not just the debt. It's that investors are reacting to this new reality of trade and the risk of the United States is not going to be as central to world financial markets as it was in the past.
Ernie, the changes we're witnessing, I'm talking dollar hedging by Asian lifers, difine benefit contract conversion by European pensions like the Dutch JGB loss is harvesting by the BOJ. Are they structural or is it short term in nature?
I mean, I think that they're mostly strung. I think it's mostly short term right now. I think that they are mostly you know, reacting to idiosyncratic factors in those countries. You know, things like insurance companies in Japan, just the fact that the BOG has less demand in general right now because they have such relative to japan high inflation. I think also a lot of investors are reacting to
the change and the short run US outlook. But look, I wouldn't call anything structural yet because nobody knows what the final tear rate is going to be. In the United States. I would say that the court decision, the US Court of International Trade, if anything, tightened the uncertainty rather than diminishing it, because now we have uncertainty bands that reach to zero percent tariffs. Right That's that's not
my likeliest outcome, but now it's applausible. It's a plausibility that the courts could strike down most of the Trump administration tariffs, and so you as a business or a consumer, it's even more uncertain now what things are going to look like in a year.
Are any some of the largest and most venerable fund managers in the country, Double Line, Pimco, TCW are avoiding the thirty year. In fact, some of them are actually recommending to short the thirty year. But then I think about the negative carry associated on a marked market basis with shorting treasuries. Talk to us a little bit about what exactly is going on out there at the long end of the curve from a practitioner standpoint, I mean, is there is there going to be a bit is
there demand? And at what level do you think people just start to, you know, kind of get weed back into that market.
Yeah, it's a good question. So you know what we've seen, you know, we've particularly seen the thirty ten spread rising lately. I think that that is primarily being driven by fiscal concerns right now. It'll be interesting to see sort of as we get more news on tariffs. You know, tariffs are tariffs are in a funny way of offsetting that concern a little bit because they obviously raise revenue while
at the same time swallowing growth. So so if tariffs diminish because of court cases, or because you know, the Trump administration comes to deals with other countries, like it'll be interesting. Like it's actually quite uncertain what effect that's going to have on the long end. If we raise more tariff revenue, that might, on the one hand, a swage fiscal concerns, but it might also raise growth doubts about the US.
Ernie, thank you so much, Ernie. To Deski with us the budget labit you can't say enough about how they have just overnight definitively changed the fiscal dialogue in America. That's a real treat.
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This is a joy with a fabulous old world perspective. I think of Rubini, Teleban, so many others coming out of the levant in points east of there, in Persia, in Iran and joining us right now is Sasan Garamani, President and CEO at SGH Macro Advisors, associated with Medley for years. Wonderful to have you here. Thank you so much, Thank you Tom for coming in. You've got such a different perspective. And I think of China, I think of like Baghdad and the Sassoon family from a zillion years ago.
Nobody understands the heritage of Persia and the greater Persia in setting up the Pacific rim over centuries. And so you've got this one with your family. You have this wonderful perspective on China. Do we understand China or are we ugly Americans?
I think we're increasingly understanding China. And I think the evolution of our thinking has changed over time, and quite simply, it's gone from from a trading partner and to increasingly to a competitor, and increasingly to an aggressive competitor. And I think, you know, we get a lot of missives from Beijing and I read through them, and I'm always almost shocked by the adversarial tone and strategy really towards visa.
Bets In the Secretary of Treasury's bet, is there going to men to a United States X a United States timeline? I've seen no evidence of that. If I read Albert Harani and the Mediterranean from Persia to Morocco. I don't see a US timeline. I don't see a US timeline in China. Am I wrong?
I think what you're referring to, or what you're elading alluding to, is a timeline on trade negotiations, and in particular, but maybe you know more broadly. I'm sure you call it with this as well. They yes and no. I think that what we are seeing in China, and if you look in particular visa VIV negotiations with US, there is a narrative that China can hold out for you know, fifty years, one hundred years, you know whatever. And they're a strategic imperative to try to put the squeeze on
the US. You're seeing that with rare earth minerals and all these other negotiating leverage points. But China needs a deal as well. Underneath the numbers, there's some weakness. There's weakness in the consumer spending if they had yet a very big stimulus boost in the fall of last year, and that's starting to tail off a little bit now.
So what does the US administration not get about China?
What do they not get about China?
I think that.
The administration is has thinks that they can, especially the President thinks that he can break through more quickly on negotiations and the decision making process, and the Chinese keep insisting that the negotiations be conducted from the technical and deputy level up and so that the apparatus is slower
than I think than what the administration believes. They a lot of faith in this Trump she call that should be coming this week or next week for a breakthrough, and I think there'll be some positive noises coming out of it, because I do think both sides want to de escalate, but as far as getting a concrete agreement, like the Chinese have put together a deal on between rare earths and the and the semiconductor ban, and they want to have a trade off to loosen those and
that's going to be hard to come by.
It's the same ceremony with this SGH Macro advisors thrilled these with us today. I would be remiss if I ask you about the Western stereotypes of Persia and the overwhelming reality I've seen across my life is a basic idea. It's the only thing standing in the Greater Mid East with the legitimate Middle class and somehow, some way we're going to migrate it ran from nineteen seven nine on back to something new and more benevolent. Is there any hope for that or do you just give it up?
Not that we would go back to a show structure, but that we would amend back to some form of new government.
I'm not sure about the form of new government, but I do think that the progress is very real. On the nuclear negotiations, I was talking with a friend of mine who's very knowledgeable on these issues, John Alterman at CSIS. I don't know them, and I said, I think, after sixty five years, whatever the math, that this might be the deal. And he said, I don't think this is the deal, but I think this is a deal, and
we're getting very close on that. So I thing on the economic front and that we might see some loosening, but the government is very entrenched there. So I don't see.
What is the biggest myth of Iran and Americans have right now? If I travel fifty south of Tehran, say to all that heritage, the gorgeosity of Iran and all the ancient history and the rugs is a stereotype in that what's the biggest myth Americans get wrong about your Persia.
I think it's really the attitude of the Iranian people towards Americans in particular. And we've used since nineteen seventy nine to see a lot of hostility in the Middle East towards towards the US. You see that from the government, but the Iranian people are very friendly towards foreigners in general and Americans in particular. Actually right, and people get really people who travel there. There's a there's an amazing CNN the show Anthony Bourdain where he to Iran. I
don't know if you saw. Thats one of the classics, and people get surprised by you know, how they roll out the rugs, so to speak.
So Sam, thank you so much, greatly, greatly appreciate your tendance today. Sassan Garamouni, where he's president of the Chief Executive Officer SGH. Macro Advisor is an important note there with some optimism on a China US discussion as well.
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This is a great honor and incredibly well timed. Sheila Koglu is with Jeffrey. She was legendary Credit Suis, winning all sorts of awards from I and the rest, and now at Jeffries and what's different every cell side analyst Folks is different. Sheila is bulletproof at the relationship inside the Beltway to your economy, premium and bil business class seat on a commercial airline. We're going to stay really today on the safety of the American system coming out
of FAA in defense and all. She looks thrilled to have you here. I'm going to cut right to the chase on the airline business Delta, Hold Air Canada, Hold, Hold, Hold, Hold, Hold United A bye. What's unique about United versus all?
It's your only buy Why we really like it's offering internationally premium. We think it can catch up to Delta, and their strategy is to grow those premium seats, and we think it has an edge. Delta is the clear leader in premium, but we think United is catching up. An American is a bar behind them.
Can you do something about luggage and CDG in Paris.
I don't know, but three international trips in the next six weeks. I do think that there's some book away with Newark, but the runways opening up early. Scott Kirby's inviting people back, folks back to EWR and we'll.
See across this name RHO question. This is the most important conversation of the day. Do you perceive a damaged safety to our air system because of Washington budget challenges a little bit?
You know, I've spoken with the former FAA administrators. There's so much data out there, and there's systems that we could put in place that will prevent the next crashes. I was with three corporates yesterday, Letos, SA, c Raytheon Parsons. They all make equipment for air traffic controllers, or train them, or make software systems. We just need to move some of those forward. And President Trump is doing part of that.
Well, Sheila doesn't.
Trump's budget proposal boost spending not only on shipbuilding, port infrastructure, but on air traffic control as well.
It does, but it takes time. There's you know, the air traffic controllers unionized, and you know, the equipment takes years to put in place. So I think one of the things this administration is doing positively is moving things forward.
How do you think the military build up in the EU? I mean, we got that new that the European Commission approved the joint ventship between BAE, Leonardo and Mitsubishi over night. I mean, talk to us a little bit about this build up that's coming, This fiscal spend on military at the EU. How's that impacting your sector?
So I actually think the best place away to play European defense is two stocks in my coverage, Lachux and Northrop. I was with the CEO of Northrop yesterday morning and the news came out on NATO air defense build up. So NATO right now they're barely spending the two percent. Their goal is to spend five percent in total, of which three and a half percent is on actual equipment. What I think is going to happen is the European industrial base is going to build their own fighters. They're
going to support their home teams. Right, So that might leave F thirty five out in the cold, but the backlogs fine through twenty thirty, so it's fine. But what they do need is air missile systems. The systems and the missiles they don't yet have in place, the weapons and the fighters they could make themselves. So north A been LACHUCKX for that.
What do you think about this kill switch? And you have thirty five that everybody's been talking about is being I don't think think that's it isn't it? Just like the data package needs to be constantly updated by the US. And that's the real risk with owning F thirty fives in Europe.
F thirty five has had a lot of issues, but so is every major development program. It just this one seems to be plagued consistently. We're on lot eighteen of production. Lot nineteen is coming up, and we still have upgrades that are just gaining stability after the last four years.
Well, let's tear up the script here. We saw China ways ordering hundreds of airbus jets in some major deal, but then we're also hearing that negotiations are breaking down. I mean, how do you make sense of all this?
So this is the way I simply think about it. China's fifteen percent of air traffic, so they're going to take fifteen percent of planes, whether that's airbus are bowing, I don't really mind I actually rather it be Airbus because then Boeing has a more diverse customer base and doesn't have risk on with a single country in twenty forty when Komac actually gets to build.
You're a stock pick. But I want to recapitulate this. I think it's so important you see an urgency to fix the safety after the horror of what we saw at Reagan next number of months ago.
I think the the number of air traffic controllers we have is quite small. You know, I haven't been able to verify this, but I think Newark has something like forty percent more passengers coming through since twenty nineteen.
Okay, but the number.
Of air traffic controllers is stagnant.
Everyone listening to see everyone listening to this program knows that's insane. Do you suggest a new urgency to fix this?
Now more air traffic controllers? The attrition rate is quite high, sa I see the company I saw the more or increase the age. They have a fifty five year year retirement limit, which the union is pushing back.
Okay, well, maybe that it's still hard for you to become traffic you know, Sheila where I stand on that. But isn't it just simply, these are air traffic controllers. They control our lives. Lift the wage? Does that work?
I think? What what has happened in aerospace defense? And because it's such an interesting it's such a specified industry, whether it's shipbuilding, whether it's air traffic control, you can't find those folks on the street, and those wages might not you know, yes, lift the wage, but also the age. And it's a hard profession. You don't find those folks off the street.
I hate you. You told me to buy Woodward WWD Fort Collins College. I totally to buy August twenty, It's done a double Okay? What is Woodword Inc? WWD?
Woodward is a small cap supplier, which there aren't a lot of because everybody's been taken out Walkwall, Collins b Airspace my favorite companies to cover back in the day. What Woodward does is half of its business is aerospace, half is energy. Think about it is it makes it controls energy in an aircraft or an aircraft engine or an industrial gas turbine. So it makes actuators, fuel control systems.
It has about three hundred thousand worth of content on a seven three seven max, so smaller than other big suppliers like a Raithian or a Honeywell, but gaining steam and gaining share.
You know, I'd like to go back to what you were saying earlier about raising the retirement age on air traffic controllers, because that means that Tom has life after Bloomberg.
Right.
I can see him with the glowy sticks and the headphones, you know, in.
The room shielder where these guys are doing.
No, I haven't had that privilege. It must be quite stressful, just as stressful as being in this room right now.
It is love that stress. Kind of a knight should have killed you. With the Jeffers, you greatly appreciate it. Just he and I can't say enough about her synthesis of Aviation United as your buy.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Corplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
This is joy. Eric Rosen stops by, and we could go a couple of ways here with his work on Wall Street. You do like private credit, private disc credit trading, DA da DA, da da. We could do his philanthropy, including pediacric commitment to wild Cornell. Forget about it. He's down in Florida now, and from coast to coast people are like, is Boca gonna fall into the ocean? Okay? Boca three three four three two four beds, John Tucker
six baths. It's substantial, six five hundred square feet. It's popin twenty nine point five million, but it just had a five million dollars price cut. Eric Rosen is Florida real estate falling into the ocean.
Well, thanks for having me on again. It's great to be with you. So things have definitely slowed down, right, So a handful of events have taken place. We've seen a huge uptick in prices over the last five or six years, two three hundred percent. We've seen mortgage rates go up, We've seen much higher, insurance rates tripled in many cases. And that the result is we're definitely seeing pressure on the low end.
The lower end.
Houses are definitely staying on the market longer. Inventory in Florida is one hundred and eighty three thousand units as to the end of April, and it was at the lows in twenty twenty two, twenty thirty five thousand units, and before COVID it was one hundred and twenty nine thousand units. So you're seeing much more inventory and at the high end, the choicest stuff in Miami and Palm Beach on the water forty fifty million, sixty million tents
to sell pretty well. Everything else is on the market right longer, and you're seeing price reductions and inventory built.
I think of the macro flows, like middle class people in Florida saying I'm done with this. They're moving to Georgia, They're moving to the Carolinas, or I think of the money of South America and Central America coming in. Is that money still flowing in from nations to the South.
Yeah, I mean so, listen, the great migration has slowed. What we saw in twenty twenty two and twenty twenty one, we're not seeing those numbers anymore. But we saw a flurry of buying from Californians post the Palisades fires that they were displaced. I said, one of my friend brokers was showing a showing houses and one day, four out of the fi I.
Have you know other real estate brokers who are friends.
Friends is a strong term acquaintances. I miss foths, I misspoke acquaintances. In one day, four out of the five people that showed up for a very expensive open house were all displaced, all from California.
I should say you're a Douglas Element shat talker. Would you like that?
I'm going to guess your customers don't care about mortgage rates. Do they care about homeowners insurance and getting homeowners insurance?
Well, so homeowods insurance rates have gone up double triple or quadruple depending on where you are, And if you have a mortgage, you have to have hurricane insurance, you have to have insurance, and so a lot of most of the focus folks that I focus on are not super focused on interest rates. But one of my friends has a two point five percent mortgage and their insurance got canceled and it went from seventeen thousand to eighty five thousand dollars per year with much much worse coverages,
higher deductibles. So he didn't want to repay his mortgage because such a cheap mortgage. But most of the high end buyers are not super focused on mortgage rates, but under a million dollars two million dollars, you're seeing it.
I spoke with someone who said that three of their showings, through their listings that are in the one to three million range are offering forty thousand dollars for the buyers to buy down mortgage rates, so that instead of paying seven percent, they're paying four four and a half percent to make their monthly payments more affordable. So rates are definitely a factor.
Okay, the weaker dollar, how does that influence the foreign buyers?
You know, in Miami there's a lot more foreign buyers than other places. But you know, I think it's too soon. I don't think we've seen a flurry of new buying from foreigners, but they're always in Miami, have a lot a lot of Americans come there.
So what is the hurricane insurance at a one point one million price cut thirty five thousand, twenty two hundred square feet, four bedroom, three bath and scenic Boca three three four nine eight, what's the insurance on that? Well?
I can only say I don't.
I can't.
It's quote that's a house, but I would say it's probably up two to three times, especially are you near the water. Are you inland by ten miles or are you near the beach, because that makes a big nu of the beach.
Not on the beach, but near the beach. You know Bar Michael barr.
Wood live there.
Yeah, So, I mean, whatever it was, it's probably up two and a half times in the last.
Give me a rough number. I don't you know, nobody's listening, Eric, Just give me a number.
You know, I'm thinking about what my what my insurance rates are? You know, you know it would be hard for me to guess.
I don't know, what would you like to guess? Johnsince I'm not going to get an answer out.
Of mister Roses, but I'll be polite mode say well here, no, I'll ask this. What are your commissions? What are they? Is it still six percent? Or is that negotiable?
It's always negotiable, you know at the high end you know they have.
It's not going to go. Is the future of real estate transactions to is that under threat? Those commissions?
Listen, you know there's been a lot of talk about it, but the commissions for high end product people continue to pay for it. But it's denevochable.
Thank you for coming in really appreciate.
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