September 26, 2023 • 34 mins
Bloomberg News US Commercial Real Estate Reporter Natalie Wong discusses how the world’s mega-rich are betting on US renters to grow their billions. Ed Price, Principal at Ergo, shares the details of his global risk event From Ukraine with Love. Bloomberg Intelligence Senior Autos Analyst Kevin Tynan and Diana Lee, CEO at Constellation, talk about the impact of the UAW strike on electric vehicles. And we Drive to the Close with Nancy Tengler, Chief Investment Officer at Laffer Tengler Investments.
Hosts: Carol Massar and Tim Stenovec. Producer: Paul Brennan.
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Speaker 1 (00:01):
This is Bloomberg Business Wait inside from the reporters and
editors who bring you America's most trusted business magazine, plus
global business, finance and tech news. The Bloomberg Business Week
Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2 (00:20):
Well, this story definite caught our attention reading in this morning.
It is among the most read on the Bloomberg. It's
about the world's mega rich betting on US rentors to
grow their billions.
Speaker 1 (00:29):
Yeah.
Speaker 3 (00:29):
More specifically, however, the past decade, ultra wealthy individuals and
their firms have more than double their investments and apartments,
largely in the sector known in the US as multi
family housing. This according Carroll to the research firm Night Frank.
Speaker 2 (00:42):
All right, let's break it all down and get to
these findings with us Bloomberg News US commercial real estate
reporter Natalie Wan joining us on zoom in New York City,
Natalie Providence, who knew, We'll get to that in just
a moment. First of all, tell us what's going on
exactly right, Thanks.
Speaker 4 (00:56):
For having me on. So it's this really interesting trend
of period when everyone's shying away from commercial real estate,
whether it's the massive institutions like Blackstone or the big
bank banks who are trying to reduce their exposure. And
in the meantime, you have these ultra wealthy billionaires that
are snatching up properties. You know, I think for them
(01:17):
it's really a diversification play, and they are trying to
increase the allocation of their holdings to properties. And in
the past, whereas it used to be for offices, clearly
with the glut and drop in values of offices, today
apartments seem like a much better bet for them.
Speaker 3 (01:33):
Is this also a bet on just the fact that
so many Americans with housing prices at a record in
many parts of the country, mortgage rates high, that many
people aren't going to be able to buy a home.
Speaker 4 (01:47):
Yeah, that's a big part of it. We clearly see
that there's been a shortage in affordable housing for people.
That's pushed a lot of people into the rental market.
There's a lack of housing even across the rental space
across and that's why we've seen rents continue to rise
even over the past year. You know, I think that
for these folks, they're kind of looking at this from
(02:09):
an extremely long term play. They're less exposed to the
fluctuations in the debt market, and they can often pay
with cash or they have special strong financing relationships with
banks that are willing to fund them and for them.
They're looking at this as kind of a stable, long
term play and a bet really on the growth of
major cities like New York or Chicago that you know,
(02:31):
even if the property market continues to struggle across commercial
real estate for the foreseeable future, some of the best
properties will probably still continue to produce income for these folks.
Speaker 2 (02:44):
I kidd it at the top Providence, who knew, but
we're talking about rent growth over the past six months,
and Providence Rhode Island right up about eight percent. So
that's kind of a top the list, even more so
than New York City, right.
Speaker 4 (02:58):
That's topping the list. We're seeing brand raps also top
the list. I think Hartford is in that list as well.
And you know, I think it really goes to the
boom across maybe cities that you know aren't like New
York or Chicago. But with the pandemic, we've seen that
people might not have to work in the office, they
might not necessarily need to do their shopping in retail,
(03:18):
but they do need homes, and so we've seen kind
of a boom across some of these secondary cities, some
of the more suburban areas, and I think that we're
seeing these billionaires ultra wealthy folk try to get in
at a time when there's less competition in the space,
and also the returns look for more attractive than compared
to say, two years ago, when we saw double digit
(03:39):
rent growth across many of these cities and everyone trying
to bid for properties. There's been a step back in
today's market and that kind of provides a perfect buying
opportunity for long term investors that have access to capital today.
Speaker 3 (03:51):
Well, speaking of access to capital, Natalie, do we know
how these billionaires are financing these these purchases. Are they
just paying cash? Are they actually financing them? I mean,
rates are very very high right now.
Speaker 4 (04:03):
They're extremely high, and a lot of cases they're putting
in a lot of cash. I think in some situations
banks it's not like they don't have liquidity, they're just
being a lot more cautious as to what they're lending
on and who they're lending to. Because you know, we've
seen even some of the biggest folks to fault on
their loans. But I think for these billionaires, I mean,
relationships between a lender and their borrowers one of the
(04:25):
most important things for these types of institutions. And I
think if you're a billionaire, like is there a founder
Amansia Ortega, you might have less hurdles to across if
you're looking for a lender for a deal like this.
Speaker 2 (04:39):
I wonder, I don't know if you've kind of looked
into this side of too. I think about what it
means though for the renters and stuff with investors getting involved,
does that mean is it problematic? I mean, I mean
rent is often set by you know, the market, right
or the geography, if you will. But I do wonder
if this is going to mean higher rental cost potentially
for renters.
Speaker 4 (04:59):
Yeah. I think some of the specific deals that we
quoted in the story, you know, we're Taga buying that
two hundred and thirty two million dollar luxury apartment building
in Chicago, and then another billionaire buying a Manhattan Grammarcy apartment.
Those are kind of already luxury apartment buildings where I
think the clients hele for those buildings are used to
(05:19):
paying top notch rents. I don't necessarily see a flood
of interest in rent stabilized or rent controlled properties. Investors
are definitely shying away from that right now. We're seeing
a lot of talk about that, even with the Signature
Bank portfolio, where there is a significant chunk of rent
stabilized properties, and sort of the question as to who
wants to take on that risk that's interesting, I think,
(05:39):
A yeah, I think these folks are largely targeting some
of the higher end apartments, which you know there's always
going to be demand for at this time.
Speaker 3 (05:48):
Do we know, you know, not necessarily average rents, but
when you stay higher end, give us some context for
our listeners and viewers around the world, like, you know,
three thousand bucks a month for a one bedroomyah.
Speaker 4 (05:58):
I think in Manhattan. I haven't looked at the most
recent numbers, but I think we're topping near like four
thousand on average for an apartment, right Natalie.
Speaker 2 (06:06):
This is a fascinating story, and I also thought it
was interesting how that before the pandemic you had the
world's rich really focused on office properties. But we know
what's going on there, so they've shifted uh into rental
properties and residential So really interesting story in terms of
what's going on today. Bloomberg News US commercial real estate
reporter Natalie, thank you so much. Netlie Wan joining us
(06:26):
on zoom in New York City. This is Bloomberg.
Speaker 1 (06:29):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from three to six Eastern Listen on
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or watch us live on YouTube.
Speaker 2 (06:52):
World. All right, yeah, you know, we are waiting really
for this war in Ukraine to be over. I think
about Ukrainian President Vladimir Zelinsky in town last week speaking
before the UN General Assembly, making his case for pressing
on with the war effort. Yet President Biden coming out
calling out world leaders to stand by Ukraine, and it
struggled to eject Russian troops even as Kiev's all I
(07:15):
say that they now expect the war to last for
years to come. I was watching coverage and people are saying, Okay,
we're getting ready for year number three.
Speaker 3 (07:23):
Yeah, it's unbelievable to think that that we're there, especially
given what we thought when Russia first invaded Ukraine almost
two years ago. Carol with more on the war and
other global risks. It's really great to have back with
us in our Bloomberg Interactive Brokers studio. Ed Price Principal
for Geopolitical Forecasting at Ergo, a global intelligence consulting and
forecasting firm. At also a former British trade official, representing
His Majesty's government to Wall Street and the US official
(07:45):
sector from twenty seventeen to twenty twenty one. He's advised
a number of European and British parliaments, Carol, and worked
also in the city of London.
Speaker 2 (07:52):
It just knows a lot and I seeing a lot.
Speaker 3 (07:54):
He also traveled a.
Speaker 2 (07:55):
Lot, and he's just back from Ukraine. Good to have
you back.
Speaker 5 (07:58):
Thank you very much, Carole.
Speaker 1 (07:59):
How are you?
Speaker 2 (08:00):
But do it okay? Trying to keep up with it
all and try to make sense of it all. You
are just back from Ukraine. How did you make sense
of what you saw?
Speaker 5 (08:08):
Well? I think the word evil crept into my mind
a lot, so there was a sort of theological reaction
at the end of the day. I suppose. I otherwise
tried to make sense of it by putting it into
the economics bucket and the military bucket. The economics bucket
is of course that the Ukrainians are really trying to
make their economy work. They're trying to just go to
the shops, drink coffees and go out as much as
(08:30):
they can, which is to be welcomed. And of course,
on the other hand, the somewhat disappointing counter offensive. I
went just before the offensive itself, and I think that's
probably one thing that we're probably going to have to
talk about today.
Speaker 3 (08:43):
Oh go ahead, Cairl.
Speaker 2 (08:44):
Well, one thing I wanted to say, and I was
talking to our team about this. There was sixty minutes
at a piece and it was talking about the American Aid,
the USA, and one component I wasn't aware of was
how much was going into the country to support small
businesses and the whole idea of you've got to have
some economy to back to after this is resolved. Otherwise,
you know, you have a taxpayer base. Then people are
(09:06):
you know, kicking money into the economy, otherwise you have
everybody leave. So I thought that was an interesting part
of the aid that I wasn't aware of. I was
aware of all the military, but it's an important part.
Speaker 5 (09:14):
It's hugely important. And let's not also forget that the
Ukrainians are still trying to transition out of a Soviet
economic model. They have a structural deficit essentially, that's a
social welfare model. They can't really get rid of it.
By their own admission that the older generation is somewhat corrupt,
you know, they look at governments of.
Speaker 2 (09:30):
Scuba and another thing I didn't now, yeah.
Speaker 5 (09:32):
I mean, I didn't really understand that until I spent
some time there. But it's a war on two fronts, right,
It's the military war, as I say, and they're also
trying to keep the democratic and market institutions not only
alive but developing as best they can. And so of
course the aid that we're sending has to do both.
Speaker 3 (09:49):
You know, there are a great number of people in
this country who don't want to send aid to the
Ukrainian government. What would you say, after being there and
seeing with your own eyes what's going on on the
ground in Ukraine to folks here in the US who
are telling their representatives, and some representatis are indeed very
vocal about it, especially on the Republican side, that they
do not want to send a to Ukraine. What's your
message to them?
Speaker 5 (10:09):
My message, very respectfully, would be Where do you want
to fight Pewtin, the Ukraine, Poland Berlin, Paris. Well it's
that simple, I think. And the small amount of money
relative to our overall military budget that we have spent
in Ukraine, it's about say five percent, that has degraded
the Russian military capacity in a way that I didn't
(10:29):
think I would see in my lifetime. Honestly, they will
previously say five days away from a serious attack on NATO.
They must be five years away now given the damage
we've done to them. So you know, what do you
want for five percent of your military budget? More trucks,
more uniforms. I would suggest that killing bad guys for
pennies on the dollar is probably a good ROI if
(10:50):
we don't.
Speaker 2 (10:51):
Do it, if countries pull back their support, if the
US pulls back its support, then what potentially?
Speaker 5 (11:00):
I think that Putin and the Russians are trying to
overhaul the Second World Wars settlement. I think they're trying
to undo a global order. I don't think that they
want to live in a world of rules. And if
Ukraine goes down, and you know, all bets are off.
I say that in part because the if a new
US administration leaves NATO, then we've got a bit of
(11:24):
a problem on our hands because I don't think that
the Germans are ready themselves to back Europe's independent deterrent yet.
So what happens is carnage.
Speaker 2 (11:34):
It's like terrifying.
Speaker 3 (11:35):
It is terrifying. I'm wondering, should the US be pushing
for a cease fire? Should our allies be pushing for
a ceasefire here? Should that be what they're pushing for
in terms of an end to this war?
Speaker 5 (11:46):
I think what we should be pushing for is removing
Russians from every last inch of Ukrainian territory. That's a
maximalist position. There are people in my world who disagree
with that, and so it's too dangerous. But if we
award aggression with any sort of negotiation or peace agreement,
we're bucking the number one lesson from world history.
Speaker 3 (12:07):
But he's got nukes.
Speaker 5 (12:09):
Well, he's got nukes, and so have we. And I
think we talked about this before, like if we get
to that stage, yeah, who you know who has a
greater faith in the Almighty? I think it's probably us.
But before that stage, and if he is indeed bluffing,
which I would suggest to he is so far we've
crossed every single redline. This is a case of facing
down military aggression the same way we should have done
(12:29):
in the nineteen thirties with Hitler.
Speaker 2 (12:31):
So you have a lot to talk about at an
event you have coming up on Thursday, and I want
to get into that a little bit. The London Stock
Exchange Group in the NYU Center for Global Affairs hosting
a discussion of your political risk with you, which you
kindly invited us to. And if I still ended earlier,
I could make it any right, it's Ukraine with love.
Tell us about what you want to emphasize there.
Speaker 5 (12:51):
Yeah, that's really coind it's essentially the same message, right.
I don't want to come in here and repeat myself,
but I'm really trying to push as an analyst for
the case that the aid that we're sending Ukraine must
be in place, probably should increase. I think it's rather
strange that we haven't offered them more in the way
of air power while suggesting that they can conduct combined
(13:12):
arms operations and the essentially they are fighting for our
freedom as well. It's that simple, it's that emotive. So
I'm trying to get some powerful, interesting people together, remind
them of that, tell them a few stories from Ukraine,
because the alternative is pretty.
Speaker 3 (13:28):
Grim based on your analysis, ad what you've seen over
the last two years, the world's response. How does this end?
Speaker 5 (13:36):
How does the war end?
Speaker 1 (13:37):
Yeah?
Speaker 5 (13:39):
I think probably the central case right now is that
Russia gets to keep a big old chunk of Ukraine.
It's embedded itself. You've seen the defensive lines, and at
that point, all bets are offers to what happens the
decade after that, if they're rewarded. I'm afraid that's the
central case right now. I don't think we've given them enough.
Speaker 3 (13:57):
To push the can that be prevented it yet?
Speaker 6 (14:01):
Well?
Speaker 5 (14:01):
I mean, I mean, look at this, This is all
a function of how load you want to go, right, Like,
do you want do you really want to push the
Russians out with conventional power? And we're creeping towards that.
I mean, you'll notice that there is a deep contradiction
in American thinking because on the one hand, we say,
as I just said, he probably won't use them, don't worry,
so keep on. On the other hand, of course, we
haven't sent everything we could have, because that in the
(14:23):
back of your mind you're thinking, well, maybe he might,
but it's not going to end well unless there's there's
more military intermention.
Speaker 2 (14:30):
And this isn't a European thing, this is a global
concern has.
Speaker 5 (14:34):
To be I would say, so, Carol, I mean.
Speaker 2 (14:36):
I mean, I'm asking kind of the obvious, but I
do feel like there are people like that's Europe's problems.
Speaker 5 (14:41):
Yes, and I think that's wildly dangerous because you know,
Pewtin and Shijenpin do not have the relationship that they claim.
Pewtin is the junior partner. But just imagine if Peutin
made a feint at the Baltics or you know, at
NATO in conjunction with increased Chinese harassment of Taiwan. These
guys are smart. They can figure out a way to
(15:03):
spread our resources more thinly. So for my money, I say,
the more work that we do in Ukraine to hold
down this autocratic aggressive power, the better.
Speaker 2 (15:13):
Does that relationship between China and Russia.
Speaker 6 (15:15):
Where are you?
Speaker 5 (15:16):
It worries me deeply. Yes, I'm yeah, I'm up at
night thinking about that one.
Speaker 2 (15:19):
We're running out of time, But like it's I think
about that a lot in terms of that relationship and
it just do you feel like what we got off
of the un last week? Do you feel like there
was the right support and just got about fifteen seconds?
Speaker 5 (15:32):
Absolutely not, No, there needs to be more.
Speaker 2 (15:34):
Yeah, it felt like people were getting tired at the situation,
which was unfortunate. Good luck with your event Thursday at
what time?
Speaker 5 (15:40):
Six pm? I'll say London Suck Exchange Group. If you'd
like to come, let me.
Speaker 2 (15:45):
Know, ad Price. Thank you. As always, this is Bloomberg.
Speaker 1 (15:49):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from three to six Easter on Bloomberg Radio,
the Bloomberg Business App, and YouTube. You can also us
live on Amazon Alexa from our flagship New York station.
Just say Alexa play Bloomberg eleven thirty.
Speaker 2 (16:08):
A lot going on in the auto world. Continues to
be President Biden on the picket line telling striking autoworkers
to stick with it. And then you had Ford being
blasted by its largest labor union for halting construction on
that three and a half billion dollar battery plant in Michigan,
amid scrutiny of its ties to a Chinese battery maker
by Republican lawmakers lock going on.
Speaker 1 (16:30):
Yeah.
Speaker 3 (16:30):
In today's edition of Bloomberg Plugged In, we're looking at
the world of evs with us. We got a Bloomberg
Intelligence senior autos analyst, Kevin Tynan from Bloomberg Intelligence headquarters
in Princeton, Jersey. Also very pleased to have back with us.
Diana Lee, co founder and CEO at Constellation. She's with
us in our Bloomberg Interactive Brokers studio. Constellation a marketing
platform for the automotive industry. It helps car dealerships reach
(16:50):
out to customers. Kevin, I want to start with you
and just just lay it all out there for us
in terms of historical context here and what it means
to have a sitting president actually join a picket line today.
Speaker 6 (17:00):
Yeah, very interesting. You know, it's been a little bit
since Friday, since the expansion of the of the walkouts,
it's been a little bit quiet. So I think there's
real work going on. There's photo ops, you know today
with the President being on the picket line, But you know,
I think real work is getting done. You know, and
I've said this all along. I think really for the
(17:22):
manufacturers it's about flexibility to rationalize capacity, and headcount going forward,
And for the Union, it's about sharing and the the
profitability that the automakers have had over the past ten years.
Speaker 2 (17:36):
Forty percent increase in pay, Kevin President says, yes, I'm
not sure that many Americans can relate to it, that
forty percent increase in pay. So walk us through the
changing balance sheets potentially for the big three US automakers
as we transition to that ev world. I mean, does
it that balance sheet change the cost the gains?
Speaker 6 (17:56):
Yeah, Look, and I think if it's if it's the
labor component of cost of goods, it's a little bit
easier to absorb. Right. So if you look at even
just transaction prices over the life of the last contract,
you know, up significantly. So even if there's you know,
eight percent a year over the next four years, which
comes out to be that thirty six percent, you know,
(18:18):
prices have actually risen faster than that during the last contract. Now,
a lot of the automakers forward, specifically are all truck
in the US, so there's very little additional mix upside
for companies like that. Electrification isn't quite there yet, so
it's probably going to be something like software and in
vehicle content that helps offset some of those costs, But
(18:40):
where it would really hurt and impact the balance sheet
would be in you know, a change in sort of
the pension, the healthcare some of those long term legacy costs,
or being tied into a specific headcount and capacity level
that just isn't sustainable as volume declines and continues decline
(19:02):
going forward.
Speaker 2 (19:03):
Dana, we talked with you on Friday, so thank you
for coming back. You are closely with the dealerships. Remind
our audience what you are hearing from them and how
you are thinking about this in regards to them.
Speaker 7 (19:15):
Yeah, I think that there's a lot of confusion that's
going on, and I think the worries that if you
are a GM Ford or Stilantis dealership right now, you're
not sure where your parts are coming from, and you
don't know where your vehicles are going to be coming
from in the future. Electric vehicles is a really hot
topic right now, especially because Tesla has stolen the electric
(19:38):
market from the original traditional automakers.
Speaker 2 (19:42):
Stolen or just smart and read the market and first
move for advantage, I mean, no offense. Many would argue
that Tesla woke up the world and said we can
do this because I think the traditional automakers were putting
out a much longer timeline and Tesla came in and
kind of woke everybody.
Speaker 7 (20:00):
Yet, well, I think what happened differently was the fact
that they actually went to court and they decided that
they were going to actually go direct to consumer. And
that's a big deal. Yeah, it's a huge deal. All
of America, twenty five traditional automakers all were set a
long time ago, and the law basically said that you
(20:20):
could not sell direct to consumer sales.
Speaker 2 (20:23):
But why not, you know, Kevin, come on in on this.
Why can't cars be sold direct to consumers where they
are now? I couldn't be like, who was that protecting?
Speaker 6 (20:32):
Well, well, there's a lot to unpack here. First of all,
an automaker is going to book revenue on the sale
to the dealership, right, So when you have companies like
Lucid and Rivian and starting to happen to Tesla where
you can't deliver to the consumer all your vehicles, you
can't book that revenue. And that's where these price cuts
(20:53):
are coming from, right. You have to you're paying to
build the vehicle, so all that cost is in your
cost of goods. But you're not booking revenue until you
sell it or deliver it to the consumer and they
pay for it, where everybody else with a franchise model
is booking revenue. So your gross margin is consistent because
your revenue is booked and offsetting your cost of goods
(21:15):
on the sale to the dealership. The other thing is, look,
if there's a ten percent haircut in what the manufacturer
takes in selling the vehicle to the dealership wholesale, there's
no way, ever, that any automaker at scale is going
to recreate the franchise model and deliver and support and
(21:37):
service vehicles at a margin better than ten percent. Ever,
so the direct sales model isn't scalable. I mean, people
talk about how great it is for TESL, but it's
not right, and it's not scalable, and it's not sustainable,
and it's not something that the legacy automakers can move to.
Speaker 3 (21:55):
But one challenge there, Diana, feel free to just jump
in here, yeah, is you know, if you're a car dealership,
you're making so much of your money based on servicing
internal combustion engine vehicles. Absolutely, somebody brings in a car
to get an oil change. You know you're making money
on that. Yeah, you know it doesn't need an oil
change an EV, right.
Speaker 7 (22:14):
But at the end of the day, not all automakers
are going to make it.
Speaker 6 (22:18):
Right.
Speaker 7 (22:19):
You've got all of the traditional automakers, including the Big
three now actually coming out with electric vehicles. You have Tesla,
you have Recent, you have Rivian, you have pull Start,
you have BYD Chinese automakers coming in. Sony Honda is
building a vehicle and releasing their car in twenty twenty six. Overall,
not everybody's going to make it, and they're going after
(22:41):
hard dollars for EV. Now what has happened with Detroit
Big Three, they won't lose ground right now on EV
selling EV leasing EV at the end of the day
if they don't resolve the UAW strike right And that's
my fear because when someone leases a vehicle for three years,
(23:01):
you're locked for three years. You cannot make another brand
decision after that. So I think in the next five years,
the evs that are gonna make it are all going
to be We're going to know who they are and
they are going to be BMW. I believe that. I
believe there's going to be the Germans the Koreans. I
think that Japanese brands like Toyota is going to actually
(23:23):
also that's what I'm fearing, Like, are you what are
you afraid of? If the UAW strike doesn't get resolved, eventually,
we will not be able to produce these electric vehicles.
Speaker 2 (23:35):
So but and what But there's there's resolution, and then
there's like, what's the resolution that needs to happen, that
needs just be done.
Speaker 7 (23:45):
We just have to negotiate where it's fair for everybody.
But overall, I want the Detroit three to make it.
These are the only auto makers in the US. Well,
we can't not have the US market.
Speaker 3 (23:58):
Apartment of Tesla.
Speaker 2 (24:00):
Yes, So Kevin come back here. I mean, what is
the right balance? Does it make sense that workers get
more money? I mean, that's the backbone of these automakers,
But at the same time, you don't want to increase
those legacy costs so that I don't know, five years
from now, you know, you're looking at an industry that,
you know, like we saw before the Great Financial Crisis, right,
that had some real serious problems.
Speaker 6 (24:22):
Yeah. Well, look, you know people talk about Tesla dominating
EV sales, which are still a very small percentage of
sales in this country. They did it because they lose
money on the vehicles for ten years. And it's not
an issue of if or when legacy automakers can make
a decent EV, it's when are they profitable. And that's
(24:45):
why you get slow moving or slow play by the
domestic manufacturers. They're printing money on full size internal combustion
pickups and SUVs, and then the market or the media
or the government wants to move to an unprofitable alternative
and it's just not ready and that makes it very messy.
(25:05):
And that's where it is right now. So it's not
a matter of you know, ken GM figure out how
to make an EV. They made an EV in the
nineteen nineties and saw what that costs look like that
it was unsustainable. So what's going to happen with the
additional costs in this labor contract is that the small cars,
the unprofitable cars, the inexpensive cars are going to get
lopped off the bottom of the portfolio and prices are
(25:28):
going to go higher for everybody.
Speaker 2 (25:29):
All right, So glad we got to speak with both
of you. Kevin Tynan, he is our senior autos and
analyst for our Bloomberg Intelligence team and Diana Lee, thanks
so much for coming back, co founder and CEO at Constellation.
Speaker 5 (25:40):
Brother Mack.
Speaker 7 (25:44):
The journal.
Speaker 6 (25:45):
Now about you? Let me drive?
Speaker 1 (25:47):
No, no, who's going to honey?
Speaker 3 (25:50):
Please?
Speaker 2 (25:53):
I want to drive.
Speaker 7 (25:54):
It's good question.
Speaker 1 (26:01):
This is the drive to the globe. Well don on
Bloomberg Radio.
Speaker 2 (26:07):
All right, TikTok, everybody, Just under eighteen minutes left in
today's trading session. We've got stocks near their lows of
the session, and this, you know, as we really have
seen a bit of a market reset when it comes
to yield expectations. We were just breaking down the markets
with John Tucker ten year note four fifty four, and
you've got that to year note with a yield to
five point twelve.
Speaker 3 (26:28):
I'm really interested to hear what our next guest has
to think. Very pleased to have with us. Nancy Tangler,
chief investment officer at Laffer Tangler Investment. She's here in
our Bloomberg Interactive Brokers studio. Also, her new book, The
Women's Guide to Successful Investing, is out now. Nancy, good
to have you with us. How are you?
Speaker 8 (26:42):
I'm good, Tim thanks so much for having me.
Speaker 3 (26:44):
Well, I want to start with just the markets today.
I mean, you picked quite a day to come join us. Yeah,
you know you were here to just out Frida day, right, Yeah,
John Tucker who said that, You know, you take a
time machine all the way back to June to see
you know, the S and P five hundred looking like this.
What are your thoughts?
Speaker 8 (27:00):
Well, I think there's a lot of things going on,
but effectively, you know, there's been a lot of triggers,
let me put it that way. So we had the FED,
now we've got the potential shutdown. Then we've had you know,
we've got earnings upcoming, and we had you know, we've
got uncertainty around how high rates are going to stay
for how long. But I actually don't think much of
(27:22):
that matters in the long term. There's also window dressing
going on and a quarter and then you're going to
get the mutual funds shoring up their portfolios in October.
I think what really matters, what's going to matter and
will continue to matter, is earnings. And I'm actually a
little more optimistic than the street. I've been doing this
for forty years, I'm sorry to report, and you know, interest
(27:44):
rates have been at this level much of my career,
and so real rates if you go back to the nineties,
sort of vacillated between two percent and four and a
half percent, and they're at two percent now on the tenure.
So I don't find any of this super distressing. Not
nearly as worried about interest rates as it relates to
technology as I am about a stronger dollar. I think
(28:06):
that's going to be a challenge to earnings in the
coming quarter. But mostly I view this as an opportunity
to step in and pick.
Speaker 2 (28:13):
Off some names.
Speaker 8 (28:14):
Just like last October, we were adding to technology names
pretty robustly. We were trimming those names in May, June,
July and adding to industrials. I'll be doing the flip
if possible in the coming weeks.
Speaker 2 (28:26):
So buying into technology continue to Yep, interesting which technology.
Speaker 8 (28:30):
So we're gonna we really like the established tech names.
I don't want to say old economy, some of them
are old economy, Carol, but in general the names that
are actually monetizing AI and cloud computing. So take a
name like in the old economy space Oracle. They reported
the street thought it was disappointing. I didn't think it
(28:50):
was that disappointing. They doubled their cloud computing AI cloud
computing business that they generate, you know, seventy or eighty
percent of their revenue. Seventy percent is renewable. So this
is a company. The margins are improving, even with Cerner,
which was the negative, margins are improving, so we've been
adding to that name. But well, I mean, I'd love
(29:12):
another chance at Microsoft at two hundred and eleven dollars
a share, like where it was less faull.
Speaker 3 (29:17):
Okay, what else? Microsoft, Oracle? What else are you at?
Speaker 1 (29:19):
Right?
Speaker 2 (29:20):
Can I ask you? Nvidia?
Speaker 4 (29:21):
Not?
Speaker 7 (29:22):
It is?
Speaker 8 (29:24):
It was it was cheap enough on our valuation work
for about twenty minutes and we missed it.
Speaker 2 (29:28):
So we're watching it.
Speaker 8 (29:30):
We haven't loaded. We've done all the fundamental work, which
is not terribly exciting. I mean, you know, it's a
great company.
Speaker 2 (29:36):
Do we have a headline on open Ai in terms
of evaluation.
Speaker 3 (29:39):
Yeah, ninety billion dollars, Carol. This is based on a
share sale journal sounds like a pretty hefty valuation. Yeah,
for press private company. Where do you stand on the
AI revolution?
Speaker 8 (29:52):
I actually think that it's going to improve productivity. I
think there's going to be new startups we don't know
anything about. But what you're seeing is all the major players, Amazon, Microsoft, Google,
they're all investing in sort of the leading edge innovators.
And Microsoft for sure has figured out a way to monetize.
We like the names that are already making money off it.
So a name like Broadcom, they think about twenty five
(30:13):
percent of their revenues are going to come from AI
cloud Enterprise CHIPS's that's our largest holding actually across all
of our strategies.
Speaker 3 (30:21):
Okay, so you say you see this as a buying opportunity.
Do you think there's further to go when it comes
to declines on the S and P?
Speaker 4 (30:27):
Yeah?
Speaker 3 (30:27):
How much further?
Speaker 8 (30:30):
I mean, if I don't really do marketingcast for forty years,
I wouldn't be surprised if we had another five to
seven percent down. It could be more, but we end
the year higher from these levels and from whatever level
we bought them out at, And that I can say
with I think somewhat certainty.
Speaker 2 (30:48):
Help me out though. With the Treasury trade, we had
another two year auction yield stopping at five point zero
eighty five percent, highest auction yield in more than seventeen years.
Will we feel I feel like we keep having these
superlatives when it comes to the treasury trade. But as
you say, it was the negative rate cycle that was
the anomaly. Yes, So why is it that it feels
so bad?
Speaker 8 (31:09):
I think, look at the average person in this business
has not been doing it for forty years. They've been
doing it for fifteen twenty, where we were in a
perennial bull market for bonds, and so I think there's
this consternation if I've never seen this before. I mean,
my first mortgage was twelve and a half percent, and.
Speaker 3 (31:26):
We might be getting close to this.
Speaker 8 (31:28):
We made it, We were able to make the payments.
You know, you make adjustments. But I think but interest
rates were also at eighteen percent, so I think the
Fed and well, I'm sorry, the federal government has really
distorted the short end the treasury, and so I mean,
I'm taking advantage of it. We were out of bonds
in August to twenty twenty when the ten year yield
hit fifty bases points. We moved our clients back into
(31:50):
short ladders a year ago, and we continue to renew
those ladders.
Speaker 2 (31:53):
Many money markets or.
Speaker 8 (31:54):
No, no, we're just we buy treasuries or corporates getting
on their personal preference, and we build short ladders. Some
have maturities of three years, but many just have the
maturity under a year. We just keep rolling them.
Speaker 2 (32:04):
So I'm just thinking about the book that you've got out,
the Women's gude to Successful Investing. So what would you
you know women men were really different? John Tucker? Well, well,
I want to know, Nancy, and I know we've talked
to you a little bit about your book which is out, Like,
what is the differences that we need to be thinking
about and why a book specifically for women?
Speaker 8 (32:26):
Yeah. So I retired from the business for about five
years and I went and got a master's in creative writing.
Don't ask, but I spent a lot of time meeting
women at my kids supports.
Speaker 2 (32:36):
In romance novelice. It's really okay, Nancy, we still like you.
Speaker 8 (32:39):
I'd love to And I've met these really smart women
and they'd say to me, well, what did you do?
And I said, well, I was, you know, chief investment officer,
and they'd recoil physically. They were not involved with the
with the decision making in their in their households, they
didn't know the passwords, they didn't care. And then I
started to do the research, and I was like, this
is the book I'd written a memoir, so haha, funny
(33:01):
wasn't a romance novel. But I decided to write this
book because women first age of average age of first
divorce in the US is thirty, average age of a
widow is fifty nine. That's exactly how I was old
I was when my husband passed away. There is no
safety net for women. There isn't any health care if
they're not working, and if they don't know what's going
(33:22):
on in the portfolios, it's a bad time to learn.
And so I really wanted to encourage women. Turns out,
research shows live research of real portfolios that women perform
better than their male counterparts in every study that's been done.
They perform particularly well against single men because they don't
have that sort of drive for beat the index. And
(33:44):
we controlled ninety five trillion dollars of wealth globally and
are adding by trillions.
Speaker 1 (33:51):
Oh yeah, all right, we have to run.
Speaker 2 (33:53):
I know we'll talk more about this in the future. Nancy,
Thank you so much. Nancy Tangley, chief investment officer at
Laffertangler Investments.
Speaker 1 (34:00):
This is the Bloomberg Business Week podcast, available on Apple Spotify,
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This is Bloomberg Business Wait inside from the reporters and
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Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 2 (00:20):
Well, this story definite caught our attention reading in this morning.
It is among the most read on the Bloomberg. It's
about the world's mega rich betting on US rentors to
grow their billions.
Speaker 1 (00:29):
Yeah.
Speaker 3 (00:29):
More specifically, however, the past decade, ultra wealthy individuals and
their firms have more than double their investments and apartments,
largely in the sector known in the US as multi
family housing. This according Carroll to the research firm Night Frank.
Speaker 2 (00:42):
All right, let's break it all down and get to
these findings with us Bloomberg News US commercial real estate
reporter Natalie Wan joining us on zoom in New York City,
Natalie Providence, who knew, We'll get to that in just
a moment. First of all, tell us what's going on
exactly right, Thanks.
Speaker 4 (00:56):
For having me on. So it's this really interesting trend
of period when everyone's shying away from commercial real estate,
whether it's the massive institutions like Blackstone or the big
bank banks who are trying to reduce their exposure. And
in the meantime, you have these ultra wealthy billionaires that
are snatching up properties. You know, I think for them
(01:17):
it's really a diversification play, and they are trying to
increase the allocation of their holdings to properties. And in
the past, whereas it used to be for offices, clearly
with the glut and drop in values of offices, today
apartments seem like a much better bet for them.
Speaker 3 (01:33):
Is this also a bet on just the fact that
so many Americans with housing prices at a record in
many parts of the country, mortgage rates high, that many
people aren't going to be able to buy a home.
Speaker 4 (01:47):
Yeah, that's a big part of it. We clearly see
that there's been a shortage in affordable housing for people.
That's pushed a lot of people into the rental market.
There's a lack of housing even across the rental space
across and that's why we've seen rents continue to rise
even over the past year. You know, I think that
for these folks, they're kind of looking at this from
(02:09):
an extremely long term play. They're less exposed to the
fluctuations in the debt market, and they can often pay
with cash or they have special strong financing relationships with
banks that are willing to fund them and for them.
They're looking at this as kind of a stable, long
term play and a bet really on the growth of
major cities like New York or Chicago that you know,
(02:31):
even if the property market continues to struggle across commercial
real estate for the foreseeable future, some of the best
properties will probably still continue to produce income for these folks.
Speaker 2 (02:44):
I kidd it at the top Providence, who knew, but
we're talking about rent growth over the past six months,
and Providence Rhode Island right up about eight percent. So
that's kind of a top the list, even more so
than New York City, right.
Speaker 4 (02:58):
That's topping the list. We're seeing brand raps also top
the list. I think Hartford is in that list as well.
And you know, I think it really goes to the
boom across maybe cities that you know aren't like New
York or Chicago. But with the pandemic, we've seen that
people might not have to work in the office, they
might not necessarily need to do their shopping in retail,
(03:18):
but they do need homes, and so we've seen kind
of a boom across some of these secondary cities, some
of the more suburban areas, and I think that we're
seeing these billionaires ultra wealthy folk try to get in
at a time when there's less competition in the space,
and also the returns look for more attractive than compared
to say, two years ago, when we saw double digit
(03:39):
rent growth across many of these cities and everyone trying
to bid for properties. There's been a step back in
today's market and that kind of provides a perfect buying
opportunity for long term investors that have access to capital today.
Speaker 3 (03:51):
Well, speaking of access to capital, Natalie, do we know
how these billionaires are financing these these purchases. Are they
just paying cash? Are they actually financing them? I mean,
rates are very very high right now.
Speaker 4 (04:03):
They're extremely high, and a lot of cases they're putting
in a lot of cash. I think in some situations
banks it's not like they don't have liquidity, they're just
being a lot more cautious as to what they're lending
on and who they're lending to. Because you know, we've
seen even some of the biggest folks to fault on
their loans. But I think for these billionaires, I mean,
relationships between a lender and their borrowers one of the
(04:25):
most important things for these types of institutions. And I
think if you're a billionaire, like is there a founder
Amansia Ortega, you might have less hurdles to across if
you're looking for a lender for a deal like this.
Speaker 2 (04:39):
I wonder, I don't know if you've kind of looked
into this side of too. I think about what it
means though for the renters and stuff with investors getting involved,
does that mean is it problematic? I mean, I mean
rent is often set by you know, the market, right
or the geography, if you will. But I do wonder
if this is going to mean higher rental cost potentially
for renters.
Speaker 4 (04:59):
Yeah. I think some of the specific deals that we
quoted in the story, you know, we're Taga buying that
two hundred and thirty two million dollar luxury apartment building
in Chicago, and then another billionaire buying a Manhattan Grammarcy apartment.
Those are kind of already luxury apartment buildings where I
think the clients hele for those buildings are used to
(05:19):
paying top notch rents. I don't necessarily see a flood
of interest in rent stabilized or rent controlled properties. Investors
are definitely shying away from that right now. We're seeing
a lot of talk about that, even with the Signature
Bank portfolio, where there is a significant chunk of rent
stabilized properties, and sort of the question as to who
wants to take on that risk that's interesting, I think,
(05:39):
A yeah, I think these folks are largely targeting some
of the higher end apartments, which you know there's always
going to be demand for at this time.
Speaker 3 (05:48):
Do we know, you know, not necessarily average rents, but
when you stay higher end, give us some context for
our listeners and viewers around the world, like, you know,
three thousand bucks a month for a one bedroomyah.
Speaker 4 (05:58):
I think in Manhattan. I haven't looked at the most
recent numbers, but I think we're topping near like four
thousand on average for an apartment, right Natalie.
Speaker 2 (06:06):
This is a fascinating story, and I also thought it
was interesting how that before the pandemic you had the
world's rich really focused on office properties. But we know
what's going on there, so they've shifted uh into rental
properties and residential So really interesting story in terms of
what's going on today. Bloomberg News US commercial real estate
reporter Natalie, thank you so much. Netlie Wan joining us
(06:26):
on zoom in New York City. This is Bloomberg.
Speaker 1 (06:29):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from three to six Eastern Listen on
Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (06:52):
World. All right, yeah, you know, we are waiting really
for this war in Ukraine to be over. I think
about Ukrainian President Vladimir Zelinsky in town last week speaking
before the UN General Assembly, making his case for pressing
on with the war effort. Yet President Biden coming out
calling out world leaders to stand by Ukraine, and it
struggled to eject Russian troops even as Kiev's all I
(07:15):
say that they now expect the war to last for
years to come. I was watching coverage and people are saying, Okay,
we're getting ready for year number three.
Speaker 3 (07:23):
Yeah, it's unbelievable to think that that we're there, especially
given what we thought when Russia first invaded Ukraine almost
two years ago. Carol with more on the war and
other global risks. It's really great to have back with
us in our Bloomberg Interactive Brokers studio. Ed Price Principal
for Geopolitical Forecasting at Ergo, a global intelligence consulting and
forecasting firm. At also a former British trade official, representing
His Majesty's government to Wall Street and the US official
(07:45):
sector from twenty seventeen to twenty twenty one. He's advised
a number of European and British parliaments, Carol, and worked
also in the city of London.
Speaker 2 (07:52):
It just knows a lot and I seeing a lot.
Speaker 3 (07:54):
He also traveled a.
Speaker 2 (07:55):
Lot, and he's just back from Ukraine. Good to have
you back.
Speaker 5 (07:58):
Thank you very much, Carole.
Speaker 1 (07:59):
How are you?
Speaker 2 (08:00):
But do it okay? Trying to keep up with it
all and try to make sense of it all. You
are just back from Ukraine. How did you make sense
of what you saw?
Speaker 5 (08:08):
Well? I think the word evil crept into my mind
a lot, so there was a sort of theological reaction
at the end of the day. I suppose. I otherwise
tried to make sense of it by putting it into
the economics bucket and the military bucket. The economics bucket
is of course that the Ukrainians are really trying to
make their economy work. They're trying to just go to
the shops, drink coffees and go out as much as
(08:30):
they can, which is to be welcomed. And of course,
on the other hand, the somewhat disappointing counter offensive. I
went just before the offensive itself, and I think that's
probably one thing that we're probably going to have to
talk about today.
Speaker 3 (08:43):
Oh go ahead, Cairl.
Speaker 2 (08:44):
Well, one thing I wanted to say, and I was
talking to our team about this. There was sixty minutes
at a piece and it was talking about the American Aid,
the USA, and one component I wasn't aware of was
how much was going into the country to support small
businesses and the whole idea of you've got to have
some economy to back to after this is resolved. Otherwise,
you know, you have a taxpayer base. Then people are
(09:06):
you know, kicking money into the economy, otherwise you have
everybody leave. So I thought that was an interesting part
of the aid that I wasn't aware of. I was
aware of all the military, but it's an important part.
Speaker 5 (09:14):
It's hugely important. And let's not also forget that the
Ukrainians are still trying to transition out of a Soviet
economic model. They have a structural deficit essentially, that's a
social welfare model. They can't really get rid of it.
By their own admission that the older generation is somewhat corrupt,
you know, they look at governments of.
Speaker 2 (09:30):
Scuba and another thing I didn't now, yeah.
Speaker 5 (09:32):
I mean, I didn't really understand that until I spent
some time there. But it's a war on two fronts, right,
It's the military war, as I say, and they're also
trying to keep the democratic and market institutions not only
alive but developing as best they can. And so of
course the aid that we're sending has to do both.
Speaker 3 (09:49):
You know, there are a great number of people in
this country who don't want to send aid to the
Ukrainian government. What would you say, after being there and
seeing with your own eyes what's going on on the
ground in Ukraine to folks here in the US who
are telling their representatives, and some representatis are indeed very
vocal about it, especially on the Republican side, that they
do not want to send a to Ukraine. What's your
message to them?
Speaker 5 (10:09):
My message, very respectfully, would be Where do you want
to fight Pewtin, the Ukraine, Poland Berlin, Paris. Well it's
that simple, I think. And the small amount of money
relative to our overall military budget that we have spent
in Ukraine, it's about say five percent, that has degraded
the Russian military capacity in a way that I didn't
(10:29):
think I would see in my lifetime. Honestly, they will
previously say five days away from a serious attack on NATO.
They must be five years away now given the damage
we've done to them. So you know, what do you
want for five percent of your military budget? More trucks,
more uniforms. I would suggest that killing bad guys for
pennies on the dollar is probably a good ROI if
(10:50):
we don't.
Speaker 2 (10:51):
Do it, if countries pull back their support, if the
US pulls back its support, then what potentially?
Speaker 5 (11:00):
I think that Putin and the Russians are trying to
overhaul the Second World Wars settlement. I think they're trying
to undo a global order. I don't think that they
want to live in a world of rules. And if
Ukraine goes down, and you know, all bets are off.
I say that in part because the if a new
US administration leaves NATO, then we've got a bit of
(11:24):
a problem on our hands because I don't think that
the Germans are ready themselves to back Europe's independent deterrent yet.
So what happens is carnage.
Speaker 2 (11:34):
It's like terrifying.
Speaker 3 (11:35):
It is terrifying. I'm wondering, should the US be pushing
for a cease fire? Should our allies be pushing for
a ceasefire here? Should that be what they're pushing for
in terms of an end to this war?
Speaker 5 (11:46):
I think what we should be pushing for is removing
Russians from every last inch of Ukrainian territory. That's a
maximalist position. There are people in my world who disagree
with that, and so it's too dangerous. But if we
award aggression with any sort of negotiation or peace agreement,
we're bucking the number one lesson from world history.
Speaker 3 (12:07):
But he's got nukes.
Speaker 5 (12:09):
Well, he's got nukes, and so have we. And I
think we talked about this before, like if we get
to that stage, yeah, who you know who has a
greater faith in the Almighty? I think it's probably us.
But before that stage, and if he is indeed bluffing,
which I would suggest to he is so far we've
crossed every single redline. This is a case of facing
down military aggression the same way we should have done
(12:29):
in the nineteen thirties with Hitler.
Speaker 2 (12:31):
So you have a lot to talk about at an
event you have coming up on Thursday, and I want
to get into that a little bit. The London Stock
Exchange Group in the NYU Center for Global Affairs hosting
a discussion of your political risk with you, which you
kindly invited us to. And if I still ended earlier,
I could make it any right, it's Ukraine with love.
Tell us about what you want to emphasize there.
Speaker 5 (12:51):
Yeah, that's really coind it's essentially the same message, right.
I don't want to come in here and repeat myself,
but I'm really trying to push as an analyst for
the case that the aid that we're sending Ukraine must
be in place, probably should increase. I think it's rather
strange that we haven't offered them more in the way
of air power while suggesting that they can conduct combined
(13:12):
arms operations and the essentially they are fighting for our
freedom as well. It's that simple, it's that emotive. So
I'm trying to get some powerful, interesting people together, remind
them of that, tell them a few stories from Ukraine,
because the alternative is pretty.
Speaker 3 (13:28):
Grim based on your analysis, ad what you've seen over
the last two years, the world's response. How does this end?
Speaker 5 (13:36):
How does the war end?
Speaker 1 (13:37):
Yeah?
Speaker 5 (13:39):
I think probably the central case right now is that
Russia gets to keep a big old chunk of Ukraine.
It's embedded itself. You've seen the defensive lines, and at
that point, all bets are offers to what happens the
decade after that, if they're rewarded. I'm afraid that's the
central case right now. I don't think we've given them enough.
Speaker 3 (13:57):
To push the can that be prevented it yet?
Speaker 6 (14:01):
Well?
Speaker 5 (14:01):
I mean, I mean, look at this, This is all
a function of how load you want to go, right, Like,
do you want do you really want to push the
Russians out with conventional power? And we're creeping towards that.
I mean, you'll notice that there is a deep contradiction
in American thinking because on the one hand, we say,
as I just said, he probably won't use them, don't worry,
so keep on. On the other hand, of course, we
haven't sent everything we could have, because that in the
(14:23):
back of your mind you're thinking, well, maybe he might,
but it's not going to end well unless there's there's
more military intermention.
Speaker 2 (14:30):
And this isn't a European thing, this is a global
concern has.
Speaker 5 (14:34):
To be I would say, so, Carol, I mean.
Speaker 2 (14:36):
I mean, I'm asking kind of the obvious, but I
do feel like there are people like that's Europe's problems.
Speaker 5 (14:41):
Yes, and I think that's wildly dangerous because you know,
Pewtin and Shijenpin do not have the relationship that they claim.
Pewtin is the junior partner. But just imagine if Peutin
made a feint at the Baltics or you know, at
NATO in conjunction with increased Chinese harassment of Taiwan. These
guys are smart. They can figure out a way to
(15:03):
spread our resources more thinly. So for my money, I say,
the more work that we do in Ukraine to hold
down this autocratic aggressive power, the better.
Speaker 2 (15:13):
Does that relationship between China and Russia.
Speaker 6 (15:15):
Where are you?
Speaker 5 (15:16):
It worries me deeply. Yes, I'm yeah, I'm up at
night thinking about that one.
Speaker 2 (15:19):
We're running out of time, But like it's I think
about that a lot in terms of that relationship and
it just do you feel like what we got off
of the un last week? Do you feel like there
was the right support and just got about fifteen seconds?
Speaker 5 (15:32):
Absolutely not, No, there needs to be more.
Speaker 2 (15:34):
Yeah, it felt like people were getting tired at the situation,
which was unfortunate. Good luck with your event Thursday at
what time?
Speaker 5 (15:40):
Six pm? I'll say London Suck Exchange Group. If you'd
like to come, let me.
Speaker 2 (15:45):
Know, ad Price. Thank you. As always, this is Bloomberg.
Speaker 1 (15:49):
You're listening to the Bloomberg Business Week podcast. Catch us
live weekday afternoons from three to six Easter on Bloomberg Radio,
the Bloomberg Business App, and YouTube. You can also us
live on Amazon Alexa from our flagship New York station.
Just say Alexa play Bloomberg eleven thirty.
Speaker 2 (16:08):
A lot going on in the auto world. Continues to
be President Biden on the picket line telling striking autoworkers
to stick with it. And then you had Ford being
blasted by its largest labor union for halting construction on
that three and a half billion dollar battery plant in Michigan,
amid scrutiny of its ties to a Chinese battery maker
by Republican lawmakers lock going on.
Speaker 1 (16:30):
Yeah.
Speaker 3 (16:30):
In today's edition of Bloomberg Plugged In, we're looking at
the world of evs with us. We got a Bloomberg
Intelligence senior autos analyst, Kevin Tynan from Bloomberg Intelligence headquarters
in Princeton, Jersey. Also very pleased to have back with us.
Diana Lee, co founder and CEO at Constellation. She's with
us in our Bloomberg Interactive Brokers studio. Constellation a marketing
platform for the automotive industry. It helps car dealerships reach
(16:50):
out to customers. Kevin, I want to start with you
and just just lay it all out there for us
in terms of historical context here and what it means
to have a sitting president actually join a picket line today.
Speaker 6 (17:00):
Yeah, very interesting. You know, it's been a little bit
since Friday, since the expansion of the of the walkouts,
it's been a little bit quiet. So I think there's
real work going on. There's photo ops, you know today
with the President being on the picket line, But you know,
I think real work is getting done. You know, and
I've said this all along. I think really for the
(17:22):
manufacturers it's about flexibility to rationalize capacity, and headcount going forward,
And for the Union, it's about sharing and the the
profitability that the automakers have had over the past ten years.
Speaker 2 (17:36):
Forty percent increase in pay, Kevin President says, yes, I'm
not sure that many Americans can relate to it, that
forty percent increase in pay. So walk us through the
changing balance sheets potentially for the big three US automakers
as we transition to that ev world. I mean, does
it that balance sheet change the cost the gains?
Speaker 6 (17:56):
Yeah, Look, and I think if it's if it's the
labor component of cost of goods, it's a little bit
easier to absorb. Right. So if you look at even
just transaction prices over the life of the last contract,
you know, up significantly. So even if there's you know,
eight percent a year over the next four years, which
comes out to be that thirty six percent, you know,
(18:18):
prices have actually risen faster than that during the last contract. Now,
a lot of the automakers forward, specifically are all truck
in the US, so there's very little additional mix upside
for companies like that. Electrification isn't quite there yet, so
it's probably going to be something like software and in
vehicle content that helps offset some of those costs, But
(18:40):
where it would really hurt and impact the balance sheet
would be in you know, a change in sort of
the pension, the healthcare some of those long term legacy costs,
or being tied into a specific headcount and capacity level
that just isn't sustainable as volume declines and continues decline
(19:02):
going forward.
Speaker 2 (19:03):
Dana, we talked with you on Friday, so thank you
for coming back. You are closely with the dealerships. Remind
our audience what you are hearing from them and how
you are thinking about this in regards to them.
Speaker 7 (19:15):
Yeah, I think that there's a lot of confusion that's
going on, and I think the worries that if you
are a GM Ford or Stilantis dealership right now, you're
not sure where your parts are coming from, and you
don't know where your vehicles are going to be coming
from in the future. Electric vehicles is a really hot
topic right now, especially because Tesla has stolen the electric
(19:38):
market from the original traditional automakers.
Speaker 2 (19:42):
Stolen or just smart and read the market and first
move for advantage, I mean, no offense. Many would argue
that Tesla woke up the world and said we can
do this because I think the traditional automakers were putting
out a much longer timeline and Tesla came in and
kind of woke everybody.
Speaker 7 (20:00):
Yet, well, I think what happened differently was the fact
that they actually went to court and they decided that
they were going to actually go direct to consumer. And
that's a big deal. Yeah, it's a huge deal. All
of America, twenty five traditional automakers all were set a
long time ago, and the law basically said that you
(20:20):
could not sell direct to consumer sales.
Speaker 2 (20:23):
But why not, you know, Kevin, come on in on this.
Why can't cars be sold direct to consumers where they
are now? I couldn't be like, who was that protecting?
Speaker 6 (20:32):
Well, well, there's a lot to unpack here. First of all,
an automaker is going to book revenue on the sale
to the dealership, right, So when you have companies like
Lucid and Rivian and starting to happen to Tesla where
you can't deliver to the consumer all your vehicles, you
can't book that revenue. And that's where these price cuts
(20:53):
are coming from, right. You have to you're paying to
build the vehicle, so all that cost is in your
cost of goods. But you're not booking revenue until you
sell it or deliver it to the consumer and they
pay for it, where everybody else with a franchise model
is booking revenue. So your gross margin is consistent because
your revenue is booked and offsetting your cost of goods
(21:15):
on the sale to the dealership. The other thing is, look,
if there's a ten percent haircut in what the manufacturer
takes in selling the vehicle to the dealership wholesale, there's
no way, ever, that any automaker at scale is going
to recreate the franchise model and deliver and support and
(21:37):
service vehicles at a margin better than ten percent. Ever,
so the direct sales model isn't scalable. I mean, people
talk about how great it is for TESL, but it's
not right, and it's not scalable, and it's not sustainable,
and it's not something that the legacy automakers can move to.
Speaker 3 (21:55):
But one challenge there, Diana, feel free to just jump
in here, yeah, is you know, if you're a car dealership,
you're making so much of your money based on servicing
internal combustion engine vehicles. Absolutely, somebody brings in a car
to get an oil change. You know you're making money
on that. Yeah, you know it doesn't need an oil
change an EV, right.
Speaker 7 (22:14):
But at the end of the day, not all automakers
are going to make it.
Speaker 6 (22:18):
Right.
Speaker 7 (22:19):
You've got all of the traditional automakers, including the Big
three now actually coming out with electric vehicles. You have Tesla,
you have Recent, you have Rivian, you have pull Start,
you have BYD Chinese automakers coming in. Sony Honda is
building a vehicle and releasing their car in twenty twenty six. Overall,
not everybody's going to make it, and they're going after
(22:41):
hard dollars for EV. Now what has happened with Detroit
Big Three, they won't lose ground right now on EV
selling EV leasing EV at the end of the day
if they don't resolve the UAW strike right And that's
my fear because when someone leases a vehicle for three years,
(23:01):
you're locked for three years. You cannot make another brand
decision after that. So I think in the next five years,
the evs that are gonna make it are all going
to be We're going to know who they are and
they are going to be BMW. I believe that. I
believe there's going to be the Germans the Koreans. I
think that Japanese brands like Toyota is going to actually
(23:23):
also that's what I'm fearing, Like, are you what are
you afraid of? If the UAW strike doesn't get resolved, eventually,
we will not be able to produce these electric vehicles.
Speaker 2 (23:35):
So but and what But there's there's resolution, and then
there's like, what's the resolution that needs to happen, that
needs just be done.
Speaker 7 (23:45):
We just have to negotiate where it's fair for everybody.
But overall, I want the Detroit three to make it.
These are the only auto makers in the US. Well,
we can't not have the US market.
Speaker 3 (23:58):
Apartment of Tesla.
Speaker 2 (24:00):
Yes, So Kevin come back here. I mean, what is
the right balance? Does it make sense that workers get
more money? I mean, that's the backbone of these automakers,
But at the same time, you don't want to increase
those legacy costs so that I don't know, five years
from now, you know, you're looking at an industry that,
you know, like we saw before the Great Financial Crisis, right,
that had some real serious problems.
Speaker 6 (24:22):
Yeah. Well, look, you know people talk about Tesla dominating
EV sales, which are still a very small percentage of
sales in this country. They did it because they lose
money on the vehicles for ten years. And it's not
an issue of if or when legacy automakers can make
a decent EV, it's when are they profitable. And that's
(24:45):
why you get slow moving or slow play by the
domestic manufacturers. They're printing money on full size internal combustion
pickups and SUVs, and then the market or the media
or the government wants to move to an unprofitable alternative
and it's just not ready and that makes it very messy.
(25:05):
And that's where it is right now. So it's not
a matter of you know, ken GM figure out how
to make an EV. They made an EV in the
nineteen nineties and saw what that costs look like that
it was unsustainable. So what's going to happen with the
additional costs in this labor contract is that the small cars,
the unprofitable cars, the inexpensive cars are going to get
lopped off the bottom of the portfolio and prices are
(25:28):
going to go higher for everybody.
Speaker 2 (25:29):
All right, So glad we got to speak with both
of you. Kevin Tynan, he is our senior autos and
analyst for our Bloomberg Intelligence team and Diana Lee, thanks
so much for coming back, co founder and CEO at Constellation.
Speaker 5 (25:40):
Brother Mack.
Speaker 7 (25:44):
The journal.
Speaker 6 (25:45):
Now about you? Let me drive?
Speaker 1 (25:47):
No, no, who's going to honey?
Speaker 3 (25:50):
Please?
Speaker 2 (25:53):
I want to drive.
Speaker 7 (25:54):
It's good question.
Speaker 1 (26:01):
This is the drive to the globe. Well don on
Bloomberg Radio.
Speaker 2 (26:07):
All right, TikTok, everybody, Just under eighteen minutes left in
today's trading session. We've got stocks near their lows of
the session, and this, you know, as we really have
seen a bit of a market reset when it comes
to yield expectations. We were just breaking down the markets
with John Tucker ten year note four fifty four, and
you've got that to year note with a yield to
five point twelve.
Speaker 3 (26:28):
I'm really interested to hear what our next guest has
to think. Very pleased to have with us. Nancy Tangler,
chief investment officer at Laffer Tangler Investment. She's here in
our Bloomberg Interactive Brokers studio. Also, her new book, The
Women's Guide to Successful Investing, is out now. Nancy, good
to have you with us. How are you?
Speaker 8 (26:42):
I'm good, Tim thanks so much for having me.
Speaker 3 (26:44):
Well, I want to start with just the markets today.
I mean, you picked quite a day to come join us. Yeah,
you know you were here to just out Frida day, right, Yeah,
John Tucker who said that, You know, you take a
time machine all the way back to June to see
you know, the S and P five hundred looking like this.
What are your thoughts?
Speaker 8 (27:00):
Well, I think there's a lot of things going on,
but effectively, you know, there's been a lot of triggers,
let me put it that way. So we had the FED,
now we've got the potential shutdown. Then we've had you know,
we've got earnings upcoming, and we had you know, we've
got uncertainty around how high rates are going to stay
for how long. But I actually don't think much of
(27:22):
that matters in the long term. There's also window dressing
going on and a quarter and then you're going to
get the mutual funds shoring up their portfolios in October.
I think what really matters, what's going to matter and
will continue to matter, is earnings. And I'm actually a
little more optimistic than the street. I've been doing this
for forty years, I'm sorry to report, and you know, interest
(27:44):
rates have been at this level much of my career,
and so real rates if you go back to the nineties,
sort of vacillated between two percent and four and a
half percent, and they're at two percent now on the tenure.
So I don't find any of this super distressing. Not
nearly as worried about interest rates as it relates to
technology as I am about a stronger dollar. I think
(28:06):
that's going to be a challenge to earnings in the
coming quarter. But mostly I view this as an opportunity
to step in and pick.
Speaker 2 (28:13):
Off some names.
Speaker 8 (28:14):
Just like last October, we were adding to technology names
pretty robustly. We were trimming those names in May, June,
July and adding to industrials. I'll be doing the flip
if possible in the coming weeks.
Speaker 2 (28:26):
So buying into technology continue to Yep, interesting which technology.
Speaker 8 (28:30):
So we're gonna we really like the established tech names.
I don't want to say old economy, some of them
are old economy, Carol, but in general the names that
are actually monetizing AI and cloud computing. So take a
name like in the old economy space Oracle. They reported
the street thought it was disappointing. I didn't think it
(28:50):
was that disappointing. They doubled their cloud computing AI cloud
computing business that they generate, you know, seventy or eighty
percent of their revenue. Seventy percent is renewable. So this
is a company. The margins are improving, even with Cerner,
which was the negative, margins are improving, so we've been
adding to that name. But well, I mean, I'd love
(29:12):
another chance at Microsoft at two hundred and eleven dollars
a share, like where it was less faull.
Speaker 3 (29:17):
Okay, what else? Microsoft, Oracle? What else are you at?
Speaker 1 (29:19):
Right?
Speaker 2 (29:20):
Can I ask you? Nvidia?
Speaker 4 (29:21):
Not?
Speaker 7 (29:22):
It is?
Speaker 8 (29:24):
It was it was cheap enough on our valuation work
for about twenty minutes and we missed it.
Speaker 2 (29:28):
So we're watching it.
Speaker 8 (29:30):
We haven't loaded. We've done all the fundamental work, which
is not terribly exciting. I mean, you know, it's a
great company.
Speaker 2 (29:36):
Do we have a headline on open Ai in terms
of evaluation.
Speaker 3 (29:39):
Yeah, ninety billion dollars, Carol. This is based on a
share sale journal sounds like a pretty hefty valuation. Yeah,
for press private company. Where do you stand on the
AI revolution?
Speaker 8 (29:52):
I actually think that it's going to improve productivity. I
think there's going to be new startups we don't know
anything about. But what you're seeing is all the major players, Amazon, Microsoft, Google,
they're all investing in sort of the leading edge innovators.
And Microsoft for sure has figured out a way to monetize.
We like the names that are already making money off it.
So a name like Broadcom, they think about twenty five
(30:13):
percent of their revenues are going to come from AI
cloud Enterprise CHIPS's that's our largest holding actually across all
of our strategies.
Speaker 3 (30:21):
Okay, so you say you see this as a buying opportunity.
Do you think there's further to go when it comes
to declines on the S and P?
Speaker 4 (30:27):
Yeah?
Speaker 3 (30:27):
How much further?
Speaker 8 (30:30):
I mean, if I don't really do marketingcast for forty years,
I wouldn't be surprised if we had another five to
seven percent down. It could be more, but we end
the year higher from these levels and from whatever level
we bought them out at, And that I can say
with I think somewhat certainty.
Speaker 2 (30:48):
Help me out though. With the Treasury trade, we had
another two year auction yield stopping at five point zero
eighty five percent, highest auction yield in more than seventeen years.
Will we feel I feel like we keep having these
superlatives when it comes to the treasury trade. But as
you say, it was the negative rate cycle that was
the anomaly. Yes, So why is it that it feels
so bad?
Speaker 8 (31:09):
I think, look at the average person in this business
has not been doing it for forty years. They've been
doing it for fifteen twenty, where we were in a
perennial bull market for bonds, and so I think there's
this consternation if I've never seen this before. I mean,
my first mortgage was twelve and a half percent, and.
Speaker 3 (31:26):
We might be getting close to this.
Speaker 8 (31:28):
We made it, We were able to make the payments.
You know, you make adjustments. But I think but interest
rates were also at eighteen percent, so I think the
Fed and well, I'm sorry, the federal government has really
distorted the short end the treasury, and so I mean,
I'm taking advantage of it. We were out of bonds
in August to twenty twenty when the ten year yield
hit fifty bases points. We moved our clients back into
(31:50):
short ladders a year ago, and we continue to renew
those ladders.
Speaker 2 (31:53):
Many money markets or.
Speaker 8 (31:54):
No, no, we're just we buy treasuries or corporates getting
on their personal preference, and we build short ladders. Some
have maturities of three years, but many just have the
maturity under a year. We just keep rolling them.
Speaker 2 (32:04):
So I'm just thinking about the book that you've got out,
the Women's gude to Successful Investing. So what would you
you know women men were really different? John Tucker? Well, well,
I want to know, Nancy, and I know we've talked
to you a little bit about your book which is out, Like,
what is the differences that we need to be thinking
about and why a book specifically for women?
Speaker 8 (32:26):
Yeah. So I retired from the business for about five
years and I went and got a master's in creative writing.
Don't ask, but I spent a lot of time meeting
women at my kids supports.
Speaker 2 (32:36):
In romance novelice. It's really okay, Nancy, we still like you.
Speaker 8 (32:39):
I'd love to And I've met these really smart women
and they'd say to me, well, what did you do?
And I said, well, I was, you know, chief investment officer,
and they'd recoil physically. They were not involved with the
with the decision making in their in their households, they
didn't know the passwords, they didn't care. And then I
started to do the research, and I was like, this
is the book I'd written a memoir, so haha, funny
(33:01):
wasn't a romance novel. But I decided to write this
book because women first age of average age of first
divorce in the US is thirty, average age of a
widow is fifty nine. That's exactly how I was old
I was when my husband passed away. There is no
safety net for women. There isn't any health care if
they're not working, and if they don't know what's going
(33:22):
on in the portfolios, it's a bad time to learn.
And so I really wanted to encourage women. Turns out,
research shows live research of real portfolios that women perform
better than their male counterparts in every study that's been done.
They perform particularly well against single men because they don't
have that sort of drive for beat the index. And
(33:44):
we controlled ninety five trillion dollars of wealth globally and
are adding by trillions.
Speaker 1 (33:51):
Oh yeah, all right, we have to run.
Speaker 2 (33:53):
I know we'll talk more about this in the future. Nancy,
Thank you so much. Nancy Tangley, chief investment officer at
Laffertangler Investments.
Speaker 1 (34:00):
This is the Bloomberg Business Week podcast, available on Apple Spotify,
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