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Bloomberg Audio Studios podcasts Radio news. You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10am Eastern. Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
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E
In the markets, the sell off continues. Got to be really central though to tech. Shelby McFadden, investment analyst at Motley Fool Asset Management, joins us now. Shelby, is your interpretation that just continuing the overall market slide or that this is a tech problem?
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F
You know, I think it's a little bit of both, right? I think tech usually gets the hit up front and part of that is because that's where a lot of the froth has sort of concentrated itself. So we saw that as well a couple of years ago. We had that initial sell off that then translated to the broader market which was we have to get some of these sort of non foundational premiums out of the market and then we can address things later. And oftentimes that might mean that there's nothing to address because other things are somewhat fairly priced. But I would say in these conditions we could reasonably expect it to continue across the broader especially large cap market just because there are Some genuine concerns that sort of underpin the environment that we trade in.
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B
Are you marking down your growth forecast for this US Economy? Are you marking up your inflation forecast for this economy?
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F
We are definitely marking up our inflation expectations. Growth is something we have to sort of go quarter by quarter. And because we are bottom up, we tend to be a little bit more focused on marking up or down those growth expectations for each individual company. But I would say if there's something we're looking at from top to bottom, it's definitely inflation. So understanding at the very least that we are most likely just going to be entering a higher price level for the next four to seven years than we may have expected about four years ago. And that's something that we as a team had been thinking about probably for the last two years. I mean, before the first Fed cut, there was a pretty broad expectation on our team that we were more likely to end up in the exact spot that the Fed didn't want us to be in, which was, hey, we can't get under two. We're stuck at two and a half, we're stuck at 2.6. And with a lot of the different prerogatives going on that are going to affect the market, it's looking more and more likely that that'll be the case.
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E
But last time we spoke and this was on tv, Shelby, you like Costco, So to me though, Costco would definitely be in the line of fire for inflation and the exposed consumer.
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F
And they are. And that's just the simple facts of it, right? Because even though they are the, you know, pretty much the best at what they do, that doesn't take them out of the storms. The way we like to think of it is if we have to go through this, we'd rather be in a boat that's got multiple engines, right. Instead of us in a little canoe with an oar. Right. And so that's how we sort of see Costco is that they've got turbos, they can try and get through this. They still have to weather it. They're a little bit better prepared to do it. We did hear from management upfront during earnings the other week that they are starting to pick up on some inventory. So they are doing what companies at their scale can do early that smaller companies are not necessarily able to do, trying to get ahead of any tariff related issues with inventory. And we know they can sell it down. We've seen them do it. We saw other large companies do it after the sort of buying heights of 2020 and 2021. So if we have to choose where we want to be while still getting that solid, sticky consumer exposure that's going to provide value and get the traffic, we have no intentions on leaving that kind of company right now because they are in some of the best shape if we're looking at active positions in the market.
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B
Shelby, how do you feel about the consumer and how does it impact kind of influence your stock selection? We had some disappointing, you missed data last Friday. We had the airlines last week cut their forward guidance. Are you, how concerned are you, if at all about the consumer?
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F
Yeah, we can definitely see the consumer heading into some tougher times. I don't think it's unreasonable to want to take a look at that part of the portfolio and figure out, okay, what sort of exposure do we need to trim? So where we want to focus and where I'm focusing really is mission critical. Right. Staples. And what provides the most value if it is going to be discretionary? So when we looked at that umich data and we saw the expectations, they're not great, right. They're reminiscent of some dark times. But I think the important thing for us to remember is that we have to also see the outcomes. So looking at the expectations doesn't make you feel anything exciting inside butterflies, but in the worst way. But that's for the, you know, the sort of upcoming short periods. We have to go ahead and see these outcomes first. And it's, it's, you know, it's, it's highly possible that the expectations end up matching the outcomes. But I think while we, Well, I wouldn't say I'm bullish on the consumer. I've not given up yet because the US Consumer has shown to be very resilient. And even if we're going into a financing economy, that's still a way to sort of, you know, fund consumer activity.
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E
Real quick, before I let you go, Shelby, what about the positives of whatever we might see out of President Trump? Like if we really do re industrialize the United States and manufacturing, is there a play there yet for you guys?
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F
You know, one of the first things we talked about in our sort of what now meeting on I guess it was November 6, was, you know, what does this mean for corporates? Because that was the one tangible thing that we just kind of like knew, knew for sure, if you will, without having a crystal ball that was most likely coming back. And what that meant was it was going to hopefully increase in capex and encourage more research and development and innovation because of the tax incentives. So that is a positive that we are still hoping will roll out and that companies that are highly scaled and able to make those decisions have those sort of piles of cash and regular generative cash flow to make those reinvestments will be able to take advantage of that. So that's one tangible thing that we were looking forward to sticking. And I think in some of the valid, in many cases, noise coming out of the administration has been dulled a little bit. But we do very much hold on to that.
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Shelby, thank you so much for joining us. Always appreciate getting some of your thoughts. Shelby McFadden, investment analyst for Motley Fool Asset Management, joining us from Alexandria, Virginia via Zoom.
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Here you're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg business app Listen on demand wherever you get your podcasts or watch us live on YouTube.
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All right.
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News overnight, of course, is that Israel launched airstrikes across Gaza, killing hundreds of people and shattering a nearly 2 cease fire with Hamas. Joining us now for more is Dan Williams, reporter for Bloomberg News, based in Jerusalem. Dan, how did this wind up unfolding overnight?
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Well, tactically it unfolded as a surprise. In fact, I think we will discover in the coming hours and days that the conversation that preoccupied many Israelis and as a result, I imagine Hamas and Palestinians over the weekend and over the last couple of days about a shakeup within the government, a termination of Israel's internal security chief. I imagine that was in designed to create a smokescreen, a tactical smokescreen to lower Hamas's guard and to enable these lightning strikes that began overnight. But operationally speaking strategically, they really should have surprised no one because the last agreed cease fire between Israel and Hamas expired 17 days ago. The sides were in loggerheads and attempts to mediate or negotiate through American and Arab mediation. An extension to that cease fire, a new cease fire deal. Israel responded initially by cutting off aid supplies to Gaza and part of the electrical supply there. And it openly said it would resume warfare, something it promised to do all along in order to achieve its goals of destroying Hamas and retrieving hostages. It was just a matter of time before we were to see this war begin anew, failing a capitulation by Hamas, which simply was not in the cards.
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B
Dan, do we know why Hamas has refused to release the remaining hostages?
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G
Well, certainly it's in a long term die hard war against Israel. Hamas is committed to seeing Israel's destruction and what it wants in a conclusion of this war is effectively a return to the kind of ceasefire we've seen between Israel and Hamas some half dozen times over the last 20 years. Basically, Hamas wants to return to the status quo ante. October 6, 2023, a day before it launched this attack on Israel, albeit with far greater devastation in the Gaza str to deal with in terms of reconstruction. But Hamas wants to stay in power and wants to retain its weaponry. Israel has a very different objective here. Israel's objective is not to return to the status quo ante, not to enter another ceasefire that it believes Hamas will only violate in the future. Israel's attitude is that the October 7th attack was a game changer and Israel is now changing the rules. And the new rules, according to Israel, is Hamas cannot be allowed to remain in Gaza, not in power, not with its rockets and rifles, and not in a manner that will ever threaten Israel from Gaza again. So those two objectives, those strategic endgames, are, on the face of it, impossible to reconcile. Israel was hoping at least to retain, to recover some of the hostages through pressure on Hamas. But even a measure of return, some of those return the ones that Hamas said was willing to return the numbers it was offering, well below the numbers that Israel was accepting for an extension of the truce. But really that's irrelevant to the ultimate fact that there is no reconciling the objectives of the two sides and the hostages and Palestinians civilians are caught in the middle.
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E
So now what?
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G
Well, what we've had now is intensive Israeli airstrikes, at least two or three waves since nightfall. We've had, according to authorities in Gaza, at least 400 Palestinians killed, many of them civilians. It would appear a number of senior Hamas figures as well. What we don't have so far is a return of Israeli troops and tanks to Palestinian population centers in the Gaza Strip. Were that to happen, if it happens, it would escalate things much further in terms terms of the stakes, in terms of the death toll, in terms of the risk posed to hostages, be it from accidental damage caused by the Israeli strikes, or be it from the open threat of Hamas to execute the hostages, should it believe the idf. Israeli forces are about to conduct a successful rescue. So the stakes are getting higher by the hour. The question is, what is the off ramp offered to Hamas? Hamas has been offered an off ramp in the form of consensual evacuation, a consensual exile for its leaders from the Gaza str. Israel has even offered bounties of $5 million for any members of Hamas who would give up hostages, deliver them safe and sound back to Israel. Not just the money but also that would include safe passage and immunity from Israeli strikes. So far, none of those offers have found purchase among Palestinians in the Gaza Strip for a number of reasons. I think Israel is hoping to increase the pain, increase the pressure in a manner that may cause Palestinians to reconsider. And indeed, if Israel does manage to eliminate the current leadership of Hamas in the Gaza Strip, it was very successful during the war in doing it with the pre existing leadership. If it manages to eliminate the new leadership, I think they're hoping that that will have a trickle down effect with more junior commanders being more willing to cut a deal for their own survival, realizing that the game is lost. But for now, it would appear that both sides are in their corners really doggedly sticking to their principles and their policies and their strategies. It's very hard to see a way to reconcile the two right now.
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Is the US Playing any role right here, Dan, in these? Because it seems like the administration's focused on Ukraine here?
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G
Well, I'd say the US Is indeed focused on Ukraine, but it's really playing a very significant role here, if only rhetorically. And it's not only rhetorically. The Israelis know that they have the back of a Trump administration that has openly shown really indifference to the Hamas claims. It's been openly called for Hamas to be ousted in a manner that really echoes Israel's demands. And ironically enough, the Israeli defense minister today used a Trump metaphor for what Hamas will face if it doesn't relent on the issue of hostages. He said the gates of hell will open on Hamas if it doesn't deliver the hostages. That's taken directly out of the Trump playbook, the Trump rhetorical roster. So the fact there is a lockstep rhetoric is very important because Hamas cannot necessarily hope to appeal to American public opinion, or at least the US Administration's opinion when it comes to suffering. I'd just like to add on this point that the U.S. attacks on the Houthis in Yemen since the weekend, while they have their own objectives as outlined by the Trump administration, have also blunted a strategic retaliatory arm for Hamas in the region. That's probably been very helpful to Israel, too.
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B
All right, Dan, thank you so much for your reporting. We really appreciate it. Dan Williams, he's a reporter based in Jerusalem for Bloomberg News. We appreciate getting the direct reporting there of the escalation, the truce that has now been shattered, the cease fire between Israel and Hamas. We'll have continued reporting on that.
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You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.
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Looking at the 30 year mortgage that's quoted by the Mortgage Bankers Association. 30 year fixed, it's down to 6.67% and that's down from 7.09% just a couple of months ago. So. So trending in the right direction. Got to be good for real estate, I would think. Let's check it out with Jeff Brown, founder and CEO of T2 Capital Management. Hey Jeff, in the commercial real estate business we do have mortgages coming down. Are you seeing that at all as a positive sign for commercial real estate, broadly defined?
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Definitely a positive sign. Commercial real estate very a very leveraged business. Interest rates matter in a significant way and so yeah, we'll Take what we can get. If it's moved from seven to six and two thirds, we'll take it.
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B
Where in commercial real estate do you guys see relative value the most attractive right now?
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H
Yeah, there's a few spots and certainly a lot of headlines get focused on, you know, the doom and gloom that's out there. Office has been just a whipping boy for, for real estate for really since COVID so called five years now. But some bright spots are out there and T2 is active in some of these spots. Private credit has been a bit of a darling frankly. It's a great time to be a lender right now as banks and others kind of try to process all the information that's going on, not just economically, but politically and figure out where is it wise to allocate capital. So being in private credit, being that lender in these spots of uncertainty have some advantages to them from a pricing power perspective. Also, we have found a tremendous green shoot in student housing as well. We recently exited a large position at the University of Tennessee just last month with liquidity. As difficult as it is to come by in the past couple of years really to, you know, for us to exit 100 plus million dollar position just last month is noteworthy. So those two spots, credit and student housing, have been real reshoots for us.
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E
So then how do you view sort of that some of the difficulties in universities and colleges as costs really rise as some funding is taken away, does that provide opportunity for you or is that a risk factor?
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H
A little bit of both is a great question. I would say it definitely leads to greater discernment, greater investigation, greater diligence on various schools. It's easy to paint real estate and even sectors within real estate with a broad brush. But in student housing in particular, you've got to pick your spots with schools with geographies, growth dynamics or lack of dynamics in that regard. So there's again, you've got to be careful, you got to pick your spots. But it is cause for a lot of us to step back and at least reassess what had been true even just a couple months ago.
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B
How about on the multifamily front here? We've, we've heard for such a long time that there is a housing shortage in the us what role does multifamily play in kind of solving that?
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H
I think it plays a huge role. You know, you just alluded to mortgage rates dropping from 7ish down to 6⅔. It's meaningful, Lord willing, at least a lot of people being able to jump into the housing space. It may not have had the ability to historically, but there has been an affordability crisis for a long time within the United States and a housing shortage really since the great financial crisis. And my perception is that multifamily can fill at least the bulk of that void. Now what you have on the flip side is we need to build part of resolving the demand issue is providing supply. And it's been incredibly difficult to as investors to rationalize doing ground up construction, multifamily projects anywhere in the country over the past three or four years. Now as we've, we've had to deal with rising interest rates, I think that's, that seemed to have leveled off at this point. But what you have now are elevated insurance costs. We all know the natural disasters that are taking place around the country and what that leads to on the insurance front. And then construction costs really have not abated that much. They've settled down a bit since COVID but they haven't, haven't really receded to the point where people can easily make sense of ground up construction.
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And to that point we saw permits falling as well today in the data that we got out at 8:30. And part of that was because we don't know what those construction costs are going to be in part because of tariff risk when it comes to things like lumber. And that's not even addressing labor.
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H
Alex, it's a horrible story. What we're dealing with right now on the construction front, on the front lines for us. We've got a plumbing contractor, for instance, that has recently taken the position in light of tariffs, in light of the uncertainty that's out there, said, hey, we can give you a bid. I'm just going to tell you we're going to mark it up by either 30 or 40% and you have 24 hours to accept it or not. So this, this sort of paranoia that exists out there, again kind of founded by the uncertainty that that exists politically has, has definitely caused a lot of people to step back and reassess things.
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B
Interesting. All right, Jeff, thank you so much for joining us. Really appreciate it. Jeff Brown, founder and CEO of T2 Capital Management. Talk about the commercial real estate business. We like to keep our finger on the pulse of that important market which again has undergone a tremendous amount of dislocation from the pandemic and is now getting back on its feet.
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This is the Bloomberg Intelligence Podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 10am to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg Terminal.
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