tv Bloomberg Markets Americas Bloomberg November 28, 2018 1:30pm-2:01pm EST
welcome to bloomberg markets. at's kick things off with check of the markets. it is a more positive session today thanks to some comments from jay powell. he spoke earlier today. he was interpreted as having a dovish tone. he said hikes take almost a year to show up in the economy. tech stocks are leading the way. the nasdaq is up 2%. that is true for the broader market as well. virtually everything but utilities on the s&p 500 is getting a boost today. there is a look at the 10 year. we see a modest reaction to the remarks from jay powell.
it was a little funny if you follow these things closely. is speaking today. what we are talking about is his language. he says we may go past neutral but we are a long way from neutral at this point. the reason it was such a jolt to the market is that back in -- he said today we are just below neutral range. it was almost like he had done something that he wasn't going to do in october. we have much bigger news in some about the bank of england. they came out with their forecast about what would happen with brexit. scenario is an 8% drop in gdp in one year. >> interesting to see the bank of england and the fed releasing
financial stability reviews. the first they had done in the bank of england's case. is aorst case scenario savage recession. there is a mid case scenario that is a deal but not a close union with the eu we will wait for markets to respond to that tomorrow. president trump is said to look for ways to cut subsidies to gm. plans toollowing their close factories and lay off thousands of workers. the president said earlier on twitter that the reason the small truck business is such a go to favorite is that for many years, tariffs of 25% have been put on trucks coming into this country. it is called the chicken tax. meanwhile, ford said it is reworking its u.s. plants. it is not reducing headcount.
we also hear from union leaders in canada who are strongly closed to the closure of plants. worrych does gm have to about tariff action? >> what trump is threatening so far, gm does not have much to worry about. the first thing he threatened was cutting the eb credits. it is not clear he can do that. gm is already running out of those credits which give buyers $7,500 per vehicle. tariffs, trump has already made his case with nafta that he is not going to change the tariffs all that much.
he already cut a deal with mexico and canada. gm doesn't bring up in much from other countries so there isn't much you can do there. the biggest pull he might have is that gm sells a lot of vehicles to the government. if they were to cut purchases there to put pressure on them, i could do something although it is not a huge amount of money to general motors. i think we can see gm allocate one product to one of the plants. he does not have a lot of leverage in terms of things he can cut from gm. he wants to boost mining and hydrocarbons and the sales of cars that use those. >> true. thing about this is
the credits themselves, the whole program is raising out. there are proposals to extend the program but that has not been passed yet. he could just let it go. this is something that the carmakers are bracing that there will be less or it will go away. in states where electrical cars are popular like california, the states have pretty nice tax credits for consumers to buy them. it would not destroy the market. buyers don't even use the credits. they buy the cars because they like tesla. gm is already running out of credits as it is so that isn't a big hammer. >> thank you. now to a bloomberg exclusive. we are live with the president
and ceo of blackstone. >> the fed has begun to raves -- raise rates. we have trade tensions out there. issues in emerging markets and europe. oil prices have come down sharply. that yout is natural have this kind of volatility at some point during a cycle. i don't think it is necessarily bad. for our business, it is generally a good thing. it's asset prices keep grinding higher. that is hard to find opportunity. if you have a business model like ours where you get capital tied up along periods of time, you have discretion when things drop in price and you can move quickly. because you are not short-term finance, you are not forced to sell. us, we look at this and say there are lots of assets around the world have been repriced. we have close to $100 billion in
dry powder. interestinge a more investment environment going forward. >> they have been repriced already? what was the catalyst? >> if you look at the global stock markets, the u.s. is down 10% from where it was. i mentioned oil prices have fallen 30% in a short. of time. some credit spreads have gone out. certain asset classes traded off more than others. the energy sector in particular, there has been more displacement there. grown,, as earnings have multiples have come down a fair amount. the stock market -- to go deeper into each of your lines of business. before we get there, help us understand the investing environment versus the economic
environment. they are interrelated but not necessarily correlated. >> i say on the economics side, people are nervous given the volatility. the numbers are still pretty good. consumer confidence is high. employment is very low. corporate earnings have been strong. what we are seeing with our company is generally pretty good area that is positive. is as thee issue labor market tightens, they will raise toward tax move toward raising rates. put pressure on multiples. that is the shift we are facing right now. it is very possible you can see eight decoupling. where economic growth continues to be good but because wages go
up, that impacts companies bottom lines. because multiples come under pressure, valuations do not grow at the same rate that the economy might. you have a stronger economy, less growth in valuation, and you have to become selective and how you deploy capital. the world, across let's talk about europe. like every day they are in headlines. europe is a place where you have ofested heavily across a lot different asset classes. what is the opportunity there right now? >> in europe, i would say the opposite. i say growth in europe is challenged. if you think about what leads to economic growth, you want to be in a place were there is more certainty. what is happening in brexit and the more extreme
political parties, it is making people more cautious to invest in higher. that translates into slower growth in europe. you might say then i don't want to invest in europe. then you say rates are likely to stay lower for longer in europe area there are fewer people who are enthused about investing in europe. in the last six weeks, we announced to large deals in the u.k. are slowed growth but we able to buy these arches under the rail network in the u.k.. we are buying a big convention and arena business in birmingham, u.k. cases, we felt like we were able to price in a lower growth environment. as investors you have to look at the matrix both ways. it is not just is the economic climate a verbal, it is what price to i have to pay for that? i would say that overall it blackstone, europe looks more
favorable because there is not a consensus that is the place to invest. >> let's get into your lines of business because one interesting thing about blackstone is that you are fairly evenly divided across these four sectors. let's start with real estate. you helped build the business. you have been largely successful as a firm. >> it is a hard comment to make because it is a big universe. global and we invest in more opportunistic things. i would say generally, if i stay here in the u.s. we are in a more mature part of the cycle. up.es have moved there is not a lot of distress.
you have a headwind from rising rates. the part of the story in commercial real estate is that normally we have a lot more and thingsing on that look not great on the lending side. both of those things have been more constrained. new construction is running at 1.4% in the u.s. versus an economy growing at 3%. what we have seen as a flattening out and value growth. again, you need to become more selective. for us, we have been very positive on warehouses because of the movement online of the distribution of goods. we have been much more cautious on retail. we have been more positive on the west coast because of the have inn jobs then we the midwest and east coast. you have to be much more selective at this part in the real estate cycle.
we have done a number of public to private. pricing is that are than what we see on the street. we still think there is some room to run. you have to be much more selective. up2019, if you have to sum the year for real estate, what is it? because the economy is still going to be pretty good and we don't have the kind of overbuilding that gets us in trouble, i think it will be a flat modest growth and value real -- year for real estate. there are other markets i would be more positive on. spain where we have seen a good recovery because they went to a sharp recession. is a market where we have
seen it will growth because of i.t. and business processing companies. globally, we are in a part of the cycle where rates are moving up. there is less distress. it is a more mature part of the real estate cycle area >> i want to ask you about residential. how you feel about the residential real estate market in the u.s.? >> i am still positive on u.s. residential real estate. we like to look at the world in a simple way. if you look at the historic 1.6, we would say we need million homes being built in the that deficit is leading to they upward pressure in home prices. we see asaying slowdown is people are just too higher mortgage rates. ultimately, the laws of supply and demand determine the value
of assets. there is a shortage of housing today in the u.s. i would generally be positive. certain high-end urban markets, you are more cautious. some of the cities secondary locations in the midwest and northeast may be more cautious where the tax changes have been more adverse area generally, would you say if i would be able on u.s. housing, yes. >> let's talk about credit. that has grown dramatically. there seems to have been a nonbankshift toward playing heavily here. where are we in the credit cycle and what role do you play? >> this has been a really elon gated credit cycle. the epicenter of the crisis was credit.
that complex got badly hurt within the banks. there were huge excesses and things recoiled. that did create an opportunity and i think something that makes a lot of sense which are capital market solutions for some of the riskier lending. those think about some of activities as opposed to one large balance sheet and a bank, you can do those in funds. if something goes wrong, it is much more contained. team.e a terrific they do all sorts of noninvestment in the u.s. and europe. what i would say is the most interesting thing are the private markets and floating rate debt. that, isn i say because people are putting a huge premium on liquidity. spreads are tighter. high-yield spreads are the same as leveraged loan spreads even though the leverage loans are senior in the capital stack.
i prefer private credit in the u.s. and europe. i much prefer floating-rate debt. if you gave me a choice of being , directng-rate lender lending in the u.s. or europe versus buying a 10 year german bond or 10 corporate paying less than 1%, that seems like a much riskier trade. people were so burned by what happened before, anything associated with corporate credit , they are very nervous. to us, that feels like opportunity. >> let's talk about private equity. valuations coming down. it sounds like you are saying -- i may down to the point where you are an aggressive buyer in private equity? along publics were markets coming down. i would say that we think the best opportunities are in the public markets with larger side
-- size companies. to $15 billion. if you have a private company worth $750 million, there is a big universe who can compete for that. when you start getting to a deal like thomson reuters which was a , thatllion business competitive dynamic is pretty favorable. the fact that the prices have come down a bit and the fact that the number of large-scale private equity funds is basically the same as it was back in 2007, creates a better dynamic for investing. i would hardly say we are in a market where you have an open to buy. you have toa place
be very selective in the type of companies you buy and the industries you buy. this volatility, prices coming down a bit, it is helpful or us as we look for businesses. one other comment i would make is as you are in an environment of rates going up, that means you do not believe multiples will expand. if anything, they may contract area you need to put a premium on things that will grow. you can get that by intervening finding aess, or by business that has great tailwinds behind it. finally, i would say you have to be aware of what is happening in technology across these industries area the risk of being the taxi medallion owner in new york has gone up across every industry. we are very mindful in everything we do. what is coming towards us, and we want to be in businesses with
tailwinds. >> before we get too far away from private equity, i have to ask you as the chairman of suchn -- hilton, you have a window into the sea suite. characterize their mood, what is it across the portfolio? >> i would say the mood is still positive. we survey our ceos every quarter. what they are seeing is better in the businesses that in the headlines. we ask them what are the things you are most concerned about? they said to us, not trade. they said the scarcity of labor and the cost of labor has become their number one concern. the second thing they talk about is the risk of technology to their business. overall, u.s. oriented companies, they had a pretty
positive outlook today. more positive than what you are reading in the papers. >> are they hiring are aggressively expanding? what is the general sense? >> i would say expanding. to 2008 oring back 2009 still has an element of caution area you don't see the -- i think ones of the reasons we have gotten this much longer cycle than we had before is because of the natural animal spirits are not there in the same way. people remember committing to a large lease or building a factory or doing an acquisition and then the music stopped. our company ceos are no different. them, they would say they feel like the u.s. economy next year will be pretty good.
>> we did not talk about hedge funds. you guys are the biggest in that business. like we are in a state of existential crisis in hedge funds. what is the story? >> the biggest challenge is the traditional long short hedge fund business is struggling in the equity markets. feesdea of paying higher and hedging a big chunk of market exposure than providing significant outperformance, that is harder as the market gets more efficient. what that means is the hedge fund business survives. you see more of the other strategies that are seeing more capital flowing into them where they have most around their business and they are able to deliver differentiated returns. the other thing you are seeing in the hedge fund world is, you
do some semiliquid things, things that you can get excess return without taking undue risk. long short equity business, some of the activists have seen some pressure. long-term, the hedge fund is this surprised but it continues to evolve. tookrlier this year, you the helm as the president and ceo having grown up in the firm. you know have the purview of all of these businesses. looking within or beyond those four core businesses, what is investingt opportunity from an asset class or opportunity perspective in 2019? >> i have been talking a lot about two things. one is integrating as much as possible to take advantage of
what we see. one of my colleagues said it only blackstone knew what blackstone new. across our businesses it has grown in scale. sharing that information, and we have been investing in the data, i think back and give us a real advantage in all of our businesses because we have all of this information. the second thing i would say is that high rate environment and more pressure on multiples, you must emphasize growth. asia,xposure over time to ,ore exposure to life sciences and even know growth opportunity has a lot of high-priced companies over time more exposure to that as well. i would say for us, and emphasis on growth and believing and finding sectors where we have real faith is the most important
thing. you cannot just buy something and hope it works out. about where the economy is headed, recession talk has become much more prominent. are we going to see a recession in 2019? >> i don't think so in the u.s. the economy feels good. , wages, ratesosts slow things down. markets go sideways a little bit. the normal signs of what causes a recession, these excesses which are banks getting levered up having half the leverage they did before, residential construction and commercial construction out of hand, those signs are not there. i would be willing to bet no recession in 2019. >> there you have it.
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