Bloomberg Audio Studios, Podcasts, radio news. 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.

Bloomberg Audio Studios, Podcasts, radio news. 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.

Hey, for all the turbulence I've shaken the US presidential contest this summer. Voters have been consistent in saying that economy is their top election issue. But the economy that matters most is not national. This is important. It's in the seven swing states poise to decide the race. We talk about the Swing states a lot, Matt So, but we.

Hey, for all the turbulence I've shaken the US presidential contest this summer. Voters have been consistent in saying that economy is their top election issue. But the economy that matters most is not national. This is important. It's in the seven swing states poise to decide the race. We talk about the Swing states a lot, Matt So, but we.

Don't talk about this a lot. To me, this was pretty much new information.

Don't talk about this a lot. To me, this was pretty much new information.

It explains kind of.

It explains kind of.

Well, these guys broke it down. I think was unbelievably helpful. Like they should work for the campaign.

Well, these guys broke it down. I think was unbelievably helpful. Like they should work for the campaign.

Hint, hint. All right.

Hint, hint. All right.

This is today's Bloomberg Big Take, which the story that our editorial team has deemed a must read. It is among our most read stories on the Bloomberg. It's by a handful of reporters, including Bloomberg News Senior economics writer Sean Donnan in our Washington DC bureau, and then right here in our studio we've got Stuart Paul Bloomberg Economics US Economists. Great to have you here with us.

This is today's Bloomberg Big Take, which the story that our editorial team has deemed a must read. It is among our most read stories on the Bloomberg. It's by a handful of reporters, including Bloomberg News Senior economics writer Sean Donnan in our Washington DC bureau, and then right here in our studio we've got Stuart Paul Bloomberg Economics US Economists. Great to have you here with us.

Both.

Both.

As Matt said, a great story makes I think a lot makes sense in terms of the concerns among US voters. Sean laid out for us what you guys set out to do and how you did it.

As Matt said, a great story makes I think a lot makes sense in terms of the concerns among US voters. Sean laid out for us what you guys set out to do and how you did it.

Yeah.

Yeah.

Look, our goal here was understanding what was happening in the economy and Swing states. As you said, there, poll after poll shows voters nominating the economy as their top issue. We also know that voters in the seven Swing States are the ones that are really going to decide this election in November in all likelihood, and so we wanted to know the economy that they lived in. And what we found was some pretty, you know, to me, was surprising new information. The first of which was just, you know, we think of these seven Swing states as a kind of disparate family. Sometimes they're thought of being at the fringe of American politics or the American economy. But when you put them all together, it's sixty one million people who live in a four point four trillion dollar economy that would be the world's fourth largest and is up there with Germany in Japan in terms of scale. The second thing that we found that is also really important to think about is that that economy is one that's been growing more slowly out of the pandemic recession than the rest of the United States. In fact, it grew at two thirds the rate of the rest of the US.

Look, our goal here was understanding what was happening in the economy and Swing states. As you said, there, poll after poll shows voters nominating the economy as their top issue. We also know that voters in the seven Swing States are the ones that are really going to decide this election in November in all likelihood, and so we wanted to know the economy that they lived in. And what we found was some pretty, you know, to me, was surprising new information. The first of which was just, you know, we think of these seven Swing states as a kind of disparate family. Sometimes they're thought of being at the fringe of American politics or the American economy. But when you put them all together, it's sixty one million people who live in a four point four trillion dollar economy that would be the world's fourth largest and is up there with Germany in Japan in terms of scale. The second thing that we found that is also really important to think about is that that economy is one that's been growing more slowly out of the pandemic recession than the rest of the United States. In fact, it grew at two thirds the rate of the rest of the US.

Yeah to me, I mean to me. The headline is, if you look at the economies in the Swing States, the results are no bueno for the Democrats, just because you know Harris is going to pick up Biden's leglegacy. And these states have not only grown at a slower pace than the rest of America, but if you break it down by counties, you know most of the people live in counties that have done worse than even the state. Like I look at Eerie, which you headline or you point out in the story, has seen a GDP per capita drop between twenty nineteen and twenty twenty two, and everybody's just like moving out of there. But all if you look at the counties across Pennsylvania, forty percent of the people live in counties where GDP has fallen, So Stuart. It's going to be hard for Harrison for the Dems to spin this.

Yeah to me, I mean to me. The headline is, if you look at the economies in the Swing States, the results are no bueno for the Democrats, just because you know Harris is going to pick up Biden's leglegacy. And these states have not only grown at a slower pace than the rest of America, but if you break it down by counties, you know most of the people live in counties that have done worse than even the state. Like I look at Eerie, which you headline or you point out in the story, has seen a GDP per capita drop between twenty nineteen and twenty twenty two, and everybody's just like moving out of there. But all if you look at the counties across Pennsylvania, forty percent of the people live in counties where GDP has fallen, So Stuart. It's going to be hard for Harrison for the Dems to spin this.

It is it is so much of politics is local, so much of investment is local, so much of infrastructure spending is local. And when you look even at the places where there's been a lot of investment in manufacturing, some of the stories are so unique and specific. So one of the states, one of the major swing states, where we've seen growth in manufacturing is Nevada, but a lot of that is really just a very specific story about manufacturing of Tesla's batteries. And so how much that resonates with voters who are experiencing a dramatic surge in the cost of housing, for example, and Sean has done some amazing reporting around the cost of housing, It's difficult to see those sort of economic developments resonating positively with voters, at least as it pertains to Harris on the ticket.

It is it is so much of politics is local, so much of investment is local, so much of infrastructure spending is local. And when you look even at the places where there's been a lot of investment in manufacturing, some of the stories are so unique and specific. So one of the states, one of the major swing states, where we've seen growth in manufacturing is Nevada, but a lot of that is really just a very specific story about manufacturing of Tesla's batteries. And so how much that resonates with voters who are experiencing a dramatic surge in the cost of housing, for example, and Sean has done some amazing reporting around the cost of housing, It's difficult to see those sort of economic developments resonating positively with voters, at least as it pertains to Harris on the ticket.

I gotta say, Sean, one of the stats, and when you talk about Nevada, this particular county set, you guys include this stat In twenty nineteen, a typical household in Nevada could expect to spend almost twenty percent of its income on mortgage payments if they purchased a median priced home That rose to almost thirty seven percent last year, according to calculations by Bloomberg Economics. I mean, how do you survive?

I gotta say, Sean, one of the stats, and when you talk about Nevada, this particular county set, you guys include this stat In twenty nineteen, a typical household in Nevada could expect to spend almost twenty percent of its income on mortgage payments if they purchased a median priced home That rose to almost thirty seven percent last year, according to calculations by Bloomberg Economics. I mean, how do you survive?

How do you in New York Lada?

How do you in New York Lada?

But I mean this is a story we keep telling over and over here at Bloomberg.

But I mean this is a story we keep telling over and over here at Bloomberg.

Yeah, no, absolutely, and housing cor are you know, we talk about inflation a lot and the impact on consumers, but housing costs, which are related to interest rates as well as the value of properties. You know, starter homes now are going for just you know, an incredible multiple of what they used to and that is true in a place like Nevada. I mean Reno, Nevada, where I was, It was one of these places that is a kind of hopeful story about new manufacturing and economic transformation. The local economy there in Washoe County where it sits has been growing in population, a lot of people moving there from California and so on, but housing prices have gone through the roof and that has started to dislocate a lot of people there locally. So, you know, I spent some time at Catholic charities talking to the folks who work there and work with people who are struggling to make rent. And one things she says is what they're seeing is not just, you know, people who are homeless. What they're seeing people who are have good jobs and well paid jobs twenty five dollars an hour jobs who can't afford to make rent because rents have been going up so much.

Yeah, no, absolutely, and housing cor are you know, we talk about inflation a lot and the impact on consumers, but housing costs, which are related to interest rates as well as the value of properties. You know, starter homes now are going for just you know, an incredible multiple of what they used to and that is true in a place like Nevada. I mean Reno, Nevada, where I was, It was one of these places that is a kind of hopeful story about new manufacturing and economic transformation. The local economy there in Washoe County where it sits has been growing in population, a lot of people moving there from California and so on, but housing prices have gone through the roof and that has started to dislocate a lot of people there locally. So, you know, I spent some time at Catholic charities talking to the folks who work there and work with people who are struggling to make rent. And one things she says is what they're seeing is not just, you know, people who are homeless. What they're seeing people who are have good jobs and well paid jobs twenty five dollars an hour jobs who can't afford to make rent because rents have been going up so much.

So the Nevada story is one of inflation that they're going to blame on Biden. Erie County is one on an exodus of manufacturing that they're going to blame on Biden. You get to Fuller County, I thought this was fascinating. In Georgia, they've seen per capita GDP increase sixteen percent from nineteen to twenty two, populations at fourteen percent, but they hate Democrats so much that they pretend the economy sucks. Like, how do you how do you explain that away? Stewart, It's difficult.

So the Nevada story is one of inflation that they're going to blame on Biden. Erie County is one on an exodus of manufacturing that they're going to blame on Biden. You get to Fuller County, I thought this was fascinating. In Georgia, they've seen per capita GDP increase sixteen percent from nineteen to twenty two, populations at fourteen percent, but they hate Democrats so much that they pretend the economy sucks. Like, how do you how do you explain that away? Stewart, It's difficult.

So when you have a surgeon population, you try to get those folks integrated into the economy as quickly as possible so that they can be productive. They can generate a lot of economic growth. But when the nominal growth that you've seen is about the same as the population growth that you've seen, you don't realize any improvement in your standard of living at all. And that's basically the story of what's going on. And frankly, it's a sad story. You want people to get integrated into the economy, you want stanzards of living to improve, and they're just not going to be feeling it, despite the fact that they've seen this influx of people that should help to buy growth.

So when you have a surgeon population, you try to get those folks integrated into the economy as quickly as possible so that they can be productive. They can generate a lot of economic growth. But when the nominal growth that you've seen is about the same as the population growth that you've seen, you don't realize any improvement in your standard of living at all. And that's basically the story of what's going on. And frankly, it's a sad story. You want people to get integrated into the economy, you want stanzards of living to improve, and they're just not going to be feeling it, despite the fact that they've seen this influx of people that should help to buy growth.

I got I want to go back to you, Sean in a moment. But Sean is a master at doing these kinds of stories, taking us, you know, to the granular level, the ground level in terms of telling us what's going on across the United States, really getting to real story. Stuart working on this story with the team and with Sean, you know, as an economist, we often talk, you know, government numbers, big numbers and so on and so forth. What did you kind of find out?

I got I want to go back to you, Sean in a moment. But Sean is a master at doing these kinds of stories, taking us, you know, to the granular level, the ground level in terms of telling us what's going on across the United States, really getting to real story. Stuart working on this story with the team and with Sean, you know, as an economist, we often talk, you know, government numbers, big numbers and so on and so forth. What did you kind of find out?

What really gets interesting is when you do the head to head comparisons for Trump and Biden. So far in this administration, Vice President Harris is going to be painted with the same brush as President Biden, especially if she wants to take credit for any sort of the employment growth and the low unemployment generally low unemployment that they've seen during this administration. Just it's really a story of the cumulative inflation and comparing cumulative inflation across the Swing States, across the presidencies. If you look, there's only one Swing state that's had lower inflation than the US as a whole. Six of the seven Swing states have seen the same or more inflation than the rest of the country. And to look at Wisconsin, where they've had lower inflation than the rest of the country, it's really a story of an economy that's in decline at the state level. More broadly, you look at the rest of the you look at the rest of the Swing states, Arizona, Nevada, where they've seen dramatic inflation and that's way worse than the rest of the country. You would imagine that that's going to be a problem for Vice President Harris. And if you just zoom out to the national level and you think cumulative inflation under Biden's going to end up being about twenty one twenty two percent during his four year term in office, people are going to remember that during Trump's time in office, there's just cumulative inflation of about eight percent. And that's the thing that matters most. It's literally a pocketbook issue. How much is the money in your pocketbook going.

What really gets interesting is when you do the head to head comparisons for Trump and Biden. So far in this administration, Vice President Harris is going to be painted with the same brush as President Biden, especially if she wants to take credit for any sort of the employment growth and the low unemployment generally low unemployment that they've seen during this administration. Just it's really a story of the cumulative inflation and comparing cumulative inflation across the Swing States, across the presidencies. If you look, there's only one Swing state that's had lower inflation than the US as a whole. Six of the seven Swing states have seen the same or more inflation than the rest of the country. And to look at Wisconsin, where they've had lower inflation than the rest of the country, it's really a story of an economy that's in decline at the state level. More broadly, you look at the rest of the you look at the rest of the Swing states, Arizona, Nevada, where they've seen dramatic inflation and that's way worse than the rest of the country. You would imagine that that's going to be a problem for Vice President Harris. And if you just zoom out to the national level and you think cumulative inflation under Biden's going to end up being about twenty one twenty two percent during his four year term in office, people are going to remember that during Trump's time in office, there's just cumulative inflation of about eight percent. And that's the thing that matters most. It's literally a pocketbook issue. How much is the money in your pocketbook going.

To buy you?

To buy you?

So they think they would be better off with Trump because you didn't have the sort of post COVID inflation during his presidency. Sean, what can the Harris Wall's campaign do, Like, can they cancel their student debt? Can they buy them beer?

So they think they would be better off with Trump because you didn't have the sort of post COVID inflation during his presidency. Sean, what can the Harris Wall's campaign do, Like, can they cancel their student debt? Can they buy them beer?

Like?

Like?

What can they do to get these voters back?

What can they do to get these voters back?

So one of the really fascinating things in particularly this week as Vice President Harris and Tim Wallas have been touring swing states is to listen how the economic message has changed. Right. She is much more about what is happening to households and promising a better future. She's promising to bring down prices. She's talking about corporate price gouging. Those are her words. She is trying to offer hope for the future. Whereas when President Biden was touring and campaigning, the message you heard was more much more about, Look, the American economy is the envy of the world. Has had an incredible recovery from the pandemic recession. You know, I hear this all the time when I go to the G seven and so on. And that was a message that just did not resonate with voters, and we saw it in poll after poll, and so we're seeing the Democrats adjust on the fly. But you know, look, the broad point here is also that there is a disparity between what economists and markets look at, and those are the big national numbers in terms of the economy and the local numbers. And it's the local numbers that matter in politics and are continue to matter. We learned that in twenty sixteen, both here in the US when we saw the election of Donald Trump and people started talking about those left behind places in America. We saw it in the UK when we saw Brexit in twenty sixteen. Right, we've got to remember that lesson here in twenty twenty four.

So one of the really fascinating things in particularly this week as Vice President Harris and Tim Wallas have been touring swing states is to listen how the economic message has changed. Right. She is much more about what is happening to households and promising a better future. She's promising to bring down prices. She's talking about corporate price gouging. Those are her words. She is trying to offer hope for the future. Whereas when President Biden was touring and campaigning, the message you heard was more much more about, Look, the American economy is the envy of the world. Has had an incredible recovery from the pandemic recession. You know, I hear this all the time when I go to the G seven and so on. And that was a message that just did not resonate with voters, and we saw it in poll after poll, and so we're seeing the Democrats adjust on the fly. But you know, look, the broad point here is also that there is a disparity between what economists and markets look at, and those are the big national numbers in terms of the economy and the local numbers. And it's the local numbers that matter in politics and are continue to matter. We learned that in twenty sixteen, both here in the US when we saw the election of Donald Trump and people started talking about those left behind places in America. We saw it in the UK when we saw Brexit in twenty sixteen. Right, we've got to remember that lesson here in twenty twenty four.

Really important explain so much, certainly in terms of some of the voter dissatisfaction that's out there. Hey, guys, thank you. Incredible read Bloomberg News senior economics writer Sean Donn and Stuart Paul Bloomberg Economics US economists check out and you can read more of the Bloomberg Big takets on the Bloomberg terminal and at Bloomberg dot com slash Big Day.

Really important explain so much, certainly in terms of some of the voter dissatisfaction that's out there. Hey, guys, thank you. Incredible read Bloomberg News senior economics writer Sean Donn and Stuart Paul Bloomberg Economics US economists check out and you can read more of the Bloomberg Big takets on the Bloomberg terminal and at Bloomberg dot com slash Big Day.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple car Play and ed Brout Auto with a Bloomberg Business app, or watch us live on YouTube.

You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple car Play and ed Brout Auto with a Bloomberg Business app, or watch us live on YouTube.

We talked about this a lot during Open Interest this morning on Bloomberg Television about shares of TSMC. They were out of the gate. Well, they were up about one percent, up two percent at their highs, but it did seem like their pre market they were gonna rally even more.

We talked about this a lot during Open Interest this morning on Bloomberg Television about shares of TSMC. They were out of the gate. Well, they were up about one percent, up two percent at their highs, but it did seem like their pre market they were gonna rally even more.

Right, And that's because their revenue in July was up what forty five percent?

Right, And that's because their revenue in July was up what forty five percent?

Forty five percent? Yeah, exactly.

Forty five percent? Yeah, exactly.

They were doing well. And this is a foundry that's key to the AI arms race, right, because not everybody realizes and Vidia doesn't make its own chips, no, they say the plans to Taiwan Semiconductor, and Taiwan Semiconductor makes those chips.

They were doing well. And this is a foundry that's key to the AI arms race, right, because not everybody realizes and Vidia doesn't make its own chips, no, they say the plans to Taiwan Semiconductor, and Taiwan Semiconductor makes those chips.

Right, They're a contract chip maker, correct, all right, So let's get to it. And I am curious though, what Ian King has to say about what we did get from TSMC overnight. In of course Bloomberg News US semi Conductor a networking reporter back with us in our San Francisco bureau. Hey, Ian, good to wrap up the week with you. What we got from TSMC. It looked like pretty tremendous growth, is it What does it tell us about the outlook? And I always think about so, if it's good for TSMC, does it mean everybody or a lot of the semi space is doing okay? Yeah?

Right, They're a contract chip maker, correct, all right, So let's get to it. And I am curious though, what Ian King has to say about what we did get from TSMC overnight. In of course Bloomberg News US semi Conductor a networking reporter back with us in our San Francisco bureau. Hey, Ian, good to wrap up the week with you. What we got from TSMC. It looked like pretty tremendous growth, is it What does it tell us about the outlook? And I always think about so, if it's good for TSMC, does it mean everybody or a lot of the semi space is doing okay? Yeah?

I mean the monthly reports are obviously a fairly general number. We don't get the drill down that would give us more insight. I think the way it's been taken though, there are a couple of things to point out. As Matt said, forty five percent, that's not bad, but from last year where things were relatively weak, particularly the smartphone market. And you've got to remember that Qualcomm and I are really big customers of TSMC. But the other way to look at it is I think you've pointed to, which is everybody is very nervous about this massive spend that we've seen on AI infrastructure. Will the big spenders keep going and will the beneficiaries, notably in Nvidia, continue to keep benefiting, And this number would appear to be a positive sign for that particular concern.

I mean the monthly reports are obviously a fairly general number. We don't get the drill down that would give us more insight. I think the way it's been taken though, there are a couple of things to point out. As Matt said, forty five percent, that's not bad, but from last year where things were relatively weak, particularly the smartphone market. And you've got to remember that Qualcomm and I are really big customers of TSMC. But the other way to look at it is I think you've pointed to, which is everybody is very nervous about this massive spend that we've seen on AI infrastructure. Will the big spenders keep going and will the beneficiaries, notably in Nvidia, continue to keep benefiting, And this number would appear to be a positive sign for that particular concern.

I wonder when I was looking at this and thinking about it. You know, you focus on this all the time, but for me, it's just cursory. Every like ten minutes every hour, they make all of their chips in Taiwan. Like if something bad were to happen between China and Taiwan, would the world be stuck with no more semiconductor production.

I wonder when I was looking at this and thinking about it. You know, you focus on this all the time, but for me, it's just cursory. Every like ten minutes every hour, they make all of their chips in Taiwan. Like if something bad were to happen between China and Taiwan, would the world be stuck with no more semiconductor production.

So you're right, all roads lead to into this company is tremendously important and now accounts for you know, a large percentage of the world's most advanced semiconductors are produced in a couple of it has in Taiwan, but it also has a plant that it's bringing up in Japan. It also has one that it's building near Phoenix, so there is an effort to diversify you know, that supply chain. Also some song you know, the South Korean manufacturer they are, it's it's kind of nearest arrival, so that has advanced capacity in South Korea, and they're also building you know, another plant near Austin, Texas. And then Intel is trying to get back in the game. So it wouldn't be it would be a disaster. It would have significant consequences on the world economy, but there are efforts to diversify that risk.

So you're right, all roads lead to into this company is tremendously important and now accounts for you know, a large percentage of the world's most advanced semiconductors are produced in a couple of it has in Taiwan, but it also has a plant that it's bringing up in Japan. It also has one that it's building near Phoenix, so there is an effort to diversify you know, that supply chain. Also some song you know, the South Korean manufacturer they are, it's it's kind of nearest arrival, so that has advanced capacity in South Korea, and they're also building you know, another plant near Austin, Texas. And then Intel is trying to get back in the game. So it wouldn't be it would be a disaster. It would have significant consequences on the world economy, but there are efforts to diversify that risk.

I spoke with bankers, We spoke Carolin both with bankers from Ohio yesterday. And Intel is investing, you know, well, planning to invest tens of billions of dollars to build a factory there, but they have been teetering lately. In fact, Intel I think the second biggest loser on the S and P today. Is it set in stone or is it possible that they may not be able to go forward with all of their foundry building plans.

I spoke with bankers, We spoke Carolin both with bankers from Ohio yesterday. And Intel is investing, you know, well, planning to invest tens of billions of dollars to build a factory there, but they have been teetering lately. In fact, Intel I think the second biggest loser on the S and P today. Is it set in stone or is it possible that they may not be able to go forward with all of their foundry building plans.

I mean, our colleague Mackenzie Hawkins did a kind of a good roundup of the Chips Act funding efforts so far. And you know, the key part of this, and I think the thing that we should all pay attention to, and particularly as tax players in the US, is the way this has been structured is you don't get money unless you actually do what you are said you're going to do. So, yeah, you can throw up a building and we'll give you a certain amount of support for that, but at the same time, if you don't put the much more important equipment in that building and actually start sort of producing chips, then you don't get the rest of that money. So you know, government support is contingent upon knowledge of the way that the chip industry has always worked, which is, hey, we'll build these shells and we'll hope that we get the demand, but then we'll only really put the expense to the equipment in that if we're absolutely sure that we need to go ahead with expanding capacity.

I mean, our colleague Mackenzie Hawkins did a kind of a good roundup of the Chips Act funding efforts so far. And you know, the key part of this, and I think the thing that we should all pay attention to, and particularly as tax players in the US, is the way this has been structured is you don't get money unless you actually do what you are said you're going to do. So, yeah, you can throw up a building and we'll give you a certain amount of support for that, but at the same time, if you don't put the much more important equipment in that building and actually start sort of producing chips, then you don't get the rest of that money. So you know, government support is contingent upon knowledge of the way that the chip industry has always worked, which is, hey, we'll build these shells and we'll hope that we get the demand, but then we'll only really put the expense to the equipment in that if we're absolutely sure that we need to go ahead with expanding capacity.

I just wanted to ask, because last night, after you and I left this studio, Moody's downgraded Intel's senior unsecured debt rating to triple B from triple A, and moody said the downgrading reflects our expectations of Intel's significantly weaker profit over the next twelve to eighteen months, resulting from a combination of higher cost related to product and manufacturing process technology transitions, unfavorable product mix, weaker than expected demand and nearly all of its product segments, and continuing market share losses.

I just wanted to ask, because last night, after you and I left this studio, Moody's downgraded Intel's senior unsecured debt rating to triple B from triple A, and moody said the downgrading reflects our expectations of Intel's significantly weaker profit over the next twelve to eighteen months, resulting from a combination of higher cost related to product and manufacturing process technology transitions, unfavorable product mix, weaker than expected demand and nearly all of its product segments, and continuing market share losses.

It's not good. Well, and I feel like, you know, come on in on this, because I also feel like when they were you know, came out they talked about in their press release, which all it struck us all weird were they were talking. I felt like, was it liquidity and cash flow you know, concerns. It just isn't something you expect from an Intel.

It's not good. Well, and I feel like, you know, come on in on this, because I also feel like when they were you know, came out they talked about in their press release, which all it struck us all weird were they were talking. I felt like, was it liquidity and cash flow you know, concerns. It just isn't something you expect from an Intel.

I mean this time a week ago, we were kind of brifening for impact to that impact landed, and it landed more heavily than I think even the most pessimistic people out there. Some analysts like Stacy Rasgoin from Bernstein said, look, if Intel wasn't getting government money, if it wasn't getting outside financing, this would be a going concern consideration. And this is absolutely a surrounding for a company of this nature.

I mean this time a week ago, we were kind of brifening for impact to that impact landed, and it landed more heavily than I think even the most pessimistic people out there. Some analysts like Stacy Rasgoin from Bernstein said, look, if Intel wasn't getting government money, if it wasn't getting outside financing, this would be a going concern consideration. And this is absolutely a surrounding for a company of this nature.

Unbelievable.

Unbelievable.

Does it, like you think about how you know, you've covered this space a long time, like to be talking about that is pretty wild.

Does it, like you think about how you know, you've covered this space a long time, like to be talking about that is pretty wild.

Right, I mean I was looking at the numbers before I came here to talk to you guys. You know it's going to be less than half the size of Nvidia in terms of revenue. AMD, a company that struggled to even get on the map for years, is now up to over fifty percent of Intel's revenue. So that top line that you know, that really important amount of money that was flowing in that fired up all of this R and D, all of this building of new plants, it's just nowhere near where it used to be. Profitability has gone away. The cash flow is obviously struggling, they're not paying a dividend anymore. I mean, all of these things are not good signs. Their answer to this is like, look, we're taking the pain up front. We're investing heavily. You know, we're paying for the mistakes of the past. But don't worry, we're on the way back. I think what the market wants to see now is evidence that points to that being absolutely the case. They want to see a bottom, they want to see a turning point. We don't really have any numbers of it indicator that's the case of this particular moment, Just.

Right, I mean I was looking at the numbers before I came here to talk to you guys. You know it's going to be less than half the size of Nvidia in terms of revenue. AMD, a company that struggled to even get on the map for years, is now up to over fifty percent of Intel's revenue. So that top line that you know, that really important amount of money that was flowing in that fired up all of this R and D, all of this building of new plants, it's just nowhere near where it used to be. Profitability has gone away. The cash flow is obviously struggling, they're not paying a dividend anymore. I mean, all of these things are not good signs. Their answer to this is like, look, we're taking the pain up front. We're investing heavily. You know, we're paying for the mistakes of the past. But don't worry, we're on the way back. I think what the market wants to see now is evidence that points to that being absolutely the case. They want to see a bottom, they want to see a turning point. We don't really have any numbers of it indicator that's the case of this particular moment, Just.

So we don't end on such a dour note. I woke up this morning to read Carmen Reinicky's story and Nvidia has lost almost a trillion dollars of market cap in the last couple of weeks, which is which is nuts, but.

So we don't end on such a dour note. I woke up this morning to read Carmen Reinicky's story and Nvidia has lost almost a trillion dollars of market cap in the last couple of weeks, which is which is nuts, but.

Still up one hundred and twelve percent this year.

Still up one hundred and twelve percent this year.

Well, that that's true. And I was also going to say, like, there's still a ton of investment in AI, like the story hasn't changed because the Bank of Japan raised rates and on farm payrolls never came in low.

Well, that that's true. And I was also going to say, like, there's still a ton of investment in AI, like the story hasn't changed because the Bank of Japan raised rates and on farm payrolls never came in low.

Right, absolutely not. We have had no evidence from this earning season in particular that there's any slowing in the sort of wild rush to put all of this infrastructure in place, and obviously in video is the main beneficiary of that. So we'll find out later this month what in video has to say themselves. But at the moment, there's no reason to be concerned about the fundamentals. The valuation of in video. That's another story, right, That's up to investors to put the appropriate value on it. But the fundamentals at this point appeared to be solid.

Right, absolutely not. We have had no evidence from this earning season in particular that there's any slowing in the sort of wild rush to put all of this infrastructure in place, and obviously in video is the main beneficiary of that. So we'll find out later this month what in video has to say themselves. But at the moment, there's no reason to be concerned about the fundamentals. The valuation of in video. That's another story, right, That's up to investors to put the appropriate value on it. But the fundamentals at this point appeared to be solid.

Pretty wild space though, Ian, thank you so much, really super and always appreciate what he has to say, Ian King. He is US semiconductor and networking reporter. Ian, have a great weekend, of course here at Bloomberg News out there in our San Francisco berea. It is kind of fascinating, it is, right.

Pretty wild space though, Ian, thank you so much, really super and always appreciate what he has to say, Ian King. He is US semiconductor and networking reporter. Ian, have a great weekend, of course here at Bloomberg News out there in our San Francisco berea. It is kind of fascinating, it is, right.

I mean, I started out as a cub reporter like twenty five years ago covering infinion in Munich, and I thought, what a boring space. This is not boring, and it is not boring at all.

I mean, I started out as a cub reporter like twenty five years ago covering infinion in Munich, and I thought, what a boring space. This is not boring, and it is not boring at all.

You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Easter on Apple car Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty.

You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Easter on Apple car Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty.

Well interesting trade today for shares of Pagaya Technologies. Shares soared as much as nineteen percent in the pre market before we got going. They've bounced around in the regular trade. They're down ten percent at their lows, up nearly eight percent at their highs. The financial technology company gave a quarterly outlook this morning, raised its full year outlook, and also announced a forward flow deal for up to one billion dollars of loans with Castlelake. We want to get into that. Shares the one billion dollar market cap company are down about fourteen percent year to date. Shouting us right now is the co founder and CEO of the company. He is Gaul Krubner. He is here in our Bloomberg Interactor Broker studio. I'm not saying it right, you say it, I said Gal Krubiner.

Well interesting trade today for shares of Pagaya Technologies. Shares soared as much as nineteen percent in the pre market before we got going. They've bounced around in the regular trade. They're down ten percent at their lows, up nearly eight percent at their highs. The financial technology company gave a quarterly outlook this morning, raised its full year outlook, and also announced a forward flow deal for up to one billion dollars of loans with Castlelake. We want to get into that. Shares the one billion dollar market cap company are down about fourteen percent year to date. Shouting us right now is the co founder and CEO of the company. He is Gaul Krubner. He is here in our Bloomberg Interactor Broker studio. I'm not saying it right, you say it, I said Gal Krubiner.

Yes you can say it. Yeah, that was very good.

Yes you can say it. Yeah, that was very good.

Thank you very much. Hey, you have a fascinating business that you work with lenders like US Bank. And that's not the fascinating part, Klarna is what is fascinating to me because you help sort of, you help these buy now, pay later, this really popular new system to thrive. Tell us how you do it. What's the relationship. The partnership look like perfect.

Thank you very much. Hey, you have a fascinating business that you work with lenders like US Bank. And that's not the fascinating part, Klarna is what is fascinating to me because you help sort of, you help these buy now, pay later, this really popular new system to thrive. Tell us how you do it. What's the relationship. The partnership look like perfect.

So maybe let's take a step back and let's describe paguy in a second. So pa Guy is a finte company that is helping lendos exactly as you said, the US banks, the LI Bank and up until the Klarna, and actually Sofi too that I'm sure you're familiar with. Of course, so Fia, and we are using artificial intelligence in order to help them to approve many more customers now with these lenders, Through these lenders, we have already provided over twenty one billion dollars of loans and we served over two million customers. And the way it works is very simple. Someone is coming to one of these services to ask for a loan, and for some whatever reason, the first provider could not provide the loan. We are getting all the information of the customer at that point, and for many of them that are actually very good consumers, we are providing with our technology the ability.

So maybe let's take a step back and let's describe paguy in a second. So pa Guy is a finte company that is helping lendos exactly as you said, the US banks, the LI Bank and up until the Klarna, and actually Sofi too that I'm sure you're familiar with. Of course, so Fia, and we are using artificial intelligence in order to help them to approve many more customers now with these lenders, Through these lenders, we have already provided over twenty one billion dollars of loans and we served over two million customers. And the way it works is very simple. Someone is coming to one of these services to ask for a loan, and for some whatever reason, the first provider could not provide the loan. We are getting all the information of the customer at that point, and for many of them that are actually very good consumers, we are providing with our technology the ability.

To extend the loan even with the Klarna. So if I cloud say I'm like, I don't know Ralph Lauren dot com. And it's one hundred dollars a second make four payments of twenty five dollars each. So they shot that to another arder who says no, and then they come to you and correct.

To extend the loan even with the Klarna. So if I cloud say I'm like, I don't know Ralph Lauren dot com. And it's one hundred dollars a second make four payments of twenty five dollars each. So they shot that to another arder who says no, and then they come to you and correct.

So what's happening is like Clowna is looking if they could provide that credit and for whatever reason they can't. They're saying, hey, pa, guy, what about you? And we're looking into that and we say, you know what, that customer is actually a very strong customer. We should definitely give him the loan. And then we are providing him the loan.

So what's happening is like Clowna is looking if they could provide that credit and for whatever reason they can't. They're saying, hey, pa, guy, what about you? And we're looking into that and we say, you know what, that customer is actually a very strong customer. We should definitely give him the loan. And then we are providing him the loan.

But wait, why does the first lenders say no?

But wait, why does the first lenders say no?

Then, because there are very different ways that bank's looking on things. They have a different regulatory regime. So, for example, the FYCLE cutout, which is a very important to the way of how it sits on their balance sheet, could be very limiting factor for their ability to lend. Now because we are doing it together with capital markets, and we have very big institutional investors behind us that are least that are a little bit less relevant for that regulatory regime, so they have the ability to actually approve even if the FIICO let's assume is below seven twenty. So we are feeling a very important gap in the United States ecosystem today where banks for regulatory pressure needing to cut their lending for different type of bowels. And then we are coming in and filling that in with the power of AI.

Then, because there are very different ways that bank's looking on things. They have a different regulatory regime. So, for example, the FYCLE cutout, which is a very important to the way of how it sits on their balance sheet, could be very limiting factor for their ability to lend. Now because we are doing it together with capital markets, and we have very big institutional investors behind us that are least that are a little bit less relevant for that regulatory regime, so they have the ability to actually approve even if the FIICO let's assume is below seven twenty. So we are feeling a very important gap in the United States ecosystem today where banks for regulatory pressure needing to cut their lending for different type of bowels. And then we are coming in and filling that in with the power of AI.

So who takes the loan on their balance sheet?

So who takes the loan on their balance sheet?

So the balance sheet piece is the very interesting piece. We have behind us one hundred and sixteen funding partners that has been funding these loans for the past seven years and they are utilizing our technology or the vetting the Pagaya technology is doing for these customers, but they are the ones who are providing the capital at the end.

So the balance sheet piece is the very interesting piece. We have behind us one hundred and sixteen funding partners that has been funding these loans for the past seven years and they are utilizing our technology or the vetting the Pagaya technology is doing for these customers, but they are the ones who are providing the capital at the end.

Are these loans getting cutting cut up into kind of like tranches if you will, and different yes levels, so that no one financial whether visa, whether it's so far, whether it's ally correct, it has the exposure of maybe the riskier part.

Are these loans getting cutting cut up into kind of like tranches if you will, and different yes levels, so that no one financial whether visa, whether it's so far, whether it's ally correct, it has the exposure of maybe the riskier part.

So there is a there is a pulls that are being aggregated in between the different loans that we are originating through so far through Lending Club, through US Bank, clown and all the names we just described, and then an investor when they just want to get you know, an exposure to the consumer credit in the United States and then they are buying that pool of loans with the different type of loans from the different type of lenders, but all of that being priced by the Pagaya technology.

So there is a there is a pulls that are being aggregated in between the different loans that we are originating through so far through Lending Club, through US Bank, clown and all the names we just described, and then an investor when they just want to get you know, an exposure to the consumer credit in the United States and then they are buying that pool of loans with the different type of loans from the different type of lenders, but all of that being priced by the Pagaya technology.

So that's you use the technology on that end.

So that's you use the technology on that end.

Correct or with the way the way the loans are being priced is being governed by technology. And that's the AI piece that has created in Pagaya, but being embedded in each and every part of the different lensos we work with.

Correct or with the way the way the loans are being priced is being governed by technology. And that's the AI piece that has created in Pagaya, but being embedded in each and every part of the different lensos we work with.

Do you basically help filter through the people who are looking for the consumer looking for different learns, right, and then it gets.

Do you basically help filter through the people who are looking for the consumer looking for different learns, right, and then it gets.

Kind of correct, but you use the AI to do the pricing. So who wrote the technology?

Kind of correct, but you use the AI to do the pricing. So who wrote the technology?

So that technology has been developed in Pagaya. It's proprietary technology. It's one of the things we are the most proud of. I mean something, so pagaya actually in Portuguese mean to pay ah, thank you, So definitely there is there are things behind that Pagaya. But the interesting piece about the technology is that we have developed that like over two hundred and fifty very smart engineers that are working day in day out only about trying to get the best algorithm to be able to predict the behavior of someone to be able to pay. And the beauty of it, allow me out a second, is that let's assume that these people are actually the ones were being rejected from the bank, as we had in that conversation in the beginning. But the reality is that the performance is not worse, is actually sometimes better.

So that technology has been developed in Pagaya. It's proprietary technology. It's one of the things we are the most proud of. I mean something, so pagaya actually in Portuguese mean to pay ah, thank you, So definitely there is there are things behind that Pagaya. But the interesting piece about the technology is that we have developed that like over two hundred and fifty very smart engineers that are working day in day out only about trying to get the best algorithm to be able to predict the behavior of someone to be able to pay. And the beauty of it, allow me out a second, is that let's assume that these people are actually the ones were being rejected from the bank, as we had in that conversation in the beginning. But the reality is that the performance is not worse, is actually sometimes better.

What do you mean who's performance the performance of the payers?

What do you mean who's performance the performance of the payers?

So that's what I's gonna ask you. Do you have any statistics on the fault?

So that's what I's gonna ask you. Do you have any statistics on the fault?

So the statistics on the default rates is that like what we have been seeing in the last year or more or less since they really have inflation started to reduce, is that people are paying back their debts. And when we are looking on the delinquencies that are now versus what it used to be a ee or two years ago, it's down fifty percent in their picks. So it means two things. Number one, the technology is working and working well. And number two, it means that although we see some softening and we saw that in many earnings on Airbnb and others, that the consumer is starting to spend a little bit less, but the consumer is not paying back their deathless.

So the statistics on the default rates is that like what we have been seeing in the last year or more or less since they really have inflation started to reduce, is that people are paying back their debts. And when we are looking on the delinquencies that are now versus what it used to be a ee or two years ago, it's down fifty percent in their picks. So it means two things. Number one, the technology is working and working well. And number two, it means that although we see some softening and we saw that in many earnings on Airbnb and others, that the consumer is starting to spend a little bit less, but the consumer is not paying back their deathless.

But are you up in your metrics and are the lenders getting pickier about who they're giving money to.

But are you up in your metrics and are the lenders getting pickier about who they're giving money to.

So the lenders in generality has been much more picky, which is maybe which is out of the things that the level of population that is now getting a loan or populations actually could afford it.

So the lenders in generality has been much more picky, which is maybe which is out of the things that the level of population that is now getting a loan or populations actually could afford it.

So then there are still people who would like to get alone, who can cane hundred percent.

So then there are still people who would like to get alone, who can cane hundred percent.

And this is the biggest thing that we are trying to solve. As we are coming to these lenders, we are trying to help them increase as much as possible to the people that actually should definitely get alone.

And this is the biggest thing that we are trying to solve. As we are coming to these lenders, we are trying to help them increase as much as possible to the people that actually should definitely get alone.

Right, But you don't want to loan money to someone who isn't going to pay it back, you know what I mean. And you don't want to increase debt on somebody who's not financially responsible, correct, That would be a disservice to the consumer. I wonder what an interest rate cut would mean to you. I mean, if the FED cut is fifty basis points September eighteenth, does that mean anything for your business?

Right, But you don't want to loan money to someone who isn't going to pay it back, you know what I mean. And you don't want to increase debt on somebody who's not financially responsible, correct, That would be a disservice to the consumer. I wonder what an interest rate cut would mean to you. I mean, if the FED cut is fifty basis points September eighteenth, does that mean anything for your business?

Definitely does so. I think with the rates that will start to hopefully go down. And you spoke about the September, but maybe the September is only a stout of something be a little bit bigger, right, But let's let's look on it more on the ear over ear. Let's assume the air next tar al from today rates are going to be one one and a half percent lower. That is directly going to the pockets of the people. So the ability for that to means that investors will require a percent and have less return, and therefore they will charge the consumers a percent and half less, So more money is staying in the pocket of the consumers.

Definitely does so. I think with the rates that will start to hopefully go down. And you spoke about the September, but maybe the September is only a stout of something be a little bit bigger, right, But let's let's look on it more on the ear over ear. Let's assume the air next tar al from today rates are going to be one one and a half percent lower. That is directly going to the pockets of the people. So the ability for that to means that investors will require a percent and have less return, and therefore they will charge the consumers a percent and half less, So more money is staying in the pocket of the consumers.

Oh is good.

Oh is good.

You must see so much data. What's the average rate on ease loans?

You must see so much data. What's the average rate on ease loans?

So the average rate's the range. So the range, let's talk about the range could be in between a twelve to twenty percent and in the context that's always shy from the credit card rates of the twenty three to twenty five, et cetera. Right, so we are talking about lower rates, which usually are a better way to have that debt rather than using your credit card. So why people like so much they buying out of phage pretty right, it's still right than credit cards. It's everything.

So the average rate's the range. So the range, let's talk about the range could be in between a twelve to twenty percent and in the context that's always shy from the credit card rates of the twenty three to twenty five, et cetera. Right, so we are talking about lower rates, which usually are a better way to have that debt rather than using your credit card. So why people like so much they buying out of phage pretty right, it's still right than credit cards. It's everything.

We're looking at mortgages at seven or eight, which is autos at eleven or twelve, ye credit card twenty.

We're looking at mortgages at seven or eight, which is autos at eleven or twelve, ye credit card twenty.

Four that they give can go up to twenty percent, up to twenty percent, but you have you have lower you have a twelve fourteen, and you have others.

Four that they give can go up to twenty percent, up to twenty percent, but you have you have lower you have a twelve fourteen, and you have others.

What's the majority of loans and just got about fifteen seconds.

What's the majority of loans and just got about fifteen seconds.

Is the marijority of loans in terms of in terms of rate, So fifteen sixteen, that's the numbers. And if you think about it, a lot of it is that consolidation. A lot of it is some relief to the consumer that like maybe have too much debt on his credit card that at twenty five percent and is trying to sofa y solid Fi cansalidate and in some places, well Sofa cannot give him the loan. Ya Laya is behind Sofa and making sure it's going to work.

Is the marijority of loans in terms of in terms of rate, So fifteen sixteen, that's the numbers. And if you think about it, a lot of it is that consolidation. A lot of it is some relief to the consumer that like maybe have too much debt on his credit card that at twenty five percent and is trying to sofa y solid Fi cansalidate and in some places, well Sofa cannot give him the loan. Ya Laya is behind Sofa and making sure it's going to work.

Very cool stuff, Gil, Thank you so much, really appreciate. Karl Kubner, he is co founder and CEO Pagaya Technology, is joining us here on Bloomberg Business Week.

Very cool stuff, Gil, Thank you so much, really appreciate. Karl Kubner, he is co founder and CEO Pagaya Technology, is joining us here on Bloomberg Business Week.

You're listening to the Bloomberg Business Week podcast. Listen live each weekday is starting at two pm Eastern not Apple card Play and Android Auto with the Bloomberg This Happen. You can also listen live on Amazon Alexa from our flagship New York station just say Alexa playing Bloomberg eleven thirty a journal.

You're listening to the Bloomberg Business Week podcast. Listen live each weekday is starting at two pm Eastern not Apple card Play and Android Auto with the Bloomberg This Happen. You can also listen live on Amazon Alexa from our flagship New York station just say Alexa playing Bloomberg eleven thirty a journal.

How about you let me drive?

How about you let me drive?

Oh no, no, no, no, who's going to drive?

Oh no, no, no, no, who's going to drive?

Come Holry please, I'll travel. Let's wait, I want to drive.

Come Holry please, I'll travel. Let's wait, I want to drive.

It's a good question.

It's a good question.

This is the drive to the clothes well driven on Bloomberg Radio.

This is the drive to the clothes well driven on Bloomberg Radio.

All right, everybody, we got about eighteen nineteen minutes left in today's trading session here on this.

All right, everybody, we got about eighteen nineteen minutes left in today's trading session here on this.

Friday, Yale can't come fast enough.

Friday, Yale can't come fast enough.

I know you make me feel so warm and fuzzy. When you say that, I mean I love.

I know you make me feel so warm and fuzzy. When you say that, I mean I love.

Being here with you. I absolutely have enjoyed the hell out of this week.

Being here with you. I absolutely have enjoyed the hell out of this week.

It's been a long day, though for a long week.

It's been a long day, though for a long week.

It's every day is a long day. And I just got a message from my mom that says maybe I have to be the nanny for my brother's kid tonight.

It's every day is a long day. And I just got a message from my mom that says maybe I have to be the nanny for my brother's kid tonight.

So this has not been your day to day. I'm just gonna say, well, let's hope mom gets in right now, though, we do want to talk a little bit about the trade wrap up the week with us. As Miguel Sosa, head of market research and strategy over at Blue Rock, they've got eighteen billion dollars in assets under management, joining us from San Diego, California. Do you have tornado warnings by you right now, because we do by.

So this has not been your day to day. I'm just gonna say, well, let's hope mom gets in right now, though, we do want to talk a little bit about the trade wrap up the week with us. As Miguel Sosa, head of market research and strategy over at Blue Rock, they've got eighteen billion dollars in assets under management, joining us from San Diego, California. Do you have tornado warnings by you right now, because we do by.

Us, Carol, No, We're we're in the clear for now.

Us, Carol, No, We're we're in the clear for now.

Goodness, San Diego is going to be okay, San Diego, It's gonna be okay. And the marketing looks like it's going to be okay, right, I mean, the market looks I keep thinking we we we freaked out because of a carry trade that was maybe bigger than anyone expected, and it looked like it was going to get unwound too quick. Plus a weaker labor market that maybe was a weaker than we didn't expect a week than we expected. Sorry, Now those things have to some extent cleared out right, and we've gotten this big correction and earnings look great. So doesn't it make sense that we end the week in the green? Yes?

Goodness, San Diego is going to be okay, San Diego, It's gonna be okay. And the marketing looks like it's going to be okay, right, I mean, the market looks I keep thinking we we we freaked out because of a carry trade that was maybe bigger than anyone expected, and it looked like it was going to get unwound too quick. Plus a weaker labor market that maybe was a weaker than we didn't expect a week than we expected. Sorry, Now those things have to some extent cleared out right, and we've gotten this big correction and earnings look great. So doesn't it make sense that we end the week in the green? Yes?

I think that's that's correct. So specifically for US, I think it's been an eventful July. As you alluded to, both inflation is down and unemployment is starting to moderate in the sense that it's starting to take up. So the FED is recognizing its dual mandate and bringing down inflation as well as not tipping the economy over into a recession. So yes, I think there's a lot to look forward to and hopes and prospects here for a soft landing.

I think that's that's correct. So specifically for US, I think it's been an eventful July. As you alluded to, both inflation is down and unemployment is starting to moderate in the sense that it's starting to take up. So the FED is recognizing its dual mandate and bringing down inflation as well as not tipping the economy over into a recession. So yes, I think there's a lot to look forward to and hopes and prospects here for a soft landing.

All right.

All right.

Well, so having said that, after going through a week like we have, and things certainly feel a lot calmer this week or today, I should say, but we're getting ready for a week where we get more reads on the economy, inflation prints and so on, anything that you've changed dramatically in your strategy or with some of your clients.

Well, so having said that, after going through a week like we have, and things certainly feel a lot calmer this week or today, I should say, but we're getting ready for a week where we get more reads on the economy, inflation prints and so on, anything that you've changed dramatically in your strategy or with some of your clients.

So for us, what we've seen is really what was impacted are from the most is given our relative focus into private real estate, has been the pivot around the communication around the FED fund rate and so if you think back even a month ago, it was still a higher for longer message that was being communicated by the Fed. The inflation print for June came out, what was around July eleventh, publicly created rates rallied given that we had hit the three point zero mark for inflation, and so there was that's when the market started to interpret a higher likelihood for Fed rate cuts this year versus potentially tipping over into next year. And for us that's relevant because interest rates are related to what's known as realtate capreaks, which are influenced by interest rates. So as cap rates go up, valuations within real estate go down, similar to how bonds work with infrast rate, and so what we're seeing is steadier or more stabilized caprate environment, which should put a bottom to the private real estate drawdown that we've experienced in the last two years.

So for us, what we've seen is really what was impacted are from the most is given our relative focus into private real estate, has been the pivot around the communication around the FED fund rate and so if you think back even a month ago, it was still a higher for longer message that was being communicated by the Fed. The inflation print for June came out, what was around July eleventh, publicly created rates rallied given that we had hit the three point zero mark for inflation, and so there was that's when the market started to interpret a higher likelihood for Fed rate cuts this year versus potentially tipping over into next year. And for us that's relevant because interest rates are related to what's known as realtate capreaks, which are influenced by interest rates. So as cap rates go up, valuations within real estate go down, similar to how bonds work with infrast rate, and so what we're seeing is steadier or more stabilized caprate environment, which should put a bottom to the private real estate drawdown that we've experienced in the last two years.

What I mean, you're obviously not day trading private credit or private real estate, and yet I imagine the volatility and rates must be a little bit troublesome to you. How do you deal with these kind of you know, ten twenty thirty basis point swings into your yields.

What I mean, you're obviously not day trading private credit or private real estate, and yet I imagine the volatility and rates must be a little bit troublesome to you. How do you deal with these kind of you know, ten twenty thirty basis point swings into your yields.

Yes, so recently, in the last week or so, it has been a little bit of a wilder ride, But it doesn't to your point that it doesn't really affect us in our long term conviction in our strategies, whether it's private credit or private real estate. What batters more is the tendency for say a given quarter, and so in our view, it's more so, in other words, the expectation of where interest rates will be six months from now to eighteen months from now, and what the market expectations are for those interest rates, Because it influences, for example, the value of any private credit that we may hold, or it signifies a benefit or a headwind for refinancing private reality that we may hold. So in our view that higher for longer has been much more attenuated. And so despite the volatility that we've seen in the short term basis, we're optimistic that overall it's going to be a more moderate interest rate environment, which should provide a gentle boost behind us or a moderate tailwind for private real estate investors.

Yes, so recently, in the last week or so, it has been a little bit of a wilder ride, But it doesn't to your point that it doesn't really affect us in our long term conviction in our strategies, whether it's private credit or private real estate. What batters more is the tendency for say a given quarter, and so in our view, it's more so, in other words, the expectation of where interest rates will be six months from now to eighteen months from now, and what the market expectations are for those interest rates, Because it influences, for example, the value of any private credit that we may hold, or it signifies a benefit or a headwind for refinancing private reality that we may hold. So in our view that higher for longer has been much more attenuated. And so despite the volatility that we've seen in the short term basis, we're optimistic that overall it's going to be a more moderate interest rate environment, which should provide a gentle boost behind us or a moderate tailwind for private real estate investors.

If you I mean, I imagine that you're in the better areas of real estate, so medical offices, student housing, the good stuff. As they say, what do the prices look like these days? Because in commercial real estate for a long time, and I guess still there's a big gap between the bid and the ask.

If you I mean, I imagine that you're in the better areas of real estate, so medical offices, student housing, the good stuff. As they say, what do the prices look like these days? Because in commercial real estate for a long time, and I guess still there's a big gap between the bid and the ask.

Yes, sits right and exactly. We like the sectors that continue to have low vacancy rates and significant growth of what's known as net operating income. And so we like the specialty sector, which includes some of those sectors that you mentioned, life sciences, real estate, medical office, student housing, single family rental. We also like, more importantly the industrial sector that continues to be a very robust sector, very low vacancy rates. When leases expire and are re signed, they are resigned at significantly higher rates than they were previously. And we like the multi family sector as well. What's curious about the current environment, call it the last two years, is that the income that realm see is generating is up significantly, it's growing faster than it has in the long term, but valuations are still down. And so, in other words, for a given property, say an industrial warehouse, it's generating more income that it was generating four years ago, but the valuation is down ten to fifteen percent, maybe a little bit more, really dependent on the quality and the location. So it's presenting this attractive by opportunity because now that we have more clarity on where interest rates work are going to go, then we have a stronger expectation, a higher conviction that valuations will start to move upwards.

Yes, sits right and exactly. We like the sectors that continue to have low vacancy rates and significant growth of what's known as net operating income. And so we like the specialty sector, which includes some of those sectors that you mentioned, life sciences, real estate, medical office, student housing, single family rental. We also like, more importantly the industrial sector that continues to be a very robust sector, very low vacancy rates. When leases expire and are re signed, they are resigned at significantly higher rates than they were previously. And we like the multi family sector as well. What's curious about the current environment, call it the last two years, is that the income that realm see is generating is up significantly, it's growing faster than it has in the long term, but valuations are still down. And so, in other words, for a given property, say an industrial warehouse, it's generating more income that it was generating four years ago, but the valuation is down ten to fifteen percent, maybe a little bit more, really dependent on the quality and the location. So it's presenting this attractive by opportunity because now that we have more clarity on where interest rates work are going to go, then we have a stronger expectation, a higher conviction that valuations will start to move upwards.

Hey, listen, just got forty seconds left here. So maybe clarity in terms of valuations, but what about clarity in terms of the economy or clarity in terms of interest rates? Excuse me, but what about clarity in terms of whether or not we see a more significant, potentially economic slowdown? And just got about thirty seconds.

Hey, listen, just got forty seconds left here. So maybe clarity in terms of valuations, but what about clarity in terms of the economy or clarity in terms of interest rates? Excuse me, but what about clarity in terms of whether or not we see a more significant, potentially economic slowdown? And just got about thirty seconds.

Yes, sure, so briefly, that's always a risk, right, and I think the FED is still navigating the off landing. I think the next months will be key. In September, strong expectation that they'll be your rate cut. The market has already assimilated some of the information, has moderated some of the anxiety that it had over the last the first part of this week, so we think there's higher likelihood that we will stick the landing. As they say in the Olympics.

Yes, sure, so briefly, that's always a risk, right, and I think the FED is still navigating the off landing. I think the next months will be key. In September, strong expectation that they'll be your rate cut. The market has already assimilated some of the information, has moderated some of the anxiety that it had over the last the first part of this week, so we think there's higher likelihood that we will stick the landing. As they say in the Olympics.

Anyway, you still got to go to the doctor. Kid in college still has to have a dorm, right, You still need the data center open for your phone, and a.

Anyway, you still got to go to the doctor. Kid in college still has to have a dorm, right, You still need the data center open for your phone, and a.

Lot of colleges need like off campus housing. Miguel Sisa, thank you so much, head of market research and strategy at Blue Rock joining us.

Lot of colleges need like off campus housing. Miguel Sisa, thank you so much, head of market research and strategy at Blue Rock joining us.

This is the Bloomberg Business Week podcast. I'll a little Apple, Spotify, and anywhere else you get your podcast. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on you Tube and always on the Bloomberg terminal.

This is the Bloomberg Business Week podcast. I'll a little Apple, Spotify, and anywhere else you get your podcast. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on you Tube and always on the Bloomberg terminal.

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