Stocks Climb as Trump Soothes Wall Street Nerves | Bloomberg Businessweek
Summary
Credit Market Concerns: Winnie Caesar discusses the lack of transparency in private credit markets, highlighting potential risks due to rapid capital growth without robust due diligence.
Sector Exposure: The auto industry and personal consumer finance sectors are identified as potentially vulnerable due to high levels of debt and structural business issues.
Data Centers and Tech Investment: The podcast highlights significant investment in data centers and technology, noting potential long-term challenges in assessing returns due to diverse financing structures.
Banking System Stability: Despite past crises, the current banking system is viewed as stable, with no immediate systemic risks, although credit market valuations suggest a downside skew.
Private Markets Liquidity: Private markets are seen as having ample liquidity, but their opacity and fragmentation pose challenges in assessing systemic risks.
Real Estate Market Dynamics: Katie Hubard discusses regional variations in the US housing market, with affordability issues impacting Southern California, while the Midwest and Northeast remain stable.
Retail Sector Insights: Dana Telsey notes resilience in consumer demand driven by innovation and new products, while luxury brands face stabilization challenges amid changing consumer preferences.
Geopolitical Tensions: Angela Stent provides insights on the ongoing Russia-Ukraine conflict, emphasizing the complex dynamics between global leaders and the potential for diplomatic resolutions.
Transcript
[Music] Bloomberg Audio Studios, podcasts, radio, news. This is Bloomberg Business Week Daily, reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Mathther and Tim Stenbec on Bloomberg Radio. With us is Winnie Caesar, global head of strategy at credit sites, joining us from Charlotte, North Carolina. Winnie, good to have you here. Uh markets a little yesterday were um a little bit on edge to say the least. Are there lots more credit cockroaches out there in your view? in my view. So, I'm not sure that there are necessarily a lot more credit cockroaches out there to the level that we've seen over the past few weeks, but I will say as someone who's focused on credit for quite some time, you can usually follow the capital to challenges and we've seen a tremendous growth in some private asset classes, private credit being one, and it's not particularly transparent and that makes it really difficult to assess the true credit quality. true credit health of a big part now of the credit market when there's been so much capital and perhaps not as much time to do really robust due diligence and underwriting >> and Winnie what industries though could be most exposed to that because when I look atricolor and first brand showing up in the auto space but are there broader concerns >> yeah this is a good question and one we've been mulling over with our autos analysts trying to assess is this something that is specific to just those handful of companies in terms of having true fraud issues, true structural issues from a business operation perspective or do we need to give bigger thought to just the amount of debt capital that's outstanding not just for auto OEMs or suppliers but within the personal consumer finance space within ABS and I think that it's always important to start to poke around now when we look at you know where capital has flowed Over the past 5 years or so, there have been a number of sectors that have grown quite tremendously. You know, when we think back to the kind of media and telecom bust stops that we've seen for the past couple of years, that has to do a lot with the fact that just a lot of capital went into those sectors uh kind of leading into COVID and and during the COVID pandemic. And so as we're looking forward, we always are looking at at, you know, technology, at software, data centers, all of these things that have just seen such a robust amount of cash put to work. >> It's interesting that you say data centers because that seems like an area that could not be hotter whether it's in the private or public markets. So if there are concerns in data centers, how long does that take to show up though, just given that a lot of these are either starting to break ground or not even there yet? Yeah, it's a really good question especially because of just the way that a lot of the data centers have been financed, right? We know we have these massive hyperscalers with a lot of cash flow that you know if one data center is eventually you know not particularly successful that's probably not going to be make it or break it and there has been a lot of diversification in terms of how data centers have been financed within the ABS market within the world of private credit for investment grade. So, I do think it's going to take some time to really assess, you know, what is the return on investment for all of the data center investment, for all of the AI investment. I don't think that we're necessarily going to have a full picture within the next 3, 6, 12 months, but it might be, you know, here and there we start to see some things that are a bit more challenging on the headline perspective. >> You know, I do wonder though, um, you know, it's interesting. I was looking at Zions and it got an upgrade today, but if I go back to the October 13th, Moody's came out and said the outlook remains stable. I'm just putting it out there. Um, and then you have what we got yesterday and we're learning more about it. And then you did have an analyst come out uh over at Baird and said actually upgraded it to outperform from neutral. Uh, analyst noting the sell-off seems excessive. Um, so I just wonder, uh, David George is the analyst. I just wonder, you know, it's it's hard to keep track of all this stuff, you know, and I do wonder, there has been so much slashing around for a while. Is there a good chance that we miss it or we don't realize that there's a problem until we're too far in? I don't want to be exclamatory, but I just, you know, great financial crisis is hard to forget. >> It really is. It's really hard to forget. And especially when you look specifically at credit markets and where valuations stand today, right? Investment grade trading at very tight spreads now well below 5% yield. High yields similarly very tight spreads below 7% on a yield basis. And when you think about what compensation am I getting for credit risk, it's much lower than it once was. So even if we don't have, you know, a widespread systemic blow up like we had with COVID, like we had with the GFC, the upside downside feels a bit more skewed at this point to the downside within credit markets. That's not to say you have to sell everything. There's nothing to buy. There's definitely a good number of very highquality issuers where you can clip a coupon and feel reasonably okay about things. But the reality of credit markets is when you are lending, not every deal is going to be a home run. Not every deal is even going to be a single. sometimes there are going to be losses and whether you know we have broad-based systemic fraud I don't think that that's necessarily the case I'm not necessarily worried about that but when I think at just what credit valuations are paying me to tolerate right now it feels like the skew is towards the downside hey one thing I'm curious Winnie though you know private markets uh we didn't really they were there during the great financial crisis but not like they are today how does that potentially complicate things um and the opacity of it like that. We just don't know what's going on. >> Yes, it's true. It's hard to assess truly, you know, what is going on in private markets in aggregate. Now, the good thing about private markets so far is that there is still a lot of liquidity on the sidelines within private markets. Just all of the cash that's been deployed into private credit, private markets has not actually been fully invested. Also, we know that within private markets, it's a very fragmented um lender and borrower relationship. There's just a lot of different types of companies that have been um lent money to and then also lenders. And so to think about is this systemic, you would need to see some sort of um event that was kind of widespread enough across the private markets to really pull all of that liquidity out. And given some of the structural considerations, that makes it a little bit more difficult to say, "Oh my gosh, private markets, this is the next systemic thing to be really worried about." But are private markets necessarily going to be just an ample source of liquidity without any problems, which has kind of been the case for the past few years? I don't know that that's going to be what we expect going forward. >> And Winnie, just one more question here. When I look at or think back to the kind of fears around the collapse of SVB, the big question was how interrelated are these banks and also how scary can a dash to either pulling money out or shorting the stocks could be kind of to the entire system given where we are right now when you look at kind of the backdrop. Is that a risk? Is that at the top of people's minds in terms of what could be the next chip to fall and what does that mean or are we not there yet? >> Let's say we're not there yet. talking to clients within the world of credit, people have been really constructive on the banking system as a whole, you know, having come through the regional banking crisis of 2023 with definitely some issues, some banks that that did not make it through, but not necessarily seeing that kind of systemic collapse. And I think also the types of issues that we've seen more recently in the banking system, having some loans that have just, you know, gone very bad, that that happens in the banking system. Whereas in 2023, you had a very interesting dynamic with, you know, the rise in Treasury yields and the way that bank balance sheets were constructed that actually required the Fed to step in. And so, so far, I would say that what we're seeing is, you know, just kind of bad credit due diligence, which sometimes happens within the world of banking. Hopefully, it is not a widespread issue versus something that could have become much more problematic had, you know, the Fed not stepped in in 2023. >> All right. So glad we could get uh some time with you as well. Winnie Caesar, she's global head of strategy at Credit Sites joining us from Charlotte, North Carolina. Stay with us. More from Bloomberg Business Week Daily coming up after this. You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2:00 to 5:00 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. Great to be talking again with Katie Hubard. She's executive vice president of capital markets at Walton Global. It's a privatelyowned asset and real estate investment company. It's got over 4 and a half billion of land assets under management and administration and more than 89,000 acres of land under ownership management throughout North America with nearly 89% located across the US. They are though global uh and they do operate in the retail, industrial and commercial sectors. Um Katie, good to have you here with us. I got to start with what is now courtesy of the last 24 hours part of our narrative and that is some credit concerns. Those bad loans reported by Zions in Western Alliance um being traced back to the bankruptcy of a commercial real estate investment firm in Southern California earlier this year. I know not apples to apples with you, but I got to guess it's on your radar. Um, first of all, any connection with any of this and and what can you tell us about your world and credit concerns? >> Yeah, Carolyn Bailey, thanks so much for having me. The good news is there's no connection there, but we are definitely seeing some interesting things on credit and housing. What we're seeing on our side is that the adjustable rate mortgage is having a renaissance and arms are up 134% year-over-year and people are really able to hit that magic 5 1.5% mortgage rate and that's helping them qualify for and hit that affordability metric for people with hitting um certain income limitations. So we're seeing an increase in ARMS 24% of our builder clients which you know just as a reminder Walton provides land banking for public home builders. So, we have a really unique perspective behind the curtain of what's happening in home building and 24% of people taking out a mortgage are getting an adjustable rate mortgage right now and that is tied to the sofur which is tied to the fed funds rate. So, we're looking to see um for affordability factor going forward rates coming down for people who are looking to get an ARM >> but we're seeing rates coming down but I still think there and I'm interested in your thoughts. Is there still concern about a consumer being able to afford housing and how that works out just given the again concern and uh issues we've been seeing showing up especially for call it the lower third consumer here in the US? Yeah, there definitely is a concern about a half of people um versus 2016 can actually h have the income to be able to afford a house today versus what we're seeing just because of the affordability factor like you're saying for five months in a row we're seeing new homes actually cheaper than existing homes. So the market has some interesting dynamics and affordability being one of them. >> Yeah, it's interesting because we did have you know some data. We've seen prices of new home sales continue to fall amid high inventories. So, that dynamic in terms of home builders, are you continuing to see some pressure um or them putting, you know, having lower prices here because they're trying to bring buyers in. >> Definitely. So, if you look at inventory across the US, we're sitting at 2.6 homes per community unsold, but Southern California is really feeling the effects of that. They're at five homes per community unsold and their sales September net sales and new homes are down 30% in Southern California where other parts of the country are doing just fine where the home prices are really flat in the Northeast and Midwest and sales are sitting about 1.5 homes per community where seasonal average were about 1.9. So we're seeing slightly elevated inventory um and that's why starts and permits are down um to 1.3 million homes and we're delivering 1.6 6 million. But we need to really deliver more homes at more affordable prices to to get back to equilibrium. >> Well, what's driving that in Southern California? >> It's just it's affordability. Uh to your point, Bailey, it's just people can't afford the homes. And so the it's bringing down bringing down prices not only on homes, but also we're seeing land prices in California and even in A and B locations um decrease, which is um really unheard of. Most of the time land prices are going up and A and B and C and D locations across the rest of the country. But affordability is the problem there. >> But is that just people who have enough money are leaving the state? Is that people just aren't having enough income? Inflation's driving the pinch. I'm from Southern California and I'm actually pretty surprised by uh how stark those numbers are just given it seems like an area that is doing quite well broadly speaking. It's really just it's it's people being taxed out and wanting to, you know, sell their houses there and they're going to Idaho. They're going to Texas. They're coming to Colorado where I'm based and it's just they're they're leaving for that affordability. They can sell their house and go pay cash and have much lower taxes. And that's just leaving the builders that are building and um having to offer incentives. Lenar is one of the largest builders. They build 12% of all homes across the US and they're the largest builder in most of the um subcommunities there. They're over building over 50%. They're having to offer 14 over 14% incentives to get that inventory moving. >> Hey, one thing I want to ask you, we talked to you a lot and I feel like we have over the last couple of years at this point. You know, you seem to often have about four and a half billion of land assets under management. You guys try to keep it at that number. It doesn't seem to change much. >> Uh yeah. So, we are doing offbalance sheet land financing for the builders. We're giving them maximum flexibility so that they can take that land when it's development ready and when the market has the demand for the product that it's zoned for. So it does stay about that, but that's just really offbalance sheet financing. So we're buying the land for the builders and then they're taking it down as they need it across the country. >> Well, and in the land acquisition, what are the costs that you guys are seeing? Are you seeing also those those prices uh lower than than what they've been? >> It is varying across the country. I mean, A and B locations with good zoning where builders can get higher densities, that land is worth a lot of money if they have the utilities, the water, the political wherewithal to build there, that's um you know, that's really worth gold. But if you're holding land that has some political opposition, you don't have the the water, the utilities, then you're, you know, you're going to be waiting till the next cycle. Really? >> Yeah. It's I guess when when you look at areas though that are more in demand, what regions stand out and which regions are the opposite of a Southern California to that respect? >> Yeah, it's interesting. Really the Midwest and the Northeast are are the darlings right now where they're not having any price depreciation. Um people are moving there because of the affordability factor. So they're absorbing the homes. They're sitting on the home builders are sitting on less inventory so they feel more com comfortable and confident starting homes. Um but on on the multifamily side, uh multifamily starts and permits are down as well. And there are certain markets like Austin, Nashville that are just overbuilt on class A apartments. And so and we're also going to have $180 billion floating rate cliff coming in 2026. So you're seeing starts down across multif family as well in certain markets, but in other markets where where the demand is there and and the political wherewithal um to get the zoning is there, then um builders are doing just fine. like in Florida right now actually um surprisingly Florida has um swung the pendulum the other way where they were at five homes unsold per community now they're down to three. >> Interesting. We know when it comes to housing and real estate it's location geography. There's so many different variations. net net though. Um, kind of how we started this conversation, not seeing any crisis out there when it comes to any signs of things certainly within your um, you know, area that shows credit problems or or a possible crisis brewing. >> Not at all. I mean, the requirements for credit scores are are much more stringent post financial crisis and so that's really cleared out any of those issues. So, um, we're feeling very confident. where the average FICO score is over 720 now for somebody buying a home. So, we don't see any type of um financial crisis on the credit side and home building right now. >> And just very quickly, how would a I don't know IPO of Fanny and Freddy impact your view of kind of your entire industry? >> Yeah, I mean we because the Trump administration wants rates to come down. We don't see that happening in the near term because if it does go public and gets out of government and we don't have that governmentbacked guarantee, then that would definitely spike rates up even, you know, up to one to one and a quarter%. So, we think there's going to be somewhere in the mid where there's going to, you know, possibly be privatization, but still some type of an insurance where you're going to get that governmentbacked guarantee. So, in the near term, we don't think that will happen just because that would cause rates to go up, which is not what the administration wants. >> Terrific stuff. Um, Katie, thank you so much. Katy Habert, executive vice president of capital markets at Walton Global joining us. You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2:00 to 5:00 Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. With us is Dana Telsey, founder, CEO, and chief research officer of Telsey Advisory Group. uh here to join us uh here in our Bloomberg Interactive Broker studio. Hello. Hello. How are you? >> Good. How are you? Thank you so very much for having me. >> It's so great to have you here. You know, I was looking at retail stocks. They've come down about 8% since the beginning of September. So, we've seen them under pressure. I know we've talked a lot about concerns about consumers. Um tell us about how the consumer and retailers are doing. And you're just off a big conference that you guys just hosted. >> We just saw everyone. We saw Macy's Sachs, Ulta, Urban, Fibelo, Kroger, Lowe's, you name it. G3, Stitch Fix, all of them were there. I would say that when you think about September, to your mention, the beginning of September was rough. We had warmer weather last for longer. That's right. The cooler weather finally picked up and what's hot now? Brown suede tall shaft boots are what it's all about. So, the cooler it gets, the better it gets. But you're seeing more of a bifurcation between the lower income consumer and the higher income consumer. We just had LVMH report their sales yesterday. spoke to them this morning and basically things are improving a bit. They're seeing stabilization in the Chinese cluster and even the fashion and leather goods segment which accounts for nearly 50% of the business sequential improvement from the second quarter. What's driving all this? Just like at our conference, the word resilience and newness and innovation. The more product that's new, you look at Levis's widelegg jeans. Look at Birkenstock closed closed toe clogs. That's what's driving consumer demand. At the same time, you have a cautious consumer. The full effect of tariffs and price increases are not yet there. They're expected to increase as we go through the balance of the year. We just talked with the CFO of uh Levi Harmate Singh and you know talked about what they are seeing in their in their business. I want to go back to luxuries though Dana because Baronberg came out today and says luxury super cycle is over and it downgraded LVMH. They say the three decade boom in the luxury sector, it is over. They say luxury is at an inflection point. You think they've got it wrong? >> I think basically the inflection point is that we're beginning to see stabilization. You have a change in creative designers at many of the top brands. Look what you had in September, the unfortunate passing of Georgio Armani. So, you have a new cycle that we're beginning to enter enter into. And at the same time, you need social media. You need a digital presence in order to activate. What's more than what you're seeing the merger of food experience and what you're doing with luxury. Look in Beverly Hills where Dior just opened their new store and it has a restaurant. Go to Madison Avenue and 72nd Street. Ralph Laurens coffee shop is busy. Does that really though move the retail needle or the retail side of their business? It helps. And you know why? It helps activate the brand. It makes you relevant. Pictures are also drives conversion. Well, we're talking about the higherend consumers. So, what are you seeing in that middle third of consumers, whether that's US or around the world? >> I think overall the middle third, look where Walmart's seeing the most growth. They're seeing the most growth from some of the higher income consumers trading down. And that trade down could be beneficial to some retailers. It's beneficial to Walmart, but it's also beneficial to the off-pricers, TJX, Ross Stores in Burlington. And at the same time, you look where there's value and convenience that matters. and that value and convenience, you're beginning to see an uptick. Look at Gap, for example. Gap all of a sudden has become more relevant because of creative designs. >> But who's losing? >> I think overall, you're seeing some brands that haven't reinvented themselves. You've seen some brands, department stores need to reinvigorate themselves. You look at the reimagine campaign at Macy's where they're seeing their stores outperform in terms of those that have been reimagined. If your brand isn't investing, if your brand is showing weakness, we've seen that they need to work to improve. Look at Nike, which has been in a transformation and just showed for the first time an up 20% increase in running. It takes share from others. >> Dana, one of the things I got to ask you, and it's certainly something that we have been talking about a lot this week, is Walmart and Chachi PT. Uh we saw this stock just take off uh their alliance that's going to allow Walmart shoppers to browse and purchase products directly on ChachiPT. just have to click a buy button. Mizu Mizuo um their Alice came on and said the track the company's on track to become a trillion dollar valuation company as a result. How do you see it? Big gets bigger. When you think of Walmart, they have a competitive moat and they're scaling. And you look at the valuation, not a cheap stock, but al also not the same valuation as a tech stock. Yet they're integrating tech capabilities into their platform to drive a bigger competitive mode that they can scale more. >> So a PE of 42 you're cool with. I basically you get on the train and you get on the train because the trains continuing to run. You look at other companies where there's work to do. Let's see what Target does in order to reinvent themselves. >> Well, does everybody then pop on and does another Inksca deal with Chachi PT that? >> No. No. Why? It's basically is more specific. companies have to have the ability to adopt these tech technological capabilities. Walmart's been more at the forefront and Doug has done a great job at repositioning the business for tomorrow, not just for today, which is amazing considering their digital strategy lagged for a long time, but it sounds like that they're on track. >> Yep. >> Well, would you expect Walmart then to partner with Anthropics XAI across the board or how does that shake out? >> We'll have to see what they do, but certainly the first step with Open AI was a huge leap. Mhm. Well, because I immediately think, okay, well, if Walmart's going to serve me up what I want on using chat GPT, >> right? >> Do I then use Chat GBT more? Maybe I'm not a fan of Walmart, or is it bringing in more consumers? >> I think people are beginning to use chat GBT in more different aspects of their lives, whether it's for shopping, whether it's for business. It becomes something that their goal to get consumers to rely more on it. So, it becomes part of your daily life. Well, because I remember when Reddit went public, they were partnered with Google. So, Google was immediately feeding Reddit and then they stopped doing that as much and we saw a drop off in Reddit user data. Is that the >> downside case? If I don't know, ChatgBT decides we don't want Walmart anymore. We want Target or we want to start feeding people >> the biggest retailer in the world with Walmart. It doesn't seem like you wouldn't want them. It's how can you enhance the >> when they need they're trying to figure out I mean they're bringing in money but they need to be profitable. Like people want to see the return there. Um I am curious this conference you had this week and all the the you had everybody and anybody in retail. What were they saying about AI? Um AI still early innings for some of the smaller companies more advanced for the bigger being able to curate inventory levels to drive more full price profitability. Yes to manage costs but not to manage costs where you're getting rid of human capital that provides insight into how to bring business forward. So I think the relationships of sales experience and sales associates matters, operational enhancements, all systems go, but it has to be go in order to be able to execute precisely because you can't give up the old without incorporating the new. We're talking with Dana Telsey, founder, CEO, and chief research officer of Telsey Advisory Group. Uh if you've been following markets, you know Dana is the person to speak to when it comes to retail. What was top of mind for everybody that was there? Was it stuff out of the White House? Was it inflation? Was it tariffs? Like I'm just curious >> consumer demand. Are we still seeing the consumer remain strong given the strength that you've had all year long in retail sales? Are they still spending? And the answer most of them had they're resilient because of newness and product innovation and price increases because tariffs definitely top of mind still to come. So you for someone who's been covering this, you feel more optimistic? I feel like we're in more sta we're in a more stable place. Keep in mind though, first half of 26, you're going to have tariff impacts that you didn't have first half of 25. So the expectations that you could have more modest guidance for the first half of 26. Yes. Let's be realistic and what it could look like. Well, that's what I wanted to ask about uh talking to a few months ago a head of a supply chain company and he was saying basically we all pulled in as much as we could in April and we all pretty much are saying we're good for 25 January, February, March of 26, we'll see real issues pop up. What does that look like? >> Looks like margin pressure. Could we be seeing margin pressure? And you always have the puts and takes, lower rates, tax refunds. Is that going to help consumers have the ability to spend? But you're seeing companies manage their margins carefully because it's always about a third diversification of supply chain, a third sharing the cost with your manufacturing partners and unfortunately a third goes to the end consumer. >> Well, when President Trump proposes another 100% tariff on China, you're with the CEOs of this these companies, leaders of these companies. Are they penciling in how they can address this? Are they kind of hoping that he box and we have a new conversation? >> You have to pencil. You always have to have different scenarios all available to you so you can react. But of course, they're hoping, but hope is not an antidote. Real numbers tell the story. >> All right. I I am curious, too, that we do have we don't get retail numbers for a little while. Earnings um closer to the holiday shopping season. What are you expecting? Again, I know it's you can't lump them all together, and I hate to do that, but when you think about the average over the past six years, it's been around 3 to 4%, some better years. Yeah, I think we'll more likely be in the average realm. Don't forget you have inflationary prices that's added to this. So, will the real number please stand up? >> Well, when you look at companies within your coverage or that you're meeting with, who's best positioned or worse position to pass along tariffs and some of these price hikes? >> Brands, brands of strength have the ability to price it along. You talked about Levis's, they have newness, they can pass it along. You look at a coach for example, they've been able to pass it along because of new products that they're introducing. And you're also seeing footwear companies pass it along because they get so much of their goods from some of the most highly impacted tariff countries. >> Favorite retail and not name. I know I have like your favorite. >> I have a lot of different ones. I mean, I think when you think about consistency, it's the off-pric wagon of TJX. When you think about product newness and innovation, I think you got Birkenstock there that's doing exciting things. When you think it's about transformation, who's transforming? Let's see what Victoria's Secret does. There's certainly some reaction to the fashion show that it it generated interest. And I think you have others where there's transformation happening like in luxury. And let's see what we see there. Great stuff. It always amazes me that somebody hasn't kind of copied the TJX model cuz they just seem to own it. Buyers relationships with brands are not built in a day. Unbelievable. Great stuff. Thank you. Hallelujah. Thank you. >> On to Thanksgiving and the holiday shopping season. She is always ready. Dana Telsey, founder, CEO, and chief research officer at Telsey Advisory Group joining us. Stay with us. More from Bloomberg Business Week Daily coming up after this. You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2:00 to 5:00 Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business App >> or watch us live on YouTube. All right, folks. We're going to stay uh in the nation's capital, dig a little bit deeper into the story with a voice that so understands President Putin. She's in fact written a book uh Putin's world, Russia against the West and with the rest. She is Angela Stent, senior fellow at the American Enterprise Institute, former national intelligence officer for Russia and Eurasia at the National Intelligence Council and she served in the office of policy planning at the US Department of State, a friend of the show. She joins us uh on this Friday. Angela, your takeaway on what we just saw in the cabinet room in the White House? Well, I still think that President Trump is kind of on a high from the uh Israel Gaza Peace deal. He really does want to get the Nobel Peace Prize. Uh and so he and his relationship with Zilinsky, as we just heard from your correspondent, has definitely improved greatly since February. Zalinsky understands exactly what he has to do to deal with President Trump. And I think the fact that Zalinski yesterday met with business uh folks here to talk about joint production of drones, other military mi material, other potential business deals also speaks to his his focus on telling President Trump, you know, the US can make money from this too. Um, on the other hand, you know, we know that we thought at least that the president was fairly serious about supplying Ukraine with these long-range Tomahawk missiles, uh, with which Ukraine could strike quite deeply into Russia and President Putin intervened. He requested a phone call. He got it yesterday. So, I wouldn't say we're back to square one. Uh, but we're back to a situation where President Trump, I think, still believes that he can get Putin to agree to a ceasefire and a peace deal. >> Angela, with that in mind, who has the most power between the three leaders and who's facing the most pressure right now? >> Well, I think that Putin uh is feeling some pressure, but I think Putin still feels that he holds quite a lot of cards. He's in no hurry to end this war. Uh he still believes Russia can win. Um, I think President Trump is really more in more of a hurry to end the war and clearly President Zilinski wants to see it end because of the terrible loss of life there. Um, I think unlike in let's say the Israel Gaza situation, President Trump has much less leverage over President Putin that he had say over uh, Prime Minister Netanyahu and others and even to some extent um, over President Zilinski. uh because Russia still holds a lot of cards and it can always threaten as it does periodically that if say the Tomahawk missiles uh were given to Ukraine that Russia would escalate and who knows what it would do with its nuclear weapons. So uh Putin I think still feels that he holds many cards here. >> Well, and you know I think about all the conversations Angela we've had since this war started. Hard to believe we're what three and a half months uh three and a half years in. It's really kind of shocking. Um, why would President Putin want to end this war? I mean, you we've talked about this with you. I mean, this isn't just about Ukraine. These are where what he believes Russia should be, you know, going back to kind of its former glory. So, is there really any reason that he would want to end the war? Is there possibly economic pressures? I mean, help me out here. >> I mean, the economic pressure is there. The sanctions have had an impact. They'd have more impact if President Trump gave the go-ahead to the Senate bill, which I think 89 senators have agreed to support, bipartisan uh to impose more sanctions on Russia. And I think in fact supplying Ukraine with these Tomahawk missiles with maybe other weapons. If Putin really believes that he cannot win on the battlefield, then he might have to think about actually sitting down and negotiating. By the way, I don't think he's ready to sit down with President Zilinski. um he said that President Zilinski isn't a legitimate leader, but he'll certainly sit down with President Trump. He believes he's at war with the West. So, I think the incentives here are just his concern. Uh because Trump periodically says they're going to be much harsher me measures taken and he wants to fend those off. He wants to make sure that those are not imposed on Russia. Angela, can a real ceasefire end to this war happen if we don't see all three or really the two primary people and I'm talking about President Zilinsky and President Putin in the same room? I mean, if you look at what happened, again, it's not a perfect analogy with the Israelis and then Gaza and the other Arab countries. There weren't that many direct negotiations. I mean, you can have intermediaries. you could theoretically have the US negotiating with Russia, with Ukraine, maybe some other intermediaries and they could agree to a ceasefire. Um, I think that the the meeting between Putin and Zalinski would be more relevant if they're actually going to have a peace deal. But I think you have to understand that there could be a ceasefire and armistice without them actually working out a peace deal. Uh, I mean, as there was really after the Korean War. I mean, that's how it ended. So you could you could just have the guns are silent, but you can't really get this settled. >> What other countries could be stepping in to help support Donald Trump in the US and kind of mediating this? And what would you expect from I don't know the European Union or other countries? >> So I mean Turkey has been quite active uh President Erdogan in intervening. I mean when they had the initial talks after the war broke out to try and come up with a peace agreement, Turkey was very active there because Erdogan has pretty good relations both with Russia and Ukraine. I mean theoretically there's China and I think in the beginning um you know people in the west hoped that China would do more. Uh but China really isn't neutral in this conflict. I mean it's been supplying Russia with the wherewithal to continue the war. I mean theoretically it could. I think the European Union that's much more difficult because Putin sees the Europeans as enemies. Uh except of course for Prime Minister Victor Orban. Uh but his problem would be as an intermediary that he's been very critical of Zilinski. I mean theoretically Hungary is neutral in this war but it isn't really. So I think Turkey, maybe China, I don't know Saudi Arabia was um involved in the beginning in trying to get the two parties together. So there maybe are some other countries that could be involved in helping to to negotiate this. >> How do you think President Silinski feels when he's in a room and President Trump does mention um Mr. Orban uh and and that he's playing a role and there's going to be a meeting in Hungary. Like how do you think that comes off? >> Is that kind of like a reminder to Zalinski? Like >> keep your jacket on. >> It's a reminder, right? I mean, President Trump is not going to say to him publicly, I hope, as he did in February, you don't have any carts. But I think, you know, President Zilinski and the Ukrainians realize that they have limited leverage in all of this and they're doing everything they can to, you know, support the US to to give business opportunities for the US uh to get the US to understand it would be much better if this war came to an end. But obviously, there's a limit to what President Zalinski can do. and I'm sure he'll be viewing uh this meeting in Budapest with a very weary eye. >> And Angela, just given your experience uh and your focus on the topic, what happens next in your view and how long does this drag on? >> Well, I mean that assuming that there is this meeting in Budapest with President Putin and we haven't even talked about how he's actually going to get there. Uh this will be his first trip to Europe since the war broke out and most of the airspace is close to him. But assuming he does uh get there, I'm assuming that there will be, you know, more discussions uh about the possibility of various things. Putin, I'm sure, will push the settlement that he thought that Steven Witco had agreed to, but apparently hadn't, which is that Ukraine would have to seed to Russia all of the four provinces that Russia claims to have annexed, not none of which Russia fully controls. In other words, you Ukraine would have to uh give some territory to Russia in return. there would be a quote unquote land swap. There is some land that it it might get back. Um so I think if uh if that if it were to agree to that uh or if President Trump were to say that he would pressure Zalinski to agree to that, that would be a possible way of getting uh to a ceasefire. But unless Putin moderates his conditions and the other one is Ukraine say saying that it will never join NATO. It's not so clear about the European Union. um then then I think it would be those are still I haven't heard anything from the Kremlin where they've moderated the maximum demands where they always say we have to get to the root causes and the root causes are they don't want a sovereign uh Ukraine that's integrated with the west >> what are they so worried about just the west then supporting Ukraine going forward is that what it's all about >> well they're worried about that and what about the example what about if you actually had a successful prosperous dem more much more democratic Ukraine next door to you. Um that also might, you know, give the population in Russia something to think about. >> President Trump, how crucial is he in all of this in your view? >> Oh, I think he's very crucial. I mean, I think, you know, under the Biden administration, there were no negotiations because the Biden administration essentially only had very few contacts um with uh Russia after the full-scale invasion. So, I think President Trump is a very important playing player here and I think he's going to have to decide how much pressure he's going to bring to bear on both sides uh and and what the US would be willing to accept for both sides as a reasonable uh at least precondition to a ceasefire. >> Hey, one last question, 30 seconds. Does President Putin respect President Trump? >> I think he does. I think he recognizes that uh President Trump, even if he's sometimes unpredictable. The US is still the most powerful country in the world and it does have the ability uh uh to make life more difficult for the Russians. So I think he does. Yeah. Ah so glad we got some time with you as we always feel that way. Angela, be well. Have a great weekend. Angela Stant, senior fellow at the American Enterprise Institute, author of Putin's World, Russ, and with the rest joining us there from Washington. This is the Bloomberg Business Week Daily podcast available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5:00 p.m. Eastern on Bloomberg.com, the iHeart Radio app, TuneIn, and the Bloomberg Business App. You can also watch us live every weekday on YouTube, and always on the Bloomberg terminal. [Music]
Stocks Climb as Trump Soothes Wall Street Nerves | Bloomberg Businessweek
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[Music] Bloomberg Audio Studios, podcasts, radio, news. This is Bloomberg Business Week Daily, reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Mathther and Tim Stenbec on Bloomberg Radio. With us is Winnie Caesar, global head of strategy at credit sites, joining us from Charlotte, North Carolina. Winnie, good to have you here. Uh markets a little yesterday were um a little bit on edge to say the least. Are there lots more credit cockroaches out there in your view? in my view. So, I'm not sure that there are necessarily a lot more credit cockroaches out there to the level that we've seen over the past few weeks, but I will say as someone who's focused on credit for quite some time, you can usually follow the capital to challenges and we've seen a tremendous growth in some private asset classes, private credit being one, and it's not particularly transparent and that makes it really difficult to assess the true credit quality. true credit health of a big part now of the credit market when there's been so much capital and perhaps not as much time to do really robust due diligence and underwriting >> and Winnie what industries though could be most exposed to that because when I look atricolor and first brand showing up in the auto space but are there broader concerns >> yeah this is a good question and one we've been mulling over with our autos analysts trying to assess is this something that is specific to just those handful of companies in terms of having true fraud issues, true structural issues from a business operation perspective or do we need to give bigger thought to just the amount of debt capital that's outstanding not just for auto OEMs or suppliers but within the personal consumer finance space within ABS and I think that it's always important to start to poke around now when we look at you know where capital has flowed Over the past 5 years or so, there have been a number of sectors that have grown quite tremendously. You know, when we think back to the kind of media and telecom bust stops that we've seen for the past couple of years, that has to do a lot with the fact that just a lot of capital went into those sectors uh kind of leading into COVID and and during the COVID pandemic. And so as we're looking forward, we always are looking at at, you know, technology, at software, data centers, all of these things that have just seen such a robust amount of cash put to work. >> It's interesting that you say data centers because that seems like an area that could not be hotter whether it's in the private or public markets. So if there are concerns in data centers, how long does that take to show up though, just given that a lot of these are either starting to break ground or not even there yet? Yeah, it's a really good question especially because of just the way that a lot of the data centers have been financed, right? We know we have these massive hyperscalers with a lot of cash flow that you know if one data center is eventually you know not particularly successful that's probably not going to be make it or break it and there has been a lot of diversification in terms of how data centers have been financed within the ABS market within the world of private credit for investment grade. So, I do think it's going to take some time to really assess, you know, what is the return on investment for all of the data center investment, for all of the AI investment. I don't think that we're necessarily going to have a full picture within the next 3, 6, 12 months, but it might be, you know, here and there we start to see some things that are a bit more challenging on the headline perspective. >> You know, I do wonder though, um, you know, it's interesting. I was looking at Zions and it got an upgrade today, but if I go back to the October 13th, Moody's came out and said the outlook remains stable. I'm just putting it out there. Um, and then you have what we got yesterday and we're learning more about it. And then you did have an analyst come out uh over at Baird and said actually upgraded it to outperform from neutral. Uh, analyst noting the sell-off seems excessive. Um, so I just wonder, uh, David George is the analyst. I just wonder, you know, it's it's hard to keep track of all this stuff, you know, and I do wonder, there has been so much slashing around for a while. Is there a good chance that we miss it or we don't realize that there's a problem until we're too far in? I don't want to be exclamatory, but I just, you know, great financial crisis is hard to forget. >> It really is. It's really hard to forget. And especially when you look specifically at credit markets and where valuations stand today, right? Investment grade trading at very tight spreads now well below 5% yield. High yields similarly very tight spreads below 7% on a yield basis. And when you think about what compensation am I getting for credit risk, it's much lower than it once was. So even if we don't have, you know, a widespread systemic blow up like we had with COVID, like we had with the GFC, the upside downside feels a bit more skewed at this point to the downside within credit markets. That's not to say you have to sell everything. There's nothing to buy. There's definitely a good number of very highquality issuers where you can clip a coupon and feel reasonably okay about things. But the reality of credit markets is when you are lending, not every deal is going to be a home run. Not every deal is even going to be a single. sometimes there are going to be losses and whether you know we have broad-based systemic fraud I don't think that that's necessarily the case I'm not necessarily worried about that but when I think at just what credit valuations are paying me to tolerate right now it feels like the skew is towards the downside hey one thing I'm curious Winnie though you know private markets uh we didn't really they were there during the great financial crisis but not like they are today how does that potentially complicate things um and the opacity of it like that. We just don't know what's going on. >> Yes, it's true. It's hard to assess truly, you know, what is going on in private markets in aggregate. Now, the good thing about private markets so far is that there is still a lot of liquidity on the sidelines within private markets. Just all of the cash that's been deployed into private credit, private markets has not actually been fully invested. Also, we know that within private markets, it's a very fragmented um lender and borrower relationship. There's just a lot of different types of companies that have been um lent money to and then also lenders. And so to think about is this systemic, you would need to see some sort of um event that was kind of widespread enough across the private markets to really pull all of that liquidity out. And given some of the structural considerations, that makes it a little bit more difficult to say, "Oh my gosh, private markets, this is the next systemic thing to be really worried about." But are private markets necessarily going to be just an ample source of liquidity without any problems, which has kind of been the case for the past few years? I don't know that that's going to be what we expect going forward. >> And Winnie, just one more question here. When I look at or think back to the kind of fears around the collapse of SVB, the big question was how interrelated are these banks and also how scary can a dash to either pulling money out or shorting the stocks could be kind of to the entire system given where we are right now when you look at kind of the backdrop. Is that a risk? Is that at the top of people's minds in terms of what could be the next chip to fall and what does that mean or are we not there yet? >> Let's say we're not there yet. talking to clients within the world of credit, people have been really constructive on the banking system as a whole, you know, having come through the regional banking crisis of 2023 with definitely some issues, some banks that that did not make it through, but not necessarily seeing that kind of systemic collapse. And I think also the types of issues that we've seen more recently in the banking system, having some loans that have just, you know, gone very bad, that that happens in the banking system. Whereas in 2023, you had a very interesting dynamic with, you know, the rise in Treasury yields and the way that bank balance sheets were constructed that actually required the Fed to step in. And so, so far, I would say that what we're seeing is, you know, just kind of bad credit due diligence, which sometimes happens within the world of banking. Hopefully, it is not a widespread issue versus something that could have become much more problematic had, you know, the Fed not stepped in in 2023. >> All right. So glad we could get uh some time with you as well. Winnie Caesar, she's global head of strategy at Credit Sites joining us from Charlotte, North Carolina. Stay with us. More from Bloomberg Business Week Daily coming up after this. You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2:00 to 5:00 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App or watch us live on YouTube. Great to be talking again with Katie Hubard. She's executive vice president of capital markets at Walton Global. It's a privatelyowned asset and real estate investment company. It's got over 4 and a half billion of land assets under management and administration and more than 89,000 acres of land under ownership management throughout North America with nearly 89% located across the US. They are though global uh and they do operate in the retail, industrial and commercial sectors. Um Katie, good to have you here with us. I got to start with what is now courtesy of the last 24 hours part of our narrative and that is some credit concerns. Those bad loans reported by Zions in Western Alliance um being traced back to the bankruptcy of a commercial real estate investment firm in Southern California earlier this year. I know not apples to apples with you, but I got to guess it's on your radar. Um, first of all, any connection with any of this and and what can you tell us about your world and credit concerns? >> Yeah, Carolyn Bailey, thanks so much for having me. The good news is there's no connection there, but we are definitely seeing some interesting things on credit and housing. What we're seeing on our side is that the adjustable rate mortgage is having a renaissance and arms are up 134% year-over-year and people are really able to hit that magic 5 1.5% mortgage rate and that's helping them qualify for and hit that affordability metric for people with hitting um certain income limitations. So we're seeing an increase in ARMS 24% of our builder clients which you know just as a reminder Walton provides land banking for public home builders. So, we have a really unique perspective behind the curtain of what's happening in home building and 24% of people taking out a mortgage are getting an adjustable rate mortgage right now and that is tied to the sofur which is tied to the fed funds rate. So, we're looking to see um for affordability factor going forward rates coming down for people who are looking to get an ARM >> but we're seeing rates coming down but I still think there and I'm interested in your thoughts. Is there still concern about a consumer being able to afford housing and how that works out just given the again concern and uh issues we've been seeing showing up especially for call it the lower third consumer here in the US? Yeah, there definitely is a concern about a half of people um versus 2016 can actually h have the income to be able to afford a house today versus what we're seeing just because of the affordability factor like you're saying for five months in a row we're seeing new homes actually cheaper than existing homes. So the market has some interesting dynamics and affordability being one of them. >> Yeah, it's interesting because we did have you know some data. We've seen prices of new home sales continue to fall amid high inventories. So, that dynamic in terms of home builders, are you continuing to see some pressure um or them putting, you know, having lower prices here because they're trying to bring buyers in. >> Definitely. So, if you look at inventory across the US, we're sitting at 2.6 homes per community unsold, but Southern California is really feeling the effects of that. They're at five homes per community unsold and their sales September net sales and new homes are down 30% in Southern California where other parts of the country are doing just fine where the home prices are really flat in the Northeast and Midwest and sales are sitting about 1.5 homes per community where seasonal average were about 1.9. So we're seeing slightly elevated inventory um and that's why starts and permits are down um to 1.3 million homes and we're delivering 1.6 6 million. But we need to really deliver more homes at more affordable prices to to get back to equilibrium. >> Well, what's driving that in Southern California? >> It's just it's affordability. Uh to your point, Bailey, it's just people can't afford the homes. And so the it's bringing down bringing down prices not only on homes, but also we're seeing land prices in California and even in A and B locations um decrease, which is um really unheard of. Most of the time land prices are going up and A and B and C and D locations across the rest of the country. But affordability is the problem there. >> But is that just people who have enough money are leaving the state? Is that people just aren't having enough income? Inflation's driving the pinch. I'm from Southern California and I'm actually pretty surprised by uh how stark those numbers are just given it seems like an area that is doing quite well broadly speaking. It's really just it's it's people being taxed out and wanting to, you know, sell their houses there and they're going to Idaho. They're going to Texas. They're coming to Colorado where I'm based and it's just they're they're leaving for that affordability. They can sell their house and go pay cash and have much lower taxes. And that's just leaving the builders that are building and um having to offer incentives. Lenar is one of the largest builders. They build 12% of all homes across the US and they're the largest builder in most of the um subcommunities there. They're over building over 50%. They're having to offer 14 over 14% incentives to get that inventory moving. >> Hey, one thing I want to ask you, we talked to you a lot and I feel like we have over the last couple of years at this point. You know, you seem to often have about four and a half billion of land assets under management. You guys try to keep it at that number. It doesn't seem to change much. >> Uh yeah. So, we are doing offbalance sheet land financing for the builders. We're giving them maximum flexibility so that they can take that land when it's development ready and when the market has the demand for the product that it's zoned for. So it does stay about that, but that's just really offbalance sheet financing. So we're buying the land for the builders and then they're taking it down as they need it across the country. >> Well, and in the land acquisition, what are the costs that you guys are seeing? Are you seeing also those those prices uh lower than than what they've been? >> It is varying across the country. I mean, A and B locations with good zoning where builders can get higher densities, that land is worth a lot of money if they have the utilities, the water, the political wherewithal to build there, that's um you know, that's really worth gold. But if you're holding land that has some political opposition, you don't have the the water, the utilities, then you're, you know, you're going to be waiting till the next cycle. Really? >> Yeah. It's I guess when when you look at areas though that are more in demand, what regions stand out and which regions are the opposite of a Southern California to that respect? >> Yeah, it's interesting. Really the Midwest and the Northeast are are the darlings right now where they're not having any price depreciation. Um people are moving there because of the affordability factor. So they're absorbing the homes. They're sitting on the home builders are sitting on less inventory so they feel more com comfortable and confident starting homes. Um but on on the multifamily side, uh multifamily starts and permits are down as well. And there are certain markets like Austin, Nashville that are just overbuilt on class A apartments. And so and we're also going to have $180 billion floating rate cliff coming in 2026. So you're seeing starts down across multif family as well in certain markets, but in other markets where where the demand is there and and the political wherewithal um to get the zoning is there, then um builders are doing just fine. like in Florida right now actually um surprisingly Florida has um swung the pendulum the other way where they were at five homes unsold per community now they're down to three. >> Interesting. We know when it comes to housing and real estate it's location geography. There's so many different variations. net net though. Um, kind of how we started this conversation, not seeing any crisis out there when it comes to any signs of things certainly within your um, you know, area that shows credit problems or or a possible crisis brewing. >> Not at all. I mean, the requirements for credit scores are are much more stringent post financial crisis and so that's really cleared out any of those issues. So, um, we're feeling very confident. where the average FICO score is over 720 now for somebody buying a home. So, we don't see any type of um financial crisis on the credit side and home building right now. >> And just very quickly, how would a I don't know IPO of Fanny and Freddy impact your view of kind of your entire industry? >> Yeah, I mean we because the Trump administration wants rates to come down. We don't see that happening in the near term because if it does go public and gets out of government and we don't have that governmentbacked guarantee, then that would definitely spike rates up even, you know, up to one to one and a quarter%. So, we think there's going to be somewhere in the mid where there's going to, you know, possibly be privatization, but still some type of an insurance where you're going to get that governmentbacked guarantee. So, in the near term, we don't think that will happen just because that would cause rates to go up, which is not what the administration wants. >> Terrific stuff. Um, Katie, thank you so much. Katy Habert, executive vice president of capital markets at Walton Global joining us. You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2:00 to 5:00 Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. With us is Dana Telsey, founder, CEO, and chief research officer of Telsey Advisory Group. uh here to join us uh here in our Bloomberg Interactive Broker studio. Hello. Hello. How are you? >> Good. How are you? Thank you so very much for having me. >> It's so great to have you here. You know, I was looking at retail stocks. They've come down about 8% since the beginning of September. So, we've seen them under pressure. I know we've talked a lot about concerns about consumers. Um tell us about how the consumer and retailers are doing. And you're just off a big conference that you guys just hosted. >> We just saw everyone. We saw Macy's Sachs, Ulta, Urban, Fibelo, Kroger, Lowe's, you name it. G3, Stitch Fix, all of them were there. I would say that when you think about September, to your mention, the beginning of September was rough. We had warmer weather last for longer. That's right. The cooler weather finally picked up and what's hot now? Brown suede tall shaft boots are what it's all about. So, the cooler it gets, the better it gets. But you're seeing more of a bifurcation between the lower income consumer and the higher income consumer. We just had LVMH report their sales yesterday. spoke to them this morning and basically things are improving a bit. They're seeing stabilization in the Chinese cluster and even the fashion and leather goods segment which accounts for nearly 50% of the business sequential improvement from the second quarter. What's driving all this? Just like at our conference, the word resilience and newness and innovation. The more product that's new, you look at Levis's widelegg jeans. Look at Birkenstock closed closed toe clogs. That's what's driving consumer demand. At the same time, you have a cautious consumer. The full effect of tariffs and price increases are not yet there. They're expected to increase as we go through the balance of the year. We just talked with the CFO of uh Levi Harmate Singh and you know talked about what they are seeing in their in their business. I want to go back to luxuries though Dana because Baronberg came out today and says luxury super cycle is over and it downgraded LVMH. They say the three decade boom in the luxury sector, it is over. They say luxury is at an inflection point. You think they've got it wrong? >> I think basically the inflection point is that we're beginning to see stabilization. You have a change in creative designers at many of the top brands. Look what you had in September, the unfortunate passing of Georgio Armani. So, you have a new cycle that we're beginning to enter enter into. And at the same time, you need social media. You need a digital presence in order to activate. What's more than what you're seeing the merger of food experience and what you're doing with luxury. Look in Beverly Hills where Dior just opened their new store and it has a restaurant. Go to Madison Avenue and 72nd Street. Ralph Laurens coffee shop is busy. Does that really though move the retail needle or the retail side of their business? It helps. And you know why? It helps activate the brand. It makes you relevant. Pictures are also drives conversion. Well, we're talking about the higherend consumers. So, what are you seeing in that middle third of consumers, whether that's US or around the world? >> I think overall the middle third, look where Walmart's seeing the most growth. They're seeing the most growth from some of the higher income consumers trading down. And that trade down could be beneficial to some retailers. It's beneficial to Walmart, but it's also beneficial to the off-pricers, TJX, Ross Stores in Burlington. And at the same time, you look where there's value and convenience that matters. and that value and convenience, you're beginning to see an uptick. Look at Gap, for example. Gap all of a sudden has become more relevant because of creative designs. >> But who's losing? >> I think overall, you're seeing some brands that haven't reinvented themselves. You've seen some brands, department stores need to reinvigorate themselves. You look at the reimagine campaign at Macy's where they're seeing their stores outperform in terms of those that have been reimagined. If your brand isn't investing, if your brand is showing weakness, we've seen that they need to work to improve. Look at Nike, which has been in a transformation and just showed for the first time an up 20% increase in running. It takes share from others. >> Dana, one of the things I got to ask you, and it's certainly something that we have been talking about a lot this week, is Walmart and Chachi PT. Uh we saw this stock just take off uh their alliance that's going to allow Walmart shoppers to browse and purchase products directly on ChachiPT. just have to click a buy button. Mizu Mizuo um their Alice came on and said the track the company's on track to become a trillion dollar valuation company as a result. How do you see it? Big gets bigger. When you think of Walmart, they have a competitive moat and they're scaling. And you look at the valuation, not a cheap stock, but al also not the same valuation as a tech stock. Yet they're integrating tech capabilities into their platform to drive a bigger competitive mode that they can scale more. >> So a PE of 42 you're cool with. I basically you get on the train and you get on the train because the trains continuing to run. You look at other companies where there's work to do. Let's see what Target does in order to reinvent themselves. >> Well, does everybody then pop on and does another Inksca deal with Chachi PT that? >> No. No. Why? It's basically is more specific. companies have to have the ability to adopt these tech technological capabilities. Walmart's been more at the forefront and Doug has done a great job at repositioning the business for tomorrow, not just for today, which is amazing considering their digital strategy lagged for a long time, but it sounds like that they're on track. >> Yep. >> Well, would you expect Walmart then to partner with Anthropics XAI across the board or how does that shake out? >> We'll have to see what they do, but certainly the first step with Open AI was a huge leap. Mhm. Well, because I immediately think, okay, well, if Walmart's going to serve me up what I want on using chat GPT, >> right? >> Do I then use Chat GBT more? Maybe I'm not a fan of Walmart, or is it bringing in more consumers? >> I think people are beginning to use chat GBT in more different aspects of their lives, whether it's for shopping, whether it's for business. It becomes something that their goal to get consumers to rely more on it. So, it becomes part of your daily life. Well, because I remember when Reddit went public, they were partnered with Google. So, Google was immediately feeding Reddit and then they stopped doing that as much and we saw a drop off in Reddit user data. Is that the >> downside case? If I don't know, ChatgBT decides we don't want Walmart anymore. We want Target or we want to start feeding people >> the biggest retailer in the world with Walmart. It doesn't seem like you wouldn't want them. It's how can you enhance the >> when they need they're trying to figure out I mean they're bringing in money but they need to be profitable. Like people want to see the return there. Um I am curious this conference you had this week and all the the you had everybody and anybody in retail. What were they saying about AI? Um AI still early innings for some of the smaller companies more advanced for the bigger being able to curate inventory levels to drive more full price profitability. Yes to manage costs but not to manage costs where you're getting rid of human capital that provides insight into how to bring business forward. So I think the relationships of sales experience and sales associates matters, operational enhancements, all systems go, but it has to be go in order to be able to execute precisely because you can't give up the old without incorporating the new. We're talking with Dana Telsey, founder, CEO, and chief research officer of Telsey Advisory Group. Uh if you've been following markets, you know Dana is the person to speak to when it comes to retail. What was top of mind for everybody that was there? Was it stuff out of the White House? Was it inflation? Was it tariffs? Like I'm just curious >> consumer demand. Are we still seeing the consumer remain strong given the strength that you've had all year long in retail sales? Are they still spending? And the answer most of them had they're resilient because of newness and product innovation and price increases because tariffs definitely top of mind still to come. So you for someone who's been covering this, you feel more optimistic? I feel like we're in more sta we're in a more stable place. Keep in mind though, first half of 26, you're going to have tariff impacts that you didn't have first half of 25. So the expectations that you could have more modest guidance for the first half of 26. Yes. Let's be realistic and what it could look like. Well, that's what I wanted to ask about uh talking to a few months ago a head of a supply chain company and he was saying basically we all pulled in as much as we could in April and we all pretty much are saying we're good for 25 January, February, March of 26, we'll see real issues pop up. What does that look like? >> Looks like margin pressure. Could we be seeing margin pressure? And you always have the puts and takes, lower rates, tax refunds. Is that going to help consumers have the ability to spend? But you're seeing companies manage their margins carefully because it's always about a third diversification of supply chain, a third sharing the cost with your manufacturing partners and unfortunately a third goes to the end consumer. >> Well, when President Trump proposes another 100% tariff on China, you're with the CEOs of this these companies, leaders of these companies. Are they penciling in how they can address this? Are they kind of hoping that he box and we have a new conversation? >> You have to pencil. You always have to have different scenarios all available to you so you can react. But of course, they're hoping, but hope is not an antidote. Real numbers tell the story. >> All right. I I am curious, too, that we do have we don't get retail numbers for a little while. Earnings um closer to the holiday shopping season. What are you expecting? Again, I know it's you can't lump them all together, and I hate to do that, but when you think about the average over the past six years, it's been around 3 to 4%, some better years. Yeah, I think we'll more likely be in the average realm. Don't forget you have inflationary prices that's added to this. So, will the real number please stand up? >> Well, when you look at companies within your coverage or that you're meeting with, who's best positioned or worse position to pass along tariffs and some of these price hikes? >> Brands, brands of strength have the ability to price it along. You talked about Levis's, they have newness, they can pass it along. You look at a coach for example, they've been able to pass it along because of new products that they're introducing. And you're also seeing footwear companies pass it along because they get so much of their goods from some of the most highly impacted tariff countries. >> Favorite retail and not name. I know I have like your favorite. >> I have a lot of different ones. I mean, I think when you think about consistency, it's the off-pric wagon of TJX. When you think about product newness and innovation, I think you got Birkenstock there that's doing exciting things. When you think it's about transformation, who's transforming? Let's see what Victoria's Secret does. There's certainly some reaction to the fashion show that it it generated interest. And I think you have others where there's transformation happening like in luxury. And let's see what we see there. Great stuff. It always amazes me that somebody hasn't kind of copied the TJX model cuz they just seem to own it. Buyers relationships with brands are not built in a day. Unbelievable. Great stuff. Thank you. Hallelujah. Thank you. >> On to Thanksgiving and the holiday shopping season. She is always ready. Dana Telsey, founder, CEO, and chief research officer at Telsey Advisory Group joining us. Stay with us. More from Bloomberg Business Week Daily coming up after this. You're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2:00 to 5:00 Eastern. >> Listen on Apple CarPlay and Android Auto with the Bloomberg Business App >> or watch us live on YouTube. All right, folks. We're going to stay uh in the nation's capital, dig a little bit deeper into the story with a voice that so understands President Putin. She's in fact written a book uh Putin's world, Russia against the West and with the rest. She is Angela Stent, senior fellow at the American Enterprise Institute, former national intelligence officer for Russia and Eurasia at the National Intelligence Council and she served in the office of policy planning at the US Department of State, a friend of the show. She joins us uh on this Friday. Angela, your takeaway on what we just saw in the cabinet room in the White House? Well, I still think that President Trump is kind of on a high from the uh Israel Gaza Peace deal. He really does want to get the Nobel Peace Prize. Uh and so he and his relationship with Zilinsky, as we just heard from your correspondent, has definitely improved greatly since February. Zalinsky understands exactly what he has to do to deal with President Trump. And I think the fact that Zalinski yesterday met with business uh folks here to talk about joint production of drones, other military mi material, other potential business deals also speaks to his his focus on telling President Trump, you know, the US can make money from this too. Um, on the other hand, you know, we know that we thought at least that the president was fairly serious about supplying Ukraine with these long-range Tomahawk missiles, uh, with which Ukraine could strike quite deeply into Russia and President Putin intervened. He requested a phone call. He got it yesterday. So, I wouldn't say we're back to square one. Uh, but we're back to a situation where President Trump, I think, still believes that he can get Putin to agree to a ceasefire and a peace deal. >> Angela, with that in mind, who has the most power between the three leaders and who's facing the most pressure right now? >> Well, I think that Putin uh is feeling some pressure, but I think Putin still feels that he holds quite a lot of cards. He's in no hurry to end this war. Uh he still believes Russia can win. Um, I think President Trump is really more in more of a hurry to end the war and clearly President Zilinski wants to see it end because of the terrible loss of life there. Um, I think unlike in let's say the Israel Gaza situation, President Trump has much less leverage over President Putin that he had say over uh, Prime Minister Netanyahu and others and even to some extent um, over President Zilinski. uh because Russia still holds a lot of cards and it can always threaten as it does periodically that if say the Tomahawk missiles uh were given to Ukraine that Russia would escalate and who knows what it would do with its nuclear weapons. So uh Putin I think still feels that he holds many cards here. >> Well, and you know I think about all the conversations Angela we've had since this war started. Hard to believe we're what three and a half months uh three and a half years in. It's really kind of shocking. Um, why would President Putin want to end this war? I mean, you we've talked about this with you. I mean, this isn't just about Ukraine. These are where what he believes Russia should be, you know, going back to kind of its former glory. So, is there really any reason that he would want to end the war? Is there possibly economic pressures? I mean, help me out here. >> I mean, the economic pressure is there. The sanctions have had an impact. They'd have more impact if President Trump gave the go-ahead to the Senate bill, which I think 89 senators have agreed to support, bipartisan uh to impose more sanctions on Russia. And I think in fact supplying Ukraine with these Tomahawk missiles with maybe other weapons. If Putin really believes that he cannot win on the battlefield, then he might have to think about actually sitting down and negotiating. By the way, I don't think he's ready to sit down with President Zilinski. um he said that President Zilinski isn't a legitimate leader, but he'll certainly sit down with President Trump. He believes he's at war with the West. So, I think the incentives here are just his concern. Uh because Trump periodically says they're going to be much harsher me measures taken and he wants to fend those off. He wants to make sure that those are not imposed on Russia. Angela, can a real ceasefire end to this war happen if we don't see all three or really the two primary people and I'm talking about President Zilinsky and President Putin in the same room? I mean, if you look at what happened, again, it's not a perfect analogy with the Israelis and then Gaza and the other Arab countries. There weren't that many direct negotiations. I mean, you can have intermediaries. you could theoretically have the US negotiating with Russia, with Ukraine, maybe some other intermediaries and they could agree to a ceasefire. Um, I think that the the meeting between Putin and Zalinski would be more relevant if they're actually going to have a peace deal. But I think you have to understand that there could be a ceasefire and armistice without them actually working out a peace deal. Uh, I mean, as there was really after the Korean War. I mean, that's how it ended. So you could you could just have the guns are silent, but you can't really get this settled. >> What other countries could be stepping in to help support Donald Trump in the US and kind of mediating this? And what would you expect from I don't know the European Union or other countries? >> So I mean Turkey has been quite active uh President Erdogan in intervening. I mean when they had the initial talks after the war broke out to try and come up with a peace agreement, Turkey was very active there because Erdogan has pretty good relations both with Russia and Ukraine. I mean theoretically there's China and I think in the beginning um you know people in the west hoped that China would do more. Uh but China really isn't neutral in this conflict. I mean it's been supplying Russia with the wherewithal to continue the war. I mean theoretically it could. I think the European Union that's much more difficult because Putin sees the Europeans as enemies. Uh except of course for Prime Minister Victor Orban. Uh but his problem would be as an intermediary that he's been very critical of Zilinski. I mean theoretically Hungary is neutral in this war but it isn't really. So I think Turkey, maybe China, I don't know Saudi Arabia was um involved in the beginning in trying to get the two parties together. So there maybe are some other countries that could be involved in helping to to negotiate this. >> How do you think President Silinski feels when he's in a room and President Trump does mention um Mr. Orban uh and and that he's playing a role and there's going to be a meeting in Hungary. Like how do you think that comes off? >> Is that kind of like a reminder to Zalinski? Like >> keep your jacket on. >> It's a reminder, right? I mean, President Trump is not going to say to him publicly, I hope, as he did in February, you don't have any carts. But I think, you know, President Zilinski and the Ukrainians realize that they have limited leverage in all of this and they're doing everything they can to, you know, support the US to to give business opportunities for the US uh to get the US to understand it would be much better if this war came to an end. But obviously, there's a limit to what President Zalinski can do. and I'm sure he'll be viewing uh this meeting in Budapest with a very weary eye. >> And Angela, just given your experience uh and your focus on the topic, what happens next in your view and how long does this drag on? >> Well, I mean that assuming that there is this meeting in Budapest with President Putin and we haven't even talked about how he's actually going to get there. Uh this will be his first trip to Europe since the war broke out and most of the airspace is close to him. But assuming he does uh get there, I'm assuming that there will be, you know, more discussions uh about the possibility of various things. Putin, I'm sure, will push the settlement that he thought that Steven Witco had agreed to, but apparently hadn't, which is that Ukraine would have to seed to Russia all of the four provinces that Russia claims to have annexed, not none of which Russia fully controls. In other words, you Ukraine would have to uh give some territory to Russia in return. there would be a quote unquote land swap. There is some land that it it might get back. Um so I think if uh if that if it were to agree to that uh or if President Trump were to say that he would pressure Zalinski to agree to that, that would be a possible way of getting uh to a ceasefire. But unless Putin moderates his conditions and the other one is Ukraine say saying that it will never join NATO. It's not so clear about the European Union. um then then I think it would be those are still I haven't heard anything from the Kremlin where they've moderated the maximum demands where they always say we have to get to the root causes and the root causes are they don't want a sovereign uh Ukraine that's integrated with the west >> what are they so worried about just the west then supporting Ukraine going forward is that what it's all about >> well they're worried about that and what about the example what about if you actually had a successful prosperous dem more much more democratic Ukraine next door to you. Um that also might, you know, give the population in Russia something to think about. >> President Trump, how crucial is he in all of this in your view? >> Oh, I think he's very crucial. I mean, I think, you know, under the Biden administration, there were no negotiations because the Biden administration essentially only had very few contacts um with uh Russia after the full-scale invasion. So, I think President Trump is a very important playing player here and I think he's going to have to decide how much pressure he's going to bring to bear on both sides uh and and what the US would be willing to accept for both sides as a reasonable uh at least precondition to a ceasefire. >> Hey, one last question, 30 seconds. Does President Putin respect President Trump? >> I think he does. I think he recognizes that uh President Trump, even if he's sometimes unpredictable. The US is still the most powerful country in the world and it does have the ability uh uh to make life more difficult for the Russians. So I think he does. Yeah. Ah so glad we got some time with you as we always feel that way. Angela, be well. Have a great weekend. Angela Stant, senior fellow at the American Enterprise Institute, author of Putin's World, Russ, and with the rest joining us there from Washington. This is the Bloomberg Business Week Daily podcast available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5:00 p.m. Eastern on Bloomberg.com, the iHeart Radio app, TuneIn, and the Bloomberg Business App. You can also watch us live every weekday on YouTube, and always on the Bloomberg terminal. [Music]