Larry Summers on the Fed, US Energy Policy, Death by Bandwagon, DC Real Estate | Wall Street Week

00:56:35
https://www.youtube.com/watch?v=ORQbNrgLbHk

概要

TLDRWall Street Week, hosted by David Westin, offers insights into current economic challenges, particularly in relation to inflation and the impact of new federal policies under Trump. The show covers the dynamics of the energy market, highlighting the reluctance of oil producers to expand production despite governmental push. It also explores trends in electric vehicles, the complexities around diversity and equity initiatives, and the migration patterns towards Florida. D.C.'s real estate landscape is discussed, with a notable split between luxury market growth and concerns over decreasing federal workforce. Insights from Larry Summers and investment strategies from Blackstone are featured, emphasizing the cautious optimism amidst market volatility.

収穫

  • 📈 Inflation rises due to tariffs and economic uncertainty.
  • 🏢 D.C. real estate market shows resilience despite federal cutbacks.
  • ⛽ Oil producers prioritize returns over increased output.
  • 🚗 Electric vehicle growth is hampered by infrastructure challenges.
  • 📉 Luxury real estate booming while entry-level market suffers.
  • 🏖️ Migration to Florida continues but faces infrastructure issues.
  • 🌐 Investors wary of geopolitical risks affecting capital markets.
  • 🛠️ DIY initiatives on the decline amid changing legal landscape.
  • 📊 Blackstone maintains a cautious yet optimistic investment approach.
  • 🔮 Future market dynamics hinge on regulatory changes and economic stability.

タイムライン

  • 00:00:00 - 00:05:00

    Introduction to Wall Street Week by David Westin, focusing on themes of capitalism, such as real estate, DIY, and electric vehicles, while highlighting the challenges of crowded trades and policy reversals under President Trump.

  • 00:05:00 - 00:10:00

    Highlights of the week's big story about the global economy, with inflation rising amid slower growth, emphasizing the inertial response from investors and concerns surrounding tariff-induced inflation. Special contributor Larry Summers notes the significance of these economic shifts as a result of Trump-era tariff policies, while critics suggest that current policies create more uncertainty.

  • 00:10:00 - 00:15:00

    Summers discusses the risk of an imminent recession, criticizing Federal Reserve Chair Powell's use of the term 'transitory' regarding inflation, and reflects on rising interest rate projections reflecting economic instability, further aggravated by political shifts and uncertainties in economic policies.

  • 00:15:00 - 00:20:00

    Highlights the increasing concern regarding potential authoritarian tendencies in governance and its implications on the economy, drawing attention to recent controversial actions including dismissing independent commissioners and further legal infractions.

  • 00:20:00 - 00:25:00

    Discussion on the challenge for the oil industry to ramp up production despite desires for lower oil prices, with President Trump's push for increased energy production clashing with producers' priorities for profitability and shareholder returns.

  • 00:25:00 - 00:30:00

    Details the irony in the oil industry’s situation where desired fewer federal regulations may not lead to increased production, as oil producers prioritize returns over output, with comments on financial strategies from various industry leaders regarding their approaches in a volatile market.

  • 00:30:00 - 00:35:00

    An overview of the past economic cycles affecting oil prices and producers’ strategies post the shale boom, emphasizing the importance of profitability amidst rising operational costs, and noting the industry’s need to navigate historical volatility and past pitfalls from overspending and subsequent bankruptcies.

  • 00:35:00 - 00:40:00

    Economic projections highlight how differing administration policies shape market responses, including recent discussions on oil and gas production versus infrastructure needs for exporting natural gas, underlining a potential shift in focus from oil to natural gas for long-term sustainability while managing rising production costs.

  • 00:40:00 - 00:45:00

    Surveys trends in the auto industry regarding electric vehicles, where ambitious projections for EVs are revised down due to sluggish infrastructure growth and market readiness, while traditional automakers are reevaluating their strategies due to shifts in consumer demands and political climate affecting EV policies.

  • 00:45:00 - 00:50:00

    Analyzes the migration of businesses and wealthy individuals to sunny, tax-friendly Florida, alongside the resulting real estate market changes and infrastructure struggles, addressing schools and services that may not be keeping pace with rapid growth in the region, and juxtaposing it against urban centers like New York.

  • 00:50:00 - 00:56:35

    Lastly, the segment focuses on the Washington D.C. real estate market, exploring the impacts of potential federal workforce downsizing and the paradox of a thriving luxury real estate sector amidst potential job losses, capturing the complexities and dualities of the current D.C. economy.

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ビデオQ&A

  • What is the main focus of Wall Street Week?

    The show covers stories of capitalism, including economic trends, federal policy, and market movements.

  • How is inflation impacting the economy?

    Inflation is rising due to various factors, including tariffs, creating uncertainty for policy makers and businesses.

  • What are the implications of Trump's policies on the economy?

    Trump's administration aims to reduce the federal workforce, impacting D.C.'s real estate market and economic landscape.

  • How are oil producers responding to calls for increased production?

    Despite regulatory relief, oil producers are prioritizing shareholder returns over ramping up production.

  • Why have EV ambitions been curbed?

    The growth of electric vehicles is slower due to insufficient infrastructure and changing political support.

  • How is the real estate market in D.C. evolving?

    D.C.'s luxury real estate market is strong, but there are concerns about job cuts affecting overall demand.

  • What is the sentiment among investors currently?

    Investors are cautiously optimistic, but volatility and changing policies create uncertainty.

  • What challenges do oil and gas sectors face?

    Producers face rising costs and infrastructure issues that hinder the ability to increase production.

  • What does the future hold for the D.C. real estate market?

    While facing uncertainty, the upper-end market remains strong, indicating resilience in the long term.

  • How does Blackstone evaluate potential investments?

    They assess market conditions, business quality, growth potential, geopolitical risks, and management effectiveness.

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  • 00:00:13
    This is Wall Street Week. I'm David Westin, bringing you stories
  • 00:00:17
    of capitalism, whether it's DIY or electric vehicles or the rush to
  • 00:00:21
    southern Florida. Every week we see some crowded trades
  • 00:00:25
    getting reversed. We tell the story of what happens when
  • 00:00:28
    the bandwagon everyone jumped on suddenly slows down.
  • 00:00:32
    Plus, President Trump is doing his best to reverse the trend of an ever growing
  • 00:00:37
    federal government. Where does that leave the D.C.
  • 00:00:40
    real estate market? And drill, baby, Drill is another theme
  • 00:00:44
    of the Trump administration. But it's not at all clear that the oil
  • 00:00:48
    companies and their shareholders will be joining in the chant.
  • 00:00:52
    But we begin with the big story of the week for global Wall Street.
  • 00:00:56
    You see weaker growth, but higher inflation, they kind of offset and also,
  • 00:01:00
    frankly, a little bit of inertia when it comes to changing something in this
  • 00:01:04
    highly uncertain environment. You know.
  • 00:01:06
    You know, I think there is a level of inertia where you just say, maybe I'll
  • 00:01:09
    stay where I am. Inflation has started to move up now, we
  • 00:01:13
    think partly in response to tariffs. And there may be
  • 00:01:17
    a delay in further progress over the course of this year.
  • 00:01:20
    It can be the case that it's appropriate sometimes to look through inflation if
  • 00:01:24
    it's going to go away quickly without action by by us, if it's transitory.
  • 00:01:29
    And that can be the case in the case of of of tariff inflation.
  • 00:01:34
    I think it would depend on the tariff inflation moving through
  • 00:01:39
    fairly quickly and would depend critically as well on inflation
  • 00:01:42
    expectations being well anchored. Larry Summers of Harvard is our special
  • 00:01:46
    contributor here on Wall Street Week. He should be focused on the fact that we
  • 00:01:53
    had a shock that pushed inflation up and growth down.
  • 00:01:58
    And that's a bad supply shock. That's a self-inflicted wound.
  • 00:02:03
    And it tells us that policy is moving in the wrong direction.
  • 00:02:07
    And it's a shot against the barrel of Trump tariff policies, which clearly
  • 00:02:13
    have materially changed the picture in a way that the Fed is seeing both as more
  • 00:02:18
    uncertain and more problematic on both their key objectives.
  • 00:02:24
    I was struck by the fact that in the projections, the growth projections were
  • 00:02:28
    taken down not just for 25, but 26 to 27 as well.
  • 00:02:32
    On the inflation side, it was really mainly in 25 and you heard Chair Powell
  • 00:02:37
    say maybe the effects are transitory. Using that word we've heard before.
  • 00:02:42
    I would have thought the chairman would retire the word transitory.
  • 00:02:47
    That is perhaps the most notorious, the ill chosen phrase of his excellent seven
  • 00:02:55
    and a half year run as Fed chair. And so I was astonished to see him
  • 00:03:02
    resurrect that concept. He might turn out to be right,
  • 00:03:07
    particularly if the economy suffers a recession.
  • 00:03:11
    It's conceivable that the economy won't suffer a recession, and he'll turn out
  • 00:03:16
    to be right. But it's certainly not something that I
  • 00:03:19
    would want to bank on. There's another point that I think most
  • 00:03:24
    observers have missed, which is if you look at the dot plot, the median, the
  • 00:03:30
    person in the middle on interest rates has not changed.
  • 00:03:35
    That's what everybody's highlighted. But the average if you just take an
  • 00:03:40
    average of everybody's forecast, that's moved up a fair amount in the last few
  • 00:03:46
    months, reflecting the fact that with these tariffs, with the inflation
  • 00:03:52
    they're bringing, there's less confidence on the part of the Fed that
  • 00:03:56
    they're going to be able to cut rates, even as there's a prediction of more
  • 00:04:01
    cyclical weakness in the economy. So this is clearly a more worrying
  • 00:04:08
    picture than we had in December. And there's only been one important
  • 00:04:13
    change, and that's been the change in tariff policy and more broadly, the
  • 00:04:21
    political approach to economics. One of the themes throughout what Chair
  • 00:04:26
    Powell had to say was uncertainty, because there's the concern about what
  • 00:04:29
    is being done. There's also the concern about what we
  • 00:04:32
    don't know around the corner. We have an enormous uncertainty.
  • 00:04:35
    What does that do to the economic machinery in and of itself?
  • 00:04:39
    Nothing good. Look, the task of policy is to reduce
  • 00:04:44
    uncertainty. The task of policy is to give confidence
  • 00:04:50
    about sustainability. When policy makers are confidently
  • 00:04:57
    promising a stock market boom, when they come in and then they deliver the 1011
  • 00:05:05
    fastest correction in the last 75 last century, the one of the fastest
  • 00:05:12
    corrections in the last century. And then they discover that they think
  • 00:05:16
    the economy needs some kind of detox and they don't give any indication of
  • 00:05:22
    whether it's going to end. And they vow unprecedented levels of
  • 00:05:28
    protection to be declared on a date in the future.
  • 00:05:34
    That is introducing uncertainty, not reducing uncertainty.
  • 00:05:40
    And I think that's really quite dangerous.
  • 00:05:44
    I am struck, Larry, that as we talk about what the Federal Open Market
  • 00:05:48
    Committee that we're talking about, the White House almost exclusively and talk
  • 00:05:53
    about more broadly what we are seeing coming out of the White House, how it is
  • 00:05:57
    affecting could affect the economy. For example, this week we had the
  • 00:06:00
    president say, I'm going to dismiss two sitting FTC commissioners, even though
  • 00:06:05
    they're an independent agency, a concern that might expand extend into the
  • 00:06:09
    Federal Reserve. One of the ramifications throughout the
  • 00:06:11
    government and the economy is the actions we're seeing.
  • 00:06:14
    Let me speak very directly, David. We are not there yet.
  • 00:06:23
    But. Every week for the last two months.
  • 00:06:28
    The risk of an attempt to impose authoritarianism in the United States
  • 00:06:37
    have gone up. The dismissals that you mention are one
  • 00:06:42
    example. The lawless cutbacks of spending are
  • 00:06:47
    another example the impositions and threats to universities with no process.
  • 00:06:58
    Nothing of what is required in Title six law is another example.
  • 00:07:05
    The steps with respect to expelling people who are here without the process
  • 00:07:13
    protections contained in law are another example.
  • 00:07:17
    The assertion that if the President does it to help the country or save the
  • 00:07:24
    country, it can't be illegal is another example of a flirtation with fascists
  • 00:07:34
    abroad, such as the AfD in Germany by the vice
  • 00:07:40
    president is yet another example. And there are many more.
  • 00:07:46
    We have not crossed the Rubicon yet, where court orders are being defied.
  • 00:07:54
    That hasn't happened yet. But we are getting much closer to that
  • 00:08:01
    Rubicon, The so-called Overton Window of things that are seen as possible in
  • 00:08:08
    imaginable has broadened. And ultimately that is going to be
  • 00:08:14
    alarming for what America is and therefore potentially going to do grave
  • 00:08:22
    damage to our economy and the world. We are not there quite yet.
  • 00:08:29
    But I have to say, what was a possible concern
  • 00:08:35
    two months ago now seems to me to be a genuinely alarming
  • 00:08:43
    prospect and that should disturb and worry every investor and our country's
  • 00:08:54
    leaders in the business and financial community who know how much they have
  • 00:09:02
    depended on the rule of law, should be organizing to resist what could be a
  • 00:09:15
    extraordinarily damaging long term change in policy.
  • 00:09:21
    It takes decades to grow a forest and a few minutes to burn it down.
  • 00:09:29
    Something like that is true with respect to our nation's credibility and
  • 00:09:34
    commitment to rule of law. And so I do not remember in the last 50
  • 00:09:41
    years a more alarming moment in terms of the approach that the US government is
  • 00:09:50
    taking to our democratic institutions. One way that President Trump says he'll
  • 00:09:57
    get inflation down is by producing more oil.
  • 00:10:00
    But those doing the producing aren't so sure they want to go that way, no matter
  • 00:10:04
    what regulatory relief comes their way. That's next on Wall Street Week.
  • 00:10:15
    This is a story about irony. For years, the oil industry complained
  • 00:10:19
    about all those federal regulations that kept them from pumping more into the
  • 00:10:22
    market. Now they have a president who wants to
  • 00:10:25
    give them what they've wanted. And our colleague Alix Steel has the
  • 00:10:29
    story of why they may be having second thoughts.
  • 00:10:36
    As the Rolling Stones say, you can't always get what you want.
  • 00:10:40
    And President Trump wants energy companies to produce more oil.
  • 00:10:44
    We will bring prices down. Fill our strategic reserves up again,
  • 00:10:49
    right to the top and export American energy all over the world.
  • 00:10:55
    It's called Drill, baby, Drill. One of the pillars of President Trump's
  • 00:11:01
    economic plan is ramping up U.S. energy production to pump a lot of oil.
  • 00:11:05
    Lower gasoline prices. People have more money.
  • 00:11:08
    Citi says that oil at $60 a barrel. And the U.S.
  • 00:11:11
    economy could see as much as $100 billion of a deflation impulse.
  • 00:11:16
    I always say people may not know their ATM pin number or their anniversary, but
  • 00:11:20
    they know the descent, what gasoline prices are that day.
  • 00:11:23
    And it's really because it's the only price that we see written in ten foot
  • 00:11:27
    high letters. The problem is people might want lower
  • 00:11:30
    oil prices. But oil producers want returns.
  • 00:11:34
    The end of the day, oil is a business. Companies have to make investment
  • 00:11:38
    decisions based on what they think is a price that they will be able to achieve
  • 00:11:43
    for this product that they bring on. Saddam is the chief economist at
  • 00:11:47
    Trafigura, one of the biggest commodity trading companies in the world.
  • 00:11:51
    And it's his job to forecast prices. The Dallas Federal Reserve just recently
  • 00:11:55
    did a survey of the companies within its region, mainly the oil producers.
  • 00:11:59
    So asking, what do you think? You know, average break even prices are
  • 00:12:04
    for their different plays. And ultimately the lowest one came in at
  • 00:12:07
    about $60. So really, you know, anything at 60 or
  • 00:12:12
    below is really going to then impact the decision making and the profitability of
  • 00:12:16
    these investments. Even when oil prices averaged $80 last
  • 00:12:20
    year over the course of the entire year. Really crude oil production really only
  • 00:12:23
    grew about 200,000 barrels a day. So that's telling you that even at $80,
  • 00:12:27
    which is a much higher price than that, that range, companies are not deploying
  • 00:12:31
    a huge amount of capital this time.
  • 00:12:35
    Oil companies will prioritize shareholders returns over most
  • 00:12:38
    everything else. Unlike last time when things ended with
  • 00:12:41
    a spectacular crash in oil prices, bankruptcies, and burned investors.
  • 00:12:45
    We were all caught up into Wall Street in the multiples that were being paid.
  • 00:12:50
    It's like it reminds me of the tech side now.
  • 00:12:53
    And so it was the same thought process that went through our minds back and
  • 00:12:58
    call the 2010 2019 time period. Pioneer was trading at ten times even
  • 00:13:03
    back in 2012 to the 15 time period. Scott Chatfield was CEO of Pioneer
  • 00:13:10
    Natural Resources for over 20 years until he sold the company to ExxonMobil
  • 00:13:14
    for $60 billion. He's one of the original wildcatters, a
  • 00:13:18
    risk taker who drills for oil in unproven areas.
  • 00:13:22
    What led to the massive amount of exploration and development?
  • 00:13:26
    Like, was it also cheap money? We went public in 1991.
  • 00:13:29
    The reason you go public is to be able to raise capital.
  • 00:13:33
    We ended up raising probably 5 to 6 billion, probably more there than top
  • 00:13:39
    one or 2% of all public independents to acquire opportunities to grow.
  • 00:13:45
    And then eventually the shareholders, said Scott and the rest of the
  • 00:13:49
    independents live within your cash flow. So create a free cash flow model that
  • 00:13:56
    returns US dividends, returns as buybacks and live within that cash flow
  • 00:14:02
    to be able to do that move forward. Sheffield and others like billionaire
  • 00:14:07
    Harold Hamm, were credited with the innovation, technology and perseverance
  • 00:14:11
    that led to the shale revolution, unleashing a flood of American oil into
  • 00:14:15
    global markets. You know that going in, there's a
  • 00:14:20
    certain amount of risk there, but you could also be rewarded greatly.
  • 00:14:26
    You know, we took a lot of risk with the Bakken, 1.3 million acres.
  • 00:14:31
    And so, you know, that paved the way.
  • 00:14:34
    That paved the future. In 2008, oil prices spiked to $140 a
  • 00:14:39
    barrel and mostly stayed between 80 and 100 between 2010 and 2014.
  • 00:14:44
    Capital markets were wide open and companies took advantage.
  • 00:14:48
    U.S. independence raised a whopping $371
  • 00:14:51
    billion in debt. We had the Arab Spring.
  • 00:14:54
    You know, so we were in the 110 to $120 range.
  • 00:14:58
    So at that point, people were saying great future barrels at those prices.
  • 00:15:01
    But with a break even, that is, you know, $50.
  • 00:15:04
    That spread is enormously profitable. The oil came fast, as did the cash, and
  • 00:15:10
    neither lasted. U.S.
  • 00:15:12
    shale has a quick initial production and a steep production decline.
  • 00:15:16
    When shale oil is first produced. It's like the opening of a fire hydrant,
  • 00:15:19
    a ton of oil really fast. Once that initial flow subsides, the oil
  • 00:15:23
    slows down. In order to keep the same net amount of
  • 00:15:26
    oil flowing, producers needed to keep pouring money into new wells.
  • 00:15:30
    You had to produce basically just holding leases.
  • 00:15:34
    So you had to drill. So I wouldn't know whether you liked it
  • 00:15:38
    or not or wanted to. But, you know, you're trying to protect
  • 00:15:43
    those leases that you've taken on so that that always serves shareholders.
  • 00:15:51
    I think it did produce preserving the future for them,
  • 00:15:56
    but some of them didn't see that they wanted a media return.
  • 00:16:00
    When oil prices crumbled, the party ended.
  • 00:16:03
    I think the washout really was that drop in 2014.
  • 00:16:06
    So we went very rapidly from about $110 down to at one point, I think it was the
  • 00:16:12
    low was about $28. Right.
  • 00:16:14
    To imagine any industry where that would that happens, but in particular in a
  • 00:16:18
    capital heavy capital intensive industry that has long lead times where you have
  • 00:16:23
    to invest over a period of years. That obviously really was the reckoning
  • 00:16:27
    behind that. Equities tanked.
  • 00:16:30
    The XLP, which tracks publicly traded U.S.
  • 00:16:32
    oil and gas producers, lost over 90% from its peak in 2014 to trough in 2020.
  • 00:16:38
    High yield spiked to almost 22% and there are more than 200 bankruptcies.
  • 00:16:43
    We came down very, very sharply to the point where we weren't just below
  • 00:16:47
    breakeven. We were getting to what we call cash
  • 00:16:50
    costs. So basically just the amount to keep the
  • 00:16:52
    lights on. It was certainly a lot of loss of
  • 00:16:55
    shareholder value, which is why I think shareholders are now saying if you're
  • 00:16:59
    making money, I prefer you return it to me now.
  • 00:17:02
    Shareholder pressure can be stubborn and so is economics.
  • 00:17:05
    And I think ultimately it is inflation across everything.
  • 00:17:08
    So whether it is materials, whether it is labor, you know, you're starting to
  • 00:17:12
    see those things move higher. And I think ultimately also you're
  • 00:17:15
    seeing a lack of that talent coming into the industry.
  • 00:17:18
    But you also then look at what's happening around increased costs, around
  • 00:17:22
    steel in a potentially tariffs having impact and all of that starting to add
  • 00:17:26
    up. There are things that could help
  • 00:17:28
    producers drill at $50 oil, lower taxes, less regulation, cheaper federal land
  • 00:17:33
    leases and less perceived hostility from the government.
  • 00:17:36
    Natasha, Canada is global head of commodities at JPMorgan.
  • 00:17:39
    We do believe that it can happen. So first of all, the $50 is a target.
  • 00:17:43
    Yes, at the moment, if you look at the breakevens today at about $55, what the
  • 00:17:47
    administration can do, they can bring the cost of production, the cost of
  • 00:17:51
    drilling lower. So we actually believe that 45 is the
  • 00:17:54
    new 55. So we believe that they can bring the
  • 00:17:56
    cost of of drilling by about $10 slower. Canada gets there in three ways, lower
  • 00:18:03
    royalty fees on production on federal land, corporate tax reduction of 15% on
  • 00:18:07
    things produced domestically, and bringing back the bonus depreciation
  • 00:18:10
    from the 2017 Tax Cuts and Jobs Act. This lets businesses deduct 100% of
  • 00:18:15
    certain capital investments. That alone could cut breakevens by $9.
  • 00:18:20
    Since they have this additional $10, what they can decide is they can say,
  • 00:18:24
    okay, we'll pay ourselves more dividends will increase the dividend yield, will
  • 00:18:27
    increase the buyback or all other things that they can do with this money, or
  • 00:18:30
    they can say half of that actually will go into the grant and will increase
  • 00:18:33
    production. So this we don't know what we're seeing
  • 00:18:36
    is that we believe it's doable, Cannava says.
  • 00:18:39
    You don't need to spend that much money to produce more oil.
  • 00:18:42
    Well, our numbers are showing that $1 million spent today versus 2014 gives
  • 00:18:47
    you about 86% more production. So pretty much you're doubling
  • 00:18:50
    production through efficiency gains. The math says producers can drill more
  • 00:18:55
    with less. Now shareholders have to let them now.
  • 00:18:59
    Maybe it takes a change on the part of shareholders to then say, actually we do
  • 00:19:04
    want is to go back to production growth, because production growth obviously
  • 00:19:08
    ultimately is that's future revenue that's coming in.
  • 00:19:11
    And I think we've been in this period where they're not valuing that
  • 00:19:14
    production growth. And partly it may be because of concerns
  • 00:19:17
    around peak oil demand. So if President Trump could incentivize
  • 00:19:21
    long term oil demand growth past 2030, that might change things.
  • 00:19:26
    Whoever is in the White House has a bigger impact on the demand side of the
  • 00:19:30
    equation than on the supply side of the equation.
  • 00:19:32
    If more oil production isn't the answer, an alternative for President Trump might
  • 00:19:36
    be gas, baby gas. In a recent speech at the premier energy
  • 00:19:40
    conference Ceraweek in Houston, Texas, the Secretary of Energy, Chris Wright,
  • 00:19:44
    mentioned LNG or gas eight times and oil only twice.
  • 00:19:48
    It was a fiery speech that had industry leaders abuzz.
  • 00:19:52
    President Trump immediately ended the pause on LNG export permits.
  • 00:19:58
    Today, I can announce our fourth action in this regard improving the Delfin
  • 00:20:02
    offshore Louisiana LNG export terminal oil gets all the headlines, while U.S.
  • 00:20:08
    natural gas production also sits at a record 107 billion cubic feet a day of
  • 00:20:13
    90% since 2008. It's called basins.
  • 00:20:16
    The three point plan is considering, yes, it's about 3 million barrels per
  • 00:20:20
    day of oil equivalent grows between now and the end of 2028.
  • 00:20:23
    So we actually believe the true number is closer to 4 million barrels per day
  • 00:20:26
    of oil equivalent material that would be done by by the gas.
  • 00:20:30
    Actually, it's not by the oil, but by the gas.
  • 00:20:32
    It's a lot harder to export natural gas. You have to freeze it.
  • 00:20:35
    In order to ship it with a similar process.
  • 00:20:37
    On the importer side, those facilities are expensive to build, but more and
  • 00:20:41
    more are coming online, helping to expand America's potential.
  • 00:20:45
    By 2030, the U.S. should have over 250 million metric tons
  • 00:20:49
    of LNG export capacity a year based on current regulatory approvals.
  • 00:20:54
    I think LNG has a great future. It could be more focused on English
  • 00:20:58
    liquids and could be more focused on the natural gas side versus the oil side.
  • 00:21:04
    We don't have many oil plays left in this country.
  • 00:21:07
    The biggest problem for producers either oil or gas, is infrastructure moving the
  • 00:21:12
    hydrocarbon from the wellhead to the Gulf Coast or your local utility.
  • 00:21:16
    The permitting process is pretty much hated by all energy folks oil, gas and
  • 00:21:20
    renewable alike. Permitting is difficult for many
  • 00:21:23
    different reasons, but one of them, it's not in my backyard.
  • 00:21:26
    And because of that, there is a lot of those environmental considerations that
  • 00:21:29
    need to be solved for and decide exactly how you approach that.
  • 00:21:33
    Many pipelines have been scrapped or held up in courts for years, leading to
  • 00:21:37
    bizarre pricing, like $20 gas in the Bronx versus $3 gas in Chicago.
  • 00:21:41
    It's crazy. I mean, you get some markets that will
  • 00:21:46
    even get into a negative market if you can't get
  • 00:21:50
    your product to market. It does distorted in a lot of different
  • 00:21:55
    ways. And it and it also distorts it to the
  • 00:21:58
    consumers. We think away from build a drill, baby,
  • 00:22:01
    drill. What's something better is a gas.
  • 00:22:03
    Maybe gas. Is it Dig, baby, dig, Is it build, baby,
  • 00:22:06
    build? The reality of that is that if we want
  • 00:22:08
    to achieve all the targets that the Trump administration put forth.
  • 00:22:12
    Yes. And that's a lot of that.
  • 00:22:13
    And bring inflation down. Yes, we have particular objectives in
  • 00:22:16
    terms of trade. We have particular objectives in terms
  • 00:22:19
    of geopolitics. So it's definitely drill, baby, drill.
  • 00:22:22
    It's definitely dig, baby, dig. Kids produce, baby, produce.
  • 00:22:26
    We have all of that in the ground, but we need to be able to move that and we
  • 00:22:29
    need to go through the approval of those pipelines.
  • 00:22:31
    And so they do work. And at 79, Harold Hamm is still working.
  • 00:22:37
    How do you feel like are you as bullish on the industry as you've ever been?
  • 00:22:41
    Probably more so than than I've ever been.
  • 00:22:45
    It takes both oil and gas to make this industry work, and it's good to see
  • 00:22:52
    demand coming on for natural gas with the data centers high demand.
  • 00:22:58
    I think that's a good plus here. In 4 to 6 weeks, we've seen a complete
  • 00:23:05
    change in the outlook for natural gas in this country.
  • 00:23:09
    I've seen nothing that's going to slow down demand growth on a phony oil side.
  • 00:23:15
    Maybe the Rolling Stones were right. You can't always get what you want, but
  • 00:23:19
    if you try, sometimes you'll find you get what you need.
  • 00:23:22
    And in this case, what we just might need is more gas drilling and pipelines
  • 00:23:27
    instead of oil. In that case, everyone wins.
  • 00:23:30
    Shareholders, President Trump and us all coming up and getting on the bandwagon.
  • 00:23:38
    Just as it's coming to a halt. We bring you the ironic story of three
  • 00:23:42
    trends electric vehicles, DIY and moving to southern Florida.
  • 00:23:52
    This is a story about getting on the bandwagon, something that feels so good
  • 00:23:57
    when everyone is doing it. But that may get awkward when people
  • 00:24:01
    start jumping off electric vehicles. Diversity, equity and inclusion and
  • 00:24:06
    moving to Southern Florida have all had their time in the sun, but all are now
  • 00:24:10
    seeing some shade coming their way. The historical track record for
  • 00:24:16
    automotive startups in the United States is extremely bad.
  • 00:24:20
    The only two American car companies in history that have not gone bankrupt are
  • 00:24:25
    Ford and Tesla. Traditional automakers followed Elon
  • 00:24:29
    Musk in betting big on EVs. In 2021, GM announced that it would end
  • 00:24:34
    production of all of its gas and diesel powered vehicles by 2035 and go fully
  • 00:24:40
    electric by 2040. Well, I think the car companies are
  • 00:24:45
    responding with enthusiasm and hope for the new vehicles.
  • 00:24:50
    Mary Nichols is a believer in EVs. During her tenure as the chair of
  • 00:24:55
    California's Air Resources Board, she implemented the state's landmark
  • 00:25:00
    greenhouse gas emission standards. Here in California, the sales rates are
  • 00:25:06
    almost equal now to gasoline powered vehicles.
  • 00:25:10
    In other places, the penetration is going more slowly.
  • 00:25:14
    As much as California may be the leader. The rest of the country doesn't seem to
  • 00:25:19
    be keeping up. It turns out that the EV bandwagon needs
  • 00:25:24
    some support from an infrastructure for charging the cars that just isn't there
  • 00:25:28
    yet. It's just that the hope had been that
  • 00:25:30
    they would really overtake gasoline vehicles faster than they did.
  • 00:25:36
    And it turned out that there was more reluctance on the part of people,
  • 00:25:41
    especially in parts of the country, where they don't have the infrastructure
  • 00:25:45
    in place for supporting those vehicles, particularly where the electric
  • 00:25:52
    utilities didn't step up as fast to provide charging where building owners
  • 00:25:58
    in some cases were reluctant. It takes a lot of changes in the system
  • 00:26:05
    to match what has been achieved over 100 years.
  • 00:26:10
    BNF estimates that the 14 automakers who set ambitious EV goals for 2030 have
  • 00:26:16
    trimmed back their expectations from 27 million vehicles that year to 23.7
  • 00:26:21
    million. One of those pumping the brakes on EVs
  • 00:26:25
    is Ford, which shelved its plans for an all electric three row SUV last year.
  • 00:26:31
    CEO Jim Farley took us through some of the challenges several months ago.
  • 00:26:36
    Well, first of all, the electric market in the US is about 11% of the market.
  • 00:26:39
    In California, it's a third of the sales.
  • 00:26:41
    So it's a huge market and it's growing really fast and competitively globally.
  • 00:26:46
    I think what's happened is we're in the mainstream customer, and the mainstream
  • 00:26:50
    customer is totally different than the early adopters.
  • 00:26:53
    They're really adopters. We didn't need to convince them to go
  • 00:26:55
    charger. They didn't really worry about resale
  • 00:26:57
    value, but the customers now do. And that means on us, we have to really
  • 00:27:02
    transform our cost. And now it's not just the lack of
  • 00:27:06
    charging stations that slowing the move to EVs.
  • 00:27:09
    We have a new administration in Washington that appears to be reversing
  • 00:27:12
    the nation's pro EV policy. We ended the last administration's
  • 00:27:17
    insane electric vehicle mandate, saving our auto workers and companies from
  • 00:27:23
    economic destruction. It's a trend that I think is well
  • 00:27:27
    underway and it's going to continue. I do think that the election sent a
  • 00:27:34
    message that in some states in particular, this is a political issue,
  • 00:27:40
    which certainly is not helpful for any industry.
  • 00:27:46
    It's just I don't think vehicles are partisan.
  • 00:27:49
    I don't think there are Democrat or Republican vehicles.
  • 00:27:53
    You're just looking for the best vehicle that you can get for your money, whether
  • 00:27:58
    powered by electricity or gasoline. The bandwagon of DIY was moving full
  • 00:28:03
    speed ahead in much of corporate America.
  • 00:28:05
    When BlackRock CEO Larry Fink wrote to shareholders in 2021 that he had a,
  • 00:28:11
    quote, long term strategy aimed at improving diversity, equity and
  • 00:28:15
    inclusion. Four years later, I think was writing to
  • 00:28:18
    BlackRock staff saying it was, quote, committed to creating a culture that
  • 00:28:22
    welcomes diverse people and perspectives, but acknowledging, quote,
  • 00:28:26
    significant changes to U.S. legal and policy environment related to
  • 00:28:30
    DIY. Now, the real question is what are the
  • 00:28:33
    policies and practices that organizations should have in place in
  • 00:28:37
    order for the organization to function effectively.
  • 00:28:40
    And we spent a lot of time talking to employees and looking at trends across
  • 00:28:44
    corporations. Tracy Citizen is professor of management
  • 00:28:47
    at the University of Colorado, Denver and has studied.
  • 00:28:51
    I policies throughout corporate America, why we have them and which ones work and
  • 00:28:56
    don't work. And the clear and consistent trend that
  • 00:28:59
    we're seeing is that employers want to work for an employer that's authentic in
  • 00:29:04
    their approach to dealing with their employees.
  • 00:29:06
    Citizen studies have led her to the conclusion that whether a D-I program
  • 00:29:10
    makes a company run better and ultimately make more money depends on
  • 00:29:15
    how it is done. One of the most popular programs for
  • 00:29:18
    enhancing diversity and inclusion has been diversity training.
  • 00:29:21
    And this is an example of a program that can work really well or can undermine
  • 00:29:25
    our workforce. People work hard, they diversify the
  • 00:29:28
    workforce, and it's successful. By contrast, many corporations implement
  • 00:29:33
    diversity and inclusion training and they have a legal undertone as part of
  • 00:29:37
    the training. So they teach people just how
  • 00:29:40
    questionable their behavior can become before it crosses the line to being
  • 00:29:44
    illegal. And when we implement training with a
  • 00:29:47
    legal undertone, it actually results in people.
  • 00:29:50
    This behavior becoming more questionable.
  • 00:29:52
    But can a program targeting diversity, equity and inclusion succeed without
  • 00:29:57
    focusing on identity politics, without setting targets to become a form of
  • 00:30:01
    quotas? Ravi Starbuck is a faith based investor
  • 00:30:05
    who has championed the cause of cutting back on DEI programs.
  • 00:30:09
    Even if you wanted to pretend I was ultimately a good thing.
  • 00:30:13
    How can we do the things that we proclaim to want to do without violating
  • 00:30:17
    the law? And at the end of the day, if you look
  • 00:30:19
    at these policies like racial quotas for hiring, it's not possible.
  • 00:30:23
    You can't have a racial quota for hiring and not violate the law.
  • 00:30:26
    But therein lies the real core of almost every policy in America, is that we
  • 00:30:31
    should look at people and judge them by their skin tone, which is diametrically
  • 00:30:34
    opposed to the ideas of the civil rights movement, which was that we're not
  • 00:30:38
    supposed to judge people by their skin tone.
  • 00:30:39
    We're actually supposed to look at them as an individual and say, your value
  • 00:30:43
    lies in your actions, what you can do, your merit.
  • 00:30:45
    And so that's what we want to see. Citizen may not favor quotas.
  • 00:30:49
    But she readily admits that it's awfully hard to drive diversity, equity and
  • 00:30:54
    inclusion without setting numerical targets.
  • 00:30:58
    What strategic goal would you set in a corporation where you would not measure
  • 00:31:02
    it? It just doesn't make sense, right?
  • 00:31:03
    Without a goal, without some numbers behind something.
  • 00:31:06
    We don't know how well we're doing and therefore we're not going to be managing
  • 00:31:11
    the process towards hitting that target. In addition to the bandwagons heading
  • 00:31:15
    toward EVs and DTI, a third movement was Wall Street's migration south to the
  • 00:31:21
    sunnier and less regulated pastures of Miami.
  • 00:31:24
    It began earlier, but when the pandemic hit in 2020, its speed picked up from
  • 00:31:30
    2020 to 2021. Florida experienced the largest uptick
  • 00:31:34
    in registered independent advisors and broker dealers of any state, and by
  • 00:31:38
    2022, it had become home to Elliott Management Citadel, Icahn Capital and
  • 00:31:44
    expanded footprints from the likes of JPMorgan.
  • 00:31:47
    Michael Show is a luxury real estate developer with properties in Miami and
  • 00:31:52
    New York. What's interesting, because that moment
  • 00:31:55
    in Miami was an extremely surreal experience.
  • 00:31:59
    You'd have billionaires roaming around North Bay roads, you know, Palm Island,
  • 00:32:05
    Starr Island, looking for homes and literally willing to pay anything just
  • 00:32:09
    to find a house on the water, because the idea was nobody with means wanted to
  • 00:32:14
    stay at home locked up here in New York City.
  • 00:32:15
    And obviously today, you know, hindsight, things haven't really worked
  • 00:32:19
    out exactly like that. People moved to Miami.
  • 00:32:22
    Miami turned to be a real city because you have now real restaurants, you have
  • 00:32:26
    real people, you have education, you have culture there.
  • 00:32:30
    But it didn't take the place of New York, like a lot of people predicted.
  • 00:32:35
    The growing pains come in the form of lack of schools, unfinished offices and
  • 00:32:39
    traffic. But Miami has an issue because of
  • 00:32:42
    schools. It doesn't have enough schools.
  • 00:32:43
    And that that's probably the reason Miami Slim.
  • 00:32:46
    There are a lot of companies that would move down if they could get their
  • 00:32:49
    employees kids into schools, which is impossible.
  • 00:32:52
    So you got to be very bullish on Citadel,
  • 00:32:56
    which obviously left Chicago. I mean, they alone have decided they're
  • 00:32:59
    going to make Miami into the financial capital of the United States, and they
  • 00:33:02
    have the power to do that. So there's there's the lack of schools
  • 00:33:05
    in Miami. There's no doubt about that.
  • 00:33:07
    And that's that's kind of the main issue.
  • 00:33:10
    Infrastructure depends where. Right.
  • 00:33:12
    Miami Beach sections of Miami Beach are okay.
  • 00:33:15
    But because you have houses there, there's not real main infrastructure
  • 00:33:20
    issues. The infrastructure issues really became
  • 00:33:23
    more apparent in transportation trust. We didn't have enough planes.
  • 00:33:28
    There was a lot of traffic congestion because the amount of cars all of a
  • 00:33:32
    sudden in Miami, people that coming to work in Miami is something that Miami
  • 00:33:37
    has not experienced. And the acceleration of growth was so
  • 00:33:40
    quick that they did not have the infrastructure.
  • 00:33:43
    They're catching up now. But again, now less people are working
  • 00:33:46
    there. So both the infrastructure is catching
  • 00:33:48
    up, but we're seeing less people. They are at least on a permanent base
  • 00:33:53
    from what we thought were going to have, you know, post Covid one to the role of
  • 00:33:56
    demographics and people moving in both the commercial side, the office space
  • 00:34:01
    and also the residential that you're involved in.
  • 00:34:03
    Because if you look at the numbers overall, California is losing people.
  • 00:34:06
    Illinois is losing people. New York losing people.
  • 00:34:09
    Florida gaining people. Texas gaining people.
  • 00:34:12
    Does that tell you something about those real estate markets?
  • 00:34:14
    Well, yes and no, because it depends who who you are gaining.
  • 00:34:16
    Because because if we're talking about commercial real estate, the reality is,
  • 00:34:21
    are we losing the companies? Are we losing the workforce that's here
  • 00:34:25
    or are you losing? There are people that are retired and
  • 00:34:29
    not working and decided it's better to retire in Florida because taxes, the tax
  • 00:34:33
    situation is better there, which is a lot of the reason that that you're
  • 00:34:35
    seeing people move out of New York and California
  • 00:34:40
    is, you know, there's obviously tax incentive to move to some of the to some
  • 00:34:43
    of the southern states. So I don't think we're seeing we're not
  • 00:34:46
    seeing the movement of of the true workforce.
  • 00:34:50
    Those moving to Miami may have gotten a better climate, but they weren't looking
  • 00:34:54
    for much different in the spaces they occupy.
  • 00:34:57
    So the difference between tenancy in Miami, in New York, you know, and again,
  • 00:35:00
    as such, VRBO operates only the super prime real estate.
  • 00:35:03
    So for us, we focus on the psychographic of the tenants and in our mind, the
  • 00:35:08
    psychographic of a J.P. Morgan
  • 00:35:11
    is no difference in New York than it is in Miami.
  • 00:35:13
    Maybe the office needs are a bit different, a little bit more outdoor
  • 00:35:17
    space. In Miami, there's there's that desire to
  • 00:35:19
    have kind of indoor outdoor spaces. But the reality is that that you don't
  • 00:35:25
    change your mindset from a service perspective, from a space perspective,
  • 00:35:30
    from an environment, because you're in Miami or New York or in San Francisco to
  • 00:35:33
    that effect, whether it's picking up stakes and moving to Miami or ditching
  • 00:35:37
    our gas powered cars or changing the very nature of our workforce, there's
  • 00:35:42
    all sorts of good ideas out there, ideas that may make sense.
  • 00:35:46
    But no matter how good the idea, it pays to have a pretty good sense where that
  • 00:35:51
    bandwagon is headed. Before we jump onto it,
  • 00:35:56
    coming up, President Trump has enlisted Elon Musk to cut the federal government
  • 00:36:00
    down to size. But what does getting all those people
  • 00:36:03
    off the payroll mean for the places where they live and work?
  • 00:36:07
    The saga of the Washington real estate market is next on Wall Street Week.
  • 00:36:17
    This is a story about whiplash, which is what many people in Washington, D.C.,
  • 00:36:21
    may be feeling from the Trump administration's aggressive moves to get
  • 00:36:25
    them off the federal payroll, even as some pretty wealthy people are moving to
  • 00:36:29
    town. Our colleague David Gura brings us the
  • 00:36:32
    story of the changing fortunes of the D.C.
  • 00:36:34
    real estate market and the upside and downside risks.
  • 00:36:43
    This incredible hood. You know, the same company that restored
  • 00:36:47
    the Cartier mansion on the Avenue in New York.
  • 00:36:51
    There's the same company that came and did all of the bronze and brass working
  • 00:36:54
    here. That's what 23 and a half million
  • 00:36:57
    dollars will get you in Washington, D.C..
  • 00:37:00
    High end real estate in the area is hotter than it's ever been before.
  • 00:37:04
    Daniel Hightower is a luxury real estate advisor with Sotheby's and the listing
  • 00:37:08
    agent of 3030 Chain Bridge Road in the Kent neighborhood of Washington, D.C..
  • 00:37:14
    The volume of some of America's most successful businesspeople
  • 00:37:20
    is here now. And we are watching this city shift
  • 00:37:24
    because of it. We're seeing the market shift.
  • 00:37:26
    We're seeing home prices rise in the very upper brackets.
  • 00:37:30
    Very recently, I set a record in Washington for selling the most
  • 00:37:33
    expensive home ever for $25 million. Commerce Secretary Howard Lutnick
  • 00:37:38
    reportedly bought this property from Fox News's Bret Beyer.
  • 00:37:41
    I think of myself a lot as like an art dealer, how we present and communicate
  • 00:37:48
    properties value in maybe 30 to 45 minutes, if we're lucky to get a VIP
  • 00:37:53
    family's time is everything. Usually, presidential cycles don't
  • 00:37:57
    impact the market in such a tremendous way.
  • 00:38:00
    Usually what happens is that when there's a change of administration, the
  • 00:38:04
    vast influx of folks into Washington's capital region are folks that are coming
  • 00:38:08
    to rent for a little bit. What we're seeing certainly in this
  • 00:38:12
    cycle is just the opposite. This isn't just a one level closet.
  • 00:38:16
    It's actually a two level. You're serious?
  • 00:38:18
    So this brings you upstairs. This house does not disappoint on any
  • 00:38:24
    level. And there's a lot more here than meets
  • 00:38:27
    the eye. In her 20 years as a housing economist.
  • 00:38:31
    Lisa Sturtevant of Bright, Mlss has witnessed four presidential transitions.
  • 00:38:36
    People bring all cash to the deal. We have less inventory of luxury
  • 00:38:40
    properties now than we did a year ago. Conversely, the entry level market and
  • 00:38:45
    the move up market, there's more homes available for sale.
  • 00:38:48
    Part of that is those luxury buyers aren't as interest rate sensitive as an
  • 00:38:52
    entry level or a move up buyer is. The interesting thing to analyze is the
  • 00:38:56
    tale of two markets. On one hand, you've got this upper end
  • 00:38:59
    bracket market that is going through the roof right now, and then on the other
  • 00:39:03
    you've got a little bit more apprehension due to mostly interest
  • 00:39:07
    rates being high, fears of the bottom falling out of the
  • 00:39:12
    Capitol's real estate market started after COVID changed demand and prices.
  • 00:39:18
    During the pandemic, the Washington area housing market was sort of on fire like
  • 00:39:21
    it was in many places. Record low mortgage rates brought a lot
  • 00:39:24
    of buyers into the market. Our further out suburbs actually did
  • 00:39:28
    really well during the pandemic. More people looking for more space,
  • 00:39:31
    looking to move further out. But even since then, even as mortgage
  • 00:39:34
    rates increased, we still saw really strong demand here in the Washington
  • 00:39:38
    area. And now we're sort of in this period
  • 00:39:40
    where there's a lot more uncertainty in the market.
  • 00:39:43
    How much bullishness is there about the future of DC, given what we're hearing
  • 00:39:47
    about how radically it might change? I can tell you I've lived in Washington
  • 00:39:50
    my entire life. We are multigenerational Washingtonians
  • 00:39:54
    as a family. And what I've seen is that Washington is
  • 00:39:57
    a unbelievably resilient market. You know, well before I was even a
  • 00:40:01
    licensed real estate professional. You can go back and study the data of
  • 00:40:05
    1997 and 2011. And you can see that really what happens
  • 00:40:11
    in Washington is if there is a major global economic downturn, it is that the
  • 00:40:16
    Washington market pretty much flatlines. And that, to me, again, is is a safety
  • 00:40:20
    factor of why people would want to invest in Washington.
  • 00:40:24
    This is the seat of power for the free world.
  • 00:40:27
    And while parts of it are being downsized, the main apparatus is going
  • 00:40:32
    nowhere. In the conversations that I've had even
  • 00:40:37
    more palatable than the actual government employees.
  • 00:40:40
    And what what reduction workforce there would be are the government programs and
  • 00:40:45
    the companies that work based off of that government funding.
  • 00:40:48
    You know, without the funding, then they don't have a reason to exist.
  • 00:40:51
    It's extremely cool. Phillipe Lanier is a principal at East
  • 00:40:55
    Bank, a D.C. based real estate investment company
  • 00:40:58
    that focuses on urban revitalization. They have leases, they have commitments
  • 00:41:04
    to different vendors, and that ripples through the system.
  • 00:41:06
    So, yeah, it's definitely going to impact business in this area.
  • 00:41:12
    Trump's administration has already produced potential cuts of more than
  • 00:41:15
    100,000 federal workers, including in the Departments of Education and
  • 00:41:19
    Veterans Affairs and social media posts, claiming that there's an exodus from the
  • 00:41:24
    city or adding to the perception of instability in the D.C.
  • 00:41:28
    area. A threat on X with millions of views
  • 00:41:31
    claims that federal worker layoffs have triggered a $139,000 decline in DC's
  • 00:41:37
    median home price. I've heard this word exodus a lot and
  • 00:41:41
    I'm just not sure we under. Stand.
  • 00:41:43
    The magnitude of what the impacts will be and what I mean by that is about 14%
  • 00:41:47
    of the workforce here in the greater Washington area is a federal government
  • 00:41:51
    civilian worker. Most of those federal workers are in
  • 00:41:55
    households where there's another worker, and those other workers likely work for
  • 00:41:59
    the private sector. The private sector unemployment rate
  • 00:42:02
    here in the Washington area is less than 2%, meaning the private sector may be
  • 00:42:06
    eager to hire folks who may be transitioning out of the federal
  • 00:42:09
    government. If you look at the city right now, it's
  • 00:42:12
    dealing with what I would say are three shocks to the system for a rapid change
  • 00:42:17
    to the system. One, which is very normal, is whenever
  • 00:42:21
    you have a change in administration, there's a rotation in and out.
  • 00:42:24
    So you're going through that change. The second one, which you know, it's
  • 00:42:28
    obvious to everyone reading the news, is you wonder which government institutions
  • 00:42:32
    are getting smaller or going away, you know, whether people are being let go.
  • 00:42:36
    And how is that impacting the city's downtown core?
  • 00:42:39
    The third shock, however, is what is not really talked about as
  • 00:42:44
    much is that the amount of people that are coming back to the office with the
  • 00:42:47
    new administration is massive. Workers who are keeping their jobs and
  • 00:42:53
    staying in the area are creating opportunities in real estate.
  • 00:42:57
    It is a real fundamental shift in the fabric of downtown D.C.
  • 00:43:02
    And you feel it. You feel in the metro ridership.
  • 00:43:05
    You feel it when you walk around. You know, we have a bunch of residential
  • 00:43:08
    buildings. Therefore, there is a high demand for
  • 00:43:11
    the residential buildings. I'm not seeing whatever in the news that
  • 00:43:15
    people are being let go. It's not just announcements about
  • 00:43:18
    workers being let go. It's also the buildings they worked in.
  • 00:43:22
    Earlier this month, the Trump administration released a list of more
  • 00:43:25
    than 400 federal buildings it could look to sell.
  • 00:43:28
    They've since deleted the list, but it adds another layer of uncertainty in
  • 00:43:32
    D.C.. Some of the buildings that were on that
  • 00:43:34
    initial list are in parts of the city where there hasn't been much private
  • 00:43:38
    development. Areas that have been home to government
  • 00:43:40
    office buildings for decades. They're very clustered within an area.
  • 00:43:46
    And so that that's a challenging valuation exercise, because if you were
  • 00:43:51
    to take control of one building and fix it, you have all these zombies next to
  • 00:43:55
    you. So there's no real value in that
  • 00:43:58
    building unless there's a broader strategy.
  • 00:44:00
    I would expect that that turns into more of an architectural master plan where
  • 00:44:05
    you understand how to fix the whole thing at once.
  • 00:44:09
    The properties north of the mall, they're much more interesting.
  • 00:44:12
    They're more individual nature. And there are some properties that are
  • 00:44:15
    put up for sale that were surprise to me that you can really do something with
  • 00:44:18
    immediately. There's real land value, and if you
  • 00:44:21
    could assemble the capital structure to do something, you could build something
  • 00:44:24
    that people want. One such former federal building has
  • 00:44:27
    already been converted into a luxury apartment complex.
  • 00:44:31
    Annex building in the 1930s was used to standardize all types of commodities for
  • 00:44:37
    agriculture, served tons of purposes throughout the years.
  • 00:44:41
    This section of building was more of the warehouse of that building so has really
  • 00:44:44
    lofted ceilings as we go throughout the building.
  • 00:44:46
    The building called Annex on 12th opened in December and has 561 dwellings
  • 00:44:52
    ranging from about 400 to 1200 square feet.
  • 00:44:56
    And it's the closest residential complex to the Smithsonian.
  • 00:44:59
    So this next space is called the Vaults. And what that is, is it's a callback to
  • 00:45:06
    a really cool relic. They were able to preserve the original
  • 00:45:08
    building. When they were walking the building, one
  • 00:45:12
    of our developers spotted a vault door on the basement level of the building
  • 00:45:16
    and it was in shambles. But he thought it looked really unique.
  • 00:45:20
    They were able to move it up here, and that's the centerpiece for our
  • 00:45:23
    speakeasy. So as soon as you open up the door, it's
  • 00:45:26
    the first thing that you can see. As soon as you walk in, there could be
  • 00:45:30
    another use for federal buildings. For the private sector, there's an
  • 00:45:33
    opportunity to bring more private sector investment into the city.
  • 00:45:38
    If the the sale of those buildings happens in the right way.
  • 00:45:42
    One of the things that the greater Washington area has benefited from over
  • 00:45:46
    the last couple of decades is that diversification in the economy, more
  • 00:45:49
    private sector investment. Region wide, The city itself, though, is
  • 00:45:53
    still very highly concentrated in federal government activities.
  • 00:45:57
    And so if those buildings can be repositioned as private sector
  • 00:46:02
    activities, that feels like they could be a plus for D.C.
  • 00:46:06
    Even amid the changes in policy, the return of federal workers, their
  • 00:46:10
    expected contribution to reviving the downtown area and the hope of attracting
  • 00:46:14
    more tech companies make this a good time to be in Philip Lanier's commercial
  • 00:46:18
    real estate development business. It's a good place to invest.
  • 00:46:22
    It also typically has stability, so that's another reason why people like
  • 00:46:25
    it. It doesn't have heights.
  • 00:46:29
    So if you want to make $1,000,000,000 deal in real estate, you go to New York,
  • 00:46:33
    you don't really go to D.C., D.C. It's more like the 400 to $300 million
  • 00:46:37
    size range. But yeah, I'm confident that the city
  • 00:46:41
    will remain relevant. The economic tide might already be
  • 00:46:45
    turning for D.C. and its commercial and residential real
  • 00:46:48
    estate players are hopeful for its future.
  • 00:46:52
    The number one indicator that I think most of your audience will agree with.
  • 00:46:56
    You know, I can have all the best ideas in the world, but it's not going to
  • 00:46:59
    change unless money comes in. I just continue to think that Washington
  • 00:47:03
    is is is resilient. And I don't believe that everybody who
  • 00:47:07
    owns a home is going to sell that home. My bet is on Washington.
  • 00:47:12
    I believe in this city and the capital region, and I think it's going to
  • 00:47:17
    continue to do well. Coming up, the world of private equity
  • 00:47:22
    meets the world of Donald Trump through the eyes of Blackstone's Jonathan Grey.
  • 00:47:31
    Investors are coming to terms with what President Trump's policies mean for the
  • 00:47:34
    economy and for them as president and CEO of Blackstone.
  • 00:47:39
    John Gray has a view from the top of private equity, private credit and real
  • 00:47:43
    estate. We talked with him this week at the
  • 00:47:46
    Economic Club of New York. Certainly the backdrop is difficult to
  • 00:47:52
    forecast. There's a lot of volatility given all
  • 00:47:55
    the policy changes. But I'd start with the economy and I'd
  • 00:47:59
    say there we ended the year with our businesses with pretty good strength.
  • 00:48:03
    Revenue growth was high, defaults among our borrowers low.
  • 00:48:10
    So we went into the year, I'd say in a good spot.
  • 00:48:13
    We have begun to see some pockets of weakness.
  • 00:48:16
    No surprise the number of Canadian travelers coming to the U.S..
  • 00:48:21
    Businesses that have some portion of their revenue that comes from government
  • 00:48:26
    spending feeling some pressure, companies in the supply chain uncertain
  • 00:48:31
    about the tariffs and so forth. Capital markets related businesses.
  • 00:48:35
    Obviously, financial services have seen a pullback given the market volatility.
  • 00:48:40
    So there's I'd say an overall pretty good picture in terms of employment and
  • 00:48:46
    good momentum. But we are seeing a little bit of a
  • 00:48:48
    slowdown here. I'd say the positive is that I think the
  • 00:48:54
    inflation has continued to steadily decline, maybe not as fast as it was a
  • 00:48:59
    year ago, but if you look, the Fed has taken inflation from nine at its peak
  • 00:49:06
    now down to 2.8. And if you look at CPI, ex shelter
  • 00:49:11
    costs. Where the government data lags versus
  • 00:49:16
    what we see in our rental housing portfolio.
  • 00:49:19
    It's a 2%. They basically hit their target.
  • 00:49:22
    So it's possible we get a one time shock with the tariffs.
  • 00:49:26
    But I think overall the Fed will have some room to lower rates.
  • 00:49:31
    So if it turns out all of these policy changes lead to more of a slowdown, then
  • 00:49:37
    I think we'll see a little more of a cushion from the Fed lowering rate.
  • 00:49:40
    So that's helpful. The other things I'd say that, you know,
  • 00:49:44
    I'm sort of an optimist by nature, thinking about the glass half full here
  • 00:49:48
    is I think the change in regulatory environment will be helpful for
  • 00:49:52
    businesses, certainly in the M&A area.
  • 00:49:56
    And then I think the most important thing to not lose sight of as investors
  • 00:50:00
    is what's happening in technology and how this, I think, will impact the
  • 00:50:06
    productivity of companies and therefore their potential earnings over time.
  • 00:50:10
    So I think near-term short answer, a fair amount of volatility, maybe some
  • 00:50:15
    slowdown given what's happening, but probably a better prognosis as we look
  • 00:50:20
    out over time and take all of that fairly nuanced, complicated view of the
  • 00:50:24
    economy and put it into the machine you have or deciding how to invest.
  • 00:50:29
    Blackstone How does it affect your investment decisions right now?
  • 00:50:33
    Well, we try to take a longer term view. We certainly look at the level of
  • 00:50:37
    prices. So I think what's interesting is in
  • 00:50:40
    times of high uncertainty, generally prices are more attractive.
  • 00:50:44
    It's counterintuitive. So when you're in 2000 or 27 or 2021,
  • 00:50:51
    there's extraordinarily high levels of confidence and you're basically assuming
  • 00:50:56
    all good things are going to happen, and that's when the risk is the highest.
  • 00:51:01
    Today, when I look at most asset classes, particularly in the private
  • 00:51:05
    market, there are very few transactions I look at and say, Oh my gosh, I can't
  • 00:51:09
    believe this asset's priced at this level.
  • 00:51:12
    Maybe there are a few tech companies at very big valuations or maybe there are
  • 00:51:16
    certain pockets. But overall, when I look at
  • 00:51:21
    borrowing costs in the private market, when I look at where commercial real
  • 00:51:25
    estate sits today, when I look at the companies, I was an investment committee
  • 00:51:30
    earlier this morning, prices generally seem fairly reasonable and I think it
  • 00:51:34
    reflects the fact that people are collectively a little bit nervous.
  • 00:51:39
    And so if you have a view that somehow we're going to get through this, that a
  • 00:51:45
    bunch of this noise in the system will work its way out.
  • 00:51:49
    And can I buy a good business at a reasonable valuation?
  • 00:51:55
    Then I'd be probably more inclined to lean in, even though we see a lot of
  • 00:52:00
    things that make people nervous. And what tends to happen is, is, you
  • 00:52:04
    know, they leave when the best opportunities exist.
  • 00:52:07
    They come in when it feels very comfortable and now just feels like a
  • 00:52:11
    time where the nervousness is high. And the pricing for assets is
  • 00:52:15
    reasonable. So take us into one of those investment
  • 00:52:18
    committees and share some secrets of what do you do?
  • 00:52:21
    I mean, how do you evaluate potential investments and say, this one's a good
  • 00:52:25
    one, this one we'd rather stay away from?
  • 00:52:27
    Well, it's definitely more of an art than a science, right?
  • 00:52:30
    And you rely on, obviously, a lot of analytics, a lot of judgment, but also
  • 00:52:36
    some gut. So I spend my weekends reading
  • 00:52:40
    investment committee memos. Other people do more fun things, I
  • 00:52:43
    think. But but I love the intellectual
  • 00:52:46
    challenge of it. I love thinking about what makes a
  • 00:52:50
    business good. And I'd say what we're trying to
  • 00:52:52
    evaluate is a few things. Is this business in a good neighborhood?
  • 00:52:57
    You know, you could be a landline phone company or legacy cable or a department
  • 00:53:04
    store business where there's a lot of headwinds.
  • 00:53:07
    Is this a business where there's really long term strong tailwinds, where this
  • 00:53:12
    sector is going to grow a lot? Things like energy and power today or
  • 00:53:15
    datacenters or other things? Does a business have a big addressable
  • 00:53:20
    market? Can it grow?
  • 00:53:22
    Does it have high margins versus low margins?
  • 00:53:26
    High margin businesses tend to have a brand or some sort of moat about them
  • 00:53:32
    that gives them a competitive advantage. And obviously they can absorb a shock
  • 00:53:36
    much more than a low margin business. Is a business more capital intense
  • 00:53:41
    versus less capital intense. We bought we bought a number of
  • 00:53:44
    franchising businesses. We owned Hilton in the past.
  • 00:53:47
    More recently, we bought Jersey Mike's, which is a great sandwich business.
  • 00:53:51
    We love franchising businesses because you're just getting royalties.
  • 00:53:55
    You don't have the capital cost to you like that.
  • 00:53:58
    You like businesses with lots of customers versus one customer.
  • 00:54:02
    You love businesses that have recurring revenues, right?
  • 00:54:06
    We used to have an M&A business in Blackstone.
  • 00:54:08
    Every year. We had to start over from scratch.
  • 00:54:11
    Managing capital. We get recurring fees for doing that.
  • 00:54:14
    So that has a lot of benefits. You have stroke of the pen risk.
  • 00:54:18
    Are you building a business based on one government program that can change
  • 00:54:21
    pretty quickly? And so you're looking at that and then
  • 00:54:25
    you're also looking at it in the context of the price you pay.
  • 00:54:29
    What do I have to believe in? And does the business also have a
  • 00:54:32
    terrific management team? Do I have to take risk on the execution
  • 00:54:35
    or there's somebody grade here who's running the business and so forth.
  • 00:54:40
    And very few businesses check every box. And I could probably go through ten
  • 00:54:45
    other boxes. But you'd love to have a pro ponder and
  • 00:54:48
    some good things where you say the price is reasonable, the business quality is
  • 00:54:53
    really good, and the tailwinds in this neighborhood
  • 00:54:57
    are really strong. And if you can buy enough of those, then
  • 00:55:01
    your chances of success go up. What about the box of geopolitical risk?
  • 00:55:06
    Has that risen in priority in recent years?
  • 00:55:08
    Because there's a lot more geopolitical uncertainty, I think, today than there
  • 00:55:11
    has been in recent past? Yeah, it definitely exists.
  • 00:55:14
    And look, if you have an export heavy business today into the United States,
  • 00:55:19
    you know, I can say things about the pace and so forth, but if they're going
  • 00:55:23
    to put a significant tariff, that's a that's a real issue for your business.
  • 00:55:28
    You know, when when Russia invaded Ukraine and the cost of energy for a
  • 00:55:32
    bunch of our European companies went up pretty dramatically, that exists in some
  • 00:55:36
    of the tensions, obviously, between the US and China over time have created
  • 00:55:40
    issues. So I think you clearly have to look at
  • 00:55:43
    that in the mix of where you're investing capital.
  • 00:55:47
    Some businesses are more exposed, some less.
  • 00:55:49
    But it's it's one of the factors you take into account.
  • 00:55:52
    I would also say, you know, with emerging market countries thinking about
  • 00:55:56
    the currency risks, in particular geopolitical stability, you know, we've
  • 00:56:01
    seen in some of the Latin American countries a pretty sharp movement left,
  • 00:56:05
    which sometimes is adverse, obviously, to businesses.
  • 00:56:09
    So that's one more thing that goes into the mix when you're evaluating should
  • 00:56:12
    you deploy capital? That does it for us here at Wall Street
  • 00:56:17
    Week. I'm David Westin.
  • 00:56:18
    See you next week for more stories of capitalism.
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