Ontario to Pause Anti-Tariff Ad Campaign After Trump’s Ire

20:24Carol Massar:There was an interesting story in the Bloomberg that caught my attention. I'm curious what you guys think about this. The bond markets movement has been suggesting a U.S. downturn for three years since three-month Treasury yields first pushed above 10-year ones. A write-through on this notes, the yield curve's predictive power may be sounding a false alarm this time. This is from Campbell Harvey due to factors such as massive fiscal spending and healthy finances of consumers and corporations. Do you agree, Katie? I would have to say it is very contextual because when you look at the inverted yield curve over different periods of time, you know, I think some of the potential inflation and other issues with policy is just kind of not necessarily means that there's a recession right away.

21:07So I think it's been sort of a false signal during this market environment. Yeah, we should mention that Campbell Harvey is the Duke professor who came up with the idea of the inverted yield curve signaling recession. And I think there's been general consensus at the Fed and among economists since we went through almost since we went through the great financial crisis, but certainly coming out of COVID, that it's not reliable now for a whole host of reasons. So ignore it. Ignore it. Yeah. Hey, Mike, we're going to be speaking with Drew Mattis over at MetLife Investment Management in just a minute about the consumer.

21:43Preface for that conversation, like lay the groundwork here. How is the consumer doing? well i i think you advertise it as the k-shaped economy or not that explains kind of uh where we are with the consumer but as well as we'll hear from drew he kind of argues that the kisha that the top end isn't doing as well as people think well i i think the top end is doing just fine because when you get to the top the higher top end you're making all your money off of interest and dividends and the stock market just keeps going up and up and up it's the people who are on fixed income and low wages who are struggling now because inflation is still going up.

22:25And they're trying to make ends meet and finding it harder and harder if you've gone to the grocery store lately to buy a hamburger or something like that. So you have this bifurcation. And the question is, how long can people hang out before they start pulling back on spending? And there's anecdotal evidence that they're starting to pull back in some areas already. Then if we get any layoffs, as some of these companies, P &G today had good earnings. But, oh, yeah, by the way, we're going to get rid of 1 ,800 people.

22:59Carol Massar:Hey, Katie, I want to go back to just one about the idea of what we're seeing in equity markets versus bond markets versus the dollar strength. I mean, I'm trying to gold-silver rally, then more recently dropping back. Do the market metrics fit together, make sense, they tell one story, or no? And if not, then what does that mean? So this is a good question. I think for me, the question has been, you know, it's been a growth story in equities, having good GDP numbers. So you're seeing that very strong equity trend. But coupled with that, seeing also very strong gold and a weaker dollar has made me feel a little nervous about that.

23:37You know, there's a chance that we might have an overstimulation. So low rates, high growth, and you kind of have inflation potential. I think today's print is helpful in the short term, but those are the themes that I'm seeing where there's sort of a hedge out there against, you know, things look good, but, you know, we need to proceed with caution. We could have inflation. We may have issues, especially with a weaker dollar. So this firm dollar is also kind of interesting to me. I think probably the most interesting recently.

24:05Carol Massar:All right. Great stuff. Great where we can do a double dip with Katie Kaminsky on this morning, on this afternoon. She's chief research strategist portfolio manager with Alpha Simplex Group. Hey, we're going to stay on this. Mike's going to stay with us. We want to bring your attention to something that JPMorgan's asset management's chief global strategist, David Kelly, said this morning, too, on BTV, on surveillance, talked about the Fed, inflation, and the K-shaped economy. I think the Fed's going to keep on cutting rates. It's generally a better than expected report, but I think what it really shows is we have a K-shaped economy, and it's sort of a K-shaped CPI report.

24:40It is clear that mainstream retailers don't believe they can pass on the tariff increases right now. And that's what's making this inflation rate a little bit tamer than people feared.

24:51Carol Massar:I want to bring in, of course, that was JP Morgan's David Kelly earlier today. But right now I want to add to the mix. The senior economist, actually, he was a former senior economist at Lehman Brothers. We've been talking to him for a long time. We're talking about Drew Mattis. He's the chief market strategist at MetLife Investment Management, joining us from New Jersey. Drew, your recent note caught the attention of our Talia Torella about how the consumer is not okay. Walk us through that. Well, there is a K-shaped recovery or consumer. The upper end is doing reasonably well. But the question is always kind of what's the change look like?

25:30And the change for the upper end consumer is beginning to show signs of stress. Now, whether that's because a lot of the federal workers would fall in that 100 ,000 plus category or whether it's something else, what we are seeing is that upper income consumers are increasingly saying that their real incomes are expected to decline over the next year. and their job separation anxiety is actually quite high, particularly relative to kind of lower income cohorts, probably because a lot of the jobs that had been being created were actually kind of, you know, health care and kind of other jobs that in many cases tend to be, you know, kind of lower income side of things.

26:09And so I think, yes, they're doing fine for now, but there are signs of stress and ignoring them is something that can lead to trouble. Yeah, I got to tell you, Drew, I see that anecdotally right now with people looking for jobs who have been making good money and got laid off. And, you know, I've been looking for jobs for months at this point. When do we if we haven't already, how does that then manifest in data? And we're not necessarily getting it from the government, but how does that manifest in data that investors can react to, Drew? Well, I think the one way it will manifest itself is a decline in service sector spending, which we have been seeing, at least through the August numbers, which were the latest ones we had before the shutdown.

26:51You know, what tends to happen when you have to worry about things or when people begin to adjust their lifestyles in ways that shouldn't really be adjusted. and by that I mean buying a cup of coffee in the morning is not a decision that should really tax most people's brains or that they should really think about if they're feeling good about their job prospects or that they have a job and what we're seeing is people are pulling back on those kinds of purchases and when that happens if you're not buying a cup of coffee you're not going to buy a car and so we're beginning to see that roll off on the service sector spending side of things And yes, maybe people are in the upper income tier are still splurging on certain things, or maybe there's a cohort within that upper income cohort that's still splurging on certain things.

27:35But the reality of it is it seems like it's beginning to shift into a kind of a lower growth dynamic. And of course, we can't find any of the data or we don't have the data to know whether or not that in fact is happening. Drew, how much of tariffs are a problem, given what we saw today, that there is some leakage in and there may be more coming? It's obviously not what was feared back in April. But how how bad is it, Johnny, as that big man used to say?

28:07Carol Massar:And Google that if you don't know what he's talking about. Because you should know. Drew's old enough. He'll know. I do know, unfortunately, because I am old enough. I meant that for the rest of the audience out there in our control room. You know, I do think we're going to see a pass through. I think it's going to happen. It's not going to be a full pass through, nor is it going to lead to kind of this kind of, you know, wage price spiral type inflation story. It's going to be a one time adjustment and the Fed should look through it. You know, I was just complaining to you, Mike, though, you know, what about all the credit card surcharges that I'm now paying for?

28:42It seems like everything went up by three percent on top of the 3 % inflation rate, because every time I pull out my credit card, I have to pay a lot more to kind of just use it. And so I think, you know, once again, it's going to be something that people notice and are affected by it. But one of the things that's actually helping people right now is that gas prices are actually extraordinarily low, particularly relative to where they had been. And so we look at gas prices relative to kind of how much you have to work to get there. So how many minutes of your work life does it cost you to buy a gallon of gasoline?

29:16And when you look at it that way, it's actually quite contained and well below where it had been the last couple of years, which is probably helping people continue to spend. All right,

29:26Carol Massar:we're going to leave it on that note. I know we will be continuing this conversation in the future. Drew Mattis, thank you so much. Chief Market Strategist at MetLife Investment Management. Of course, our thanks always to our own Mike McKee, TV and radio, international economics and policy correspondent. Stay with us. More from Bloomberg. Business Week Daily coming up after this.

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32:08Carol Massar:Or watch us live on YouTube. Interesting couple of weeks. We've talked about Zion's, a couple of regional banks. Zion's tumbling last week. The firm said it was the victim of fraud on loans to funds that invest in distressed commercial mortgages. After the collapse of subprime auto lender, Tricolor Holdings and Auto Parts Supplier First Brands Group, some investors said they are becoming concerned about cracks in the credit market. And then, of course, there was JPMorgan Chase CEO Jamie Dimon. You can't forget what he said last week, that there's really just one cockroach, which some private credit executive size of barb aimed at them.

32:42Blue Owl Capital co-CEO Mark Lipschultz responded by saying banks should look at their own books.

32:48Carol Massar:All right, we've got a view on the distressed market, a specific area. Back with us is Amy Rubenstein. She's CEO of Clear Investment Group. It's Chicago-based, specializing in opportunistic real estate investments, specifically in the distressed mid-sized multifamily sector. in mostly secondary and tertiary markets around the United States. She is lucky for us in studio. How are you? I'm great. Good to be back here. Well, it's great to have you back here. And I'm just curious, big picture the environment. There's been a lot of stuff over the last week. Tell us about the distress market, certainly the area that you play in.

33:20Carol Massar:Are there more distress situations slash opportunities out there for you? Yeah, there's a ton of opportunity right now. Is there always or is there more than there have been? I will say when we're in buyers markets, we see more distress. Right now, we have seen a lot of distress over the last couple of years and continue to see it. Although I think we might have bounced off the bottom and might be starting to come back. Why do you think that? Well, I think that the drop in interest rate that we recently had was a little bit helpful. That was only 25 basis points. But what we've really been seeing is that bank spreads are coming in as well.

33:56So while we only saw a 25 basis point drop from the Fed, we're really feeling something more like a 100 basis point drop based on the fact that banks are coming in.

34:06Carol Massar:That makes some situations not so stressful. Or does it? It doesn't help people that have existing loans that might have gone up on interest rates. But as people are refinancing, we are finding a better lending environment than we were about a year ago. So talk to us about a deal that you've recently done. uh so we um we are doing a deal right now uh that we're getting a spread we're actually assuming a loan that is being purchased at debt so we're seeing a lot of that in the market right now okay where you do see distress from people and people are walking away from their equity in order to save their personal guarantees and that's more than you saw maybe three months ago six months it happens to be that we've had our last like five deals that we've looked at have had loans where we're assuming a loan at debt and the seller's walking away, losing all of their equity.

34:59Why are sellers walking away? What are they not able to do that then you can come in and do? So what this particular lender is doing for us is dropping that interest rate. The lender doesn't want to lose any of their equity in this. Exposure, yeah. So they instead are saying, all right, we know that things were a little bit off. We know that interest rates were high And we know that that seller or that owner was struggling. Here we have a new borrower coming in who's going to be solid, who's going to maintain the integrity of our investment. Let's give them a little break for a little while so they can get through this period.

35:33Are lenders doing that without a transaction going through? Could that seller have gone to the lender and said, look, we can't handle this rate. Can we renegotiate? So then you don't have to bring someone new in. You know us. I do think that happens as well. OK. So, yes, I think that's a possibility. And I think that's something that borrowers need to ask for. And I think when they do ask, they're often able to negotiate something with their lender.

35:57Carol Massar:Amy, how many of these deals have some kind of private credit in them as well? Or is it separate? So I think that is the reason that spreads have come in. Because private debt really flooded the markets. And while banks took a step back, I would say over the last couple of years, banks kind of pulled back, wanted to see how the market was going. And then all of this private debt flooded the market, which is what really caused when banks wanted to come back in the beginning of 2025, they started to enter the market and they saw more competition than they had before. And so then what happened is they started to bring in their spreads.

36:33And that's what brings us to have that feel of a much lower interest rate than just that 25 basis point.

36:39Carol Massar:So give us an idea. You do work in multifamily. Give us an idea of the types of properties or the regional variations where maybe these deals are happening? Sure. We have a deal under contract right now in St. Louis, a deal under contract right now in Tuscaloosa. So we're talking about, you know, those are secondary and tertiary markets. We're also in D.C., so that's a primary market. So it really depends on where we're finding the right deal. Where are you not seeing deals because the market is so good? So some of the places we won't buy are places that got a little bit overinflated. So some of those growth markets that are now starting to show some declines.

37:14Austin, Texas? Sure. Austin, Nashville. South Carolina? Yeah, absolutely. What about California? There's a lot of questions about the future governor, who that is, a lot of questions about regulations and red tape during the next administration. Absolutely. We tend to stay away from California right now because we just don't get cash flow there. So that ends up being an appreciation market. And so we never really find that cash flow to be able to go into that market.

37:41Carol Massar:So would you go as far as to say, you know, what we've seen over the past few months and just the past week that, you know, tricolor first brands, I mean, there have been knock on effects when it comes to financing as a result of this or no? As a result of. Well, any like of the real estate financing deals have what we have seen with these and nervousness within the credit market. Has it had an impact? No, I actually think that we are seeing enough money in the market to be lending. So I don't see that there's an issue. of borrowing. I see that there are fundamentals that are still strong. Although even in September, I'm sure everyone's kind of watching this drop in rental rates, right?

38:24September was that first month where we really saw a big drop, I think 30 basis points in just that month alone. And if you kind of pull it apart and look at it, what's causing this? If you dissect it, you're getting about 50 basis points drop in lifestyle renters. So renters who are choosing between home ownership and renting. And that probably is coming from people wanting to go back into the home market. You're only getting about 10 basis points of drop in renters by necessity. So you've got to dissect that number. How are delinquencies with tenants right now? That's an interesting question.

39:00We have seen that delinquencies and evictions have been a higher trend than usual, but that hasn't been just as of recent. We've seen that over the last couple of years. So that hasn't changed at all in the last six months or so? I haven't seen it in the last six months that that's growing. It definitely is a trend that I think started post-COVID.

39:19Carol Massar:Who's struggling? Who are those people in those properties? Just got about 30, 40 seconds here. Well, you know, the rents are staying stronger in these C-class assets, but I think it's also So that lower income zone that is struggling more than the higher brackets. Are you talking recession at all or like, or just no? No, we're still seeing things being very strong as far as employment. Sounds it. Still seeing tenants come in that have qualifications to rent. Well, listen, you're the perfect person to check in considering this environment and the conversations we've had over the last week. Amy, thank you so much.

39:50Carol Massar:Thanks for coming in studio. Thanks for having me. Yeah. Great to have you here. Amy Rubenstein, she's CEO of Clear Investment Group, joining us right here. 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 p.m. Eastern On Bloomberg.com The iHeartRadio app Tune in and the Bloomberg Business app You can also watch us live every weekday on YouTube And always on the Bloomberg Terminal

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