Trump Questions If Iran Deal Possible as He Amps Pressure

22:29And now we provide that without having this extra supply coming in. And so it creates that extra value.

22:36Carol Massar:What do you think about on the demand side, though, in terms of people who need this housing? Like, you know, this is one of the things we talk about in terms of AI and work. And if the economy starts to have some issues, you know, people, maybe they think differently about their living situations. How does that stuff impact you as well? Yeah. Or could. We do always have a demand. Now, that doesn't mean that there's always going to be demand for affordable housing. Because these are renters by necessity, not lifestyle renters who are choosing where they're going to live, right? That being said, that doesn't mean that the bottom sector doesn't get hurt by macroeconomics.

23:12And so then we have to deal with that. And of course, we've got rising labor costs and material costs. And when you get inflation, it's going to hurt your tenants. At the same time, on the flip side, real estate is a hedge against inflation. So for investors, this is where they want to be. Does it dwindle supply for you? because, and I know you're very picky about what markets you're in and you've decided not to work in some markets that you used to be in and you've decided to exit or enter different markets based on timing. But if this is an asset class that is attractive right now in an environment such as this, then does that make it more difficult for you to acquire new targets?

23:51So for us, it's all about acquiring at the right basis. And so right now it's about being a very discerning investor. But it's a very efficient market because there are a lot of people who are looking at this stuff. Sure. So we in particular are buying highly distressed deals. They have a lot of managerial distress, high vacancies, high delinquencies. And then we're catering to a need that we're not competing with new building against. So we are catering to tenants who have an AMI or area median income between 30 and 80%. You can't build new construction without government subsidies and compete against that.

24:26And so for us, that means there is great value there, right? But what we have to do is we find things at auction or we're finding things that are negative cash flowing. And that's where we are basically taking existing supply that is not functional and unlocking it and bringing it back on the market.

24:45Carol Massar:So one of the things we were thinking about, Amy, before when we were on our planning call this morning is that what we love talking about you is, you know, in an environment where, you know, we don't know when this war is going to rent and, and that opens up so many different questions about the outlook. Right. And so we're just dealing with lots of questions, but are you talking to someone like you, like, are you seeing more distressed opportunities to buy as an indicator that things are getting tougher out there or no, does that pool kind of stay constant? So for us, it does the level of distress that we're buying is not macro distress.

25:18I think that you do. It's not based off of macroeconomic distress. I think you do see, you know, as when you look at properties that are a little bit less distressed, you're seeing more trading right now because as maturities are coming up on loans and it's harder to refinance into new things and you see sellers kind of lowering, lowering their expectations. Right. But for us, it always is going to exist. It's just about finding those deals that are really, that are really hurting and not because of interest rates, but something bigger than that. When, when you find a deal that might be negative cashflow or there are managerial issues.

25:50What are the reasons why it's not working for that particular management company? So there, the properties that we buy need a serious infusion of capital. And so if a, if an owner does not have that capital to put back into that property, now, why did it get to that place is, uh, it could be a combination of many different things. So it could be that the operator didn't quite know how to operate this kind of asset, this sort of workforce housing asset. Often the buyers that the sellers that we are buying from are not traditional real estate operators. Maybe they have a different career path and then they got it over their heads.

26:27Yes. Okay. So if you're in a situation such as that, and like, I know every situation is different. Every, every building or every asset is different. How, what, what percentage of the, of the renters typically stick around during this, during this overhaul? Can you, can you keep them in their homes? Sure. We try to keep everybody. We want to keep our tenants. We do not want to displace them. That being said is sometimes we do lose tenants if there is, you know, if we're trying to clean up crime in a property or if someone flat out refuses to pay rent and cannot find any sort of financial help, which we are pretty good at pairing people up with, with some sort of financial help.

27:05But there are cases where, where people do have to vacate.

27:08Carol Massar:It sounds like a lot of the macro doesn't necessarily impact you guys directly in what you're doing. Is that fair to say? I would say we're fairly hedged from macro. It doesn't mean we don't get headwinds or tailwinds, but we're fairly hedged in our asset class. So what is the biggest thing then in terms of risks that you think about most often? And we just got about 40 seconds left. Sure. I mean, the risks we see is the pace of lease up or the amount of delinquencies that we see and the pacing of that. Our returns are a bit outsized. So we do have cushion to absorb some of that as they have to be when you're investing into distressed real estate.

27:43Interesting stuff, right?

27:44Carol Massar:We're just trying to piece together the environment and one that we thought we knew on January 1 and then it's changed dramatically. Never boring. But interviews like you kind of help us figure, remind us of different parts of the market where things kind of continue. Amy Rubenstein, she is CEO of Clear Investment Group, joining us right here in studio. Stay with us. More from Bloomberg Business Week Daily coming up after this.

28:11The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions, slash repetitive tasks, and freed thousands of hours for strategic work. Now we're helping companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Let's create smarter business. IBM.

28:41Carol Massar:Everyone has been there. Your team's feedback is scattered across emails, chats, and sticky notes. It's a mess. But PDF Spaces and Adobe Acrobat gives you one collaborative workspace to streamline every file and comment. So, if you need six departments to finally agree on a proposal, do that with Acrobat. Need to turn a mountain of feedback into one plan of action? Do that with Acrobat. Want to stop searching for files and finally get everyone on the same page? Do that, do that, do that with Acrobat. Learn more at adobe.com slash do that with Acrobat. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms.

29:24Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth. On Public, you can build a portfolio of stocks, options, bonds, crypto without all the bugs or the confetti. Retirement accounts, yep. High-yield cash, yes again. They even have direct indexing. Public has modern design, powerful tools, and customer support that actually helps. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio.

29:59That's public.com slash market. And paid for by Public Holdings. Brokered services by Public Investing, member FINRA SIPC. Advisory services by Public Advisors, SEC Registered Advisor. Crypto services by ZeroHash. All investing involves risk of loss. See complete disclosures at public.com slash disclosures. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. We're having fun already with Axel here in our studio.

30:35Carol Massar:There's something we have to talk about, and there's something we kind of want to talk about. We'll see if we can get there. We've got to talk about gold. Yes, we do. Down around 20 % from its January highs of over$5 ,300 announced. Tatiana Dare on our Markets Live blog today writing earlier that gold's positive correlation with risk assets looks unusually sticky in this latest period of risk aversion. She notes that in previous equity drawdowns of at least 5%, like we're seeing right now, the positive link between gold and risk assets faded as bullion acted as a risk buffer. This time, though, it's an exception.

31:08For more, we bring in Axel Merck, president and chief investment officer at Merck Investments. The firm has around$4.4 billion in assets under management. Axel's here in our Bloomberg Interactive Brokers studio. Welcome, welcome. Great to be in person here with you. Do you agree with that relationship in the way that, as Tatiana noted, gold's relationship with stocks has been consistently positive, but there's evidence now that precious metals at the mercy of risk assets and speculation that those returns could have altered that role of it being a risk asset? So in the long run, gold has a zero correlation to equities since the 1970s, but it's not stable.

31:43It morphs in and out, just about to cause maximum frustration on investors. And the reason why gold has had some headwinds just like equities is because in the current environments, nominal yields and bonds have been rising higher, but inflation expectations have not budged, which means real yields have been moving higher. And ultimately, this brick, this barbaric relic is competing with cash if you get compensated folding cash well then why hold gold and the question is really what's going to persist one of the unique things about a supply shock is that the economically sound reaction is usually political suicide and politicians do the opposite of what's the sound thing think price controls in the 70s or or help to the consumer during the pandemic.

32:29So let this go on long enough. And the government, I'm not trying to be critical of this administration. It happens throughout the world. The Italians just cut the fuel taxes. So the government reaction, that's what gold then reacts to. Or let next week's non-farm payroll report come down and the folks at the Fed say, oh, we got to cut rates. Don't worry about this inflation. Miran at the Fed says, oh, we only worry about it if there are second round effect. So it's that second round that tends to get unsupportive of price of gold.

32:56Carol Massar:I get that. But how much is also, Axel? I mean, gold was up, what, 56 % last year, quite a run. Go back the year before, it was up 23%. I mean, so how much is also, though, it just had such a strong, strong run, and some of that had to be undone? Well, the one thing, there are a whole bunch of different investors in gold. One of the groups that was absent for several years. Retail? No, speculators. They were busy with meme stocks, all the wonderful SPACs and crypto. And then a year ago, they decided, hey, gold isn't such a bad place. And so what they do is they mostly increase volatility. And so that's obviously a component that contributes to it.

33:35But retail has not had a frenzy. If you look at the total ounces held by the physical gold ETFs, they're not back to the 2022 highs. Of course, normally we reach new highs, but we haven't had a panic into gold. It's not the typical speculative bubble, so to speak. But what is unique about gold compared to other asset classes, it's a much smaller asset class. And so one of the investors is the quote-unquote gold bug that's worried about fiscal sustainability, while that fringe view is moving a little bit closer to the mainstream. and it doesn't need many of those investors to reallocate to gold for it to have a dramatic run.

34:13Now, as we're at these levels, volatility is, of course, very high as well. So then are you saying there is an opportunity for retail to drive it higher? Well, of course. The question is the timing, right? I mean, I tell people I'll sell my gold when fiscal sanity comes back to Congress, which I get a chuckle and says never, right? And so, but what gold is going to do tomorrow, I don't know. But over the next several years, neither the left nor the right has any intention of doing proper entitlement reform. And neither is their drive to properly drive revenue. And so we are living in eternal deficits.

34:47So you're saying either cut spending or raise taxes, and neither party wants to do that. That's right. Or neither party will agree. Milton Friedman says the only thing you can do is cut spending because the moment you actually raise revenue, government will find a new way to have yet more spending. And historically, he's right in that. And so going back here to the Iran war, the market is pricing this in as a short-term shock, some differentiation in Europe and here. But even a bad case scenario, let's say the Iranians can charge a gazillion for every ship that goes through. That would mean oil will flow again and we'll live happily ever after.

35:22The world is a more expensive place to do business in, and that's historically good for gold.

35:28Carol Massar:Go there. Go there. because I think one of the things that we keep trying to get to is what is the longer-term impact of this war, this environment, where it feels like, you know, you talk about spending. I think about defense spending. We're going to talk about that a lot in our four o 'clock hour. I mean, we're talking about a trillion dollar, you know, budget spending that we're looking for in the United States, other countries, European, everybody seems to be like focusing on things like defense and spending. And I just think then the fiscal houses of governments get even worse. What are the implications of that?

36:00Well, we live in a different era, the peaceful era since World War Two is over. We saw that Ukraine, Gaza, those were symptoms of a new time. Iran is a symptom of this time. Governments are more nationalist. We have protected industries. All of that makes the economy less efficient. There might be the right political reasons to do these things, which means we'll be spending more. You didn't mention climate change. All that is making it expensive. Population is aging. Well, we live in democracies. How do you solve these things? You solve them with debt printing money. And right now, the Fed is quite disciplined.

36:34But the interests of government and those of savers are not aligned. And the gold investors is investing based on that. There are some out there who could be watching right now and say, you know, and the administration would probably say this. But the military action that the U.S. has participated in this year, they would say would make the world a safer place. The president has said that many times. And we actually had Wilbur Ross, the former commerce secretary, on earlier this week. And he made the argument that essentially the rest of the world has been put on notice that President Trump will use the American military to go after you.

37:09Does that make the world more stable? I'm not doubting that that is the right thing to do. Indeed, the Europeans need to get their act together and do substantially more. All I'm saying is less efficient. The same with trade. Having free trade makes a more efficient world. it might not be in a national security interest, right? And that's why we put certain blocks in place. And talking about tariffs, it doesn't just impede the flow of goods, it impedes the flow of currency, increasing borrowing costs. So these are things that are happening. I'm not judging, I'm describing. And the gold investor is saying, well, this is a good thing for gold.

37:43Now that doesn't mean gold can't get overheated in the short term, or it can't have a very strong correction. But that is one of the reasons why people are investing in gold and continue to invest in gold.

37:52Carol Massar:So we're$4 ,412,$4 ,400,$12 an ounce. Do you have a number that you think about how far? No, you guys always want a number. One of the reasons I don't give a number. Have you met the Bloomberg? Yes. We like numbers. So one of the reasons I don't give a number is because the market is fairly small, you can get through this number in no time. Yeah. Right? And so some people have put out a number of 10 ,000. So I'm comfortable with that, right? But I'm not going to put a price target out there because I don't know the horizon. Give the horizon long enough, then sure. but it's a it's it's one of those things that you got to look at the dynamics of the underlying dynamics and and currently obviously there's a headwind to well we just talked about some of the underlying dynamics that we think is going to be you know it's a different world order going forward is it fair to say that that certainly is supportive of maybe we're at a floor or and that it is supportive for gold to definitely move higher and consistently higher well we have a new world order every day with a new tweet coming out, with a new statement coming out.

38:53What we do know is that the market is pricing this in as a shock and not as something structural. So you can agree or disagree with that. And a little difference, a little more long-term implication in Europe than here based on WTI and Brent. If you look at those sort of things, there will be a way to muddle through. If this lasts long enough, there will be substitutions. Fracking will increase. We're not going to substitute oil if this thing lasts only a few weeks. But if the market believes it's going to last longer, we will rewire the economy and deal with it in one way or the other.

39:24Carol Massar:So shock, we move on. That's the oversimplified way of looking at it. But that shock can be very painful, of course. Yeah. So I'm curious about your view on gold in a portfolio. And everybody's portfolio is different, obviously. But those people are outspoken. Jared Dillian, for example, he says 20 % of your portfolio should be in gold. And you should adjust it each year accordingly. There are others who say, okay, throw maybe 5 % in your portfolio. Again, different for everybody, but what's your general rule? Well, you can look at my public disclosures and I have substantially more in gold mining in particular, I have substantial gold holdings, but I'm not recommending everybody else does that.

40:00It's investing is about the risk you can afford to take. I happen to think I understand gold. I understand gold miners. Most people don't understand gold. So if you don't understand it, don't pile into it too much. The thing about the gold is it has a volatility about that of the S &P, but that can spike. Now, you've got to be aware of those spikes. Now, anybody who has looked in recent weeks is aware of that. But there are these extended periods where it doesn't. And if you're not aware of those spikes, then you can be caught off guard. And so I encourage anybody to study these things. What is a bad case scenario?

40:34Because bad things do happen if you're a longer term investor. And you've got to be comfortable with that. So if you're comfortable with that, I happen to think, yes, a substantial location. Gold is an important diversifier in a world where bonds might not serve that purpose as much anymore. Obviously, gold is not a direct substitute, but you have the S &P, very tech heavy. If there's a pullback, where do you hide? And gold is but one of the answers to that.

40:59Carol Massar:Well, it's an interesting environment where we've spent so many years just talking about, you know, the MAG-7, the big tech names, AI, and so on and so forth. We still talk about it, but it is interesting to see that in terms of investment space, it feels like commodities, basic materials are something that we've moved into. You are obviously in the precious metal space. When it comes to things like miners, what's your advice to investors in terms of how they look at them? I just got about a minute or so left. Let me expand on your question. In 2011, Marc Andreessen said, software is eating the world.

41:28Now, software is suffering from AI. Back in 2011, software was low barriers to entry, high margins. AI is high barriers to entry. Who knows what the margins are? If you look at commodities, mining in particular, well, there are high barriers to entry. It's expensive. But the margins are amazing. Even with the pullback we've had, the miners are pricing in that the price of gold would be about 35 % lower. And so suddenly we have a somewhat level playing field between tech and mining. And that's one of the reasons why I think more investors will pay attention to it.

42:00Carol Massar:Yeah, which kind of gets to that whole idea of like things we just didn't seem so basic, same old economy, if you will. But it's interesting. Thank you so much. A joy to have you here in studio. Axel Merck, President and Chief Investment Officer at Merck Investments. As we mentioned, the firm has about$4.4 billion in assets under management. 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, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

42:48We buy insurance for peace of mind, but every year millions of claims are denied. Not because people did anything wrong, but because their policies quietly excluded what happened. Insurers know every detail. Policy holders rarely do. That's why My Policy Advocate exists. For just 27 cents a day, their platform reads your policies and explains where you are vulnerable. They don't sell insurance. They deliver transparency. Before you trust your policy to protect you, let My Policy Advocate tell you what it really says. Go to MyPolicyAdvocate.com. Ryan Reynolds here from Mint Mobile. The message for everyone paying big wireless way too much.

43:25Please, for the love of everything good in this world, stop. With Mint, you can get premium wireless for just$15 a month. Of course, if you enjoy overpaying, no judgments, but that's weird. Okay, one judgment. Anyway, give it a try at mintmobile.com slash switch. Upfront payment of$45 for a three-month plan, equivalent to$15 per month required. Intro rate first three months only. Then full price plan options available. Taxes and fees extra. See full terms at mintmobile.com. Do you ever feel like you're drinking from a firehouse? Paycor's intelligent HR solution empowers leaders to turn down the pressure.

43:58Their unified platform includes payroll, talent management, compliance software, and a lot more, connecting you to the people, data, and expertise you need to drive long-term business results. Visit paycor.com slash leaders and go from workflow to workflow. That's paycor.com slash leaders.