1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg p m L 6 00:00:20,840 --> 00:00:32,320 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. All right, 7 00:00:32,400 --> 00:00:35,160 Speaker 1: let's turn our attention now to why stocks go up 8 00:00:35,200 --> 00:00:38,360 Speaker 1: and down? And joining us is Charlie Biederman. He is 9 00:00:38,440 --> 00:00:42,440 Speaker 1: the president and chief executive of trim Tabs Investment Management. Charlie, 10 00:00:42,479 --> 00:00:45,239 Speaker 1: thanks for being here in the studio with us. I 11 00:00:45,280 --> 00:00:47,560 Speaker 1: gotta start with that simple question, but it's not really 12 00:00:47,600 --> 00:00:49,760 Speaker 1: that simple because it doesn't It doesn't stick a lot 13 00:00:49,800 --> 00:00:53,159 Speaker 1: of times. Why does stock prices move in one direction 14 00:00:53,320 --> 00:00:58,520 Speaker 1: versus another? Well, the simple answer this year, say, is 15 00:00:58,640 --> 00:01:01,680 Speaker 1: the central banks of Japan and the e C and 16 00:01:01,720 --> 00:01:04,640 Speaker 1: Europe have been adding about a hundred and thirties some 17 00:01:04,800 --> 00:01:08,640 Speaker 1: odd billion every month and newly created money with which 18 00:01:08,680 --> 00:01:12,880 Speaker 1: to buy financial assets. So everything else being equal, more 19 00:01:12,959 --> 00:01:17,440 Speaker 1: money chasing an existing number of a financial assets, the 20 00:01:17,480 --> 00:01:20,920 Speaker 1: price of those assets should go up. It's that simple. 21 00:01:21,880 --> 00:01:25,240 Speaker 1: Given that it's that simple, and that companies have been 22 00:01:25,240 --> 00:01:28,920 Speaker 1: buying back their shares sort of adding to the demand 23 00:01:29,040 --> 00:01:32,240 Speaker 1: and the supply of cash. Absolutely, he would think that 24 00:01:32,480 --> 00:01:35,240 Speaker 1: first of all, any share buy backs would have the 25 00:01:35,319 --> 00:01:39,040 Speaker 1: same effect, and second of all that stocks should keep 26 00:01:39,080 --> 00:01:42,080 Speaker 1: going up as companies continue to repurchase their shares. But 27 00:01:42,120 --> 00:01:45,360 Speaker 1: you just did some research showing that all share buy 28 00:01:45,400 --> 00:01:47,720 Speaker 1: backs are not equal. Can you give us some color 29 00:01:47,760 --> 00:01:52,000 Speaker 1: from that? Sure? Uh? Our fun trim tabs, float shrink 30 00:01:52,480 --> 00:01:54,680 Speaker 1: e t F ticker symbol t T a C in 31 00:01:54,680 --> 00:01:59,520 Speaker 1: case anybody cares, only by sorry, only by companies who 32 00:01:59,560 --> 00:02:01,960 Speaker 1: are grow in free cash flow and using a portion 33 00:02:02,000 --> 00:02:04,560 Speaker 1: of that free cash flow to reduce the share count. 34 00:02:05,120 --> 00:02:09,720 Speaker 1: Companies that borrow money to do buy backs, they don't outperform. 35 00:02:09,760 --> 00:02:13,519 Speaker 1: If you look at various buy back funds, they underperform 36 00:02:13,720 --> 00:02:17,320 Speaker 1: our fund because they a lot of those companies that 37 00:02:17,360 --> 00:02:19,639 Speaker 1: they do a lot of buy backs, they borrow to 38 00:02:19,720 --> 00:02:22,639 Speaker 1: do those buy backs, and therefore the companies don't outperform 39 00:02:22,960 --> 00:02:27,720 Speaker 1: and the stocks don't do well. So there's significant difference, 40 00:02:27,720 --> 00:02:30,520 Speaker 1: I mean between a company growing cash. Free cash flow 41 00:02:30,639 --> 00:02:34,200 Speaker 1: is the best metric there is, and if companies use 42 00:02:34,200 --> 00:02:36,560 Speaker 1: a portion of the free cash flow reduced to share count. 43 00:02:36,600 --> 00:02:39,600 Speaker 1: That's a double good. So I guess that it's sort 44 00:02:39,600 --> 00:02:43,080 Speaker 1: of less that uh, it matters what source of cash 45 00:02:43,120 --> 00:02:45,840 Speaker 1: they're using than the companies just don't have as much 46 00:02:45,840 --> 00:02:49,000 Speaker 1: free cash flow to to buy back their shares. Correct. Well, 47 00:02:49,080 --> 00:02:51,760 Speaker 1: I wouldn't trust a company that's not making cash and 48 00:02:51,840 --> 00:02:54,480 Speaker 1: using the cash to buy back shares. That sounds to 49 00:02:54,520 --> 00:02:57,240 Speaker 1: me like they're more interested in the stock price than 50 00:02:57,280 --> 00:03:01,360 Speaker 1: they are in the corporate results. You know, companies that 51 00:03:01,400 --> 00:03:04,320 Speaker 1: have no choice, like IBM, with there's no growth. Revenues 52 00:03:04,360 --> 00:03:07,079 Speaker 1: have been shrinking and they keep They reduced a share 53 00:03:07,080 --> 00:03:11,480 Speaker 1: account by fift and the price hasn't gone anywhere all right, 54 00:03:11,520 --> 00:03:13,160 Speaker 1: So I want to just to go back to my 55 00:03:13,280 --> 00:03:17,160 Speaker 1: most simplistic description of why prices move. It's because it's 56 00:03:17,160 --> 00:03:19,840 Speaker 1: supplying to man, If you have a constant inventory and 57 00:03:19,840 --> 00:03:23,720 Speaker 1: there's consistent and growing demand for that same inventory, the 58 00:03:23,840 --> 00:03:25,560 Speaker 1: value of the inventory is going to go up the 59 00:03:25,639 --> 00:03:27,840 Speaker 1: value of the stock price. If no one wants that inventory, 60 00:03:27,880 --> 00:03:30,000 Speaker 1: the price is going to decline. If that's the case, 61 00:03:30,480 --> 00:03:33,680 Speaker 1: why are not? Why are not? Corporate inside is buying 62 00:03:33,720 --> 00:03:36,800 Speaker 1: their own shares. But at the same time, you see 63 00:03:36,840 --> 00:03:40,200 Speaker 1: that cash flow is growing for SMP five companies. If 64 00:03:40,240 --> 00:03:43,520 Speaker 1: they're growing cash, why aren't they spending it? Good question. 65 00:03:43,760 --> 00:03:47,040 Speaker 1: So I've been looking at corporate cash flow has been 66 00:03:47,160 --> 00:03:51,680 Speaker 1: rising in aggregate and corporate buying, announced by backs, announced 67 00:03:51,720 --> 00:03:55,040 Speaker 1: share cash takeovers. I mean, even with the wal the 68 00:03:55,040 --> 00:03:58,840 Speaker 1: Walmart as an exception, and the hundred billion for banks 69 00:03:58,880 --> 00:04:03,680 Speaker 1: as an exception, because of the regulatory relief. Uh that 70 00:04:03,840 --> 00:04:08,280 Speaker 1: those suxceptions, announced corporate buybacks have been shrinking while their 71 00:04:08,280 --> 00:04:13,200 Speaker 1: cash flow is growing and insider selling is spiking and 72 00:04:13,520 --> 00:04:18,159 Speaker 1: we're not and and also companies are reducing capital expenditures. 73 00:04:18,200 --> 00:04:21,599 Speaker 1: There's only one logical conclusion I make, and that corporate 74 00:04:21,600 --> 00:04:24,760 Speaker 1: America is scared of Donald Trump and they're unwilling to 75 00:04:24,920 --> 00:04:28,600 Speaker 1: invest big money into the economy and into their shares 76 00:04:28,720 --> 00:04:32,000 Speaker 1: given the risks that are going on. I mean, yes, 77 00:04:32,800 --> 00:04:35,640 Speaker 1: we we've we track real time data. Wage and salary 78 00:04:35,680 --> 00:04:39,400 Speaker 1: growth has been rising faster this year than before. I 79 00:04:39,520 --> 00:04:43,120 Speaker 1: really think that's due to one removal of as many 80 00:04:43,200 --> 00:04:46,760 Speaker 1: regulations as possible, freeing up small business to actually get 81 00:04:46,800 --> 00:04:50,920 Speaker 1: stuff started. And too, a lot of small business America 82 00:04:51,040 --> 00:04:54,960 Speaker 1: are definitely firm believers that Donald Trump is the miracle man. 83 00:04:55,920 --> 00:05:00,280 Speaker 1: And uh so I think that's the only tail when 84 00:05:00,400 --> 00:05:06,160 Speaker 1: we've got we have, UH, global commodities are in a recession, oil, metals, 85 00:05:06,360 --> 00:05:10,920 Speaker 1: all prices have been trending lower. Automobiles, I say, automobile 86 00:05:11,279 --> 00:05:14,240 Speaker 1: industry globally is in a recession. There's way too much 87 00:05:14,320 --> 00:05:18,360 Speaker 1: excess capacity, and the housing market is not doing well. 88 00:05:18,440 --> 00:05:20,719 Speaker 1: I don't believe that there's a shortage of supply, which 89 00:05:20,760 --> 00:05:23,919 Speaker 1: is why sales are down. Sales are down because demand 90 00:05:24,040 --> 00:05:26,920 Speaker 1: is down. So how do you square this with how 91 00:05:26,960 --> 00:05:29,920 Speaker 1: you invest? I mean, it sounds like you're pretty bearished well, 92 00:05:29,960 --> 00:05:33,400 Speaker 1: except as I said to begin with, when when banks 93 00:05:33,760 --> 00:05:36,960 Speaker 1: are adding to the amount of cash available to buy shares, 94 00:05:37,800 --> 00:05:40,479 Speaker 1: the market is not going to go down. And I'm 95 00:05:41,040 --> 00:05:45,880 Speaker 1: polish in my holdings, even though at some point in 96 00:05:45,920 --> 00:05:51,800 Speaker 1: the future, UM, things will not do well. But when 97 00:05:52,200 --> 00:05:54,160 Speaker 1: I don't know how long that's gonna happen. How long 98 00:05:54,200 --> 00:05:57,400 Speaker 1: is it going to take? We'll continue this conversation Charlie Biederman, 99 00:05:57,440 --> 00:06:01,600 Speaker 1: founder of trim Tabs Asset Management, talking about what companies 100 00:06:01,640 --> 00:06:03,920 Speaker 1: are doing with their cash, and this has definitely been 101 00:06:03,920 --> 00:06:07,839 Speaker 1: an ongoing question, especially as when Charlie pointed out that 102 00:06:07,880 --> 00:06:10,720 Speaker 1: share by backs have gone down. You have seen cash 103 00:06:10,760 --> 00:06:13,640 Speaker 1: go up. And not only that, but Blueberg published a 104 00:06:13,680 --> 00:06:19,320 Speaker 1: story yesterday showing that the volume of bank loans is 105 00:06:19,320 --> 00:06:22,960 Speaker 1: expected to grow at the smallest pace in years in 106 00:06:23,120 --> 00:06:27,040 Speaker 1: the third quarter, adding to potential UH pressure on their 107 00:06:27,040 --> 00:06:31,040 Speaker 1: balance sheets, but especially as as companies failed to aggressively expand. 108 00:06:31,160 --> 00:06:35,280 Speaker 1: I want to content to continue our conversation with Charlie Biederman, 109 00:06:35,400 --> 00:06:38,200 Speaker 1: founder of trim Tabs asset Management. And when I think 110 00:06:38,600 --> 00:06:42,279 Speaker 1: of trim Tabs, I think of really great flows data 111 00:06:42,360 --> 00:06:44,719 Speaker 1: which gives you a sense of where the money is 112 00:06:44,800 --> 00:06:47,839 Speaker 1: going and where it is leaving. And Charlie, I'd love 113 00:06:47,880 --> 00:06:51,320 Speaker 1: to get your sense, we were talking offline that it 114 00:06:51,440 --> 00:06:55,760 Speaker 1: isn't flowing as much towards US equities as many people think, 115 00:06:56,279 --> 00:06:59,400 Speaker 1: and yet the money just keeps flooding into fixed income. 116 00:06:59,440 --> 00:07:01,159 Speaker 1: Can you give us sense of how much this is 117 00:07:01,200 --> 00:07:04,120 Speaker 1: the case. Well, since the start of the year, there's 118 00:07:04,160 --> 00:07:08,640 Speaker 1: been a consistent outflow from US equity mutual funds, and 119 00:07:08,760 --> 00:07:13,200 Speaker 1: there's been a less there's been an inflow, but smaller 120 00:07:13,240 --> 00:07:16,560 Speaker 1: inflow than the outflow into US equity e t f s. 121 00:07:17,120 --> 00:07:20,320 Speaker 1: So that says that money might be going from active 122 00:07:20,360 --> 00:07:24,960 Speaker 1: management to passive and any new money that's going in 123 00:07:25,840 --> 00:07:28,360 Speaker 1: going in passive is going you know, going into E 124 00:07:28,480 --> 00:07:31,600 Speaker 1: t F. So you know, it's interesting we're seeing and 125 00:07:31,760 --> 00:07:34,720 Speaker 1: where's the money going, what's going into bond funds as 126 00:07:34,720 --> 00:07:38,160 Speaker 1: well as some money going globally, you know, some of 127 00:07:38,160 --> 00:07:42,840 Speaker 1: the UH markets that are doing the best, riskier markets, 128 00:07:42,840 --> 00:07:45,480 Speaker 1: I don't know, players like to play, gamblers like to gamble, 129 00:07:46,000 --> 00:07:47,880 Speaker 1: and so there's a lot of money going off shore 130 00:07:47,920 --> 00:07:51,560 Speaker 1: as well. But what's interesting to me is, like we're talking, 131 00:07:51,560 --> 00:07:56,320 Speaker 1: there's no new money from individuals. Corporations are buying less 132 00:07:56,440 --> 00:08:00,280 Speaker 1: so far this year, and if it wasn't for the 133 00:08:00,400 --> 00:08:03,600 Speaker 1: central banks, we would be in big trouble. I mean, 134 00:08:03,600 --> 00:08:06,080 Speaker 1: it wasn't the central banks. They're the only source of 135 00:08:06,160 --> 00:08:09,720 Speaker 1: look new money with which to buy stocks. Let's just 136 00:08:09,760 --> 00:08:13,280 Speaker 1: talk about briefly, just stocks in UH. The E t 137 00:08:13,480 --> 00:08:17,400 Speaker 1: F in the trim tabs H A C right T 138 00:08:17,400 --> 00:08:20,720 Speaker 1: T A C is the symbol, correct, and UH it's 139 00:08:20,800 --> 00:08:24,240 Speaker 1: up sixteen point eight percent so far this year, SMP 140 00:08:24,360 --> 00:08:27,640 Speaker 1: five up thirteen and a quarter at three quarters of 141 00:08:27,640 --> 00:08:31,080 Speaker 1: a percent, So well done. Looking at the stocks, though, 142 00:08:31,400 --> 00:08:34,440 Speaker 1: do you even care what the stocks do? Not? Really 143 00:08:34,640 --> 00:08:38,040 Speaker 1: you don't, So you don't care whether you're long cognixt stamps, 144 00:08:38,080 --> 00:08:41,240 Speaker 1: dot Com and match group. You just want them to 145 00:08:41,320 --> 00:08:44,160 Speaker 1: have certain characteris you wanted to have growing free cash 146 00:08:44,200 --> 00:08:46,839 Speaker 1: flow and use a portion of it to reduce the 147 00:08:46,920 --> 00:08:50,520 Speaker 1: share count. And where they don't increase the debt asset ratio, 148 00:08:50,679 --> 00:08:53,120 Speaker 1: meaning they have a strong balance sheet. Okay, all right, 149 00:08:53,240 --> 00:08:55,600 Speaker 1: Just wanted to check last question to you and just 150 00:08:55,640 --> 00:08:57,320 Speaker 1: briefly because I know that you've spent a lot of 151 00:08:57,360 --> 00:08:59,840 Speaker 1: time you lived in Santa Rosa, California. We've been tracking 152 00:08:59,880 --> 00:09:02,760 Speaker 1: the wildfires that are there. What do you know? What 153 00:09:02,800 --> 00:09:05,280 Speaker 1: can you tell us? Well, the house I raised my 154 00:09:05,360 --> 00:09:09,079 Speaker 1: son is gone. The whole neighborhood where for twenty years, 155 00:09:09,840 --> 00:09:12,960 Speaker 1: the golf course, country club down the road half a 156 00:09:12,960 --> 00:09:17,800 Speaker 1: mile all gone and my Santa Rosa in Santa Rosa, California. 157 00:09:17,880 --> 00:09:19,959 Speaker 1: My son just told me that I didn't know until 158 00:09:20,040 --> 00:09:22,839 Speaker 1: this till right before I came in here that are 159 00:09:23,320 --> 00:09:25,920 Speaker 1: and fortunately we sold the house a couple of years ago, 160 00:09:26,000 --> 00:09:29,680 Speaker 1: but still the memories are gone. Yeah. Well, it's a 161 00:09:29,760 --> 00:09:32,559 Speaker 1: it's a tragedy that is affecting a lot of people 162 00:09:32,600 --> 00:09:35,840 Speaker 1: today as we look at images of a completely decimated, 163 00:09:36,240 --> 00:09:38,760 Speaker 1: uh suburban neighborhood. Thank you, so much for joining us. 164 00:09:39,000 --> 00:09:43,000 Speaker 1: Charlie Bierman, founder of trim Tabs Asset Management, joining us 165 00:09:43,000 --> 00:09:45,640 Speaker 1: here after flying from Hawaii. I'm impressed that you came 166 00:09:45,679 --> 00:10:00,439 Speaker 1: to New York from Hawaii at all. Right now, I 167 00:10:00,440 --> 00:10:03,280 Speaker 1: want to take a look at who's growing faster. Who 168 00:10:03,440 --> 00:10:05,439 Speaker 1: is going to grow faster in the next couple of years, 169 00:10:05,679 --> 00:10:09,280 Speaker 1: the US, Europe, or Japan. Our next guests thinks that 170 00:10:09,320 --> 00:10:13,120 Speaker 1: Europe and Japan have the edge on the the US. 171 00:10:13,160 --> 00:10:16,120 Speaker 1: That would be Ron Sanchez, chief's chief investment strategist at 172 00:10:16,120 --> 00:10:19,600 Speaker 1: Fiduciary Trust International, which has seventy eight billion dollars in 173 00:10:19,760 --> 00:10:23,080 Speaker 1: US it's under management and is a private wealth division 174 00:10:23,080 --> 00:10:25,680 Speaker 1: of Franklin Templeton Investments. Ron, thank you so much for 175 00:10:25,760 --> 00:10:30,400 Speaker 1: joining us. Um. I'm looking at the blended average of 176 00:10:30,559 --> 00:10:34,840 Speaker 1: analyst estimates for GDP in the US versus the Eurozone, 177 00:10:34,960 --> 00:10:38,280 Speaker 1: and generally economists think that the US is going to 178 00:10:38,360 --> 00:10:43,720 Speaker 1: grow faster than the euro Zone. In you think they 179 00:10:43,720 --> 00:10:47,439 Speaker 1: could be wrong? Why? Well, the fundamentals in Europe are 180 00:10:47,520 --> 00:10:51,280 Speaker 1: quite positive, and even if they don't grow faster than 181 00:10:51,280 --> 00:10:54,840 Speaker 1: the US, they have the potential to grow for longer. 182 00:10:54,920 --> 00:10:58,720 Speaker 1: They are definitely on a self sustaining recovery. Growth in 183 00:10:58,760 --> 00:11:02,000 Speaker 1: Europe has been meager for five years. They've been rolling 184 00:11:02,080 --> 00:11:04,600 Speaker 1: in and out of a deck crisis UM. And for 185 00:11:04,640 --> 00:11:08,040 Speaker 1: the first time they're moving past austerity. And so the 186 00:11:08,080 --> 00:11:11,480 Speaker 1: fundamentals UM for the economy to have a kind of 187 00:11:11,600 --> 00:11:15,240 Speaker 1: muddle through, meaning to to in a quarter, are quite compelling. 188 00:11:15,280 --> 00:11:16,960 Speaker 1: And we think that if we look out over the 189 00:11:17,000 --> 00:11:19,840 Speaker 1: next couple of years, they can continue to grow at 190 00:11:19,880 --> 00:11:22,600 Speaker 1: that rate. We are here in the US, we've had 191 00:11:22,640 --> 00:11:26,000 Speaker 1: about eight years of an economic recovery. UM. If I 192 00:11:26,040 --> 00:11:29,120 Speaker 1: look abroad, UM, I think it's it's in the early 193 00:11:29,200 --> 00:11:32,760 Speaker 1: cycle of an economic recovery. And so from a market perspective, 194 00:11:32,800 --> 00:11:36,200 Speaker 1: I think there's a greater opportunity for price returns there 195 00:11:36,280 --> 00:11:39,320 Speaker 1: where their profit margins are half, their return on equity 196 00:11:39,400 --> 00:11:42,640 Speaker 1: is not quite as strong as the US and UM, 197 00:11:42,679 --> 00:11:44,640 Speaker 1: and valuations are a little bit lower. So from a 198 00:11:44,679 --> 00:11:47,840 Speaker 1: market dynamic, UM, I think there continues to be compelling 199 00:11:47,840 --> 00:11:51,960 Speaker 1: opportunity and certainly in UM that has been the case. 200 00:11:52,600 --> 00:11:56,080 Speaker 1: So you say that in Europe they're moving away from austerity, 201 00:11:56,120 --> 00:11:59,360 Speaker 1: what particularly are you pointing to when you say that? 202 00:12:00,559 --> 00:12:03,640 Speaker 1: And so they're from a fiscal standpoint, UM, they have 203 00:12:04,000 --> 00:12:07,000 Speaker 1: UM really tightened up their their budgets in response to 204 00:12:07,040 --> 00:12:09,240 Speaker 1: the credit crisis. They spent a lot of money in 205 00:12:09,640 --> 00:12:14,559 Speaker 1: Greece UM, and they haven't really developed pro stimulus UM policies, 206 00:12:14,800 --> 00:12:18,800 Speaker 1: and fiscal policy actually has been contracting. That's why monetary policy, 207 00:12:18,920 --> 00:12:23,240 Speaker 1: meaning the European Central Bank UM has set rates at 208 00:12:23,320 --> 00:12:26,920 Speaker 1: zero because they haven't really been able to UM. They're 209 00:12:26,920 --> 00:12:30,480 Speaker 1: trying to offset the lack of fiscal budgetary spending. And 210 00:12:30,520 --> 00:12:32,280 Speaker 1: I think a lot of those pressures are starting to 211 00:12:32,320 --> 00:12:35,680 Speaker 1: ease UM. You're seeing a little capital investment come back UM, 212 00:12:35,720 --> 00:12:38,720 Speaker 1: and I think the prospects are are are quite reasonable 213 00:12:38,720 --> 00:12:41,559 Speaker 1: in in Europe, and the return profile looks attractive to US. 214 00:12:41,600 --> 00:12:45,120 Speaker 1: So if you're holding US equities, you should maybe rebalanced 215 00:12:45,120 --> 00:12:47,360 Speaker 1: and you should add some European equities. What would be 216 00:12:47,400 --> 00:12:49,840 Speaker 1: the action that you would take that is correct? And 217 00:12:49,880 --> 00:12:52,960 Speaker 1: I think what we're experiencing is that investors have become 218 00:12:53,000 --> 00:12:56,480 Speaker 1: preconditioned for the US. The US has been the best 219 00:12:56,520 --> 00:12:59,520 Speaker 1: economy since the credit crisis. It went through its banking 220 00:12:59,559 --> 00:13:03,600 Speaker 1: reforms a lot faster UM. Companies tend to respond quicker 221 00:13:03,640 --> 00:13:06,560 Speaker 1: here in the US. Interest rates were low, and companies 222 00:13:06,960 --> 00:13:09,840 Speaker 1: UM in the US have really, really benefited, and again 223 00:13:09,880 --> 00:13:12,080 Speaker 1: you see that in the return profile. It has been 224 00:13:12,120 --> 00:13:15,360 Speaker 1: the strongest return profile. And I think the opportunities for 225 00:13:15,440 --> 00:13:19,400 Speaker 1: the first time now UM are in global resynchronization outside 226 00:13:19,400 --> 00:13:20,920 Speaker 1: of the US. But would that I just want to 227 00:13:20,960 --> 00:13:23,719 Speaker 1: make sure you're not chasing the return, right, I mean, 228 00:13:23,720 --> 00:13:25,480 Speaker 1: because you know that's always the issue. Right now that 229 00:13:25,520 --> 00:13:28,600 Speaker 1: everybody knows exactly what it is and it's been articulated 230 00:13:28,600 --> 00:13:31,760 Speaker 1: as you described, I would be WHOA wait a minute, 231 00:13:31,800 --> 00:13:34,480 Speaker 1: this is already out there. All the money has already 232 00:13:34,480 --> 00:13:36,160 Speaker 1: been made. Or is it just the easy money has 233 00:13:36,200 --> 00:13:38,760 Speaker 1: been made? I think the easy money has been made UM, 234 00:13:38,800 --> 00:13:42,880 Speaker 1: But investors should always have a global diversification. They shouldn't 235 00:13:42,920 --> 00:13:46,560 Speaker 1: rely on one economy, even though are just economy. And 236 00:13:46,640 --> 00:13:48,680 Speaker 1: so when I look outside the U S, I I 237 00:13:48,720 --> 00:13:51,520 Speaker 1: think there's a greater trajectory from Europe. If you look 238 00:13:51,520 --> 00:13:54,839 Speaker 1: at emerging markets, they just emerged from a recession in 239 00:13:56,480 --> 00:13:59,320 Speaker 1: early sixteen, and so the growth prospects of the emerging 240 00:13:59,360 --> 00:14:02,760 Speaker 1: market are starting to re accelerate. I wouldn't describe the 241 00:14:02,800 --> 00:14:07,520 Speaker 1: economic backdrop as robust anywhere. That's not our central thesis UM, 242 00:14:07,520 --> 00:14:11,480 Speaker 1: but a broadening out um of and a global resynchronization 243 00:14:12,000 --> 00:14:15,160 Speaker 1: UM and an increase in trade activity is definitely taking 244 00:14:15,160 --> 00:14:18,560 Speaker 1: place in and I think the return profile across the 245 00:14:18,600 --> 00:14:21,880 Speaker 1: board has has started to show that. So when did 246 00:14:21,920 --> 00:14:25,920 Speaker 1: you shift your thesis and what did you advise clients 247 00:14:25,960 --> 00:14:29,000 Speaker 1: to do with the mix of their investments as a result, 248 00:14:29,680 --> 00:14:32,560 Speaker 1: so you started to see UM an improvement in economic 249 00:14:32,600 --> 00:14:37,680 Speaker 1: activity UM in the second half of UM. Once commodities 250 00:14:37,680 --> 00:14:41,560 Speaker 1: started to improve UM, you start a lows in interest rates. 251 00:14:41,560 --> 00:14:43,800 Speaker 1: We saw a broadening out and that broadening out has 252 00:14:43,840 --> 00:14:46,480 Speaker 1: continued a little bit of a hiccup around Brexit, but 253 00:14:46,520 --> 00:14:49,400 Speaker 1: that actually, in hindsight, turned out to be the turning point. 254 00:14:49,520 --> 00:14:51,800 Speaker 1: So you haven't changed your thesis since the second quarter 255 00:14:51,840 --> 00:14:55,560 Speaker 1: of That's right, Well, we continue as we get confirmation 256 00:14:55,720 --> 00:14:59,520 Speaker 1: of our economic thesis, we continue to increase our allocation 257 00:14:59,600 --> 00:15:01,640 Speaker 1: outside the U S. So how much have you increased 258 00:15:01,640 --> 00:15:07,840 Speaker 1: it today for example versus the second quarter of about UM. 259 00:15:07,920 --> 00:15:10,720 Speaker 1: So we're up to about a blend now of US 260 00:15:10,960 --> 00:15:14,720 Speaker 1: about seventy of our portfolios from a global perspective, seventy 261 00:15:14,800 --> 00:15:18,640 Speaker 1: five are in the US, are outside the US and 262 00:15:18,680 --> 00:15:22,840 Speaker 1: back in the second quarter, and so a meaningful increase. 263 00:15:23,400 --> 00:15:26,040 Speaker 1: Can you speak a little bit about Japan obviously outside 264 00:15:26,080 --> 00:15:29,520 Speaker 1: the United States, but there is a snap election that 265 00:15:29,560 --> 00:15:33,520 Speaker 1: has been called, and this could throw into question Prime 266 00:15:33,560 --> 00:15:38,800 Speaker 1: Minister shan Zo Abe's abeamics as well as uh end 267 00:15:38,960 --> 00:15:42,160 Speaker 1: his role as the leader of Japan. So certainly political 268 00:15:42,280 --> 00:15:44,960 Speaker 1: uncertainty both here last year in the US. UM, you 269 00:15:45,000 --> 00:15:48,080 Speaker 1: saw it in France again, we'll we'll see it with 270 00:15:48,120 --> 00:15:52,360 Speaker 1: Theresa May UM and and here with Abe. UM remains 271 00:15:52,600 --> 00:15:55,320 Speaker 1: a fair amount of uncertainty. But having said that, UM, 272 00:15:55,360 --> 00:15:58,800 Speaker 1: we think he will prevail. UM. He's quite popular there. UM. 273 00:15:58,880 --> 00:16:00,920 Speaker 1: And at the end of the day, UM, it comes 274 00:16:00,960 --> 00:16:04,280 Speaker 1: back to the economic fundamentals, and we have six straight 275 00:16:04,520 --> 00:16:07,920 Speaker 1: quarters of economic growth. I think it's the fastest um 276 00:16:07,960 --> 00:16:10,800 Speaker 1: and consistent growth they've had in two decades. See, I 277 00:16:10,800 --> 00:16:12,120 Speaker 1: think we're going to tell me that the Bank of 278 00:16:12,200 --> 00:16:16,120 Speaker 1: Japan basically owns or sets asset prices because they own 279 00:16:16,320 --> 00:16:20,400 Speaker 1: so much of the Japanese stock market to exchange traded funds, 280 00:16:20,480 --> 00:16:23,960 Speaker 1: and they own so much of Japanese government debt the 281 00:16:24,160 --> 00:16:27,880 Speaker 1: the price center. That is absolutely correct. They target UM 282 00:16:27,920 --> 00:16:30,960 Speaker 1: their tenure at zero UM. And we think that when 283 00:16:30,960 --> 00:16:35,040 Speaker 1: you look around other central banks that have influenced their 284 00:16:35,080 --> 00:16:37,160 Speaker 1: capital markets, I mean the US has done it. The 285 00:16:37,360 --> 00:16:39,840 Speaker 1: CB has done it UM, and so has the Bank 286 00:16:39,840 --> 00:16:42,120 Speaker 1: of Japan UM. And they've done it to a great extent. 287 00:16:42,280 --> 00:16:45,240 Speaker 1: And not only are they buying US treasury notes, they actually, 288 00:16:45,280 --> 00:16:47,960 Speaker 1: to your point, are are buying the broader index. And 289 00:16:48,000 --> 00:16:51,520 Speaker 1: I think they own a fair amount of every major 290 00:16:51,600 --> 00:16:54,680 Speaker 1: company Japanese company UM. They want to think up of 291 00:16:54,920 --> 00:16:58,240 Speaker 1: their five and so the technical support for that market 292 00:16:58,560 --> 00:17:02,520 Speaker 1: in addition to the econom fundamentals and a return profile 293 00:17:02,680 --> 00:17:06,560 Speaker 1: that is way less um than than other markets. UM. Again, 294 00:17:06,600 --> 00:17:09,159 Speaker 1: we think there's opportunities in that in Japan. Just just 295 00:17:09,240 --> 00:17:11,200 Speaker 1: real quick, I'm wondering. You know, the second quarter of 296 00:17:11,560 --> 00:17:15,040 Speaker 1: sixteen was before the election in November. Your thesis didn't 297 00:17:15,080 --> 00:17:17,199 Speaker 1: change after that at all? Did it? No? It did not. 298 00:17:17,320 --> 00:17:20,679 Speaker 1: Although we became more encouraged for the prospects for the 299 00:17:20,720 --> 00:17:24,720 Speaker 1: first time of pro growth policies coming out of Washington, 300 00:17:25,200 --> 00:17:28,600 Speaker 1: markets have really relied on monetary policy and not fiscal policy, 301 00:17:28,600 --> 00:17:31,840 Speaker 1: and so we've had a a greater correction around our 302 00:17:31,880 --> 00:17:35,160 Speaker 1: economic fundamentals, as you well know. In seventeen that has 303 00:17:35,200 --> 00:17:37,720 Speaker 1: not yet panned out, UM, and there are prospects that 304 00:17:37,760 --> 00:17:40,119 Speaker 1: maybe an eighteen we start to see some fiscal stimulus, 305 00:17:40,400 --> 00:17:42,880 Speaker 1: but we're comfortable with the underlying trajectory of the economy. 306 00:17:43,240 --> 00:17:45,320 Speaker 1: Ron Sanchez, thank you very much. He is the chief 307 00:17:45,320 --> 00:17:50,639 Speaker 1: investment strategist Fiduciary Trust International, seventy eight billion dollars in 308 00:17:50,720 --> 00:17:53,720 Speaker 1: assets under management. It's the private wealth division of Franklin 309 00:17:53,800 --> 00:18:09,480 Speaker 1: Templeton Investments. All right, let's turn our attention now to 310 00:18:09,520 --> 00:18:12,400 Speaker 1: another giant consumer products company. This is the real tail, 311 00:18:12,480 --> 00:18:15,720 Speaker 1: the retailer Walmart. And helping us to understand this is 312 00:18:15,760 --> 00:18:19,320 Speaker 1: Punamgayal are Bloomberg Intelligence analysts and expert when it comes 313 00:18:19,359 --> 00:18:22,080 Speaker 1: to all things retailed. Punam. Uh, you know, we've been 314 00:18:22,080 --> 00:18:24,280 Speaker 1: hearing this story about how they're going to add a 315 00:18:24,320 --> 00:18:28,040 Speaker 1: thousand online grocery locations, They're going to open what two 316 00:18:28,400 --> 00:18:32,600 Speaker 1: and fifty stores outside the United States. Uh, they're gonna 317 00:18:32,640 --> 00:18:37,440 Speaker 1: buy back twenty billion dollars in shares. Is this first 318 00:18:37,440 --> 00:18:39,000 Speaker 1: of all? Is this all a done deal? I mean, 319 00:18:39,040 --> 00:18:40,760 Speaker 1: can they just say they're gonna do this and it's 320 00:18:40,800 --> 00:18:44,560 Speaker 1: going to happen or is this relying on future results? No? 321 00:18:44,760 --> 00:18:46,800 Speaker 1: I think I think what they've said is going to happen, 322 00:18:46,840 --> 00:18:49,080 Speaker 1: you know, buying back twenty billion dollars in shares is 323 00:18:49,160 --> 00:18:52,840 Speaker 1: under their control opening stores. I'm assuming they already have 324 00:18:53,119 --> 00:18:57,000 Speaker 1: Lisa signed, are close to having the locations UM done. 325 00:18:57,160 --> 00:19:00,119 Speaker 1: And then in terms of growing online sales, forty were 326 00:19:00,160 --> 00:19:03,240 Speaker 1: sent next year. That could be a wild card, it 327 00:19:03,240 --> 00:19:05,280 Speaker 1: could be better good reverse, but that's still a pretty 328 00:19:05,280 --> 00:19:07,880 Speaker 1: aggressive and good number for them to chase UM going 329 00:19:07,880 --> 00:19:11,080 Speaker 1: into next year. I'm struck by the cost of all 330 00:19:11,119 --> 00:19:15,080 Speaker 1: of this, to buy back twenty billion dollars of shares 331 00:19:15,119 --> 00:19:17,520 Speaker 1: and also to open all of these stores, and also 332 00:19:17,560 --> 00:19:23,040 Speaker 1: to invest in the distribution software and personnel necessary to 333 00:19:23,119 --> 00:19:26,800 Speaker 1: really build out that online presence. That's all expensive. Is 334 00:19:26,800 --> 00:19:28,760 Speaker 1: it going to cut into their earnings more than people 335 00:19:28,800 --> 00:19:31,280 Speaker 1: are really pricing in right now? No, I don't think so, 336 00:19:31,320 --> 00:19:33,120 Speaker 1: because a lot of it is coming out of their capex, 337 00:19:33,160 --> 00:19:36,280 Speaker 1: and their capex has been relatively flat on a dollar 338 00:19:36,320 --> 00:19:39,520 Speaker 1: basis um for the past few years. But there are 339 00:19:39,600 --> 00:19:42,400 Speaker 1: shifts in Quebex. So you heard them say that new 340 00:19:42,520 --> 00:19:45,240 Speaker 1: store growth next year is going to slow in the US, especially, 341 00:19:45,400 --> 00:19:48,680 Speaker 1: They're only going to be opening about fifteen supercenters next year, 342 00:19:49,119 --> 00:19:51,280 Speaker 1: so you know, you know there's money coming out of 343 00:19:51,320 --> 00:19:53,840 Speaker 1: some places. I'm going into other places. The focus right 344 00:19:53,880 --> 00:19:57,320 Speaker 1: now is clearly on digital in the US, and um, 345 00:19:57,359 --> 00:19:59,480 Speaker 1: it needs to be because they need to compete with Amazon. 346 00:20:00,040 --> 00:20:02,320 Speaker 1: You mentioned Amazon. The shares that Amazon are taking a 347 00:20:02,400 --> 00:20:04,080 Speaker 1: hit there down a little bit more than a half 348 00:20:04,080 --> 00:20:07,120 Speaker 1: a percent right now, three dollars are down more than 349 00:20:07,160 --> 00:20:10,439 Speaker 1: seven dollars a share. Do you think that in a 350 00:20:10,480 --> 00:20:13,679 Speaker 1: way Amazon's purchase of Whole Foods has brought on a 351 00:20:13,720 --> 00:20:17,160 Speaker 1: more direct competition with Walmart in an area that Walmart 352 00:20:17,240 --> 00:20:20,720 Speaker 1: is already very good at groceries? You know, yes and no. 353 00:20:21,040 --> 00:20:23,320 Speaker 1: Keep in mind that Whole Foods only has less than 354 00:20:23,480 --> 00:20:26,720 Speaker 1: four locations in the US, and they're probably targeted more 355 00:20:26,760 --> 00:20:30,639 Speaker 1: towards the upper income demographic, whereas Walmart, with thousands of 356 00:20:30,720 --> 00:20:34,440 Speaker 1: ware of centers in the US, they target kind of 357 00:20:34,520 --> 00:20:38,960 Speaker 1: everyone and mostly Middle America. So yes, there's some overlap, 358 00:20:39,200 --> 00:20:42,360 Speaker 1: but not so much. Still, but I'm struck by Target 359 00:20:42,440 --> 00:20:45,840 Speaker 1: because Target has been a loser as Walmart has improved 360 00:20:45,880 --> 00:20:51,720 Speaker 1: its salaries for lower income workers and has expanded more online. 361 00:20:51,760 --> 00:20:53,560 Speaker 1: Of yet it shares are up a little bit. How 362 00:20:53,640 --> 00:20:55,840 Speaker 1: does this play into target strategy or is that just 363 00:20:55,920 --> 00:20:59,360 Speaker 1: a completely separate story. So targets a little different. Um, 364 00:20:59,440 --> 00:21:02,480 Speaker 1: Walmart more than fifty percent of their revenues come from grocery, 365 00:21:02,720 --> 00:21:05,639 Speaker 1: where Target is still under So Target is not a 366 00:21:05,680 --> 00:21:08,880 Speaker 1: grocery retailer. Grocery helps them bring in traffic, but that's 367 00:21:08,920 --> 00:21:11,040 Speaker 1: not their main line of business. You know, they're more 368 00:21:11,160 --> 00:21:14,200 Speaker 1: known for their apparel, their kids, their baby, and their 369 00:21:14,200 --> 00:21:17,680 Speaker 1: health and wellness. So I think it's a little different. Yes, 370 00:21:17,720 --> 00:21:20,520 Speaker 1: Target needs to step up. It's offered on grocery and 371 00:21:20,560 --> 00:21:23,920 Speaker 1: digital to get traffic, which is what everyone in retail 372 00:21:24,000 --> 00:21:26,840 Speaker 1: is focused on. It's all about traffic, and grocery helps 373 00:21:26,840 --> 00:21:31,680 Speaker 1: with traffic. Tell us about this smart card system that 374 00:21:31,760 --> 00:21:34,600 Speaker 1: came with the Jet dot com three point three billion 375 00:21:34,600 --> 00:21:38,560 Speaker 1: dollar acquisition that Walmart did. Has to do with the 376 00:21:38,600 --> 00:21:42,560 Speaker 1: way that you pack your items online and maybe even 377 00:21:42,640 --> 00:21:45,720 Speaker 1: using a debit card rather than a credit card. Yes, 378 00:21:46,119 --> 00:21:48,200 Speaker 1: it's interesting. You know, they said they'll move over the 379 00:21:48,320 --> 00:21:50,959 Speaker 1: next year and a lot of what Jet has in 380 00:21:51,040 --> 00:21:54,320 Speaker 1: terms of technology, you know, Walmart will adapt. But essentially, 381 00:21:54,320 --> 00:21:57,359 Speaker 1: if you're buying let's say multiple items, they can price it, 382 00:21:57,400 --> 00:21:59,119 Speaker 1: they can pack it, you can choose to pick it 383 00:21:59,200 --> 00:22:02,280 Speaker 1: up in store, which they'll offer savings on because keep 384 00:22:02,320 --> 00:22:05,399 Speaker 1: in mind, the last mile is what costs them most 385 00:22:05,440 --> 00:22:09,320 Speaker 1: in terms of online delivery. Fulfillmon, so just packaging everything 386 00:22:09,359 --> 00:22:12,960 Speaker 1: together will help them with the bottom line. Well, I'll 387 00:22:13,000 --> 00:22:14,800 Speaker 1: just mentioned quickly that, you know, they also said that 388 00:22:14,800 --> 00:22:18,200 Speaker 1: they're going to hire two thousand what they call category specialists. 389 00:22:18,320 --> 00:22:21,320 Speaker 1: They're going to oversee all aspects of a particular product line. 390 00:22:21,320 --> 00:22:23,159 Speaker 1: So if you want to know what the best food 391 00:22:23,240 --> 00:22:26,120 Speaker 1: plastic food bag is, they're going to have someone there 392 00:22:26,200 --> 00:22:29,200 Speaker 1: or maybe even you know, treadmills plastic food bags of 393 00:22:29,240 --> 00:22:33,840 Speaker 1: treadmills expert two thousand people. Foodom Goyle thank you so 394 00:22:33,920 --> 00:22:36,679 Speaker 1: much for joining us. Fredom Goyle is a senior analyst 395 00:22:36,680 --> 00:22:44,359 Speaker 1: in US retailing for our own Bloomberg Intelligence and thanks 396 00:22:44,400 --> 00:22:47,000 Speaker 1: for listening to the Bloomberg P and L podcast. You 397 00:22:47,040 --> 00:22:50,840 Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 398 00:22:50,960 --> 00:22:54,400 Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm 399 00:22:54,440 --> 00:22:58,440 Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 400 00:22:58,560 --> 00:23:01,000 Speaker 1: It's one before the podcast. Ask. You can always catch 401 00:23:01,040 --> 00:23:02,760 Speaker 1: us worldwide on Blueberg Radio.