Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. All right,
Speaker 1: let's turn our attention now to why stocks go up
Speaker 1: and down? And joining us is Charlie Biederman. He is
Speaker 1: the president and chief executive of trim Tabs Investment Management. Charlie,
Speaker 1: thanks for being here in the studio with us. I
Speaker 1: gotta start with that simple question, but it's not really
Speaker 1: that simple because it doesn't It doesn't stick a lot
Speaker 1: of times. Why does stock prices move in one direction
Speaker 1: versus another? Well, the simple answer this year, say, is
Speaker 1: the central banks of Japan and the e C and
Speaker 1: Europe have been adding about a hundred and thirties some
Speaker 1: odd billion every month and newly created money with which
Speaker 1: to buy financial assets. So everything else being equal, more
Speaker 1: money chasing an existing number of a financial assets, the
Speaker 1: price of those assets should go up. It's that simple.
Speaker 1: Given that it's that simple, and that companies have been
Speaker 1: buying back their shares sort of adding to the demand
Speaker 1: and the supply of cash. Absolutely, he would think that
Speaker 1: first of all, any share buy backs would have the
Speaker 1: same effect, and second of all that stocks should keep
Speaker 1: going up as companies continue to repurchase their shares. But
Speaker 1: you just did some research showing that all share buy
Speaker 1: backs are not equal. Can you give us some color
Speaker 1: from that? Sure? Uh? Our fun trim tabs, float shrink
Speaker 1: e t F ticker symbol t T a C in
Speaker 1: case anybody cares, only by sorry, only by companies who
Speaker 1: are grow in free cash flow and using a portion
Speaker 1: of that free cash flow to reduce the share count.
Speaker 1: Companies that borrow money to do buy backs, they don't outperform.
Speaker 1: If you look at various buy back funds, they underperform
Speaker 1: our fund because they a lot of those companies that
Speaker 1: they do a lot of buy backs, they borrow to
Speaker 1: do those buy backs, and therefore the companies don't outperform
Speaker 1: and the stocks don't do well. So there's significant difference,
Speaker 1: I mean between a company growing cash. Free cash flow
Speaker 1: is the best metric there is, and if companies use
Speaker 1: a portion of the free cash flow reduced to share count.
Speaker 1: That's a double good. So I guess that it's sort
Speaker 1: of less that uh, it matters what source of cash
Speaker 1: they're using than the companies just don't have as much
Speaker 1: free cash flow to to buy back their shares. Correct. Well,
Speaker 1: I wouldn't trust a company that's not making cash and
Speaker 1: using the cash to buy back shares. That sounds to
Speaker 1: me like they're more interested in the stock price than
Speaker 1: they are in the corporate results. You know, companies that
Speaker 1: have no choice, like IBM, with there's no growth. Revenues
Speaker 1: have been shrinking and they keep They reduced a share
Speaker 1: account by fift and the price hasn't gone anywhere all right,
Speaker 1: So I want to just to go back to my
Speaker 1: most simplistic description of why prices move. It's because it's
Speaker 1: supplying to man, If you have a constant inventory and
Speaker 1: there's consistent and growing demand for that same inventory, the
Speaker 1: value of the inventory is going to go up the
Speaker 1: value of the stock price. If no one wants that inventory,
Speaker 1: the price is going to decline. If that's the case,
Speaker 1: why are not? Why are not? Corporate inside is buying
Speaker 1: their own shares. But at the same time, you see
Speaker 1: that cash flow is growing for SMP five companies. If
Speaker 1: they're growing cash, why aren't they spending it? Good question.
Speaker 1: So I've been looking at corporate cash flow has been
Speaker 1: rising in aggregate and corporate buying, announced by backs, announced
Speaker 1: share cash takeovers. I mean, even with the wal the
Speaker 1: Walmart as an exception, and the hundred billion for banks
Speaker 1: as an exception, because of the regulatory relief. Uh that
Speaker 1: those suxceptions, announced corporate buybacks have been shrinking while their
Speaker 1: cash flow is growing and insider selling is spiking and
Speaker 1: we're not and and also companies are reducing capital expenditures.
Speaker 1: There's only one logical conclusion I make, and that corporate
Speaker 1: America is scared of Donald Trump and they're unwilling to
Speaker 1: invest big money into the economy and into their shares
Speaker 1: given the risks that are going on. I mean, yes,
Speaker 1: we we've we track real time data. Wage and salary
Speaker 1: growth has been rising faster this year than before. I
Speaker 1: really think that's due to one removal of as many
Speaker 1: regulations as possible, freeing up small business to actually get
Speaker 1: stuff started. And too, a lot of small business America
Speaker 1: are definitely firm believers that Donald Trump is the miracle man.
Speaker 1: And uh so I think that's the only tail when
Speaker 1: we've got we have, UH, global commodities are in a recession, oil, metals,
Speaker 1: all prices have been trending lower. Automobiles, I say, automobile
Speaker 1: industry globally is in a recession. There's way too much
Speaker 1: excess capacity, and the housing market is not doing well.
Speaker 1: I don't believe that there's a shortage of supply, which
Speaker 1: is why sales are down. Sales are down because demand
Speaker 1: is down. So how do you square this with how
Speaker 1: you invest? I mean, it sounds like you're pretty bearished well,
Speaker 1: except as I said to begin with, when when banks
Speaker 1: are adding to the amount of cash available to buy shares,
Speaker 1: the market is not going to go down. And I'm
Speaker 1: polish in my holdings, even though at some point in
Speaker 1: the future, UM, things will not do well. But when
Speaker 1: I don't know how long that's gonna happen. How long
Speaker 1: is it going to take? We'll continue this conversation Charlie Biederman,
Speaker 1: founder of trim Tabs Asset Management, talking about what companies
Speaker 1: are doing with their cash, and this has definitely been
Speaker 1: an ongoing question, especially as when Charlie pointed out that
Speaker 1: share by backs have gone down. You have seen cash
Speaker 1: go up. And not only that, but Blueberg published a
Speaker 1: story yesterday showing that the volume of bank loans is
Speaker 1: expected to grow at the smallest pace in years in
Speaker 1: the third quarter, adding to potential UH pressure on their
Speaker 1: balance sheets, but especially as as companies failed to aggressively expand.
Speaker 1: I want to content to continue our conversation with Charlie Biederman,
Speaker 1: founder of trim Tabs asset Management. And when I think
Speaker 1: of trim Tabs, I think of really great flows data
Speaker 1: which gives you a sense of where the money is
Speaker 1: going and where it is leaving. And Charlie, I'd love
Speaker 1: to get your sense, we were talking offline that it
Speaker 1: isn't flowing as much towards US equities as many people think,
Speaker 1: and yet the money just keeps flooding into fixed income.
Speaker 1: Can you give us sense of how much this is
Speaker 1: the case. Well, since the start of the year, there's
Speaker 1: been a consistent outflow from US equity mutual funds, and
Speaker 1: there's been a less there's been an inflow, but smaller
Speaker 1: inflow than the outflow into US equity e t f s.
Speaker 1: So that says that money might be going from active
Speaker 1: management to passive and any new money that's going in
Speaker 1: going in passive is going you know, going into E
Speaker 1: t F. So you know, it's interesting we're seeing and
Speaker 1: where's the money going, what's going into bond funds as
Speaker 1: well as some money going globally, you know, some of
Speaker 1: the UH markets that are doing the best, riskier markets,
Speaker 1: I don't know, players like to play, gamblers like to gamble,
Speaker 1: and so there's a lot of money going off shore
Speaker 1: as well. But what's interesting to me is, like we're talking,
Speaker 1: there's no new money from individuals. Corporations are buying less
Speaker 1: so far this year, and if it wasn't for the
Speaker 1: central banks, we would be in big trouble. I mean,
Speaker 1: it wasn't the central banks. They're the only source of
Speaker 1: look new money with which to buy stocks. Let's just
Speaker 1: talk about briefly, just stocks in UH. The E t
Speaker 1: F in the trim tabs H A C right T
Speaker 1: T A C is the symbol, correct, and UH it's
Speaker 1: up sixteen point eight percent so far this year, SMP
Speaker 1: five up thirteen and a quarter at three quarters of
Speaker 1: a percent, So well done. Looking at the stocks, though,
Speaker 1: do you even care what the stocks do? Not? Really
Speaker 1: you don't, So you don't care whether you're long cognixt stamps,
Speaker 1: dot Com and match group. You just want them to
Speaker 1: have certain characteris you wanted to have growing free cash
Speaker 1: flow and use a portion of it to reduce the
Speaker 1: share count. And where they don't increase the debt asset ratio,
Speaker 1: meaning they have a strong balance sheet. Okay, all right,
Speaker 1: Just wanted to check last question to you and just
Speaker 1: briefly because I know that you've spent a lot of
Speaker 1: time you lived in Santa Rosa, California. We've been tracking
Speaker 1: the wildfires that are there. What do you know? What
Speaker 1: can you tell us? Well, the house I raised my
Speaker 1: son is gone. The whole neighborhood where for twenty years,
Speaker 1: the golf course, country club down the road half a
Speaker 1: mile all gone and my Santa Rosa in Santa Rosa, California.
Speaker 1: My son just told me that I didn't know until
Speaker 1: this till right before I came in here that are
Speaker 1: and fortunately we sold the house a couple of years ago,
Speaker 1: but still the memories are gone. Yeah. Well, it's a
Speaker 1: it's a tragedy that is affecting a lot of people
Speaker 1: today as we look at images of a completely decimated,
Speaker 1: uh suburban neighborhood. Thank you, so much for joining us.
Speaker 1: Charlie Bierman, founder of trim Tabs Asset Management, joining us
Speaker 1: here after flying from Hawaii. I'm impressed that you came
Speaker 1: to New York from Hawaii at all. Right now, I
Speaker 1: want to take a look at who's growing faster. Who
Speaker 1: is going to grow faster in the next couple of years,
Speaker 1: the US, Europe, or Japan. Our next guests thinks that
Speaker 1: Europe and Japan have the edge on the the US.
Speaker 1: That would be Ron Sanchez, chief's chief investment strategist at
Speaker 1: Fiduciary Trust International, which has seventy eight billion dollars in
Speaker 1: US it's under management and is a private wealth division
Speaker 1: of Franklin Templeton Investments. Ron, thank you so much for
Speaker 1: joining us. Um. I'm looking at the blended average of
Speaker 1: analyst estimates for GDP in the US versus the Eurozone,
Speaker 1: and generally economists think that the US is going to
Speaker 1: grow faster than the euro Zone. In you think they
Speaker 1: could be wrong? Why? Well, the fundamentals in Europe are
Speaker 1: quite positive, and even if they don't grow faster than
Speaker 1: the US, they have the potential to grow for longer.
Speaker 1: They are definitely on a self sustaining recovery. Growth in
Speaker 1: Europe has been meager for five years. They've been rolling
Speaker 1: in and out of a deck crisis UM. And for
Speaker 1: the first time they're moving past austerity. And so the
Speaker 1: fundamentals UM for the economy to have a kind of
Speaker 1: muddle through, meaning to to in a quarter, are quite compelling.
Speaker 1: And we think that if we look out over the
Speaker 1: next couple of years, they can continue to grow at
Speaker 1: that rate. We are here in the US, we've had
Speaker 1: about eight years of an economic recovery. UM. If I
Speaker 1: look abroad, UM, I think it's it's in the early
Speaker 1: cycle of an economic recovery. And so from a market perspective,
Speaker 1: I think there's a greater opportunity for price returns there
Speaker 1: where their profit margins are half, their return on equity
Speaker 1: is not quite as strong as the US and UM,
Speaker 1: and valuations are a little bit lower. So from a
Speaker 1: market dynamic, UM, I think there continues to be compelling
Speaker 1: opportunity and certainly in UM that has been the case.
Speaker 1: So you say that in Europe they're moving away from austerity,
Speaker 1: what particularly are you pointing to when you say that?
Speaker 1: And so they're from a fiscal standpoint, UM, they have
Speaker 1: UM really tightened up their their budgets in response to
Speaker 1: the credit crisis. They spent a lot of money in
Speaker 1: Greece UM, and they haven't really developed pro stimulus UM policies,
Speaker 1: and fiscal policy actually has been contracting. That's why monetary policy,
Speaker 1: meaning the European Central Bank UM has set rates at
Speaker 1: zero because they haven't really been able to UM. They're
Speaker 1: trying to offset the lack of fiscal budgetary spending. And
Speaker 1: I think a lot of those pressures are starting to
Speaker 1: ease UM. You're seeing a little capital investment come back UM,
Speaker 1: and I think the prospects are are are quite reasonable
Speaker 1: in in Europe, and the return profile looks attractive to US.
Speaker 1: So if you're holding US equities, you should maybe rebalanced
Speaker 1: and you should add some European equities. What would be
Speaker 1: the action that you would take that is correct? And
Speaker 1: I think what we're experiencing is that investors have become
Speaker 1: preconditioned for the US. The US has been the best
Speaker 1: economy since the credit crisis. It went through its banking
Speaker 1: reforms a lot faster UM. Companies tend to respond quicker
Speaker 1: here in the US. Interest rates were low, and companies
Speaker 1: UM in the US have really, really benefited, and again
Speaker 1: you see that in the return profile. It has been
Speaker 1: the strongest return profile. And I think the opportunities for
Speaker 1: the first time now UM are in global resynchronization outside
Speaker 1: of the US. But would that I just want to
Speaker 1: make sure you're not chasing the return, right, I mean,
Speaker 1: because you know that's always the issue. Right now that
Speaker 1: everybody knows exactly what it is and it's been articulated
Speaker 1: as you described, I would be WHOA wait a minute,
Speaker 1: this is already out there. All the money has already
Speaker 1: been made. Or is it just the easy money has
Speaker 1: been made? I think the easy money has been made UM,
Speaker 1: But investors should always have a global diversification. They shouldn't
Speaker 1: rely on one economy, even though are just economy. And
Speaker 1: so when I look outside the U S, I I
Speaker 1: think there's a greater trajectory from Europe. If you look
Speaker 1: at emerging markets, they just emerged from a recession in
Speaker 1: early sixteen, and so the growth prospects of the emerging
Speaker 1: market are starting to re accelerate. I wouldn't describe the
Speaker 1: economic backdrop as robust anywhere. That's not our central thesis UM,
Speaker 1: but a broadening out um of and a global resynchronization
Speaker 1: UM and an increase in trade activity is definitely taking
Speaker 1: place in and I think the return profile across the
Speaker 1: board has has started to show that. So when did
Speaker 1: you shift your thesis and what did you advise clients
Speaker 1: to do with the mix of their investments as a result,
Speaker 1: so you started to see UM an improvement in economic
Speaker 1: activity UM in the second half of UM. Once commodities
Speaker 1: started to improve UM, you start a lows in interest rates.
Speaker 1: We saw a broadening out and that broadening out has
Speaker 1: continued a little bit of a hiccup around Brexit, but
Speaker 1: that actually, in hindsight, turned out to be the turning point.
Speaker 1: So you haven't changed your thesis since the second quarter
Speaker 1: of That's right, Well, we continue as we get confirmation
Speaker 1: of our economic thesis, we continue to increase our allocation
Speaker 1: outside the U S. So how much have you increased
Speaker 1: it today for example versus the second quarter of about UM.
Speaker 1: So we're up to about a blend now of US
Speaker 1: about seventy of our portfolios from a global perspective, seventy
Speaker 1: five are in the US, are outside the US and
Speaker 1: back in the second quarter, and so a meaningful increase.
Speaker 1: Can you speak a little bit about Japan obviously outside
Speaker 1: the United States, but there is a snap election that
Speaker 1: has been called, and this could throw into question Prime
Speaker 1: Minister shan Zo Abe's abeamics as well as uh end
Speaker 1: his role as the leader of Japan. So certainly political
Speaker 1: uncertainty both here last year in the US. UM, you
Speaker 1: saw it in France again, we'll we'll see it with
Speaker 1: Theresa May UM and and here with Abe. UM remains
Speaker 1: a fair amount of uncertainty. But having said that, UM,
Speaker 1: we think he will prevail. UM. He's quite popular there. UM.
Speaker 1: And at the end of the day, UM, it comes
Speaker 1: back to the economic fundamentals, and we have six straight
Speaker 1: quarters of economic growth. I think it's the fastest um
Speaker 1: and consistent growth they've had in two decades. See, I
Speaker 1: think we're going to tell me that the Bank of
Speaker 1: Japan basically owns or sets asset prices because they own
Speaker 1: so much of the Japanese stock market to exchange traded funds,
Speaker 1: and they own so much of Japanese government debt the
Speaker 1: the price center. That is absolutely correct. They target UM
Speaker 1: their tenure at zero UM. And we think that when
Speaker 1: you look around other central banks that have influenced their
Speaker 1: capital markets, I mean the US has done it. The
Speaker 1: CB has done it UM, and so has the Bank
Speaker 1: of Japan UM. And they've done it to a great extent.
Speaker 1: And not only are they buying US treasury notes, they actually,
Speaker 1: to your point, are are buying the broader index. And
Speaker 1: I think they own a fair amount of every major
Speaker 1: company Japanese company UM. They want to think up of
Speaker 1: their five and so the technical support for that market
Speaker 1: in addition to the econom fundamentals and a return profile
Speaker 1: that is way less um than than other markets. UM. Again,
Speaker 1: we think there's opportunities in that in Japan. Just just
Speaker 1: real quick, I'm wondering. You know, the second quarter of
Speaker 1: sixteen was before the election in November. Your thesis didn't
Speaker 1: change after that at all? Did it? No? It did not.
Speaker 1: Although we became more encouraged for the prospects for the
Speaker 1: first time of pro growth policies coming out of Washington,
Speaker 1: markets have really relied on monetary policy and not fiscal policy,
Speaker 1: and so we've had a a greater correction around our
Speaker 1: economic fundamentals, as you well know. In seventeen that has
Speaker 1: not yet panned out, UM, and there are prospects that
Speaker 1: maybe an eighteen we start to see some fiscal stimulus,
Speaker 1: but we're comfortable with the underlying trajectory of the economy.
Speaker 1: Ron Sanchez, thank you very much. He is the chief
Speaker 1: investment strategist Fiduciary Trust International, seventy eight billion dollars in
Speaker 1: assets under management. It's the private wealth division of Franklin
Speaker 1: Templeton Investments. All right, let's turn our attention now to
Speaker 1: another giant consumer products company. This is the real tail,
Speaker 1: the retailer Walmart. And helping us to understand this is
Speaker 1: Punamgayal are Bloomberg Intelligence analysts and expert when it comes
Speaker 1: to all things retailed. Punam. Uh, you know, we've been
Speaker 1: hearing this story about how they're going to add a
Speaker 1: thousand online grocery locations, They're going to open what two
Speaker 1: and fifty stores outside the United States. Uh, they're gonna
Speaker 1: buy back twenty billion dollars in shares. Is this first
Speaker 1: of all? Is this all a done deal? I mean,
Speaker 1: can they just say they're gonna do this and it's
Speaker 1: going to happen or is this relying on future results? No?
Speaker 1: I think I think what they've said is going to happen,
Speaker 1: you know, buying back twenty billion dollars in shares is
Speaker 1: under their control opening stores. I'm assuming they already have
Speaker 1: Lisa signed, are close to having the locations UM done.
Speaker 1: And then in terms of growing online sales, forty were
Speaker 1: sent next year. That could be a wild card, it
Speaker 1: could be better good reverse, but that's still a pretty
Speaker 1: aggressive and good number for them to chase UM going
Speaker 1: into next year. I'm struck by the cost of all
Speaker 1: of this, to buy back twenty billion dollars of shares
Speaker 1: and also to open all of these stores, and also
Speaker 1: to invest in the distribution software and personnel necessary to
Speaker 1: really build out that online presence. That's all expensive. Is
Speaker 1: it going to cut into their earnings more than people
Speaker 1: are really pricing in right now? No, I don't think so,
Speaker 1: because a lot of it is coming out of their capex,
Speaker 1: and their capex has been relatively flat on a dollar
Speaker 1: basis um for the past few years. But there are
Speaker 1: shifts in Quebex. So you heard them say that new
Speaker 1: store growth next year is going to slow in the US, especially,
Speaker 1: They're only going to be opening about fifteen supercenters next year,
Speaker 1: so you know, you know there's money coming out of
Speaker 1: some places. I'm going into other places. The focus right
Speaker 1: now is clearly on digital in the US, and um,
Speaker 1: it needs to be because they need to compete with Amazon.
Speaker 1: You mentioned Amazon. The shares that Amazon are taking a
Speaker 1: hit there down a little bit more than a half
Speaker 1: a percent right now, three dollars are down more than
Speaker 1: seven dollars a share. Do you think that in a
Speaker 1: way Amazon's purchase of Whole Foods has brought on a
Speaker 1: more direct competition with Walmart in an area that Walmart
Speaker 1: is already very good at groceries? You know, yes and no.
Speaker 1: Keep in mind that Whole Foods only has less than
Speaker 1: four locations in the US, and they're probably targeted more
Speaker 1: towards the upper income demographic, whereas Walmart, with thousands of
Speaker 1: ware of centers in the US, they target kind of
Speaker 1: everyone and mostly Middle America. So yes, there's some overlap,
Speaker 1: but not so much. Still, but I'm struck by Target
Speaker 1: because Target has been a loser as Walmart has improved
Speaker 1: its salaries for lower income workers and has expanded more online.
Speaker 1: Of yet it shares are up a little bit. How
Speaker 1: does this play into target strategy or is that just
Speaker 1: a completely separate story. So targets a little different. Um,
Speaker 1: Walmart more than fifty percent of their revenues come from grocery,
Speaker 1: where Target is still under So Target is not a
Speaker 1: grocery retailer. Grocery helps them bring in traffic, but that's
Speaker 1: not their main line of business. You know, they're more
Speaker 1: known for their apparel, their kids, their baby, and their
Speaker 1: health and wellness. So I think it's a little different. Yes,
Speaker 1: Target needs to step up. It's offered on grocery and
Speaker 1: digital to get traffic, which is what everyone in retail
Speaker 1: is focused on. It's all about traffic, and grocery helps
Speaker 1: with traffic. Tell us about this smart card system that
Speaker 1: came with the Jet dot com three point three billion
Speaker 1: dollar acquisition that Walmart did. Has to do with the
Speaker 1: way that you pack your items online and maybe even
Speaker 1: using a debit card rather than a credit card. Yes,
Speaker 1: it's interesting. You know, they said they'll move over the
Speaker 1: next year and a lot of what Jet has in
Speaker 1: terms of technology, you know, Walmart will adapt. But essentially,
Speaker 1: if you're buying let's say multiple items, they can price it,
Speaker 1: they can pack it, you can choose to pick it
Speaker 1: up in store, which they'll offer savings on because keep
Speaker 1: in mind, the last mile is what costs them most
Speaker 1: in terms of online delivery. Fulfillmon, so just packaging everything
Speaker 1: together will help them with the bottom line. Well, I'll
Speaker 1: just mentioned quickly that, you know, they also said that
Speaker 1: they're going to hire two thousand what they call category specialists.
Speaker 1: They're going to oversee all aspects of a particular product line.
Speaker 1: So if you want to know what the best food
Speaker 1: plastic food bag is, they're going to have someone there
Speaker 1: or maybe even you know, treadmills plastic food bags of
Speaker 1: treadmills expert two thousand people. Foodom Goyle thank you so
Speaker 1: much for joining us. Fredom Goyle is a senior analyst
Speaker 1: in US retailing for our own Bloomberg Intelligence and thanks
Speaker 1: for listening to the Bloomberg P and L podcast. You
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
Speaker 1: It's one before the podcast. Ask. You can always catch
Speaker 1: us worldwide on Blueberg Radio.