WEBVTT - Why Do Stocks Go Up and Down? 0:00:05.800 --> 0:00:08.720 Welcome to the Bloomberg p m L Podcast. I'm pim Fox. 0:00:08.760 --> 0:00:11.520 Along with my co host Lisa Abramowitz. Each day we 0:00:11.640 --> 0:00:15.120 bring you the most important, noteworthy, and useful interviews for 0:00:15.200 --> 0:00:17.840 you and your money, whether you're at the grocery store 0:00:17.960 --> 0:00:20.720 or the trading floor. Find the Bloomberg p m L 0:00:20.840 --> 0:00:32.320 Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. All right, 0:00:32.400 --> 0:00:35.160 let's turn our attention now to why stocks go up 0:00:35.200 --> 0:00:38.360 and down? And joining us is Charlie Biederman. He is 0:00:38.440 --> 0:00:42.440 the president and chief executive of trim Tabs Investment Management. Charlie, 0:00:42.479 --> 0:00:45.239 thanks for being here in the studio with us. I 0:00:45.280 --> 0:00:47.560 gotta start with that simple question, but it's not really 0:00:47.600 --> 0:00:49.760 that simple because it doesn't It doesn't stick a lot 0:00:49.800 --> 0:00:53.159 of times. Why does stock prices move in one direction 0:00:53.320 --> 0:00:58.520 versus another? Well, the simple answer this year, say, is 0:00:58.640 --> 0:01:01.680 the central banks of Japan and the e C and 0:01:01.720 --> 0:01:04.640 Europe have been adding about a hundred and thirties some 0:01:04.800 --> 0:01:08.640 odd billion every month and newly created money with which 0:01:08.680 --> 0:01:12.880 to buy financial assets. So everything else being equal, more 0:01:12.959 --> 0:01:17.440 money chasing an existing number of a financial assets, the 0:01:17.480 --> 0:01:20.920 price of those assets should go up. It's that simple. 0:01:21.880 --> 0:01:25.240 Given that it's that simple, and that companies have been 0:01:25.240 --> 0:01:28.920 buying back their shares sort of adding to the demand 0:01:29.040 --> 0:01:32.240 and the supply of cash. Absolutely, he would think that 0:01:32.480 --> 0:01:35.240 first of all, any share buy backs would have the 0:01:35.319 --> 0:01:39.040 same effect, and second of all that stocks should keep 0:01:39.080 --> 0:01:42.080 going up as companies continue to repurchase their shares. But 0:01:42.120 --> 0:01:45.360 you just did some research showing that all share buy 0:01:45.400 --> 0:01:47.720 backs are not equal. Can you give us some color 0:01:47.760 --> 0:01:52.000 from that? Sure? Uh? Our fun trim tabs, float shrink 0:01:52.480 --> 0:01:54.680 e t F ticker symbol t T a C in 0:01:54.680 --> 0:01:59.520 case anybody cares, only by sorry, only by companies who 0:01:59.560 --> 0:02:01.960 are grow in free cash flow and using a portion 0:02:02.000 --> 0:02:04.560 of that free cash flow to reduce the share count. 0:02:05.120 --> 0:02:09.720 Companies that borrow money to do buy backs, they don't outperform. 0:02:09.760 --> 0:02:13.519 If you look at various buy back funds, they underperform 0:02:13.720 --> 0:02:17.320 our fund because they a lot of those companies that 0:02:17.360 --> 0:02:19.639 they do a lot of buy backs, they borrow to 0:02:19.720 --> 0:02:22.639 do those buy backs, and therefore the companies don't outperform 0:02:22.960 --> 0:02:27.720 and the stocks don't do well. So there's significant difference, 0:02:27.720 --> 0:02:30.520 I mean between a company growing cash. Free cash flow 0:02:30.639 --> 0:02:34.200 is the best metric there is, and if companies use 0:02:34.200 --> 0:02:36.560 a portion of the free cash flow reduced to share count. 0:02:36.600 --> 0:02:39.600 That's a double good. So I guess that it's sort 0:02:39.600 --> 0:02:43.080 of less that uh, it matters what source of cash 0:02:43.120 --> 0:02:45.840 they're using than the companies just don't have as much 0:02:45.840 --> 0:02:49.000 free cash flow to to buy back their shares. Correct. Well, 0:02:49.080 --> 0:02:51.760 I wouldn't trust a company that's not making cash and 0:02:51.840 --> 0:02:54.480 using the cash to buy back shares. That sounds to 0:02:54.520 --> 0:02:57.240 me like they're more interested in the stock price than 0:02:57.280 --> 0:03:01.360 they are in the corporate results. You know, companies that 0:03:01.400 --> 0:03:04.320 have no choice, like IBM, with there's no growth. Revenues 0:03:04.360 --> 0:03:07.079 have been shrinking and they keep They reduced a share 0:03:07.080 --> 0:03:11.480 account by fift and the price hasn't gone anywhere all right, 0:03:11.520 --> 0:03:13.160 So I want to just to go back to my 0:03:13.280 --> 0:03:17.160 most simplistic description of why prices move. It's because it's 0:03:17.160 --> 0:03:19.840 supplying to man, If you have a constant inventory and 0:03:19.840 --> 0:03:23.720 there's consistent and growing demand for that same inventory, the 0:03:23.840 --> 0:03:25.560 value of the inventory is going to go up the 0:03:25.639 --> 0:03:27.840 value of the stock price. If no one wants that inventory, 0:03:27.880 --> 0:03:30.000 the price is going to decline. If that's the case, 0:03:30.480 --> 0:03:33.680 why are not? Why are not? Corporate inside is buying 0:03:33.720 --> 0:03:36.800 their own shares. But at the same time, you see 0:03:36.840 --> 0:03:40.200 that cash flow is growing for SMP five companies. If 0:03:40.240 --> 0:03:43.520 they're growing cash, why aren't they spending it? Good question. 0:03:43.760 --> 0:03:47.040 So I've been looking at corporate cash flow has been 0:03:47.160 --> 0:03:51.680 rising in aggregate and corporate buying, announced by backs, announced 0:03:51.720 --> 0:03:55.040 share cash takeovers. I mean, even with the wal the 0:03:55.040 --> 0:03:58.840 Walmart as an exception, and the hundred billion for banks 0:03:58.880 --> 0:04:03.680 as an exception, because of the regulatory relief. Uh that 0:04:03.840 --> 0:04:08.280 those suxceptions, announced corporate buybacks have been shrinking while their 0:04:08.280 --> 0:04:13.200 cash flow is growing and insider selling is spiking and 0:04:13.520 --> 0:04:18.159 we're not and and also companies are reducing capital expenditures. 0:04:18.200 --> 0:04:21.599 There's only one logical conclusion I make, and that corporate 0:04:21.600 --> 0:04:24.760 America is scared of Donald Trump and they're unwilling to 0:04:24.920 --> 0:04:28.600 invest big money into the economy and into their shares 0:04:28.720 --> 0:04:32.000 given the risks that are going on. I mean, yes, 0:04:32.800 --> 0:04:35.640 we we've we track real time data. Wage and salary 0:04:35.680 --> 0:04:39.400 growth has been rising faster this year than before. I 0:04:39.520 --> 0:04:43.120 really think that's due to one removal of as many 0:04:43.200 --> 0:04:46.760 regulations as possible, freeing up small business to actually get 0:04:46.800 --> 0:04:50.920 stuff started. And too, a lot of small business America 0:04:51.040 --> 0:04:54.960 are definitely firm believers that Donald Trump is the miracle man. 0:04:55.920 --> 0:05:00.280 And uh so I think that's the only tail when 0:05:00.400 --> 0:05:06.160 we've got we have, UH, global commodities are in a recession, oil, metals, 0:05:06.360 --> 0:05:10.920 all prices have been trending lower. Automobiles, I say, automobile 0:05:11.279 --> 0:05:14.240 industry globally is in a recession. There's way too much 0:05:14.320 --> 0:05:18.360 excess capacity, and the housing market is not doing well. 0:05:18.440 --> 0:05:20.719 I don't believe that there's a shortage of supply, which 0:05:20.760 --> 0:05:23.919 is why sales are down. Sales are down because demand 0:05:24.040 --> 0:05:26.920 is down. So how do you square this with how 0:05:26.960 --> 0:05:29.920 you invest? I mean, it sounds like you're pretty bearished well, 0:05:29.960 --> 0:05:33.400 except as I said to begin with, when when banks 0:05:33.760 --> 0:05:36.960 are adding to the amount of cash available to buy shares, 0:05:37.800 --> 0:05:40.479 the market is not going to go down. And I'm 0:05:41.040 --> 0:05:45.880 polish in my holdings, even though at some point in 0:05:45.920 --> 0:05:51.800 the future, UM, things will not do well. But when 0:05:52.200 --> 0:05:54.160 I don't know how long that's gonna happen. How long 0:05:54.200 --> 0:05:57.400 is it going to take? We'll continue this conversation Charlie Biederman, 0:05:57.440 --> 0:06:01.600 founder of trim Tabs Asset Management, talking about what companies 0:06:01.640 --> 0:06:03.920 are doing with their cash, and this has definitely been 0:06:03.920 --> 0:06:07.839 an ongoing question, especially as when Charlie pointed out that 0:06:07.880 --> 0:06:10.720 share by backs have gone down. You have seen cash 0:06:10.760 --> 0:06:13.640 go up. And not only that, but Blueberg published a 0:06:13.680 --> 0:06:19.320 story yesterday showing that the volume of bank loans is 0:06:19.320 --> 0:06:22.960 expected to grow at the smallest pace in years in 0:06:23.120 --> 0:06:27.040 the third quarter, adding to potential UH pressure on their 0:06:27.040 --> 0:06:31.040 balance sheets, but especially as as companies failed to aggressively expand. 0:06:31.160 --> 0:06:35.280 I want to content to continue our conversation with Charlie Biederman, 0:06:35.400 --> 0:06:38.200 founder of trim Tabs asset Management. And when I think 0:06:38.600 --> 0:06:42.279 of trim Tabs, I think of really great flows data 0:06:42.360 --> 0:06:44.719 which gives you a sense of where the money is 0:06:44.800 --> 0:06:47.839 going and where it is leaving. And Charlie, I'd love 0:06:47.880 --> 0:06:51.320 to get your sense, we were talking offline that it 0:06:51.440 --> 0:06:55.760 isn't flowing as much towards US equities as many people think, 0:06:56.279 --> 0:06:59.400 and yet the money just keeps flooding into fixed income. 0:06:59.440 --> 0:07:01.159 Can you give us sense of how much this is 0:07:01.200 --> 0:07:04.120 the case. Well, since the start of the year, there's 0:07:04.160 --> 0:07:08.640 been a consistent outflow from US equity mutual funds, and 0:07:08.760 --> 0:07:13.200 there's been a less there's been an inflow, but smaller 0:07:13.240 --> 0:07:16.560 inflow than the outflow into US equity e t f s. 0:07:17.120 --> 0:07:20.320 So that says that money might be going from active 0:07:20.360 --> 0:07:24.960 management to passive and any new money that's going in 0:07:25.840 --> 0:07:28.360 going in passive is going you know, going into E 0:07:28.480 --> 0:07:31.600 t F. So you know, it's interesting we're seeing and 0:07:31.760 --> 0:07:34.720 where's the money going, what's going into bond funds as 0:07:34.720 --> 0:07:38.160 well as some money going globally, you know, some of 0:07:38.160 --> 0:07:42.840 the UH markets that are doing the best, riskier markets, 0:07:42.840 --> 0:07:45.480 I don't know, players like to play, gamblers like to gamble, 0:07:46.000 --> 0:07:47.880 and so there's a lot of money going off shore 0:07:47.920 --> 0:07:51.560 as well. But what's interesting to me is, like we're talking, 0:07:51.560 --> 0:07:56.320 there's no new money from individuals. Corporations are buying less 0:07:56.440 --> 0:08:00.280 so far this year, and if it wasn't for the 0:08:00.400 --> 0:08:03.600 central banks, we would be in big trouble. I mean, 0:08:03.600 --> 0:08:06.080 it wasn't the central banks. They're the only source of 0:08:06.160 --> 0:08:09.720 look new money with which to buy stocks. Let's just 0:08:09.760 --> 0:08:13.280 talk about briefly, just stocks in UH. The E t 0:08:13.480 --> 0:08:17.400 F in the trim tabs H A C right T 0:08:17.400 --> 0:08:20.720 T A C is the symbol, correct, and UH it's 0:08:20.800 --> 0:08:24.240 up sixteen point eight percent so far this year, SMP 0:08:24.360 --> 0:08:27.640 five up thirteen and a quarter at three quarters of 0:08:27.640 --> 0:08:31.080 a percent, So well done. Looking at the stocks, though, 0:08:31.400 --> 0:08:34.440 do you even care what the stocks do? Not? Really 0:08:34.640 --> 0:08:38.040 you don't, So you don't care whether you're long cognixt stamps, 0:08:38.080 --> 0:08:41.240 dot Com and match group. You just want them to 0:08:41.320 --> 0:08:44.160 have certain characteris you wanted to have growing free cash 0:08:44.200 --> 0:08:46.839 flow and use a portion of it to reduce the 0:08:46.920 --> 0:08:50.520 share count. And where they don't increase the debt asset ratio, 0:08:50.679 --> 0:08:53.120 meaning they have a strong balance sheet. Okay, all right, 0:08:53.240 --> 0:08:55.600 Just wanted to check last question to you and just 0:08:55.640 --> 0:08:57.320 briefly because I know that you've spent a lot of 0:08:57.360 --> 0:08:59.840 time you lived in Santa Rosa, California. We've been tracking 0:08:59.880 --> 0:09:02.760 the wildfires that are there. What do you know? What 0:09:02.800 --> 0:09:05.280 can you tell us? Well, the house I raised my 0:09:05.360 --> 0:09:09.079 son is gone. The whole neighborhood where for twenty years, 0:09:09.840 --> 0:09:12.960 the golf course, country club down the road half a 0:09:12.960 --> 0:09:17.800 mile all gone and my Santa Rosa in Santa Rosa, California. 0:09:17.880 --> 0:09:19.959 My son just told me that I didn't know until 0:09:20.040 --> 0:09:22.839 this till right before I came in here that are 0:09:23.320 --> 0:09:25.920 and fortunately we sold the house a couple of years ago, 0:09:26.000 --> 0:09:29.680 but still the memories are gone. Yeah. Well, it's a 0:09:29.760 --> 0:09:32.559 it's a tragedy that is affecting a lot of people 0:09:32.600 --> 0:09:35.840 today as we look at images of a completely decimated, 0:09:36.240 --> 0:09:38.760 uh suburban neighborhood. Thank you, so much for joining us. 0:09:39.000 --> 0:09:43.000 Charlie Bierman, founder of trim Tabs Asset Management, joining us 0:09:43.000 --> 0:09:45.640 here after flying from Hawaii. I'm impressed that you came 0:09:45.679 --> 0:10:00.439 to New York from Hawaii at all. Right now, I 0:10:00.440 --> 0:10:03.280 want to take a look at who's growing faster. Who 0:10:03.440 --> 0:10:05.439 is going to grow faster in the next couple of years, 0:10:05.679 --> 0:10:09.280 the US, Europe, or Japan. Our next guests thinks that 0:10:09.320 --> 0:10:13.120 Europe and Japan have the edge on the the US. 0:10:13.160 --> 0:10:16.120 That would be Ron Sanchez, chief's chief investment strategist at 0:10:16.120 --> 0:10:19.600 Fiduciary Trust International, which has seventy eight billion dollars in 0:10:19.760 --> 0:10:23.080 US it's under management and is a private wealth division 0:10:23.080 --> 0:10:25.680 of Franklin Templeton Investments. Ron, thank you so much for 0:10:25.760 --> 0:10:30.400 joining us. Um. I'm looking at the blended average of 0:10:30.559 --> 0:10:34.840 analyst estimates for GDP in the US versus the Eurozone, 0:10:34.960 --> 0:10:38.280 and generally economists think that the US is going to 0:10:38.360 --> 0:10:43.720 grow faster than the euro Zone. In you think they 0:10:43.720 --> 0:10:47.439 could be wrong? Why? Well, the fundamentals in Europe are 0:10:47.520 --> 0:10:51.280 quite positive, and even if they don't grow faster than 0:10:51.280 --> 0:10:54.840 the US, they have the potential to grow for longer. 0:10:54.920 --> 0:10:58.720 They are definitely on a self sustaining recovery. Growth in 0:10:58.760 --> 0:11:02.000 Europe has been meager for five years. They've been rolling 0:11:02.080 --> 0:11:04.600 in and out of a deck crisis UM. And for 0:11:04.640 --> 0:11:08.040 the first time they're moving past austerity. And so the 0:11:08.080 --> 0:11:11.480 fundamentals UM for the economy to have a kind of 0:11:11.600 --> 0:11:15.240 muddle through, meaning to to in a quarter, are quite compelling. 0:11:15.280 --> 0:11:16.960 And we think that if we look out over the 0:11:17.000 --> 0:11:19.840 next couple of years, they can continue to grow at 0:11:19.880 --> 0:11:22.600 that rate. We are here in the US, we've had 0:11:22.640 --> 0:11:26.000 about eight years of an economic recovery. UM. If I 0:11:26.040 --> 0:11:29.120 look abroad, UM, I think it's it's in the early 0:11:29.200 --> 0:11:32.760 cycle of an economic recovery. And so from a market perspective, 0:11:32.800 --> 0:11:36.200 I think there's a greater opportunity for price returns there 0:11:36.280 --> 0:11:39.320 where their profit margins are half, their return on equity 0:11:39.400 --> 0:11:42.640 is not quite as strong as the US and UM, 0:11:42.679 --> 0:11:44.640 and valuations are a little bit lower. So from a 0:11:44.679 --> 0:11:47.840 market dynamic, UM, I think there continues to be compelling 0:11:47.840 --> 0:11:51.960 opportunity and certainly in UM that has been the case. 0:11:52.600 --> 0:11:56.080 So you say that in Europe they're moving away from austerity, 0:11:56.120 --> 0:11:59.360 what particularly are you pointing to when you say that? 0:12:00.559 --> 0:12:03.640 And so they're from a fiscal standpoint, UM, they have 0:12:04.000 --> 0:12:07.000 UM really tightened up their their budgets in response to 0:12:07.040 --> 0:12:09.240 the credit crisis. They spent a lot of money in 0:12:09.640 --> 0:12:14.559 Greece UM, and they haven't really developed pro stimulus UM policies, 0:12:14.800 --> 0:12:18.800 and fiscal policy actually has been contracting. That's why monetary policy, 0:12:18.920 --> 0:12:23.240 meaning the European Central Bank UM has set rates at 0:12:23.320 --> 0:12:26.920 zero because they haven't really been able to UM. They're 0:12:26.920 --> 0:12:30.480 trying to offset the lack of fiscal budgetary spending. And 0:12:30.520 --> 0:12:32.280 I think a lot of those pressures are starting to 0:12:32.320 --> 0:12:35.680 ease UM. You're seeing a little capital investment come back UM, 0:12:35.720 --> 0:12:38.720 and I think the prospects are are are quite reasonable 0:12:38.720 --> 0:12:41.559 in in Europe, and the return profile looks attractive to US. 0:12:41.600 --> 0:12:45.120 So if you're holding US equities, you should maybe rebalanced 0:12:45.120 --> 0:12:47.360 and you should add some European equities. What would be 0:12:47.400 --> 0:12:49.840 the action that you would take that is correct? And 0:12:49.880 --> 0:12:52.960 I think what we're experiencing is that investors have become 0:12:53.000 --> 0:12:56.480 preconditioned for the US. The US has been the best 0:12:56.520 --> 0:12:59.520 economy since the credit crisis. It went through its banking 0:12:59.559 --> 0:13:03.600 reforms a lot faster UM. Companies tend to respond quicker 0:13:03.640 --> 0:13:06.560 here in the US. Interest rates were low, and companies 0:13:06.960 --> 0:13:09.840 UM in the US have really, really benefited, and again 0:13:09.880 --> 0:13:12.080 you see that in the return profile. It has been 0:13:12.120 --> 0:13:15.360 the strongest return profile. And I think the opportunities for 0:13:15.440 --> 0:13:19.400 the first time now UM are in global resynchronization outside 0:13:19.400 --> 0:13:20.920 of the US. But would that I just want to 0:13:20.960 --> 0:13:23.719 make sure you're not chasing the return, right, I mean, 0:13:23.720 --> 0:13:25.480 because you know that's always the issue. Right now that 0:13:25.520 --> 0:13:28.600 everybody knows exactly what it is and it's been articulated 0:13:28.600 --> 0:13:31.760 as you described, I would be WHOA wait a minute, 0:13:31.800 --> 0:13:34.480 this is already out there. All the money has already 0:13:34.480 --> 0:13:36.160 been made. Or is it just the easy money has 0:13:36.200 --> 0:13:38.760 been made? I think the easy money has been made UM, 0:13:38.800 --> 0:13:42.880 But investors should always have a global diversification. They shouldn't 0:13:42.920 --> 0:13:46.560 rely on one economy, even though are just economy. And 0:13:46.640 --> 0:13:48.680 so when I look outside the U S, I I 0:13:48.720 --> 0:13:51.520 think there's a greater trajectory from Europe. If you look 0:13:51.520 --> 0:13:54.839 at emerging markets, they just emerged from a recession in 0:13:56.480 --> 0:13:59.320 early sixteen, and so the growth prospects of the emerging 0:13:59.360 --> 0:14:02.760 market are starting to re accelerate. I wouldn't describe the 0:14:02.800 --> 0:14:07.520 economic backdrop as robust anywhere. That's not our central thesis UM, 0:14:07.520 --> 0:14:11.480 but a broadening out um of and a global resynchronization 0:14:12.000 --> 0:14:15.160 UM and an increase in trade activity is definitely taking 0:14:15.160 --> 0:14:18.560 place in and I think the return profile across the 0:14:18.600 --> 0:14:21.880 board has has started to show that. So when did 0:14:21.920 --> 0:14:25.920 you shift your thesis and what did you advise clients 0:14:25.960 --> 0:14:29.000 to do with the mix of their investments as a result, 0:14:29.680 --> 0:14:32.560 so you started to see UM an improvement in economic 0:14:32.600 --> 0:14:37.680 activity UM in the second half of UM. Once commodities 0:14:37.680 --> 0:14:41.560 started to improve UM, you start a lows in interest rates. 0:14:41.560 --> 0:14:43.800 We saw a broadening out and that broadening out has 0:14:43.840 --> 0:14:46.480 continued a little bit of a hiccup around Brexit, but 0:14:46.520 --> 0:14:49.400 that actually, in hindsight, turned out to be the turning point. 0:14:49.520 --> 0:14:51.800 So you haven't changed your thesis since the second quarter 0:14:51.840 --> 0:14:55.560 of That's right, Well, we continue as we get confirmation 0:14:55.720 --> 0:14:59.520 of our economic thesis, we continue to increase our allocation 0:14:59.600 --> 0:15:01.640 outside the U S. So how much have you increased 0:15:01.640 --> 0:15:07.840 it today for example versus the second quarter of about UM. 0:15:07.920 --> 0:15:10.720 So we're up to about a blend now of US 0:15:10.960 --> 0:15:14.720 about seventy of our portfolios from a global perspective, seventy 0:15:14.800 --> 0:15:18.640 five are in the US, are outside the US and 0:15:18.680 --> 0:15:22.840 back in the second quarter, and so a meaningful increase. 0:15:23.400 --> 0:15:26.040 Can you speak a little bit about Japan obviously outside 0:15:26.080 --> 0:15:29.520 the United States, but there is a snap election that 0:15:29.560 --> 0:15:33.520 has been called, and this could throw into question Prime 0:15:33.560 --> 0:15:38.800 Minister shan Zo Abe's abeamics as well as uh end 0:15:38.960 --> 0:15:42.160 his role as the leader of Japan. So certainly political 0:15:42.280 --> 0:15:44.960 uncertainty both here last year in the US. UM, you 0:15:45.000 --> 0:15:48.080 saw it in France again, we'll we'll see it with 0:15:48.120 --> 0:15:52.360 Theresa May UM and and here with Abe. UM remains 0:15:52.600 --> 0:15:55.320 a fair amount of uncertainty. But having said that, UM, 0:15:55.360 --> 0:15:58.800 we think he will prevail. UM. He's quite popular there. UM. 0:15:58.880 --> 0:16:00.920 And at the end of the day, UM, it comes 0:16:00.960 --> 0:16:04.280 back to the economic fundamentals, and we have six straight 0:16:04.520 --> 0:16:07.920 quarters of economic growth. I think it's the fastest um 0:16:07.960 --> 0:16:10.800 and consistent growth they've had in two decades. See, I 0:16:10.800 --> 0:16:12.120 think we're going to tell me that the Bank of 0:16:12.200 --> 0:16:16.120 Japan basically owns or sets asset prices because they own 0:16:16.320 --> 0:16:20.400 so much of the Japanese stock market to exchange traded funds, 0:16:20.480 --> 0:16:23.960 and they own so much of Japanese government debt the 0:16:24.160 --> 0:16:27.880 the price center. That is absolutely correct. They target UM 0:16:27.920 --> 0:16:30.960 their tenure at zero UM. And we think that when 0:16:30.960 --> 0:16:35.040 you look around other central banks that have influenced their 0:16:35.080 --> 0:16:37.160 capital markets, I mean the US has done it. The 0:16:37.360 --> 0:16:39.840 CB has done it UM, and so has the Bank 0:16:39.840 --> 0:16:42.120 of Japan UM. And they've done it to a great extent. 0:16:42.280 --> 0:16:45.240 And not only are they buying US treasury notes, they actually, 0:16:45.280 --> 0:16:47.960 to your point, are are buying the broader index. And 0:16:48.000 --> 0:16:51.520 I think they own a fair amount of every major 0:16:51.600 --> 0:16:54.680 company Japanese company UM. They want to think up of 0:16:54.920 --> 0:16:58.240 their five and so the technical support for that market 0:16:58.560 --> 0:17:02.520 in addition to the econom fundamentals and a return profile 0:17:02.680 --> 0:17:06.560 that is way less um than than other markets. UM. Again, 0:17:06.600 --> 0:17:09.159 we think there's opportunities in that in Japan. Just just 0:17:09.240 --> 0:17:11.200 real quick, I'm wondering. You know, the second quarter of 0:17:11.560 --> 0:17:15.040 sixteen was before the election in November. Your thesis didn't 0:17:15.080 --> 0:17:17.199 change after that at all? Did it? No? It did not. 0:17:17.320 --> 0:17:20.679 Although we became more encouraged for the prospects for the 0:17:20.720 --> 0:17:24.720 first time of pro growth policies coming out of Washington, 0:17:25.200 --> 0:17:28.600 markets have really relied on monetary policy and not fiscal policy, 0:17:28.600 --> 0:17:31.840 and so we've had a a greater correction around our 0:17:31.880 --> 0:17:35.160 economic fundamentals, as you well know. In seventeen that has 0:17:35.200 --> 0:17:37.720 not yet panned out, UM, and there are prospects that 0:17:37.760 --> 0:17:40.119 maybe an eighteen we start to see some fiscal stimulus, 0:17:40.400 --> 0:17:42.880 but we're comfortable with the underlying trajectory of the economy. 0:17:43.240 --> 0:17:45.320 Ron Sanchez, thank you very much. He is the chief 0:17:45.320 --> 0:17:50.639 investment strategist Fiduciary Trust International, seventy eight billion dollars in 0:17:50.720 --> 0:17:53.720 assets under management. It's the private wealth division of Franklin 0:17:53.800 --> 0:18:09.480 Templeton Investments. All right, let's turn our attention now to 0:18:09.520 --> 0:18:12.400 another giant consumer products company. This is the real tail, 0:18:12.480 --> 0:18:15.720 the retailer Walmart. And helping us to understand this is 0:18:15.760 --> 0:18:19.320 Punamgayal are Bloomberg Intelligence analysts and expert when it comes 0:18:19.359 --> 0:18:22.080 to all things retailed. Punam. Uh, you know, we've been 0:18:22.080 --> 0:18:24.280 hearing this story about how they're going to add a 0:18:24.320 --> 0:18:28.040 thousand online grocery locations, They're going to open what two 0:18:28.400 --> 0:18:32.600 and fifty stores outside the United States. Uh, they're gonna 0:18:32.640 --> 0:18:37.440 buy back twenty billion dollars in shares. Is this first 0:18:37.440 --> 0:18:39.000 of all? Is this all a done deal? I mean, 0:18:39.040 --> 0:18:40.760 can they just say they're gonna do this and it's 0:18:40.800 --> 0:18:44.560 going to happen or is this relying on future results? No? 0:18:44.760 --> 0:18:46.800 I think I think what they've said is going to happen, 0:18:46.840 --> 0:18:49.080 you know, buying back twenty billion dollars in shares is 0:18:49.160 --> 0:18:52.840 under their control opening stores. I'm assuming they already have 0:18:53.119 --> 0:18:57.000 Lisa signed, are close to having the locations UM done. 0:18:57.160 --> 0:19:00.119 And then in terms of growing online sales, forty were 0:19:00.160 --> 0:19:03.240 sent next year. That could be a wild card, it 0:19:03.240 --> 0:19:05.280 could be better good reverse, but that's still a pretty 0:19:05.280 --> 0:19:07.880 aggressive and good number for them to chase UM going 0:19:07.880 --> 0:19:11.080 into next year. I'm struck by the cost of all 0:19:11.119 --> 0:19:15.080 of this, to buy back twenty billion dollars of shares 0:19:15.119 --> 0:19:17.520 and also to open all of these stores, and also 0:19:17.560 --> 0:19:23.040 to invest in the distribution software and personnel necessary to 0:19:23.119 --> 0:19:26.800 really build out that online presence. That's all expensive. Is 0:19:26.800 --> 0:19:28.760 it going to cut into their earnings more than people 0:19:28.800 --> 0:19:31.280 are really pricing in right now? No, I don't think so, 0:19:31.320 --> 0:19:33.120 because a lot of it is coming out of their capex, 0:19:33.160 --> 0:19:36.280 and their capex has been relatively flat on a dollar 0:19:36.320 --> 0:19:39.520 basis um for the past few years. But there are 0:19:39.600 --> 0:19:42.400 shifts in Quebex. So you heard them say that new 0:19:42.520 --> 0:19:45.240 store growth next year is going to slow in the US, especially, 0:19:45.400 --> 0:19:48.680 They're only going to be opening about fifteen supercenters next year, 0:19:49.119 --> 0:19:51.280 so you know, you know there's money coming out of 0:19:51.320 --> 0:19:53.840 some places. I'm going into other places. The focus right 0:19:53.880 --> 0:19:57.320 now is clearly on digital in the US, and um, 0:19:57.359 --> 0:19:59.480 it needs to be because they need to compete with Amazon. 0:20:00.040 --> 0:20:02.320 You mentioned Amazon. The shares that Amazon are taking a 0:20:02.400 --> 0:20:04.080 hit there down a little bit more than a half 0:20:04.080 --> 0:20:07.120 a percent right now, three dollars are down more than 0:20:07.160 --> 0:20:10.439 seven dollars a share. Do you think that in a 0:20:10.480 --> 0:20:13.679 way Amazon's purchase of Whole Foods has brought on a 0:20:13.720 --> 0:20:17.160 more direct competition with Walmart in an area that Walmart 0:20:17.240 --> 0:20:20.720 is already very good at groceries? You know, yes and no. 0:20:21.040 --> 0:20:23.320 Keep in mind that Whole Foods only has less than 0:20:23.480 --> 0:20:26.720 four locations in the US, and they're probably targeted more 0:20:26.760 --> 0:20:30.639 towards the upper income demographic, whereas Walmart, with thousands of 0:20:30.720 --> 0:20:34.440 ware of centers in the US, they target kind of 0:20:34.520 --> 0:20:38.960 everyone and mostly Middle America. So yes, there's some overlap, 0:20:39.200 --> 0:20:42.360 but not so much. Still, but I'm struck by Target 0:20:42.440 --> 0:20:45.840 because Target has been a loser as Walmart has improved 0:20:45.880 --> 0:20:51.720 its salaries for lower income workers and has expanded more online. 0:20:51.760 --> 0:20:53.560 Of yet it shares are up a little bit. How 0:20:53.640 --> 0:20:55.840 does this play into target strategy or is that just 0:20:55.920 --> 0:20:59.360 a completely separate story. So targets a little different. Um, 0:20:59.440 --> 0:21:02.480 Walmart more than fifty percent of their revenues come from grocery, 0:21:02.720 --> 0:21:05.639 where Target is still under So Target is not a 0:21:05.680 --> 0:21:08.880 grocery retailer. Grocery helps them bring in traffic, but that's 0:21:08.920 --> 0:21:11.040 not their main line of business. You know, they're more 0:21:11.160 --> 0:21:14.200 known for their apparel, their kids, their baby, and their 0:21:14.200 --> 0:21:17.680 health and wellness. So I think it's a little different. Yes, 0:21:17.720 --> 0:21:20.520 Target needs to step up. It's offered on grocery and 0:21:20.560 --> 0:21:23.920 digital to get traffic, which is what everyone in retail 0:21:24.000 --> 0:21:26.840 is focused on. It's all about traffic, and grocery helps 0:21:26.840 --> 0:21:31.680 with traffic. Tell us about this smart card system that 0:21:31.760 --> 0:21:34.600 came with the Jet dot com three point three billion 0:21:34.600 --> 0:21:38.560 dollar acquisition that Walmart did. Has to do with the 0:21:38.600 --> 0:21:42.560 way that you pack your items online and maybe even 0:21:42.640 --> 0:21:45.720 using a debit card rather than a credit card. Yes, 0:21:46.119 --> 0:21:48.200 it's interesting. You know, they said they'll move over the 0:21:48.320 --> 0:21:50.959 next year and a lot of what Jet has in 0:21:51.040 --> 0:21:54.320 terms of technology, you know, Walmart will adapt. But essentially, 0:21:54.320 --> 0:21:57.359 if you're buying let's say multiple items, they can price it, 0:21:57.400 --> 0:21:59.119 they can pack it, you can choose to pick it 0:21:59.200 --> 0:22:02.280 up in store, which they'll offer savings on because keep 0:22:02.320 --> 0:22:05.399 in mind, the last mile is what costs them most 0:22:05.440 --> 0:22:09.320 in terms of online delivery. Fulfillmon, so just packaging everything 0:22:09.359 --> 0:22:12.960 together will help them with the bottom line. Well, I'll 0:22:13.000 --> 0:22:14.800 just mentioned quickly that, you know, they also said that 0:22:14.800 --> 0:22:18.200 they're going to hire two thousand what they call category specialists. 0:22:18.320 --> 0:22:21.320 They're going to oversee all aspects of a particular product line. 0:22:21.320 --> 0:22:23.159 So if you want to know what the best food 0:22:23.240 --> 0:22:26.120 plastic food bag is, they're going to have someone there 0:22:26.200 --> 0:22:29.200 or maybe even you know, treadmills plastic food bags of 0:22:29.240 --> 0:22:33.840 treadmills expert two thousand people. Foodom Goyle thank you so 0:22:33.920 --> 0:22:36.679 much for joining us. Fredom Goyle is a senior analyst 0:22:36.680 --> 0:22:44.359 in US retailing for our own Bloomberg Intelligence and thanks 0:22:44.400 --> 0:22:47.000 for listening to the Bloomberg P and L podcast. You 0:22:47.040 --> 0:22:50.840 can subscribe and listen to interviews at Apple Podcasts, SoundCloud, 0:22:50.960 --> 0:22:54.400 or whatever podcast platform you prefer. I'm Pim Fox. I'm 0:22:54.440 --> 0:22:58.440 on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 0:22:58.560 --> 0:23:01.000 It's one before the podcast. Ask. You can always catch 0:23:01.040 --> 0:23:02.760 us worldwide on Blueberg Radio.