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Speaker 1: I'm Charlie. Hello, We've got thirteen minutes to go ahead
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Speaker 1: Right now, the SMP five hundred index down a point
Speaker 1: at two thousand ninety seven, falling one tenth of one percent,
Speaker 1: and as stack is up eighteen points again of four
Speaker 1: tenths of one percent. Down Industrial is up twenty six
Speaker 1: points again of two tenths of one percent. Gold down
Speaker 1: six sixty, the ounce the thirteen sixty and dropped there
Speaker 1: of five tenths of one percent. The yield on the
Speaker 1: tenure one point three eight percent. The tenure down five
Speaker 1: thirty seconds. And crude now at would he five eleven
Speaker 1: for a barrel of West Texas Intermediate down four point
Speaker 1: nine percent. I'm Charlie Pello. That's a Bloomberg Business Flash.
Speaker 1: You're listening to Taking Stock with pin Box on Bloomberg Radio.
Speaker 1: Will they or won't they? Will the Federal Reserve a
Speaker 1: raise interest rates one time this year twice this year? Well,
Speaker 1: what is the Federal Reserve going to do based on
Speaker 1: votes in the UK to leave the European Union and
Speaker 1: sluggish economic growth around the world. Well, let's find out
Speaker 1: from Russ Coster. Achie's head of asset Allocation for black
Speaker 1: Rocks Global Allocation Fund, helping the manage over four trillion dollars,
Speaker 1: joins us from San Francisco, Russ Coster, which thanks very
Speaker 1: much for being with us. All right, so give us
Speaker 1: your outlook for the Federal reserves policy. Well, I think
Speaker 1: the near term it's probably more of the same, which
Speaker 1: is remaining on hold. Uh. The Brill exit is a
Speaker 1: bit difficult at this point. Really, what it's about is uncertainty.
Speaker 1: What does it mean for the US economy? Arguably not much,
Speaker 1: But if if things do get rougher in Europe, that
Speaker 1: could affect consumer confidence, it could affect business confidence, and
Speaker 1: I think the set is gonna want to sit back
Speaker 1: for a bit and assess that before they raise rights. Well, then, boy,
Speaker 1: that that really does seem to me as if you
Speaker 1: think about it, that could easily then mean that they're
Speaker 1: going to be assessing at the end of the year
Speaker 1: because the negotiations between the UK and the EU are
Speaker 1: going to take a while. Number One, markets will settle down, right,
Speaker 1: But um, unless they're just mainly looking at financial contagion
Speaker 1: and and tightening financial conditions, maybe that sorts itself out
Speaker 1: by this autumn. But if it doesn't, then they could
Speaker 1: I guess they could say even if the economy picks up,
Speaker 1: they're just gonna sit there. Well, certainly this is something
Speaker 1: that's gonna linger for a long time, and Kathleen, you're right,
Speaker 1: this is not going to get settled in a couple
Speaker 1: of quarters. We're gonna be dealing with the uncertainty for
Speaker 1: many years to come. I think the way to frame
Speaker 1: it is, is there enough pressure in the domestic economy
Speaker 1: to give the FED conviction that even as things do
Speaker 1: become a bit unstable in Europe, the US economy is
Speaker 1: going to be all right. And it's worth remembering the
Speaker 1: last labor market report we had was disappointing and suggested
Speaker 1: maybe some of the momentum is coming out of the
Speaker 1: US economy. Maybe it's coming out of you with labor market,
Speaker 1: and in that context, I don't think the said feels
Speaker 1: the need to rush. Now if we've seen an improvement
Speaker 1: in the data, well, if there's enough of an improvement,
Speaker 1: that may trump the uncertainty from overseas and we may
Speaker 1: wind up getting a hike by the end of the year.
Speaker 1: But at this point it still needs to be proven.
Speaker 1: Russ Costrich. If you're talking to people that invest in equities,
Speaker 1: they're looking at return to the SMP five hundred of
Speaker 1: about two and a half percent so far this year.
Speaker 1: Should they continue to buy equities or should they just
Speaker 1: hold off on rebalancing perhaps and continue to buy fixed income,
Speaker 1: which has been the major performer. Well, I think you
Speaker 1: prefer equities over bond. Certainly within the global allocation fund,
Speaker 1: you know we've got not not neither one is presenting
Speaker 1: a great value right now. But between the two, US
Speaker 1: stocks do look cheaper than bonds. The problem is we've
Speaker 1: had the seven year bullmarket, with a lot of that
Speaker 1: being driven by multiple expansion people willing to pay more
Speaker 1: for dollar earnings. Bonds in the US have never been
Speaker 1: as expensive. So what it means is that if you
Speaker 1: look at a typical portfolio with stocks, maybe bonds, you've
Speaker 1: got to assume lower urns going forward that we've had
Speaker 1: over the past five years, and maybe even we've had
Speaker 1: over the longer term. Well, how about the job support tomorrow?
Speaker 1: Because Dave Wilson are stocks that made then the simple
Speaker 1: clear point. You know, it's simple, but it's so true
Speaker 1: that ultimately, as you start looking ahead to earnings and
Speaker 1: you're looking down the road, maybe not just for a
Speaker 1: quarter or what I purchase and invest in, but for
Speaker 1: the longer term, if you don't get much growth, it's
Speaker 1: going to be tough for a lot of companies to
Speaker 1: post better earnings. Right. So, uh, when you look at
Speaker 1: the report tomorrow, what is going to be the linkage
Speaker 1: between higher number than forecasts lower? When we look first
Speaker 1: of all the training reaction tomorrow in stocks and then
Speaker 1: down the road, well, I think the training reaction tomorrow
Speaker 1: is really going to come to Is it a good
Speaker 1: enough number that it gives you some conviction that the
Speaker 1: recovery is on track, but not so strong that's going
Speaker 1: to scare the Fed. So something in that one range
Speaker 1: that's probably a market friendly number. It's close to consensus.
Speaker 1: It makes you feel that may was a bit of
Speaker 1: an apparition, but it's not going to scare the Fed
Speaker 1: into getting aggressive longer term. You know, I think the
Speaker 1: importance of these numbers is, as I said, we've had
Speaker 1: a bull market largely based on multiple expansion. It's gonna
Speaker 1: be hard for you, as companies that are already very
Speaker 1: profitable to grow their margins. Is stocks are going to
Speaker 1: rise from here, they need to rise on higher earnings,
Speaker 1: which needs to happen on the basis of higher revenue.
Speaker 1: And for that to occur, the economy has to accelerate,
Speaker 1: and unfortunately we've been stuck into slow growth mode for
Speaker 1: a very long period of time. Effert rust, doesn't it
Speaker 1: really take increased buying to move stocks high? I mean,
Speaker 1: it doesn't really matter what the companies do. You can
Speaker 1: have companies that don't make any money and people will
Speaker 1: still buy the stock. You've just got to have willing buyers,
Speaker 1: and they don't seem to be appearing on the market. Well,
Speaker 1: and in him, I think you've nailed it. We don't
Speaker 1: have willing buyers. We've got a lot of money. We've
Speaker 1: got a lot of money on the sidelines, and honestly,
Speaker 1: if you're put any new money to work. It's less
Speaker 1: exciting doing that when the S and P five is
Speaker 1: trade in at nineteen and a half times trailing earnings
Speaker 1: versus four or five years ago, when the multiple is
Speaker 1: a lot lower. If we're going to get the games,
Speaker 1: we can't rely on as much of people constantly willing
Speaker 1: to pay more for dollar of earnings. We've got to
Speaker 1: see that companies are starting to raise their estimates and
Speaker 1: there's some acceleration in the earnings they can generate. So
Speaker 1: if we want to gettle more specific about this kind
Speaker 1: of world Brexit uncertainty, Uh, it takes some time to
Speaker 1: play out. Fed Maybe uncertain don't learn know about the economy.
Speaker 1: You go to something solid, like me the healthcare industry.
Speaker 1: Do you turn to come of these some of which
Speaker 1: look like you know they even though there's been a
Speaker 1: lot of alatility lately, they've hit bottom, they're moving higher.
Speaker 1: Where do you go first? I think there are a
Speaker 1: couple of things we do like health care. I think
Speaker 1: health care is one of those parts of the economy
Speaker 1: where you're going to see secular growth. We know we're
Speaker 1: all getting older, the country is getting older. People are
Speaker 1: spending more in healthcare less on things like apparel. So
Speaker 1: that's a it's a long term structural shift that I
Speaker 1: think benefits the sector. Second, Kathleen, you mentioned commodities. You know,
Speaker 1: the one asset class that has been doing well for
Speaker 1: what I think are obvious reasons has been gold. And
Speaker 1: if we're in an environment in which the Fed and
Speaker 1: other central banks are going to keep pushing real interest
Speaker 1: rates to zero or below zero, that's an environment where
Speaker 1: goal typically does well. So that's another asset class to
Speaker 1: think about if we're stuck in this world for a
Speaker 1: while longer. Yeah, but Russ, if you if what you
Speaker 1: say is accurate that the central banks are going to
Speaker 1: continue to push interest rates even lower, why not just
Speaker 1: go out and buy some bonds. Looking at the tenure
Speaker 1: if you bought the tenures Treasury at the beginning of
Speaker 1: the year, you would have made well. The rallying bonds
Speaker 1: has been extraordinary. Certainly, it's nothing that many people predicted,
Speaker 1: and I think bonds have a legitimate role in the portfolio.
Speaker 1: The question is how much, uh you know, Certainly some
Speaker 1: of the longer duration bonds you are getting some pick
Speaker 1: up from what you get on the shorten the curve
Speaker 1: and The other advantage of that asset class, which is
Speaker 1: why I think you do own some of them in
Speaker 1: your portfolio, is they have proven a very effective hedge
Speaker 1: when stocks them and going lower. On the other hand,
Speaker 1: are you really going to pile into bonds with the
Speaker 1: ten you're yielding one point for eight percent? You know
Speaker 1: for a taxable investor for most of us that pay taxes,
Speaker 1: and that means that you're after tax income is actually
Speaker 1: going to be below the rate of inflation. So what
Speaker 1: I'd like to know about technology in here, because sometimes
Speaker 1: it seems to be in its own orbit, and of
Speaker 1: course you've got everything from ship makers to social media
Speaker 1: to you know, old line companies like Microsoft, anybody you
Speaker 1: like in there. In this kind of environment, they have
Speaker 1: some of those companies, for example, become almost sort of
Speaker 1: above all this or apart from that, because there's so
Speaker 1: much on their own trajectory. Well, I think it's a
Speaker 1: really interesting point. And certainly there parts of technology that
Speaker 1: have have demonstrated that they're going to keep growing earnings
Speaker 1: even in a slow growth world. And technology is one
Speaker 1: of the sectors we like. And it sort of goes
Speaker 1: back to the argument and made a moment ago about
Speaker 1: health care. You know, in a slow growth world, you're
Speaker 1: not getting that lift that we normally received from a
Speaker 1: growing economy. But there are segments that are benefiting from
Speaker 1: greater wallet share. We're all spending more money on technology,
Speaker 1: just like we're spending more money on healthcare, and that's
Speaker 1: like that they continue and that's one of the reasons
Speaker 1: I think that sector can continue to do relatively well.
Speaker 1: RUSS anything to do with hard assets. So you mentioned
Speaker 1: gold briefly, but I was thinking for example of real estate. Boy,
Speaker 1: I mean, if you can actually borrow the money, you're
Speaker 1: almost getting the real estate for nothing. Well, that's a
Speaker 1: that's a great point, and I think real estate is
Speaker 1: a little bit harder to access. Certainly there's liquidity issue,
Speaker 1: it's it's not as easy to sell. But any real
Speaker 1: estate that has income generating properties, I think that's another
Speaker 1: place and investors want to look and and the reason
Speaker 1: it's not hard to understand anything that can generate income,
Speaker 1: whether you're talking about a piece of real estate or
Speaker 1: you're talking about a dividend pain stock where you're talking
Speaker 1: about a bond, uh, let's say a corporate bond. People
Speaker 1: are flocking to those asset classes because the traditional sources
Speaker 1: of income cash, government bonds. Municipals are just paying a
Speaker 1: fraction of what they paid ten or twenty years ago. Well,
Speaker 1: RST Custards, thank you so much for joining us. You've
Speaker 1: really set the table for us at the stage for
Speaker 1: the job support tomorrow. Do you think with the uncertainty
Speaker 1: of Brexit, the feder Reserve and so much more rest
Speaker 1: as head of asset allocation for black Rocks, a global
Speaker 1: allocation fund. Well, we're heading into the clothes now, will
Speaker 1: be joined by Dave Wilson our Stock Center to look
Speaker 1: at the movers and shakers. Got the Dow actually down
Speaker 1: two tens thirty two points at seventeen thousand, eight eighty
Speaker 1: six s and P five hundred down about a tenth
Speaker 1: two and a half points at twenty ninety seven. The
Speaker 1: Nasdaq is up a third of a point sixteen to
Speaker 1: forty eight seventy five. This is Bloomberg