WEBVTT - Advisors' Chuck Lieberman Likes Exxon Mobil, Citigroup (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>dot com, the radio, plus Globo lapt and on your radio.

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<v Speaker 1>This is a Bloomberg Business Flash from Bloomberg World Headquarters.

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<v Speaker 1>I'm Charlie Pelatontal. The SMP nastac Hall advancing stocks heading

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<v Speaker 1>toward a record after better than forecast jobs data underscored

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<v Speaker 1>the strength of the world's largest economy. We have got

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<v Speaker 1>thirteen minutes to go ahead of the close. The SMP

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<v Speaker 1>five hundred index up now by seventeen points to one

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<v Speaker 1>again there of eight tenths of one percent. Nasdaq is

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<v Speaker 1>up fifty three points, a gain of one percent at

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<v Speaker 1>fifty two nineteen down Industrials up one hundred seventy nine

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<v Speaker 1>points a gain of one percent, to Dow at eighteen thousand,

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<v Speaker 1>five hundred thirty two. The ten year down twenty five

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<v Speaker 1>thirty seconds, the yield one point five eight percent, Gold

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<v Speaker 1>down seventy ounce to thirteen thirty seven, a drop there

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<v Speaker 1>of one point nine percent, and crude oil West Texas

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<v Speaker 1>Intermediate down five live sense fort for barrel of West

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<v Speaker 1>Texas Intermediate down one tenth of one percent. I'm Charlie

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<v Speaker 1>Pelt and that's a Bloomberg Business Flash. This is taking

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<v Speaker 1>stock with Bim Box and Kathleen Hayes on Bloomberg Radio

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<v Speaker 1>and considering what to do with your money. There is

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<v Speaker 1>a lot you do not know, a lot that we

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<v Speaker 1>don't know, but there are many things that we do know,

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<v Speaker 1>and here to tell us about them is Chuck Lieberman.

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<v Speaker 1>He is the chief investment Officer and managing partner for

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<v Speaker 1>Advisor's Capital Management. They're based in Ridgewood, New Jersey, helping

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<v Speaker 1>to manage more than one point three billion dollars of

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<v Speaker 1>customer assets. Chuck Lieberman, thank you for being with me. Thanks.

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<v Speaker 1>I want you to continue this theme about uncertainty. We're

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<v Speaker 1>always going to not know a lot. There's always going

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<v Speaker 1>to be uncertainty for investors. No one knows what the

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<v Speaker 1>outcome of Brexit will mean. No one knows what the

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<v Speaker 1>dollar will trade out a year from now. But you

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<v Speaker 1>maintain there is a lot that we do know and

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<v Speaker 1>we can profit from it. Explain well, Uh, the feed

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<v Speaker 1>is actually used this uncertainty to help justify differring any

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<v Speaker 1>interest rate increases. But when you look at the data,

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<v Speaker 1>and today's employment data are really perfect for providing great insight. Uh,

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<v Speaker 1>it's pretty clear that the U. S economy is doing

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<v Speaker 1>quite well. Um, the job market has tightened considerably. H

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<v Speaker 1>We're beginning to see enough tightness in the job market

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<v Speaker 1>that it's flowing over into some of the pockets that

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<v Speaker 1>have been weakest, meaning those who are least educated, even

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<v Speaker 1>their finding jobs that are very very good clip In fact,

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<v Speaker 1>they accounted for virtually all of the jobs reported this

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<v Speaker 1>past month. Unemployment declined very dramatically for that group, whereas

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<v Speaker 1>it didn't budge for the most educated. So it shows

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<v Speaker 1>you that firms are having difficulty finding people with college degrees,

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<v Speaker 1>and they're being forced to hire less skilled, less educated

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<v Speaker 1>workers and potentially train them and incur high or costs

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<v Speaker 1>in order to fill positions. It suggests a degree of

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<v Speaker 1>of h a real need. Well, you mentioned that there

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<v Speaker 1>are these elements of everybody's life which are knowable, such

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<v Speaker 1>as you eat breakfast, lunch, dinner, you wear clothes, you

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<v Speaker 1>drive cars. All of these things feed into what is

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<v Speaker 1>potentially a profit making investment, right, And there's implicitly an

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<v Speaker 1>argument out there that somehow corporate profits are not going

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<v Speaker 1>to do well, that corporate profits have been weak recently.

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<v Speaker 1>But of course there's a lot of activity that you,

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<v Speaker 1>as you just mentioned, will continue. Um, we do know

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<v Speaker 1>that the car fleet outstanding is the oldest on record. Uh,

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<v Speaker 1>those cars are wearing out. They do have to be replaced.

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<v Speaker 1>That creates a lot of pent up demand for for cars.

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<v Speaker 1>We know plenty about the demographics of the economy, of

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<v Speaker 1>the population. We know that there are a lot more

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<v Speaker 1>elderly people. That creates a lot of demand for health here.

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<v Speaker 1>We also know that, uh, there's a lot of household formation,

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<v Speaker 1>and yet we have not seen a full recovery in

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<v Speaker 1>the pace of new construction. And so that suggests there's

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<v Speaker 1>actually plenty of pent up demand for new construction in

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<v Speaker 1>the housing arena. So there are lots of things you

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<v Speaker 1>can figure out that will support the expansion going forward.

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<v Speaker 1>A new study by the Wharton School of Business says

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<v Speaker 1>that most patient people grow richer and healthier than they're

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<v Speaker 1>more impetuous peers. Or if you could tell us some

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<v Speaker 1>investment themes that being patient for will yield profits, well,

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<v Speaker 1>I think there's a little bit too much emphasis and

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<v Speaker 1>too many quarters about short term profitability. UM, people looking

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<v Speaker 1>one quarter ahead or two quarters ahead. We've heard many

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<v Speaker 1>comments about corporate management looking at the next uh number,

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<v Speaker 1>the next quarterly call on their profits and pushing things

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<v Speaker 1>around in order to eat the next quarterly number. And

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<v Speaker 1>they're not thinking enough about the long term consequences for

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<v Speaker 1>their business and making longer term decisions and making the

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<v Speaker 1>investments and that they need to make for those longer

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<v Speaker 1>term decisions, that that comes at the expense of the

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<v Speaker 1>upcoming quarter. Um, that's a problem. And UH, when we

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<v Speaker 1>look around at the investment opportunities that are out there,

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<v Speaker 1>many times you can distinguish between those companies and we'd

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<v Speaker 1>much rather invest with with managers who are thinking longer

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<v Speaker 1>term and and evaluing how the economy will affect their

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<v Speaker 1>business rather than just making the next number. Can you

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<v Speaker 1>give us some examples. Well, within the energy space, one

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<v Speaker 1>of the managements that I think is absolutely top rated

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<v Speaker 1>would be Excenmobile. Uh. This is a firm that has

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<v Speaker 1>never thought about the next quarter, that has always thought

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<v Speaker 1>longer term, puts every single investment capital investment that they

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<v Speaker 1>make through the ringer to make judgments about whether or

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<v Speaker 1>not it's a worth while investment. UH. They don't pay

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<v Speaker 1>out a huge dividend, so in the past have had

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<v Speaker 1>lots and lots of free cash flow and they haven't

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<v Speaker 1>squandered it looking for oil and really, uh, very very

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<v Speaker 1>widespread locations are difficult to extract, locations where there's a

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<v Speaker 1>lot of costs in the in the investment and it

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<v Speaker 1>may or may not turn out to be worthwhile. Uh

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<v Speaker 1>So they have a lot of excess cash flow which

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<v Speaker 1>they've used to buy back an ablute ton of stock

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<v Speaker 1>over the years. Right now, the stock is relatively cheap

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<v Speaker 1>seven dollars trades at an estimated uh pe I believe

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<v Speaker 1>of thirty six uh gross yield about three point four percent.

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<v Speaker 1>Stock is of about twelve percent so far this year.

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<v Speaker 1>And the number that you mentioned that is really the

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<v Speaker 1>most outstanding is that yield three point four percent. Uh

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<v Speaker 1>That has not been a yield that you could have

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<v Speaker 1>gotten on Exxon for many many years. Uh It's available

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<v Speaker 1>now because the stock has fallen, corporate profits are down.

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<v Speaker 1>Uh So the stock looks a little bit expensive on

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<v Speaker 1>current earnings. But this is an extremely well managed company

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<v Speaker 1>and as a long term play for exposure and energy,

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<v Speaker 1>these are the guys you want to get in bed with. Okay,

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<v Speaker 1>so this is energy. Let's move on to another industry sector.

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<v Speaker 1>Tell us what else you're looking for? Uh. Well, another

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<v Speaker 1>one that I think of is a really attractive play

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<v Speaker 1>is a City Group. UM. Not exactly a popular choice

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<v Speaker 1>these days. A lot of people blame the banks for

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<v Speaker 1>some of the problems associated with the last recession in

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<v Speaker 1>the housing crisis. But under current management, they are slowly

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<v Speaker 1>but methodically uh pulling costs Dound three structuring the company. Uh.

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<v Speaker 1>It's trading at a dramatic discount to book UM. And

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<v Speaker 1>they have a lot of capital. Uh. They are well ahead,

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<v Speaker 1>way ahead of where they need to be to meet

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<v Speaker 1>the Basil three capital requirements. UM. Their profitability is has

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<v Speaker 1>improved dramatically. UM. They are a problem for the FED

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<v Speaker 1>because the FED has got to approve their dividend increases. Uh,

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<v Speaker 1>and they're now sitting on so much capital if the

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<v Speaker 1>FED had no choice but to approve a pretty sizable

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<v Speaker 1>dividend increasing Yet their dividend is still on the low side.

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<v Speaker 1>So I think this is again another long term investment

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<v Speaker 1>that should be very attractive. All the shares of City

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<v Speaker 1>Group are up about four percent today. Taking a look,

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<v Speaker 1>the stock is down about eleven and a half percent

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<v Speaker 1>year to date, the yield one point four percent. Do

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<v Speaker 1>you find that clients are honest in telling you how

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<v Speaker 1>long and how patient they will remain for an investment

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<v Speaker 1>to pan out. Absolutely not. Um. It's funny because anytime

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<v Speaker 1>the market goes down, patients goes out the window almost immediately. UM.

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<v Speaker 1>Clients are patient only as long as the market's going up,

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<v Speaker 1>and when the market isn't going up, their patients has gone.

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<v Speaker 1>Tell us a little bit about rebalancing a portfolio. Many

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<v Speaker 1>people were trained to rebalance so that you don't get

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<v Speaker 1>your asset allocations tipped to one industry group over another.

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<v Speaker 1>Do you find that people have actually been having the

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<v Speaker 1>discipline to do so, because they would have added to

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<v Speaker 1>their energy holdings earlier in the year in order to rebalance,

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<v Speaker 1>And the same goes for the financial industry. Yeah, it's

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<v Speaker 1>a great question, PIM, because people often don't have the

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<v Speaker 1>discipline to do it. Um. Of course, what happens when

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<v Speaker 1>energy goes down is that scares the living daylights out

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<v Speaker 1>of them, and so they're much less inclined to expose

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<v Speaker 1>themselves to energy, and so they tend to avoid it.

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<v Speaker 1>And the same thing was true with the financials when

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<v Speaker 1>the financials uh fell out of bed. Uh. So sometimes

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<v Speaker 1>it's easier when they use funds or et f s,

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<v Speaker 1>because then they don't see the rebalancing or they're not

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<v Speaker 1>participating in making the investment decisions. But certainly when UH

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<v Speaker 1>with many managers, UH, they respond to the UH, the

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<v Speaker 1>fears and the desires of their clients, and so they

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<v Speaker 1>tend to be pretty cautious about rebalancing and taking advantage

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<v Speaker 1>of some of the dislocations in the market. Do you

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<v Speaker 1>have any any any direction for someone that was looking

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<v Speaker 1>at a ten year treasury at one point five eight

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<v Speaker 1>percent and saying I can't live on that? What do

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<v Speaker 1>you recommend? Well, we think you shouldn't live on that,

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<v Speaker 1>because treasuries at that yield imply little income and lots

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<v Speaker 1>and lots of risk, no risk of default, but lots

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<v Speaker 1>of risk of siner or later the value of that

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<v Speaker 1>asset getting crushed. UM. There are a lot of high

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<v Speaker 1>yield opportunities available in the marketplace. Some of them are

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<v Speaker 1>out of favor, but yet they're really attractive. So one

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<v Speaker 1>that I like is Master Limited Partnerships, the pure pipeline companies. UH.

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<v Speaker 1>They offer pretty substantial yields, Thank you very much. Chuck

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<v Speaker 1>Lieberman is the chief investment officer and the man eaching

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<v Speaker 1>partner of Advisors Capital Management. They're based in Ridgewood, New Jersey,

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<v Speaker 1>helping to manage more than one point three billion dollars

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<v Speaker 1>of customer assets. We'll take you through to the close. Next,

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<v Speaker 1>this is Bloomberg