Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along
Speaker 1: with my co host of Bonnie Quinn. Every business day
Speaker 1: we bring you interviews from CEOs, A market pros, and
Speaker 1: Bloomberg experts, along with essential market moving news kind the
Speaker 1: Bloomberg Markets Podcast on Apple Podcasts or wherever you listen
Speaker 1: to podcasts and on Bloomberg dot com focusing on markets here,
Speaker 1: you know, you've got the interest rates and incredibly low.
Speaker 1: It seems like if you listen to the Fed chairman
Speaker 1: pal lower for longer. That calls into a question a
Speaker 1: lot of folks about the traditional sixty forty portfolio stocks
Speaker 1: and bonds. Is that dead? Is that a thing of
Speaker 1: the past. I'm gonna put that to Barry Ridholt's Bloomberg
Speaker 1: opinion columnists and host of Masters in Business on Bloomberg Radio,
Speaker 1: also founder in chief investment officer of Riddholt's Wealth Management. Barry,
Speaker 1: thanks so much for joining us here. So the sixty
Speaker 1: forty portfolio is that kind of a thing in the past. Yeah,
Speaker 1: you know, I always feel like a doctor who's telling
Speaker 1: people they need to exercise and watch what they eat
Speaker 1: when we discuss these traditional portfolios. Um no, these portfolios
Speaker 1: are are not dead. And look no further than the
Speaker 1: folks who had an all equity portfolio heading in to
Speaker 1: March of this year, all that panic selling we saw
Speaker 1: after a thirty percent drop, I'm pretty confident that most
Speaker 1: of those people did not have the sort of diversified
Speaker 1: portfolio where thirty or forty of your holdings are fixed
Speaker 1: income that operate as a volatility dampener. And and it's
Speaker 1: not just about yield. Well exactly, it wouldn't want to
Speaker 1: be these days, what barries So you're saying it's it's
Speaker 1: purely for the volatility dampening of of bonds that you'd
Speaker 1: have a bonds right now. Well, you know, consider it
Speaker 1: at a fairly conservative portfolio. Depending on your age, your
Speaker 1: risk tolerance, that could be seventy thirty six if you're
Speaker 1: young and you could tolerate the swings that we've seen
Speaker 1: in the market. Something like eight is certainly viable if
Speaker 1: you have a forty fifty year even a thirty year
Speaker 1: time horizon. You know, the problem that we always seem
Speaker 1: to encounter is that people look at low yields and
Speaker 1: what is it. A decade ago people were complaining that's
Speaker 1: the ten year had fallen to a four percent yield,
Speaker 1: people would people would kill for four percent. Now, uh,
Speaker 1: that you cannot get blood from a stone, you cannot
Speaker 1: create something out of nothing, and you have to accept
Speaker 1: that your options are limited and there's only so much
Speaker 1: you can do. Now, there are things you can do UM,
Speaker 1: and there are are different structural changes you can make
Speaker 1: in different holdings you can have, but you have to
Speaker 1: be real realistic that if you're looking for higher rates
Speaker 1: in a low rate environment, you are taking on more
Speaker 1: risk and and that's the key to remember, and risk
Speaker 1: means potential loss. Hey, Barry, I think since the last
Speaker 1: time we all sat down a chat chatted, we've had
Speaker 1: at least a couple of pharmaceutical companies come out with
Speaker 1: a vaccine. Data seems very very promising. Yet at the
Speaker 1: same time we're seeing metrics on the pandemic just go
Speaker 1: the absolute wrong way and certain cities and countries shutting down.
Speaker 1: Is he stepped back here any What are your thoughts
Speaker 1: on that as it relates to the markets. Sure? So,
Speaker 1: there are there are two approaches that you take when
Speaker 1: you're dealing with a pandemic. One is a vaccine that
Speaker 1: will stop UM the spread of this, and and the
Speaker 1: other is the various non pharmaceutical approaches that will allow
Speaker 1: you to to tamp down on the spread of the
Speaker 1: epidemic while you're waiting for the pharmaceutical solution. And it
Speaker 1: pretty much appears like this administration made a bet on
Speaker 1: the former and while ignoring the latter, they went all
Speaker 1: in on vaccines. And listen, these vaccines are going to
Speaker 1: be fantastic when they finally are manufactured in number and
Speaker 1: are widely distributed and of the U S population has
Speaker 1: taken them so that we have full herd immunity. But
Speaker 1: that's you know, six months at the earliest off in
Speaker 1: the future, maybe even more, maybe eight or ten months
Speaker 1: off in the future. And so the idea that we
Speaker 1: could ignore things like social distancing and working from home
Speaker 1: and wearing masks whenever we go outside is folly. And
Speaker 1: you see that in these you know, insane infection rates
Speaker 1: were coming up on two hundred thousand new infections a day.
Speaker 1: It's is horrible. And so on the one hand, you
Speaker 1: see the equity markets looking past that valley, but on
Speaker 1: the other hand, the broader economy is bracing for for
Speaker 1: quite the difficult couple of months. If not quarters, and
Speaker 1: that gets reflected in the bond market. Right But I
Speaker 1: do wonder if you wouldn't be better at all replacing
Speaker 1: some of that allocation with, for example, gold right now, Well,
Speaker 1: it depends on what your purpose. If you're if you're
Speaker 1: looking for a volatility dampen or go back to O
Speaker 1: eight oh nine, go back to other periods of high
Speaker 1: volatility two thousand and of course, and you'll see, you know,
Speaker 1: gold didn't quite fall as much as stocks, but it's
Speaker 1: certainly um got hit when when the market fell. Bonds,
Speaker 1: on the other hand, not only did they not fall,
Speaker 1: but they attracted capital. It's a it's a you know,
Speaker 1: it's it's a safe harbor in a storm on a
Speaker 1: temporary basis. Um, what we've been telling people who were
Speaker 1: looking for yield and are willing to take a little
Speaker 1: bit more risk, there are a couple of options they have.
Speaker 1: Certainly shortening your duration and and not owning a ten
Speaker 1: year taking less yield today, Um, you could you can
Speaker 1: own a three month treasury note. It's not that far
Speaker 1: less paying than what the tenure pays. And if eventually,
Speaker 1: if and when rates go up, you can start rolling
Speaker 1: out of that into higher yields down the road. Um,
Speaker 1: we we suggest that for people who have montized portfolios,
Speaker 1: if if you have a larger portfolio, well, you could
Speaker 1: obviously construct a bond ladder, so you have three and
Speaker 1: maturity dates and so on. You ladder that out for
Speaker 1: a decade or longer. And then when each of the
Speaker 1: legs of vote that ladder, each of the rungs of
Speaker 1: that ladder come, do you replace them with ten year
Speaker 1: out paper that is hopefully yielding higher levels. So you're
Speaker 1: you're getting the benefit of edit duration now and if
Speaker 1: yield goes up over time, well as each of these
Speaker 1: wrongs mature, you have the opportunity to swap out higher
Speaker 1: yielding treasury. Yeah, for sure, we're out of time. But
Speaker 1: who is your next Master's Business candidate? UM? So I
Speaker 1: have I have two really interesting people coming up. One
Speaker 1: is Greg Fleming Um who who I'm sure you're familiar
Speaker 1: with from from all of his um all of his
Speaker 1: investment banking work. But the UH this weekend is Dennis
Speaker 1: Lynch who is Morgan Stanley Counterport Global and has put
Speaker 1: together an incredible track record this year. A lot of
Speaker 1: his funds are up nearly double, so that that's a
Speaker 1: fascinating conversation. Yeah, alright, Dennis Lynch, and then Gregory's timing,
Speaker 1: who is now the president CEO of Rockefeller Capital Management,
Speaker 1: coming up on Masters in Business with our guests. I
Speaker 1: remember when Dennis Lynch was my client. He was a young, young,
Speaker 1: young by side analyst at Morgan Stanley. Now he's a
Speaker 1: very successful portfolio manager. They're running that large cap group.
Speaker 1: Putting up just great numbers is very well. I think
Speaker 1: you need to call Barry offline and give him a
Speaker 1: few anecdotes so we can spin them into in business
Speaker 1: always makes for a good introduction if you have a
Speaker 1: little dirt on somebody. We got some economic data this
Speaker 1: morning from the Conference Board. It's leading Economic Index for
Speaker 1: the US increased zero point seven percent in October, following
Speaker 1: a zero point seven percent increase in September and at
Speaker 1: one point six percent increase in August. To help us
Speaker 1: break it down, we welcome again ottoman Azzo Drum, Senior
Speaker 1: Director Economics and Global Research Chair at the Conference Board. Automan,
Speaker 1: thanks for joining us again. A good month. Uh what's
Speaker 1: the takeaways here? Hi? Good morning, Thanks for having me
Speaker 1: on the program. Um. Yes, so the U S l
Speaker 1: Ai Rose again in October. The improvements were widespread among
Speaker 1: leading indicators, despite the weakness from housing permits and the
Speaker 1: consumer's outlook on economic conditions. So the takeaway is that
Speaker 1: there is a recovery and leading indicators which bodes well
Speaker 1: for the economic recovery. Um. But the leading index itself
Speaker 1: has been decelerating in recent months. So that suggests that
Speaker 1: growth will moderate going into the final months of twenty
Speaker 1: and that will slow down from the the very unusual
Speaker 1: rapid pace that we saw in the third quarter. And
Speaker 1: certain things like stock prices helped boy its a little
Speaker 1: bit this month, So you have to wonder if that's
Speaker 1: a good thing for the entire economy, is just for
Speaker 1: a certain portion of the economy. Well, when when you
Speaker 1: look at the leading indicators, uh, you know, over several months,
Speaker 1: especially stock prices, the yield spread components have been supporting
Speaker 1: the improvements in the leading index UM. So you know,
Speaker 1: that is a positive for the economy, But that's not
Speaker 1: the whole of the sort of economic activity, right, so
Speaker 1: there are other weaknesses that we've been seeing in other
Speaker 1: parts of economic activity, and um, you know, you kind
Speaker 1: of have to look at it as a glass full,
Speaker 1: glass half full, half empty situation. It's entering autumn. It's
Speaker 1: you know, the numbers are decent, the economy is recovering,
Speaker 1: but then you know, every Thursday we get these jobs claims. Uh,
Speaker 1: and it just kind of is a you know, shows
Speaker 1: you that there are some serious headwinds still out there
Speaker 1: in the marketplace, perhaps exacerbated by some of these metrics
Speaker 1: for seeing from the virus and closing down. UM, how
Speaker 1: do you think about the labor market as it relates
Speaker 1: to the overall economic outlook. Yeah, the labor market obviously
Speaker 1: is a very important element, especially in this recession, as
Speaker 1: with every recession, but more so this time, I think
Speaker 1: because the impact has been so disruptive for labor markets. UM.
Speaker 1: I went back over several months and looked at so
Speaker 1: the UI claims contributions in the ALII and the improvement
Speaker 1: that we're seeing in the ALI over six months, half
Speaker 1: of that comes from UI claims. UM. But again, UM,
Speaker 1: we are seeing a deceleration in the improvements in labor
Speaker 1: markets and that's going to be concerning, I think looking
Speaker 1: ahead at the recovery, so we had what five six
Speaker 1: months of positive personal income X transfers and it's still positive,
Speaker 1: but it's very very anemic, Aloman. What what is that
Speaker 1: telling us? Yeah? Again, you know, it is really a
Speaker 1: reflection of all these disruptions that we're seeing, uh in
Speaker 1: in the labor markets. People are concerned about their employment status,
Speaker 1: uh ability to you know, keep their jobs. Uh. And
Speaker 1: that has a reflection directly on their income levels. So
Speaker 1: that does create some risk aversion um. And a lot
Speaker 1: of the gains in personal income that we were seeing
Speaker 1: is coming from uh, you know, a component called transfer payments, right,
Speaker 1: so government stimulus programs, unemployment insurance programs have been supporting
Speaker 1: those income levels UM. And you know, without that artificial support,
Speaker 1: I think there is a lot of concern on people's
Speaker 1: minds about again employment and income looking ahead a lot
Speaker 1: about One part of the economy that continues to really
Speaker 1: impress me. Surprised me actually is the housing market. We
Speaker 1: had the existing home sales today, very strong numbers. Uh.
Speaker 1: News starts yesterday, very strong numbers. Um. How does that
Speaker 1: factor into your economic work and your outlook? Yeah? They
Speaker 1: Uh there has been uh you know, more positive news
Speaker 1: coming from the construction housing construction uh factor over the
Speaker 1: last several months. That's good news for the economy because
Speaker 1: it is a leading sector for overall economic activity UM.
Speaker 1: In the leading index UM, we use a related component
Speaker 1: which is building permits. Uh. That's highly correlated with starts,
Speaker 1: but it tends to be a little bit smoother, So
Speaker 1: it gives us a better view on a smoother view
Speaker 1: on the business cycle and building permits UH contribution in
Speaker 1: October war zero UM, So that could be a little
Speaker 1: bit concerning. And I'd been watching that very carefully. Yeah,
Speaker 1: we were looking at yesterday a month of a month,
Speaker 1: it's flat and economist we're looking for it to be
Speaker 1: up one point four and you have to wonder if
Speaker 1: this isn't going to be a blip in the future
Speaker 1: of housing starts. I mean, yes, how's the stars themselves
Speaker 1: are still really strong at four point present in October,
Speaker 1: but the permits aren't going in there, are they? Rights? Right? Uh?
Speaker 1: So you know the weakness and permits of course is
Speaker 1: related to the future activity and uh you know whether
Speaker 1: you actually will start construction and whether the the good
Speaker 1: news will continue or not. And uh, I think that
Speaker 1: just highlights some, uh, some of the risks in economic recovery. AM.
Speaker 1: We had the president of the Cleveland Fed on this morning, UH,
Speaker 1: and one of the things she spoke about was the
Speaker 1: continued need for fiscal stimulus. Uh, we haven't gotten that
Speaker 1: fourth round that a lot of people in the market
Speaker 1: were looking for a How do you think that's going
Speaker 1: to play out with our the new uh newly elected
Speaker 1: officials and and be what is it in your base
Speaker 1: case at all? Um? You know, in our base case,
Speaker 1: we haven't allowed for a lot more stimul us coming in.
Speaker 1: But you know, as we know, at the end of
Speaker 1: the year, a lot of these unemployment support programs are
Speaker 1: going to expire. UM, So that does have an impact
Speaker 1: on our projections. You know, over the next couple of quarters. UH,
Speaker 1: without a large degree of government government stimulus, we're projecting
Speaker 1: around two point two percent growth for the final quarter
Speaker 1: UM and slowing growth in the first quarter of the
Speaker 1: next year. I think just about all points seven percent
Speaker 1: for GDP growth, Ottoman, you know, explain why all this
Speaker 1: is happening. And at the same time, consumers seem to
Speaker 1: be spending because we saw that in the retail learnings,
Speaker 1: we saw in some other data, you know, in the
Speaker 1: last few weeks. UM. Yeah again, Um, you know, personal
Speaker 1: income has been doing well, it's deported by unemployment support
Speaker 1: um so that partly explains uh, the good retail spending figures.
Speaker 1: Um but I would be concerned about whether those trends
Speaker 1: are going to be sustainable, especially now we have this
Speaker 1: deceleration and the improvement in labor markets, and we're also
Speaker 1: being faced by a second wave of the COVID nineteen outbreaks.
Speaker 1: Um So that is likely to I think constrain a
Speaker 1: consumer spending and that's probably the biggest factor in our
Speaker 1: projections for the slowing growth in the last quarter. Ottoman,
Speaker 1: thank you so much for joining us. As always, we
Speaker 1: appreciate your thoughts. Ottoman also Drum, director of Economic research
Speaker 1: and a global research there at the conference board, and
Speaker 1: we appreciate his thoughts. So now let's get to our
Speaker 1: guests and continue to talk markets. Brian Fairbanks is CEO
Speaker 1: of Tricks, and Brian was listening to some of that. Brian,
Speaker 1: they're just wondering what your takeaway is on coronavirus and
Speaker 1: where we're at as an economy and where corporate America
Speaker 1: is at. Oh, that's an absolute tough cup panel to follow.
Speaker 1: We see great opportunity as we move forward. We're very
Speaker 1: encouraged by the progress being made with the vaccines, as
Speaker 1: well as the actions being taken in various states to
Speaker 1: try to stem the continued spread of the virus. There
Speaker 1: really tres company. We see continued opportunity for people to
Speaker 1: improve their living spaces by buying our eco friendly outdoor decking.
Speaker 1: So Brian, it's you know, we've seen this a lot
Speaker 1: during the pandemic, a lot of folks obviously spending a
Speaker 1: lot more time at home, uh, spending a lot of
Speaker 1: time at Low's getting stuff to improve their home. Talked
Speaker 1: us about how your business evolved, you know, starting that
Speaker 1: February March time frame through today. Sure, we had a
Speaker 1: lot of questions February March time frame of where the
Speaker 1: economy was going to go, how the consumer would behave
Speaker 1: Very quickly by really May, we found that the consumer
Speaker 1: was very resilient and looking to improve their own living space.
Speaker 1: One of the tail winds that we saw is that
Speaker 1: people are interested in having work done outside their house,
Speaker 1: whether they were doing it themselves and buying it one
Speaker 1: of our d I Y partners or having a contractor
Speaker 1: come in and do that. We've continued to see that
Speaker 1: through the entire summer and now into the fall months. Brian,
Speaker 1: where are your biggest areas of demand. I'm assuming that
Speaker 1: in cities where people don't have balconies on us, they
Speaker 1: can afford a balcony, and that you know that that
Speaker 1: wouldn't be where your customer bases. It's more in the
Speaker 1: rural areas. What wouldn't say necessarily rural areas supports so
Speaker 1: in the suburban areas. So outside of your major cities
Speaker 1: we are, our volume tends to dominate in those areas
Speaker 1: where there are large populations. So your suburbs outside of
Speaker 1: New York through Pennsylvania, down into the south, really across
Speaker 1: the country where you see the larger population centers, you
Speaker 1: will see high volume of trecks, decking and railing sales.
Speaker 1: One of the things we've seen from a commodity standpoint
Speaker 1: during this um it has been um the price of
Speaker 1: wood and lumber. Talked to us about that as a
Speaker 1: raw material for you guys, and kind of how you're
Speaker 1: managing it. One of the unique things about Tres Company
Speaker 1: is that our raw materials are recycled content. We are
Speaker 1: buying poly ethylene from distribution centers, grocery stores all over
Speaker 1: the country and then reclaimed wood out of furniture flooring manufacturers,
Speaker 1: so we're not reliant upon the input price of wood
Speaker 1: along the way because we are using those those leftover
Speaker 1: scraps from the other parts of the business. And it's
Speaker 1: a very unique business model that has helped with the
Speaker 1: financial success of trucks over the years. So apparently compressed
Speaker 1: landfill is another um I guess for people to use
Speaker 1: to of there to have some compressed landfill used as decking.
Speaker 1: How does that work and how do you make sure
Speaker 1: that you know it's clean and so on. Our primary
Speaker 1: sources for polyethylene are going to be out of industrial
Speaker 1: protective wraps, grocery bags, other sort of films coming through.
Speaker 1: There are opportunities in using landfill and generally require some
Speaker 1: cleaning and oose are things that we look for opportunities
Speaker 1: in the future. We hope also with some support of local, state,
Speaker 1: and federal basis to help us use some of those
Speaker 1: materials as we move forward. Talk to us about the
Speaker 1: competitive landscape here. I know I'm guessing that with all
Speaker 1: the people out there trying to either replace or build
Speaker 1: new decking, it's not just you guys talked about the
Speaker 1: competitive landscape for your business. There are three major companies
Speaker 1: that make up a relatively consolidated industry. Trucks holds about
Speaker 1: fifty of the share within the industry, and then the
Speaker 1: other two companies the next so I mentioned consolidated. The
Speaker 1: most important opportunity that Tres Company has is conversion of
Speaker 1: market share against the wood industry. Wood accounts for approximately
Speaker 1: of the volume of material sold, and that's our primary focus.
Speaker 1: What are your growth plans? Presumably now be the time
Speaker 1: where you would take advantage of people flying houses and
Speaker 1: suburban and rural areas, and the house prices going up
Speaker 1: and so on. Where do you see yourself scaling too
Speaker 1: over the next few months. Over the past five years,
Speaker 1: we've been growing at about a thirteen percent rate. This year,
Speaker 1: with the midpoint of our fourth quarter guidance, our growth
Speaker 1: would be and as we look to the forward years
Speaker 1: with the wood conversion opportunity, we see no reason why
Speaker 1: that would flow. Our product lines are highly desirable or
Speaker 1: making low maintenance building products and improving the value of
Speaker 1: people's hamet and we continue to see people looking for
Speaker 1: repairing or model especially as the turnover of homes continues
Speaker 1: to increase. So I see your stock is up six
Speaker 1: this year. I'm looking at your balance sheet, not much debt.
Speaker 1: What do you do here with your stock up here yet?
Speaker 1: Any interest in selling stock or are you comfortable with
Speaker 1: your capital structure is right here? Yeah, this is a
Speaker 1: great time to have a conservative capital structure. That's something
Speaker 1: that the Tres company has always prided itself on and
Speaker 1: we received a lot of credit for that as we
Speaker 1: moved through the pandemic phase. As we look forward, our
Speaker 1: key key priorities will be first, organic growth. We're in
Speaker 1: the midst of a two million dollar capacity improvement program
Speaker 1: seventy capacity increase and most of that capacity will start
Speaker 1: coming online in early Additional priorities are share BUYBA accident. Lastly,
Speaker 1: it would be acquisitions that fit are strategic growth acquisitions.
Speaker 1: Just briefly, can you tell us if you have your
Speaker 1: eye on anything, Nothing in particular that we'd be discussing,
Speaker 1: but we're always having discussions out in the marketplace and uh,
Speaker 1: interesting things from time to time. Yeah, sure, Brian, thank you,
Speaker 1: very very interesting and to come back on when you
Speaker 1: get a little more serious about a particular acquisition. We
Speaker 1: would love to hear about a buying. Fairbanks is CEO
Speaker 1: of Tricks the Outdoor Decking Company. Stock is a heck
Speaker 1: of a run again up six, because I guess that
Speaker 1: makes sense. It's one of those um you just stay
Speaker 1: at home place, right, Bunny. Yeah? And I mean, what
Speaker 1: are you going to do if if the only exercise
Speaker 1: you're you're getting is a d I y, Well, there's
Speaker 1: that deck area that you kept meaning to build when
Speaker 1: I building Now. Thanks for listening to the Boomberg Markets podcast.
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
Speaker 1: or whatever podcast platform you prefer. I'm Bonnie Quinn. I'm
Speaker 1: on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm
Speaker 1: on Twitter at pt Sweeney. Before the podcast, you can
Speaker 1: always catch us worldwide at Bloomberg Radio