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Speaker 1: Broadcasting live to New York Cloomberg eleventh, Rio to Washington,

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Speaker 1: d C, Bloomberg one, to Boston, Bloomberg twelve one to

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Speaker 1: San Francisco, Bloomberg nine to the Country Suities Exam Channel

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Speaker 1: one nineteen and around the globe the Bloomberg Radio Plus

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Speaker 1: Appen Bloomberg dot com. This is Bloomberg Surveillance. Good morning,

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Speaker 1: I'm Karen Moscow, along with Michael McKee and France Saint

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Speaker 1: Laqua and the opening gal brought to you by Pershing's

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Speaker 1: Inside twenty sixteen conference. Must attend four advisers June seven

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Speaker 1: through the ninth in Orlando, Florida. Register at Inside dot com.

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Speaker 1: That's I N S I T E twenty sixteen dot com.

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Speaker 1: And stocks are lower at the open. The S and

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Speaker 1: P five hundred down a quarter of a percent, down

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Speaker 1: five points to eighties six. Dow Jones Industrial average down

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Speaker 1: three tens per cent or fifty five points, to seventeen thousand,

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Speaker 1: nine hundred forty eight. Then astacts down three ten percent

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Speaker 1: or fifteen points to forty eight ninety ten. Your treasury

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Speaker 1: on three thirty seconds, the yield one point eight nine

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Speaker 1: percent yield on the two year point eight two percent

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Speaker 1: nim ex hern oil up to tens per cent or

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Speaker 1: non sense to fort two A barrel comes gold up

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Speaker 1: seven tens per cent or eight dollars ten cents to

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Speaker 1: twelve thirty eight ten announced the euro a dollar twelve

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Speaker 1: fifty one, the yen one eleven point to zero. Mike

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Speaker 1: and Francine. Now let's get back to Wells Capital senior

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Speaker 1: portfolio manager. She's Margie Patel. Margie, you were telling us

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Speaker 1: some of the equities sectors that you were preferring, defense sectors, utilities,

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Speaker 1: healthcare stocks. Is there anything that you can find in

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Speaker 1: fixed income? Do you still like hi yield? I think

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Speaker 1: high yield is a pretty good investment, especially the top

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Speaker 1: say third, the double B named, the B plus named.

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Speaker 1: But here again the problem is they've had a big

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Speaker 1: correction back up, like equities they have. So double bees

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Speaker 1: have an average he'll to say five and a quarter,

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Speaker 1: Single bees maybe seven and a half. I'm not bad

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Speaker 1: because I think defaults will be very low, but not

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Speaker 1: near the typical double digit returns that people think they

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Speaker 1: should get from high yield. Mario. Overall, it seems that

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Speaker 1: when you look at equities that they're not doing much.

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Speaker 1: They're not doing terribly bad, but they're not doing terribly

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Speaker 1: well either. What can change that? Is there a single shift?

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Speaker 1: Is it Janet Yellen? Is it some kind of guitartic

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Speaker 1: crisis in China that can reset equities? Well, I think

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Speaker 1: that we should expect more of the same from Chairman Yellen,

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Speaker 1: which is a backdrop of trying to be very, very

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Speaker 1: sympathetic and non disruptive to the market. Um, So, no

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Speaker 1: surprises there as far as rates going up. If there's

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Speaker 1: a surprise, I think it will be more related to

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Speaker 1: energy because energy is still I think the weakest link

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Speaker 1: in the world economies or one of the emerging market countries.

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Speaker 1: They have they've been hit by commodities collapsing, they've been

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Speaker 1: hit by the fact that they all have record high

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Speaker 1: depth and that's always a recipe for a tipping in

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Speaker 1: an accident. So I would say maybe emerging markets might

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Speaker 1: be the accident or the energy sector would cause stocks

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Speaker 1: to go lower. Well, it is world of central bank week,

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Speaker 1: I guess when you when you look at it, uh,

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Speaker 1: and what we have not seen is the dollar rise

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Speaker 1: as the Fed feared, it's gone down since they raised rates.

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Speaker 1: What do you see happening in the dollar and bond

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Speaker 1: markets going forward, if the FED stands pat for longer

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Speaker 1: and other central banks keep stimulating, I think the trend,

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Speaker 1: the long term trend of the dollar over the next

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Speaker 1: year or so is still to be higher. But over

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Speaker 1: the short term dollar trading is so technical. You had

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Speaker 1: a very very strong move up in the dollar. Now

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Speaker 1: I think the trader's technicians um feel that the dollars

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Speaker 1: should continue to come off. When Janet indicated she wasn't

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Speaker 1: going to be as aggressive on tightening, but I think

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Speaker 1: we're going to see rotation back to the dollar strength.

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Speaker 1: So in other words, just more meaningless EBB and flow

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Speaker 1: around the trail. But the trend of the door, I

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Speaker 1: think it's a little um higher compared to most other currencies.

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Speaker 1: But do we see a lot of money continue to

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Speaker 1: flow in the US because it has, you know, essentially

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Speaker 1: the highest interest rate for for anybody to get some

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Speaker 1: kind of return. Yes, we had the highest interest rate.

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Speaker 1: We have a currency that's able to appreciating, and we

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Speaker 1: have actually one of the strongest economies, even though the

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Speaker 1: growth looks like it's going to be maybe one and

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Speaker 1: a half percent this here, So I think that will

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Speaker 1: continue to pull money and looking at other investment opportunities,

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Speaker 1: and we've had a big bounce back in some of

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Speaker 1: the smaller emerging markets here from the very low point.

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Speaker 1: So I think that may pull more conservative money into

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Speaker 1: the US again. Apart from what you were I guess

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Speaker 1: alluding to was was possible defaults or some kind of

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Speaker 1: debt going wrong around the world. How concerns are you

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Speaker 1: about a policy mishap? So either the central bank in

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Speaker 1: you know, the b o J or the ECB, or

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Speaker 1: even the FED actually doing a policy mistake. Oh, I

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Speaker 1: think that. I think they're on a UM. This whole

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Speaker 1: negative zero interest rates is a long term policy mistake,

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Speaker 1: but I don't think it's going to cause a blow up.

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Speaker 1: I think it's more just um, more or less sapping growth,

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Speaker 1: deflecting flows of credit into less efficient areas, you know,

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Speaker 1: very large companies UM, rather than uh than not getting

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Speaker 1: people to invest money in small businesses and so forth.

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Speaker 1: So I just see more of an erosion of potential

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Speaker 1: growth rather than a big bank kind of thing because

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Speaker 1: of what the banks are doing central banks. Are you

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Speaker 1: concerned about banks the banking industry because of negative rates?

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Speaker 1: I know it's far from you know, talking really about

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Speaker 1: negative rates in the US, but it must have an impact.

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Speaker 1: If Japan goes into negatives that hurts the banks, there

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Speaker 1: must be a linkage with US banks. I think US

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Speaker 1: banks are are very sound because they do have much

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Speaker 1: more liquidity, they have the higher capital requirements, and their

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Speaker 1: loans have been pretty conservative. If they may have some

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Speaker 1: mild losses in the energy space, but that's nowhere as

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Speaker 1: big as the losses from the housing sector. So I

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Speaker 1: think our banks are looking very good. And the only

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Speaker 1: criticism would be is whereas the growth going to come from?

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Speaker 1: Because they don't have any areas of a huge incremental

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Speaker 1: loaned band and they still have a lot of regulatory

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Speaker 1: limits that limit what they can do that used to

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Speaker 1: provide a real lift and earning. So I would say

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Speaker 1: very subdued growth, but very very little fundamental risk from

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Speaker 1: the banks because of bad loans or anything like that. Well,

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Speaker 1: we're seeing default rates stay low. We're seeing even though

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Speaker 1: the FEDS raised rates, and banks are well. Even though

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Speaker 1: or because we're seeing an increase in lending to businesses,

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Speaker 1: would have FED rate increased be all that bad for

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Speaker 1: the economy, No, I think it would actually be a

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Speaker 1: step towards normalcy. And rewarding savers who have been just

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Speaker 1: really hurt very badly to do not be able to

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Speaker 1: get any kind of return on the risk reinvestments. So

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Speaker 1: I don't think that would hurt at all, um, but

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Speaker 1: it looks like we are a long way from that market.

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Speaker 1: What's your take on emerging market? So a lot of

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Speaker 1: the industries that you talked about being overweight or actually liking,

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Speaker 1: of course, have a direct linkage to emerging markets. They

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Speaker 1: were extremely volatile, not easing a little bit. But are

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Speaker 1: you concerned that volatility will come back? Yes, because at

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Speaker 1: the end of the day, all the emerging markets are

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Speaker 1: commodity based and commodity demanded pricing. The best look stable,

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Speaker 1: but looks like both demanded prices may go down. And again,

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Speaker 1: virtually every urging market that I've looked at has record

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Speaker 1: high debt levels. It may not be dull denominated, but

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Speaker 1: that is still debt. So it just seems to me

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Speaker 1: that they've spent a lot of money, borrowing a lot

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Speaker 1: of money, and don't have a lot to show for it,

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Speaker 1: and they're still the same type of rather inefficient commodity

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Speaker 1: based economies, and that to me doesn't look very attractive.

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Speaker 1: Mark Betell Wells Capital Management takes for being with us

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Speaker 1: today here on surveillance. Interesting times. Um, but I have

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Speaker 1: to prand issue maybe a surveillance clarification, if not correction.

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Speaker 1: Here we said we were talking about Saudi Aramco and

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Speaker 1: the two trillion dollars it may be worth according to

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Speaker 1: the Saudi print, and we said of making like the

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Speaker 1: seventh or eighth biggest country. And that's because I'm looking

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Speaker 1: at the market cap and comparing it to g d P.

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Speaker 1: And Dan writes in one of our loyal listeners and says,

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Speaker 1: you know you're an idiot because it's you know, the

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Speaker 1: market cap is is not what their annual revenue is,

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Speaker 1: and the annual revenue would be more comparable to GDPs,

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Speaker 1: and the annual revenue is billion. Makes the the thirtieth

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Speaker 1: largest country in the world. I don't know, I don't know.

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Speaker 1: It's debatable, Mike. I think you're right. You can look

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Speaker 1: at you can look at market cap. I'm going with you.

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Speaker 1: I'm going along Michael McKee on this alright. Anyway, it's

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Speaker 1: either the seventh biggest company in the country in the

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Speaker 1: world or the thirtieth. But in any case, it's a

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Speaker 1: privately owned oil company will stayed owned at this point.

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Speaker 1: You'll be able to pick up a small portion of

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Speaker 1: it when this autie's put it on the market. In

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Speaker 1: the meantime, we're getting you uh into the day with

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Speaker 1: stocks down just a little bit. Uh the moment, we're

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Speaker 1: gonna check in with Michael Barr and get the latest

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Speaker 1: world in national headlines. This hour of surveillance brought to

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Speaker 1: you by Volvo White Cars, White Planes, Physic, Volvo Cars,

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Speaker 1: White Planes dot Com, Michael, Mike Francine, thank you very much.

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Speaker 1: President Obama announced today that he will send two hundred

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Speaker 1: fifty additional special forces to Syria to help local forces

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Speaker 1: in the fight against the Islamic State Group. The President

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Speaker 1: spoke today and hanover Germany. They're not gonna be leading

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Speaker 1: the fight on the ground, but they will be essential

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Speaker 1: in providing the training and assisting local forces they continue

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Speaker 1: to drive ISISL back. The two special forces will join

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Speaker 1: the already fifty or so they're in Syria. Democratic front

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Speaker 1: runner Hillary Clinton canned win enough delegates. You officially not

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Speaker 1: Bernie Sanders out of the race, but you can put

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Speaker 1: it almost out of reach tomorrow. Three four Democratic delegates

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Speaker 1: are at stake in primaries in Connecticut, Delaware, Maryland, Pennsylvania,

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Speaker 1: and Rhode Island. Republicans Ted Cruz and John kask have

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Speaker 1: made a deal to try and take as many delegates

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Speaker 1: away from front runner Donald Trump. Kase says he will

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Speaker 1: get out of the way and give Cruise a clear

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Speaker 1: path in Indiana. In return, crew says he'll clear the

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Speaker 1: path for Kaske in Oregon and do Mexico and their primaries.

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Speaker 1: Trump's campaign calls it a desperation move. Global News twenty

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Speaker 1: four hours a day, powered by Now. We're twenty four

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Speaker 1: hundred journalists and more than a hundred fifty news bureaus

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Speaker 1: from around the world on Michael bar Mike Prancing, Hey you,

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Speaker 1: Michael all right now, equities are falling s and P

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Speaker 1: five hundred shares down on that index six points three

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Speaker 1: tenths of eight percent. This is Bloomberg Surveillance. Bloombergs brought

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Speaker 1: Business News twenty four hours a day at Bloomberg dot com,

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Speaker 1: the Radio plus Mobile Act and on your radio. This

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Speaker 1: is a Bloomberg Business Flash and I'm Karen Moscow. The

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Speaker 1: Bloomberg Futures Report brought to you by Interactive Brokers and

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Speaker 1: CME Group. If you're looking for a global futures contracts

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Speaker 1: c m E Group. US DOCK Index futures are lower

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Speaker 1: as oil resumed its declines before central bank meetings this

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Speaker 1: week in the U S and Japan, and as investors

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Speaker 1: await earnings reports to gauge corporate health. We checked the

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Speaker 1: markets every fifteen minutes throughout the trading day on Bloomberg

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Speaker 1: SNP EVENI future is down eight points now, DOWI Mini

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Speaker 1: futures down fifties six and Nasdaki Many futures down sixteen.

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Speaker 1: The decks in Germany's down eight tenths per cent, ten

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Speaker 1: year treasury down to thirty seconds, the yield one point

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Speaker 1: eight nine percent. Nim X Scrude oil down a tenth

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Speaker 1: of upper cent or four cents, to forty sixty barrel call.

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Speaker 1: Max schoold is up six tens percent or six dollars

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Speaker 1: ninety cents to twelve thirty six. The euro at dollar

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Speaker 1: twelve fifty four, the N one eleven point to four.

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Speaker 1: That's a Bloomberg business flash. Mike and Francine Karra Masco,

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Speaker 1: thank you very much. Margie Patel, there has been a

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Speaker 1: managing director and senior portfolio manager with Wells Capital Management,

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Speaker 1: or as they so politely put it, one of its

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Speaker 1: predecessors in this world of bank mergers, since a two

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Speaker 1: thousand seven. She manages the Wells far Advantage mutual funds.

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Speaker 1: Mark you. We've been talking this morning with people about

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Speaker 1: whether or not they think that we have bottomed out

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Speaker 1: in the world. Your call has been uh somewhat um

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Speaker 1: disappointed or you're expecting disappointment given that earnings have been uh,

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Speaker 1: you know, contracting have been falling for the last couple

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Speaker 1: of quarters. Are you still feeling that way? Do you

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Speaker 1: still would you still put yourself on the pessimistic side

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Speaker 1: of the spectrum. More on the pessimistic side, I think

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Speaker 1: when people say the market's bottoming out, that you know,

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Speaker 1: economy is bottoming out. To me, that implies and then

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Speaker 1: therefore we'll have a big syclical rebound and that I

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Speaker 1: don't see. I see a leveling out and then a

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Speaker 1: very very slow increase on the part of the handful

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Speaker 1: of countries like the US, and probably deterioration for most

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Speaker 1: of the emerging market countries. So at this point, not

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Speaker 1: a lot of reason to put money to work in equities. Well,

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Speaker 1: I think the return out look is pretty mute at

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Speaker 1: mid single digit over the next year. So um, that's

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Speaker 1: that's that says it's not a compelling opportunity better than cash,

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Speaker 1: but not what we think historically we should get from

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Speaker 1: equities and margaut Where do you put your money then?

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Speaker 1: Do you do you look for good value companies or

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Speaker 1: do you look for the ones that may be over

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Speaker 1: crowded but they will continue to outperform. No. I I

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Speaker 1: look for companies and I think have an ability to

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Speaker 1: grow independently because they can develop new products, have been

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Speaker 1: you know, proprietary intellectual property. It can grow that way.

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Speaker 1: That are in sectors of the economy that are still

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Speaker 1: growing even if the general outlook is pretty flat. So

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Speaker 1: some parts of health care, tools and devices, even in

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Speaker 1: discretionary I think autos and housing still have an upswing

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Speaker 1: more than the overall economy. So that's what I look for,

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Speaker 1: companies that can sort of make their own destiny. What

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Speaker 1: about defense sectors? Well, h defense sectors as opposed to

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Speaker 1: defensive I like very much. I think that there's always

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Speaker 1: a war breaking out somewhere, and it looks as if

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Speaker 1: we should continue to increase the amount of money that

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Speaker 1: we spend on our military. I think that's a trend worldwide.

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Speaker 1: Those companies are very very efficient, high cash flow, and

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Speaker 1: so I think they'll continue to be surprisingly good performers.

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Speaker 1: I have to ask you about the idea of you

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Speaker 1: said looking for companies that are generating their own growth,

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Speaker 1: But what about companies that are going out and buying

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Speaker 1: it and we're seeing continued M and A activity we've

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Speaker 1: had some today. Is that worth taking a flyer? Everybody,

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Speaker 1: it seems, has a pile of cash and they're looking

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Speaker 1: to make attractive acquisitions. Um. But to me, I take

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Speaker 1: that with a little bit of a grain of salt.

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Speaker 1: It's always easier to buy things, and maybe they're not

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Speaker 1: as good a value as you thought. Valuations are a

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Speaker 1: lot higher than they've been over the last few years.

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Speaker 1: So it's going to be harder for companies to make

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Speaker 1: an acquisition in that value. I think the better place

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Speaker 1: to make acquisitions or some of the smaller acquisitions, you know,

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Speaker 1: fifty million, so a smaller company can benefit. That doesn't

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Speaker 1: move the needle for a big company. So at this point, UM,

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Speaker 1: it doesn't really matter what you have on your balance sheet.

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Speaker 1: You're unless you're generating additional top line, you're probably not

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Speaker 1: going to get a whole lot. Well, that's right, and

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Speaker 1: they're very few companies that are able to grow the

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Speaker 1: revenue line more than low single digits. Where do you

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Speaker 1: see that the most growth coming from or what are

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Speaker 1: the the industry groups that actually you want to see growth?

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Speaker 1: And so you'll staying well away from UM. I am

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Speaker 1: continue to be pretty cautious about industrials. I really don't

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Speaker 1: see the rebound, and I think the stocks are pretty

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Speaker 1: much reflected as if we're gonna have a big rebound.

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Speaker 1: I'm not too keen on the pharmaceutical area because I

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Speaker 1: think the pricing pressures that they're going to encounter are

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Speaker 1: really going to put pressure on on revenues. UM. I

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Speaker 1: think something actually like utilities, which has been a sector

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Speaker 1: that's perennially unpopular is going to continue to surprise on

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Speaker 1: the upside because they actually have the ability to generate

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Speaker 1: revenue growth in the mid single digit either because of

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Speaker 1: mandated capital expenditures or little growth in their service territory.

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Speaker 1: So I think that those are the kind of sectors

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Speaker 1: I think will do UM a little better and some

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Speaker 1: li'll do worse. Well, it sounds like you're sort of

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Speaker 1: advocating the standard defensive posture that people take when there's

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Speaker 1: recession ahead or in train. Are you seeing that? Are

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Speaker 1: you just reacting to admit kind of economy. Well, here's

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Speaker 1: a technical term here, that's a c f A as

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Speaker 1: I wus a c f A level four. Yes, I

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Speaker 1: do think that the so called value companies present a

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Speaker 1: little bit more UM pull return opportunity because a lot

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Speaker 1: of the grossing names I think have gotten very high

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Speaker 1: price and again, people are looking for a much stronger

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Speaker 1: cyclical rebound than I can see any place in the world.

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Speaker 1: So I think that those companies that have high cash

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Speaker 1: flow and have the ability to sustain that over the

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Speaker 1: next couple of years look like they're more attractive. Well,

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Speaker 1: that's what Tom Keene would jump on. The free cash flow.

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Speaker 1: But everybody seems to be putting that free cash directly

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Speaker 1: into the bank these days. Yes, and that's a problem.

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Speaker 1: I shouldn't say it's a problem, but companies have a

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Speaker 1: lot of cash that they don't have a productive use for.

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Speaker 1: And I guess that's good news because in previous markets

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Speaker 1: they would go out and spend on capital expensures and

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Speaker 1: increased capacity and then be set up wrong when the

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Speaker 1: next recession at So the good news is they are

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Speaker 1: being very prudent with their cash. Most of what they're

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Speaker 1: doing is looking for M and A opportunities or buying

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Speaker 1: back stock, which is always a perennial use of cash

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Speaker 1: for most companies. But again, that doesn't really give you

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Speaker 1: ability to sustain much higher growth going forward because you're

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Speaker 1: not investing in making a bigger return. All right, let's

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Speaker 1: come back with Margie Patel from Wells Capital. Right now,

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Speaker 1: we're not well. I mean, the equity markets are sort

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Speaker 1: of supporting what Margaine says, with futures in the US

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Speaker 1: lower s ANDP features down by seven three tenths of

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Speaker 1: a percent. In Europe, stock six is off by a

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Speaker 1: point of four tenths drop. I might commache along with

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Speaker 1: Francy Laqua. This is Bloomberg Surveillance. We're counting down to

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