WEBVTT - Michael Cuggino on Facebook: So Many Avenues to Monetize(Audio)

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<v Speaker 1>Charlie Pellett and that's a bloom Bread business flash. This

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<v Speaker 1>is jaking stock with Bim Box and Kathleen Hayes on

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<v Speaker 1>Bloomberg Radio. His Permanent Portfolio fund is up more than

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<v Speaker 1>thirteen and a half percent so far this year. Michael

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<v Speaker 1>Cogino is the president and the portfolio manager of the

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<v Speaker 1>Permanent Portfolio family of funds, helping to manage approximately three

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<v Speaker 1>billion dollars in customer assets. He joins us from San Francisco.

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<v Speaker 1>Michael Congino, thank you very much for being with us.

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<v Speaker 1>I'm great. So tell me about your performance in the

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<v Speaker 1>context of Facebook. I noticed that that is a major

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<v Speaker 1>holding of yours, in addition to some treasuries and also

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<v Speaker 1>some Swiss bonds. Yeah, Facebook's has been a contributor performance.

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<v Speaker 1>And basically our assets strategy and Permanent Portfolio is diversification.

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<v Speaker 1>We invest in a variety of non correlated different asset

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<v Speaker 1>classes in one mutual fund. It's designed to reduce overall

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<v Speaker 1>portfolio volatility, provide to be you know, lower bated as

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<v Speaker 1>stock and bonds, and and also a lower volatility product

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<v Speaker 1>and so um. You know, we invest not only in

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<v Speaker 1>US and non US stocks and bonds, but also commodities,

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<v Speaker 1>precious metals, real estate stocks, UM and Swiss currency and

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<v Speaker 1>Swiss government bonds as you mentioned, so pretty diversified. It's

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<v Speaker 1>designed to UM seek to preserve purchasing power and grow

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<v Speaker 1>capital over the long term, be a a grower, a

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<v Speaker 1>preserver and a maintainer of investors capital at a rate

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<v Speaker 1>that exceeds inflation. So, Michael, what you just described as

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<v Speaker 1>a portfolio that on you can see on the one end, Facebook,

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<v Speaker 1>very little sensitivity if anything, to global central bank moves

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<v Speaker 1>unless it creates a huge you know, roaring global economy

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<v Speaker 1>or a huge recession. The other end, the Realist eight bonds,

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<v Speaker 1>things that are very sensitive. So I just can't get

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<v Speaker 1>you away with at least one question on the Fed

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<v Speaker 1>today at this point. Do you just say we're babar

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<v Speaker 1>we were saying April or May, waiting to see if

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<v Speaker 1>and when the FED races race this year and and

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<v Speaker 1>focus on the fundamentals of the companies where you're invested,

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<v Speaker 1>or do you think that there's something in this thing,

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<v Speaker 1>this message today that changes that. Well, you know, a

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<v Speaker 1>quick comment on Facebook, if they keep growing at the

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<v Speaker 1>rate they're doing, building cash, maybe they'll become relevant to

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<v Speaker 1>central banks as a funding source. But all joking aside, Um,

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<v Speaker 1>I think the uh, the we are sort of where

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<v Speaker 1>we were a few months ago. I think Brexit is

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<v Speaker 1>behind us. Um, the scary jobs number a couple of

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<v Speaker 1>months back appeared to be a one off. Um, And

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<v Speaker 1>so you've got stronger employment, you've got modern economic growth.

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<v Speaker 1>I mean the FED statement that changes from the previous

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<v Speaker 1>month were a lot more I think comforting in terms

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<v Speaker 1>of economic growth. So clearly they're seeing signs that economic

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<v Speaker 1>growth is picking up. And whether that's sustainable or not

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<v Speaker 1>is another issue because we've we've seen this movie before.

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<v Speaker 1>But at the moment um, they clearly see an enhanced

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<v Speaker 1>economic picture versus what they saw a month or two ago.

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<v Speaker 1>Or maybe they saw it and they had too many

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<v Speaker 1>questions with respect to labor and Brexit, which are now

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<v Speaker 1>behind them. So I think again, you know, they may

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<v Speaker 1>want to see more. That's probably why they didn't do

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<v Speaker 1>anything in July. Here there's been now speculation that they

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<v Speaker 1>might do something around the Jackson whole time period of September.

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<v Speaker 1>Maybe maybe not. Um, it's getting close to the election

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<v Speaker 1>at that point, but you could still see it happening Um,

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<v Speaker 1>I think December remains the most likely scenario. It still

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<v Speaker 1>gives them a few months to see if there are

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<v Speaker 1>any European issues, um, you know, the European banks or

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<v Speaker 1>another question that could impact central banks, as well as

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<v Speaker 1>the potential stimulus in Japan. So there's still global concerns.

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<v Speaker 1>And remember they did say cost the money, labor in

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<v Speaker 1>the United States, and global activity of things they're thinking about.

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<v Speaker 1>So I wouldn't say we're off to the races with

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<v Speaker 1>rate increases, but I would say the k for rate

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<v Speaker 1>increases has been enhanced by today's statement. Michael, can you

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<v Speaker 1>tell us anything that you've been selling or buying? Well,

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<v Speaker 1>we're again we're always diversified, so um, you know, we're

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<v Speaker 1>looking in in the equity market, we're looking for areas

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<v Speaker 1>that haven't participated to the same degree as the overall market.

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<v Speaker 1>We've tended to stay away from the consumers, the more

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<v Speaker 1>safety stocks, the yield alternative type stocks. We think they're overpriced, um.

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<v Speaker 1>But as a general rule, we're also looking at more volatile,

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<v Speaker 1>more more data levered stocks, more stocks that are you know,

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<v Speaker 1>levered economic growth and investment activity. And so that's always

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<v Speaker 1>the area we're looking. But there are, you know, tech

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<v Speaker 1>financials I think makes sense. Energy and commodities are still

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<v Speaker 1>a very beaten down sector for the long term, given

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<v Speaker 1>that you know, global global growth is slow as dollar

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<v Speaker 1>has been strong. UM to me, we're in an exacerbated

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<v Speaker 1>or an enhanced sort of low and a typical commodity cycle,

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<v Speaker 1>which means over the long term, it's an interesting area

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<v Speaker 1>to look at on the bond side because there's such

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<v Speaker 1>uncertainy with interest rates. We've tended to be higher quality

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<v Speaker 1>UM and lower to lower intermediate duration, so we're looking

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<v Speaker 1>at probably four to five year duration. Our treasury is

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<v Speaker 1>probably a little bit less than that in our Swiss

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<v Speaker 1>UM and sticking with investment grade corporates in a variety

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<v Speaker 1>of industries and treasuries. You know, Michael Um, I had

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<v Speaker 1>a really terrible call on Apple in the market today

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<v Speaker 1>because I told my producer, yes, today have this show.

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<v Speaker 1>We got to fed tomorrow. We don't have to way

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<v Speaker 1>too much about Apple. You're earning surroud us gonna be

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<v Speaker 1>old news. And then of course come in today, right

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<v Speaker 1>and Apple helps fuel a rally, not a big rally. Nevertheless,

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<v Speaker 1>what is what is your take on Apple? Now? You

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<v Speaker 1>know we had the high level downgrade to a cell

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<v Speaker 1>this week. It's it's kind of a lone wolf call. Still,

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<v Speaker 1>but what about Apple the company itself and what it

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<v Speaker 1>means for the market commands all kinds of attention. Surely

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<v Speaker 1>they had a good number. I think it was based

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<v Speaker 1>on lower expectations UM, but still a beat to beat.

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<v Speaker 1>So given credit UM, I think it's a great company.

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<v Speaker 1>I think they're in the middle of a product trans

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<v Speaker 1>adian situation. UM. And as with Apple, as has been

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<v Speaker 1>the case for a long time, the question and valuation.

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<v Speaker 1>If you look at it as a consumer company that

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<v Speaker 1>deserves a premium valuation, many people do. UM, it's cheap

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<v Speaker 1>right now, and it pays a pretty good dividend UM,

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<v Speaker 1>and if it continues to trade around these levels, it

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<v Speaker 1>may be a good long term by If you view

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<v Speaker 1>it more as a hardware company, a device maker, and

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<v Speaker 1>they are starting to get quite a bit of competition

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<v Speaker 1>from that front, UM, then it's trading at more reasonable

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<v Speaker 1>valuations compared to sort of its peers. I still think

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<v Speaker 1>that you know, they've got a tremendous amount of intellectual

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<v Speaker 1>capital there and uh, and I wouldn't bet against them,

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<v Speaker 1>but I think the competition's got more heated for them

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<v Speaker 1>in the last few years, and that's going to be

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<v Speaker 1>an interesting story to launch. So UM, I don't know

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<v Speaker 1>how much it really drove the market today. I think

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<v Speaker 1>probably people were more focused on the fed UM but

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<v Speaker 1>but it certainly did help corporate earnings. UM. You know,

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<v Speaker 1>at least the corporate earnings picture today. Michael Contino that see,

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<v Speaker 1>you get someone to call you and is fretting about

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<v Speaker 1>the cash that they have in their account. They're too

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<v Speaker 1>afraid to buy equities and they can't stand the low

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<v Speaker 1>returns that they would get on bonds. Is it too

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<v Speaker 1>late for them to do either? Um? You know, I

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<v Speaker 1>tell them, maybe invest in my fund. But then again

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<v Speaker 1>I'm biased. UM, I think absolutely. I think in any

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<v Speaker 1>market situation there is always opportunity, even in over valued sectors.

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<v Speaker 1>And certainly I think you can make a case that

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<v Speaker 1>bonds and stocks are are overvalued on some metrics. So UM,

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<v Speaker 1>But given that, I think that you can find, you know,

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<v Speaker 1>the corporate market is especially the shorter term corporate market.

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<v Speaker 1>Investment grades have provided us a lot of opportunity. We

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<v Speaker 1>run a flexible bond fund called Versable Bond Fund UM,

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<v Speaker 1>and we're managing that again at a lower core you know,

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<v Speaker 1>lower duration and higher quality standpoint um of it, as

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<v Speaker 1>I think invest a great debt and the duration is

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<v Speaker 1>probably four to six year or something like that, and

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<v Speaker 1>we're you know, we're at the moment we're up nine

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<v Speaker 1>percent of that fund. So not not to make predictions,

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<v Speaker 1>but there are opportunities there um. On the stock side,

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<v Speaker 1>I think there are definitely sectors and I pointed out

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<v Speaker 1>a few of them that that have not performed to

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<v Speaker 1>the degree of the overall market. I think financial sold

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<v Speaker 1>off quite a bit because the FED appeared to be

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<v Speaker 1>on hold an interest rates. I think there's a lot

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<v Speaker 1>of potential long term value there. US balance sheets are strong.

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<v Speaker 1>Once rates do start going up, I think you're gonna

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<v Speaker 1>get the benefit of spreads um. And so we've we've

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<v Speaker 1>been playing around in that area. I do think commodities

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<v Speaker 1>and energy, fossil fuels and energy are not going anywhere.

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<v Speaker 1>The world needs that stuff to grow, and yes it's

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<v Speaker 1>in a down period of a cycle, but we expect

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<v Speaker 1>that to change when global economic activity picks up. And

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<v Speaker 1>an interesting anecdote to that, Freeport mcmaran is one company

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<v Speaker 1>that we own and recently they were going to be

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<v Speaker 1>selling assets to build up their balance sheet and and

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<v Speaker 1>et cetera. UM, and they recently came out and said

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<v Speaker 1>that rather than sell assets, are going to issue more equity.

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<v Speaker 1>Now it's still a very cheap stock, but to me

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<v Speaker 1>that was a confidence indicator that over the long term

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<v Speaker 1>they may see that they're they're better to maybe hold

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<v Speaker 1>onto some of those assets versus to sell them to

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<v Speaker 1>bring down debt and maybe just issue equity, which in

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<v Speaker 1>the short term is dilutive, no question, but in the

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<v Speaker 1>long term could be a benefit of the capital structure.

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<v Speaker 1>So there's always opportunity. Quick statement, get about twenty seconds

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<v Speaker 1>on Facebook, it's prospects. We we love it as a

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<v Speaker 1>long term growth story. I mean, it's not cheap in

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<v Speaker 1>our view. Uh, you know, they have so many avenues

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<v Speaker 1>um to monetize that they're still just becoming aware of.

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<v Speaker 1>And and some of them, like Messenger, they haven't even

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<v Speaker 1>started and they just I think that's the one they

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<v Speaker 1>just grew to a billion users um. But the core

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<v Speaker 1>business appears to be very strong. It's there to be

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<v Speaker 1>taking market share. We expect good things. We always expect

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<v Speaker 1>good things from you. Michael Pagino, Thanks so much for

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<v Speaker 1>joining us. Today from San Francisco. He's president of Permanent

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<v Speaker 1>Portfolio family of funds. I'm Kathine Hayes along with Pim Fox.

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<v Speaker 1>This is Bloomberg. Yeah,