WEBVTT - Surveillance: Record High Stocks With BNP's Morris 0:00:02.600 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 jay Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.320 Bloomberg dot Com, and of course on the Bloomberg. Let's 0:00:27.320 --> 0:00:30.520 bring in David pell Shall we epics seat and port 0:00:30.560 --> 0:00:32.519 folio manager David Rights. Have you with us? Thank you? 0:00:32.600 --> 0:00:35.280 The issues on your RATAR right now? What aren't they? Well? 0:00:35.320 --> 0:00:38.720 I think last year was just too driven by valuation. 0:00:38.920 --> 0:00:40.560 I mean, we had a good year from an earnings 0:00:40.560 --> 0:00:43.240 point of view, was high single digits, which is pretty 0:00:43.280 --> 0:00:46.000 good for the US economy. But you know, to get 0:00:46.000 --> 0:00:51.239 a twentysomething return, it's valuation that is going to be 0:00:51.320 --> 0:00:54.920 hard to continue unless rates continue to go down. And 0:00:54.960 --> 0:00:57.520 it really looks like we're in a fairly stable environment. 0:00:57.960 --> 0:01:01.040 And in fact, the market has gone from moderate to 0:01:01.080 --> 0:01:04.720 being on the expensive side. And there are specific pockets 0:01:04.760 --> 0:01:07.800 of excess for sure in speculative stocks. If you look 0:01:07.840 --> 0:01:10.240 at companies that don't earn money, they've actually done better, 0:01:10.440 --> 0:01:13.000 that is a bad sign. It really goes back to 0:01:14.240 --> 0:01:17.360 so this year should be driven by earnings. You want 0:01:17.400 --> 0:01:20.480 companies that can be profitable and it's probably just gonna 0:01:20.520 --> 0:01:23.880 be a single digit return year. Rice, has Apple, a 0:01:23.959 --> 0:01:28.280 company like Apple become a speculative stock. Yeah, Interestingly, we 0:01:28.360 --> 0:01:30.679 have honed it since the founding of our firm in 0:01:30.720 --> 0:01:34.120 two thousand four, and for almost all that time, Apple 0:01:34.160 --> 0:01:37.240 has grown faster than the market, but sold at a discount. 0:01:37.640 --> 0:01:41.880 Last year, sales declined, earnings declined, and the stock almost doubled. 0:01:42.160 --> 0:01:45.039 So something happened in the psyche of the market and 0:01:45.040 --> 0:01:46.760 we sold the stock. You sold the stock? When did 0:01:46.760 --> 0:01:49.080 you sound the stock? In mid year? So it had 0:01:49.080 --> 0:01:53.040 already rallied about which we thought was the fair value, 0:01:53.320 --> 0:01:55.720 and it just kept going. She has outstanding it down 0:01:56.320 --> 0:01:59.760 since bind back program is absolutely massive that some people 0:01:59.800 --> 0:02:01.880 listening by now holding onto the name is sank. You 0:02:01.960 --> 0:02:04.440 know what, David, You're wrong. The buybacks will continue, the 0:02:04.520 --> 0:02:07.040 shares outstanding will continue to go down. I want to 0:02:07.080 --> 0:02:09.679 carry on hold in this stock. Why shouldn't I? It's 0:02:09.720 --> 0:02:12.480 not that it's a bad company, it's just the valuation 0:02:12.520 --> 0:02:15.800 at this point assumes a double digit growth rate and 0:02:15.840 --> 0:02:18.520 the growth is all coming from return of capital. But 0:02:18.600 --> 0:02:20.560 how much are reaches back to the Tina trade? There 0:02:20.600 --> 0:02:23.320 is no alternative. With the fed UH potentially cutting rates 0:02:23.360 --> 0:02:25.560 once more this year, that's what's being priced into the market. 0:02:25.600 --> 0:02:28.280 I mean, it makes valuations look very different than they 0:02:28.320 --> 0:02:32.079 have historically. So for that point, Apple is now more 0:02:32.120 --> 0:02:36.040 expensive than Google, which has higher margins, double digit growth, 0:02:36.040 --> 0:02:39.600 it's going about top and bottom line, and it's cheaper 0:02:39.639 --> 0:02:42.160 than Apple. So there are alternatives. And then we get 0:02:42.160 --> 0:02:44.600 to financials, which are the cheapest sector of the market 0:02:44.600 --> 0:02:47.480 at and to twelve times earnings and free cash flow 0:02:47.520 --> 0:02:49.720 the way we would look at it, and they're returning 0:02:49.720 --> 0:02:52.920 a hundred percent of capital b of a literally is 0:02:52.919 --> 0:02:55.040 returning a hundred percent. And so if you take the 0:02:55.120 --> 0:02:58.360 dividend plus the earnings growth and the share buy back, 0:02:58.480 --> 0:03:01.639 you almost get a double digit earn without any valuation. 0:03:02.320 --> 0:03:05.200 Ton't expanding that, David Pearl, with this clepic Investments, welcome 0:03:05.240 --> 0:03:08.200 all of you on Bloomberg Radio Boston, Washington and New 0:03:08.280 --> 0:03:11.120 York as well in San Francisco in a very early 0:03:11.160 --> 0:03:13.160 morning and of course on Serious ex Chin on one 0:03:13.240 --> 0:03:19.160 nineteen and across Bloomberg Television today. David Pearl, I consider 0:03:19.800 --> 0:03:22.840 where you begin January one. You don't begin with the 0:03:23.040 --> 0:03:26.880 stock in a dividend. So to recapitulate what you just said, 0:03:27.440 --> 0:03:31.560 you look at a given stock is a dividend, the dividend, growth, 0:03:31.840 --> 0:03:35.120 the share buy back, and then the then what right. 0:03:35.160 --> 0:03:37.360 So really what we're doing is saying what kind of 0:03:37.400 --> 0:03:39.920 profit in this company generate during the year and what 0:03:39.960 --> 0:03:42.880 do they do with that profit. So, some really profitable 0:03:43.160 --> 0:03:46.600 companies have wasted all the money they re They basically 0:03:46.640 --> 0:03:48.920 plowed back in growth and get a low return on 0:03:48.960 --> 0:03:51.360 invested capital. So you put a dollar in, get eight 0:03:51.440 --> 0:03:54.360 cents back. You've wasted our money. All right. You're talking 0:03:54.400 --> 0:03:56.880 about financials too. You're saying that they're very cheap and more. 0:03:56.880 --> 0:03:59.400 About eight minutes away from the release of Morgan Stanley's 0:03:59.600 --> 0:04:04.520 earning you like Instanley, you like it more than Goldman Sacks. Why? Yeah, 0:04:04.640 --> 0:04:07.600 very simply, Morgan Stanley and Goldman used to be pretty 0:04:07.680 --> 0:04:10.080 much the same kind of business. They're very different now. 0:04:10.960 --> 0:04:14.600 More than half of their business is wealth and investment management, 0:04:14.640 --> 0:04:18.600 which is a very sticky, recurring business, and the margins 0:04:18.600 --> 0:04:21.120 for Morgan Stanley have actually been going up because they're 0:04:21.120 --> 0:04:25.640 managing cost so it's recurring. The investment banking and trading 0:04:25.680 --> 0:04:28.000 are very volatile and you really don't even get paid 0:04:28.000 --> 0:04:29.560 for it. Even if you have a good quarter, the 0:04:29.600 --> 0:04:33.039 market kind of discounts it. So Goldman has really become 0:04:33.080 --> 0:04:35.440 a trading black box. That's why they in the last 0:04:35.440 --> 0:04:38.320 couple of quarters they've tried to make it more transparent. 0:04:38.320 --> 0:04:41.600 They're moving into commercial of actually consumer banking. But the 0:04:41.680 --> 0:04:43.880 question is what does Goldman do that B of A 0:04:43.960 --> 0:04:47.560 and JP Morgan doesn't do, whereas Morgan Stanley really is 0:04:47.760 --> 0:04:50.680 the king of wealth management. They are really good at this. 0:04:51.120 --> 0:04:53.840 You said last year was a valuation story. The financial 0:04:53.839 --> 0:04:56.440 sector really rewrites it and rewrites it higher. Do you 0:04:56.480 --> 0:04:58.440 see that as more sustainable than what you see our 0:04:58.480 --> 0:05:01.360 swear is that a sustainable rewriting body's market on a 0:05:01.400 --> 0:05:03.800 sect of its lack for quite a wild yes. And 0:05:03.880 --> 0:05:06.240 you know, the biggest test, unfortunately, is if we go 0:05:06.279 --> 0:05:10.919 into another recession. Because frankly, financials have underperformed since the 0:05:11.000 --> 0:05:14.280 financial crisis. People are afraid that the next downturn they 0:05:14.320 --> 0:05:17.600 go bankrupt again, and it may take till another downturn 0:05:17.680 --> 0:05:22.000 to prove that they're well capitalized. They are super capitalized 0:05:22.120 --> 0:05:25.440 right now. That's why they can return capital because they're regulated, 0:05:25.760 --> 0:05:27.880 so they can only return capital because they have so 0:05:27.960 --> 0:05:31.720 much cash sitting there to protect them. So these are 0:05:31.800 --> 0:05:34.240 really good. And Morgan Stanley is still at eleven times 0:05:34.240 --> 0:05:36.800 earnings with the two and a half percent dividend defined 0:05:37.000 --> 0:05:39.320 scale then I mean, I mean, if if there's a 0:05:39.400 --> 0:05:42.640 dearth of revenue and revenue growth, there's an urge to merge. 0:05:42.680 --> 0:05:45.400 I get all that. That's McKinsey one on one, but 0:05:45.560 --> 0:05:49.200 define skill. Take that idea further. Yeah, I mean, you know, 0:05:49.640 --> 0:05:52.560 when it comes to like the lowest commodity product, which 0:05:52.560 --> 0:05:54.760 is an e t F passive et F, there's black 0:05:54.880 --> 0:05:58.839 Rock and then there's Vanguard. Nobody really can compete when 0:05:58.839 --> 0:06:02.240 you're giving stuff away like that, So then you have 0:06:02.320 --> 0:06:06.400 to be more specialized and wealth management there is scale. 0:06:07.080 --> 0:06:10.279 My crampons for those of you that on television and radio, 0:06:10.880 --> 0:06:16.720 John was looking at Mike still Crampons. You know, they're 0:06:16.720 --> 0:06:19.719 the ones with the foreign spikes. You remember what happened 0:06:19.720 --> 0:06:21.880 to me last year? Yeah? I remember what happened to 0:06:21.960 --> 0:06:25.240 you walked out of the restaurant. Absolutely, OK, let me 0:06:26.920 --> 0:06:32.880 total face plump. What it was? You guys need cameras 0:06:33.560 --> 0:06:35.840 the side of my body. Tom had to help me 0:06:35.920 --> 0:06:40.480 get back to a right David Scale back to scale 0:06:42.040 --> 0:06:46.320 Um about those things. Ken Leon was talking yesterday that 0:06:46.360 --> 0:06:49.000 he thinks Goldman Sachs needs to make a major purchase 0:06:49.040 --> 0:06:52.120 of an asset manager. Do you agree, Well, that would 0:06:52.160 --> 0:06:55.240 be a good strategy. There are other things they could do. 0:06:55.520 --> 0:06:58.560 They're actually huge in high net worth, they really are, 0:06:58.760 --> 0:07:01.559 but that's not big in off compared to the size 0:07:01.560 --> 0:07:05.440 of Goldman Sacks. So yes, that that's the Morgan Stanley strategy, 0:07:05.760 --> 0:07:08.400 which has worked for Morgan Stanley. The question is is 0:07:08.440 --> 0:07:11.960 Goldman's culture ready for that, because they are a trading 0:07:12.000 --> 0:07:14.200 and investment banking culture. In two days in a row, 0:07:14.320 --> 0:07:17.920 ft Lex the ALM snow words about it, f Lex. 0:07:18.120 --> 0:07:20.320 I don't know if it's because it's Lionel Barber's last day. 0:07:21.440 --> 0:07:25.800 You think he think. I don't know that. They really 0:07:25.800 --> 0:07:32.480 took speaking believe to do that next week at the piano. No, 0:07:32.640 --> 0:07:36.520 this is serious. The ft really took well, you know, 0:07:36.600 --> 0:07:39.520 for them to run a consumer bank just gonna work. 0:07:39.560 --> 0:07:43.080 It seems totally incongruous to Goldman Sacks and really the 0:07:43.080 --> 0:07:45.960 only way you're going to win businesses under price, I 0:07:46.000 --> 0:07:48.840 mean to get to go the Apple credit card. They 0:07:48.840 --> 0:07:51.480 probably are not making any money City Bank didn't even 0:07:51.520 --> 0:07:55.160 make money doing the Costco visa card. So this is 0:07:55.160 --> 0:07:58.360 a scale business and Goldman just doesn't have scaling consumer banking. 0:07:58.640 --> 0:08:01.880 David pol with thank you some watch with Epica Investments greatly, 0:08:01.920 --> 0:08:20.240 greatly appreciated. Right now. I've really been looking forward to this. 0:08:20.400 --> 0:08:22.360 Very Lovely is going to join us. She's with the 0:08:22.400 --> 0:08:25.440 Peterson Institute in Syracuse University and she has written with 0:08:25.520 --> 0:08:29.760 precision about China and America. I'm gonna steal some thunder 0:08:29.800 --> 0:08:33.360 from my colleague Lisa Bramo is Professor Lovely right now, 0:08:33.480 --> 0:08:36.920 which is on the enforceability of all we're doing. Let's 0:08:36.920 --> 0:08:40.880 do the history first. Is there everybody's history of enforceable 0:08:41.320 --> 0:08:46.880 or verification with China. Well, it's it's not only that 0:08:46.960 --> 0:08:50.520 it is a disagreement. Isn't unprecedented. Uh, this is an 0:08:50.520 --> 0:08:53.880 agreement that's going to rely on the players who are 0:08:53.960 --> 0:08:57.080 who are in the seats at the time. Uh. It's 0:08:57.120 --> 0:09:02.440 meant to be stricter than previous attempts at enforcement. As 0:09:02.440 --> 0:09:04.920 you say, we've had a long standing problem with China 0:09:05.320 --> 0:09:09.960 on it on its meaning, its obligations in some areas, UH, 0:09:10.080 --> 0:09:14.000 particularly related to its accession to the W t o UH, 0:09:14.040 --> 0:09:17.280 and it's meant to have more teeth. The problem is, 0:09:17.320 --> 0:09:21.880 of course, is that the escalation could happen very quickly. 0:09:22.280 --> 0:09:26.120 The end result would be the us UH putting on 0:09:26.360 --> 0:09:30.280 new tariffs or returning to the old tariffs, and at 0:09:30.320 --> 0:09:33.440 that point China can simply notify that it's quit the agreement. 0:09:34.080 --> 0:09:36.960 So we have an agreement that has teeth. We have, 0:09:37.400 --> 0:09:40.240 but those teeth mean that it can bite very quickly. 0:09:40.520 --> 0:09:42.800 And I think the problem then for businesses is do 0:09:42.880 --> 0:09:45.760 you go ahead and invest a little bit like Lucy 0:09:45.800 --> 0:09:47.760 in the football? Well, this is the tough part, isn't it? 0:09:47.840 --> 0:09:50.400 Plantic season for soybean starts in a couple of months time. 0:09:50.400 --> 0:09:53.200 What are the farmers in America to who marry? I 0:09:53.280 --> 0:09:56.160 don't know, and interviews I've heard with farmers show that 0:09:56.240 --> 0:10:00.319 they don't know either. It's very tempting. My best guests, 0:10:00.559 --> 0:10:03.600 since I'm pretty optimistic person, would be to go ahead 0:10:03.640 --> 0:10:05.280 and think that it's going to hold at least for 0:10:05.320 --> 0:10:09.240 the first year. But it's a problem because farmers want 0:10:09.240 --> 0:10:13.480 to get into a rhythm with their customers UH and 0:10:13.840 --> 0:10:16.320 they need the sales. So what do they do? Mary, 0:10:16.320 --> 0:10:18.440 You gotta hand it to the administration. They got China 0:10:18.520 --> 0:10:19.960 to the table and got them to agree to some 0:10:20.040 --> 0:10:22.360 big things. As you point out, though, follow through is 0:10:22.400 --> 0:10:25.360 the outstanding issue. Let's pick up on agg on food, 0:10:25.440 --> 0:10:28.319 seafood product annually the average important. Now it's got to 0:10:28.360 --> 0:10:30.480 be forty billion. Can they hit it? Do you think 0:10:30.559 --> 0:10:33.840 China can hit those kind of numbers? Well, there's been 0:10:33.840 --> 0:10:36.320 a little bit more wiggle room in the agreement now 0:10:36.400 --> 0:10:40.040 that we've seen it. For example, they could buy Boeing planes, 0:10:41.040 --> 0:10:44.000 have the sales recorded for this period, but not take 0:10:44.040 --> 0:10:47.000 delivery for say another two years. So there are some 0:10:47.040 --> 0:10:49.840 ways that they can hit this. One of the bigger 0:10:49.880 --> 0:10:53.200 problems is that we worry about diversion from our training 0:10:53.240 --> 0:10:57.199 partners and then friction with those partners UH in energy, 0:10:57.360 --> 0:11:01.520 in egg and manufacturing. So there doesn't seem to be 0:11:01.679 --> 0:11:04.920 enough wiggle room. I think the Chinese UH in the 0:11:05.040 --> 0:11:08.079 US feel that they can hit these targets. Otherwise we 0:11:08.120 --> 0:11:10.599 wouldn't have seen agreement, or at least that's what we hope. 0:11:11.160 --> 0:11:14.480 But you know, something can happen. Mary. People are pointing 0:11:14.520 --> 0:11:16.839 to what is being called a big win for Wall 0:11:16.880 --> 0:11:19.559 Street because one part of this less publicized part of 0:11:19.600 --> 0:11:23.400 the trade deal was an acceleration of the opening of 0:11:23.679 --> 0:11:26.480 China's capital system. How significant do you think that is? 0:11:27.880 --> 0:11:31.240 I do think it's important, although you know, there are 0:11:31.240 --> 0:11:33.760 a lot of things we were we were promised a 0:11:33.800 --> 0:11:35.600 long time ago, so in some sense of the wind, 0:11:35.600 --> 0:11:38.920 but it's also been you know, a lot of losses 0:11:38.960 --> 0:11:42.920 as we've waited, while Chinese uh particularly fin tank companies 0:11:43.000 --> 0:11:46.080 have gained strength. So I think it shows that China 0:11:46.160 --> 0:11:49.800 has a certain confidence that it can withstand the competition, 0:11:50.240 --> 0:11:53.120 or frankly, that it needs the products that the U 0:11:53.200 --> 0:11:56.800 S service companies want to sell. So I think it's important. Again, 0:11:56.840 --> 0:11:59.600 we have to see if they'll follow through. Mary, there's 0:11:59.679 --> 0:12:02.760 a criticism that's already coming saying was it worth it? 0:12:02.920 --> 0:12:05.520 Was this deal enough to offset the damage of the 0:12:05.559 --> 0:12:07.880 uncertainty and the tariffs that were put into place in 0:12:07.880 --> 0:12:11.920 the two years as this unfolded. But going forward there 0:12:12.000 --> 0:12:14.400 is a question and President Trump perhaps can say, look, 0:12:14.600 --> 0:12:17.000 the US is working with the European Union in Japan 0:12:17.080 --> 0:12:19.640 with a w t O to try to enforce some 0:12:20.160 --> 0:12:24.280 sort of reduction and how much China subsidizes its industrial sector? 0:12:24.760 --> 0:12:27.160 Do you buy that? I mean, is that sufficient to 0:12:27.240 --> 0:12:31.080 sort of move the ball? Forward regardless of Phase two talks. Well, 0:12:31.120 --> 0:12:33.480 that was the best news of the week actually the 0:12:33.559 --> 0:12:36.600 US was returning to working with its allies. That that 0:12:36.760 --> 0:12:40.520 clearly is the way forward. UH industrial subsidies. As I 0:12:40.640 --> 0:12:46.640 said before, our multilateral problem, um, we need all hands 0:12:46.679 --> 0:12:49.960 on deck to try to reach an agreement within the 0:12:50.160 --> 0:12:53.400 w t O or some other way. And it's not 0:12:53.440 --> 0:12:56.400 going to be easy because every country uses subsidies to 0:12:56.440 --> 0:12:59.280 some extent. How do you draw those lines? How do 0:12:59.320 --> 0:13:03.319 you adjudicate at those lines? What happens when UH countries 0:13:03.600 --> 0:13:05.560 move over those lies? You have to remember then w 0:13:05.720 --> 0:13:08.560 t O retaliation is basically you get to put on 0:13:08.600 --> 0:13:12.160 tariffs will be you know. So it's it's a hard 0:13:12.200 --> 0:13:15.440 problem and it's one that clearly is going to escalate 0:13:15.720 --> 0:13:20.280 as as China and other countries try to develop emerging 0:13:20.320 --> 0:13:24.640 technologies which are likely to be attached to very high profits. 0:13:25.120 --> 0:13:27.880 So there's going to be a lot of competition in 0:13:27.960 --> 0:13:30.640 a lot of spheres. Mary, thank you so much, Professor 0:13:30.720 --> 0:13:34.520 Lovely with the Peterson Institute in Syracuse University as well. 0:13:46.679 --> 0:13:49.560 Do you want to snappy MP Powerbost Senior investment strategist, 0:13:49.600 --> 0:13:53.880 your message to clients this morning down what is it well. 0:13:54.000 --> 0:13:57.080 And I think the thing to contrast is the risks 0:13:57.160 --> 0:13:59.200 and the concerns that we have this year compared to 0:13:59.280 --> 0:14:01.360 this same time at the beginning of last year, and 0:14:01.400 --> 0:14:04.880 then valuations A lot of the risks honestly aren't all 0:14:04.880 --> 0:14:07.280 that different. We know, we still need to worry about trade, 0:14:07.320 --> 0:14:10.280 We unfortunately still need to worry about Brexit. There's still 0:14:10.360 --> 0:14:13.280 questions about global growth, particularly in Europe. So that's really 0:14:13.400 --> 0:14:16.640 quite similar. The differences Now you've got the SMP five 0:14:16.720 --> 0:14:19.640 hundred at eighteen and a half time's earnings. You've got 0:14:19.720 --> 0:14:22.880 high yield bond spreads near ten year lows almost that 0:14:23.280 --> 0:14:25.920 we're investment great bond spreads, So the challenge is finding 0:14:25.960 --> 0:14:28.680 attractive places to invest. The risk is still there, but 0:14:28.760 --> 0:14:31.360 the valuations aren't. I'm gonna punt a question that John 0:14:31.360 --> 0:14:33.800 posed to me this morning. You said, what's the message 0:14:33.800 --> 0:14:35.640 from the bond market, because right now you're seeing a 0:14:35.640 --> 0:14:38.560 flattening yield curve. It seems to be a bearish tilled 0:14:38.800 --> 0:14:41.600 amid six straight days of record highs, and if today's 0:14:41.600 --> 0:14:44.200 futures are any indications, will be a seventh straight day 0:14:44.400 --> 0:14:47.560 of record highs. I'm wondering is the message from the 0:14:47.560 --> 0:14:51.680 bond market inconsistent with what we're seeing in equities. Well, 0:14:51.720 --> 0:14:53.800 I think what we're seeing from bond markets recently is 0:14:53.800 --> 0:14:56.160 probably more the dysformula on inflation, you know, which is 0:14:56.240 --> 0:14:58.560 kind of the perpetual puzzle that we've had. You know, 0:14:58.640 --> 0:15:00.920 we know that we have in a ployment rates at 0:15:01.200 --> 0:15:04.760 multidecade lows, but the pattern that you've seen across several 0:15:04.840 --> 0:15:09.160 sectors for wages in America is that you've had a 0:15:09.200 --> 0:15:12.720 deceleration in the rate of wage appreciation. So there's still 0:15:12.720 --> 0:15:14.520 wage growth is just not as strong as it was. 0:15:14.920 --> 0:15:17.000 It's been going that way for about six months now. 0:15:17.040 --> 0:15:19.560 That's had a follow through the c p I, which 0:15:19.600 --> 0:15:22.320 is disappointing. So I think that's probably what you're seeing 0:15:22.360 --> 0:15:25.640 more reflected in treasures right now. It's the inflation component 0:15:25.680 --> 0:15:28.720 of your nominal yield as opposed to the real rate component, 0:15:28.760 --> 0:15:31.440 which was really the story from last year. But we 0:15:31.440 --> 0:15:33.600 don't think this is going to persist. We're still expecting 0:15:33.680 --> 0:15:36.640 broadly stable rates around one point eight, give or take, 0:15:36.880 --> 0:15:39.160 for most of this year. There's a dissonance right now 0:15:39.520 --> 0:15:43.720 between the consensus call for emerging markets Europe to outperform 0:15:43.760 --> 0:15:48.320 the US given where we've seen the rally go uh 0:15:48.360 --> 0:15:52.160 and this sort of slow down that we're seeing certainly 0:15:52.160 --> 0:15:54.360 in the US but across the world. How do you 0:15:54.400 --> 0:15:58.400 sort of pair those ideas. I think if you want 0:15:58.400 --> 0:16:02.280 to compare certainly US versus Europe, you've got to distinguish 0:16:02.360 --> 0:16:05.160 between kind of broad tech, so include you not just 0:16:05.280 --> 0:16:08.440 the tech sector, but Amazon, Facebook, Google, all of that, 0:16:08.960 --> 0:16:11.440 and the rest of the market. Uh. The rest of 0:16:11.440 --> 0:16:14.640 the market performed absolutely in line between the US and 0:16:14.680 --> 0:16:16.640 Europe last year. There was no difference. They're both around 0:16:17.880 --> 0:16:20.120 UH for the whole year. They just tracked each other. 0:16:20.240 --> 0:16:22.920 What really led to the US performance was entirely the 0:16:22.920 --> 0:16:24.720 broad tech sector. So I think you need to have 0:16:24.760 --> 0:16:28.160 two separate allocations. What's your view on tech and then 0:16:28.200 --> 0:16:30.080 the rest of it. It's harder to call a big 0:16:30.120 --> 0:16:32.800 difference between the UN and Europe except for evaluations where 0:16:32.840 --> 0:16:35.040 the US is clearly much much higher. You're just joining us. 0:16:35.120 --> 0:16:37.840 Daniel Morris, BMP Pared BIOst Management. Where this as we 0:16:37.880 --> 0:16:40.520 look at the strategy for Dan Morris, what is the 0:16:40.560 --> 0:16:43.920 mode of institutions that didn't make twenty eight percent last year? 0:16:44.280 --> 0:16:47.920 If you're up eight percent, you're up twelve percent. Maybe 0:16:47.920 --> 0:16:51.320 you're on the efficient frontier under performing. What's the sweat 0:16:51.360 --> 0:16:55.560 factor right now to catch up? Well, I think it's 0:16:55.600 --> 0:16:57.560 the same sentiment that a lot of retail investors have 0:16:57.680 --> 0:17:00.680 to be feeling. I mean, you know, you haddemptions from 0:17:00.720 --> 0:17:03.920 equity funds throughout all of last year. You know, as 0:17:03.920 --> 0:17:06.040 a market was rising, you know, to be to be honest, 0:17:06.040 --> 0:17:08.120 that's the story that's been in place to sound degree 0:17:08.119 --> 0:17:11.280 since two thousand and nine. But I think after the 0:17:11.320 --> 0:17:13.840 optimistic span is at While a lot of that money 0:17:13.880 --> 0:17:16.840 did go into fixed income and obviously still did just fine, 0:17:17.280 --> 0:17:19.760 a much bigger share went into money market. So if 0:17:19.760 --> 0:17:21.960 we do see any kind of correction and equities, which 0:17:22.000 --> 0:17:24.119 we wouldn't be at all surprised to see over the 0:17:24.160 --> 0:17:26.280 next couple of months, there is a lot of cash 0:17:26.320 --> 0:17:27.879 on the sidelines that we think is going to go 0:17:27.920 --> 0:17:31.200 back into equities, but hopefully it more attractive valuations, because 0:17:31.200 --> 0:17:33.960 again the punamental outlook is still quite strong. A potential 0:17:33.960 --> 0:17:36.359 catalyst on the horizon. The MACE sparks some nervousness and 0:17:36.480 --> 0:17:38.719 risk assets down is what happens with the Federal reserves 0:17:38.720 --> 0:17:41.760 balance sheet. Later this year, there's this big debate that 0:17:41.880 --> 0:17:44.240 is still ongoing. A lot of people in fixed income 0:17:44.400 --> 0:17:46.680 tell us it is not QUI many people in the 0:17:46.720 --> 0:17:49.160 equity market access if it is, I just wanted down. 0:17:49.240 --> 0:17:51.280 If ultimately it doesn't matter what you think it is, 0:17:51.359 --> 0:17:53.520 the outcome is still the same risk assets of rallying. 0:17:53.640 --> 0:17:55.199 And there are many people out there listening to this 0:17:55.240 --> 0:17:57.840 program that thinks if the fedbacks off on the balance sheet, 0:17:58.119 --> 0:18:02.520 risk assets will get into trouble. What SAB had them, Well, 0:18:02.560 --> 0:18:04.800 you certainly think that was part of the story that 0:18:04.880 --> 0:18:07.280 happened at the end of twenty eighteen, when it was 0:18:07.320 --> 0:18:09.200 one of many things that went wrong. I mean, you 0:18:09.280 --> 0:18:12.159 certainly had the prospect of balance she'd run off an, 0:18:12.359 --> 0:18:14.119 you had the prospect of higher rates, and then you 0:18:14.200 --> 0:18:17.240 added some disappointment earnings results from Apple, You added the 0:18:17.280 --> 0:18:19.159 trade war, and that was enough to trigger it. I 0:18:19.160 --> 0:18:20.920 don't know at this point if if I think it 0:18:21.080 --> 0:18:23.440 changed in FED policy in and of itself would be enough. 0:18:23.680 --> 0:18:25.240 But if you eat a couple other little things that 0:18:25.359 --> 0:18:27.800 happened at the same time, there could be an unpleasant repeat. 0:18:27.880 --> 0:18:30.840 And yesterday on Bloomberg Television and Radio, Dallas FED President 0:18:30.920 --> 0:18:34.159 Robert Kaplan weighing in on this and basically saying, uh, 0:18:34.200 --> 0:18:36.439 he does think the FED should reduce it or at 0:18:36.480 --> 0:18:39.520 least pair the pace of its increase in balance sheet. 0:18:39.560 --> 0:18:42.359 This is this is sort of the most tepid endorsement 0:18:42.440 --> 0:18:45.520 of paring back the recent program because he's worried about 0:18:45.520 --> 0:18:48.639 acid bubbles. But it does raise a question, you know, 0:18:48.720 --> 0:18:52.320 what is the sort of perverse incentive that gets created 0:18:52.480 --> 0:18:54.879 as the FED reinflates at a time when the economy 0:18:54.960 --> 0:18:58.280 is told this is really important distinction. Daniel Morris Lisa says, 0:18:58.359 --> 0:19:04.160 as the FED reinflates, is there any evidence they can reinflate? Well, 0:19:04.200 --> 0:19:07.439 if you want to see that evidence in in higher 0:19:07.600 --> 0:19:10.119 core CPI inflation, you know, even getting back to a 0:19:10.200 --> 0:19:13.359 two percent average to present average CPI inflation, you know, 0:19:13.359 --> 0:19:15.440 it's hard to see that happening. I mean, remember back 0:19:15.480 --> 0:19:18.080 when you started quee, all the scare stories that you 0:19:18.160 --> 0:19:19.760 read about how that this was going to set off 0:19:19.840 --> 0:19:23.200 hyper inflation, and clearly that did not happen. So even 0:19:23.240 --> 0:19:25.480 after the trillions that you've had purchase in the US, 0:19:25.560 --> 0:19:29.399 in in in England, in Europe, and in Japan, you know, 0:19:29.480 --> 0:19:32.400 inflation nowhere to be seen. So it's just really hard 0:19:32.440 --> 0:19:34.719 to see, you know, any change that the FED can 0:19:34.800 --> 0:19:37.600 make having that big of a Danie Morris one final question, 0:19:37.600 --> 0:19:40.639 if we could, what metric matters to you right now 0:19:40.960 --> 0:19:43.159 when you go to the Bloomburger, when you're writing one 0:19:43.200 --> 0:19:46.320 of your twenty page jewels for BMP Perry. Is it 0:19:46.359 --> 0:19:48.960 price to sales? Is it price to cash flow? Is 0:19:48.960 --> 0:19:53.000 it some enterprise value ratio? What ratio matters right now? 0:19:53.000 --> 0:19:56.639 To Daniel Morris, I think what's concerning right now is 0:19:56.640 --> 0:19:59.840 pretty much any ratio you look at is one to 0:20:00.040 --> 0:20:02.960 one and a half standard deviations above the levels over 0:20:02.960 --> 0:20:05.000 the last ten years. So I think it's it's a 0:20:05.040 --> 0:20:06.840 fact that everything is kind of giving you the same 0:20:06.880 --> 0:20:09.440 signal things are really pricey. As long as the world 0:20:09.480 --> 0:20:12.600 is perfect, that's okay, But we suspect it's not. Daniel Moore, 0:20:12.720 --> 0:20:14.280 thank you so much for the briefing, and thanks to 0:20:14.359 --> 0:20:16.720 Verry by this morning. What's key there to his great 0:20:16.800 --> 0:20:20.440 mathematics is one and a half standard deviations under math 0:20:20.840 --> 0:20:23.320 is not a point of panic, It's a point of 0:20:23.359 --> 0:20:41.119 business as usual. Anxious with these reports whatsoever? So should 0:20:41.119 --> 0:20:44.360 I should I start buying? This doesn't change anything for anybody. 0:20:44.560 --> 0:20:46.240 That's just kind of push back to the big debate 0:20:46.280 --> 0:20:48.800 over the consumer. The next crack you see in the data, 0:20:49.320 --> 0:20:51.320 the battle pile back on again and say that cracks 0:20:51.320 --> 0:20:53.880 it back futures. At the moment, we're doing. Okay, Donna 0:20:53.920 --> 0:20:56.000 Petison joining US Now City Global Economists to weigh in 0:20:56.000 --> 0:20:57.439 on the date. It's Donna, great to have you with us, 0:20:57.480 --> 0:21:01.760 way and please sure. I think data are absolutely amazing 0:21:01.840 --> 0:21:05.000 for the US of low initial job of claims, meaning 0:21:05.000 --> 0:21:07.840 that there are two people getting laid off. It marries 0:21:07.960 --> 0:21:10.760 very well the data we're seeing. UH an arrogant with 0:21:10.840 --> 0:21:13.800 respect to payrolls. We do expect payrolls will flow a 0:21:13.800 --> 0:21:15.400 little bit over the course of the year, but still 0:21:15.400 --> 0:21:19.080 average one thirty five for the year. With retail sales again, 0:21:19.680 --> 0:21:21.560 as you were just saying, yes, we do see some 0:21:21.600 --> 0:21:25.280 cannibalization of of brick and mortar sales because of non 0:21:25.320 --> 0:21:27.879 store retail sales, but still at all, most people are 0:21:27.920 --> 0:21:31.359 still going physically to places to buy things and items 0:21:31.359 --> 0:21:34.280 and services, and so overall that's really great. And we're 0:21:34.280 --> 0:21:37.520 still expecting the consumers to contribute to the economy. Looking 0:21:37.560 --> 0:21:39.440 at an average two and a half percent growth in 0:21:39.440 --> 0:21:41.920