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Speaker 1: This is Bloomberg surveillance. Monetary policy at the year zero,

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Speaker 1: lower bounds should be a symmetric They should be looking

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Speaker 1: to overshoot rather than undershoot to the market. After many

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Speaker 1: years of these little rates, and q Ands has has

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Speaker 1: lost some of his calibration. We have the highest level

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Speaker 1: of inequality of any of the advanced countries. When you

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Speaker 1: start looking at these statistics, you have to be worried.

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Speaker 1: Bloomberg Surveillance your link to the world of economics, finance

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Speaker 1: and investment on Bloomberg Radio. Good morning everyone, Bloomberg Surveillance.

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Speaker 1: Michael McKay and Tom Keane four X front and center

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Speaker 1: this morning. The yen a little bit stronger earlier. Right now,

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Speaker 1: I'm gonna call it fractionally weaker. But the yen the

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Speaker 1: story Thursday, Friday, and in this Monday at Job's Week

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Speaker 1: Monday one of six point six three right now, Bloomberg Surveillance,

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Speaker 1: and of course we do do a FOREX brief Roger

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Speaker 1: by Interactive Broker's winner of f X Weeks two thousand

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Speaker 1: fifteen award for the best Retail for Extra Rating platform.

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Speaker 1: Visit ib at I b k R dot com Slash

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Speaker 1: four X. You also look at yen dollar yen one

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Speaker 1: oh six point six two, one oh eight, one oh seven,

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Speaker 1: Stronger one oh six six three, one oh five would

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Speaker 1: be interesting. Jeff de graph of Renaissance Macro adamant. We

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Speaker 1: see stronger yen. That is the trend euro yen one

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Speaker 1: two over the last number of days. Stronger yen, weaker euro.

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Speaker 1: Although this morning euro strength with a one fifteen print

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Speaker 1: now one fourteen seventy five on the euro as well. Um,

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Speaker 1: I guess what you do when a deal goes bust

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Speaker 1: is your PR department goes excuse me, you can buy

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Speaker 1: back shares. It's an after Berger bonus, David Wilson. That's

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Speaker 1: where we are, exactly where we are, tom. This is

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Speaker 1: all about how Burton and Baker Hughes, the all services companies,

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Speaker 1: called off their proposed twenty eight billion dollar merger in

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Speaker 1: the face of opposition from US and European anti trust regulators.

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Speaker 1: And here's your point. Haliburton will pay a three and

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Speaker 1: a half billion dollar breakup feed of Baker Hughes, which

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Speaker 1: said the money will go to buy back stock and debt.

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Speaker 1: Both stocks actually higher in early trading. Haliburton about three

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Speaker 1: quarters of repercent Baker Hughes up about half a percent.

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Speaker 1: And since we're talking drilling, we might as well mentioned

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Speaker 1: we had earnings out from a diamond offshore drilling and

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Speaker 1: that stocks up three percent. First quarter profit unexpectedly rose

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Speaker 1: thanks to cost cuts and greater operational efficiency, revenue beating

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Speaker 1: analysts average estments in Bloomberg survey re general and pharmaceuticals

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Speaker 1: up one percent. Study results showed the drug makers proposed

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Speaker 1: Treamer for osteo arth rightist, relieved pain in patients who

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Speaker 1: weren't helped by other medicines. Ferrari's up one percent. The

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Speaker 1: automakers set to name chairman Sergio Marcione as chief executive,

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Speaker 1: according to people Familiar Matter. Now, Marcion already serves as

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Speaker 1: CEO FIA Chrysler, which took Ferrari public in the US list.

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Speaker 1: We should clarify because we all think of Ferrari as

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Speaker 1: part of It's a separate company now, well, I mean

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Speaker 1: it is a stand alone company in the stock market. Nonetheless,

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Speaker 1: Chrysler is still in control. And speaking of control and deals,

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Speaker 1: you got a company called o Power up about They

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Speaker 1: provide internet based software for utilities. Oh Power accepting a

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Speaker 1: five two million dollar takeover offer from Oracle. The deal

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Speaker 1: followed oracles agreement last week to buy construction software maker

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Speaker 1: text Tora for six hundred and sixty three million dollars.

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Speaker 1: So it's all about focusing on specific businesses when it

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Speaker 1: comes to software. Five employees, Arlington, Virginia, Dany it's running

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Speaker 1: the shop O p w R. It's oh, it's all

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Speaker 1: one word power. Indeed, it hired eight consultants to come

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Speaker 1: up with that name, and they probably did. Apolo Education

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Speaker 1: up eleven and a half percent. This is the company

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Speaker 1: that owns the University of Phoenix. A buyout offer for

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Speaker 1: Apollo was raised by five percent to one point one

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Speaker 1: four billion dollars. Apollo Studer, a group led by Apollo

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Speaker 1: Global Man have been no relation. Uh NC Holiday Sex

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Speaker 1: and a half percent. The seller of nutritional supplements is

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Speaker 1: looking at a possible sale of the company and other options.

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Speaker 1: G n C hired Golden Sacks as an advisor. David Wilson,

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Speaker 1: thank you so much with the Monday breath. The vix

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Speaker 1: again trading now fifteen point seven nine futures up seven.

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Speaker 1: This is a wonderful time. To Dr Brian Jacobson of

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Speaker 1: Wells Fargo. He does something boring, which is portfolio strategy,

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Speaker 1: and everybody's heads is so a jumble now with what

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Speaker 1: we've got just I can't think of a better time

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Speaker 1: to speak. Dr Jacobson, good morning. What let me give

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Speaker 1: you an open question, which I usually don't do, but

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Speaker 1: I'm gonna do it here my head spinning. What's the

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Speaker 1: single message you have for petty for people who feel

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Speaker 1: like they're way behind with retirement planning? Well, I think

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Speaker 1: that if you're behind on retirement planning, start saving more.

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Speaker 1: I mean really to uh. You know, it's so many

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Speaker 1: people try to make their investment performance do the work

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Speaker 1: that their savings rate should be doing. Instead, There's only

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Speaker 1: so much that your investment returns can really do for you.

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Speaker 1: I mean, obviously there's you know that the wonderful power

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Speaker 1: of the world as far as with compounding interest, but

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Speaker 1: you really do need to make those contributions. Do it early,

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Speaker 1: do it often, do it a lot? Are people doing it?

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Speaker 1: We have seen the data on savings rate rates go up,

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Speaker 1: and it suggests that, you know, people are getting scared

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Speaker 1: that they're finally believing they're in a low interest rate

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Speaker 1: environment from from now till forever, and they're going to

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Speaker 1: have to save more in order to be able to

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Speaker 1: ever retire. Yeah. One of the challenges with that is

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Speaker 1: people buy into the idea that they're never going to

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Speaker 1: be able to retire if that their investment returns are

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Speaker 1: going to be somehow subpar over the foreseeable future. Some

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Speaker 1: people just throw in the towel. They just say, well,

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Speaker 1: what's even the point then, I'm just going to have

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Speaker 1: to work forever, So why even bothers saving for retirement.

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Speaker 1: So that's one of the dangers of going out there

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Speaker 1: with the message of saying that you should just learned

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Speaker 1: to expect that you're going to have lower rates of

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Speaker 1: return going forward. I think that really a more constructive

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Speaker 1: message is that you still do need to save for retirement,

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Speaker 1: and there's still our investment opportunities out there, it's just

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Speaker 1: you might have to be more patient for them. Some

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Speaker 1: of the data that I really like looking at, and

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Speaker 1: these people do a tremendous job of doing researches from

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Speaker 1: the Employee Benefits Research Institutes the e b r I,

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Speaker 1: and they send out periodic notes and one of them

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Speaker 1: is that, um, you know, as far as the most

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Speaker 1: recent one from their database. People are participating in their

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Speaker 1: retirement plans to four one K plans. They found that

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Speaker 1: for one k plans include target date funds and that

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Speaker 1: a lot of people it's the default option for them,

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Speaker 1: and so it's an easy way for them to actually

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Speaker 1: at least get the ball rolling. So you know, people

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Speaker 1: have increased their savings rates um and people do appear

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Speaker 1: to be making those contributions. And also I think this

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Speaker 1: is important. Employers are beginning more and more to match

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Speaker 1: those contributions because if you're not taking advantage of that

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Speaker 1: full match, you're kind of leaving money on the table.

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Speaker 1: When I look at this, I look at the linkage

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Speaker 1: that you do was just so great. Brian Jacobson of

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Speaker 1: quantitative analysis. The basic emotion of what do I do

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Speaker 1: with my money? I'm not a big fan of beta,

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Speaker 1: and one of the beta free things out there, folks,

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Speaker 1: is a strange thing. After Williams Sharp the Sharp ratio,

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Speaker 1: you look at the return as compared to the risk

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Speaker 1: taken of small caps, mid caps and large caps, and

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Speaker 1: you say, it's pretty clear mid caps win. Is that

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Speaker 1: still true to you know? I believe that it's even

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Speaker 1: more true now because of the underperformance of mid cap stock.

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Speaker 1: So if you just sort of look at it on

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Speaker 1: an unconditional basis, so you just do a simple return

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Speaker 1: over the entire history that you have available to you.

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Speaker 1: I've looked at using some of the data from um

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Speaker 1: FAMA and French that they provide going back to n

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Speaker 1: and you know, they're they're pretty close as far as

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Speaker 1: the sharp ratio between them, with small caps actually being

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Speaker 1: a little bit worse in terms of the risk return

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Speaker 1: trade off. Midcaps doing significantly better, large camps and doing okay.

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Speaker 1: But with you actually focus on sort of the center

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Speaker 1: of the distribution the most likely outcomes, especially after midcaps

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Speaker 1: have been underperforming for about two years now, the sharp

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Speaker 1: ratio actually improved significantly for MidCap stocks. And so that's

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Speaker 1: just kind of a locky way of saying that for

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Speaker 1: you know, for the risk that you're likely to be

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Speaker 1: taking on, the likely return is significantly higher for MidCap

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Speaker 1: um Now, I do have to caution people that, you know,

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Speaker 1: if you just look at it in terms of like

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Speaker 1: trailing price to earnings ratio and things like that, they

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Speaker 1: might not look all that cheap. But if you look

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Speaker 1: at what's the embedded implied growth rate that people are

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Speaker 1: expecting for these MidCap stocks for their earnings over time,

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Speaker 1: it's come down significantly, and I find that hard to

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Speaker 1: really kind of square with my outlook for economic growth

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Speaker 1: going forward. So for my money, I think MidCap stocks

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Speaker 1: are really a sweet spot to be. Right now, we'll

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Speaker 1: give us a quickly your your view of growth going

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Speaker 1: forward and what that means for overall equities. I think

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Speaker 1: that right now we're going through a troughing period with

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Speaker 1: earnings per share. Everybody knows about how earnings per share

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Speaker 1: for the smpre declining year on year. You know, we're

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Speaker 1: at about like a seven and a half nine and

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Speaker 1: a half percent run rate, depending upon how you want

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Speaker 1: to measure earnings right as operating earnings are actual earnings.

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Speaker 1: But the key thing is I believe that it's a

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Speaker 1: trough and so my expectation is that we'll actually see

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Speaker 1: earnings per share begin to rise from here, going into

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Speaker 1: Q two and Q three. It's going to be a

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Speaker 1: challenging time for investors though, because I think we've gone

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Speaker 1: effectively from almost the handwringing phase of this rebound, where

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Speaker 1: people are saying, well why is it going up to

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Speaker 1: now the nail biting phase of this rebound, where people

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Speaker 1: are thinking can this go any higher? So we might

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Speaker 1: encounter some chopping us here, especially as we approached the

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Speaker 1: June f m C meeting. We also have issues going on,

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Speaker 1: you know, with the Bank of Japan, But as we

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Speaker 1: make our way through that, I think that we're moving

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Speaker 1: higher from here on the fundamental basis. And Brian Jacobson

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Speaker 1: with we will continue with Dr Jacobson with Wells Fargo

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Speaker 1: asset management UM and intelligent discussion. I'm like, what to

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Speaker 1: do with the money, equities, bonds, cash betting on the

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Speaker 1: first place Boston Red Sox. I'm surprised, Michael, see you

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Speaker 1: go on vacation and the whole world turns upside down?

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Speaker 1: Does it an Aster Rickey kind of thing that they played?

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Speaker 1: You know what's sad is John Tucker has been here

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Speaker 1: for twenty three years, so I bought him back a

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Speaker 1: twenty three year old bottle of rum and drinking or

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Speaker 1: my tuxedo shoes for the White House dinner, Megan Murphy

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Speaker 1: your shoes, Meg Goes, I love your cologne. What is that?

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Speaker 1: All right? Let's bring it, Michael Bot, I'll get the

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Speaker 1: latest world to add national headlights. Michael, Oh, gentlemen, thank you,

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Speaker 1: very much. Puerto Rico's governor says the island is going

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Speaker 1: to default on a bond payment. Bond holders are likely

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Speaker 1: to ask a federal court to freeze the government development

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Speaker 1: banks assets and that contemporarily hauled payments to public servants

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Speaker 1: and suppliers. Playground concussions around the rise and monkey bars

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Speaker 1: and swings are most often involved. A new study from

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Speaker 1: the Federal Centers were Disease Controlling Interventions says each year,

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Speaker 1: ten percent of the almost two hundred fifteen thousand kids

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Speaker 1: treated in the emergency rooms for playground injuries suffer traumatic

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Speaker 1: brain injuries. President Obama's oldest daughter will be taking some

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Speaker 1: time off before heading to Harvard in sev Lee Obama,

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Speaker 1: who is seventeen, will graduate high school next month. Global

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Speaker 1: News twenty four hours a day, powered by our journalists

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Speaker 1: Michael Bart. Michael Bar, thanks so much. Fistures up seven down,

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Speaker 1: Fridges up fifty one. Reversal in the bond market, lower

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Speaker 1: yields earlier, we reverse back to flat one eight four

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Speaker 1: on the tenure yield. We're having a smart discussion with

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Speaker 1: Brian Jacobson and Wells far on portfolio allocation. Bloomberg Surveillance

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Speaker 1: market driver is brought to you by Sector Spider et

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Speaker 1: mobile app and on your radio He's a Bloomberg Business

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Speaker 1: Flash and I'm Karen Moscow and the Bloomberg Futures Report

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Speaker 1: rossi Uvay, Interactive Brokers and CME Group. If you're looking

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Speaker 1: for a global futures contracts at low trading compts, look

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Speaker 1: at Interactive Brokers dot com, slash, c m E Group.

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Speaker 1: US DOCK Index futures are higher, signaling a bounce back

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Speaker 1: following the biggest weekly retreats in February, while investors await

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Speaker 1: are reading on the strength of manufacturing industries. We checked

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Speaker 1: the markets every fifteen minutes throughout the trading day onto

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Speaker 1: Bloomberg SNP. Even a future is up six and a

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Speaker 1: half points now. Even a future is of fifty two nasdack.

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Speaker 1: Even the futures of eleven and the decks in Germany

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Speaker 1: is up one point one percent ten your treasury down

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Speaker 1: three thirty seconds, the yield one point eight four percent

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

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Speaker 1: Screwede oil is up a tenth of upper cent or

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Speaker 1: six cents to forty five nineties six and Barel and

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Speaker 1: cobc schoold is up six tents percent or seven dollars

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Speaker 1: ninety cents a twelve fifty and ounce. The euro a

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Speaker 1: dollar fourteen seventy six, the en one oh six point

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Speaker 1: six seven. That's a Bloomberg business flash. Tom and Mike Karen,

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Speaker 1: thank you so much. It is a rite of passage

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Speaker 1: within finance that you try to memorize an equation and

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Speaker 1: it's the square root of the face value over the

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Speaker 1: present value minus one, and then you go on to

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Speaker 1: other nuances of something called y t M or yield

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Speaker 1: to maturity. All you need to know is there is

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Speaker 1: a great distortion out there right now, and include it

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Speaker 1: is anything that approximates a bond in your portfolio. Brian

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Speaker 1: Jacobsen is with Wells Fargo Asset Management. We look at

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Speaker 1: portfolio strategy. Um let's keep it simple, Brian, yields are

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Speaker 1: very very low. If yields go up, price goes down.

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Speaker 1: Explain to me why anyone should have anything but a

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Speaker 1: cursory ownership of bonds and there. Yeah, I think the

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Speaker 1: last year has demonstrated to us why you still want

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Speaker 1: to keep an allocation two bonds. The consensus going from

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Speaker 1: two thousand thirteen into two thousand fourteen and then two

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Speaker 1: thousand fourteen into two thousand and fifteen was that yields

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Speaker 1: needed to go up, and at points in time, yes,

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Speaker 1: they did go up, but then ultimately they drifted back down.

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Speaker 1: So even as the said begins to normalize policy and

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Speaker 1: continues to normalize policy, that's not a guarantee that longer

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Speaker 1: term rates or intermediate term rates, or say investment grade

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Speaker 1: credit yields are going to follow suit. So I think

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Speaker 1: that you can actually find some a little bit of

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Speaker 1: sanctuary in like a core bond intermediate term bond type product,

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Speaker 1: keeping an allocation there because it's likely going to zig

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Speaker 1: when everything else is zagging. Uh. And if we see

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Speaker 1: a repeat of the volatility that we've experienced beginning with

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Speaker 1: last year, uh, it's actually not a bad place to be.

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Speaker 1: I think that you know, from my perspective, I think

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Speaker 1: that yields are going to drift higher. But if you

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Speaker 1: can still compound that interest clip those coupons, uh to

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Speaker 1: use the classic parlance, I think that you can still

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Speaker 1: get some decent returns that beat inflation. Here. But what

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Speaker 1: does some allocation mean. You're talking about much smaller, much

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Speaker 1: less than you so that one would have had in

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Speaker 1: a standard modeled portfolio. It depends on your investment horizon.

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Speaker 1: If you are looking as trying to navigate the near

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Speaker 1: term markets as far as where to be over the

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Speaker 1: next month or over the next two months, I would

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Speaker 1: think that actually we're not going to see a material

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Speaker 1: lowering of rates. I think that you could see a

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Speaker 1: material increase in interest rates in the United States as

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Speaker 1: fears about whether or not the b o J is

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Speaker 1: behind the curve, if they've just thrown in the towel

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Speaker 1: on monetary stimulus, as other factors come into play and

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Speaker 1: and pass, I think that we could see yields on

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Speaker 1: a ten year treasury move back up towards a one

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Speaker 1: point nine to one point nine, So that's a big

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Speaker 1: move up. And as Tom pointed out, yields go up,

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Speaker 1: price goes down. So near term I would say that

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Speaker 1: you could under allocate, but over the intermediate term, so

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Speaker 1: looking out over the next say, three to four years,

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Speaker 1: believe it or not. Like during the two thousand four

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Speaker 1: the two thousand six fed rate hike cycle, investment grade

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Speaker 1: corporates did not do all that badly. Municipals actually did

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Speaker 1: quite well during that period of time as well. How

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Speaker 1: skew it is a given index fund right now? I

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Speaker 1: think of the huge surge of Apple or another eras

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Speaker 1: it's been of. There's stocks where I look at a

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Speaker 1: given index, whether it's a normal index like SMP or

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Speaker 1: cap weighted or price rates, Dow Jones, I mean, where

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Speaker 1: does that fit in? I mean, how goofy are the

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Speaker 1: benchmark indexes? Let me rephrase this. What's the level Brian

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Speaker 1: Jacobson of the goofiness of the Dow and frankly of

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Speaker 1: other indexes as well, Whether there's almost a higher there's

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Speaker 1: a hierarchy of goofiness. Yeah, That's where I'm getting think

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Speaker 1: about the Dow index is basically it's a momentum index.

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Speaker 1: Excuse me, Brian, I've got to interrupt. Does Brian understand

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Speaker 1: Michael that for the last six days I've had a

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Speaker 1: peanut colada in Mayan at this hour? If he's if

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Speaker 1: he's okay, continue on INDEXUS ye. So you know, like

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Speaker 1: the Dow itself is price weighted, so it's more momentum.

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Speaker 1: It's the bigger the price, the higher ghosts of the

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Speaker 1: price moves up, you add more to it. Whereas SMP

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Speaker 1: it's more of a passive one. If you go with

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Speaker 1: equal weighted, that's sort of more of a contrarian or

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Speaker 1: mean reversion type of in X. So each one has

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Speaker 1: its place. But even if you think about like some

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Speaker 1: of these different factor type indices, it's so important to

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Speaker 1: know how they're built and what's in there. For example,

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Speaker 1: like last week, I was looking at the ms CI

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Speaker 1: Quality Index Excellent Index. I like looking at that, but

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Speaker 1: if you look at the it has a lot of

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Speaker 1: information technology exposure to it relative to say what you

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Speaker 1: would get into m s C I U SA Index,

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Speaker 1: which is just a cap weighted one. And so as

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Speaker 1: a result last we get dropped two percent. That's not

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Speaker 1: what you would expect from a quality type index. So

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Speaker 1: you do have to be aware of some of the

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Speaker 1: biases as far as the waiting that goes into an

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Speaker 1: individual stock in individual industry or with some of the

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Speaker 1: global ones. As far as like individual countries. So they

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Speaker 1: all have their problems, but they're all all also I

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Speaker 1: think quite useful. Let's back up in the one minute

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Speaker 1: we got left the m s c I in this case,

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Speaker 1: the USA Quality Index is it's fun. It's almost like

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Speaker 1: a du Pont ratio. They take return on equity, earnings, variability,

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Speaker 1: and leverage. I get that, and they sift through for

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Speaker 1: the better stocks. Is that right? That's my understanding of

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Speaker 1: the methodology is that they use a screening method based

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Speaker 1: upon not only the return on equity, but the consistency

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Speaker 1: of the recent inequity making sure that they are low

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Speaker 1: levered firms. So there's a number of factors that you

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Speaker 1: can look at, and everybody has their favorite way of

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Speaker 1: measuring quality and quality. Just like when you go out

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Speaker 1: and you know, buy fruit, quality is in the eye

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Speaker 1: of the beholder, right, And the same thing with some

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Speaker 1: of the indices. Different managers, portfolio managers are going to

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Speaker 1: have their different definitions of what ruality is as well.

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Speaker 1: Brilliant Bryan Jacobson love avianon, thank you so much, as

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Speaker 1: well as fargo and portfolio strategy. Michael McKee just looking

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Speaker 1: at one of the industries qu A, l J and

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Speaker 1: j PEPSI, Exa Mobile, Microsoft, Mr Buffet's Shop, and Apple Computer. Mike,

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Speaker 1: did you go to Mr Buffets the annual meeting? I

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Speaker 1: wasn't invited. We talked about this. Wait, I wasn't invited either. Yeah.

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Speaker 1: We talked about this last week and there were some

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Speaker 1: people on the show who were putting it down as

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Speaker 1: an event. Even Douglas cast didn't invite. Of the year

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Speaker 1: he was there. That's outrageous, plumbered surveillance, but kind of

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