WEBVTT - Single Best Idea with Tom Keene: Scott Clemons & Dean Curnutt

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Summer's over single best idea, and the answer is here.

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<v Speaker 2>It's the beginning of the new year a million years ago.

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<v Speaker 2>It really started Wednesday after Labor Day, and that's changed

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<v Speaker 2>because across the nation so many people have kids back

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<v Speaker 2>into school before Labor Day, the whole sports oocracy of

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<v Speaker 2>America and you know, athletic teams and all that. But

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<v Speaker 2>also I think it was just a sense, particularly in

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<v Speaker 2>the more affluent East Coast climbs, of getting the September fifteenth,

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<v Speaker 2>maybe September tenth, I don't know, but somewhere out there

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<v Speaker 2>is the new year. We're committed. It's single best idea

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<v Speaker 2>and across all of Bloomberg Surveillance to give you the

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<v Speaker 2>best conversations we can on economics, finance, and investment. We

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<v Speaker 2>started incredibly strong. Today. I was surprised the interns all left.

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<v Speaker 2>Lisa Mateo's interns left two weeks ago because she was

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<v Speaker 2>on sabbatical. But walking today and there's only two or

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<v Speaker 2>three interns left from the hoard that got us through

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<v Speaker 2>the summer, and so we had a really good set

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<v Speaker 2>of conversations out there today. I thought that Linda dissol

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<v Speaker 2>At Federated was really quite good about figuring out the

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<v Speaker 2>balance between value and the growthiness of the mag seven

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<v Speaker 2>call it mag Eate now with Berkshire Hathaway. Scott Clemens

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<v Speaker 2>is the Brown Brothers Harriman with some huge multi decade experience.

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<v Speaker 2>We talked to Scott Clemens simply about the valuations of

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<v Speaker 2>the market.

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<v Speaker 1>We've been very encouraged since really the beginning of June.

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<v Speaker 1>I guess to see the market broaden now a little bit.

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<v Speaker 1>So small caps have outperformed over the past two months

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<v Speaker 1>three months now, NASDAK hasn't necessarily led the way. That's

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<v Speaker 1>encouraging to me. I get worried when the market is

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<v Speaker 1>so top heavy, top heavy, narrowly led markets tend to

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<v Speaker 1>be volatile. I think all that a little bit. In

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<v Speaker 1>early August we had a couple of days worth of

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<v Speaker 1>reminder of that. I don't think that's gone away. Volatility

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<v Speaker 1>tends to a company turning points in economic activity, turning

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<v Speaker 1>points in monetary policy. We may be on the verge

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<v Speaker 1>of that, so buckle up, but pay attention to the

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<v Speaker 1>long term into fundamentals, and.

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<v Speaker 2>What I'd pay attention to is a tape today I

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<v Speaker 2>really know, Brent crude three dollars move West Texas Intermedia.

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<v Speaker 2>You know, by the time you listen to this, you

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<v Speaker 2>may be under seventy a barrel, under seventy one dollars

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<v Speaker 2>a barrel in West Texas Intermedia. Brent crud sliding down

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<v Speaker 2>above that. But the whole global slowdown feel and you

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<v Speaker 2>know the ISM numbers that come out the first of

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<v Speaker 2>the month. John Ferrer puts a huge amount of weight

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<v Speaker 2>on ISM. Maybe I put less weight on, but the

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<v Speaker 2>reality is ism manufacturing coming in below. Survey gets your

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<v Speaker 2>attention and we're off to the races on this idea. Okay,

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<v Speaker 2>rates come down, but does GDP come down with it?

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<v Speaker 2>Maybe that's a titanic battle through the week. We'll have

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<v Speaker 2>all sorts of economic data on that. Dean Kurnent, we've

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<v Speaker 2>been trying to get into the studio since well August whatever.

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<v Speaker 2>When the market blew up. The vis went out through

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<v Speaker 2>the Lehman thirty out to sixty something came right back.

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<v Speaker 2>It was a flash crash, I guess. We talked to

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<v Speaker 2>Dean Kernet at Macro Risk Advisors about that. But far

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<v Speaker 2>more importantly, away from indexes, the correlations between individual stocks

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<v Speaker 2>Dean Kurnit looked at Invidia and Apple.

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<v Speaker 3>Just take in Vidia and its correlation to Apple, it

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<v Speaker 3>was actually running negative for a period of time. That's

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<v Speaker 3>unheard of to have the two largest stocks, both three

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<v Speaker 3>trillion dollars plus market caps, to be uncorrelated. If you

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<v Speaker 3>think about the impact that that's having on overall levels

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<v Speaker 3>of realized volatility the S ANDP, it's significant. And why

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<v Speaker 3>does that matter. It's because in today's day of investing,

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<v Speaker 3>volatility is not just a statistic we watch. It's actually

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<v Speaker 3>an input into how portfolios are sized, a mathematical input.

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<v Speaker 3>So you lower the realize volatility and people get longer,

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<v Speaker 3>they think they can run bigger levels of exposure because

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<v Speaker 3>your value at risk is lower because VOLL is lower.

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<v Speaker 3>And so one of the things Tom I think is

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<v Speaker 3>a big, you know, unknown, but something we should be

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<v Speaker 3>really watchful for, is a shift in the correlation. So

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<v Speaker 3>if the mag seven magate starts to get more correlated

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<v Speaker 3>to the S and P, or if these names start

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<v Speaker 3>to become more correlated to each other, we certainly got

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<v Speaker 3>a glimpse of that on August fifth. That's going to

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<v Speaker 3>add a lot of volatility to the index.

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<v Speaker 2>It's unfair. I mean ding Current. It's on macrorisk Advisors

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<v Speaker 2>and I'm soost wax philosophical here about what he just

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<v Speaker 2>said as an arch quant and the answer is, my

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<v Speaker 2>brain is still on summertime, so bear with me. Buried

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<v Speaker 2>in that brilliant discussion of interrasector correlation individual stock correlation,

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<v Speaker 2>and as a partition this goes back to a getting

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<v Speaker 2>Tu Shushande at MIT years ago. There's correlation across indexes

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<v Speaker 2>and sectors, and that's as a general rule, very different

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<v Speaker 2>than correlations between individual stocks. The pro dan current there

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<v Speaker 2>talking about individual stocks, and buried in that was a

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<v Speaker 2>Global Wall Street mantra called value at risk or var VAR.

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<v Speaker 2>You study value at risk, and some people believe in it.

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<v Speaker 2>It's sort of an institutional requirement and measurement of big banks.

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<v Speaker 2>They're trading desks, their investment desk, whatever you want to

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<v Speaker 2>call it. And the answer is, you make a decision

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<v Speaker 2>if you believe in this malarkey, and I'll tell you

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<v Speaker 2>I'm death on VAR. I really listen carefully there to

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<v Speaker 2>Dean Current, But I just think the VAR measurements is

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<v Speaker 2>a trap for Global Wall Street of the highest highest level.

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<v Speaker 2>It's just it's just something to really watch out for

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<v Speaker 2>their Dean Curnet on Nvidia and Apple. It's so simple.

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<v Speaker 2>We're on on YouTube, subscribe to Bloomberg Podcasts, also on

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<v Speaker 2>Apple podcasts. It's single best I