WEBVTT - Surveillance: Disputed Convention Possible, Valliere Says 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Ley. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.440 Bloomberg dot Com, and of course, on the Bloomberg Right Now. 0:00:27.480 --> 0:00:30.319 On politics, Greg Bellier with us thrilled he could be 0:00:30.360 --> 0:00:33.320 with us today, GF. He grew up in Cancut, New Hampshire, 0:00:33.680 --> 0:00:35.760 so we're great. Then Mr Belly can give us a 0:00:35.760 --> 0:00:38.960 little perspective there and look forward and is really important 0:00:39.000 --> 0:00:42.320 research note this morning, Kevin surreally with us as well? 0:00:42.720 --> 0:00:46.560 Uh and let us dive in right now Kevin onto Nevada? 0:00:46.960 --> 0:00:50.520 Who goes to Nevada with up? Is it Clobisher doing 0:00:50.600 --> 0:00:53.640 better last night? Or is it really Bernie Bernie Bernie 0:00:53.640 --> 0:00:56.880 as a land in Las Vegas? Bernie Bernie Burnie Look 0:00:56.920 --> 0:00:59.120 and Clochart now has some new mom Madam. She's had 0:00:59.160 --> 0:01:00.760 it to New York City to a tom to meet 0:01:00.760 --> 0:01:03.560 with her donors. She says, hey, she's got got the 0:01:03.640 --> 0:01:06.280 checkbook out because she's got some momentum after a strong 0:01:06.680 --> 0:01:10.399 third place showing she beat Elizabeth Warren. Remember this is 0:01:10.440 --> 0:01:15.240 a nearby Massachusetts. In New Hampshire, Elizabeth Warren finishing ahead 0:01:15.240 --> 0:01:17.759 of former Vice President Joe Biden, who had a terrible 0:01:17.840 --> 0:01:20.440 night last night. He went right to South Carolina. But 0:01:20.520 --> 0:01:23.680 the big takeaways this is Buona Judge, Buona Judge and 0:01:23.720 --> 0:01:25.919 Bernie Sanders. I mean, think about it for a second. 0:01:25.959 --> 0:01:28.800 No one was even knew who Pete Buddha Judge was 0:01:28.920 --> 0:01:30.760 a couple of years ago, and now the fact that 0:01:30.800 --> 0:01:33.840 he finished in second place behind Bernie Sanders. I think 0:01:33.840 --> 0:01:36.360 we've we've got some data from Iowa and New Hampshire. 0:01:36.440 --> 0:01:39.800 I'm learning every moment by Kevin Cirelli. Let's go into Nevada, 0:01:39.840 --> 0:01:42.000 Manushi or Greg you're gonna love this as well. You 0:01:42.000 --> 0:01:44.720 can put in your research note. Uh, this is office 0:01:44.720 --> 0:01:46.959 se Really, this is the morning moustid out of Vox. 0:01:47.040 --> 0:01:50.280 Let's bring it up right now. It's real simple. This 0:01:50.360 --> 0:01:54.520 is Saturday. The twenty's really working seven days a week. 0:01:54.880 --> 0:01:58.440 The idea that the the early voters will not be 0:01:58.560 --> 0:02:01.640 physically present to Part two some paid in the Nevada Caucus. 0:02:01.960 --> 0:02:04.320 They will be asked in advance to rank up to 0:02:04.480 --> 0:02:08.960 five candidates by their Iowa like order of preference. Each 0:02:09.040 --> 0:02:13.520 precinct location will be given an unopened deck of cards. 0:02:13.560 --> 0:02:16.160 That deck then has to be shuffle at least seven 0:02:16.200 --> 0:02:20.280 times by Kevin Seilli, and then each candidates group will 0:02:20.360 --> 0:02:24.400 draw a card. The high card wins a delegate. Kevin, 0:02:24.440 --> 0:02:28.919 You've gotta be kidding me. Well, you know, look, I 0:02:29.360 --> 0:02:31.320 know my friend Gregg Valley is about to say that 0:02:31.360 --> 0:02:34.880 we're going to have a broker convention, But I I respectfully, 0:02:34.960 --> 0:02:37.240 am going to say that that all of my reporting 0:02:37.240 --> 0:02:40.160 would lead me to indicate otherwise. And here's why. For 0:02:40.240 --> 0:02:44.000 as complex as this process is, this is exactly that 0:02:44.160 --> 0:02:46.800 I know there's differences between the way the Democrats and 0:02:46.800 --> 0:02:49.920 the Republicans see their business, but this is exactly the 0:02:49.960 --> 0:02:53.400 conversation that we're about that we had in For as 0:02:53.440 --> 0:02:56.640 complex as the process is, Bernie Sanders and pet Buda 0:02:56.720 --> 0:02:59.280 Jedge are still getting the most votes. And for all 0:02:59.360 --> 0:03:02.920 of the most America who are not as politically obsessed 0:03:03.000 --> 0:03:05.359 with this process as people like the three of us are, 0:03:06.320 --> 0:03:08.760 a win is a win, and you get to those votes, 0:03:08.800 --> 0:03:10.960 you win, you get momentum, and you go on greg 0:03:10.960 --> 0:03:13.919 push against us. I mean, Warred's gonna drop out, Biden 0:03:14.000 --> 0:03:16.200 is going to drop out, Styre is going to drop out. 0:03:16.400 --> 0:03:18.600 How do you get a brokered convention with only two 0:03:18.680 --> 0:03:21.880 or three candidates left? I'm not sure Biden drops out 0:03:21.919 --> 0:03:24.560 quite yet. He could do okay in the Vada, he 0:03:24.600 --> 0:03:27.160 could win South Carolina, he could win a plurality of 0:03:27.200 --> 0:03:30.360 delegates on Super Tuesday. A little too early to write 0:03:30.440 --> 0:03:33.119 him off, but it's worth noting he has never won 0:03:33.240 --> 0:03:38.440 a primary in three presidential campaigns, so so moving forward, 0:03:38.640 --> 0:03:40.600 I do think that there will be two or three 0:03:40.640 --> 0:03:43.800 serious candidates. Not sure there's going to be a brokered convention, 0:03:43.800 --> 0:03:46.720 but I do think there'll be a disputed convention where 0:03:46.720 --> 0:03:49.160 the first ballot winner is not clear when they get 0:03:49.200 --> 0:03:53.360 to Milwaukee. Greg, I have like twenty five questions here 0:03:53.360 --> 0:03:55.280 in like two minutes. So first, why is Biden so 0:03:55.440 --> 0:03:58.920 much trouble? And how does he get back energy? Doesn't 0:03:58.920 --> 0:04:01.560 have enough energy, doesn't show enough energy. It's it's as 0:04:01.560 --> 0:04:04.600 simple as that, right, But you can't, I mean, how 0:04:04.640 --> 0:04:08.520 do you get that? I mean this is a personality, right, 0:04:08.560 --> 0:04:11.119 I mean he's you know, Bernie Sanders is an energetic 0:04:11.160 --> 0:04:14.040 seventy eight year old. Biden there's not an energetic seventy 0:04:14.120 --> 0:04:16.520 seven year old. And people know this so I I 0:04:16.600 --> 0:04:19.400 do think he's pretty much finished. I think Elizabeth Warren 0:04:19.560 --> 0:04:21.800 is pretty much finished. But you there's one name we 0:04:21.839 --> 0:04:24.120 haven't mentioned. We've got to mention, and that of course 0:04:24.200 --> 0:04:27.000 is Michael Bloomberg. I know you have to do a disclaimer, 0:04:27.279 --> 0:04:30.640 but with his resources, I think Super Tuesday could be 0:04:30.720 --> 0:04:34.960 really pivotal for him. Okay, the disclaimer is that Michael 0:04:34.960 --> 0:04:38.440 Bloomberg is the founder and majority owner of Bloomberg News, 0:04:38.440 --> 0:04:42.560 including of course Bloomberg LP. So, Kevin, what happens next? 0:04:42.640 --> 0:04:44.720 What what's the next step that we're actually looking out for? 0:04:44.800 --> 0:04:46.400 And why is everything swapp in the air. I mean 0:04:46.400 --> 0:04:48.760 we're talking about broke convention. We're talking about you know, 0:04:48.800 --> 0:04:52.240 no clear winner. Is there a democratic problem right now? 0:04:54.080 --> 0:04:56.680 But I mean it's a dysfunctional family, both of the 0:04:56.720 --> 0:04:59.119 political parties. Are we do we go through this every 0:04:59.120 --> 0:05:01.280 four years? Frenz, you know, no offense. I mean here 0:05:01.279 --> 0:05:03.600 in America you know that that we're kind of used 0:05:03.600 --> 0:05:05.279 to that. But here's what I'll say with regards to 0:05:05.279 --> 0:05:09.480 what Greg Valley said about Michael Bloomberg. Joe Biden has 0:05:09.520 --> 0:05:12.360 competed in Iowa and and lost. He competed in New 0:05:12.400 --> 0:05:15.400 Hampshire and lost. Michael Bloomberg hasn't competed yet. And as 0:05:15.480 --> 0:05:19.000 this moves forward to Super Tuesday, you're gonna hear some 0:05:19.120 --> 0:05:22.640 sharpened political attacks. We've already heard them, and based upon 0:05:22.720 --> 0:05:25.920 my reporting, point blank, you're going to be hearing aggressively 0:05:26.000 --> 0:05:29.480 more political attacks against the former New York City mayor. 0:05:29.960 --> 0:05:31.720 And and that's gonna happen over the next three weeks. 0:05:31.760 --> 0:05:33.800 We're gonna have some some new guidance over the next 0:05:33.800 --> 0:05:37.760 three weeks. But again, Buddha Judge competed, he won. Bernie 0:05:37.800 --> 0:05:41.000 Sanders competed, he won, And a win is a win. Kevin, 0:05:41.000 --> 0:05:43.520 thank you so much, big. One final question, with all 0:05:43.560 --> 0:05:46.200 that you've done for us over the years, Concord, New 0:05:46.240 --> 0:05:50.960 Hampshire is in your soul. New Hampshire is so so, 0:05:50.960 --> 0:05:54.960 so different than the rest of the world. Why do 0:05:55.040 --> 0:05:59.120 we put such a focus on your conquered New Hampshire. Well, 0:05:59.160 --> 0:06:03.080 a lot of think sensible voters who really get into 0:06:03.120 --> 0:06:05.960 it and follow it carefully. I have to think the 0:06:06.080 --> 0:06:10.279 final point that a lot of these voters are depressed 0:06:10.320 --> 0:06:15.039 this morning because as one faction or another leaves Milwaukee unhappy, 0:06:15.320 --> 0:06:17.560 it's a good story for Donald Trump. This has been 0:06:17.600 --> 0:06:20.600 wonderful and fan scenes right, we had a million questions 0:06:21.240 --> 0:06:24.200 as well, so Greg Valuer with us and we say 0:06:24.240 --> 0:06:26.320 thank you so much, and Kevin so really thank you 0:06:27.080 --> 0:06:33.440 as well. As we come out of the New Hampshire primaries, 0:06:33.600 --> 0:06:36.600 we send it to Sanders on top. It's on to Nevada. 0:06:36.839 --> 0:06:39.039 Johnny us now Kate more ahead of thematic strategy at 0:06:39.040 --> 0:06:42.799 black Rocks Global Allocation Investment Team. Could mon uchucate, good morning. 0:06:42.880 --> 0:06:45.359 Just a quick note on politics. I don't know if 0:06:45.360 --> 0:06:48.680 it's complacency, comfort or otherwise, but on Wall Street, no 0:06:48.960 --> 0:06:52.359 real worries about Senator Sanders. Either it's too early to 0:06:52.400 --> 0:06:55.320 start caring. They don't believe he can win the general 0:06:56.160 --> 0:06:58.000 or they believe if he does, he can't govern and 0:06:58.000 --> 0:07:00.000 he can't get things done if he's in the White House. 0:07:00.120 --> 0:07:02.279 Which one is say it right now, So I'm voting 0:07:02.279 --> 0:07:04.320 for option three on this one, which is, you know, 0:07:04.360 --> 0:07:07.000 there is some skepticism that Bernie's second actually make it 0:07:07.040 --> 0:07:09.720 through to the White House, But the real conversation amongst 0:07:09.760 --> 0:07:12.640 market participants right now is that even if he does, 0:07:13.080 --> 0:07:14.920 he won't be able to enact a lot of the 0:07:14.920 --> 0:07:17.920 policies that he has laid out so you know, we 0:07:17.960 --> 0:07:20.400 saw this a lot in this administration as well, a 0:07:20.440 --> 0:07:22.560 lot of talk, a lot of headlines in this case, 0:07:22.600 --> 0:07:25.280 a lot of tweets, but you know, much more challenge 0:07:25.320 --> 0:07:29.480 actually enacting radical policies than would otherwise have been feared 0:07:29.600 --> 0:07:32.560 or suggested. Within the fear is And I read CBO 0:07:32.760 --> 0:07:35.760 yesterday the summer on the new trillion dollar deficits modeled 0:07:35.840 --> 0:07:38.720 up to one point three and I know the president's budgets, 0:07:38.720 --> 0:07:43.000 a political document, etcetera. Within your thematic investing, do you 0:07:43.120 --> 0:07:46.280 care about trillion dollar deficits? You know, we have to 0:07:46.280 --> 0:07:48.400 think about our time rising on this one. The deficits 0:07:48.440 --> 0:07:51.200 certainly matters, but over shorter time periods, and by that 0:07:51.280 --> 0:07:54.960 I mean measured in quarters, not necessarily years or decades, 0:07:55.320 --> 0:07:57.880 they're much more interesting themes for us to invest around 0:07:58.160 --> 0:08:00.720 dynamic changes happening across a rye, the of sectors and 0:08:00.760 --> 0:08:04.760 in consumption patterns. Remember late last year people saying that 0:08:04.880 --> 0:08:07.040 at the end of this year there would be turmoil 0:08:07.160 --> 0:08:12.640 volatility heading into elections. Right now, it sounds like everyone 0:08:13.040 --> 0:08:17.240 is shrugging off anything. Nothing matters. The elections don't matter 0:08:17.280 --> 0:08:20.400 because nothing will get done. The deficit doesn't matter. Because 0:08:20.400 --> 0:08:23.560 in the short term, easy money will cure all what matters. 0:08:23.680 --> 0:08:26.920 What's the sort of potential uh is sort of downside 0:08:26.960 --> 0:08:30.080 here that could cause some volatility that people are looking at. Yeah, 0:08:30.160 --> 0:08:32.079 I mean, I think the big thing to watch here 0:08:32.240 --> 0:08:34.880 is going to be whether or not companies are able 0:08:34.920 --> 0:08:39.079 to continue to generate earnings growth throughout a lower growth environment. 0:08:39.400 --> 0:08:41.880 I say that because, well, we do expect that there 0:08:41.960 --> 0:08:43.480 might be a little bit of multiple expansion in the 0:08:43.520 --> 0:08:46.240 equity market given incredibly low bond yields. I think the 0:08:46.240 --> 0:08:48.480 majority of the returns from the equity market this year 0:08:48.840 --> 0:08:51.839 have to come from earnings, and this is going to 0:08:51.880 --> 0:08:54.480 be the big question mark. Now, I'm pretty constructive on this. 0:08:54.840 --> 0:08:56.959 I think in sensus actually is more in line and 0:08:57.000 --> 0:08:58.880 we're not going to see as dramatic of a downward 0:08:58.880 --> 0:09:01.360 revisions two earnings X by stations as we have in 0:09:01.400 --> 0:09:05.000 previous years. And I've been pretty encouraged by the stability 0:09:05.080 --> 0:09:08.000 in fourth quarter earnings even during a fairly rocky period 0:09:08.040 --> 0:09:11.480 around trade and concerns around politics. So I don't want 0:09:11.480 --> 0:09:14.600 to sound Pollyanna, but I do expect that we're going 0:09:14.640 --> 0:09:16.400 to end the year higher from here, John, are you 0:09:16.520 --> 0:09:18.679 laughing and I'm smiling because when we talk about earnings, 0:09:18.720 --> 0:09:21.080 I'm just wondering whose earnings. We're talking about Microsoft as 0:09:21.080 --> 0:09:26.120 an Apple right now almost ten and they matter. They matter, 0:09:26.200 --> 0:09:27.800 I know they matter. They matter a whole lot more 0:09:27.800 --> 0:09:29.839 than they did a number of years ago. So when 0:09:29.840 --> 0:09:32.839 we talk about earnings, whose earnings? One sector, A couple 0:09:32.840 --> 0:09:35.240 of companies, a handful of companies. Yeah, okay, this is 0:09:35.240 --> 0:09:37.560 a completely fair point. What another thing I've been focused 0:09:37.559 --> 0:09:39.440 a lot on is what what companies are giving us 0:09:39.440 --> 0:09:42.040 in terms of guidance, not just for first quarter twenty 0:09:42.120 --> 0:09:44.160 but also for full year. And if you look at 0:09:44.160 --> 0:09:47.319 where guidance has come in the vast majority of the 0:09:48.120 --> 0:09:51.120 more positive guidance in consensus is coming from technology and 0:09:51.120 --> 0:09:55.880 communications and technology enabled companies across a variety of different sectors. 0:09:56.240 --> 0:09:58.440 So you know, you're right to point out some of 0:09:58.440 --> 0:10:01.240 those big behemoths. They are driving a lot of the 0:10:01.280 --> 0:10:05.200 you know, the bottom line growth. That said, I think 0:10:05.200 --> 0:10:08.320 if we have stability and growth, low interest rates, and 0:10:08.360 --> 0:10:10.520 people don't really worry so much as we were just 0:10:10.720 --> 0:10:13.599 mentioning around politics and geopolitics, then there's going to be 0:10:13.679 --> 0:10:15.840 I think a broader swath of consumer companies that that 0:10:15.880 --> 0:10:18.840 hold up. We also like things like consumption demand around 0:10:18.880 --> 0:10:21.600 home builders, for example, have you done? And this goes 0:10:21.640 --> 0:10:24.560 to Bed Laylor being with this very bullish the other 0:10:24.640 --> 0:10:27.120 day and James Bevan and C. C. L a very 0:10:27.160 --> 0:10:29.760 bullish this morning, and you, I think have a very 0:10:29.800 --> 0:10:33.959 constructive tone as well. When you take out the five 0:10:34.040 --> 0:10:39.679 glory stocks, X out the the trillion dollar valuations, what's 0:10:39.720 --> 0:10:42.679 the actual multiple of growthiness out there right now? It's 0:10:42.720 --> 0:10:45.880 not as elevated as we think, is it. Well? Look, 0:10:45.920 --> 0:10:48.640 I think people pay up for the liquidity and the 0:10:48.679 --> 0:10:51.280 bound sheet of some of these bohemoths. We know that's 0:10:51.280 --> 0:10:54.760 the case, but they also frankly deserve the higher multipa. 0:10:54.960 --> 0:10:57.400 The pe on Amazon is seventy six, and if you 0:10:57.440 --> 0:11:01.280 take it out presence, if you x that out in 0:11:01.480 --> 0:11:05.839 eight other stocks like that, you've got a more reasonable valuation, right, 0:11:06.000 --> 0:11:08.520 a more reasonable valuation. But Tom, you gotta remember I 0:11:08.600 --> 0:11:11.760 grew up in emerging markets, and at that time, if you, 0:11:12.040 --> 0:11:15.079 if you were really valuation sensitive, you would never have 0:11:15.160 --> 0:11:17.720 owned something like by Do in its early stages, which 0:11:17.720 --> 0:11:20.560 consistently traded at eight times forward. So you have to 0:11:20.559 --> 0:11:23.959 be evaluation awhere. What brings that up? I didn't own 0:11:24.000 --> 0:11:27.439 by Lisa, loaded the boat on by do Off. Oh yeah, clearly, 0:11:27.800 --> 0:11:32.839 how's that that regret room going? The regret we're all 0:11:32.920 --> 0:11:36.719 cash today with the Amazon on its way to done, Cassie. 0:11:37.080 --> 0:11:40.240 I'm trying to square the picture that you're talking about here, 0:11:40.640 --> 0:11:43.800 Okate with this sort of developing story that we're seeing 0:11:43.800 --> 0:11:46.360 reflected by bonds and by oil prices, and we're just 0:11:46.440 --> 0:11:50.160 seeing OPEC just now slashing forecast for global oil demand, 0:11:50.720 --> 0:11:54.040 blaming the coronavirus, but oil prices were under pressure anyway. 0:11:54.200 --> 0:11:56.800 How do you sort of pair these stories of slowing 0:11:56.840 --> 0:12:00.600 global growth with robust earnings and earning square? At what 0:12:00.720 --> 0:12:03.920 point does this dissonance become too much to handle? And 0:12:04.040 --> 0:12:06.960 one kind of takes the upper weight here. Yeah. So 0:12:07.040 --> 0:12:09.280 there's a lot of focus, i think, at the headline 0:12:09.360 --> 0:12:12.040 level around some of the older drivers of the economy 0:12:12.080 --> 0:12:14.199 or the older signals we would have. We've been talking 0:12:14.200 --> 0:12:16.040 a lot about what is oil telling us, what is 0:12:16.080 --> 0:12:18.080 copper telling us? What are all of the base metals 0:12:18.120 --> 0:12:21.080 telling us? In this environment where people are worried about 0:12:21.080 --> 0:12:24.520 the growth impacts of the coronavirus, they're not asking themselves, Hey, 0:12:24.600 --> 0:12:27.800 how much gaming revenue? Um are the Chinese tech companies 0:12:27.840 --> 0:12:30.400 getting as a result of everyone being quarantined at home. 0:12:30.600 --> 0:12:33.200 They're not asking you know, what kind of media spend 0:12:33.240 --> 0:12:35.160 are we getting as a result of people not being 0:12:35.200 --> 0:12:37.280 able to go out and spend in retail stores. We 0:12:37.360 --> 0:12:40.240 are sometimes asking the wrong questions. You remember how much 0:12:40.280 --> 0:12:42.760 we used to focus on, say, pre crisis and immediately 0:12:42.760 --> 0:12:46.440 following the Baltic dry index? Is that even relevant anymore? 0:12:47.040 --> 0:12:49.880 We fall back into these patterns of looking at these 0:12:49.920 --> 0:12:54.760 indicators or the pricing around certain old economy um metrics 0:12:54.800 --> 0:12:57.160 that I just don't think are are telling us where 0:12:57.160 --> 0:13:01.480 we're going. Larry from Blackrock emails and some still Kate's 0:13:01.520 --> 0:13:05.000 on today. Kate's not on the Talk markets, folks. She 0:13:05.280 --> 0:13:08.880 is the official surveillance Westminster Dog Show critic as well. Indeed, 0:13:09.000 --> 0:13:12.320 the Retriever, as you have Cora, made the finals like 0:13:12.360 --> 0:13:15.760 the seven finalist dogs, but the Fu Foo Poodle took 0:13:15.760 --> 0:13:18.560 the trophy. Again. It's an outrage, isn't it. I don't 0:13:18.559 --> 0:13:20.960 want to insult the Foo Foo poodle owners, but I 0:13:21.000 --> 0:13:24.280 will say that Retriever should have taken the prize. Its gorgeous, 0:13:24.440 --> 0:13:27.560 good looking dog, beautiful confirmation. Why what has happened to 0:13:27.559 --> 0:13:30.280 this hundred and forty four year institution that they can't 0:13:30.320 --> 0:13:34.560 go with Arthur Levitt's labrador Winthrop or vet Bill something normal. 0:13:34.920 --> 0:13:38.360 Wait a minute, vet Bills foofoo. Oops, here's what can 0:13:38.520 --> 0:13:41.480 what happened to a retriever winning the trophy? You know, 0:13:41.520 --> 0:13:43.959 we have a little byes against the popular dogs here. 0:13:44.000 --> 0:13:46.680 We need to be conscious of the ser spaniels. I 0:13:46.679 --> 0:13:50.120 mean things things dogs that are amazing, pets that are 0:13:50.240 --> 0:13:53.040 very well owned, seem to not really resonate well with 0:13:53.080 --> 0:13:55.559 the judges. I think that's a little unfair. I'm getting 0:13:55.559 --> 0:13:57.920 a comment to from Larry from Black Rock. He's writing 0:13:58.000 --> 0:14:00.680 it right now, and he's he's mentioning that he really 0:14:00.720 --> 0:14:03.120 likes the analysis and thinks that this really affects the 0:14:03.640 --> 0:14:06.719 broad investment strategy. It's great. I'm really glad to hear. 0:14:06.880 --> 0:14:09.080 Did you really buy a Gucci leash? I mean Gucci 0:14:09.120 --> 0:14:10.680 put out her rings today and they killed it. Do 0:14:10.720 --> 0:14:13.079 you have a Gucci lease? The core is not that 0:14:13.120 --> 0:14:15.240 foo fit. Okay, what I will tell you she's a 0:14:15.280 --> 0:14:17.240 big fan of up country. For all of you dog 0:14:17.280 --> 0:14:21.880 owners who know, she has many ribbons, ribbons leashes for 0:14:21.920 --> 0:14:24.000 a different season. I can't and where we got the 0:14:24.000 --> 0:14:28.560 hearts we do. Indeed, thank you for your dog ate 0:14:28.640 --> 0:14:35.120 more a black rock. Right now, let's do this. Let's 0:14:35.160 --> 0:14:40.160 get into an important discussion how you find comfort. And 0:14:40.240 --> 0:14:42.480 just like in the old days owning and stock, James 0:14:42.520 --> 0:14:46.480 Bevan runs very serious money for c c L a 0:14:46.640 --> 0:14:50.760 conservative money, boring money, and they're you know, got all 0:14:50.800 --> 0:14:52.880 the fears and the worries that we all have. And 0:14:52.960 --> 0:14:57.000 yet he says, stay invested. State the bull case. Now, James, 0:14:57.320 --> 0:15:03.240 state why quiet money can become comfortable in equities. I 0:15:03.400 --> 0:15:07.400 begin with the premise that the benefit from equity ownership 0:15:07.760 --> 0:15:12.320 is about long term participation in an underlying business, paying 0:15:12.360 --> 0:15:15.880 a sensible price and therefore in effect expecting an earner. 0:15:16.080 --> 0:15:19.080 And I look at the price that you receive in 0:15:19.280 --> 0:15:22.600 terms of the forward rist premium for being in the 0:15:22.600 --> 0:15:26.520 extra market. I think we think that's too high. And 0:15:26.720 --> 0:15:30.040 in the context of the alternative places where one can 0:15:30.960 --> 0:15:34.080 have one's money, the cash market, the bond market, the 0:15:34.080 --> 0:15:37.840 real estate markets, I think the valuations of EU are 0:15:37.960 --> 0:15:41.560 too low. I think valuations should be materially higher though 0:15:41.640 --> 0:15:44.680 for people should sit with equities. Okay, this is really critical, James. 0:15:44.720 --> 0:15:46.520 I'm gonna go off c f A on you here 0:15:46.600 --> 0:15:49.000 right now. In a dividend discount model, there's an exit 0:15:49.040 --> 0:15:51.520 access and you go out five years, seven years to 0:15:51.600 --> 0:15:57.360 a terminal value. Have we extended out our timeline to 0:15:57.640 --> 0:16:00.680 value equities that are we looking out instead of three 0:16:00.760 --> 0:16:03.440 years five years or instead of seven years? Are we 0:16:03.560 --> 0:16:08.640 valium ten years now? Because of this is great disinflation? Tom. 0:16:09.000 --> 0:16:11.640 What I what I think any investor can do is 0:16:11.720 --> 0:16:15.680 they can lift the consensus numbers from IBS or any 0:16:15.680 --> 0:16:19.920 other entity. Bloomberg runs a very good service of consensus 0:16:19.960 --> 0:16:23.600 data collection, and take the five year market numbers and 0:16:23.640 --> 0:16:27.960 then assume that after the first five years companies get 0:16:28.000 --> 0:16:32.360 linear participational in nominal economic growth. So that's that's been 0:16:32.640 --> 0:16:36.200 the terminal growth. If you then toss up all those 0:16:36.240 --> 0:16:39.640 cash flows and say what's the discount rate that takes 0:16:39.680 --> 0:16:44.520 those cash flows back today's price, Well, that number at 0:16:44.520 --> 0:16:49.920 the moment is six spot three in excess of the 0:16:50.000 --> 0:16:53.440 long government bond yield. Now, that to me is a 0:16:53.560 --> 0:16:56.640 huge payment for risk. I think that we can also 0:16:56.920 --> 0:17:00.280 consider what is the fair payment in the content next 0:17:00.560 --> 0:17:04.200 of lead indicators and current credit spreads, and I think 0:17:04.240 --> 0:17:07.679 that's no more than five so I would be expecting 0:17:07.720 --> 0:17:11.879 the discount rate in effect to fall because prices have risen. 0:17:12.040 --> 0:17:15.159 So I am set and expecting that fair value is 0:17:15.320 --> 0:17:19.480 materially above You're getting a clinic their folks on institutional 0:17:19.520 --> 0:17:22.760 equity valuation. Then how can James bevan by the marginal 0:17:22.880 --> 0:17:29.840 share of Amazon with a forward pe of seventies six? Well, 0:17:30.200 --> 0:17:35.800 I I look at the valuation of Amazon, and I 0:17:35.960 --> 0:17:39.120 look through the price endings multiple to the free cash 0:17:39.200 --> 0:17:41.840 lay yield and the long term great for that free 0:17:41.840 --> 0:17:45.119 cash lay yield, and I still see a share price 0:17:45.200 --> 0:17:48.159 that is below what I calculate to be the their 0:17:48.240 --> 0:17:53.480 value for the company. That allows me to believe that 0:17:53.560 --> 0:17:58.080 the citcall very expensive stocks are actually structurally cheap and 0:17:58.119 --> 0:18:00.560 indeed are cheat in the context of what people have 0:18:00.640 --> 0:18:03.720 been prepared to pay in prior peaks of expensiveness. So 0:18:03.760 --> 0:18:07.560 I've looked at prior periods where growth stocks have done well, 0:18:07.680 --> 0:18:11.080 so periods of relatively slow growth, low inflation, and low 0:18:11.119 --> 0:18:14.119 money rates, and I see valuations that are ranged between 0:18:14.160 --> 0:18:17.760 forty five times and seventy two times. On that basis, 0:18:17.760 --> 0:18:21.119 Amazon is demonstrably cheap. The second issue is that if 0:18:21.119 --> 0:18:26.960 you deduct the relatively expensive six stocks that dominate market indices. 0:18:27.400 --> 0:18:31.200 The valuation of the residual SMP five falls from eighteen 0:18:31.280 --> 0:18:33.879 and a half times that many have described as expensive 0:18:34.560 --> 0:18:38.320 to sixty seven times, which I think looks arguably way 0:18:38.359 --> 0:18:41.480 too cheap in the context of the growth and so 0:18:41.600 --> 0:18:44.680 many other world class companies in that market. You John 0:18:44.840 --> 0:18:48.560 have to translate spot is for point for our American banks. 0:18:48.760 --> 0:18:51.439 Thanks Tom, Thank you very much, Chimes, I always forget 0:18:51.480 --> 0:18:54.560 that that it doesn't translate well, sorry, into America. Let's 0:18:54.560 --> 0:18:58.040 move on links to everything you've said. How great is 0:18:58.080 --> 0:19:04.200 the pressure to one US megacaps stocks right now? I 0:19:04.240 --> 0:19:07.720 think that the short term performance the UK megacaps are 0:19:09.280 --> 0:19:11.960 absolutely supported by a following wind. I mean, when one 0:19:12.000 --> 0:19:15.480 looks at the financial results who came out for the 0:19:15.520 --> 0:19:21.200 Big five excluding Netflix, I look at a beat against 0:19:21.440 --> 0:19:25.920 Q four earnings forecasts, that is something in the order 0:19:25.920 --> 0:19:30.560 of fourteen spot three earning surprise with twenty one and 0:19:30.600 --> 0:19:33.639 a half percent in round figures year on your earnings growth. 0:19:34.920 --> 0:19:38.640 That compares with the rest of the index excluding those 0:19:38.720 --> 0:19:42.360 top names, with surprise of three point nine percent and 0:19:42.680 --> 0:19:46.119 earnings growth of zero spot five percent. Now, why would 0:19:46.119 --> 0:19:50.640 one not want to own fabulous growth companies on valuations 0:19:50.640 --> 0:19:53.400 which are arguably reasonable. If you subscribe to the view 0:19:53.440 --> 0:19:56.400 that I do, the bondiles are staying low. Cash rates 0:19:56.400 --> 0:19:58.719 are only like to get lower in the context of 0:19:58.720 --> 0:20:01.440 what Jerome Pile has been saying, and that both gross 0:20:01.520 --> 0:20:04.480 and inflation again to remain very modest japs. There is 0:20:04.480 --> 0:20:07.320 a question about whether the FED model still works, whether 0:20:07.440 --> 0:20:10.000 bonds and stocks can be compared in the same way, 0:20:10.000 --> 0:20:12.880 And this is a question that is increasingly important as 0:20:12.920 --> 0:20:16.040 people use the low bond yields to justify their purchase 0:20:16.080 --> 0:20:17.440 of stocks. I mean, at the end of the day, 0:20:17.440 --> 0:20:20.399 and earnings yield is not the same as the yield 0:20:20.440 --> 0:20:22.280 or the coupon that you get on a bond, and 0:20:22.280 --> 0:20:25.359 there is risk embedded in at the stocks that is 0:20:25.359 --> 0:20:30.159 not there for bonds. Yeah, you're absolutely correct, and I 0:20:30.200 --> 0:20:33.679 do think that there has been a significant shift in 0:20:33.720 --> 0:20:37.360 the way that the market thinks about debt and sustainable 0:20:37.440 --> 0:20:41.960 levels of debt interest costs. And if you subscribe to 0:20:42.000 --> 0:20:46.760 the view as peddled by the central banks that sustainable 0:20:46.840 --> 0:20:50.080 equilibrium bond yields are lower, it doesn't mean you're going 0:20:50.160 --> 0:20:52.760 to make more money because those bond yields are stock 0:20:52.840 --> 0:20:55.960 at those ultra low levels. So the journey of making 0:20:56.600 --> 0:20:59.600 the path to those lower yields, which obviously means higher prices, 0:20:59.840 --> 0:21:03.199 is over. But it does mean that the arithmetic in 0:21:03.280 --> 0:21:08.040 favor of equities is thoroughly supported and well placed. James 0:21:08.080 --> 0:21:11.000 always got to catch up the really really thoughtful, insightful 0:21:11.040 --> 0:21:13.440 stuff on some of the big names in the US 0:21:13.480 --> 0:21:16.240 econmy market after a monster rally through last year that 0:21:16.320 --> 0:21:19.639 continues into this year and climbs a wad of worry. 0:21:19.720 --> 0:21:22.240 James Bevan the c c L a investment management Chief 0:21:22.520 --> 0:21:27.240 investment Officer. And Neil Sharing is a Capital Economics just 0:21:27.280 --> 0:21:30.600 an outstanding group of economic analysis. John, let me bring 0:21:30.640 --> 0:21:33.239 him in here and you can go what wisdom on him. 0:21:33.359 --> 0:21:35.840 And what's so importantly is is Neil before he was 0:21:35.880 --> 0:21:40.080 a Capital Economics was with his Majesty the Treasury, was 0:21:40.160 --> 0:21:44.159 an economic advisor and worked on the Sussex's finances before 0:21:44.200 --> 0:21:46.280 they went to Canada. And you're trying to get some 0:21:46.320 --> 0:21:49.280 people in trouble something like that. Neil Sharing joins us 0:21:49.320 --> 0:21:52.000 here on the Economy journe Neil great to catch up 0:21:52.000 --> 0:21:55.320 with the Capital Economics chief economist. Now let's talk about 0:21:55.320 --> 0:21:57.439 some data out of America didn't get a whole lot 0:21:57.480 --> 0:21:59.400 of coverage in the last twenty four hours, but job 0:21:59.480 --> 0:22:03.720