Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily
Speaker 1: we bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. This
Speaker 1: is a joy. Mark Lass rejoins us, and yeah, we
Speaker 1: can talk Milwaukee basketball and all that, but far more.
Speaker 1: This is a story of West Hartford, Connecticut, wandering over
Speaker 1: to Clark University, the land of rocketry and Mr Goddard
Speaker 1: where he rocketed through distressed investment to the success of
Speaker 1: his Avenue Capitol group. Mr Last rejoins us this morning
Speaker 1: to look at this pandemic, the partition of America, the
Speaker 1: distress that is out there in the view forward for
Speaker 1: his industry, Mark, are you optimistic about opportunity in two
Speaker 1: thousand any one? Um? Well, first of all, thank you
Speaker 1: for that introduction. I love that very few times to
Speaker 1: people talking about Clark, But um, yeah, I am actually,
Speaker 1: um pretty optimistic. I think for us, Um, what you
Speaker 1: are seeing is it's a little bit of what you
Speaker 1: just talked about your You're seeing that there are problems
Speaker 1: and a number of places, but there's also growth. So
Speaker 1: for us, really, what we're finding is opportunities where we
Speaker 1: can invest in situations where people need capital. Uh, and
Speaker 1: we're providing that capital, but we're doing a pretty steep price.
Speaker 1: When you clear a balance sheet out, you are now
Speaker 1: clearing within the reality of a FED at the zero bound.
Speaker 1: Is the FED distorted? You're part of the hedge fund world.
Speaker 1: It actually has UM. What's ended up happening is it's
Speaker 1: made UM it easier for companies to borrow money. UM.
Speaker 1: So anybody who can borrow is doing so. But then
Speaker 1: what it's done is the reverse. If you can't borrow UM,
Speaker 1: then you've got to you've got to deal with folks
Speaker 1: like me. And if you're doing that, UM, we're able
Speaker 1: to charge twelve. So it's kind of odd a zero
Speaker 1: rate environment, yet we're still charging twelve to fifteen. I
Speaker 1: love that you say, otherwise you've got to deal with me,
Speaker 1: and you don't want to deal with me. Mark. I
Speaker 1: do wonder when you look at distress invest in going forward,
Speaker 1: how much of this is simply who knows bankruptcy law best?
Speaker 1: And I ask this of you knowing that you did
Speaker 1: clerk for a bankruptcy judge in the Southern District of
Speaker 1: New York. So is that really what this game has become? Um,
Speaker 1: I think you've got to understand bankruptcy law because what
Speaker 1: ends up happening now is, um, you're gonna have a
Speaker 1: number of restructurings. But I would tell you the most
Speaker 1: important part today is really understanding the balance sheet of
Speaker 1: a company. Um that if we're gonna lend, are we,
Speaker 1: you know, super secured? Are we senior? Where are we
Speaker 1: in the capital structure? Because things can change on a
Speaker 1: dime and you want to make sure that your cover.
Speaker 1: So I would tell you that capital structure is gonna
Speaker 1: be a little bit more important, but you better have
Speaker 1: that legal background well Embedded in this is the assumption
Speaker 1: that perhaps, or my presumption that recoveries are not going
Speaker 1: to be as robust this time around, given how much
Speaker 1: debt has been incurred and given some of the erosion
Speaker 1: with some of the Covenant light loans that we have seen.
Speaker 1: How much lower will recoveries be and how much fiarcer
Speaker 1: will the battle be over who gets what? I think
Speaker 1: recoveries will definitely be lower, and I think the fights
Speaker 1: are going to be absolutely insane because everybody is going
Speaker 1: to be fighting over a smaller pie. So that that's
Speaker 1: why the focus is really where are you in the
Speaker 1: capital structure? But you're going to have lower recoveries. It's
Speaker 1: it's it's hard for you not to mainly because of
Speaker 1: what you said, which is that people have taken on
Speaker 1: more debt um and there's less equity value there. Mark,
Speaker 1: I want to talk about market draw down, sharp ratios
Speaker 1: and the ability to make two twenty, but that's gonna
Speaker 1: have to pass. I've got a horde of people that
Speaker 1: want to know if you can bring the glory of
Speaker 1: Elsinder and Oscar Robertson and the Milwaukee Bucks back, what
Speaker 1: does the plan forward after signing this gentleman for a
Speaker 1: jillion million dollars? What is the Bucks plan into two
Speaker 1: thousand twenty one in the NBA bubble? Um? I the
Speaker 1: plan is simple, to try to win a championship. The
Speaker 1: execution of that plan is going to be kind of hard. Um. Look,
Speaker 1: we're gonna do everything we can, and I think we've
Speaker 1: got probably you know, our Big three, which is I
Speaker 1: think second to none at least in the East. Um,
Speaker 1: So I think we'll have a pretty good shot. Um.
Speaker 1: I think everybody's pretty excited. I think the hard part
Speaker 1: was really resigning Janice, and the fact that we were
Speaker 1: able to do that is actually great for Milwaukee. It's
Speaker 1: great for small market teams, um. But more important, it's
Speaker 1: great for our team. Mark, your leadership was there in
Speaker 1: a time for this nation where Milwaukee was a center
Speaker 1: and the soul of protest in this nation. What do
Speaker 1: you want to see from Milwaukee this year? What is
Speaker 1: the goal to get to a more peaceful America? Look,
Speaker 1: I think at the end of the day, I think
Speaker 1: it's listening, it's trying to bring about change. But I
Speaker 1: think what we've tried to do is be at the
Speaker 1: forefront of that um with our players, um, I think,
Speaker 1: with everyone. So we're trying to bring about that change,
Speaker 1: but we're doing it by seeing how and what people need.
Speaker 1: So I think we're you know, it's Look, it's gonna
Speaker 1: be difficult, it's gonna take time, but hopefully if people
Speaker 1: have patience, we'll be able to do it. Mark Lass,
Speaker 1: we thank you so much. With the basketball team in
Speaker 1: Milwaukee and also Avenue Capital as well. Europe has received
Speaker 1: the attention of Nathan she It's an esteemed career is
Speaker 1: under Secretary of Treasury, he provided provided leadership on international
Speaker 1: affairs with the International Monetary Fund. He did terrific work
Speaker 1: and then leading the charge on international economics for Villain
Speaker 1: Powder at City Group. He is now at PEJAM and
Speaker 1: has that a terrific year melding economics into their global
Speaker 1: call on fixed income. Nathan, let me go back here
Speaker 1: just a bit. How is two thousand twenty for you
Speaker 1: and melding economics into the animals? Like Greg Peters, Well, uh,
Speaker 1: that's a great question, and uh that is uh that
Speaker 1: is my challenge. But uh, I think that the task
Speaker 1: at hand is very much articulating and economic narrative. And
Speaker 1: the narrative for has been quite clear. It's been about
Speaker 1: viruses and lockdowns and then bounce backs. Adds that uh
Speaker 1: as that lockdown is ease and come back in again.
Speaker 1: And I think our investors pay a lot of attention
Speaker 1: to what's going on in the backro so also then
Speaker 1: bring with it the micro market narrative. Someone that can
Speaker 1: do that is Janet Yellen. It will be the great
Speaker 1: transition from Fed to Treasury. You of course no chair
Speaker 1: yelling quite well, what will yelling be like a secretary
Speaker 1: of the Treasury, What will be her challenge and that
Speaker 1: political shift. So I think the appointment of Janney Yelling
Speaker 1: UH to uh be Secretary of the Treasury is is
Speaker 1: a splendid appointment. She comes with platinum plated credibility. When
Speaker 1: she speaks, others will listen to her across the political spectrum.
Speaker 1: The Treasury is a different building than the Federal Reserve,
Speaker 1: but I think that Janet Yelling's insights into the labor
Speaker 1: market are going to be radical and helping to get
Speaker 1: the economy back on normal footing. I think it will
Speaker 1: be very helpful their issues like financial regulation, managing the dollar,
Speaker 1: China relationship, these are all things that she's thought about
Speaker 1: and and dealt with at the fedough Reserve and as
Speaker 1: an academic for for many years. I think that she
Speaker 1: will have a very successful and constructive tenure. What do
Speaker 1: you think will be her view or her push when
Speaker 1: it comes to the dollar. There's been some concern about
Speaker 1: whether she'll continue the sort of strong dollar being a
Speaker 1: good thing narrative or whether she'll piggyback with what President
Speaker 1: Trump was saying and frankly with what a lot of
Speaker 1: economists say, which is that a weaker dollar will give
Speaker 1: a tail into the U S economy. Well, I think
Speaker 1: this is one of the key issues on the international
Speaker 1: side of the Treasury that on the one hand, I
Speaker 1: think there might be a case that the strong dollar
Speaker 1: policy has been around for a long time, can we
Speaker 1: still say that a strong dollar is in the US
Speaker 1: interests and particularly in the interests of US workers. I
Speaker 1: think for some time that organized labor has challenged that.
Speaker 1: On the other hand, the strong dollar did a lot
Speaker 1: of positive and constructive things that policy in the international road,
Speaker 1: where it gave the United States moral standing and moral legitimacy.
Speaker 1: Essentially said We'll played by the rules, and we expect
Speaker 1: others to play by the rules as well. And what
Speaker 1: would if if they want to deviate from it, what
Speaker 1: would another structure look like, and would it carry those
Speaker 1: those positive benefits of allowing the United States to uh
Speaker 1: influence the policies of other countries in the same way.
Speaker 1: I think this is something they're gonna be struggling with.
Speaker 1: We're speaking with Nathan Sheets of p JIM and just
Speaker 1: the backdrop today is of vaccines that are gaining steam
Speaker 1: of a nine billion dollar stimulus bill that was passed
Speaker 1: in Congress and just now crossing the Bloomberg right now
Speaker 1: that Alex Asar, the head of a J j S,
Speaker 1: is saying that expect late February early March general vaccine programs.
Speaker 1: Given what we got overnight from Congress and given the
Speaker 1: expectations for the time frame vaccinations, is the fiscal support
Speaker 1: already on the table enough to carry the economy through.
Speaker 1: So my feeling is the goal was to build a bridge,
Speaker 1: and this nillion dollars stimulus package certainly does that. Over
Speaker 1: the next few months, will be putting UH four percent
Speaker 1: of GDP into the economy seventeen percent at an annual rate.
Speaker 1: I think it protects the economy from downside risks and
Speaker 1: importantly protects the most vulnerable parts of the household distribution
Speaker 1: as well as small firms and maybe UH at risk.
Speaker 1: So I I think it does very effectively build that
Speaker 1: bridge UH in to the vaccine, and then I think
Speaker 1: once the vaccine arrives, you put on your seatbelt. I
Speaker 1: think this economy could really rep Nathan Sheets. I want
Speaker 1: to go to your wheelhouse, which is international economic dynamics.
Speaker 1: The idea of the movable parts out there. Does a
Speaker 1: dollar move in two thousand twenty one with it a
Speaker 1: traditional framework or things so distorted that we need a
Speaker 1: different prism to look at dollars six months or a
Speaker 1: year from now. Well, I think this is this is
Speaker 1: a fantastic question. Typically a weaker dollar is associated with
Speaker 1: a stronger euro, and then as the Euro moves, that
Speaker 1: then escalates and moves into the emerging market space. But
Speaker 1: I think we're at a place where, on the one hand,
Speaker 1: the dollar is likely to weaken. On the other hand,
Speaker 1: I'm not sure the euro area is well placed given
Speaker 1: the economic challenges that they're facing with that with the
Speaker 1: virus to be able to absorb also can happen in
Speaker 1: the young space. I don't mean to interrupt, Nathan, but
Speaker 1: your true world class on this. There's a doom and
Speaker 1: gloom fear out there of Plaza Louver re ducts, of
Speaker 1: Reuben dollar reducts. Aren't we in a largely floating exchange
Speaker 1: rate economy where we've done away with so many of
Speaker 1: the rigidities of those older systems. So when we go
Speaker 1: back and look at some of those past accords where
Speaker 1: there were more odd agreements with respect to currency, the
Speaker 1: misvaluations and misalignments were much larger. And I think in addition,
Speaker 1: as you're pointing out Tom the official sector relative the
Speaker 1: private sector was much larger. So on the one hand,
Speaker 1: I don't see those same misalignments, so I wouldn't expect
Speaker 1: some broad based UH agreement. And on the other hand,
Speaker 1: it is a lot harder for the public sector to
Speaker 1: enforce its will on on the f X market. UH.
Speaker 1: So I think it really is at the end of
Speaker 1: the day, about these macro fundamentals, and I think they
Speaker 1: point to somewhat weaker dollar UH, and UH may not
Speaker 1: point to a much stronger euro from here, Nathan, how
Speaker 1: much is higher inflation part of that weaker dollar call?
Speaker 1: So my feeling is that inflation over the medium term
Speaker 1: is going to stay relatively muted as it was before
Speaker 1: the pandemic. Now as we're coming out of out of
Speaker 1: the situation and as the vaccines a lot, could we
Speaker 1: have a temporary boost in inflation where there were some
Speaker 1: bottlenecks and shortages. Yes, So I think that in general
Speaker 1: will continue to be a low inflation environment. And so
Speaker 1: my view of a weaker dollar is not so much
Speaker 1: predicated on an inflation call. So the reason why I
Speaker 1: asked that is because earlier you were saying that mid
Speaker 1: next year you can start to see the economy, to
Speaker 1: use your high level economic speak, really rip, And so
Speaker 1: I'm wondering what the consequences will be if that isn't
Speaker 1: necessarily on inflation, Whether we continue with this goldilocks scenario
Speaker 1: where we can see growth and we can see job
Speaker 1: jobless rates go down and yet inflation stay muted. Can
Speaker 1: you walk us through that whole narrative. So my feeling
Speaker 1: is that during the second half of next year, as
Speaker 1: the economy is booming, that we are likely to see
Speaker 1: some shortages and bottlenecks manifest themselves and a temporary period
Speaker 1: of somewhat elevated inflation to some extent. We saw that
Speaker 1: in the third quarder of this past year as we
Speaker 1: came out of the spring lockdowns. But that as we
Speaker 1: move into two and beyond that these deep structural factors
Speaker 1: like demographics to leveraging, automation and uh and and inflation
Speaker 1: expectations being well anchored on the downside will reassert themselves
Speaker 1: and it will continue to be a low inflation world,
Speaker 1: with perhaps even further disinflation as we continue to age.
Speaker 1: Nathan Sheets, thank you for wisdom across this two thousand
Speaker 1: and twenty look forward. To speaking you to you into
Speaker 1: the new year with Pijam. Nathan Sheets joins us, we've
Speaker 1: tried all across Bloomberg surveillance really from February to give
Speaker 1: you the pros on this. Someone that's helped us so
Speaker 1: much out of Hope College, Kalamazoo and of course the
Speaker 1: combine at uh Wisconsin Madison and now Holding Court in
Speaker 1: Washington and they were claimed microbiology program. Deborah Fuller joins us.
Speaker 1: Right now, Debra, you and I were talking to break
Speaker 1: about the need to get back in the lab and
Speaker 1: solve the mysteries. What's the great mystery we need to
Speaker 1: solve with this fear of mutation, this fear of variant. Well,
Speaker 1: there are two mysteries we need to solve. The first
Speaker 1: is whether it truly is more transmissible and the second
Speaker 1: is is this going to impact the efficacy of our vaccine? So, uh,
Speaker 1: you know, if you if you break that down just
Speaker 1: a little bit, that this is a new variant that
Speaker 1: has about twenty nu muications and it does appear to
Speaker 1: be taking over as a dominant strain in the UK
Speaker 1: based on you know, there's a substantial increase in the
Speaker 1: frequency in detecting the strain in in the population. Uh.
Speaker 1: But what we don't know yet is whether that is
Speaker 1: truly an increase in transmission. We're going to need additional
Speaker 1: tests to really validate that, such as does it outcompete
Speaker 1: other viral strains in in a cell culture study in
Speaker 1: the lab? Does that result in higher amounts of viral shedding? Uh?
Speaker 1: And animals infected with it? This usually does translate to
Speaker 1: higher transmission, So those those particularly experiments need to be
Speaker 1: done too to confirm that. What doesn't mean for vaccines,
Speaker 1: we don't really know yet. Uh. There is no evidence
Speaker 1: yet that these new mutations are going to impact they
Speaker 1: of vaccines. Uh. There's some confidence among the manufacturers that
Speaker 1: it won't. Uh, they still need to test that. You know,
Speaker 1: in microbiology, it's about the nucleus, societoplasm and all the
Speaker 1: drama at the cellular wall. The drama here are the
Speaker 1: fearsome spikes that we see on this virus. Do we
Speaker 1: have an understanding of the physiology of those spikes and
Speaker 1: what we can do about it? The spike protein on
Speaker 1: the virus means yes, yeah. The spike protein the virus
Speaker 1: is absolutely cential for the virus to be able to
Speaker 1: enter the cell and that's why we've designed vaccines to
Speaker 1: target that particular spike protein. It is going to be
Speaker 1: the area the virus is likely going to mutate the most,
Speaker 1: because mutations are often driven by the virus wanting to
Speaker 1: improve its own fitness, its own replication, and the spike
Speaker 1: protein would be an obvious target for that. What we've
Speaker 1: done with the vaccines though, is that we've targeted a
Speaker 1: particular area on the spike protein that is absolutely essential
Speaker 1: for the virus to be able to enter into the cell.
Speaker 1: So if it mutates that particular area, there's a good
Speaker 1: chance that it actually is going to aboard itself. So
Speaker 1: that's probably why we haven't seen of many mutations have
Speaker 1: risen in this in this virus, many of them in
Speaker 1: the spike proteins have an impact yet on the vaccine.
Speaker 1: With that said, uh I have I had a mentor
Speaker 1: once told me that if if if a virus can,
Speaker 1: it will and viruses can eventually potentially figure out a
Speaker 1: way to a vaccine immunity, and that's why it's so
Speaker 1: important every time one new one emerges it like this one,
Speaker 1: we have to look at our vaccines and see whether
Speaker 1: or not these new mutations, UH could result in resistance.
Speaker 1: I'll leave the cellular biology to Tom Keane. But Deborah,
Speaker 1: I've got a much simpler question, which is one, will
Speaker 1: kids be able to be vaccinated given the lack of
Speaker 1: information in studies so far to the state. So what
Speaker 1: they're doing right now is they are initiating UH clinical
Speaker 1: trials will include younger children, and unlike what was required
Speaker 1: for for adults, where we had to go all the
Speaker 1: way to an efficacy study comparing with CIBO versus versus
Speaker 1: those who are taking the vaccine, what we can do
Speaker 1: is study those who have already see the vaccine and
Speaker 1: we know that they're protected. We can look at the
Speaker 1: levels of immunity they have and then use that information say,
Speaker 1: are hey, are these kids who are getting UH in
Speaker 1: our clinical trials developing antibodies or immune responses comparable to
Speaker 1: what we see and protected adults. And if they are,
Speaker 1: then I think they could probably get more extend the
Speaker 1: authorization to to include children. Of course, that that really
Speaker 1: depends on assuring that these vaccines are also safe in children. So,
Speaker 1: based on the rollout so far, deb what's your best
Speaker 1: estimate for a time frame of when we'll reach some
Speaker 1: sort of I hate to say this because I know
Speaker 1: Tom has a lot of issues of herd immunity. Yes,
Speaker 1: herd immunity being defined as when we get sufficient amounts
Speaker 1: of vaccine induced immunity and the population so that the
Speaker 1: virus is not able to transmit as well anymore. So
Speaker 1: it really depends on how many many people we can
Speaker 1: get to come forward to to get vaccinated. If we
Speaker 1: can get over sixt of people vaccinated number one and
Speaker 1: number two, if the distribution of the role happens in
Speaker 1: in the schedule that they're predicting, let's say April the
Speaker 1: most everybody will have an opportunity to get a vaccine,
Speaker 1: and we can get six people to to take a
Speaker 1: vaccine and the manufacturer number to produce that much vaccine,
Speaker 1: then we could probably see her community sometime in late
Speaker 1: spring early summer. That is the money question. Deborah Fuller,
Speaker 1: thank you so much for the money answer. Where the
Speaker 1: university was Washington, I should say School of madisone president elect.
Speaker 1: There's an inauguration it'll be I don't know, the third
Speaker 1: week of January or something like that. The second most
Speaker 1: famous person to ever graduate from the University of Delaware.
Speaker 1: We now welcome the most famous person to ever graduate
Speaker 1: from the University of Delaware. Liziane Saunders joins us from
Speaker 1: Charles Schwab was just a lot of good years of perspective. Listen,
Speaker 1: I've got to go to the money question, which you're
Speaker 1: always so good at, which is not the bladder the
Speaker 1: pundit try, but what are we actually doing with our money?
Speaker 1: What does Schwabs see that people are actually doing well?
Speaker 1: From a fund flows perspective which goes beyond to Schwab,
Speaker 1: but broader fund flows inclusive of both mutual funds and
Speaker 1: e t F you really started to see a significant
Speaker 1: move back into US equities starting at the beginning of November.
Speaker 1: Much at the same time you've got the initial Fiser
Speaker 1: vaccine news. That led to another stage of the rotation,
Speaker 1: which was not so much into cyclical areas but into
Speaker 1: all right, what hasn't worked yet, hence the big move
Speaker 1: into energy and financials um. Interestingly, though, the larger speculators
Speaker 1: are basically moving to the other side of the trade,
Speaker 1: so they been upping their speculative short positions on the
Speaker 1: s and it's a bit of a divergence, which I'm
Speaker 1: a bit worried about the sentiment environment because fund flows
Speaker 1: was sort of the last thing to fall since sentiment
Speaker 1: got a bit fraughty in early September. It was mostly
Speaker 1: by the new limited day traders in the options market,
Speaker 1: and then it became more pervasive in attitudinal measures of
Speaker 1: sentiment into fund flows since early November. And the success
Speaker 1: of the market I think has bread a risk, which
Speaker 1: is that we're looking at fairly froughty sentiment. We don't
Speaker 1: go through the math this close to the holidays, but
Speaker 1: the bottom line is, if somebody is short and they cover,
Speaker 1: it develops a convexity or acceleration of buying. Are we
Speaker 1: setting ourselves up for a big short cover if we
Speaker 1: get good news on the vaccine. I think there could
Speaker 1: be a set up for shortcovering on a number of factors.
Speaker 1: Yesked news on the vaccine, maybe less weak economic data
Speaker 1: driven by the current state of the virus um. We've
Speaker 1: already gotten some of the good news on the vaccine
Speaker 1: specific to the amount of shots that can be administered
Speaker 1: from each vial, but of course there's also the possibility
Speaker 1: of negative news. You know. Dr Gottlieb said, I think
Speaker 1: yesterday that the stream that was seen in the UK,
Speaker 1: this new stream is probably already in the United States,
Speaker 1: and we don't know the details of whether it's it
Speaker 1: can be combated by the same vaccine. So I think
Speaker 1: there are there are risks on on both sides. If
Speaker 1: we take a generalization Lizzian Saunders that we go seven
Speaker 1: eight nine years of quiet and value and then we
Speaker 1: get a value lift which pretty much makes up for it.
Speaker 1: Have we moved away from growthiness towards that value pop
Speaker 1: people have been waiting for or do you not see
Speaker 1: the determinants that make that happen yet? Well, I think
Speaker 1: we have to distinguished between the fundamentals of value and
Speaker 1: the index components of value. This this so called move
Speaker 1: to value, has been more driven by the surge in
Speaker 1: financials and energy, which are much more heavily weighted in
Speaker 1: the value indexes and even within the value indexes. Financials
Speaker 1: is a huge play. Russell one thousand Value has seventeen
Speaker 1: or eighteen percent financials, Russell two thousand Value has twenty
Speaker 1: eight percent financial and financial movement financials. You have to
Speaker 1: look at where it accrues from a style index perspective.
Speaker 1: So we just have to do more than just watch
Speaker 1: the headlines of say money going from growth to value
Speaker 1: are large too small and understand that there are spector
Speaker 1: drivers that need to be considered. And another example, healthcare
Speaker 1: is half the weight in Russell two thousand value as
Speaker 1: it is in Russell one thousand values. So if you
Speaker 1: get a big healthcare move over the course of a
Speaker 1: day or a series of days, it's going to accrue
Speaker 1: to the greater benefit of large value. Even well, you
Speaker 1: just heard. There's two things here, folks. And this is
Speaker 1: why it's such a joy to have miss Sanders on
Speaker 1: with us. Literally this morning, as I was beginning my day,
Speaker 1: I looked on the Bloomberg terminal Russell one thousand, two thousand,
Speaker 1: three thousand, and asked myself exactly the question we observe
Speaker 1: from Lizanne Sanders about bank or financial allocation across these indices,
Speaker 1: all of the indices are different. What's the biggest mistake
Speaker 1: we have, Lizanne that were slaves to the Tao, were
Speaker 1: slaves to vix dynamics. I mean, that's so simplistic, isn't it?
Speaker 1: It is simplistic. And another another example I often gave
Speaker 1: of the whole what are you talking about when you
Speaker 1: talk about growth versus value? Is it the fundamentals is
Speaker 1: it the factors or is it the index labels? If
Speaker 1: you if you go back to October of O two,
Speaker 1: I know that's a while ago now, but think about
Speaker 1: when the tech bust has finally ended, you had the
Speaker 1: NASA one hundred down I think at that point from
Speaker 1: peaking off plus for the overall NAZZAC and the SMP.
Speaker 1: If you are a value factor oriented investor, if you
Speaker 1: wanted to buy deep value, you wanted to buy the
Speaker 1: tech stocks, then Russell hadn't moved them all from the
Speaker 1: growth indexes to the value indexes. So if you just
Speaker 1: stop the analysis that okay, I need to buy value
Speaker 1: and you bought the value indexes, you would have still
Speaker 1: been buying utility stocks, not the tech stocks. So I
Speaker 1: think this is an environment where you want to have
Speaker 1: a hybrid approach. From a factor perspective, you want to
Speaker 1: look for companies that have those growth characteristics, but you
Speaker 1: want to have a value mindset in terms of what
Speaker 1: you pay for that growth, and that that spans across
Speaker 1: growth indexes, value indexes, small cap index is, large cap indexes,
Speaker 1: sector indexes, etcetera. Do the tech winners, the juggernauts, do
Speaker 1: they still have growthiness yet? Priced at value when you
Speaker 1: look at their revenue prospects, it's I wouldn't. I wouldn't
Speaker 1: certainly wouldn't call them value stocks. But if you have
Speaker 1: as so many cops to circuit two thousand with regard
Speaker 1: to those names, especially because as of early September, the
Speaker 1: big five we're index and they were the big five
Speaker 1: back then, we're only eighty index. But the multiple comparison
Speaker 1: is shows the stronger fundamental. So back in two thousand,
Speaker 1: the largest five stocks had a multiple of it sixte
Speaker 1: and now they have a multiple of that half That
Speaker 1: not that thirty two is cheap by any means, but
Speaker 1: it reflects them much stronger underlying fundamental of those types
Speaker 1: of companies. Not I'm not an analyst covering those company
Speaker 1: so that that shouldn't be seen as some improvate by recommendation.
Speaker 1: It's just a fact about valuations. What is the place
Speaker 1: to go if you want dividend growth to be a
Speaker 1: yield equivalent? I mean, I know this is hazardous, folks.
Speaker 1: I go back to the Bill gross told being Procter
Speaker 1: and Gamble was a yield equivalent, and that may worldwide headlines.
Speaker 1: I mean, is there a kind of dividend it's more
Speaker 1: yieldy than others. Right now, Well you can't and again
Speaker 1: I don't. I'm not going to give you individual names,
Speaker 1: of course, but you know there are screening tools, including
Speaker 1: our own Chi Equity ratings, but but there are others
Speaker 1: that do it where you can screen for dived and yield,
Speaker 1: but you're also screening for strong underlying fundamentals, the ability
Speaker 1: to maintain in or grow that dividend. And too many
Speaker 1: investors in a yield starved world will screen by dividend
Speaker 1: yield rank from high to low and then don't do
Speaker 1: any additional analysis. And we all know that an extremely
Speaker 1: high dividend yield can be an underlying sign of weak
Speaker 1: fundamentals and a much greater likelihood that that dividend gets
Speaker 1: cut or eliminated altogether given those weak or fundamental So
Speaker 1: you have to you have to take a multi factor
Speaker 1: approach to screening when looking for yield to make sure
Speaker 1: you are getting that strong underlying fundamental quality balance sheet.
Speaker 1: It's better. LIZI and Saunders, thank you so much, just
Speaker 1: very very informative of She's of course with Charles Schwab,
Speaker 1: thanks for listening to the Bloomberg surveillance podcast. Subscribe and
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Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg
Speaker 1: Radio