1 00:00:03,160 --> 00:00:06,560 Speaker 1: Global business news twenty four hours a day at Bloomberg 2 00:00:06,600 --> 00:00:09,680 Speaker 1: dot com, the radio, plus Molobile laps and on your radio. 3 00:00:09,960 --> 00:00:13,960 Speaker 1: This is a Bloomberg Business flag from Bloomberg World Headquarters. 4 00:00:14,040 --> 00:00:16,680 Speaker 1: I'm Charlie Pallot. S and PTE five hundred Index on 5 00:00:16,800 --> 00:00:21,160 Speaker 1: track for another record as investors show confidence at corporate 6 00:00:21,160 --> 00:00:24,759 Speaker 1: earnings will not derail a rally heading towards a fifth week. 7 00:00:24,840 --> 00:00:26,840 Speaker 1: Right now, the S and P five hundred index is 8 00:00:26,920 --> 00:00:30,880 Speaker 1: trading it seventy four. It is hired by nine points, 9 00:00:30,920 --> 00:00:34,200 Speaker 1: a gain of five tenths of one percent seventy three 10 00:00:34,200 --> 00:00:37,720 Speaker 1: the old record set this past week on Wednesday. Down 11 00:00:37,720 --> 00:00:40,800 Speaker 1: Industrial is up forty nine points, up three tents of 12 00:00:40,840 --> 00:00:44,200 Speaker 1: one percent, the tenure down three thirty seconds, the yield 13 00:00:44,240 --> 00:00:47,040 Speaker 1: one point five six percent, Gold down seven twenty the 14 00:00:47,120 --> 00:00:49,479 Speaker 1: ounce right now, a drop of five tenths of one 15 00:00:49,479 --> 00:00:52,680 Speaker 1: percent at thirteen twenty three, and crude oil down one 16 00:00:52,720 --> 00:00:55,440 Speaker 1: point four percent forty four fourteen for a barrel of 17 00:00:55,680 --> 00:00:59,720 Speaker 1: West Texas Interviewedia Crude. I'm Charlie Pallot. That's a Bloomberg 18 00:00:59,760 --> 00:01:02,560 Speaker 1: Business splash. Thank you, Charlie Pelletty. It's time now for 19 00:01:02,600 --> 00:01:04,240 Speaker 1: the E t F Report It's brought to you by 20 00:01:04,360 --> 00:01:09,559 Speaker 1: National Realty Providers of Satisfaction Guaranteed New York City Realty Investments. 21 00:01:09,880 --> 00:01:13,840 Speaker 1: See them at n r I a dot net. Let's 22 00:01:13,880 --> 00:01:16,959 Speaker 1: go to Katherine Cowdery for our Exchange traded funds report. 23 00:01:17,880 --> 00:01:19,959 Speaker 1: E t F s are on a streak. They've had 24 00:01:20,000 --> 00:01:23,480 Speaker 1: twenty nine straight months of net inflows. That's according to 25 00:01:23,520 --> 00:01:26,160 Speaker 1: preliminary data from the research firm e t F G 26 00:01:26,360 --> 00:01:28,880 Speaker 1: I had their Fisher, vice president of the e t 27 00:01:29,000 --> 00:01:32,000 Speaker 1: F platform at Charles Schwab, keeps track of where that 28 00:01:32,040 --> 00:01:34,120 Speaker 1: money is going. Biggest news I would say is the 29 00:01:34,200 --> 00:01:39,160 Speaker 1: shift between from international to where we see it being 30 00:01:39,480 --> 00:01:42,200 Speaker 1: US equity and US six income. Fisher calls it a 31 00:01:42,240 --> 00:01:45,040 Speaker 1: pretty dramatic shift. She takes a closer look at what 32 00:01:45,120 --> 00:01:47,760 Speaker 1: areas have been attracting the most interests so far this year. 33 00:01:47,920 --> 00:01:50,320 Speaker 1: We're seeing the vast majority of our your day t 34 00:01:50,520 --> 00:01:54,440 Speaker 1: F flows go into US equity and US fixed income 35 00:01:54,480 --> 00:01:59,120 Speaker 1: ets collectively, about seventy of flows going into those two categories, 36 00:01:59,640 --> 00:02:03,760 Speaker 1: um hours going into commodities and international fixed income. Fisher says. 37 00:02:03,760 --> 00:02:06,400 Speaker 1: Schwab's E t F assets under management grew from two 38 00:02:06,480 --> 00:02:09,799 Speaker 1: hundred fifty six billion dollars in December to two hundred 39 00:02:09,840 --> 00:02:12,600 Speaker 1: seventy six billion at the end of June. She adds, 40 00:02:12,680 --> 00:02:14,520 Speaker 1: e t F flows have been picking up over the 41 00:02:14,560 --> 00:02:18,760 Speaker 1: past few months. That's your Bloomberg ETF report. I'm Katherine Cowdery. 42 00:02:20,080 --> 00:02:23,120 Speaker 1: You're listening to Taking Stock with Kathleen Hayes and Pimp 43 00:02:23,160 --> 00:02:28,600 Speaker 1: Box on Bloomberg Radio. Stagflation What is it? Many people 44 00:02:28,639 --> 00:02:31,679 Speaker 1: have never really heard the term, Joe McLendon has. He's 45 00:02:31,720 --> 00:02:34,920 Speaker 1: the founder and the chairman of Macallindon Research Partners and 46 00:02:35,160 --> 00:02:39,839 Speaker 1: also Catalpa Capital Advisers. Joe Mcalindon, thank you very much 47 00:02:39,880 --> 00:02:44,680 Speaker 1: for joining me. Tell people what is stagflation? And it's 48 00:02:44,720 --> 00:02:46,880 Speaker 1: going to have to involve you explaining how many years 49 00:02:46,919 --> 00:02:51,360 Speaker 1: you've been in the investment business. I'm sorry, Well, you know, 50 00:02:51,440 --> 00:02:54,040 Speaker 1: there aren't a whole lot of folks in the business 51 00:02:54,360 --> 00:02:59,120 Speaker 1: today who actually lived through the stagflation period, but back 52 00:02:59,200 --> 00:03:01,840 Speaker 1: in the sixty and they say, if you remember the sixties, 53 00:03:01,840 --> 00:03:05,280 Speaker 1: you weren't really there, but I was there. We started 54 00:03:05,280 --> 00:03:11,040 Speaker 1: a process beginning with with unpopular wars coupled with expansive 55 00:03:11,160 --> 00:03:14,640 Speaker 1: social spending that led to deficits and the central bank 56 00:03:14,919 --> 00:03:18,040 Speaker 1: monetized a lot of that selling the seats for a 57 00:03:18,080 --> 00:03:24,200 Speaker 1: big surge in inflation and subpar growth during the nineteen seventies, 58 00:03:24,240 --> 00:03:28,320 Speaker 1: which became really bad towards the end of that decade 59 00:03:28,360 --> 00:03:31,880 Speaker 1: of the seventies. So the stag inflation idea is that 60 00:03:32,200 --> 00:03:37,640 Speaker 1: the economy is is UH stag stagnating basically with subpar growth, 61 00:03:38,080 --> 00:03:42,240 Speaker 1: and inflation is beginning to rear its head and perhaps 62 00:03:42,320 --> 00:03:44,640 Speaker 1: on its way too much higher numbers than what the 63 00:03:44,720 --> 00:03:48,080 Speaker 1: FED would like, And that PIM is what I think 64 00:03:48,280 --> 00:03:52,200 Speaker 1: we're on the cusp of here. UM a period we've 65 00:03:52,200 --> 00:03:56,000 Speaker 1: had subpar growth, but we've had also very low inflation. 66 00:03:56,520 --> 00:04:00,400 Speaker 1: But as I passed through the data that that has 67 00:04:00,440 --> 00:04:03,960 Speaker 1: been coming out over the last six nine months, what 68 00:04:04,040 --> 00:04:08,360 Speaker 1: I see is is a big surgeon inflation bubbling onto 69 00:04:08,400 --> 00:04:12,360 Speaker 1: the surface, which is going to reach the headline level 70 00:04:12,800 --> 00:04:15,200 Speaker 1: in the second half of the year, in this coming winter. 71 00:04:15,760 --> 00:04:18,760 Speaker 1: So I think we're gonna be UH in a stagflation 72 00:04:18,839 --> 00:04:23,400 Speaker 1: period for sure, with one caveat that the very short 73 00:04:23,600 --> 00:04:26,720 Speaker 1: term GDP data, I think, like the second quarter a 74 00:04:26,760 --> 00:04:29,880 Speaker 1: third quarter UM are going to be on the stronger 75 00:04:30,040 --> 00:04:33,839 Speaker 1: side UM, but then I think the growth rates will 76 00:04:33,920 --> 00:04:37,960 Speaker 1: recede back to that stubborn. Two. It's been stuck at 77 00:04:38,040 --> 00:04:41,960 Speaker 1: for for for several years now. Now the GDP report 78 00:04:42,000 --> 00:04:44,120 Speaker 1: that will be out a week from today, of course 79 00:04:44,120 --> 00:04:47,440 Speaker 1: we'll be bringing that to you live on Bloomberg. So 80 00:04:48,000 --> 00:04:50,640 Speaker 1: a little bit more on inflation. What leads you to 81 00:04:50,720 --> 00:04:53,280 Speaker 1: these to the conclusion that we're going to see this 82 00:04:53,400 --> 00:04:57,120 Speaker 1: move higher, an acceleration in the inflation rate. Well, when 83 00:04:57,160 --> 00:05:01,040 Speaker 1: you look at the actual published numbers UH, UM the 84 00:05:01,720 --> 00:05:05,320 Speaker 1: UH and you and you UH get granular and dive 85 00:05:05,360 --> 00:05:09,560 Speaker 1: into two the weeds, you find that the for example, UM, 86 00:05:09,920 --> 00:05:13,120 Speaker 1: the core rate which takes out food and energy, is 87 00:05:13,200 --> 00:05:17,919 Speaker 1: already above UH. And of course the sets target is 88 00:05:17,960 --> 00:05:21,960 Speaker 1: two percent inflation. The only reason the total inflation rate 89 00:05:22,000 --> 00:05:24,960 Speaker 1: has been held down has been the weakness in oil 90 00:05:25,000 --> 00:05:28,560 Speaker 1: prices and other commodity prices. What we know is they 91 00:05:28,600 --> 00:05:31,480 Speaker 1: have already turned around. I mean, oil, although it's off 92 00:05:31,520 --> 00:05:34,839 Speaker 1: from its highs, is up from twenty eight dollars a barrel. 93 00:05:35,360 --> 00:05:38,760 Speaker 1: So if you simply assume that oil goes sideways from 94 00:05:38,800 --> 00:05:42,839 Speaker 1: here the year on, your comparisons for oil and other 95 00:05:42,880 --> 00:05:47,480 Speaker 1: commodities are gonna be a huge double digit numbers, which 96 00:05:47,520 --> 00:05:52,359 Speaker 1: will push up the the existing pressures. We're seeing in 97 00:05:52,480 --> 00:05:55,680 Speaker 1: services inflation, and at the core level. When you look 98 00:05:55,720 --> 00:05:59,120 Speaker 1: at the core level and you drill into the services 99 00:05:59,200 --> 00:06:02,080 Speaker 1: part of that, which is three quarters of what people 100 00:06:02,120 --> 00:06:05,320 Speaker 1: spend their money on, UNTI already got a three handle. 101 00:06:05,360 --> 00:06:08,320 Speaker 1: In other words, it's above three percent and has been 102 00:06:08,360 --> 00:06:11,080 Speaker 1: there for several months. So all I'm saying is that 103 00:06:11,120 --> 00:06:14,839 Speaker 1: if oil simply stays where it is in dollar terms, um, 104 00:06:15,000 --> 00:06:17,919 Speaker 1: you're going to see prints on inflation this coming winter 105 00:06:18,440 --> 00:06:21,960 Speaker 1: that are just gonna shock everyone, um and and and 106 00:06:21,960 --> 00:06:26,200 Speaker 1: and raise fears of of of of the stagflation environment 107 00:06:26,240 --> 00:06:30,560 Speaker 1: truly coming back. Now, when you think about inflation or 108 00:06:30,560 --> 00:06:33,960 Speaker 1: an acceleration of the inflation rate, is it important to 109 00:06:34,680 --> 00:06:39,359 Speaker 1: recognize that things don't necessarily have to move in a 110 00:06:39,480 --> 00:06:45,880 Speaker 1: gradual way. They can lurch from one percentage point increase 111 00:06:46,000 --> 00:06:48,360 Speaker 1: to another one. In other words, it doesn't have to 112 00:06:48,400 --> 00:06:50,839 Speaker 1: be a gradual increase. You can wake up and get 113 00:06:51,080 --> 00:06:54,600 Speaker 1: a print on inflation that sends you scurrying for cover. 114 00:06:55,400 --> 00:06:58,200 Speaker 1: That's what I think exactly is going to happen between 115 00:06:58,240 --> 00:07:02,320 Speaker 1: the fall and and spring, uh follow two thousand and sixteen, 116 00:07:02,400 --> 00:07:06,400 Speaker 1: the spring of two thousand seventeen, Because we we as 117 00:07:06,480 --> 00:07:10,040 Speaker 1: I said, we've already had this move, this recovery move 118 00:07:10,120 --> 00:07:12,280 Speaker 1: in oil, and not just oil. If you look at 119 00:07:12,280 --> 00:07:15,400 Speaker 1: the Journal of Commerce Index, it's a very strongly a 120 00:07:15,440 --> 00:07:19,080 Speaker 1: broad range of hard commodities have been have been rising 121 00:07:19,120 --> 00:07:22,560 Speaker 1: in price, and they'll probably continue to rise. But if 122 00:07:22,600 --> 00:07:25,920 Speaker 1: they don't, if they just go sideways from here and 123 00:07:26,040 --> 00:07:30,080 Speaker 1: service inflation at the core level continues to run in 124 00:07:30,200 --> 00:07:34,280 Speaker 1: excess of three percent year on year when you reach 125 00:07:34,360 --> 00:07:36,800 Speaker 1: those as they would say, when you're talking about earnings, 126 00:07:37,400 --> 00:07:41,480 Speaker 1: you would talk about easy comparisons, right, and and in 127 00:07:41,480 --> 00:07:45,520 Speaker 1: a sense, the CPI is going to have easy comparisons, 128 00:07:45,960 --> 00:07:49,560 Speaker 1: uh when you get into November, December and January, because 129 00:07:49,600 --> 00:07:54,400 Speaker 1: that's when oil and other commodities made this huge bottom. Uh. 130 00:07:54,440 --> 00:07:56,000 Speaker 1: And so I think you're gonna be looking at three 131 00:07:56,040 --> 00:07:59,200 Speaker 1: to four percent prints on on the c p I 132 00:07:59,800 --> 00:08:02,600 Speaker 1: UH by the winter of next year. All right, if 133 00:08:02,680 --> 00:08:06,800 Speaker 1: that does indeed come to pass, what would you recommend 134 00:08:06,840 --> 00:08:10,360 Speaker 1: to clients For people that have money, what should they 135 00:08:10,360 --> 00:08:12,760 Speaker 1: do with that money in either to benefit or to 136 00:08:12,800 --> 00:08:17,640 Speaker 1: forestall any catastrophe that might might hit them. Yeah. Well, 137 00:08:17,960 --> 00:08:20,360 Speaker 1: one of the broader implications of what I've said and 138 00:08:20,680 --> 00:08:23,920 Speaker 1: what I believe is that the broad market is probably 139 00:08:23,960 --> 00:08:27,760 Speaker 1: going through a rolling over topping process. It's truly down. 140 00:08:27,760 --> 00:08:31,200 Speaker 1: The SMP, as as you guys have been reporting, have 141 00:08:31,360 --> 00:08:34,400 Speaker 1: made do highs, but the Stock Exchange Index in the 142 00:08:34,480 --> 00:08:36,960 Speaker 1: rustle and the rest of the world have have not, 143 00:08:37,679 --> 00:08:40,680 Speaker 1: uh and I don't think they will. And and so 144 00:08:41,679 --> 00:08:44,160 Speaker 1: the first level of breaking down the market into where 145 00:08:44,200 --> 00:08:46,760 Speaker 1: you put your money is you can divide the SMP 146 00:08:46,880 --> 00:08:50,280 Speaker 1: into value and growth, and there are some index of 147 00:08:50,679 --> 00:08:53,440 Speaker 1: for that, and there's et s people can play. And 148 00:08:53,480 --> 00:08:57,360 Speaker 1: I think that after seven or eight years of growth 149 00:08:57,640 --> 00:09:01,000 Speaker 1: outperforming value, which has been the case within the SMP, 150 00:09:01,760 --> 00:09:04,000 Speaker 1: what you're going to see in the next several years 151 00:09:04,160 --> 00:09:08,319 Speaker 1: is value outperforming growth. And that transition is a ready 152 00:09:08,400 --> 00:09:11,040 Speaker 1: underway if you look at the relative strength between those 153 00:09:11,040 --> 00:09:14,080 Speaker 1: two things, and in terms of sectors, I mean I 154 00:09:14,080 --> 00:09:18,200 Speaker 1: would I would think within value UM, I like energy 155 00:09:18,280 --> 00:09:21,800 Speaker 1: and basic materials UM and the industrial side of the 156 00:09:21,800 --> 00:09:25,400 Speaker 1: economy in general, and I'd be less attractive to healthcare 157 00:09:25,440 --> 00:09:29,959 Speaker 1: and and technology. We just spoke earlier today with Karen 158 00:09:30,040 --> 00:09:33,640 Speaker 1: Eubile Heart of Bloomberg Intelligence about the results from General 159 00:09:33,679 --> 00:09:38,959 Speaker 1: Electric and Honeywell. Industrial companies are challenged by not being 160 00:09:39,000 --> 00:09:43,120 Speaker 1: able to increase their sales around the world. Do you 161 00:09:43,160 --> 00:09:45,360 Speaker 1: feel that those are the kinds of companies that deserve 162 00:09:45,400 --> 00:09:50,800 Speaker 1: attention now, well, the global companies will will and and 163 00:09:50,840 --> 00:09:55,440 Speaker 1: the global global companies and companies American base that export 164 00:09:55,559 --> 00:09:59,959 Speaker 1: a lot I think will benefit actually from a continue 165 00:10:00,200 --> 00:10:03,319 Speaker 1: rolling over of the dollar. Everyone keeps talking about how 166 00:10:03,360 --> 00:10:05,600 Speaker 1: strong the dollar is, but the fact the matter is 167 00:10:06,200 --> 00:10:08,720 Speaker 1: the dollar has hit a peak towards the end of 168 00:10:08,800 --> 00:10:12,400 Speaker 1: last year or depending on what index or measurement you use, 169 00:10:12,559 --> 00:10:16,120 Speaker 1: early this year UM, and it hasn't made much progress 170 00:10:16,200 --> 00:10:18,120 Speaker 1: since now. It's perked up a little bit on the 171 00:10:18,360 --> 00:10:20,679 Speaker 1: after the Brexit vote, but I think it's in the 172 00:10:20,720 --> 00:10:25,839 Speaker 1: process of UH of going sideways to down and that 173 00:10:25,920 --> 00:10:31,040 Speaker 1: will actually even with soft unit sales around the world, UM, 174 00:10:31,080 --> 00:10:35,200 Speaker 1: that will boost the currency translation effect for these multinational 175 00:10:35,400 --> 00:10:39,880 Speaker 1: companies UM, which includes growth companies as well as as 176 00:10:39,880 --> 00:10:42,960 Speaker 1: a more value type industrials. But I think within the 177 00:10:43,000 --> 00:10:46,360 Speaker 1: industrials you're you're also going to get up UM an 178 00:10:46,400 --> 00:10:49,679 Speaker 1: improvement in pricing power and to pick up an export 179 00:10:50,360 --> 00:10:55,520 Speaker 1: UH sales. Thank you. Joe McLendon, founder, Chairman Maclendon Research 180 00:10:55,640 --> 00:11:03,040 Speaker 1: Partners and Katapa Capital Advisers. He's favoring energy, basic materials 181 00:11:03,080 --> 00:11:07,600 Speaker 1: and value stocks. This is taking stock. I'm pim Fox, 182 00:11:07,760 --> 00:11:11,640 Speaker 1: coming up the clothes on Wall Street. And this is Bloomberg.