1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg P M L 6 00:00:20,840 --> 00:00:33,599 Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. President 7 00:00:33,640 --> 00:00:36,200 Speaker 1: Donald Trump's saying that he's open to talks with North 8 00:00:36,320 --> 00:00:41,280 Speaker 1: Korea after Kim Jong n's regime tells South Korean envoys 9 00:00:41,360 --> 00:00:44,159 Speaker 1: that he is willing to consider giving up his nuclear weapons, 10 00:00:44,560 --> 00:00:48,479 Speaker 1: a potential breakthrough after months of threats from both leaders. 11 00:00:48,520 --> 00:00:51,120 Speaker 1: Here to help us understand the situation is Toby Harshaw, 12 00:00:51,159 --> 00:00:54,880 Speaker 1: Bloomberg view editor and expert with all things strategic and 13 00:00:55,160 --> 00:00:58,360 Speaker 1: geopolitical and military. Toby, thanks for being here with our 14 00:00:58,680 --> 00:01:00,760 Speaker 1: with in our eleven three oh studio. So what do 15 00:01:00,800 --> 00:01:03,160 Speaker 1: you make of this, uh, this report? I mean, is 16 00:01:03,240 --> 00:01:06,319 Speaker 1: this real progress or is it? And who is this problem? 17 00:01:07,680 --> 00:01:10,400 Speaker 1: He's got his feed up on the desk. It's over, Yeah, 18 00:01:10,600 --> 00:01:12,840 Speaker 1: it is not over. And Pim, you actually made a 19 00:01:12,959 --> 00:01:15,959 Speaker 1: very important distinction right there, which is that the North 20 00:01:16,000 --> 00:01:19,160 Speaker 1: has told South Korea that is open to these things, 21 00:01:19,280 --> 00:01:21,760 Speaker 1: or so the South Koreans tell us, when the North 22 00:01:21,840 --> 00:01:24,280 Speaker 1: Koreans tell us they're open to these things, then maybe 23 00:01:24,280 --> 00:01:27,399 Speaker 1: we'll start listening a little bit more openly. But we're 24 00:01:27,400 --> 00:01:29,640 Speaker 1: playing a game a telephone right here, and we don't 25 00:01:29,680 --> 00:01:32,280 Speaker 1: know what messages coming from the other side. We know 26 00:01:32,400 --> 00:01:35,280 Speaker 1: what messages coming from President Trump, which seems to be 27 00:01:35,319 --> 00:01:37,280 Speaker 1: that he wants to make sure that he gets in 28 00:01:37,319 --> 00:01:39,759 Speaker 1: the middle of this and gets to uh get some 29 00:01:39,880 --> 00:01:42,399 Speaker 1: credit for everything being resolved, or that's what it seems anyway, 30 00:01:42,400 --> 00:01:44,920 Speaker 1: for him coming out and saying, uh, you know, well, 31 00:01:44,959 --> 00:01:46,840 Speaker 1: you know, we're we're open to things, things seem to 32 00:01:46,880 --> 00:01:49,160 Speaker 1: be evolving. I think that you're going to get a 33 00:01:49,160 --> 00:01:51,720 Speaker 1: lot of people claiming credit from both sides, at least 34 00:01:51,760 --> 00:01:54,240 Speaker 1: until this whole thing falls apart. I think that the 35 00:01:54,280 --> 00:01:57,800 Speaker 1: Trump side will will claim that they're tougher sanctions, that 36 00:01:57,880 --> 00:02:01,320 Speaker 1: they're hard approach has brought the the North Koreans to 37 00:02:01,400 --> 00:02:04,880 Speaker 1: the table. And I think that a lot of people 38 00:02:05,120 --> 00:02:08,320 Speaker 1: on uh this side of the ocean who are opposed 39 00:02:08,320 --> 00:02:11,359 Speaker 1: to the Trump side will say that this shows that 40 00:02:11,400 --> 00:02:13,280 Speaker 1: the way to talk to deal with the North Koreans 41 00:02:13,400 --> 00:02:16,360 Speaker 1: is through talks not through threats, alright, So putting this 42 00:02:16,440 --> 00:02:19,280 Speaker 1: together though, this seems like a very positive move. I mean, 43 00:02:19,919 --> 00:02:23,680 Speaker 1: whatever you can speculate about the future, it's better that 44 00:02:23,760 --> 00:02:28,359 Speaker 1: we're having this kind of conversation than other kinds of Oh. 45 00:02:28,400 --> 00:02:32,080 Speaker 1: Absolutely absolutely. As as Churchill is said to have said, 46 00:02:32,120 --> 00:02:34,400 Speaker 1: it is better to jaw jaw than to war war. 47 00:02:34,600 --> 00:02:38,399 Speaker 1: I think there is always UM a place for diplomacy, 48 00:02:38,400 --> 00:02:41,520 Speaker 1: and diplomacy is the next step in this UM. But 49 00:02:41,680 --> 00:02:44,480 Speaker 1: we've been here before. We've seen this movie. We saw 50 00:02:44,520 --> 00:02:47,799 Speaker 1: it under President Clinton when the US was actually willing 51 00:02:47,840 --> 00:02:51,760 Speaker 1: to give similar security guarantees. UM. In writing to the 52 00:02:51,800 --> 00:02:55,800 Speaker 1: North Koreans, UM, we've you know, this is sort of 53 00:02:55,840 --> 00:02:58,840 Speaker 1: the game that the North has played UM back and forth, 54 00:02:58,880 --> 00:03:00,840 Speaker 1: and a lot of times it's just seem that they 55 00:03:00,840 --> 00:03:04,200 Speaker 1: are stalling to advance their nuclear program. Toby, one thing 56 00:03:04,240 --> 00:03:07,120 Speaker 1: that I'm confused by is who's driving the bus with 57 00:03:07,160 --> 00:03:10,920 Speaker 1: diplomacy efforts. Is its South Korea? Now? Uh, where is 58 00:03:11,080 --> 00:03:14,880 Speaker 1: China in this, especially as uh, you know, the tariff 59 00:03:14,919 --> 00:03:18,000 Speaker 1: talk and potential trade wars heat up between the US 60 00:03:18,080 --> 00:03:21,480 Speaker 1: and China. The South Koreans maybe driving the bus, but 61 00:03:21,560 --> 00:03:25,720 Speaker 1: the Chinese own it. UM. There is no question that 62 00:03:25,960 --> 00:03:28,880 Speaker 1: nothing is going to get done UM without the Chinese 63 00:03:28,919 --> 00:03:33,000 Speaker 1: on board. They are responsible for nine of North Korea's 64 00:03:33,080 --> 00:03:36,520 Speaker 1: trade UM. They insist that they have cut off about 65 00:03:36,520 --> 00:03:40,280 Speaker 1: a third of that UM, although there's some speculation they 66 00:03:40,720 --> 00:03:43,040 Speaker 1: they have phrased that in a monetary value, so there's 67 00:03:43,040 --> 00:03:47,080 Speaker 1: some speculation that they're using exchange rates to sort of 68 00:03:47,200 --> 00:03:49,480 Speaker 1: monkey this and make it seem like they're getting less 69 00:03:49,520 --> 00:03:53,640 Speaker 1: fewer exports than they actually are UM. The question is 70 00:03:53,760 --> 00:03:57,080 Speaker 1: whether you can have bilateral talks between the US and 71 00:03:57,120 --> 00:04:00,560 Speaker 1: the North or trilateral talks between the US and the 72 00:04:00,600 --> 00:04:03,400 Speaker 1: North and the South. It doesn't matter unless the Chinese 73 00:04:03,440 --> 00:04:05,560 Speaker 1: are at the table, nothing real is going to happen. 74 00:04:05,680 --> 00:04:10,440 Speaker 1: And look what Kim is supposedly talking about. According to 75 00:04:10,480 --> 00:04:14,120 Speaker 1: the South Koreans is some sort of security guarantee and 76 00:04:14,200 --> 00:04:17,560 Speaker 1: in the end their security will be guaranteed by China. 77 00:04:17,960 --> 00:04:21,080 Speaker 1: Toby to just move you slightly off what's going on 78 00:04:21,120 --> 00:04:24,640 Speaker 1: in the Korea Peninsula. North Korea has been linked to 79 00:04:24,720 --> 00:04:31,680 Speaker 1: supplying Syria with the uh material and the services of 80 00:04:31,800 --> 00:04:35,440 Speaker 1: producing chemical weapons. This is according to United Nations Security 81 00:04:35,440 --> 00:04:41,040 Speaker 1: Council diplomat is that at all relevant to the stance 82 00:04:41,080 --> 00:04:45,000 Speaker 1: that the United States has taken against North Korea. UM, 83 00:04:45,279 --> 00:04:48,000 Speaker 1: not immediately, I would say, we don't actually know when 84 00:04:48,040 --> 00:04:52,080 Speaker 1: these chemical weapons may have come from from North Korea. UM. 85 00:04:52,120 --> 00:04:55,960 Speaker 1: It's pretty clear that in eastern Guta, Uh, the Assad 86 00:04:56,000 --> 00:05:01,279 Speaker 1: administration has used chemical weapons against civilians, chlorine gas being 87 00:05:01,800 --> 00:05:05,360 Speaker 1: what we suspect or what the traces have shown. UM. Yes, 88 00:05:05,480 --> 00:05:08,000 Speaker 1: we have accused the North Koreans of being responsible for 89 00:05:08,240 --> 00:05:11,400 Speaker 1: chlorine and you know other nerve agents that have ended 90 00:05:11,480 --> 00:05:14,599 Speaker 1: up in Syria. We know that they export them. UM. 91 00:05:14,920 --> 00:05:18,680 Speaker 1: I don't think it bears an immediate connection between the two, 92 00:05:18,720 --> 00:05:20,839 Speaker 1: simply because we don't know how long it's been there. Okay. 93 00:05:20,880 --> 00:05:23,800 Speaker 1: The reason I bring this up is because while we're 94 00:05:23,920 --> 00:05:27,680 Speaker 1: discussing the potential for North Korea to change its stance 95 00:05:27,920 --> 00:05:32,479 Speaker 1: on its nuclear weapons program, this is something that is 96 00:05:32,600 --> 00:05:39,520 Speaker 1: actually happening and is a horrible situation in in Syria. 97 00:05:39,839 --> 00:05:43,560 Speaker 1: What makes anybody think that if you can't solve that, that 98 00:05:42,960 --> 00:05:47,159 Speaker 1: that you're going to solve this hypothetical i' do with 99 00:05:47,240 --> 00:05:53,479 Speaker 1: nuclear weapons. UM, that's a tough question. I as I said, 100 00:05:53,520 --> 00:05:55,320 Speaker 1: I don't think I would I would tie them to 101 00:05:55,640 --> 00:05:58,880 Speaker 1: too closely together. Syria is a situation of its own 102 00:05:58,920 --> 00:06:01,040 Speaker 1: that looks hopeless at them moment. There may be some 103 00:06:01,120 --> 00:06:04,120 Speaker 1: sort of international break through, UM. But in that the 104 00:06:04,200 --> 00:06:06,839 Speaker 1: Russians are just as important as the Chinese are to 105 00:06:06,920 --> 00:06:10,600 Speaker 1: North Korea well so. But one thing that it does 106 00:06:11,080 --> 00:06:13,880 Speaker 1: raise the issue about is North Korea as a regime 107 00:06:13,960 --> 00:06:16,560 Speaker 1: and how it is viewed around the world. And one 108 00:06:16,600 --> 00:06:18,919 Speaker 1: of the sort of preconditions that South Korea said that 109 00:06:18,960 --> 00:06:21,680 Speaker 1: North Korea said that it wanted talking about the Game 110 00:06:21,720 --> 00:06:25,680 Speaker 1: of Telephone was for security guarantees at the North Korean 111 00:06:25,720 --> 00:06:30,120 Speaker 1: regime would not be attacked or that it would remain present. 112 00:06:30,920 --> 00:06:35,080 Speaker 1: How amenable might the US be to that precondition to 113 00:06:35,520 --> 00:06:39,120 Speaker 1: keeping two Korea's I think the US is fine with that, UM. 114 00:06:39,160 --> 00:06:41,640 Speaker 1: I think the US what wants to isolate the threat 115 00:06:42,000 --> 00:06:44,760 Speaker 1: of the I, C, B M, the threat of North 116 00:06:44,839 --> 00:06:46,680 Speaker 1: Korean nukes, and we'd be able to go a long 117 00:06:46,720 --> 00:06:49,360 Speaker 1: way toward that. Another thing that they would like is 118 00:06:49,400 --> 00:06:52,280 Speaker 1: the U S forces removed from South Korea from the 119 00:06:52,400 --> 00:06:54,800 Speaker 1: d m Z. I would put that on the table 120 00:06:54,960 --> 00:06:57,000 Speaker 1: if I were the US. What I would not put 121 00:06:57,000 --> 00:07:00,440 Speaker 1: on the table, UM is the the inner actions and 122 00:07:00,520 --> 00:07:04,000 Speaker 1: exercises between the US and South Korea, which are far 123 00:07:04,120 --> 00:07:09,359 Speaker 1: more important to regional security, particularly against rising China. UM. 124 00:07:09,680 --> 00:07:11,920 Speaker 1: The sea is a very hard place. We lost to 125 00:07:12,080 --> 00:07:15,280 Speaker 1: destroyers last year through accidents. That kind of stuff happens. 126 00:07:15,520 --> 00:07:19,400 Speaker 1: You need to have exercises between our navy and the 127 00:07:19,440 --> 00:07:22,320 Speaker 1: North Korean Navy and the Japanese navy and anyone else 128 00:07:22,320 --> 00:07:24,320 Speaker 1: and in the Pacific. Who wants to do that? And 129 00:07:24,360 --> 00:07:27,760 Speaker 1: that's maybe more about China than it is about North Korea, 130 00:07:28,000 --> 00:07:31,080 Speaker 1: although it's important for you know, blockading North Korea. If 131 00:07:31,120 --> 00:07:33,280 Speaker 1: we want to get to that point, that should be 132 00:07:33,280 --> 00:07:36,000 Speaker 1: non negotiable for the US. Well, a lot going on. 133 00:07:36,160 --> 00:07:38,800 Speaker 1: We really appreciate you taking the time, Toby Harshaw. I'm 134 00:07:38,840 --> 00:07:41,240 Speaker 1: sure you'll go be going off and writing about why, 135 00:07:41,360 --> 00:07:43,840 Speaker 1: you know, before you pop the champagne and are convinced 136 00:07:43,840 --> 00:07:46,280 Speaker 1: that there is no nuclear threat threat anymore. Hey, in 137 00:07:46,320 --> 00:07:49,080 Speaker 1: our lifetime, do you think that there will be? I 138 00:07:49,120 --> 00:07:52,040 Speaker 1: think so. I think the north that North Korea is 139 00:07:52,040 --> 00:07:56,520 Speaker 1: is you know, UM, it has too many internal contradictions. 140 00:07:56,560 --> 00:07:59,640 Speaker 1: It's not gonna last, but it's a long term project. Well, 141 00:07:59,760 --> 00:08:02,880 Speaker 1: an out of optimism on this Tuesday, Toby Harshaw, editor 142 00:08:03,000 --> 00:08:05,240 Speaker 1: at Bloomberg View in New York, joining us here in 143 00:08:05,240 --> 00:08:21,320 Speaker 1: our eleven three oh studios. Ray Dalio, co founder of Bridgewater, 144 00:08:21,520 --> 00:08:25,480 Speaker 1: said in a LinkedIn post yesterday, that the tariff talk 145 00:08:25,840 --> 00:08:29,840 Speaker 1: was just that, mostly talk and is unlikely to come 146 00:08:30,000 --> 00:08:34,000 Speaker 1: to reality. Here to discuss what the likelihood is and 147 00:08:34,000 --> 00:08:36,480 Speaker 1: and sort of what we're seeing with respect to this 148 00:08:36,559 --> 00:08:39,360 Speaker 1: discussion and what it indicates for the broader economy is 149 00:08:39,400 --> 00:08:42,640 Speaker 1: Brendan Brown, chief economist and head of economic research at 150 00:08:42,679 --> 00:08:47,960 Speaker 1: Mitsubishi UFJ Securities, joining us from our studios in Washington, 151 00:08:48,040 --> 00:08:50,040 Speaker 1: d C. Brandon, can you just give us a sense 152 00:08:50,240 --> 00:08:53,280 Speaker 1: how likely, given the back and forth, given Gary Cohene, 153 00:08:53,480 --> 00:08:56,240 Speaker 1: given Paul Ryan, given what we're seeing today, how likely 154 00:08:56,360 --> 00:08:59,120 Speaker 1: is it that the tariffs that President Trump have been 155 00:08:59,120 --> 00:09:02,640 Speaker 1: talking about will come to pass? It seems quite lightly 156 00:09:02,720 --> 00:09:05,240 Speaker 1: they will come to pass. But one has to also 157 00:09:05,320 --> 00:09:09,800 Speaker 1: say that it affects a very small part of the 158 00:09:09,920 --> 00:09:14,160 Speaker 1: overall trade picture, and the much bigger question as regards 159 00:09:14,280 --> 00:09:19,040 Speaker 1: US trade and unfair competition is to do with currency manipulation. 160 00:09:19,760 --> 00:09:22,960 Speaker 1: And I think that's why you're seeing this background dollar weakness. 161 00:09:22,960 --> 00:09:25,040 Speaker 1: But there is a suspicion there in the markets for 162 00:09:25,240 --> 00:09:28,000 Speaker 1: all of us talk about trade ultimately is going to 163 00:09:28,040 --> 00:09:32,680 Speaker 1: percolate through two more dollar depreciation. Explain that a little 164 00:09:32,679 --> 00:09:35,320 Speaker 1: bit more. When you talk about currency manipulation, what do 165 00:09:35,360 --> 00:09:39,320 Speaker 1: you think the goal is. Well, the currency manipulation is 166 00:09:39,760 --> 00:09:43,280 Speaker 1: being led at the moment by Japan and Europe. Japan 167 00:09:43,400 --> 00:09:47,240 Speaker 1: keeping a long term interest rate pegged zero, the ECB 168 00:09:47,679 --> 00:09:52,199 Speaker 1: keeping interest rates at negative levels. Those two actions keep 169 00:09:52,240 --> 00:09:55,800 Speaker 1: their currencies cheap against the dollar. There's no intimation as 170 00:09:55,880 --> 00:09:59,840 Speaker 1: yet fit the US administration is actually asking Japan or 171 00:10:00,000 --> 00:10:03,080 Speaker 1: Europe to abandon those policies. But for suspicion is that 172 00:10:03,760 --> 00:10:08,280 Speaker 1: the new FED chair pal, who apparently gets on well 173 00:10:08,400 --> 00:10:10,120 Speaker 1: or was chosen because he gets on well with the 174 00:10:10,160 --> 00:10:13,240 Speaker 1: Treasury Secretary and the Treasury Secretary once dollar depreciation or 175 00:10:13,280 --> 00:10:15,439 Speaker 1: a cheap dollar. But this is all going to feed 176 00:10:15,440 --> 00:10:20,719 Speaker 1: back to somewhat easier and otherwise monetary policy and dollar depreciation, 177 00:10:20,800 --> 00:10:24,640 Speaker 1: and that's being reflected I think in markets broadly. So, Brendan, 178 00:10:25,760 --> 00:10:27,160 Speaker 1: do you think that it's possible that we're going to 179 00:10:27,240 --> 00:10:30,280 Speaker 1: see a currency war? I mean, forget, uh, forget a 180 00:10:30,320 --> 00:10:31,920 Speaker 1: trade war. Are we're going to see some kind of 181 00:10:32,000 --> 00:10:35,200 Speaker 1: race to the bottom here? Well, the history of the 182 00:10:35,320 --> 00:10:38,120 Speaker 1: last few years since the crash of two thousand and 183 00:10:38,160 --> 00:10:41,000 Speaker 1: eight has been perpetual currency war. It started off with 184 00:10:41,160 --> 00:10:45,600 Speaker 1: US currency warfare, and and and then of course Japan 185 00:10:45,679 --> 00:10:49,560 Speaker 1: and Europe and China have retaliated in various ways. But 186 00:10:49,640 --> 00:10:54,640 Speaker 1: I do think for the trade UM conflict is going 187 00:10:54,679 --> 00:11:01,719 Speaker 1: to manifest manifest itself in continued and probably intensified currency warfare. Well, 188 00:11:01,760 --> 00:11:04,400 Speaker 1: if that's the case, then what do you believe investors 189 00:11:04,440 --> 00:11:08,200 Speaker 1: ought to do to protect themselves or to profit from it? Well, 190 00:11:08,400 --> 00:11:11,920 Speaker 1: gold of course rises in this environment because if if 191 00:11:11,960 --> 00:11:15,760 Speaker 1: everyone's racing to the bottom, as you say, keeping interest 192 00:11:15,880 --> 00:11:19,839 Speaker 1: rates artificially low worth trying to keep their currencies cheap, 193 00:11:20,240 --> 00:11:25,440 Speaker 1: the beneficiary of that is clearly gold UM. So that's 194 00:11:25,480 --> 00:11:31,440 Speaker 1: one aspect the the equity markets clearly like a general 195 00:11:31,679 --> 00:11:38,440 Speaker 1: monetary ease story as part of this trade background UM. 196 00:11:38,520 --> 00:11:42,800 Speaker 1: But the downside of that is that the the you 197 00:11:42,800 --> 00:11:45,880 Speaker 1: can get mini crashes or worse, such as one had 198 00:11:45,960 --> 00:11:49,280 Speaker 1: in in early February, so you foresee more of those 199 00:11:49,360 --> 00:11:53,000 Speaker 1: kinds of virtal days. Well, my focus is is really 200 00:11:53,080 --> 00:11:56,760 Speaker 1: on the credit markets for the biggest and the most 201 00:11:56,760 --> 00:11:59,920 Speaker 1: worrying aspect of this prolonged asset inflation due to the 202 00:12:00,280 --> 00:12:05,840 Speaker 1: monetary stance is for credit markets and UM, the Italian 203 00:12:05,880 --> 00:12:11,640 Speaker 1: elections at the weekend really highlight that risk. But you've 204 00:12:11,640 --> 00:12:14,240 Speaker 1: got a two point eight seven percent tenure right now 205 00:12:14,240 --> 00:12:17,120 Speaker 1: on the US Treasury. Where do you see that going? 206 00:12:17,320 --> 00:12:22,040 Speaker 1: If we get that kind of volatility you describe, well, 207 00:12:22,080 --> 00:12:27,840 Speaker 1: a ten yuere is going to continue to reflect the 208 00:12:28,440 --> 00:12:33,120 Speaker 1: some background risk aversion, so that we know that there's 209 00:12:33,760 --> 00:12:40,760 Speaker 1: potential increased volatility setbacks. So, however much the bond bears 210 00:12:41,160 --> 00:12:45,760 Speaker 1: talk about interest rates rising, in inflation rising, there is 211 00:12:45,800 --> 00:12:49,640 Speaker 1: a long a bid in the long run markets for safety. 212 00:12:49,800 --> 00:12:54,280 Speaker 1: So I I don't see these long yields rising a 213 00:12:54,320 --> 00:12:58,360 Speaker 1: long way. My focus is much more on the credit 214 00:12:58,400 --> 00:13:01,040 Speaker 1: spreads and what's going to happen to those. Uh So, 215 00:13:01,160 --> 00:13:03,680 Speaker 1: speaking about that, we just were talking about the CVS 216 00:13:03,720 --> 00:13:06,559 Speaker 1: deal that's coming that could prices soon as today, potentially 217 00:13:06,559 --> 00:13:09,880 Speaker 1: forty billion dollars of bonds. Do you think that yields 218 00:13:09,880 --> 00:13:13,240 Speaker 1: on investment grade corporate debt are going to go materially 219 00:13:13,280 --> 00:13:17,840 Speaker 1: higher from here between now and the end of the year. Yes. Um. 220 00:13:18,240 --> 00:13:23,200 Speaker 1: The the leverage in this cycle, um is very much 221 00:13:23,400 --> 00:13:26,280 Speaker 1: in the corporate debt markets and in the emerging market 222 00:13:26,400 --> 00:13:30,280 Speaker 1: debt markets and expanning corporate debts and and and those countries. 223 00:13:30,840 --> 00:13:34,040 Speaker 1: So so that's where the shakeout is going to be. 224 00:13:34,080 --> 00:13:38,640 Speaker 1: And given the increased volatility, um we know that in principal, 225 00:13:38,880 --> 00:13:43,920 Speaker 1: corporate debt and risky debt is priced off volatility and 226 00:13:45,040 --> 00:13:49,360 Speaker 1: the price of priced off options and and those are 227 00:13:49,400 --> 00:13:52,240 Speaker 1: all affected by the increased volatility. I want to thank 228 00:13:52,240 --> 00:13:54,000 Speaker 1: you very much for joining us. Brendan Brown is the 229 00:13:54,080 --> 00:13:57,000 Speaker 1: chief economist and the head of economic research at Mitsubishi 230 00:13:57,320 --> 00:14:01,000 Speaker 1: u f J Securities, giving us his thoughts on the 231 00:14:01,000 --> 00:14:05,120 Speaker 1: current economic outlook and the tight rope that Federal Reserve 232 00:14:05,400 --> 00:14:23,960 Speaker 1: Charon J. Powell has to walk. Yesterday, news came out 233 00:14:24,000 --> 00:14:27,280 Speaker 1: that Amazon dot Com is working with banks including JP 234 00:14:27,520 --> 00:14:32,040 Speaker 1: Morgan to provide checking like accounts to its customers. And 235 00:14:32,080 --> 00:14:34,400 Speaker 1: here to sort of put this in a context, explain 236 00:14:34,480 --> 00:14:37,320 Speaker 1: what this might mean and look forward to the future 237 00:14:37,560 --> 00:14:41,560 Speaker 1: of these types of alliances, is from Alawalia, chief executive 238 00:14:41,600 --> 00:14:44,920 Speaker 1: officer and co founder of pere i Q, based in 239 00:14:44,960 --> 00:14:47,160 Speaker 1: New York. Thank you so much for joining us from 240 00:14:47,280 --> 00:14:49,680 Speaker 1: what was your impression when you saw this news at 241 00:14:49,720 --> 00:14:52,920 Speaker 1: Amazon dot Com was teaming up with big Wall Street 242 00:14:53,000 --> 00:14:58,239 Speaker 1: banks to act more bank like Well, it's a significant announcement. 243 00:14:58,520 --> 00:15:02,080 Speaker 1: The financial services sector just had its Amazon moment, and 244 00:15:02,120 --> 00:15:04,000 Speaker 1: if you look at it from Amazon's point of view, 245 00:15:04,240 --> 00:15:07,920 Speaker 1: the financing and payments of retail transactions is a logical 246 00:15:07,960 --> 00:15:10,880 Speaker 1: next step for their business as I sit and look 247 00:15:10,960 --> 00:15:14,880 Speaker 1: for additional profit pools. There's also a strong financial motivation 248 00:15:14,960 --> 00:15:18,680 Speaker 1: for for Amazon. Today, Amazon spends about two and fifty 249 00:15:18,680 --> 00:15:22,480 Speaker 1: million dollars in interchange fees about two percent per transaction 250 00:15:23,040 --> 00:15:27,200 Speaker 1: to visa master card and issuing banks with an Amazon 251 00:15:27,280 --> 00:15:30,600 Speaker 1: checking account, Amazon can avoid all those fees, and if 252 00:15:30,640 --> 00:15:35,400 Speaker 1: Amazon converts their customers to this deposit account, that can 253 00:15:35,480 --> 00:15:37,760 Speaker 1: drop fifty million dollars at the bottom line, which has 254 00:15:37,800 --> 00:15:42,320 Speaker 1: a significant market kept impact. From a bank perspective, it's 255 00:15:42,320 --> 00:15:47,480 Speaker 1: it's very significant news. The banks today are struggling to differentiate. 256 00:15:47,760 --> 00:15:52,360 Speaker 1: Bank branches are consolidating as you have customers prefer an online, mobile, 257 00:15:53,240 --> 00:15:57,120 Speaker 1: personal experience. And if you look at the customers segment 258 00:15:57,200 --> 00:16:00,960 Speaker 1: that Amazon is targeting, the younger generation on bank populations, 259 00:16:01,480 --> 00:16:04,160 Speaker 1: these are segments that are notoriously low in terms of 260 00:16:04,160 --> 00:16:08,920 Speaker 1: fee revenue and profitability for banks. So Amazon's targeted inappropriate 261 00:16:08,960 --> 00:16:12,520 Speaker 1: segment where it'll be difficult for banks to compete. That said, 262 00:16:12,840 --> 00:16:16,240 Speaker 1: Amazon needs to partner with banks because there's no clear 263 00:16:16,400 --> 00:16:20,960 Speaker 1: regulatory framework for Amazon as a commerce company to act 264 00:16:20,960 --> 00:16:22,920 Speaker 1: and compete as a national bank, and so that's why 265 00:16:22,880 --> 00:16:25,880 Speaker 1: they reporting has discussed the idea of a partnership potentially 266 00:16:25,880 --> 00:16:29,120 Speaker 1: with JP Morgan rum. Does this have any implications for 267 00:16:29,320 --> 00:16:34,040 Speaker 1: third party merchants that sell through Amazon and the fees 268 00:16:34,120 --> 00:16:39,280 Speaker 1: that are typically charged by whether it's Visa, MasterCard, American Express, 269 00:16:39,320 --> 00:16:46,360 Speaker 1: those fees that card companies you know, take from the merchants. Yeah, 270 00:16:46,560 --> 00:16:50,320 Speaker 1: it can be an opportunity for Amazon to um number one, 271 00:16:50,360 --> 00:16:53,760 Speaker 1: avoid interchange economics to some of the companies you site 272 00:16:53,760 --> 00:16:57,840 Speaker 1: in the network charges there for the merchants on their platform. 273 00:16:57,920 --> 00:17:01,480 Speaker 1: You know. Today Amazon provides financing merchants that sell online 274 00:17:02,120 --> 00:17:06,360 Speaker 1: and potentially Amazon longer term could could look to defray 275 00:17:06,440 --> 00:17:09,879 Speaker 1: the the economic transaction costs at the merchants pay, but 276 00:17:09,960 --> 00:17:14,560 Speaker 1: that's not contemplated in this announcement. So in order to 277 00:17:14,720 --> 00:17:19,880 Speaker 1: get clients to move to an Amazon dot Com sponsored 278 00:17:19,960 --> 00:17:23,040 Speaker 1: checking account with the banks, are they going to offer 279 00:17:23,119 --> 00:17:26,560 Speaker 1: some enticement do you think to customers? And what would 280 00:17:26,600 --> 00:17:30,440 Speaker 1: be the financials between the bank and Amazon dot Com, 281 00:17:30,680 --> 00:17:34,000 Speaker 1: which really loves having access to all the data that 282 00:17:34,119 --> 00:17:38,879 Speaker 1: it's clients exact exactly, No, I would imagine that you 283 00:17:39,000 --> 00:17:42,600 Speaker 1: see some type of rewards value proposition. Amazon recently announced 284 00:17:43,160 --> 00:17:45,639 Speaker 1: a new credit card in partnership with a bank that 285 00:17:45,680 --> 00:17:48,840 Speaker 1: offers discounts when you purchase that whole foods or online 286 00:17:49,000 --> 00:17:53,359 Speaker 1: or at restaurants. With the two savings on the avoidance 287 00:17:53,359 --> 00:17:56,520 Speaker 1: of interchange fees, Amazon can redirect a portion of that 288 00:17:57,160 --> 00:18:00,679 Speaker 1: UH to defray the costs of purchasing online or some 289 00:18:00,880 --> 00:18:05,080 Speaker 1: other type of bonus. In terms of the relationship between 290 00:18:05,160 --> 00:18:08,959 Speaker 1: Amazon and a bank, usually these are co brand relationships, 291 00:18:08,960 --> 00:18:11,679 Speaker 1: and co brand relationships have been around for four decades 292 00:18:11,720 --> 00:18:14,000 Speaker 1: an how right. For example, Chase has a United Knowledge 293 00:18:14,080 --> 00:18:18,440 Speaker 1: Plus card, where United provides the marketing, Chase provides the servicing, 294 00:18:18,920 --> 00:18:22,840 Speaker 1: the legal framework, the balance sheet capacity, and the risk management. 295 00:18:23,200 --> 00:18:25,440 Speaker 1: So I think a similar type of model will take 296 00:18:25,480 --> 00:18:29,520 Speaker 1: place here, where Amazon will provide the customer access access 297 00:18:29,520 --> 00:18:33,320 Speaker 1: to the data for underwriting UH, and then a bank 298 00:18:33,359 --> 00:18:36,200 Speaker 1: on the back end we'll we'll service those customers. So 299 00:18:36,359 --> 00:18:38,840 Speaker 1: at a certain point, I guess that this raises the 300 00:18:38,920 --> 00:18:42,960 Speaker 1: big hundred million dollar question here, a hundred billion dollar 301 00:18:43,040 --> 00:18:47,679 Speaker 1: questions potentially, which is UH is Amazon dot Com dipping 302 00:18:47,720 --> 00:18:51,440 Speaker 1: its toe into this with the idea of always partnering 303 00:18:51,520 --> 00:18:56,119 Speaker 1: with Wall Street or becoming a direct rival to Wall Street. 304 00:18:57,440 --> 00:19:00,520 Speaker 1: I would say Amazon is is learning from this experience. 305 00:19:00,600 --> 00:19:03,440 Speaker 1: Number one is they don't have the regulatory framework to 306 00:19:03,520 --> 00:19:06,479 Speaker 1: take on the bank's head to head. Today, there's been 307 00:19:06,520 --> 00:19:09,520 Speaker 1: discussion of a fintech charter that could be awarded by 308 00:19:09,560 --> 00:19:12,240 Speaker 1: the Office of the Control of the Currency that would 309 00:19:12,280 --> 00:19:16,000 Speaker 1: give Amazon and other fintech companies the opportunity to compete 310 00:19:16,359 --> 00:19:21,000 Speaker 1: on a national basis with the banks. Today, that regulatory 311 00:19:21,119 --> 00:19:24,679 Speaker 1: swim ling doesn't exist, so Amazon really does have to 312 00:19:24,760 --> 00:19:28,560 Speaker 1: partner with a bank. However, you know there are precedents 313 00:19:28,560 --> 00:19:30,760 Speaker 1: out there. If you look internationally in the China market, 314 00:19:31,200 --> 00:19:35,040 Speaker 1: there are large technology companies such as and Financial Intent 315 00:19:35,160 --> 00:19:38,440 Speaker 1: Scent which have banking charters, and that certainly has inspired 316 00:19:38,520 --> 00:19:42,240 Speaker 1: Amazon and Amazon's competitors to go after this opportunity. So 317 00:19:42,240 --> 00:19:46,280 Speaker 1: I think Amazon will learn from their experience as they 318 00:19:46,320 --> 00:19:48,439 Speaker 1: develop these new products, both on how do you acquire 319 00:19:48,480 --> 00:19:50,640 Speaker 1: the customers, how do you underwrite the customers, which data 320 00:19:50,720 --> 00:19:55,080 Speaker 1: is relevant? UH, and then as that regulatory framework evolves, 321 00:19:55,520 --> 00:19:57,840 Speaker 1: I think you would see Amazon UH and to more 322 00:19:57,880 --> 00:20:00,359 Speaker 1: deeply into lending, constumer banking more gener really and the 323 00:20:00,440 --> 00:20:03,840 Speaker 1: other opportunities run asset management insurance. Well, I wanted to 324 00:20:03,880 --> 00:20:06,320 Speaker 1: just quickly offer you the chance with pere i q, 325 00:20:06,560 --> 00:20:09,399 Speaker 1: which is your company. Is it possible that a company 326 00:20:09,440 --> 00:20:12,680 Speaker 1: like Amazon would partner with you in order to provide 327 00:20:12,720 --> 00:20:15,520 Speaker 1: that conduit to the businesses that are looking for those 328 00:20:15,560 --> 00:20:20,480 Speaker 1: alternative forms of credit. So pure i q provides the 329 00:20:20,560 --> 00:20:23,600 Speaker 1: data and risk management analytics for owners and providers of 330 00:20:23,680 --> 00:20:26,080 Speaker 1: financing for consumer credit risk. So we're able to help 331 00:20:26,680 --> 00:20:29,960 Speaker 1: Amazon and banks to understand the health of the US 332 00:20:30,040 --> 00:20:32,240 Speaker 1: consumer and understand where we are in the business cycle, 333 00:20:32,320 --> 00:20:35,480 Speaker 1: makes better risk and lending decisions. I want to thank 334 00:20:35,520 --> 00:20:37,840 Speaker 1: you very much for being with us. Rum Ada Walia 335 00:20:37,920 --> 00:20:40,280 Speaker 1: he is the chief executive and the co founder of 336 00:20:40,640 --> 00:20:43,360 Speaker 1: peer i q, giving us his thoughts on what's going 337 00:20:43,400 --> 00:20:45,879 Speaker 1: on with Amazon and the possibility that maybe you'll have 338 00:20:45,920 --> 00:20:49,000 Speaker 1: a checking account and it will be from Amazon, maybe 339 00:20:49,000 --> 00:20:53,000 Speaker 1: with a two fee reduction for Amazon. This is such 340 00:20:53,040 --> 00:20:56,640 Speaker 1: a fascinating issue because every other area that Amazon has 341 00:20:56,680 --> 00:21:00,240 Speaker 1: gotten into, there's the Amazon effect where shares in that 342 00:21:00,359 --> 00:21:04,199 Speaker 1: industry just plummet, and you're not necessarily seeing that in 343 00:21:04,680 --> 00:21:07,560 Speaker 1: the in the banking sector. Well, because they've got the 344 00:21:07,560 --> 00:21:10,600 Speaker 1: partners the partnership with JP morgan Chase, because they've got 345 00:21:10,640 --> 00:21:13,240 Speaker 1: the partnership and they don't have the charter. Yeah, indeed, 346 00:21:13,320 --> 00:21:15,760 Speaker 1: and it may be too expensive and too owners to 347 00:21:15,760 --> 00:21:18,320 Speaker 1: get it yourself, so just rent it from JP morgan Chase. 348 00:21:33,000 --> 00:21:35,679 Speaker 1: Is a rally in stocks a time to sell? Well, 349 00:21:35,760 --> 00:21:37,720 Speaker 1: let's find out from David Kats. He is the chief 350 00:21:37,760 --> 00:21:41,320 Speaker 1: investment officer from Matrix Asset Advisors. He's got more than 351 00:21:41,359 --> 00:21:45,840 Speaker 1: seven million dollars of assets under management and he joins 352 00:21:45,920 --> 00:21:48,439 Speaker 1: us now, David, thanks very much for being with us. 353 00:21:48,480 --> 00:21:50,560 Speaker 1: Maybe just start off by doing the whole thing, you know, 354 00:21:50,720 --> 00:21:53,800 Speaker 1: by the dips, sell the rally. Is there any strategy 355 00:21:54,240 --> 00:21:57,439 Speaker 1: that is worth following that is along those lines, Well, 356 00:21:57,440 --> 00:22:00,199 Speaker 1: we think that is going to be the watch for 357 00:22:00,240 --> 00:22:03,959 Speaker 1: two thousand and eighteen. We think that ultimately the market 358 00:22:04,040 --> 00:22:07,320 Speaker 1: probably is up in the high single digits, low double 359 00:22:07,359 --> 00:22:10,879 Speaker 1: digits area, And the time to get more optimistic about 360 00:22:10,920 --> 00:22:13,520 Speaker 1: stock is after selloffs like we've had over the last 361 00:22:13,520 --> 00:22:16,440 Speaker 1: few weeks. Uh, and the time to be less optimistic 362 00:22:16,480 --> 00:22:19,840 Speaker 1: and taking proferences after you've had a significant run to 363 00:22:19,920 --> 00:22:22,960 Speaker 1: the upside. It's important to point out that when the 364 00:22:23,000 --> 00:22:25,080 Speaker 1: stock market is selling off, there's a lot of doom 365 00:22:25,119 --> 00:22:27,080 Speaker 1: and gloom, so you've got to be prepared to buy 366 00:22:27,200 --> 00:22:30,200 Speaker 1: into that uncertainty. Uh. And the flip side is after 367 00:22:30,240 --> 00:22:32,160 Speaker 1: the market has had a great run like it did 368 00:22:32,200 --> 00:22:35,359 Speaker 1: in January, everything looks wonderful. Don't get caught up in 369 00:22:35,359 --> 00:22:41,520 Speaker 1: that enthusiasm. How often do you end up trading? Well, basically, 370 00:22:41,560 --> 00:22:44,840 Speaker 1: we were on portfolio, so we're looking at individual stocks, 371 00:22:44,840 --> 00:22:47,320 Speaker 1: and on that basis, you know, we're happy to take 372 00:22:47,359 --> 00:22:49,159 Speaker 1: profits if the stock has run up a lot, and 373 00:22:49,200 --> 00:22:52,000 Speaker 1: by the same token, we're happy to put money to 374 00:22:52,080 --> 00:22:55,560 Speaker 1: work into a decline if we've got cash on the sidelines. 375 00:22:55,760 --> 00:22:58,720 Speaker 1: So here here's the reason why I'm asking. Morning started 376 00:22:58,760 --> 00:23:01,640 Speaker 1: put out a survey the week saying that last year 377 00:23:02,520 --> 00:23:05,520 Speaker 1: of active managers beat their benchmarks and that was up 378 00:23:05,520 --> 00:23:11,200 Speaker 1: from in but still less than half. And I'm wondering, 379 00:23:11,520 --> 00:23:16,560 Speaker 1: you know, for an active manager, how do you add 380 00:23:16,600 --> 00:23:21,639 Speaker 1: that alpha? How frequently does it take trading, especially at 381 00:23:21,680 --> 00:23:23,960 Speaker 1: a time when there's a lot of volatility. Of volatility 382 00:23:23,960 --> 00:23:26,080 Speaker 1: in other words, it's hard to predict when things are 383 00:23:26,080 --> 00:23:31,639 Speaker 1: going to spike or rally. Great question. So we're long 384 00:23:31,840 --> 00:23:34,920 Speaker 1: term value investors. We have a large cap value product 385 00:23:34,920 --> 00:23:37,800 Speaker 1: and a dividend product. We're pretty low turnover anywhere from 386 00:23:37,800 --> 00:23:41,119 Speaker 1: the area of fifteen to twenty so we're not adding 387 00:23:41,119 --> 00:23:44,600 Speaker 1: our alpha by trading the market. We're hopefully adding our 388 00:23:44,640 --> 00:23:49,280 Speaker 1: alpha by buying good long term investments at attractive prices. 389 00:23:49,320 --> 00:23:52,680 Speaker 1: When we talk on your show on the margin, we're 390 00:23:52,680 --> 00:23:55,040 Speaker 1: talking about investors that have had cash on the sidelines 391 00:23:55,040 --> 00:23:57,640 Speaker 1: that they're talking about putting to work. We'd buy into 392 00:23:57,680 --> 00:24:00,159 Speaker 1: that dip. And by the same token, we work with 393 00:24:00,200 --> 00:24:03,040 Speaker 1: a lot of individual investors and they tend to get 394 00:24:03,080 --> 00:24:05,720 Speaker 1: a lot more enthusiastic about throwing money into the market 395 00:24:05,760 --> 00:24:08,800 Speaker 1: after a rally. To our best advices don't do that. 396 00:24:08,920 --> 00:24:12,399 Speaker 1: But from our perspective, long term investing by businesses you 397 00:24:12,520 --> 00:24:15,920 Speaker 1: like it, attractive prices, UH, and over time you'll do well. 398 00:24:16,000 --> 00:24:19,520 Speaker 1: The last few years have been pretty tough for value investors. UH. 399 00:24:19,720 --> 00:24:23,000 Speaker 1: Generally after periods like that, value comes back with a vengeance. 400 00:24:23,000 --> 00:24:25,679 Speaker 1: So while we've got a good long term record, we 401 00:24:25,800 --> 00:24:28,720 Speaker 1: definitely have struggled in the last few years. We think 402 00:24:28,760 --> 00:24:30,800 Speaker 1: that sets the stage for value to do a whole 403 00:24:30,800 --> 00:24:33,480 Speaker 1: heck of a lot better going forward. Companies that you 404 00:24:33,600 --> 00:24:37,680 Speaker 1: like tell us about Chubb, the insurance giant. So Chubb 405 00:24:37,760 --> 00:24:41,320 Speaker 1: is a a great long term business. UM. They've done 406 00:24:41,440 --> 00:24:43,800 Speaker 1: very well in terms of earnings. Uh. The thing that 407 00:24:43,960 --> 00:24:46,720 Speaker 1: makes us most enthusiastic about the company is on the 408 00:24:46,800 --> 00:24:50,199 Speaker 1: last conference called the CEO we think is probably the 409 00:24:50,240 --> 00:24:55,800 Speaker 1: best CEO in the insurance industry, said he's yes, uh 410 00:24:55,800 --> 00:25:00,040 Speaker 1: that that he's seeing the firmest pricing environment UH in 411 00:25:00,080 --> 00:25:03,200 Speaker 1: the insurance area that he's seen in a number of years. 412 00:25:03,520 --> 00:25:06,760 Speaker 1: That generally is the precursor for very good earnings performance 413 00:25:06,760 --> 00:25:09,280 Speaker 1: and very good stock price performance. So we think you're 414 00:25:09,320 --> 00:25:12,600 Speaker 1: getting some very good underlying trends at an attractive price. 415 00:25:12,840 --> 00:25:14,840 Speaker 1: All right, So that's Chubb. Take us through a couple 416 00:25:14,840 --> 00:25:16,440 Speaker 1: of other names that you're interested in. I want to 417 00:25:16,480 --> 00:25:19,120 Speaker 1: focus you right now on Gilliad Sciences. They were very 418 00:25:19,119 --> 00:25:24,320 Speaker 1: they're very big, and hepatitis and AIDS therapies. So Gilliad 419 00:25:24,400 --> 00:25:28,080 Speaker 1: is a great biotechnology company. It tells it a pretty 420 00:25:28,119 --> 00:25:32,680 Speaker 1: reasonable pe under twelve times earnings. They dominate the hepatitis field, 421 00:25:32,680 --> 00:25:35,560 Speaker 1: they dominate the HIV field. They've made some very good 422 00:25:35,600 --> 00:25:39,080 Speaker 1: investments in cancer research and products. So we think you're 423 00:25:39,080 --> 00:25:42,480 Speaker 1: getting a great long term business at a very attractive price, 424 00:25:42,520 --> 00:25:45,040 Speaker 1: and you're almost getting a three percent dividend yields while 425 00:25:45,080 --> 00:25:48,080 Speaker 1: we're waiting right now the stocks at about seventy nine, 426 00:25:48,160 --> 00:25:51,720 Speaker 1: we think easily it can be nine and ten over 427 00:25:51,720 --> 00:25:53,800 Speaker 1: the next one to two years, and you've got fairly 428 00:25:53,880 --> 00:25:57,080 Speaker 1: limited downside risk along the way. Is it relevant that 429 00:25:57,119 --> 00:25:58,760 Speaker 1: they have what a little bit more than eleven and 430 00:25:58,800 --> 00:26:01,080 Speaker 1: a half billion in cash on the I beg your 431 00:26:01,080 --> 00:26:04,560 Speaker 1: pardon more than that billion in cash. Absolutely. You know. 432 00:26:04,600 --> 00:26:06,240 Speaker 1: One of the things that attracts us to it is 433 00:26:06,280 --> 00:26:09,480 Speaker 1: that've got this great cash flow generation and a great 434 00:26:09,480 --> 00:26:11,639 Speaker 1: balance sheet. And that great balance sheet allows them to 435 00:26:11,680 --> 00:26:13,760 Speaker 1: do a few things. It allows them to pay a 436 00:26:13,840 --> 00:26:16,479 Speaker 1: very healthy dividend, and they've been raising that dividend at 437 00:26:16,480 --> 00:26:19,240 Speaker 1: a very rapid clip. And it also allows them to 438 00:26:19,280 --> 00:26:22,920 Speaker 1: make some smart acquisitions that ultimately fill their pipeline and 439 00:26:23,200 --> 00:26:25,480 Speaker 1: help earnings. If you look at Gillian over the left 440 00:26:25,760 --> 00:26:29,119 Speaker 1: five or six years, they've been great acquirers of business. 441 00:26:29,359 --> 00:26:32,800 Speaker 1: Their whole Hepatitis the franchise was made on an acquisition 442 00:26:33,400 --> 00:26:35,639 Speaker 1: that worked out to be great. We think their recent 443 00:26:35,680 --> 00:26:38,600 Speaker 1: acquisition and cancer research is going to work very well. 444 00:26:38,680 --> 00:26:42,200 Speaker 1: So season managers deployed the cast very nicely, and you're 445 00:26:42,240 --> 00:26:46,400 Speaker 1: getting that real cheap. David, Wells Fargo, this was one 446 00:26:46,400 --> 00:26:49,160 Speaker 1: of your picks which I find really interesting. Shares down 447 00:26:49,640 --> 00:26:52,920 Speaker 1: nearly six percent so far this year, continuing to fall 448 00:26:53,280 --> 00:26:57,000 Speaker 1: as the scandal just keeps on going. With respect to 449 00:26:57,040 --> 00:26:59,919 Speaker 1: how the company has been managed, what gives you convince 450 00:27:00,000 --> 00:27:05,200 Speaker 1: action that this bank is over sold and offers opportunity? Well, 451 00:27:05,320 --> 00:27:09,119 Speaker 1: we think Wells has a great footprint. The problems that 452 00:27:09,160 --> 00:27:11,520 Speaker 1: they've had in the last year are astounding. We we 453 00:27:11,680 --> 00:27:15,200 Speaker 1: absolutely can't believe that management allowed it to go on. 454 00:27:15,320 --> 00:27:19,200 Speaker 1: We can't believe that the board didn't take harsher actions. However, 455 00:27:19,600 --> 00:27:21,000 Speaker 1: we think a lot of that is in the rear 456 00:27:21,080 --> 00:27:23,360 Speaker 1: view mirror. You do have an overhang from the FED 457 00:27:23,440 --> 00:27:25,359 Speaker 1: this year in terms of slowing their growth, but it 458 00:27:25,400 --> 00:27:28,720 Speaker 1: really is only slowing their earnings growth by about UH 459 00:27:28,720 --> 00:27:32,399 Speaker 1: ten or fifteen cents. It's one of the cheaper financial 460 00:27:32,440 --> 00:27:36,040 Speaker 1: institutions out there, are paced, one of the higher dividend yields, 461 00:27:36,119 --> 00:27:39,280 Speaker 1: and longer term, it's got a great footprint. People will 462 00:27:39,440 --> 00:27:42,320 Speaker 1: use Wells Fargo as a bank. If you look at 463 00:27:42,359 --> 00:27:46,680 Speaker 1: some corporate scandals over the years, companies that managed well 464 00:27:46,960 --> 00:27:50,320 Speaker 1: can get over them. Toyota had their car problems a 465 00:27:50,400 --> 00:27:53,000 Speaker 1: year ago. A few years ago, again it's considered one 466 00:27:53,000 --> 00:27:55,920 Speaker 1: of the top automobile companies in the world. Johnson and 467 00:27:56,000 --> 00:27:58,480 Speaker 1: Johnson had some problems a few years ago. Again held 468 00:27:58,480 --> 00:28:01,639 Speaker 1: in very high regard. Three years ago, well Spargo was 469 00:28:01,680 --> 00:28:05,119 Speaker 1: thought to be the best financial institution in the country. 470 00:28:05,160 --> 00:28:08,280 Speaker 1: Obviously they they've lost that, but we do think two 471 00:28:08,320 --> 00:28:10,720 Speaker 1: years from now they're going to regain some of um 472 00:28:10,880 --> 00:28:13,879 Speaker 1: their standing and by the time people realize that the 473 00:28:13,880 --> 00:28:16,359 Speaker 1: stock will be about thirty to forty higher. So the 474 00:28:16,400 --> 00:28:19,760 Speaker 1: time to buy is during this period of uncertainty while 475 00:28:19,840 --> 00:28:22,159 Speaker 1: the company is still making a great deal of money. 476 00:28:22,640 --> 00:28:25,680 Speaker 1: David just quickly Johnson controls. How long are you willing 477 00:28:25,720 --> 00:28:29,400 Speaker 1: to wait before you throw in the towel on a stock? Well, 478 00:28:29,480 --> 00:28:31,520 Speaker 1: we've owned it for a few years, it's done well, 479 00:28:31,600 --> 00:28:33,840 Speaker 1: and then in the last eighteen months it's been miserable. 480 00:28:34,160 --> 00:28:37,400 Speaker 1: Are strong sense is that the new CEO is turning 481 00:28:37,440 --> 00:28:39,440 Speaker 1: the business around, and we think that you're going to 482 00:28:39,520 --> 00:28:42,720 Speaker 1: see progress within the next three to nine months. Uh So, 483 00:28:43,040 --> 00:28:45,320 Speaker 1: you know, we've given another twelve months, but we we 484 00:28:45,400 --> 00:28:48,360 Speaker 1: absolutely feel you're going to see progress in the upcoming year, 485 00:28:48,640 --> 00:28:50,520 Speaker 1: and the stocks at a great price In the meantime, 486 00:28:51,200 --> 00:28:53,680 Speaker 1: David Kats, thank you so much for joining us. David Katz, 487 00:28:53,920 --> 00:28:58,040 Speaker 1: chief investment Officer of Matrix Asset Advisors, which is based 488 00:28:58,120 --> 00:29:04,120 Speaker 1: in New York. Thanks for listening to the Bloomberg P 489 00:29:04,240 --> 00:29:07,200 Speaker 1: and L podcast. You can subscribe and listen to interviews 490 00:29:07,240 --> 00:29:11,280 Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 491 00:29:11,680 --> 00:29:15,280 Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm 492 00:29:15,280 --> 00:29:18,600 Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast. 493 00:29:18,640 --> 00:29:21,240 Speaker 1: You can always catch us worldwide on Bloomberg Radio.