Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
Speaker 1: you and your money, whether you're at the grocery store
Speaker 1: or the trading floor. Find the Bloomberg P M L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. President
Speaker 1: Donald Trump's saying that he's open to talks with North
Speaker 1: Korea after Kim Jong n's regime tells South Korean envoys
Speaker 1: that he is willing to consider giving up his nuclear weapons,
Speaker 1: a potential breakthrough after months of threats from both leaders.
Speaker 1: Here to help us understand the situation is Toby Harshaw,
Speaker 1: Bloomberg view editor and expert with all things strategic and
Speaker 1: geopolitical and military. Toby, thanks for being here with our
Speaker 1: with in our eleven three oh studio. So what do
Speaker 1: you make of this, uh, this report? I mean, is
Speaker 1: this real progress or is it? And who is this problem?
Speaker 1: He's got his feed up on the desk. It's over, Yeah,
Speaker 1: it is not over. And Pim, you actually made a
Speaker 1: very important distinction right there, which is that the North
Speaker 1: has told South Korea that is open to these things,
Speaker 1: or so the South Koreans tell us, when the North
Speaker 1: Koreans tell us they're open to these things, then maybe
Speaker 1: we'll start listening a little bit more openly. But we're
Speaker 1: playing a game a telephone right here, and we don't
Speaker 1: know what messages coming from the other side. We know
Speaker 1: what messages coming from President Trump, which seems to be
Speaker 1: that he wants to make sure that he gets in
Speaker 1: the middle of this and gets to uh get some
Speaker 1: credit for everything being resolved, or that's what it seems anyway,
Speaker 1: for him coming out and saying, uh, you know, well,
Speaker 1: you know, we're we're open to things, things seem to
Speaker 1: be evolving. I think that you're going to get a
Speaker 1: lot of people claiming credit from both sides, at least
Speaker 1: until this whole thing falls apart. I think that the
Speaker 1: Trump side will will claim that they're tougher sanctions, that
Speaker 1: they're hard approach has brought the the North Koreans to
Speaker 1: the table. And I think that a lot of people
Speaker 1: on uh this side of the ocean who are opposed
Speaker 1: to the Trump side will say that this shows that
Speaker 1: the way to talk to deal with the North Koreans
Speaker 1: is through talks not through threats, alright, So putting this
Speaker 1: together though, this seems like a very positive move. I mean,
Speaker 1: whatever you can speculate about the future, it's better that
Speaker 1: we're having this kind of conversation than other kinds of Oh.
Speaker 1: Absolutely absolutely. As as Churchill is said to have said,
Speaker 1: it is better to jaw jaw than to war war.
Speaker 1: I think there is always UM a place for diplomacy,
Speaker 1: and diplomacy is the next step in this UM. But
Speaker 1: we've been here before. We've seen this movie. We saw
Speaker 1: it under President Clinton when the US was actually willing
Speaker 1: to give similar security guarantees. UM. In writing to the
Speaker 1: North Koreans, UM, we've you know, this is sort of
Speaker 1: the game that the North has played UM back and forth,
Speaker 1: and a lot of times it's just seem that they
Speaker 1: are stalling to advance their nuclear program. Toby, one thing
Speaker 1: that I'm confused by is who's driving the bus with
Speaker 1: diplomacy efforts. Is its South Korea? Now? Uh, where is
Speaker 1: China in this, especially as uh, you know, the tariff
Speaker 1: talk and potential trade wars heat up between the US
Speaker 1: and China. The South Koreans maybe driving the bus, but
Speaker 1: the Chinese own it. UM. There is no question that
Speaker 1: nothing is going to get done UM without the Chinese
Speaker 1: on board. They are responsible for nine of North Korea's
Speaker 1: trade UM. They insist that they have cut off about
Speaker 1: a third of that UM, although there's some speculation they
Speaker 1: they have phrased that in a monetary value, so there's
Speaker 1: some speculation that they're using exchange rates to sort of
Speaker 1: monkey this and make it seem like they're getting less
Speaker 1: fewer exports than they actually are UM. The question is
Speaker 1: whether you can have bilateral talks between the US and
Speaker 1: the North or trilateral talks between the US and the
Speaker 1: North and the South. It doesn't matter unless the Chinese
Speaker 1: are at the table, nothing real is going to happen.
Speaker 1: And look what Kim is supposedly talking about. According to
Speaker 1: the South Koreans is some sort of security guarantee and
Speaker 1: in the end their security will be guaranteed by China.
Speaker 1: Toby to just move you slightly off what's going on
Speaker 1: in the Korea Peninsula. North Korea has been linked to
Speaker 1: supplying Syria with the uh material and the services of
Speaker 1: producing chemical weapons. This is according to United Nations Security
Speaker 1: Council diplomat is that at all relevant to the stance
Speaker 1: that the United States has taken against North Korea. UM,
Speaker 1: not immediately, I would say, we don't actually know when
Speaker 1: these chemical weapons may have come from from North Korea. UM.
Speaker 1: It's pretty clear that in eastern Guta, Uh, the Assad
Speaker 1: administration has used chemical weapons against civilians, chlorine gas being
Speaker 1: what we suspect or what the traces have shown. UM. Yes,
Speaker 1: we have accused the North Koreans of being responsible for
Speaker 1: chlorine and you know other nerve agents that have ended
Speaker 1: up in Syria. We know that they export them. UM.
Speaker 1: I don't think it bears an immediate connection between the two,
Speaker 1: simply because we don't know how long it's been there. Okay.
Speaker 1: The reason I bring this up is because while we're
Speaker 1: discussing the potential for North Korea to change its stance
Speaker 1: on its nuclear weapons program, this is something that is
Speaker 1: actually happening and is a horrible situation in in Syria.
Speaker 1: What makes anybody think that if you can't solve that, that
Speaker 1: that you're going to solve this hypothetical i' do with
Speaker 1: nuclear weapons. UM, that's a tough question. I as I said,
Speaker 1: I don't think I would I would tie them to
Speaker 1: too closely together. Syria is a situation of its own
Speaker 1: that looks hopeless at them moment. There may be some
Speaker 1: sort of international break through, UM. But in that the
Speaker 1: Russians are just as important as the Chinese are to
Speaker 1: North Korea well so. But one thing that it does
Speaker 1: raise the issue about is North Korea as a regime
Speaker 1: and how it is viewed around the world. And one
Speaker 1: of the sort of preconditions that South Korea said that
Speaker 1: North Korea said that it wanted talking about the Game
Speaker 1: of Telephone was for security guarantees at the North Korean
Speaker 1: regime would not be attacked or that it would remain present.
Speaker 1: How amenable might the US be to that precondition to
Speaker 1: keeping two Korea's I think the US is fine with that, UM.
Speaker 1: I think the US what wants to isolate the threat
Speaker 1: of the I, C, B M, the threat of North
Speaker 1: Korean nukes, and we'd be able to go a long
Speaker 1: way toward that. Another thing that they would like is
Speaker 1: the U S forces removed from South Korea from the
Speaker 1: d m Z. I would put that on the table
Speaker 1: if I were the US. What I would not put
Speaker 1: on the table, UM is the the inner actions and
Speaker 1: exercises between the US and South Korea, which are far
Speaker 1: more important to regional security, particularly against rising China. UM.
Speaker 1: The sea is a very hard place. We lost to
Speaker 1: destroyers last year through accidents. That kind of stuff happens.
Speaker 1: You need to have exercises between our navy and the
Speaker 1: North Korean Navy and the Japanese navy and anyone else
Speaker 1: and in the Pacific. Who wants to do that? And
Speaker 1: that's maybe more about China than it is about North Korea,
Speaker 1: although it's important for you know, blockading North Korea. If
Speaker 1: we want to get to that point, that should be
Speaker 1: non negotiable for the US. Well, a lot going on.
Speaker 1: We really appreciate you taking the time, Toby Harshaw. I'm
Speaker 1: sure you'll go be going off and writing about why,
Speaker 1: you know, before you pop the champagne and are convinced
Speaker 1: that there is no nuclear threat threat anymore. Hey, in
Speaker 1: our lifetime, do you think that there will be? I
Speaker 1: think so. I think the north that North Korea is
Speaker 1: is you know, UM, it has too many internal contradictions.
Speaker 1: It's not gonna last, but it's a long term project. Well,
Speaker 1: an out of optimism on this Tuesday, Toby Harshaw, editor
Speaker 1: at Bloomberg View in New York, joining us here in
Speaker 1: our eleven three oh studios. Ray Dalio, co founder of Bridgewater,
Speaker 1: said in a LinkedIn post yesterday, that the tariff talk
Speaker 1: was just that, mostly talk and is unlikely to come
Speaker 1: to reality. Here to discuss what the likelihood is and
Speaker 1: and sort of what we're seeing with respect to this
Speaker 1: discussion and what it indicates for the broader economy is
Speaker 1: Brendan Brown, chief economist and head of economic research at
Speaker 1: Mitsubishi UFJ Securities, joining us from our studios in Washington,
Speaker 1: d C. Brandon, can you just give us a sense
Speaker 1: how likely, given the back and forth, given Gary Cohene,
Speaker 1: given Paul Ryan, given what we're seeing today, how likely
Speaker 1: is it that the tariffs that President Trump have been
Speaker 1: talking about will come to pass? It seems quite lightly
Speaker 1: they will come to pass. But one has to also
Speaker 1: say that it affects a very small part of the
Speaker 1: overall trade picture, and the much bigger question as regards
Speaker 1: US trade and unfair competition is to do with currency manipulation.
Speaker 1: And I think that's why you're seeing this background dollar weakness.
Speaker 1: But there is a suspicion there in the markets for
Speaker 1: all of us talk about trade ultimately is going to
Speaker 1: percolate through two more dollar depreciation. Explain that a little
Speaker 1: bit more. When you talk about currency manipulation, what do
Speaker 1: you think the goal is. Well, the currency manipulation is
Speaker 1: being led at the moment by Japan and Europe. Japan
Speaker 1: keeping a long term interest rate pegged zero, the ECB
Speaker 1: keeping interest rates at negative levels. Those two actions keep
Speaker 1: their currencies cheap against the dollar. There's no intimation as
Speaker 1: yet fit the US administration is actually asking Japan or
Speaker 1: Europe to abandon those policies. But for suspicion is that
Speaker 1: the new FED chair pal, who apparently gets on well
Speaker 1: or was chosen because he gets on well with the
Speaker 1: Treasury Secretary and the Treasury Secretary once dollar depreciation or
Speaker 1: a cheap dollar. But this is all going to feed
Speaker 1: back to somewhat easier and otherwise monetary policy and dollar depreciation,
Speaker 1: and that's being reflected I think in markets broadly. So, Brendan,
Speaker 1: do you think that it's possible that we're going to
Speaker 1: see a currency war? I mean, forget, uh, forget a
Speaker 1: trade war. Are we're going to see some kind of
Speaker 1: race to the bottom here? Well, the history of the
Speaker 1: last few years since the crash of two thousand and
Speaker 1: eight has been perpetual currency war. It started off with
Speaker 1: US currency warfare, and and and then of course Japan
Speaker 1: and Europe and China have retaliated in various ways. But
Speaker 1: I do think for the trade UM conflict is going
Speaker 1: to manifest manifest itself in continued and probably intensified currency warfare. Well,
Speaker 1: if that's the case, then what do you believe investors
Speaker 1: ought to do to protect themselves or to profit from it? Well,
Speaker 1: gold of course rises in this environment because if if
Speaker 1: everyone's racing to the bottom, as you say, keeping interest
Speaker 1: rates artificially low worth trying to keep their currencies cheap,
Speaker 1: the beneficiary of that is clearly gold UM. So that's
Speaker 1: one aspect the the equity markets clearly like a general
Speaker 1: monetary ease story as part of this trade background UM.
Speaker 1: But the downside of that is that the the you
Speaker 1: can get mini crashes or worse, such as one had
Speaker 1: in in early February, so you foresee more of those
Speaker 1: kinds of virtal days. Well, my focus is is really
Speaker 1: on the credit markets for the biggest and the most
Speaker 1: worrying aspect of this prolonged asset inflation due to the
Speaker 1: monetary stance is for credit markets and UM, the Italian
Speaker 1: elections at the weekend really highlight that risk. But you've
Speaker 1: got a two point eight seven percent tenure right now
Speaker 1: on the US Treasury. Where do you see that going?
Speaker 1: If we get that kind of volatility you describe, well,
Speaker 1: a ten yuere is going to continue to reflect the
Speaker 1: some background risk aversion, so that we know that there's
Speaker 1: potential increased volatility setbacks. So, however much the bond bears
Speaker 1: talk about interest rates rising, in inflation rising, there is
Speaker 1: a long a bid in the long run markets for safety.
Speaker 1: So I I don't see these long yields rising a
Speaker 1: long way. My focus is much more on the credit
Speaker 1: spreads and what's going to happen to those. Uh So,
Speaker 1: speaking about that, we just were talking about the CVS
Speaker 1: deal that's coming that could prices soon as today, potentially
Speaker 1: forty billion dollars of bonds. Do you think that yields
Speaker 1: on investment grade corporate debt are going to go materially
Speaker 1: higher from here between now and the end of the year. Yes. Um.
Speaker 1: The the leverage in this cycle, um is very much
Speaker 1: in the corporate debt markets and in the emerging market
Speaker 1: debt markets and expanning corporate debts and and and those countries.
Speaker 1: So so that's where the shakeout is going to be.
Speaker 1: And given the increased volatility, um we know that in principal,
Speaker 1: corporate debt and risky debt is priced off volatility and
Speaker 1: the price of priced off options and and those are
Speaker 1: all affected by the increased volatility. I want to thank
Speaker 1: you very much for joining us. Brendan Brown is the
Speaker 1: chief economist and the head of economic research at Mitsubishi
Speaker 1: u f J Securities, giving us his thoughts on the
Speaker 1: current economic outlook and the tight rope that Federal Reserve
Speaker 1: Charon J. Powell has to walk. Yesterday, news came out
Speaker 1: that Amazon dot Com is working with banks including JP
Speaker 1: Morgan to provide checking like accounts to its customers. And
Speaker 1: here to sort of put this in a context, explain
Speaker 1: what this might mean and look forward to the future
Speaker 1: of these types of alliances, is from Alawalia, chief executive
Speaker 1: officer and co founder of pere i Q, based in
Speaker 1: New York. Thank you so much for joining us from
Speaker 1: what was your impression when you saw this news at
Speaker 1: Amazon dot Com was teaming up with big Wall Street
Speaker 1: banks to act more bank like Well, it's a significant announcement.
Speaker 1: The financial services sector just had its Amazon moment, and
Speaker 1: if you look at it from Amazon's point of view,
Speaker 1: the financing and payments of retail transactions is a logical
Speaker 1: next step for their business as I sit and look
Speaker 1: for additional profit pools. There's also a strong financial motivation
Speaker 1: for for Amazon. Today, Amazon spends about two and fifty
Speaker 1: million dollars in interchange fees about two percent per transaction
Speaker 1: to visa master card and issuing banks with an Amazon
Speaker 1: checking account, Amazon can avoid all those fees, and if
Speaker 1: Amazon converts their customers to this deposit account, that can
Speaker 1: drop fifty million dollars at the bottom line, which has
Speaker 1: a significant market kept impact. From a bank perspective, it's
Speaker 1: it's very significant news. The banks today are struggling to differentiate.
Speaker 1: Bank branches are consolidating as you have customers prefer an online, mobile,
Speaker 1: personal experience. And if you look at the customers segment
Speaker 1: that Amazon is targeting, the younger generation on bank populations,
Speaker 1: these are segments that are notoriously low in terms of
Speaker 1: fee revenue and profitability for banks. So Amazon's targeted inappropriate
Speaker 1: segment where it'll be difficult for banks to compete. That said,
Speaker 1: Amazon needs to partner with banks because there's no clear
Speaker 1: regulatory framework for Amazon as a commerce company to act
Speaker 1: and compete as a national bank, and so that's why
Speaker 1: they reporting has discussed the idea of a partnership potentially
Speaker 1: with JP Morgan rum. Does this have any implications for
Speaker 1: third party merchants that sell through Amazon and the fees
Speaker 1: that are typically charged by whether it's Visa, MasterCard, American Express,
Speaker 1: those fees that card companies you know, take from the merchants. Yeah,
Speaker 1: it can be an opportunity for Amazon to um number one,
Speaker 1: avoid interchange economics to some of the companies you site
Speaker 1: in the network charges there for the merchants on their platform.
Speaker 1: You know. Today Amazon provides financing merchants that sell online
Speaker 1: and potentially Amazon longer term could could look to defray
Speaker 1: the the economic transaction costs at the merchants pay, but
Speaker 1: that's not contemplated in this announcement. So in order to
Speaker 1: get clients to move to an Amazon dot Com sponsored
Speaker 1: checking account with the banks, are they going to offer
Speaker 1: some enticement do you think to customers? And what would
Speaker 1: be the financials between the bank and Amazon dot Com,
Speaker 1: which really loves having access to all the data that
Speaker 1: it's clients exact exactly, No, I would imagine that you
Speaker 1: see some type of rewards value proposition. Amazon recently announced
Speaker 1: a new credit card in partnership with a bank that
Speaker 1: offers discounts when you purchase that whole foods or online
Speaker 1: or at restaurants. With the two savings on the avoidance
Speaker 1: of interchange fees, Amazon can redirect a portion of that
Speaker 1: UH to defray the costs of purchasing online or some
Speaker 1: other type of bonus. In terms of the relationship between
Speaker 1: Amazon and a bank, usually these are co brand relationships,
Speaker 1: and co brand relationships have been around for four decades
Speaker 1: an how right. For example, Chase has a United Knowledge
Speaker 1: Plus card, where United provides the marketing, Chase provides the servicing,
Speaker 1: the legal framework, the balance sheet capacity, and the risk management.
Speaker 1: So I think a similar type of model will take
Speaker 1: place here, where Amazon will provide the customer access access
Speaker 1: to the data for underwriting UH, and then a bank
Speaker 1: on the back end we'll we'll service those customers. So
Speaker 1: at a certain point, I guess that this raises the
Speaker 1: big hundred million dollar question here, a hundred billion dollar
Speaker 1: questions potentially, which is UH is Amazon dot Com dipping
Speaker 1: its toe into this with the idea of always partnering
Speaker 1: with Wall Street or becoming a direct rival to Wall Street.
Speaker 1: I would say Amazon is is learning from this experience.
Speaker 1: Number one is they don't have the regulatory framework to
Speaker 1: take on the bank's head to head. Today, there's been
Speaker 1: discussion of a fintech charter that could be awarded by
Speaker 1: the Office of the Control of the Currency that would
Speaker 1: give Amazon and other fintech companies the opportunity to compete
Speaker 1: on a national basis with the banks. Today, that regulatory
Speaker 1: swim ling doesn't exist, so Amazon really does have to
Speaker 1: partner with a bank. However, you know there are precedents
Speaker 1: out there. If you look internationally in the China market,
Speaker 1: there are large technology companies such as and Financial Intent
Speaker 1: Scent which have banking charters, and that certainly has inspired
Speaker 1: Amazon and Amazon's competitors to go after this opportunity. So
Speaker 1: I think Amazon will learn from their experience as they
Speaker 1: develop these new products, both on how do you acquire
Speaker 1: the customers, how do you underwrite the customers, which data
Speaker 1: is relevant? UH, and then as that regulatory framework evolves,
Speaker 1: I think you would see Amazon UH and to more
Speaker 1: deeply into lending, constumer banking more gener really and the
Speaker 1: other opportunities run asset management insurance. Well, I wanted to
Speaker 1: just quickly offer you the chance with pere i q,
Speaker 1: which is your company. Is it possible that a company
Speaker 1: like Amazon would partner with you in order to provide
Speaker 1: that conduit to the businesses that are looking for those
Speaker 1: alternative forms of credit. So pure i q provides the
Speaker 1: data and risk management analytics for owners and providers of
Speaker 1: financing for consumer credit risk. So we're able to help
Speaker 1: Amazon and banks to understand the health of the US
Speaker 1: consumer and understand where we are in the business cycle,
Speaker 1: makes better risk and lending decisions. I want to thank
Speaker 1: you very much for being with us. Rum Ada Walia
Speaker 1: he is the chief executive and the co founder of
Speaker 1: peer i q, giving us his thoughts on what's going
Speaker 1: on with Amazon and the possibility that maybe you'll have
Speaker 1: a checking account and it will be from Amazon, maybe
Speaker 1: with a two fee reduction for Amazon. This is such
Speaker 1: a fascinating issue because every other area that Amazon has
Speaker 1: gotten into, there's the Amazon effect where shares in that
Speaker 1: industry just plummet, and you're not necessarily seeing that in
Speaker 1: the in the banking sector. Well, because they've got the
Speaker 1: partners the partnership with JP morgan Chase, because they've got
Speaker 1: the partnership and they don't have the charter. Yeah, indeed,
Speaker 1: and it may be too expensive and too owners to
Speaker 1: get it yourself, so just rent it from JP morgan Chase.
Speaker 1: Is a rally in stocks a time to sell? Well,
Speaker 1: let's find out from David Kats. He is the chief
Speaker 1: investment officer from Matrix Asset Advisors. He's got more than
Speaker 1: seven million dollars of assets under management and he joins
Speaker 1: us now, David, thanks very much for being with us.
Speaker 1: Maybe just start off by doing the whole thing, you know,
Speaker 1: by the dips, sell the rally. Is there any strategy
Speaker 1: that is worth following that is along those lines, Well,
Speaker 1: we think that is going to be the watch for
Speaker 1: two thousand and eighteen. We think that ultimately the market
Speaker 1: probably is up in the high single digits, low double
Speaker 1: digits area, And the time to get more optimistic about
Speaker 1: stock is after selloffs like we've had over the last
Speaker 1: few weeks. Uh, and the time to be less optimistic
Speaker 1: and taking proferences after you've had a significant run to
Speaker 1: the upside. It's important to point out that when the
Speaker 1: stock market is selling off, there's a lot of doom
Speaker 1: and gloom, so you've got to be prepared to buy
Speaker 1: into that uncertainty. Uh. And the flip side is after
Speaker 1: the market has had a great run like it did
Speaker 1: in January, everything looks wonderful. Don't get caught up in
Speaker 1: that enthusiasm. How often do you end up trading? Well, basically,
Speaker 1: we were on portfolio, so we're looking at individual stocks,
Speaker 1: and on that basis, you know, we're happy to take
Speaker 1: profits if the stock has run up a lot, and
Speaker 1: by the same token, we're happy to put money to
Speaker 1: work into a decline if we've got cash on the sidelines.
Speaker 1: So here here's the reason why I'm asking. Morning started
Speaker 1: put out a survey the week saying that last year
Speaker 1: of active managers beat their benchmarks and that was up
Speaker 1: from in but still less than half. And I'm wondering,
Speaker 1: you know, for an active manager, how do you add
Speaker 1: that alpha? How frequently does it take trading, especially at
Speaker 1: a time when there's a lot of volatility. Of volatility
Speaker 1: in other words, it's hard to predict when things are
Speaker 1: going to spike or rally. Great question. So we're long
Speaker 1: term value investors. We have a large cap value product
Speaker 1: and a dividend product. We're pretty low turnover anywhere from
Speaker 1: the area of fifteen to twenty so we're not adding
Speaker 1: our alpha by trading the market. We're hopefully adding our
Speaker 1: alpha by buying good long term investments at attractive prices.
Speaker 1: When we talk on your show on the margin, we're
Speaker 1: talking about investors that have had cash on the sidelines
Speaker 1: that they're talking about putting to work. We'd buy into
Speaker 1: that dip. And by the same token, we work with
Speaker 1: a lot of individual investors and they tend to get
Speaker 1: a lot more enthusiastic about throwing money into the market
Speaker 1: after a rally. To our best advices don't do that.
Speaker 1: But from our perspective, long term investing by businesses you
Speaker 1: like it, attractive prices, UH, and over time you'll do well.
Speaker 1: The last few years have been pretty tough for value investors. UH.
Speaker 1: Generally after periods like that, value comes back with a vengeance.
Speaker 1: So while we've got a good long term record, we
Speaker 1: definitely have struggled in the last few years. We think
Speaker 1: that sets the stage for value to do a whole
Speaker 1: heck of a lot better going forward. Companies that you
Speaker 1: like tell us about Chubb, the insurance giant. So Chubb
Speaker 1: is a a great long term business. UM. They've done
Speaker 1: very well in terms of earnings. Uh. The thing that
Speaker 1: makes us most enthusiastic about the company is on the
Speaker 1: last conference called the CEO we think is probably the
Speaker 1: best CEO in the insurance industry, said he's yes, uh
Speaker 1: that that he's seeing the firmest pricing environment UH in
Speaker 1: the insurance area that he's seen in a number of years.
Speaker 1: That generally is the precursor for very good earnings performance
Speaker 1: and very good stock price performance. So we think you're
Speaker 1: getting some very good underlying trends at an attractive price.
Speaker 1: All right, So that's Chubb. Take us through a couple
Speaker 1: of other names that you're interested in. I want to
Speaker 1: focus you right now on Gilliad Sciences. They were very
Speaker 1: they're very big, and hepatitis and AIDS therapies. So Gilliad
Speaker 1: is a great biotechnology company. It tells it a pretty
Speaker 1: reasonable pe under twelve times earnings. They dominate the hepatitis field,
Speaker 1: they dominate the HIV field. They've made some very good
Speaker 1: investments in cancer research and products. So we think you're
Speaker 1: getting a great long term business at a very attractive price,
Speaker 1: and you're almost getting a three percent dividend yields while
Speaker 1: we're waiting right now the stocks at about seventy nine,
Speaker 1: we think easily it can be nine and ten over
Speaker 1: the next one to two years, and you've got fairly
Speaker 1: limited downside risk along the way. Is it relevant that
Speaker 1: they have what a little bit more than eleven and
Speaker 1: a half billion in cash on the I beg your
Speaker 1: pardon more than that billion in cash. Absolutely. You know.
Speaker 1: One of the things that attracts us to it is
Speaker 1: that've got this great cash flow generation and a great
Speaker 1: balance sheet. And that great balance sheet allows them to
Speaker 1: do a few things. It allows them to pay a
Speaker 1: very healthy dividend, and they've been raising that dividend at
Speaker 1: a very rapid clip. And it also allows them to
Speaker 1: make some smart acquisitions that ultimately fill their pipeline and
Speaker 1: help earnings. If you look at Gillian over the left
Speaker 1: five or six years, they've been great acquirers of business.
Speaker 1: Their whole Hepatitis the franchise was made on an acquisition
Speaker 1: that worked out to be great. We think their recent
Speaker 1: acquisition and cancer research is going to work very well.
Speaker 1: So season managers deployed the cast very nicely, and you're
Speaker 1: getting that real cheap. David, Wells Fargo, this was one
Speaker 1: of your picks which I find really interesting. Shares down
Speaker 1: nearly six percent so far this year, continuing to fall
Speaker 1: as the scandal just keeps on going. With respect to
Speaker 1: how the company has been managed, what gives you convince
Speaker 1: action that this bank is over sold and offers opportunity? Well,
Speaker 1: we think Wells has a great footprint. The problems that
Speaker 1: they've had in the last year are astounding. We we
Speaker 1: absolutely can't believe that management allowed it to go on.
Speaker 1: We can't believe that the board didn't take harsher actions. However,
Speaker 1: we think a lot of that is in the rear
Speaker 1: view mirror. You do have an overhang from the FED
Speaker 1: this year in terms of slowing their growth, but it
Speaker 1: really is only slowing their earnings growth by about UH
Speaker 1: ten or fifteen cents. It's one of the cheaper financial
Speaker 1: institutions out there, are paced, one of the higher dividend yields,
Speaker 1: and longer term, it's got a great footprint. People will
Speaker 1: use Wells Fargo as a bank. If you look at
Speaker 1: some corporate scandals over the years, companies that managed well
Speaker 1: can get over them. Toyota had their car problems a
Speaker 1: year ago. A few years ago, again it's considered one
Speaker 1: of the top automobile companies in the world. Johnson and
Speaker 1: Johnson had some problems a few years ago. Again held
Speaker 1: in very high regard. Three years ago, well Spargo was
Speaker 1: thought to be the best financial institution in the country.
Speaker 1: Obviously they they've lost that, but we do think two
Speaker 1: years from now they're going to regain some of um
Speaker 1: their standing and by the time people realize that the
Speaker 1: stock will be about thirty to forty higher. So the
Speaker 1: time to buy is during this period of uncertainty while
Speaker 1: the company is still making a great deal of money.
Speaker 1: David just quickly Johnson controls. How long are you willing
Speaker 1: to wait before you throw in the towel on a stock? Well,
Speaker 1: we've owned it for a few years, it's done well,
Speaker 1: and then in the last eighteen months it's been miserable.
Speaker 1: Are strong sense is that the new CEO is turning
Speaker 1: the business around, and we think that you're going to
Speaker 1: see progress within the next three to nine months. Uh So,
Speaker 1: you know, we've given another twelve months, but we we
Speaker 1: absolutely feel you're going to see progress in the upcoming year,
Speaker 1: and the stocks at a great price In the meantime,
Speaker 1: David Kats, thank you so much for joining us. David Katz,
Speaker 1: chief investment Officer of Matrix Asset Advisors, which is based
Speaker 1: in New York. Thanks for listening to the Bloomberg P
Speaker 1: and L podcast. You can subscribe and listen to interviews
Speaker 1: at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
Speaker 1: I'm Pim Fox. I'm on Twitter at pim Fox. I'm
Speaker 1: on Twitter at Lisa Abramo. It's one before the podcast.
Speaker 1: You can always catch us worldwide on Bloomberg Radio.