Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Bramowitz. 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. As
Speaker 1: we talk about potential tariffs and trade skirmishes, it's important
Speaker 1: to take a look at the industries that are being affected,
Speaker 1: and joining US now has pretty intimate looked at this
Speaker 1: with respect to the apparel and footwear industries. Rick Helfenvine
Speaker 1: he joins US now. He's president chief executive of the
Speaker 1: American Apparel and Footwear Association and he joins us here
Speaker 1: in our eleven three oh studios. And just to give
Speaker 1: people a sense of what the A A F A is,
Speaker 1: UH is sort of the voice of the industry that
Speaker 1: includes everyone from Levi to Ralph Lauren and Gap to
Speaker 1: Target in Washington wearing clothes. If you're wearing clothes right,
Speaker 1: this is this is the person who is representing your
Speaker 1: clothes in Washington. Rix. I want to start with you
Speaker 1: know what you're hearing from your members with respect to
Speaker 1: the tariff talk and the trade tensions. Have any of
Speaker 1: their business has already been affected? All of our businesses
Speaker 1: have been affected, and our members are talking to us,
Speaker 1: I have to say, more than they've ever talked to
Speaker 1: us before. A lot of it is trying to figure
Speaker 1: out exactly what's going on in Washington, what's the policy?
Speaker 1: What do they want to do? What is Washington trying
Speaker 1: to do to their business? They're having enough trouble just
Speaker 1: running their own businesses. Do they really want to have
Speaker 1: added burdens? Do they want to change their global supply?
Speaker 1: Change weld? It's like this is important. I mean, how
Speaker 1: much has the trade tension actually reduced from their bottom
Speaker 1: line so far? I think that the reduction in bottom
Speaker 1: line is is uh fast forward. It's coming. People are
Speaker 1: aware of it. Prices will go up, sales will go down,
Speaker 1: margins will be more difficult to attain. We don't understand
Speaker 1: why the administration is pushing so hard to take a
Speaker 1: business that is it's still in recovery mode for the
Speaker 1: whole his whole host of reasons, and trying to add
Speaker 1: burden to it. They're not really helping us Rick, I
Speaker 1: just want to give you the opportunity to share a
Speaker 1: little bit of your background, because, uh, this speaks to
Speaker 1: your experience at USA textile mills, also working for an
Speaker 1: overseas Hong Kong manufacturer of of apparel. Just give people
Speaker 1: a little bit of your background so they understand that
Speaker 1: you're coming to this not from a political point of view,
Speaker 1: but you're coming to this from a real business perspective. Absolutely.
Speaker 1: I mean, I grew up in the textile industry. My
Speaker 1: father was in the textile industry. I worked for a
Speaker 1: wonderful company out of Cleveland, Ohio called Campus Water and Sportswear,
Speaker 1: which was owned by inter COO. They taught me everything.
Speaker 1: I was down in the mills. I was dying, finishing, weaving,
Speaker 1: you name it. I was involved in it from the
Speaker 1: ground floor. Later, we also had nineteen US UM manufacturing facilities,
Speaker 1: so I know how to manufacture product in the US. However,
Speaker 1: later on the industry morphed and more of it went overseas.
Speaker 1: That happened pretty much in the nineties. So I got
Speaker 1: involved with a company who was based in Hong Kong.
Speaker 1: We manufactured overseas and I got to see all aspects
Speaker 1: of the industry, which now as it relates to trade,
Speaker 1: I personally feel the pain. I understand what our members
Speaker 1: are going through, and it is it is hurtful, we
Speaker 1: believe it or not. In our industry, Um, we were
Speaker 1: six percent of all imports. Keep in mindent of for well,
Speaker 1: apparel is imported, so we're six percent of all the
Speaker 1: US's imports. But we pay of all the duties collected consequently, Uh,
Speaker 1: any additional burden to that, We've learned to live with
Speaker 1: that burden. But any additional burden is downright painful. Well,
Speaker 1: just to play Devil's advocate here, I mean you talk
Speaker 1: about the shift in the nineties where the manufacturing what overseas?
Speaker 1: I mean President Trump is kind of responding to that.
Speaker 1: Perhaps you know, a decade or so too late, but
Speaker 1: I'm wondering, you know, what would happen if those jobs
Speaker 1: did come back to the US and manufacturing could return. Well,
Speaker 1: we always ask the question because we also represent all
Speaker 1: the domestic manufacturers, which is quite frankly, about three percent
Speaker 1: of the market and growing and growing, but still only
Speaker 1: three percent of the market. Look, when you're making apparel,
Speaker 1: there are two aspects of it. One is the raw material,
Speaker 1: fabric raw material is capital intensive, not labor intensive. Assembling
Speaker 1: a garment as labor intensive, takes a lot of people,
Speaker 1: and that's why a lot of this has morphed overseas.
Speaker 1: We can't really get enough people to assemble garments, and
Speaker 1: we can't compete on a global scale, which is what
Speaker 1: America is about now, trading and competing on a global scale.
Speaker 1: One thing I'm wondering, you know, you speak to a
Speaker 1: lot of people in Washington, d C. Is there unanimated
Speaker 1: unanimity in anything that you hear when you talk to Congressman. Yeah,
Speaker 1: there's unanimity because people are really questioning why, in a sense,
Speaker 1: we're misusing these tariffs that you hear about. They're misdirected.
Speaker 1: They are directives of the White House. They are powers
Speaker 1: that the White House can use without consulting Congress, and Congress,
Speaker 1: by the Constitution, is in charge of trade. I'm starting
Speaker 1: to think that maybe the FDA should get involved because
Speaker 1: the White House. Think about this. The White House is
Speaker 1: recommending metas in the form of tariffs for a disease
Speaker 1: that it can't cure. Think about that these tariffs won't
Speaker 1: cure our problems. They were wrong and they've been proven
Speaker 1: wrong before. The whole history of tariffs is very interesting.
Speaker 1: First time we heard about smooth holy precipitated the Great
Speaker 1: Depression um President Bush tried it in two thousand two
Speaker 1: lines steal with tariff, Remember that one lasted one year,
Speaker 1: was supposed to be three years. And then President Obama
Speaker 1: tried it with tires. It was a disaster, absolute disaster.
Speaker 1: Tariffs don't work. They're hidden tax on the American consumer.
Speaker 1: Thank you very much for being with us. Rick Health
Speaker 1: and Bind is the president and the chief executive of
Speaker 1: the American Apparel and Footwear Association talking about tariffs, and
Speaker 1: we look forward to having you on the program in
Speaker 1: the future. Much appreciated. Warren Buffett, the chief executive of
Speaker 1: Berkshire Hathaway, and Jamie Diamond, the chief executive of JP
Speaker 1: Morgan Chase, are looking for some radical changes to the
Speaker 1: way public companies disclose financial information. They have said that
Speaker 1: quarterly financial guidance encourages short term thinking and that it
Speaker 1: stifles growth and limits innovation in the economy. Here to
Speaker 1: tell us more about this proposed change is Andrew Stoultman,
Speaker 1: securities fraud attorney at Stoutman Law Offices. Andrew, thank you
Speaker 1: for being with us. What's your first reaction to these
Speaker 1: comments by both the Jamie Diamond and Warren Buffett. Maybe
Speaker 1: I'm a little biased, but to me, it kind of
Speaker 1: sounds like the worst idea since the Kardashian credit card.
Speaker 1: I mean, it's just a bad idea. It's kind of
Speaker 1: an existential question. I mean, what information our investors entitled to,
Speaker 1: and under the federal securities laws, they are all predicated
Speaker 1: on full and complete disclosure. And if we go from
Speaker 1: releasing this information four times a year to maybe only
Speaker 1: two times or even one time a year, I just
Speaker 1: don't see how that's good for investors, and especially the
Speaker 1: retail investors, because large investors will still be able to
Speaker 1: get access to this information, but smaller investors won't. So
Speaker 1: I just think it's a prior a priority issue. Are
Speaker 1: we placing corporate interests ahead of the interests of small investors? Well, Andrew,
Speaker 1: just to push back a little bit, I mean, the
Speaker 1: argument here is that these sort of short termism, or
Speaker 1: the concept that the chief executives of these companies have
Speaker 1: to play to their just the most immediate quarter and
Speaker 1: giving the best guidance possible that they don't take some
Speaker 1: of the extra money that they have invested back in
Speaker 1: their business, build more plans, take more risks. I mean
Speaker 1: not only that, but you could argue, and this is
Speaker 1: something else that Warren Buffett and James and Diamond were arguing,
Speaker 1: which is that this requirement to continually forecast earnings is
Speaker 1: one reason why there are many are companies that have
Speaker 1: gone public, which also isn't necessarily in the best interest
Speaker 1: of retail investors. How do you respond to those issues, Well,
Speaker 1: I think that's on companies. I mean, if companies are
Speaker 1: spending an inordinate amount of time making certain that quarterly
Speaker 1: earnings are met instead of a year or two years
Speaker 1: or five years out, that's on them. I mean, there's
Speaker 1: no obligation to to basically meet those quarterly numbers. And yes,
Speaker 1: you can argue that volatility will be increased to the
Speaker 1: extent companies have to release this information quarterly. But there
Speaker 1: are plenty of companies out there, including Warren Buffett, that
Speaker 1: basically remind investors, don't look at our quarterly information. We
Speaker 1: are on a year to year or five or ten
Speaker 1: year track. And I feel like the you know, the
Speaker 1: pressures it's self inflicted on CEOs to meet those quarterly numbers.
Speaker 1: I just I don't get it. Well, you know, Andrew,
Speaker 1: I wanted to follow up with the last point that
Speaker 1: I was making, which is that many fewer companies have
Speaker 1: been going public, and then part it is because of
Speaker 1: these requirements to continually forecast data. And people are arguing
Speaker 1: that this is also really bad for retail investors because
Speaker 1: they have a fewer, smaller pool of companies to invest in.
Speaker 1: What do you say to that. I think there are
Speaker 1: a whole bunch of reasons why there are less companies listed.
Speaker 1: I don't think that the you know, the pressure of
Speaker 1: releasing quarterly earnings or quarterly revenue or that guidance is
Speaker 1: the sort of thing that would cause UH companies to say,
Speaker 1: you know what, we're going to remain private, We're not
Speaker 1: going to go public. I just, you know, I don't
Speaker 1: buy it. And look, if companies are that concerned about
Speaker 1: having to release information that I, you know, I've argued
Speaker 1: they have a finuciary duty to release and provide guidance on,
Speaker 1: maybe they shouldn't be public companies. Alright, I'm just wonder
Speaker 1: if we could just tease apart this idea that releasing
Speaker 1: information that is pertinent to public shareholders is one thing.
Speaker 1: But then that three month ninety days cycle of having
Speaker 1: to meet estimates that are put together based on the
Speaker 1: limited information that you are legally allowed to offer the
Speaker 1: analyst community. Do you not see that there's a difference. No,
Speaker 1: I mean okay, So all right, No, all right, So
Speaker 1: let me ask you then, Have you worked for a
Speaker 1: public or a public company? No? I haven't. Okay, So
Speaker 1: if someone came to you and said, working for a
Speaker 1: publicly traded company is very different than working for a
Speaker 1: privately held company, would you accept that? Well, yes, I
Speaker 1: would accept that it is radically different. But once you
Speaker 1: take public, public money, you have fiduciary duties to those investors. No. No,
Speaker 1: I understand that, But I mean, but but but it
Speaker 1: doesn't seem like people do because people are taking a
Speaker 1: position that, g it's such a it's such a pain
Speaker 1: for us to release information to the shareholders who have
Speaker 1: placed their money with our company, and we all fiduciary
Speaker 1: duties to those investors, and if it's burdensome, if it's
Speaker 1: too difficult, then they probably shouldn't be publicly traded companies.
Speaker 1: I guess i'd ask you this question in September two
Speaker 1: thousand and eight, do you want to know whether Merrill
Speaker 1: Lynch and Morgan Stanley's revenues are dramatically declining or increasing
Speaker 1: or staying or basically staying neutral. I mean, that's important
Speaker 1: information for you to decide whether you want to keep
Speaker 1: your money or invest your money in these companies. Yeah, Um,
Speaker 1: and Andrew, I'm wondering. No one thing that struck me.
Speaker 1: And some of the stories that were written about this,
Speaker 1: uh many noted that the number of companies that actually
Speaker 1: do give forecasts earning earnings per share forecasts has fallen
Speaker 1: over the past eight years to less than a third
Speaker 1: from about thirty six in two thousand and ten. Have
Speaker 1: you seen the companies that release less guidance get treated
Speaker 1: better than the other companies are worse by investors? That's
Speaker 1: a that's a really hard question, and I don't you know,
Speaker 1: I don't know the answer to it, and I'm afraid
Speaker 1: to kind of go out on a limb and and
Speaker 1: and give an opinion on that. But so I'm just
Speaker 1: not comfortable going out on that branch because I haven't
Speaker 1: studied that quite as intensely as I would need to
Speaker 1: in order to make an opinion on it. Okay, let's
Speaker 1: just to go back to this idea of quarterly information.
Speaker 1: The idea of being not being that they would uh
Speaker 1: decrease the amount of information that they would offer the
Speaker 1: shareholding public, but this idea of offering guidance, and then
Speaker 1: that guidance, as you well know, gets used by Wall
Speaker 1: Street analysts in order to estimate what will or won't happen.
Speaker 1: And I'm sure you're well aware of what happens on
Speaker 1: those earnings days when the company meets estimates, when it
Speaker 1: uh doesn't meet estimates? Do you believe that that increase
Speaker 1: east volatility is good for their business? Well, I guess
Speaker 1: I would flip it and say the opposite of that is,
Speaker 1: what if you're only uh disclosing numbers uh twice a
Speaker 1: year or even once a year, disclosed them every quarter? Great?
Speaker 1: Great disclosed, right, And that's what we're arguing that these
Speaker 1: numbers should have to be disclosed every single quarter. And
Speaker 1: the fact that Jamie Diamond and and and Warren Buffett
Speaker 1: don't want to do it isn't a valid reason when
Speaker 1: you're weighing the impact that that would have, especially on
Speaker 1: small retail investors. Look, I personally think it's kind of
Speaker 1: ironic that Warren Buffett is advocating for this position, given
Speaker 1: he's the biggest shareholder in Wells Fargo. And if I'm
Speaker 1: contemplating investing or staying invested in Wells Fargo, I want
Speaker 1: to know what sort of impact have all of these
Speaker 1: scandals had on earnings and revenues for the company. And
Speaker 1: if I'm not getting that in a timely fashioned four
Speaker 1: times a year, I that kind of creates a vacuum
Speaker 1: of information now, Andrew, Unfortunately we have to leave it there,
Speaker 1: but thank you so much. A really good discussion and
Speaker 1: hashing in a lot of the issues. Andrew Stoultman is
Speaker 1: securities for an attorney at Stoultman Law Offices. The credibility
Speaker 1: of central banks in emerging markets? Is it on the line? Well,
Speaker 1: here to tell us more is Damian sass Our Bloomberg
Speaker 1: Intelligence is fixed income strategist. All right, Damien, emerging markets.
Speaker 1: There's a currency issue Turkey, Argentina, Brazil. Need I go on? Uh?
Speaker 1: Is there going to be a moment where the central
Speaker 1: banks of countries such as those realize that they're pushing
Speaker 1: against the string? Yeah? No, I mean we are. We
Speaker 1: are in the midst of a crisis of confidence here
Speaker 1: PIM and so what what we were just talking about.
Speaker 1: What's interesting is inflation is actually stable or declining in
Speaker 1: most emerging markets. Yet you know, it's it's I mean,
Speaker 1: markets are rushing to price in considerable um rate hikes
Speaker 1: in each of these markets, you know, over the next
Speaker 1: three months. You know, we have a lot of central
Speaker 1: bank meetings coming on the heels of the FED next week,
Speaker 1: and Brazil, Mexico, the Philippines, I mean, most of these
Speaker 1: markets are are now pricing in additional tightening. Just you know,
Speaker 1: it's it's it's pretty unbelievable just how quickly things have changed,
Speaker 1: and only the last month. Well, um, first of all,
Speaker 1: I mean it's it's hard to sort of speak about
Speaker 1: emerging markets as and monolith because there is some, uh,
Speaker 1: some spots where there is considerable inflation. I mean Turkey,
Speaker 1: for example, being a poster child for that. But I
Speaker 1: have to wonder whether this is all a byproduct of
Speaker 1: the FEDS tightening and the fact that you're not seeing
Speaker 1: the acceleration in stimulus from the e c B and
Speaker 1: the b o J that you had in the past.
Speaker 1: You're still seeing same of that's just not the acceleration.
Speaker 1: So they can't offset the fact that the FED has
Speaker 1: started to shrink its balance sheet and that it is
Speaker 1: raising rates. Well, it's a relative value game, right, I
Speaker 1: mean you carry so well in the short end of
Speaker 1: the U S. Treasury curve. Now, I mean money markets, right,
Speaker 1: I mean it's an asset class all of a sudden,
Speaker 1: all over again. Right, that's what everybody's talking about, and
Speaker 1: so E M has to compete with that. And you know,
Speaker 1: there are easier ways, I guess, to make money than
Speaker 1: investing in emerging markets with all of the currency volatility
Speaker 1: to your point, and that's going on right now. Now.
Speaker 1: It used to be that if you had an emergent,
Speaker 1: let's say you were a country that was export driven,
Speaker 1: maybe commodity export driven, right, it was perfectly fine for
Speaker 1: you to have your currency devalue against the US dollar
Speaker 1: because that made you much more competitive. Cheaper exports, you
Speaker 1: take over markets. But now you've got trade barriers going
Speaker 1: up around the world. Yeah yeah, now, I mean we
Speaker 1: we we were just talking about that the other day.
Speaker 1: So you know what's interesting is most people, you know,
Speaker 1: ascribe all the pain to China. Right, the China has
Speaker 1: BA basically, um, you know Chinese imports, right, or you
Speaker 1: know the trade depths at the U S has with
Speaker 1: China and how that kind of filters through into Mexico
Speaker 1: and a lot of their you know, the U S
Speaker 1: has other trade partners, etcetera. But what's really interesting here
Speaker 1: is with these trade barriers coming up, and even you
Speaker 1: know President Trump's kind of closet proposal to slap withcent
Speaker 1: tax on auto imports, I mean this, I mean, think
Speaker 1: about what that would do to Germany and to the
Speaker 1: CE three, poland hungry check. I mean, people aren't really
Speaker 1: talking about this, but you know, I mean those economies
Speaker 1: would I mean, it would just be it would be devastating, right,
Speaker 1: And you know, we look at so we were looking
Speaker 1: at basically which emerging market countries are most at risk
Speaker 1: given their bilateral trade and balances and the two that
Speaker 1: kind of pop up if indeed China needs to concede
Speaker 1: to to to US demands or South Korea and Brazil. Right,
Speaker 1: Brazil is a huge exporter of soy and and and
Speaker 1: soybeans and all that kind of stuff. Yet the US
Speaker 1: is the leading producer of that globally. So where do
Speaker 1: you think, you know, the twenty five billion dollars you
Speaker 1: know that China's proposing to to kind of give to
Speaker 1: the US is going to come from right and South
Speaker 1: Korea's machine it's it's chips, it's semi conducting semiconductor chips.
Speaker 1: So you can definitely see China begin to may begin
Speaker 1: to kind of substitute away from you know, from from
Speaker 1: dealing with those two countries and maybe you know, uh,
Speaker 1: you know, spend a little bit more money in terms
Speaker 1: of importing from the US in those two areas. Are
Speaker 1: we seeing contagion? I mean, contagions a dirty word, but yes,
Speaker 1: this is exactly what we're seeing right now. I mean
Speaker 1: we're seeing you know, we're seeing things spread. And I
Speaker 1: think it's more a fact of the liquid currencies, you know,
Speaker 1: the rand now and uh and the Mexican paste, which
Speaker 1: are basically being used as a hedge for a lot
Speaker 1: of macro players here to kind of all set their
Speaker 1: emerging market currency risks. So so yeah, I mean what
Speaker 1: you're seeing is contagion only because people are in search
Speaker 1: of a liquid hedge through which the kind of to
Speaker 1: play what's going on now in a m The reason
Speaker 1: why I ask is because you're not seeing massive flows
Speaker 1: out of the broad based indexed emerging markets debt funds.
Speaker 1: So if this is contagion, I just in wondering. You know,
Speaker 1: also when you talk to people, they say, these are
Speaker 1: idiosyncratic stories and they point to, uh, problems in the
Speaker 1: underlying economies. But you know, is there a degree at
Speaker 1: which you could always find issues and sort of a
Speaker 1: tribute the moves to them. But really what we're seeing
Speaker 1: is just macro plays that are that are playing out.
Speaker 1: Well yeah, I mean, okay, so contagions there. I mean,
Speaker 1: there are two ways of defining it. Right. There's you know,
Speaker 1: financial market contagion, which is what we're seeing here, which
Speaker 1: is merely you know, price action. Right, You're not really
Speaker 1: seeing it affect the real economies yet to your point,
Speaker 1: you know, you're not seeing you know, real economies, real
Speaker 1: growth declining, you know, um, real inflation picking up in
Speaker 1: a lot of these economies. Um, you know. But but
Speaker 1: but I think you're definitely seeing financial market contagion, and
Speaker 1: that is a function of the fact that, hey, people
Speaker 1: are rushing to protect their interests in a lot of
Speaker 1: these markets, and they're just aren't a lot of liquid
Speaker 1: mechanisms out there, uh, to do it. So people are
Speaker 1: kind of going to the rand, they're going to the rail,
Speaker 1: they're going to you know, they're going to the Lira
Speaker 1: for example. I mean just to basically try and you know,
Speaker 1: offset some of the weakness and um and so that
Speaker 1: from that perspective, that's the type of contagion that we're seeing.
Speaker 1: Do we need to also go visit places like Miami?
Speaker 1: I mean talk about capital moving just look at home prices, yeah,
Speaker 1: look at where look at where the money comes from. Yeah, no,
Speaker 1: I mean there's a lot of I mean there's there's
Speaker 1: a lot of I mean what we look at, I
Speaker 1: guess in e m IS is remittances and repatriation of assets,
Speaker 1: and a lot of that data, unfortunately is in real time.
Speaker 1: It's hard to kind of get your arms around it.
Speaker 1: But um, there are a lot of us um um
Speaker 1: let's call it, you know, us vested interests in emerging
Speaker 1: markets that are based in places like Florida and so yeah,
Speaker 1: I know it's your point. You know, you see a
Speaker 1: lot of Latin American kind of expats, you know, who
Speaker 1: are who who might very well be looking at at
Speaker 1: at at putting money to work there hopefully in the
Speaker 1: NATI distant future. Davian Sassaur, thank you so much for
Speaker 1: being with us. It's always enlightening to speak with you.
Speaker 1: Damian Sasaur is a fixed income strategist for Bloomberg Intelligence,
Speaker 1: focusing on emerging markets. He's great follow his research reports.
Speaker 1: They're insightful and deep. You know him. A constant theme
Speaker 1: is as we watch these headlines roll out about some
Speaker 1: of the trade tensions, how much should investors care? And
Speaker 1: I think it's an important question and I'm glad that
Speaker 1: we have Eric Weakend here with us to answer it.
Speaker 1: Eric weigand a senior portfolio manager at US Bank Private
Speaker 1: Wealth Management overseeing about a hundred and fifty four billion dollars,
Speaker 1: who joins us here in our eleven three oh studios. Eric,
Speaker 1: you talk with a lot of wealthy individuals, business owners.
Speaker 1: What's the main question they ask you? And what do
Speaker 1: you tell them? You know, it's particularly regarding the you know,
Speaker 1: the trade issues. Those individuals that are business owners are
Speaker 1: are genuinely uh sensitive about the you know, the notion
Speaker 1: that trade is not currently fair. Uh. They may be
Speaker 1: troubled and have a lot of anxiety about how uh
Speaker 1: uh you know. The discussion continues to you know, evolve,
Speaker 1: particularly regarding you know, isolating what have been our major
Speaker 1: trading partners and being somewhat antagonistic to to our allies.
Speaker 1: But I think there's almost a complacency in some of
Speaker 1: their concerns that that this is merely a negotiating tactic,
Speaker 1: that the rhetoric, you know, doesn't necessarily represent reality. They're
Speaker 1: waiting for greater clarity to really formalize their opinions. Eric,
Speaker 1: what role does UH inflation play in the conversation right
Speaker 1: now with clients about what to do with their money?
Speaker 1: You know, it's it's you know, that is certainly one
Speaker 1: of the key focal points for us, as it is
Speaker 1: has been for everyone. Everyone's looking for the you know,
Speaker 1: the emergence of inflation. We've continued to see a very
Speaker 1: favorable labor backdrop wages. While we did see wages last
Speaker 1: Friday increase UH perhaps a little bit ahead of expectations,
Speaker 1: you know, the persistence of inflation just hasn't been present.
Speaker 1: You know, we get a little bit of growth and
Speaker 1: then we'd see a little bit of retreat even you know,
Speaker 1: looking at the data points that we've had this week,
Speaker 1: whether it's Delta airlines coming out talking about pricing pressures
Speaker 1: because of the fuel increase. Even you know, uh, it
Speaker 1: was reported today that you know, uh Smuckers was having
Speaker 1: difficulties seeing significant increase in their logistics and transportation costs.
Speaker 1: We're seeing some some feed through. It's just the persistence
Speaker 1: that's necessary. To your point, Pim. One of the things
Speaker 1: that they're uh, you know that they're finally uh, you know,
Speaker 1: embracing if you will, is you know that there's an
Speaker 1: alternative as a result of you know, more normalization on
Speaker 1: monetary policy, that front end of the yield curve is
Speaker 1: is finally providing a return at a lower risk point,
Speaker 1: and and that's giving them a little bit of comfort
Speaker 1: at a moderating some of their positioning. So I want
Speaker 1: to bring in the emerging market sell off that we've
Speaker 1: been watching, and I'm wondering how you're viewing that and
Speaker 1: whether you're advising any of your clients to either withdraw
Speaker 1: from some of these uh developing nations or to take
Speaker 1: advantage of the sell off to capture extra yield. You know,
Speaker 1: it's a great question. We had spent the last two years,
Speaker 1: uh much more of a U with a risk on
Speaker 1: posture across our asset allocation models for our clients. UM.
Speaker 1: And then early this in the first quarter of this year,
Speaker 1: we thought the narrative was was changing, so we began
Speaker 1: to to moderate that position, taking off some of that
Speaker 1: really long equity exposure which was inclusive of international. Uh.
Speaker 1: And while we still saw a favorable backdrop domestically, that
Speaker 1: international was a little bit more problematic. What were you
Speaker 1: buying instead, you know, uh, in a couple of different areas.
Speaker 1: Number one, as I mentioned earlier, finding some attractiveness on
Speaker 1: the front end of the of the curve, So going
Speaker 1: from being more materially underweight fixed income to narrowing you
Speaker 1: know that underweight, but also looking at things that were
Speaker 1: you know, less correlated uh, you know, with with equities,
Speaker 1: So exploring even things like insurance linked securities, uh, that
Speaker 1: that don't have those same types of correlations you mentioned. Uh,
Speaker 1: the sort of change in short term money rates. Are
Speaker 1: you finding that more people are interested in that than
Speaker 1: they are in stocks? Uh? Not so much as yet. UH.
Speaker 1: And I think part of that is because we've you know,
Speaker 1: for all the uh, you know, the focus on volatility
Speaker 1: that we've seen, you know, in the equity market on
Speaker 1: a year today basis, we've still moved laterally, so you know,
Speaker 1: for the most part, our clients are still seeing uh,
Speaker 1: you know, appreciation in their portfolio, so it hasn't had
Speaker 1: that type of a bite. They do understand, as you know,
Speaker 1: we've we've been very proactive at discussing with them that
Speaker 1: our expectations for returns this year are much more moderate
Speaker 1: than what we had seen over you know, certainly two
Speaker 1: thousand seventeen. Can you help me understand why you think
Speaker 1: the narrative is changing, why you expect to see more
Speaker 1: moderate returns if after we just saw earnings they were
Speaker 1: really good. Yeah, it's it's absolutely a great point. And
Speaker 1: there's two things that I really want to talk about. Their.
Speaker 1: Number one from a narrative standpoint, Uh, you know, we
Speaker 1: really had the best of world's last year. Very low inflation,
Speaker 1: very accommodative monetary policy. You had strong not only earnings growth,
Speaker 1: but strong revenue growth. You had that in an environment
Speaker 1: where there was just language or rhetoric around trade. You
Speaker 1: weren't seeing any repercussions there. And importantly, there was synchronized
Speaker 1: global growth. We've seen you know, some of the economic
Speaker 1: day of more recently has shown some moderation to that
Speaker 1: that growth it's not necessarily as strong or as broad.
Speaker 1: So that's that's causing us, uh, you know, to increase
Speaker 1: our our concerned. We are you know, from a monetary
Speaker 1: accommodation standpoint, we're seeing that being withdrawn or the prospect
Speaker 1: of it emerging. So we think that that's that's changed.
Speaker 1: And uh, you know, importantly as we look at those
Speaker 1: earnings growth. You know, I think that the quintessential example
Speaker 1: of this was Caterpillars earnings. Uh, you know, the stock
Speaker 1: was up during the you know, during the conference call,
Speaker 1: and in the course of one sentence you know, suggesting
Speaker 1: it's hard to imagine things getting any better. You know,
Speaker 1: the stock you know, immediately reversed. You know, it's pricing.
Speaker 1: So we agree, you know, looking at the first quarter
Speaker 1: being you know, seeing revenue growth over eight percent, seeing
Speaker 1: earnings growth, you know, approaching that's fantastic. But the market
Speaker 1: is a forward indicator and looking at at that it
Speaker 1: is difficult to imagine that that that pace is likely
Speaker 1: to be sustained. So we do believe that earnings will
Speaker 1: drive stock prices, but we also believe, because of that
Speaker 1: changing narrative, will see the valuations of the multiples that
Speaker 1: investors are willing to provide. Uh, you know, narrowing just briefly,
Speaker 1: h muni bonds, Any interest on behalf of the clients
Speaker 1: and investing in muni bonds now, you know very much.
Speaker 1: So particularly from a you know, from a geographic perspective,
Speaker 1: a lot of our clients live in some very high
Speaker 1: tax states. So whether that be New York, New Jersey, Connecticut, Massachusetts, Illinois,
Speaker 1: or California, you know, these are areas where high income earners,
Speaker 1: you know, particularly with the reduction and the ability uh
Speaker 1: or the reduction and the ability to duct state and
Speaker 1: local taxes, you know, has made that clearly an interesting opportunity.
Speaker 1: Thanks very much for being with us interesting topics. Eric
Speaker 1: Wagan is the senior portfolio manager for US Bank Private
Speaker 1: Wealth Management, helping to manage more than a hundred and
Speaker 1: fifty billion dollars of customer assets. And thanks for listening
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
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Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
Speaker 1: one before the podcast. You can always catch us worldwide
Speaker 1: on Bloomberg Radio