WEBVTT - Bloomberg Wall Street Week: Rogers, Keating, Fleming 0:00:00.240 --> 0:00:05.000 This is Bloomberg Wall Street Week. Market shruggle, higher consumer prices, 0:00:05.040 --> 0:00:07.400 The economy is in the process of rebounding. Will the 0:00:07.400 --> 0:00:10.479 Federal Reserve have its own digital currency? The financial stories 0:00:10.520 --> 0:00:12.879 that cheap hard work. Many people think the eels are 0:00:12.880 --> 0:00:15.080 just going to keep marching up. We have more spending 0:00:15.120 --> 0:00:17.200 coming out of Congress. One of the big questions I 0:00:17.200 --> 0:00:19.880 think on investor's minds inflation through the eyes of the 0:00:19.920 --> 0:00:23.560 most influential voices. Larry Summer is the former Treasury Secretary, 0:00:23.640 --> 0:00:27.240 Bryan Wynhan, a back of America. Will Sarro CEO, Charlie Sharp, 0:00:27.360 --> 0:00:31.560 Bloomberg wool Street Week with David Weston from Bloomberg Radio. 0:00:32.400 --> 0:00:35.720 Which way is up? As the Fed talks taper, COVID 0:00:35.840 --> 0:00:40.760 keeps growing, and the debacle seven thousand miles away consumes Washington. 0:00:41.320 --> 0:00:44.960 This is Bloomberg Wall Street Week. I'm David Weston. It 0:00:45.040 --> 0:00:49.840 was a week marked by uncertainty leading to indecision. Uncertainty 0:00:49.840 --> 0:00:53.160 over the economy as retail sales felt more than expected, 0:00:53.720 --> 0:00:56.880 Uncertainty over how quickly the Fed will taper its bond 0:00:56.960 --> 0:01:00.400 buying after minutes from last month's meeting showed at least 0:01:00.440 --> 0:01:03.480 some members want to get going before the year is out, 0:01:03.840 --> 0:01:07.760 and uncertainty over whether a crisis caused by American withdrawal 0:01:07.800 --> 0:01:10.760 from Afghanistan could make it even more difficult for the 0:01:10.800 --> 0:01:14.760 Democrats to get their spending package through the Congress. And 0:01:14.800 --> 0:01:17.600 the markets this week reflected much of that uncertainty by 0:01:17.640 --> 0:01:21.759 being somewhat indecisive over the week. The SMP was down 0:01:21.800 --> 0:01:24.240 a bit, but that was after it was up on Monday, 0:01:24.360 --> 0:01:27.839 way down on Thursday, and then recovered on Friday. Small 0:01:27.920 --> 0:01:30.360 caps took a hit, but again not in a straight line, 0:01:30.360 --> 0:01:33.320 with losses on Tuesday and Thursday partially offset by gains 0:01:33.360 --> 0:01:37.679 on Wednesday and Friday. Treasury yields remained stubbornly below one 0:01:37.680 --> 0:01:41.399 point three, and commodities were the one asset showing real direction, 0:01:41.480 --> 0:01:44.600 with oil down consistently through the week. To give us 0:01:44.600 --> 0:01:48.440 an investor's perspective on these indecisive and slightly nervous markets, 0:01:48.600 --> 0:01:51.160 we welcome tow Katherine Keating. She is CEO of b 0:01:51.320 --> 0:01:53.560 n Y Melon Wealth MANAGERIC. So give us a sense 0:01:53.600 --> 0:01:56.440 of what you learned. If anything is through this somewhat 0:01:56.440 --> 0:01:58.360 put Tumultuo's week. Yeah, so, I think the word I 0:01:58.360 --> 0:02:01.800 would used to describe this week David is moderating, moderating. 0:02:01.840 --> 0:02:04.680 We came off a quarter of just torrid earnings growth, right, 0:02:05.360 --> 0:02:08.040 earnings growth, and now we're looking at the economic data 0:02:08.080 --> 0:02:10.200 to try to try to figure out what the future holds. 0:02:10.200 --> 0:02:12.720 And as you said, we we saw um you know, 0:02:12.840 --> 0:02:17.360 declines and consumer confidence declines in in retail sales, um 0:02:17.520 --> 0:02:20.160 declines in the mortgage market, right, modest declines in the 0:02:20.160 --> 0:02:22.799 mortgage market, which has been very strong. On the other hand, 0:02:22.840 --> 0:02:26.240 we see corporate America continue to do well, industrial production up, 0:02:26.320 --> 0:02:29.240 so you know, things are moderating, and that's normal at 0:02:29.240 --> 0:02:31.239 this point in the cycle. That's normal at this point 0:02:31.240 --> 0:02:33.080 in the cycle. You can shut down an economy all 0:02:33.120 --> 0:02:35.840 at once, but it opens in an uneven pace, and 0:02:35.880 --> 0:02:38.400 I think that's exactly what we're seeing. And investors are 0:02:38.400 --> 0:02:40.799 looking through that and looking ahead. Well, that's my question. 0:02:40.840 --> 0:02:42.359 What are you hearing from customers? What are they what 0:02:42.360 --> 0:02:44.000 are they saying? Are they nervous about this? Are they 0:02:44.040 --> 0:02:46.920 pretty sanguine? They think it's okay. You know. One of 0:02:46.960 --> 0:02:48.520 the things I think that we have learned through this 0:02:48.639 --> 0:02:52.240 crisis is how quickly things happen. How quickly a virus 0:02:52.240 --> 0:02:54.519 spreads around the world, how quickly you can close down 0:02:54.520 --> 0:02:57.480 the economy, how quickly the market can sit through all 0:02:57.480 --> 0:03:01.640 that information. We had a six week bear market and 0:03:01.680 --> 0:03:04.880 the market completely recovered in six months, so they're learning 0:03:05.160 --> 0:03:08.480 to sift information very quickly. One of the other pieces 0:03:08.520 --> 0:03:11.120 of information we sifted this week was the news about 0:03:11.160 --> 0:03:14.800 the coronavirus and the need for booster shots. Right. The 0:03:14.880 --> 0:03:17.639 market's way that understanding it is looking forward, and again 0:03:17.680 --> 0:03:20.520 the market always looks forward a few quarters um and 0:03:20.600 --> 0:03:24.400 looking forward, we continue to think, uh, the economy is healing. 0:03:24.440 --> 0:03:27.079 We're growing at a six percent rate, that's three times 0:03:27.120 --> 0:03:29.519 what we were growing at before this crisis, and we 0:03:29.560 --> 0:03:32.360 think there's a lot of support for markets. Wall Street, 0:03:32.360 --> 0:03:35.600 we talk about investors. Let's be a little more precise 0:03:35.680 --> 0:03:37.920 about who these investors are. You pointed to a piece 0:03:37.920 --> 0:03:40.800 on the Blueberg actually this week about Fidelity, which reported 0:03:40.800 --> 0:03:43.040 that the number of four or one case went up, 0:03:44.120 --> 0:03:47.880 the number of iras of people with a million dollars 0:03:47.920 --> 0:03:50.920 or more in them. Is there a fundamental shift coming 0:03:51.200 --> 0:03:54.560 in who these investors are that is retail versus institutional 0:03:55.000 --> 0:03:57.800 And that is exactly the right question, David, because the 0:03:57.920 --> 0:04:02.120 structure of the markets has changed during our lifetimes. Today, 0:04:02.240 --> 0:04:05.040 the retail segment of the market that the assets that 0:04:05.080 --> 0:04:09.280 are governed by individuals, is larger than the institutional institutional segment, 0:04:09.320 --> 0:04:11.640 and it's growing faster. And there's a reason for that. 0:04:12.240 --> 0:04:16.000 It's corporate America has fundamentally changed the way we save 0:04:16.080 --> 0:04:19.360 for retirement. Our parents generation, they probably had a defined 0:04:19.400 --> 0:04:22.360 benefit plan, They retired with a pension and annuity for 0:04:22.400 --> 0:04:26.800 the rest of their lives and their personal savings. Today 0:04:27.040 --> 0:04:29.240 we save for our retirements ourselves. If we work for 0:04:29.279 --> 0:04:31.720 a great company, we're lucky to have them contribute as well. 0:04:31.760 --> 0:04:34.440 But it's defined contribution plans. It's for owen cave plans 0:04:34.760 --> 0:04:37.920 and our personal savings that make us ready for retirement. 0:04:37.960 --> 0:04:40.200 So that's why you see this happening. I think one 0:04:40.240 --> 0:04:43.720 of the interesting things about that story is it does 0:04:43.800 --> 0:04:46.839 show the power of investing over the long term. The 0:04:46.839 --> 0:04:48.760 average age of some of those folks with those the 0:04:48.839 --> 0:04:52.000 million dollar accounts was fifty eight, So it shows the 0:04:52.080 --> 0:04:54.599 power of investing over time and markets that do go 0:04:54.760 --> 0:04:56.680 up over time. So, to put it very bluntly, do 0:04:56.720 --> 0:04:58.520 we know what we're doing? It sounds nice to take 0:04:58.520 --> 0:05:01.160 control of our own retire benefits. At the same time 0:05:01.200 --> 0:05:02.720 when it was our pension plan, we sort of thought 0:05:02.760 --> 0:05:04.920 that were professionals doing what they're doing. I'm not sure 0:05:04.920 --> 0:05:06.760 I'm as good as those pension people are. Does it 0:05:06.880 --> 0:05:09.479 change the way with the market performs? Yes, it does 0:05:09.600 --> 0:05:12.880 so um. Yes, that pension plan had professional management, It 0:05:12.960 --> 0:05:15.720 had a chief financial officer, it had a chief investment 0:05:15.800 --> 0:05:21.240 officer doing running in with very clear institutional disciplines. How 0:05:21.320 --> 0:05:23.160 much do we have to earn, what should our asset 0:05:23.200 --> 0:05:25.040 allocation be, how much do we have to pay out 0:05:25.040 --> 0:05:29.320 to our retirees? Very very disciplined, very mathematical. There's nothing 0:05:29.360 --> 0:05:32.880 that requires us to do that ourselves. There's nothing that 0:05:32.920 --> 0:05:35.760 requires us. We have to embed that ourselves in what 0:05:35.800 --> 0:05:37.960 we do. And that's and that's actually quite a mission 0:05:38.000 --> 0:05:41.279 for us in the wealth management industry. Because consumers are 0:05:41.320 --> 0:05:44.640 sevent the economy. We want them to have very solid 0:05:44.640 --> 0:05:48.000 financial futures, very rewarding retirements, and so we're trying to 0:05:48.120 --> 0:05:52.080 embed all of those institutional disciplines right into wealth management. 0:05:52.160 --> 0:05:54.520 I'm not sure how many of us individuals are paying 0:05:54.520 --> 0:05:57.279 attention to FED, but a lot of the institutional people are. 0:05:57.520 --> 0:05:59.920 We will next week. We paying attention and Jackson Hole, 0:06:00.000 --> 0:06:01.560 which is now gonna be virtual. It turns out they're 0:06:01.560 --> 0:06:03.680 not going to actually get together in Jackson Hole. What 0:06:03.720 --> 0:06:05.520 are you looking for to come out of those meetings? 0:06:05.839 --> 0:06:07.839 So I think we're looking for two things next week. 0:06:07.880 --> 0:06:09.960 One is, of course Jackson Hole, and we look forward 0:06:10.000 --> 0:06:13.200 to Chairman Pali's speech on Friday. Will be very interested 0:06:13.240 --> 0:06:15.800 to see whether he talks about tapering. He may, he 0:06:15.880 --> 0:06:17.919 may not. He may wait a week and get the 0:06:17.960 --> 0:06:21.520 jobs report the first week of September. UM, so we 0:06:21.640 --> 0:06:25.560 might not message anything very clear about tapering. UM. We 0:06:25.640 --> 0:06:29.039 also were looking at the the pc inflation dedicator that 0:06:29.080 --> 0:06:32.400 comes out next Friday, right, the FEDS Preferred measure, you 0:06:32.400 --> 0:06:34.480 know c p I. The rate of increase at CPI 0:06:34.600 --> 0:06:37.000 came down, that will probably come down to That's that's 0:06:37.000 --> 0:06:39.640 an important data point, um. And so we're really looking 0:06:39.680 --> 0:06:42.880 at those things next week. That's Katherine Keating, CEO of 0:06:42.960 --> 0:06:46.880 b n y Melon Wealth Management, coming up. Sometimes the 0:06:46.920 --> 0:06:50.760 tortoise beats the hair. We talked with long term value 0:06:50.760 --> 0:06:54.360 investor John Rodgers of Aerial Investments about what their reflation 0:06:54.440 --> 0:06:58.560 trade means for value stocks and why bigger may not 0:06:58.720 --> 0:07:02.880 necessarily be That's next on Wall Street Week on Bloomberg. 0:07:07.360 --> 0:07:11.360 This is Bloomberg Wall Street Week with David Weston from 0:07:11.480 --> 0:07:14.920 Bloomberg Radio. The growth versus value debate is a long 0:07:14.960 --> 0:07:18.680 standing one, with mega cap growth stocks hogging the spotlight 0:07:18.760 --> 0:07:21.440 in recent years with the star power of names like 0:07:21.560 --> 0:07:25.560 Google and Tesla. The five largest components of the SMP 0:07:25.680 --> 0:07:30.160 five hundred are Apple, Microsoft, Amazon, Facebook, and Alphabet. Here's 0:07:30.200 --> 0:07:33.800 David Leibovitz of JP Morgan Asset Management. We're getting to 0:07:33.840 --> 0:07:37.280 a point where the rest of the market needs to participate. 0:07:37.320 --> 0:07:39.320 It can't be all about five or ten names in 0:07:39.360 --> 0:07:42.400 the SMP five hundred. Even though growth stocks have largely 0:07:42.440 --> 0:07:45.920 outperformed value stocks over the past few years, it didn't 0:07:46.000 --> 0:07:48.440 used to be that way, and value still has a 0:07:48.440 --> 0:07:51.880 place in long term investing strategy. These value stocks are 0:07:51.880 --> 0:07:55.560 still generally cheap and under owned relative to growth stocks. 0:07:55.560 --> 0:07:57.960 So um, you know, I think there's there's a number 0:07:58.000 --> 0:08:00.880 of drivers that it can even be more than interest 0:08:00.960 --> 0:08:03.440 rates and starts of voting value over growth right now. 0:08:03.600 --> 0:08:07.840 That's Jill carry Hall of Bank of America. Economic conditions 0:08:07.840 --> 0:08:11.480 may be ripe for value. Bets on economic recovery bring 0:08:11.560 --> 0:08:14.480 the prospects of higher treasury yields yet to come which 0:08:14.520 --> 0:08:17.840 would tend to lift companies sensitive to the economy overall, 0:08:18.280 --> 0:08:20.600 a trend that began at the end of last year 0:08:20.640 --> 0:08:23.960 when the reflation trade lifted value stocks as the global 0:08:24.000 --> 0:08:28.920 economic recovery began to take shape. Here's City Groups, Tobias Lefkovitch. 0:08:29.400 --> 0:08:31.800 This is a heavy growth market and if you flee 0:08:31.880 --> 0:08:34.400 bondles are going to edge higher, then growth stocks are 0:08:34.400 --> 0:08:36.240 going to take a little bit on the chin. And 0:08:36.280 --> 0:08:38.760 that's why you probably want to be in more value. 0:08:38.800 --> 0:08:41.439 Word Terris. When it comes to value investing, no one 0:08:41.520 --> 0:08:44.280 knows it better or is perhaps more identified with it 0:08:44.440 --> 0:08:47.320 than John Rogers, co CEO of Area Investments, with some 0:08:47.400 --> 0:08:50.480 sixteen point eight billion dollars under management last time I counted. 0:08:50.760 --> 0:08:53.240 And we welcome John now to Wall Street Week. John, 0:08:53.240 --> 0:08:54.719 thank you so much for being with us. Let me 0:08:54.760 --> 0:08:57.680 start with the most basic questions here. We talk about 0:08:57.760 --> 0:08:59.839 value with his growth a lot. But when you take 0:08:59.840 --> 0:09:03.880 a look for value stocks, what are the criteria used 0:09:03.920 --> 0:09:06.080 to say yes, that's in the value bucket? What do 0:09:06.160 --> 0:09:08.600 you look at? Well, first of all, we look at 0:09:09.040 --> 0:09:11.080 what we think is the way that we look at value. 0:09:11.120 --> 0:09:13.800 To want to have a low price earnings multiple, a 0:09:13.800 --> 0:09:16.600 low price to EBA dam multiple And at the end 0:09:16.640 --> 0:09:18.800 of the day, we're looking for new companies that are 0:09:18.840 --> 0:09:22.720 selling it at least at discount to their intrinsic value, 0:09:23.240 --> 0:09:25.840 um what we call our our private market value, and 0:09:25.880 --> 0:09:28.760 we think that's critical to get it more than a discount. 0:09:29.200 --> 0:09:31.720 So let me understand that intrinsic value, because I've seen 0:09:31.760 --> 0:09:34.640 some debate now about how you define value. Some people 0:09:34.679 --> 0:09:36.840 would talk about price to book and say that actually 0:09:37.040 --> 0:09:39.600 that number is somewhat outmoded because tech is sort of 0:09:39.720 --> 0:09:42.160 change the assets you keep on your balance shoot, do 0:09:42.240 --> 0:09:44.679 you look at things like price to book or price 0:09:44.720 --> 0:09:47.120 to cash flow? But we do look at price to 0:09:47.200 --> 0:09:49.920 cash flow for sure. But we also are you know, 0:09:49.960 --> 0:09:54.040 doing the traditional discount to present, you know, discounting future 0:09:54.080 --> 0:09:56.360 cash flows into the future to get to what we 0:09:56.400 --> 0:10:00.320 would look at our private market value. So that's you know, 0:10:00.400 --> 0:10:02.400 people learning business school. And though I didn't go to 0:10:02.440 --> 0:10:05.600 business school, but all of our analysts have and and 0:10:05.600 --> 0:10:07.920 and they really do believe that, you know, looking at 0:10:07.920 --> 0:10:10.840 those future cash flows discounting them back, it's how you 0:10:10.880 --> 0:10:14.240 get to a real true value of a company. So 0:10:14.400 --> 0:10:16.480 when you get to your bucket, if okay, these are 0:10:16.559 --> 0:10:19.560 value stacks. How do you discriminate among them and say, yeah, 0:10:19.559 --> 0:10:21.240 those are the ones that I think are really good 0:10:21.280 --> 0:10:23.760 investments for the future. Those maybe value stacks, but I'm 0:10:23.800 --> 0:10:26.600 not so sure about them. Well, one of the things 0:10:26.679 --> 0:10:29.840 we always borrow from our you know, our hero Warren Buffett. 0:10:30.120 --> 0:10:32.360 We want to make sure that the company truly has 0:10:32.400 --> 0:10:35.360 a real moat around it, so that five to ten 0:10:35.440 --> 0:10:37.400 years from now, you can bet that company is still 0:10:37.400 --> 0:10:39.760 going to be a leader in their field and it 0:10:39.800 --> 0:10:42.280 will be hard for competitors that come and knock them off. 0:10:42.920 --> 0:10:45.400 That's really what we are trying so hard to understand 0:10:45.520 --> 0:10:48.160 is making sure that industry is stable and that company's 0:10:48.240 --> 0:10:50.840 leadership role is going to be stable in the long run. 0:10:51.559 --> 0:10:54.559 Of course, we we make mistakes, and so we want 0:10:54.600 --> 0:10:56.160 to make sure we have a margin the safety in 0:10:56.240 --> 0:10:58.240 case for wrong. So we want to make sure the 0:10:58.280 --> 0:11:01.040 companies have a very very strong own sheet that can 0:11:01.080 --> 0:11:03.920 withstand all types of pressures that happen and that are 0:11:03.960 --> 0:11:07.760 inevitable as our economy goes up and down. And then finally, 0:11:07.800 --> 0:11:09.760 we're trying to look to a management team that we 0:11:09.800 --> 0:11:13.079 think a shareholder friendly, that cares deeply about their shareholders 0:11:13.280 --> 0:11:15.959 as well as their customers as well as their employees. 0:11:16.240 --> 0:11:18.640 So getting to know managements is an important part of 0:11:18.640 --> 0:11:21.840 our research. Going out and visiting companies, talking to management 0:11:21.840 --> 0:11:25.960 teams every quarter, understanding understanding their strategy and their plans 0:11:25.960 --> 0:11:29.400 to win is an important part of our analysis. John, 0:11:29.440 --> 0:11:31.800 I think one of the big changes, certainly since maybe 0:11:31.800 --> 0:11:33.920 two thousand eight, maybe four, but I think it's two 0:11:33.880 --> 0:11:37.120 thousand eight, has been the role of government, first on 0:11:37.200 --> 0:11:40.320 the monetary side and the fiscal side, and really being 0:11:40.400 --> 0:11:42.959 involving themselves in the economy. And so people said the 0:11:43.200 --> 0:11:46.280 referee is now joined the game. Has that changed the 0:11:46.320 --> 0:11:48.240 calculus when it comes to value, when you know that 0:11:48.320 --> 0:11:50.960 you can have the massive, massive, sort of fiscal and 0:11:51.040 --> 0:11:54.920 monetary stimulus, well, we think that has certainly made it 0:11:55.000 --> 0:11:58.240 very difficult over the last you know, twelve or thirteen years. 0:11:58.240 --> 0:12:01.160 You're right, since the financial crisis. The FED is in, 0:12:01.640 --> 0:12:04.360 you know, is injected so much liquidity into the market. 0:12:04.679 --> 0:12:08.720 They've kept interest rates historically low for historic length of time, 0:12:09.320 --> 0:12:12.200 and that makes the value of growth stocks, you know, 0:12:12.400 --> 0:12:15.199 look relatively cheap. You know, the SMP at twenty one 0:12:15.240 --> 0:12:19.000 times earnings is not overvalued if if interest rates stay 0:12:19.080 --> 0:12:23.360 this low. But we do think inevitably all the stimulus, 0:12:23.600 --> 0:12:26.800 it's got to have an impact on inflation. And as 0:12:26.840 --> 0:12:28.560 we think about all the new things that are being 0:12:28.559 --> 0:12:32.199 contemplated now by government to throw even more recent sources 0:12:32.240 --> 0:12:36.640 at our economy, that ultimately that's going to cause higher inflation, 0:12:36.679 --> 0:12:39.960 That will cause higher interest rates and be a reason 0:12:40.000 --> 0:12:43.880 why growth stocks will start to underperform because so much 0:12:43.960 --> 0:12:46.839 of their earnings power comes out into the future, and 0:12:46.880 --> 0:12:49.280 if you have higher rates, those future earnings are not 0:12:49.320 --> 0:12:52.360 worth as much today. John, those of us in business 0:12:52.360 --> 0:12:55.040 and financial news like to think that we're providing information 0:12:55.080 --> 0:12:57.880 and making better helping people make better decisions with investments. 0:12:58.000 --> 0:13:00.640 But I wonder sometimes we might skew this system a bit. 0:13:00.960 --> 0:13:03.199 We tend to cover the really big ones. You know, 0:13:03.240 --> 0:13:05.360 when somebody goes over a trillion dollars in market cap, boy, 0:13:05.400 --> 0:13:07.440 they get a lot of attention. Some people have balloons 0:13:07.480 --> 0:13:10.720 coming down at things. But touch us about large versus small, 0:13:10.760 --> 0:13:13.040 because I think you have a somewhat different view about this. 0:13:13.280 --> 0:13:16.080 Well from the very beginning, when when we started Aerial 0:13:16.320 --> 0:13:19.280 thirty eight years ago, we were heavily influenced by the 0:13:19.320 --> 0:13:21.720 place that I used to work. William Blair you know, 0:13:21.840 --> 0:13:23.960 Mr Blair used to always talk about the fact that 0:13:24.040 --> 0:13:28.200 smaller companies should be able to grow faster than larger companies, 0:13:28.280 --> 0:13:31.120 and we still believe that today they can be more nimble, 0:13:31.440 --> 0:13:35.080 they can be able to take advantages of market opportunities 0:13:35.120 --> 0:13:38.840 when you're small and nimble. But secondly, smaller companies are 0:13:38.880 --> 0:13:42.360 less well researched. They were less well researched, uh forty 0:13:42.400 --> 0:13:44.920 years ago, and they're still less well researched. They're not 0:13:45.000 --> 0:13:48.360 as well followed. So you can find some inefficiencies in 0:13:48.400 --> 0:13:51.760 the small cap sector. And even today, the amount of 0:13:51.760 --> 0:13:54.080 research in the small cap sector, as you suggest, have 0:13:54.160 --> 0:13:56.760 gotten less and less and less. People are just not 0:13:56.840 --> 0:13:59.839 following these sort of neglected companies the way they follow 0:13:59.880 --> 0:14:02.400 the large growth companies that have been so popular that 0:14:02.400 --> 0:14:04.920 are the multi trillion dollar companies. So you can do 0:14:05.000 --> 0:14:08.840 your own homework, do thorough research and find these undiscovered gyms. 0:14:08.880 --> 0:14:11.960 We think in that small kept sector today more than ever, 0:14:12.400 --> 0:14:14.240 and that's why we continue to fish in that same 0:14:14.280 --> 0:14:17.560 fishing pod. That's John Rodgers, the chairman and co CEO 0:14:17.920 --> 0:14:21.960 of Aerial Investments. Coming up. Greg Fleming of Rockefeller Capital 0:14:22.000 --> 0:14:25.680 Management on where high net worth individuals are putting their 0:14:25.720 --> 0:14:29.000 money in a low return world. That's next on Wall 0:14:29.000 --> 0:14:38.240 Street Week on Bloomberg. This is Bloomberg Wall Street Week 0:14:38.440 --> 0:14:43.000 with David Weston from Bloomberg Radio. Investors of all sorts 0:14:43.040 --> 0:14:45.800 struggle these days to find yield and places where they 0:14:45.800 --> 0:14:48.280 can get paid for the risks that they're taking. Greg 0:14:48.280 --> 0:14:51.400 Fleming is president of Rockefeller Capital Management, managing assets of 0:14:51.440 --> 0:14:54.240 some billion dollars at least that's the last time I checked. 0:14:54.440 --> 0:14:57.240 And it's his job to find those opportunities that aren't 0:14:57.320 --> 0:15:01.200 quite so obvious, especially for high net worth individuals. Rockefeller 0:15:01.240 --> 0:15:03.440 grew out of the family office of John D. Rockefeller, 0:15:03.600 --> 0:15:06.280 the oil magnet, and we welcome Greg now to Wall 0:15:06.280 --> 0:15:07.840 Street Week. Thank you so much for being with us. 0:15:07.880 --> 0:15:09.480 Greg is a big shoes, You have the filler with 0:15:09.560 --> 0:15:11.760 John D. Rockefeller. But give us the sense as you 0:15:11.880 --> 0:15:14.000 talked to these high that with individuals, what are they 0:15:14.040 --> 0:15:17.200 looking for and where where are you finding it? That's 0:15:17.200 --> 0:15:18.680 good to be here, David, is good to see you, 0:15:19.080 --> 0:15:24.000 m David. Our clients are primarily high net worth individuals 0:15:24.080 --> 0:15:27.480 and family and even into the altar high network category, 0:15:27.960 --> 0:15:30.800 and we work with them through private wealth advisors that 0:15:31.280 --> 0:15:34.000 deal with the client UH and their investment needs in 0:15:34.000 --> 0:15:38.280 the near term all the way through to retirement generational planning. 0:15:38.360 --> 0:15:41.000 So we take a long horizon with our private wealth 0:15:41.040 --> 0:15:43.800 teams UH, and when we look at the world today, 0:15:44.320 --> 0:15:46.640 given as you said, you set it up well with 0:15:47.360 --> 0:15:50.720 a low rate environment. If anything, rates are going to 0:15:50.760 --> 0:15:53.880 go higher from here. You have equity markets that have 0:15:54.040 --> 0:15:57.360 both volatility and they have been on any historical measure, 0:15:57.680 --> 0:16:02.160 pretty fully priced UH in certain parts of the ecuty markets. 0:16:02.160 --> 0:16:05.000 So what we cancel our clients on, even that they 0:16:05.080 --> 0:16:09.800 can handle the irequidity that comes with alterna investments is 0:16:09.840 --> 0:16:13.040 to put a portion of their assets with besting class 0:16:13.080 --> 0:16:18.360 alternative managers across the range of different investment strategies and 0:16:18.400 --> 0:16:23.240 sometimes that even extends to investing rightly in companies that 0:16:23.280 --> 0:16:27.520 are doing capital raising rounds on a direct basis. So 0:16:28.000 --> 0:16:31.280 we think UH, Briana wor all linet work investors, it's 0:16:31.280 --> 0:16:34.600 important to have a the percentage of their assets in 0:16:34.640 --> 0:16:38.560 alternative investments for investing class managers who spent a lot 0:16:38.600 --> 0:16:42.960 of time researching different managers and different strategies, and then 0:16:43.400 --> 0:16:49.560 our private wealth teams bring those investments to our AP clients. 0:16:49.680 --> 0:16:52.040 So Greg just educate me on this. When I hear 0:16:52.040 --> 0:16:55.400 alternative investments, I think I'm giving up some liquidity. Those 0:16:55.400 --> 0:16:56.720 tend to be things where I have to commit some 0:16:56.720 --> 0:16:58.520 money for some period of time, sometimes for a long 0:16:58.560 --> 0:17:00.880 period of time. Is that and if so, what's the 0:17:00.920 --> 0:17:03.600 trade off there? Particularly at uncertain times where there's a 0:17:03.600 --> 0:17:07.000 fair amount of hoolatility, they do tend to be more 0:17:07.119 --> 0:17:10.920 ill liquid in the investment horizon is often longer, certainly 0:17:10.960 --> 0:17:14.720 than a publicly available security, whether it's a stock or 0:17:14.760 --> 0:17:17.760 a bond. So there's no question that that's what uh 0:17:18.200 --> 0:17:20.680 you're you're giving up when you when you move into 0:17:20.680 --> 0:17:24.280 alternate investments. But those investments that are made, whether it's 0:17:24.280 --> 0:17:26.960 a private equity manature or even a hedge fund, they 0:17:27.000 --> 0:17:29.720 tend to be made with a longer term investment horizon 0:17:29.960 --> 0:17:35.080 mind um. And it allows the investor to access these 0:17:35.119 --> 0:17:39.959 managers who are investing through the cycle, if you will, David, So, 0:17:40.800 --> 0:17:45.040 we think it's an important, uh editive part of an 0:17:45.040 --> 0:17:49.040 investment plan or highnet work multi hignetwork investors who don't 0:17:49.080 --> 0:17:52.919 have to access the full range of the portfolio on 0:17:52.920 --> 0:17:56.639 on a real time dear term basis. So so Greg 0:17:56.840 --> 0:17:59.280 at Bloomberg here. We had an interview this week with 0:17:59.400 --> 0:18:02.080 the head of the our Norwegian Sovereign Wealth fund, who 0:18:02.080 --> 0:18:03.960 manages a fair amount of money. I think it's fair 0:18:04.000 --> 0:18:06.000 to say believe it's the largest in the world. And 0:18:06.040 --> 0:18:08.240 what he said was he thought the biggest threat to 0:18:08.320 --> 0:18:10.679 his portfolio, and that's on the fixed income side and 0:18:10.720 --> 0:18:13.439 an equi side, is inflation. At this point, do you 0:18:13.480 --> 0:18:15.480 agree with that and if so, how do you take 0:18:15.520 --> 0:18:19.000 that into account as you make investments. You know, I 0:18:19.040 --> 0:18:21.960 think that inflation and he's probably what he's doing is 0:18:22.000 --> 0:18:26.040 he's saying inflation, which will ultimately lead to higher rates, 0:18:26.680 --> 0:18:28.720 is the threat to his investment portfolio. And this is 0:18:28.720 --> 0:18:31.480 why the FED is working hard to thread this, David. 0:18:32.000 --> 0:18:35.960 They wanted some near term inflation here for multiple reasons, UH, 0:18:36.119 --> 0:18:41.240 including trying to avoid the UH deflationary trappic that Japan 0:18:41.359 --> 0:18:44.280 is legally for so long, and to get some pricing 0:18:44.600 --> 0:18:47.040 power in the hands of the company. So they wanted 0:18:47.760 --> 0:18:50.760 and they hung with this, I think UH for for 0:18:50.880 --> 0:18:53.760 some time to get some inflation in the system. But 0:18:53.800 --> 0:18:56.199 if it goes too far and if it becomes something 0:18:56.359 --> 0:18:59.680 and you know, people forget the inflation is also about 0:18:59.760 --> 0:19:03.119 X patients and earlier in our lives and careers, there 0:19:03.160 --> 0:19:06.119 will more inflation. And when there's a sense of inflation, 0:19:06.600 --> 0:19:08.800 if it starts to get built into the system, then 0:19:09.080 --> 0:19:12.160 it does tend to uh me be harder to move. 0:19:12.720 --> 0:19:17.000 And also, you know, you factor in uh the increase 0:19:17.160 --> 0:19:21.399 in home price uh home prices and home price sales 0:19:21.480 --> 0:19:23.960 for distening home over the last year, you've had real 0:19:24.000 --> 0:19:26.639 inflation in the economy. So he's looking at it and 0:19:26.680 --> 0:19:29.480 he's worried about the fact that if it gets ahead 0:19:29.480 --> 0:19:32.720 of the Fed and the Fed has to start raising rates, 0:19:32.720 --> 0:19:36.320 that's obviously difficult for fixed income investments, but it also 0:19:36.480 --> 0:19:39.800 tends to revising rate environment is a harder thing on 0:19:39.880 --> 0:19:43.520 equity markets as well. So that's why he's saying, wait 0:19:43.520 --> 0:19:46.240 a minute. If inflation starts to move, and if it 0:19:46.280 --> 0:19:49.280 gets ahead of the central bankers and interest rates follow, 0:19:49.320 --> 0:19:52.560 which they will necessarily happen at that point, that could 0:19:52.600 --> 0:19:56.320 be problematic for both sides. UH good portfolio. That's Gregg 0:19:56.320 --> 0:20:00.240 Fleming of Rockefeller Capital Management coming up. We ra up 0:20:00.280 --> 0:20:03.360 the week with special contributor Larry Summers of Harvard. That's 0:20:03.400 --> 0:20:11.840 next on Wall Street Week on Bloomberg. This is Bloomberg 0:20:11.880 --> 0:20:16.280 Wall Street Week with David Weston from Bloomberg Radio. We 0:20:16.320 --> 0:20:18.120 have a lot to go over this week with our 0:20:18.160 --> 0:20:21.040 special contributor Larry Summers at Harvard, So Larry, let's get 0:20:21.119 --> 0:20:22.919 right to it. The biggest story of the week, I 0:20:22.920 --> 0:20:25.960 think on the headlines every single day was Afghanistan. It's 0:20:25.960 --> 0:20:29.719 a political, geopolitical, real crisis. I may say, are there 0:20:29.760 --> 0:20:35.560 any economic ramifications? Do you see? Two comments, David, if 0:20:35.600 --> 0:20:39.320 this affects the broad perception of the administration, that could 0:20:39.400 --> 0:20:43.840 have economic consequences. If you look back to the fall 0:20:43.920 --> 0:20:49.480 of Saigon, no major economic consequences that followed that, and 0:20:49.960 --> 0:20:55.159 rather remarkably, uh month and a half afterwards, the president's 0:20:55.200 --> 0:20:59.320 popularity was up by ten points. Here's what people aren't 0:20:59.400 --> 0:21:04.040 paying at Engine two. The Taliban is going to find 0:21:04.080 --> 0:21:09.520 its victory very challenging. Afghanistan was an economy supported largely 0:21:09.600 --> 0:21:14.359 by foreign aid. That foreign aid, the US spending from 0:21:14.400 --> 0:21:17.840