WEBVTT - Surveillance: International Markets With Doll 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Daily 0:00:13.960 --> 0:00:17.560 we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.640 Bloomberg dot Com, and of course on the Bloomberg Steve 0:00:27.640 --> 0:00:31.080 Shibaron has it federated. And what's so important about what 0:00:31.320 --> 0:00:34.879 Mr Shivaron does is he writes really important notes of 0:00:34.920 --> 0:00:38.360 the international balances out there and then what to do 0:00:38.440 --> 0:00:41.239 with your investment at Capital. We're thrilled he could join 0:00:41.320 --> 0:00:44.199 us and federated him as this morning up Steve. You know, 0:00:44.240 --> 0:00:48.000 I look at your note which is basically, hey, everybody, 0:00:48.080 --> 0:00:51.120 wake up. The US isn't as bad as all. And 0:00:51.200 --> 0:00:53.760 does that mean that you and the team at Federated 0:00:53.960 --> 0:01:00.880 stay hugely US centric. No. Actually, for the first time 0:01:00.920 --> 0:01:05.440 in a while, we've closed some of our underweights internationally. 0:01:05.480 --> 0:01:08.000 I think that the big story that's out there in 0:01:08.000 --> 0:01:11.440 the marketplace, that's hiding in plain sight, but's the big driver, 0:01:11.640 --> 0:01:15.200 is collectively large parts of the world are exiting recession 0:01:15.240 --> 0:01:18.240 to stay at home. Recession is most likely ended in 0:01:18.280 --> 0:01:21.720 a lot of places, and we're entering recovery and in 0:01:21.760 --> 0:01:25.800 that environment, value parts of the market are likely to 0:01:25.880 --> 0:01:28.360 catch up. And when you look at European in disease, 0:01:28.400 --> 0:01:32.320 when you look at developed non US, there's more value 0:01:32.360 --> 0:01:34.959 in those industries. So it's not a story about growth 0:01:35.080 --> 0:01:37.600 rolling over and dying. It's not a story about the 0:01:37.720 --> 0:01:39.720 US do importantly, but we think international can start to 0:01:39.760 --> 0:01:42.399 catch up. This is so so important, Steve, you and 0:01:42.400 --> 0:01:45.080 I've talked about it before. Let's review it right now. 0:01:45.120 --> 0:01:49.000 I think it's of such great importance. It's not about 0:01:49.280 --> 0:01:54.520 tech down and vailue up. It's on a relative basis, 0:01:54.600 --> 0:01:57.960 just the value starts to do better. Right, Yeah, and 0:01:58.000 --> 0:02:00.520 within value, right, you have to separate that between the 0:02:00.560 --> 0:02:03.800 survivors and the and the dyers. Right there, almost all 0:02:03.920 --> 0:02:06.960 value was a loser from the pandemic. The question is 0:02:07.120 --> 0:02:09.400 which companies are going to survive, because those companies are 0:02:09.400 --> 0:02:12.200 going to take share from those companies that don't survive, 0:02:12.680 --> 0:02:15.000 and they're gonna be rerated higher when they're no longer 0:02:15.080 --> 0:02:18.000 being priced for you know, pandemic and recession. And so 0:02:18.240 --> 0:02:20.239 we think there's a lot of alphah to be generated 0:02:20.320 --> 0:02:22.639 on the value side if you can engage in good 0:02:22.639 --> 0:02:25.640 research and pick the right stocks. See if good morning 0:02:25.680 --> 0:02:28.000 to you. What is it that drive what is the 0:02:28.040 --> 0:02:31.080 catalyst that drives that move into value? Then? Is it's 0:02:31.240 --> 0:02:34.480 a vaccine and and what will be the definitive vaccine 0:02:34.560 --> 0:02:37.560 news that sort of sleepens the yield cave drives people 0:02:37.560 --> 0:02:41.000 into value here in Europe. No, I think the vaccine 0:02:41.040 --> 0:02:44.040 is part of this, but let's make no mistake about it. 0:02:44.040 --> 0:02:47.600 It's not an investment strategy to pray for a cure. All. 0:02:47.639 --> 0:02:49.839 I think any vaccine we're likely to get is more 0:02:50.480 --> 0:02:54.079 flu vaccine than smallpox vaccine. I think the big catalyst 0:02:54.160 --> 0:02:55.880 here is just the end of the recession. If you 0:02:55.919 --> 0:02:57.760 look at p M I s, if you look at 0:02:57.760 --> 0:03:01.320 retail sales, if you look at housing activity, they're all 0:03:01.360 --> 0:03:05.040 showing economic recovery. Labor markets they're showing recovery. That in 0:03:05.080 --> 0:03:08.360 and of itself is a catalyst. Now, what will confirm 0:03:08.440 --> 0:03:11.200 it is if we continue to see the tenure yield 0:03:11.520 --> 0:03:14.520 remain firm or firm. And that's what was different in 0:03:14.560 --> 0:03:16.880 this past value run than the head fix we've gotten 0:03:16.880 --> 0:03:20.240 before is you've got twenty basis points of ten year 0:03:20.320 --> 0:03:23.400 bond yields up, which which you didn't get before. So 0:03:23.440 --> 0:03:26.000 the bond markets telling you it also thinks that things 0:03:26.040 --> 0:03:29.680 are normally as is the dollar. The dollar weakening is 0:03:29.720 --> 0:03:32.840 a sign of normalization. You're you're taking off that safety 0:03:32.840 --> 0:03:35.480 trade in large part. And we'll get to the dollar 0:03:35.800 --> 0:03:37.840 the dollar shortly. Perhaps I'm just looking the year to 0:03:37.920 --> 0:03:40.800 dight moves on some of these big stock indexes, and 0:03:41.080 --> 0:03:43.040 many in the US well, the NAZAK and the SMP 0:03:43.400 --> 0:03:47.080 notably of course, have termed positive year today Europe really 0:03:47.160 --> 0:03:50.800 drags behind. Is that just a function of sector exposure, 0:03:50.840 --> 0:03:53.200 a function of being more driven by values and growth 0:03:54.080 --> 0:03:56.920 or does Europe deserve that kind of discount right now? 0:03:58.000 --> 0:04:00.880 He deserves a discount. And I think you're largely because 0:04:00.880 --> 0:04:02.880 of the sector exposure. When you look at at the 0:04:03.000 --> 0:04:06.640 SMP five, it has, you know, significantly more tech and 0:04:06.640 --> 0:04:09.440 calm services. When you look at you know, the eurostocks, 0:04:09.440 --> 0:04:11.440 You've got a lot more financials, you have a lot 0:04:11.480 --> 0:04:14.000 more energy, you have a lot more big farm and 0:04:14.000 --> 0:04:15.960 so I think that's that's a part of it. But 0:04:16.040 --> 0:04:18.160 I also think that there have been some overhangs in 0:04:18.200 --> 0:04:20.279 Europe that are starting to lift. You're seeing a little 0:04:20.320 --> 0:04:23.720 bit more fiscal cohesion up until you know, last day 0:04:23.800 --> 0:04:26.960 or so, the virus state has been relatively well behaved. 0:04:27.000 --> 0:04:30.080 And then I think that dollar weekening also helps make 0:04:30.200 --> 0:04:32.279 you know, international markets a little bit more attractive for 0:04:32.360 --> 0:04:35.719 US investors. So what are you actually doing to deploy capital? 0:04:35.720 --> 0:04:38.680 I want to talk to you about a broader institutional 0:04:39.400 --> 0:04:43.440 idea here had federated about what sectors actually matter now 0:04:43.800 --> 0:04:46.960 in terms of participating in the market, Steve, but not 0:04:47.040 --> 0:04:49.320 getting my head handed to me if I get it wrong. 0:04:50.080 --> 0:04:52.640 That's that's exactly right, and it's a very it's gonna 0:04:52.680 --> 0:04:56.320 be an interesting answer, and it's small caps actually, uh, 0:04:56.440 --> 0:05:00.200 small caps is a way of playing this cyclical rotation Shin. 0:05:00.480 --> 0:05:03.400 But even if the value story doesn't materialize as much 0:05:03.440 --> 0:05:06.000 as you know we think it may, small caps have 0:05:06.040 --> 0:05:09.080 another way of winning. In the first year off of 0:05:09.120 --> 0:05:13.119 a recession bottom small cap equities tend to outperform large 0:05:13.120 --> 0:05:16.839 caps by about twenty to five, which is a big boost. 0:05:16.880 --> 0:05:19.640 They benefit from low rates, and we think they'll benefit 0:05:19.680 --> 0:05:24.039 when the Fed ultimately announces average inflation targeting. They benefit 0:05:24.080 --> 0:05:27.200 from a cyclical pickup um and we think longer term 0:05:27.240 --> 0:05:29.840 they benefit from a manufacturing renaissance in the center of 0:05:29.839 --> 0:05:33.040 the United States. So we've moved overweight to small caps, 0:05:33.200 --> 0:05:36.680 particularly on the value side. We've closed our underweight internationally 0:05:37.000 --> 0:05:39.640 and we remain overweight equities. Those are the three big 0:05:39.720 --> 0:05:43.600 calls that we're implementing or suggesting the clients implement through 0:05:43.600 --> 0:05:47.640 their portfolios. And Steve, what drives that manufacturing renaissance in 0:05:47.680 --> 0:05:50.200 this in the center of the United States that you 0:05:50.279 --> 0:05:52.960 refer to in your notes ahead of our conversation, you 0:05:53.040 --> 0:05:56.160 talk quite a lot about population dynamics. And not to 0:05:56.200 --> 0:05:58.640 sound too MALFUSI in a bouncing it, I'm either simple 0:05:58.720 --> 0:06:01.120 as that or or or does that not play well 0:06:01.120 --> 0:06:03.240 with our E s G. Credentials means to find other 0:06:03.320 --> 0:06:05.880 investment things other than just where is the population going 0:06:05.880 --> 0:06:08.640 to grow? Most? No, but I think population is a 0:06:08.680 --> 0:06:10.200 big driver. It's not the only one. I think in 0:06:10.240 --> 0:06:12.520 the long run the drivers of economic growth are in 0:06:12.560 --> 0:06:17.360 fact population growth and innovation. And and remember companies went 0:06:17.440 --> 0:06:20.760 to China primarily for cheap labor, you know, ten twenty 0:06:20.800 --> 0:06:23.920 years ago. But when you're when your factory is more 0:06:24.000 --> 0:06:27.360 technology and less labor in terms of input costs, which 0:06:27.360 --> 0:06:30.960 you're left within China or higher shipping costs, higher energy costs, 0:06:31.360 --> 0:06:35.560 not enough intellectual property protection, uncertainty on the GEL on 0:06:35.600 --> 0:06:39.360 the Korean peninsula. Hong Kong's gone from the financial capital 0:06:39.400 --> 0:06:41.800 of Asia to a state of rebellion, and there have 0:06:41.920 --> 0:06:44.960 been some transparency issues at least around the beginning of 0:06:44.960 --> 0:06:48.000 the pandemic. By contrast, when you look at the center 0:06:48.000 --> 0:06:50.120 of the United States, and I would include Mexico here 0:06:50.480 --> 0:06:52.760 and parts of Canada as well, but the center part 0:06:52.800 --> 0:06:56.400 of North America, you have easy shipping routes to great 0:06:56.520 --> 0:06:58.880 end markets, one of the lowest tax rates in the world, 0:06:59.200 --> 0:07:03.520 abundant and ergy, geopolitical stability, even in these kind of 0:07:03.560 --> 0:07:07.040 crazy political times. Um and we think that for a 0:07:07.080 --> 0:07:09.440 lot of reasons, that becomes an attractive emerging market. And 0:07:09.480 --> 0:07:12.600 I think policymakers on both sides of the political divide 0:07:12.640 --> 0:07:15.120 are gonna are going to encourage that. Steve, and thank 0:07:15.160 --> 0:07:17.520 you so much for being with Steve Schavaroni or federated 0:07:17.560 --> 0:07:24.200 or miss with us this morning now with p JUM 0:07:24.320 --> 0:07:27.320 and I should say, the award winning PI JAM and 0:07:27.440 --> 0:07:31.640 fixed Income Robert Tip joins us their chief investment strategists. 0:07:31.880 --> 0:07:34.360 What do I make of the real yield Robert Tip, 0:07:34.400 --> 0:07:37.280 other than John Farrell's show is award winning? What do 0:07:37.360 --> 0:07:43.520 I make of the inflation adjusted yield in America right now. Yeah, 0:07:43.600 --> 0:07:45.560 let's it's the difficult time for people to figure out 0:07:45.560 --> 0:07:48.240 their bonds and there's no doubt the yields are allowed 0:07:48.680 --> 0:07:51.080 the real yield or negative and trying for people to 0:07:51.120 --> 0:07:54.880 wrap divines around what that means. I can focus on 0:07:55.040 --> 0:07:58.200 the normal yield, and I think that looking inside they 0:07:59.160 --> 0:08:02.040 that those are likely to remain where they are. If 0:08:02.080 --> 0:08:05.920 the said is going to succeed, that is going to 0:08:05.960 --> 0:08:09.160 be measured in terms of they're pushing up inflation expectations. 0:08:09.320 --> 0:08:11.400 Have a colleague kish line. He likes to think in 0:08:11.480 --> 0:08:13.800 terms of the real yield. Well, he would say that 0:08:13.960 --> 0:08:17.320 Tom is that if they succeed right now, break evens 0:08:17.720 --> 0:08:21.320 are below two percent, and the said, once you target 0:08:21.320 --> 0:08:25.200 a PC of two, the CPI, which is what break 0:08:25.280 --> 0:08:27.440 evens trade off of, you're gonna have to go with 0:08:27.480 --> 0:08:31.280 me one second, right still involve CPI is usually higher 0:08:31.280 --> 0:08:33.880 than the PC. So the fens PC is going to 0:08:33.920 --> 0:08:36.040 be to the CPI has got to be above two. 0:08:36.720 --> 0:08:39.160 If the CPI is above two, and the market beliefs 0:08:39.160 --> 0:08:41.600 that your ten your real yield, which is at minus one, 0:08:41.760 --> 0:08:43.800 it's going to be at minus one and a half 0:08:43.920 --> 0:08:48.560 or less. So really yield a negative and one sign 0:08:48.559 --> 0:08:51.520 of the Feds going to said success it's gonna be 0:08:51.520 --> 0:08:54.080 Does the market believe inflation is going to go to target? 0:08:54.120 --> 0:08:57.679 It didn't believe it, or this crisis it doesn't believe it. Now, 0:08:57.800 --> 0:09:00.920 well you just heard their folks. Is an adult conversation 0:09:01.160 --> 0:09:04.120 on bonds. We've heard this across the show. I can't 0:09:04.120 --> 0:09:07.400 say enough the value of John writing at Breen Capital 0:09:07.440 --> 0:09:10.000 and what you're hearing from Mr Tip of Pigeum. The 0:09:10.000 --> 0:09:13.000 way this is reported and fixated on in the media 0:09:13.600 --> 0:09:16.199 is wrong. I don't know what else to say. It 0:09:16.280 --> 0:09:19.000 was literally the first project I did for Matt Winkler 0:09:19.360 --> 0:09:22.520 at Bloomberg. You take the nominal yield, as Mr Tip 0:09:22.880 --> 0:09:27.440 just did, and then you look at the inflation expectations 0:09:27.880 --> 0:09:31.480 and the residual is the real yield. So with that said, 0:09:31.600 --> 0:09:35.280 Robert Tip, what would you suggest nominal yields will do? 0:09:35.920 --> 0:09:39.680 So my my comments here have been that the friend 0:09:39.720 --> 0:09:42.400 of the curve like just five years and then a 0:09:42.559 --> 0:09:45.160 little bit expensive, that they're gonna stay down here. The 0:09:45.240 --> 0:09:47.400 statins is beating a drum, and we make that a 0:09:47.440 --> 0:09:50.040 little bit of a w type recovery, a little bit 0:09:50.080 --> 0:09:53.920 of a step back on growth acceleration. The middle part 0:09:53.920 --> 0:09:55.680 of the curb. The tenure is going to be in 0:09:55.720 --> 0:10:00.200 this forty eight range. Think how whether people acknowledge at 0:10:00.240 --> 0:10:02.160 w or seeing it, or whether they're getting a little 0:10:02.160 --> 0:10:04.840 more optimistic. And they pushed up to eighty the back 0:10:04.960 --> 0:10:08.120 end of the curve again diving back inside of the 0:10:08.160 --> 0:10:11.440 yolk curt Come on, sorry, those forward rates that you love, 0:10:12.120 --> 0:10:14.560 what's priced in in terms of where treasuries are going 0:10:14.640 --> 0:10:17.680 to be ten, fifteen, twenty years from now, are way 0:10:17.720 --> 0:10:21.520 too high. They're in the mid to high two percent area. 0:10:22.400 --> 0:10:24.480 They were above, you know, and we had a correction 0:10:24.559 --> 0:10:27.240 a few months back, but they're back pushing two percent, 0:10:27.320 --> 0:10:29.960 which does your your bond yield is too high. So 0:10:30.000 --> 0:10:33.880 we're looking for a stable to flatter yields on average, 0:10:34.400 --> 0:10:37.040 which means treasuries are gonna be outperforming cash. And that's 0:10:37.080 --> 0:10:42.240 before you even get to spreads and spread product is 0:10:42.240 --> 0:10:45.280 training ahead of the economy. It's gotten very optimistic, it's 0:10:45.320 --> 0:10:49.120 priced that in, but that's probably going to be the 0:10:49.160 --> 0:10:51.520 case on balance and next trawl to twenty four months. 0:10:51.520 --> 0:10:54.280 So this is the bottom market that looks sick, you 0:10:54.280 --> 0:10:56.280 know to people from the outside, But when you dive 0:10:56.360 --> 0:10:58.200 inside of it. You look at what's going on in 0:10:58.200 --> 0:11:01.840 the economy with the trajectories like the to be uh, 0:11:01.880 --> 0:11:04.360 you know, zero cash is gonna be a low hurdle 0:11:04.679 --> 0:11:07.440 for the bond market the next point four months. So 0:11:07.480 --> 0:11:09.880 what but you expect a stop good morning. You expect 0:11:09.880 --> 0:11:13.200 a steeper curve. What is the biggest threats of that view? 0:11:13.320 --> 0:11:16.160 Does a vaccine change that? What would be the definitive 0:11:16.640 --> 0:11:21.079 bit of vaccine news that might threaten sorry, you expect 0:11:21.080 --> 0:11:23.560 a flatter curve? What would what would change that from 0:11:23.600 --> 0:11:29.120 a vaccine perspective? Absolutely? So that is uh. You know. 0:11:29.160 --> 0:11:32.160 The thing is when you have that burst of optimism 0:11:32.400 --> 0:11:35.120 on a vaccine, you know web and if that hits 0:11:36.160 --> 0:11:39.000 we get to the far side of this, then you know, 0:11:39.080 --> 0:11:42.360 CRITC ten shoot up to one percent to one thirty 0:11:42.480 --> 0:11:47.280 or even higher depending on how effective, how quickly thinks 0:11:47.320 --> 0:11:51.199 to normalize and so on. Um. But if the at 0:11:51.200 --> 0:11:54.760 the end of it, right now, we've had uh, you know, 0:11:54.840 --> 0:11:59.840 not even you know fifty recovery in employment and in 0:12:00.040 --> 0:12:03.480 comes are being sustained by benefit payments and what we 0:12:03.520 --> 0:12:07.319 know from past recessions. Even in this case, if it's 0:12:07.360 --> 0:12:09.560 more rapid, it's gonna take a very long time to 0:12:09.559 --> 0:12:13.800 get incomes elevated. And right now consumption is at a 0:12:13.840 --> 0:12:17.600 record level. We printed record retail sales, but incomes are 0:12:17.640 --> 0:12:20.400 quite depressed, and that, you know, speaks to a gap 0:12:20.880 --> 0:12:22.800 that's going to be filled by some falling back. So 0:12:22.800 --> 0:12:25.240 it will be a lot of back and forth. We've 0:12:25.280 --> 0:12:28.200 seen a lot of rapid fluctuations in the market. I 0:12:28.240 --> 0:12:30.960 think that you can't have births of optimism that will 0:12:31.000 --> 0:12:34.200 temperate poor shields up. But in the long run, the 0:12:34.240 --> 0:12:37.440 world we were in before this crisis get Let's say 0:12:37.440 --> 0:12:40.079 that's what the world looks like with AVA being you 0:12:40.200 --> 0:12:45.880 are looking at sub price and inflation in the treasury 0:12:45.960 --> 0:12:49.559 market that needed to be a few cans higher. You know, 0:12:49.679 --> 0:12:51.880 the market is going to believe, so you're gonna need 0:12:51.920 --> 0:12:56.680 a vaccine, and you may need something like a like 0:12:56.760 --> 0:13:01.400 a renewables boom on an energy platform the US maybe 0:13:01.480 --> 0:13:05.520 joining Europe and then push for green and declbinization, something 0:13:05.640 --> 0:13:08.160 you know, rightly or wrongly, whether you like it or not, 0:13:08.760 --> 0:13:12.000 that gets you a why two K hype economic boom 0:13:12.040 --> 0:13:14.360 to get your sustainably over one percent and the tendu 0:13:14.360 --> 0:13:16.720 the treasury. Otherwise you're not going to see it, it's 0:13:16.760 --> 0:13:20.439 going to be a stable to gladder curve grinding as 0:13:20.480 --> 0:13:25.880 the secular dynamics of demographics, you know, keep these yield well, 0:13:26.000 --> 0:13:28.679 keep bond return. Okay, so we came from a low 0:13:28.720 --> 0:13:31.640 yield environment, that that that the virus hasn't changed that 0:13:31.679 --> 0:13:34.920 necessarily we go back to still a low yield environment. 0:13:34.960 --> 0:13:38.199 But when as we look for this news flow surrounding 0:13:38.200 --> 0:13:40.960 a vaccine Robert from the from the perspective of the 0:13:41.000 --> 0:13:43.520 bond market, should we see this as a very binary thing, 0:13:43.640 --> 0:13:46.680 like here's some good news on a vaccine that works 0:13:46.679 --> 0:13:50.400 from a Western drugs developer and that perhaps will be 0:13:50.400 --> 0:13:53.120 seen positively by investors. Or should we get a bit 0:13:53.120 --> 0:13:55.960 more granular than that, dig down into you know, how 0:13:56.000 --> 0:13:58.160 long is it going to be effective for? And there'll 0:13:58.160 --> 0:13:59.640 be a lot of questions, won't there as soon as 0:13:59.640 --> 0:14:03.240 we see that needs you that's right, that's why you 0:14:03.240 --> 0:14:06.240 want to give that nightmare to people like you to 0:14:06.320 --> 0:14:09.480 follow and for for me to try and trade, because 0:14:09.520 --> 0:14:14.360 the underlying dynamics dot long term secular backdrop is going 0:14:14.360 --> 0:14:17.320 to remain unchanged, and in fact, if anything, it's worse 0:14:17.320 --> 0:14:19.440 than as we've gone through this crisis and it's going 0:14:19.480 --> 0:14:23.040 to continue to the deceleration workforces. Those things are just 0:14:23.200 --> 0:14:26.800 really beginning, so that dynamic is going one way. In 0:14:26.840 --> 0:14:28.640 the short term, you're going to get these pops and 0:14:28.760 --> 0:14:31.800 optimism and they're going to provide training opportunities. But I 0:14:31.920 --> 0:14:35.480 think it's going to change your secular environment being below 0:14:35.520 --> 0:14:38.080 one percent of the tenure in all likelihood. Robert Tiff, 0:14:38.120 --> 0:14:40.400 thank you so much for tak that discussion of nominal 0:14:40.480 --> 0:14:44.840 less inflation expectations deriving the real yell Mr Tip with Pigam. 0:14:48.400 --> 0:14:51.720 Robert Dawle is an interesting guy. He's a guy who 0:14:51.800 --> 0:14:56.400 is smart, smart, smart on framing the why of optimism 0:14:56.400 --> 0:14:59.680 And like our Gina Martin Adams of Bloomberg Intelligence, Robert 0:14:59.760 --> 0:15:02.360 daw of Nouvene is one of those people that gives 0:15:02.360 --> 0:15:05.480 you courage to stay in the market. So maybe you 0:15:05.520 --> 0:15:08.920 can make some money with Home Depot, Bob Donk. You 0:15:09.040 --> 0:15:11.800 know that you have a stock and they sort of 0:15:11.840 --> 0:15:14.600 hang out and then they go up off news or something. 0:15:14.960 --> 0:15:19.160 How do you identify companies like Home Depot or Apple 0:15:19.560 --> 0:15:23.160 that just every quarters seemed to do it and every 0:15:23.240 --> 0:15:26.600 quarters seemed to go up thankfully on both stocks. Tom 0:15:27.200 --> 0:15:30.080 these are companies First of all, they have products that 0:15:30.120 --> 0:15:33.560 are interesting. Second of all, they manage their business well, 0:15:33.920 --> 0:15:36.160 and third of all, they generate a bunch of cash. 0:15:36.600 --> 0:15:40.880 If you can find companies do those three things rather consistently, generally, 0:15:40.880 --> 0:15:43.480 you're gonna be in good shape on those stocks. I mean, 0:15:43.640 --> 0:15:46.840 Home DuPont news, the Walmart news, they really good news. 0:15:46.960 --> 0:15:48.560 I mean, I mean, I know you're a glass half 0:15:48.560 --> 0:15:50.480 full guy, But I want you to speak to the 0:15:50.560 --> 0:15:53.760 people who are not Robert dal They don't have your experience, 0:15:53.960 --> 0:15:56.280 they don't have your sense of history. What do you 0:15:56.320 --> 0:15:59.040 say to the people that have missed the home Depot boat? 0:15:59.360 --> 0:16:01.840 How do you get back on board with a total 0:16:01.960 --> 0:16:05.240 enterprise value to But that's not in any book you 0:16:05.400 --> 0:16:09.360 or I ever studied. Yes, well, first of all, you 0:16:09.400 --> 0:16:12.600 have to agree that a year from now the stock 0:16:12.640 --> 0:16:14.760 market is going to be hiring it is today, that's 0:16:14.840 --> 0:16:17.800 my view, because the economy will be doing better and 0:16:17.880 --> 0:16:20.480 earnings will be hired. Maybe we'll have a vaccine. That 0:16:20.560 --> 0:16:23.280 doesn't mean we we'll have short term, short term bumps 0:16:23.320 --> 0:16:26.360 along the way. But if that's the case, Home Depot 0:16:26.480 --> 0:16:28.960 is probably gonna be higher a year from that is today. 0:16:29.000 --> 0:16:32.800 So dollar cost average into those stocks that you think 0:16:32.840 --> 0:16:35.680 are in the stratosphere and you've missed if they have 0:16:35.840 --> 0:16:39.440 the propositions that we just talked about and aren't ridiculously valued. 0:16:39.480 --> 0:16:43.280 Home depots up a lot, but it's still not horribly expensive, 0:16:43.480 --> 0:16:45.080 and well, good to speak to you. I was reading 0:16:45.080 --> 0:16:47.640 some research. It says a by the national or the sites, 0:16:47.680 --> 0:16:51.000 the National Association of Actsive Investment Manages, and he talks 0:16:51.040 --> 0:16:54.000 about how even those who were previously baries, you're just 0:16:54.040 --> 0:16:56.040 kind of giving up and joining in with this bull 0:16:56.360 --> 0:16:58.800 joining in with this rally. Do you sense that you've 0:16:58.800 --> 0:17:01.520 got more company in or in your your bullish view 0:17:01.560 --> 0:17:05.119 on where u S stocks head? So I'm commented about 0:17:05.119 --> 0:17:07.880 a year from now, I'm also in the camp too 0:17:07.920 --> 0:17:10.399 many of us are that we're a little hell ahead 0:17:10.440 --> 0:17:13.000 of ourselves. In the short term, We've come a long way, 0:17:13.280 --> 0:17:17.720 We've retraced the entire bear market. Earnings today are nowhere 0:17:17.760 --> 0:17:19.840 near where they were when stocks are at the all 0:17:19.920 --> 0:17:22.920 time high in February. So uh, and we have an election, 0:17:23.000 --> 0:17:26.719 we have a bill we can't seem to pass. Valuation 0:17:26.840 --> 0:17:29.359 levels are not particularly cheap, so I can make the 0:17:29.480 --> 0:17:33.440 cautious case I don't see big downside, but those who 0:17:33.480 --> 0:17:36.560 are a little nervous. If you have a ton of cash, 0:17:36.600 --> 0:17:39.480 you've gotta step up and put some in uh. In 0:17:39.600 --> 0:17:43.120 my view, UM, if you've been fully invested the whole 0:17:43.119 --> 0:17:45.200 way and want to take a profit or two, I'm 0:17:45.240 --> 0:17:49.080 fine with that as well. Um. Markets don't go straight 0:17:49.160 --> 0:17:51.840 up in bull markets are straight down in bear markets, 0:17:51.840 --> 0:17:54.359 as we all know. But do you like European stocks 0:17:54.359 --> 0:17:56.919 at this point or is it just about the the US? 0:17:57.080 --> 0:17:59.879 I asked, because I'm confused by the market reaction some 0:18:00.040 --> 0:18:02.680 days during August we've got headlines of plenty about the 0:18:02.760 --> 0:18:05.520 virus taking upwards in various parts of Europe, and yet 0:18:05.560 --> 0:18:07.880 that doesn't weigh on European stocks as if as if 0:18:07.880 --> 0:18:11.560 it's a big global liquidity story that's dominant. What what 0:18:11.640 --> 0:18:13.880 do you make of Europe? You just said it, it's 0:18:13.920 --> 0:18:17.880 the liquidity story for equities overall. The US no longer 0:18:18.119 --> 0:18:21.520 has the interest rate advantage it had versus the rest 0:18:21.560 --> 0:18:25.280 of the world, and the US is the most defensive 0:18:25.400 --> 0:18:27.919 market in the world. So if you postulate that the 0:18:27.960 --> 0:18:31.879 globe is gonna do a little better economically, non US 0:18:32.000 --> 0:18:34.400 markets are probably going to do it better. And then 0:18:34.440 --> 0:18:37.560 you layer on top of that the dollar weakness we've experienced, 0:18:37.560 --> 0:18:41.080 and I think non US international stocks do a bit better. 0:18:41.280 --> 0:18:43.679 Europe's got a lot of long term problems, as you know, 0:18:43.800 --> 0:18:46.720 but it's fairly cheap and I think we'll continue to 0:18:46.760 --> 0:18:48.919 do a bit better here in the near term. About 0:18:49.000 --> 0:18:52.240 Dawn Nouvine is a t I A a company, and 0:18:52.280 --> 0:18:55.480 that is a venerable institution looking at the long long 0:18:55.640 --> 0:18:59.679 term of investment. The leadership of Roger Ferguson is no. 0:19:00.520 --> 0:19:04.320 What do you advise Mr Ferguson and others about the 0:19:04.440 --> 0:19:08.240 actuarial assumption that we're all going to live with. What's 0:19:08.240 --> 0:19:14.480 our actual real assumption reality? Well, you know, lifespans we 0:19:14.560 --> 0:19:18.840 know are are getting longer. Um. I had a friend 0:19:18.880 --> 0:19:21.879 who retired recently at sixty five, and he said, I 0:19:21.880 --> 0:19:23.960 guess I should go all in bonds. I said, wait 0:19:24.000 --> 0:19:26.840 a minute, he's married and they're both pretty healthy. I say, 0:19:26.840 --> 0:19:29.080 at least one of you is gonna lift a ninety. 0:19:29.320 --> 0:19:32.439 Don't don't run away from equities. There there there's no 0:19:32.640 --> 0:19:35.680 twenty five year period where stocks haven't beaten out the things. 0:19:35.680 --> 0:19:38.480 So we have to make sure people are aware of 0:19:38.520 --> 0:19:41.679 those sorts of things. The other actual real assumption I 0:19:41.720 --> 0:19:44.240 think that we have to think about is what's the 0:19:44.320 --> 0:19:48.520 long term return for you know, the traditional sixty forty blend. 0:19:48.920 --> 0:19:51.680 It's not gonna be in the next ten years most likely, 0:19:51.760 --> 0:19:54.800 Tom what has been in the last fifty kind of 0:19:55.480 --> 0:19:57.880 nearly ten percent. It's going to be much lower. And 0:19:58.080 --> 0:20:01.800 that's the reality of the These long term s allocation 0:20:01.840 --> 0:20:04.160 programs are gonna have to pay in Bob doing those, 0:20:04.200 --> 0:20:06.520 I'm just setting them up for the second question. I mean, 0:20:06.560 --> 0:20:09.520 that's the act here, folks, bobbed all. The question is 0:20:09.560 --> 0:20:14.480 if that's the reality of a lower actual assumption, do 0:20:14.680 --> 0:20:20.280 you go more diversified or less diversified or maybe more general, 0:20:20.720 --> 0:20:24.960 how do you diversify? Yeah, so you have to have diversification, 0:20:25.240 --> 0:20:30.560 but it's not just stocks and bonds. Uh, they're alternative assets, 0:20:30.800 --> 0:20:34.600 um that have to be considered in portfolios. Uh, louvine 0:20:34.600 --> 0:20:38.080 T I a big investor in farmland, for example, and 0:20:38.119 --> 0:20:41.240 that that's an area people don't even think about generally. 0:20:41.280 --> 0:20:45.520 But there's an area for diversification within the public markets, 0:20:45.520 --> 0:20:48.720 within US equities where I've spent my career. You've got 0:20:48.840 --> 0:20:51.800 investing companies that are gonna make it happen, and so 0:20:51.960 --> 0:20:55.840 you might want a more targeted portfolio in an environment 0:20:55.960 --> 0:20:58.320 where the gains overall the market is not going to 0:20:58.520 --> 0:21:01.080 lift every boat, is what I'm trying. There's some really 0:21:01.119 --> 0:21:04.160 important observations there, folks, against the canon of the last 0:21:04.160 --> 0:21:07.119 twenty years and how things are changing. Robert doll is 0:21:07.200 --> 0:21:15.000 always thank you. He is with now Vene. He is 0:21:15.000 --> 0:21:19.240 the double degree to engineer out of ann Arbor. Garland Gilchrist. 0:21:19.280 --> 0:21:22.280 He is Lieutenant Governor of the state of Michigan, and 0:21:22.320 --> 0:21:25.679 he is vice chair of the Democratic National Committee. You 0:21:25.720 --> 0:21:28.600 know the math. You know it better than anybody in 0:21:28.640 --> 0:21:31.639 the party. Garland. You've got to get out the vote. 0:21:32.040 --> 0:21:34.199 How are you going to get the kids out? And 0:21:34.240 --> 0:21:36.440 how are you going to get blacks out from sea 0:21:36.560 --> 0:21:39.680 to shining Sea. Well, thank you for having me today. 0:21:39.840 --> 0:21:42.720 And this is exactly the question that Democrats are looking 0:21:42.720 --> 0:21:45.159 to answer in Michigan around the country. To put it 0:21:45.160 --> 0:21:48.720 in perspective, Donald Trump won Michigan by ten thousand, seven 0:21:48.920 --> 0:21:52.359